<PAGE>
As filed with the Securities and Exchange Commission on May 4, 2000
Registration No. 333-30774
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT NO. 4 TO
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. [_]
------------
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 MAY 4, 2000
6,000,000 Shares
LOGO OF ORCHID BIOSCIENCES
Common Stock
--------
This is our initial public offering of shares of our common stock. No public
market currently exists for our common stock. We expect the initial public
offering price of our common stock to be between $8.00 and $9.00 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 900,000 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>
We expect to deliver the shares of common stock 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>
Inside front cover contains graphics which represent an artist's depiction
of our SNP-IT(TM) primer-extension technology. Photos represent our product and
service offerings, including SNPstream, SNPware kits and microfluidic chips, as
well as an artistic rendition of our proposed MegaSNPatron facility.
Caption under artistic rendition of MegaSNPatron: "Artist's rendition of
proposed future MegaSNPatron(TM) facility"
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 8
Special Note Regarding Forward-
Looking Statements................. 19
Use Of Proceeds..................... 20
Dividend Policy..................... 20
Capitalization...................... 21
Dilution............................ 22
Selected Financial Data............. 23
Unaudited Pro Forma Financial Data.. 24
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations...................... 27
Business............................ 35
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management....................... 55
Transactions With Executive
Officers, Directors And Five
Percent Stockholders............ 68
Principal Stockholders........... 70
Description Of Capital Stock..... 72
Shares Eligible For Future Sale.. 75
Underwriting..................... 76
Notice To Canadian Residents..... 78
Legal Matters.................... 79
Experts.......................... 79
Where You Can Find More
Information..................... 79
Index To Financial Statements.... F-1
</TABLE>
------------------
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 engaged in the development and commercialization of technologies,
products and services designed to measure and use information related to
genetic diversity. 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. The
pharmaceutical and medical communities can use genetic diversity information 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 the scientific community is entering a post-genomics era that will be
driven by the identification of genetic variation from person to person. We
expect that researchers will discover millions of SNPs 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. We
expect that these studies will create a need for the analysis of billions of
SNPs. We call the performance of these analyses SNP scoring. Traditional
methods of conducting 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
creates 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
SNP-IT primer extension is a method of isolating the precise location of the
site of a suspected SNP by using a specially synthesized DNA primer and an
enzyme known as DNA polymerase which selectively extends the DNA chain by one
base at the suspected SNP location. Our SNP scoring system rapidly generates
highly accurate information relating to SNPs at a cost that is significantly
lower than conventional systems.
We have designed our SNP-IT primer-extension technology to be automated and
usable in environments ranging from small scale laboratories to large scale
commercial facilities. It is also adaptable to a wide variety of instrument
platforms and laboratory conditions. We have also developed proprietary
technologies designed to control the flow of chemicals in miniaturized systems,
which we call our microfluidics technologies. We believe the combination of our
SNP-IT primer-extension technology with our proprietary microfluidics
technologies will enable us to gain competitive advantages in the cost and
capacity, or throughput, of SNP scoring conducted at our high-throughput
MegaSNPatron facility. As we refine 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 significantly reduce SNP scoring costs.
Although we believe that our proprietary SNP-IT primer-extension SNP scoring
technology has advantages over alternative SNP scoring technologies, there are
elements of our technology which may be perceived as being limitations by our
potential customers.These include reliance upon third party prepared primers;
failure of potential customers to adopt our technologies; and reliance upon
third parties for sequence information.
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,
4
<PAGE>
we believe pharmaceutical companies will use our technologies to assess the
effectiveness and toxicity of drug candidates which they are developing as well
as their currently-marketed drugs. We also intend to use our technologies to
develop proprietary applications of SNPs designed to 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.
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 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 drug's label coverage.
. Sustained competitive advantage. We plan to build and sustain our
competitive advantage 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 capacity.
Our Products and Services
We currently offer our SNPstream hardware system and SNPware consumable kits
to enable customers to conduct SNP scoring. We also offer SNP scoring services
at our high-throughput MegaSNPatron facility and genetic diversity testing
services through our clinical laboratories, or Regional GeneScreen Centers, for
use in forensic and paternity testing as well as to improve the success of bone
marrow transplants.
5
<PAGE>
Our History
We organized our company as a Delaware corporation 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. You can find
our corporate Web site at http://www.orchid.com. We do not intend any of the
information contained on any of our Web sites to be considered a part of this
prospectus.
The Offering
<TABLE>
<S> <C>
Common stock we are offering............. 6,000,000 shares
Common stock to be outstanding after this
offering................................ 31,989,381 shares
Use of proceeds.......................... For general corporate and working
capital purposes, including
potential acquisitions and to
construct or acquire a manufacturing
facility. 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 March 31, 2000 and
excludes:
. 3,250,995 shares of common stock that we may issue upon exercise of
options outstanding as of March 31, 2000 at a weighted average exercise
price of $4.62 per share; and
. 1,237,138 shares of common stock that we may issue upon exercise of
warrants outstanding or that we were obligated to issue as of March 31,
2000 at a weighted average exercise price of $4.64 per share.
. 250,000 shares of common stock and a warrant to purchase 75,000 shares
of common stock at an exercise price equal to the price per share in
this offering, which were issued in April 2000.
------------
Unless otherwise indicated, information in this prospectus assumes the
following:
. the conversion of all of our outstanding shares of convertible preferred
stock and mandatorily redeemable convertible preferred stock immediately
prior to the closing of this offering, into 24,781,562 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
effect to the acquisition of GeneScreen, Inc. on December 30, 1999 as if it had
occurred on January 1, 1999.
In the "Pro Forma" column of the consolidated balance sheet data below, we
have adjusted the balance sheet data as of December 31, 1999 to give pro forma
effect to the automatic conversion of all of our outstanding convertible
preferred stock, including the Series E mandatorily redeemable convertible
preferred stock sold in January 2000 for net proceeds of $29,573,564 and the
issuance in January 2000 of Series E mandatorily redeemable convertible
preferred stock recorded in our Consolidated Financial Statements as "Series E
to be issued" at December 31, 1999, into shares of common stock immediately
prior to the closing of this offering.
In the "Pro Forma 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 same adjustments as in the "Pro Forma" column, and have
further adjusted these amounts to give effect to receipt of the estimated net
proceeds of $45.9 million from the sale of 6,000,000 shares of common stock in
this offering at an assumed initial public offering price of $8.50 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 $ 15,540
Operating expenses:
Cost of laboratory testing.......... -- -- -- -- -- 10,054
General and administrative.......... 37 718 2,927 5,199 9,611 17,808
Research and development............ 2,795 6,727 10,813 7,574 14,447 14,546
Acquisition of in-
process research and development... -- -- -- 2,353 -- --
------ ------- ------- -------- -------- --------
Total operating expenses............. 2,832 7,445 13,740 15,126 24,058 42,408
------ ------- ------- -------- -------- --------
Operating loss....................... (37) (1,215) (9,977) (12,345) (22,265) (26,868)
Other income (expenses), net......... 31 91 49 866 (5,955) (5,929)
------ ------- ------- -------- -------- --------
Net loss............................. (6) (1,124) (9,928) (11,479) (28,220) (32,797)
====== ======= ======= ======== ======== ========
Net loss allocable to common
stockholders........................ (6) (1,124) (9,928) (11,479) (72,774) (77,351)
====== ======= ======= ======== ======== ========
Basic and diluted net loss per share
allocable to common stockholders.... $ (.05) $ (3.45) $(27.57) $ (17.09) $ (95.87) $(101.90)
Shares used in computing basic and
diluted net loss per share allocable
to common stockholders.............. 131 326 360 672 759 759
Pro Forma Net Loss Per Share Data(1):
Pro forma basic and diluted net per
share allocable to common
stockholders (unaudited)............ $ (15.61)
Shares used in computing pro forma
basic and diluted net loss per share
allocable to common stockholders
(unaudited)......................... 4,663
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents...................... $33,804 $ 63,377 $109,307
Working capital................................ 27,275 56,848 102,778
Total assets................................... 94,856 124,430 170,360
Long-term debt, less current position.......... 4,122 4,122 4,122
Mandatorily redeemable convertible preferred
stock......................................... 88,946 -- --
Total stockholders' equity (deficit)........... (8,285) 110,234 156,164
</TABLE>
(1)Please see Note 1 to our consolidated financial statements appearing
elsewhere in this prospectus for an explanation of the method used to calculate
net loss per share allocable to common stockholders and pro forma net loss per
share allocable to common stockholders and the 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. 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 are at an early stage of development and may never become profitable.
We organized our company as a Delaware corporation on March 8, 1995 and have
a short operating history. The market for the products and services that we
develop, manufacture and market, all of which are derived from genomics and
microfluidics technologies, is uncertain. We face risks related to our ability
to:
. develop, market and maintain competitive technologies, products and
services;
. anticipate and adapt to changes in our rapidly evolving markets;
. retain current collaborators or customers and attract new collaborators
and customers for our SNPware consumables, kits and SNPstream
instruments;
. implement and successfully execute our business strategy and sales and
marketing initiatives in order to increase our brand recognition for our
SNPware consumables, kits and SNPstream instruments;
. attract, retain and motivate qualified management, technical and
scientific personnel;
. obtain substantial additional capital to support the expenses of
developing our technologies and commercializing our SNPware consumables,
kits and SNPstream instruments; and
. transition successfully from a company with a research focus to a company
capable of supporting commercial activities.
If we fail to adequately manage these risks, we may never become profitable and
our financial condition would suffer.
We had an accumulated deficit of $50.8 million as of December 31, 1999 and
expect to continue to incur substantial operating losses for several years.
We have had substantial operating losses since our inception, and we expect
our operating losses to continue over the next several years. For example, we
experienced net losses of $28.2 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
$50.8 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.
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 we expect significant fluctuations to continue in the future due to a
variety of factors, many of which are outside of our control. These factors
include:
. the volume and timing of orders for our SNPware consumables, kits,
SNPstream instruments and our other products and services;
. changes in the mix of our products and services offered;
8
<PAGE>
. 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 cost, quality and availability of reagents and components
required to manufacture or use our products; and
. availability of commercial and government funding to researchers who use
our products and services.
Research and development costs associated with our technologies, products
and services, as well as personnel costs, marketing programs and overhead
account for a substantial portion of our operating expense. We cannot adjust
these expenses quickly in the short term. If our revenue declines or does not
grow as anticipated, we may not be able to reduce our operating expenses
accordingly. Failure to achieve anticipated levels of revenue could therefore
significantly harm our operating results for a particular fiscal period. In
addition, if our operating results in some quarters fail to meet the
expectations of public market analysts or investors, the market price of our
common stock is likely to fall.
We have limited manufacturing experience and will need to acquire new
facilities to manufacture our products on a commercial scale.
We have limited manufacturing experience and currently possess only a single
facility capable of manufacturing 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 customers with the quantity of products and services they
require, which would result in reduced revenue. If any natural disaster were to
significantly damage our manufacturing facility or if other events were to
cause our operations to fail, these events could prevent us from developing and
manufacturing our products. Furthermore, we may not have adequate insurance to
cover the damage, which would adversely affect our results of operations.
We have limited sales and marketing experience, and as a result, may be unable
to compete successfully with our competitors in commercializing our potential
products and services.
We have limited experience in sales and marketing. We do not have a direct
sales force and rely principally upon a small number of employees who do not
have specific training in sales. 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 and services, which could have a material adverse effect on our
financial condition and business strategy.
Our technologies and initial commercial products may not be commercially viable
or successful, which would adversely affect our revenue.
We have not yet completed the development of our SNP scoring technologies or
our 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 we develop these
technologies, we cannot be certain that our prospective customers will value
them. 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. In addition, any SNPs, which we or our customers score may not
be useful in assisting pharmaceutical or diagnostic product development. Our
SNP scoring technologies are in part directed toward the role of genes
9
<PAGE>
and polymorphisms in complex diseases. A limited number of companies have
developed or commercialized products based on gene discoveries and/or
polymorphisms to date. Accordingly, even if we or our customers are successful
in scoring SNPs and associating these SNPs with specific drug responses or
diseases, we cannot assure you 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 commercially successful therapeutic
or diagnostic products based on such technologies, we may not achieve a
competitive position in the market.
Our SNP scoring technologies involve novel uses of instrumentation, software
and technologies that require validation in commercial applications. Previously
unrecognized defects or limitations of our SNP scoring technologies may become
apparent in these commercial applications. As a result, we may be unable to
validate or 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 ability to market and sell our products and
services and our revenue.
If our customers do not purchase significant volumes of SNPware consumables,
our rapid commercialization strategy could fail.
Our customers may not generate sufficient data in a cost effective manner
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 customers may not adopt SNPware consumables and
kits for use with their own instrument systems. Even if they do, our products
may not work on their systems. Either circumstance would materially and
adversely affect our revenue and our rapid commercialization strategy.
If we fail to maintain the paternity testing service contracts we have with
various state agencies or fail to enter into additional contracts, we would
lose a significant source of revenue.
We currently derive a substantial portion of our revenue from the DNA
testing services we provide in the paternity and forensic 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 will require additional funding to fund our future operating plans which may
not be available on acceptable terms, 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. We have expended significant resources
in developing our MegaSNPatron facility and expect to continue to expend
significant resources to develop this facility, increase our research and
development and commercialization activities and acquire an additional
manufacturing facility. The amount of additional capital which we will need to
raise will depend on many factors, including:
. our progress with research and development;
. the number and breadth of our research programs;
10
<PAGE>
. 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.
If we cannot enter into new collaborations or licensing agreements, we may be
unable to develop or commercialize our technologies, products and services.
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 marketing of SNP scoring systems, regulatory approval and
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, including
our collaboration with Affymetrix, 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 perform its obligations under our collaboration or to complete them in
a timely manner, we could lose significant revenue.
We may not be able to attract and retain consultants and scientific
advisors.
We have historically maintained relationships with consultants and
scientific advisors at academic and other institutions who have conducted
research on our behalf critical to the development of our technologies. The
majority of these individuals have commitments to other entities and have
limited time available for us. Some of these entities may also compete with us.
We will need to establish new relationships with consultants
11
<PAGE>
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 consultants or
scientific advisors at academic and other institutions.
If we do not successfully distinguish and commercialize our products and
services, we may be unable to compete successfully with our competitors or to
generate significant revenue.
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 technologies based on indirect
detection of hybridization and/or labeling which differ in the various methods
of amplifying and separating samples or of detecting and analyzing SNPs. 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 the instrument and kit-based SNP scoring,
pharmacogenetics and microfluidics product fields and in the SNP scoring
services field. We or others may make rapid technological developments which
may result in our technologies, products or services becoming obsolete, before
we recover the expenses incurred to develop them. 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 competitive
position.
If we are unable to protect our proprietary methods and technologies, we may
not be able to commercialize products and services.
If our patent applications do not result in issued patents, our competitors
may obtain rights to commercialize our discoveries which would harm our
competitive position.
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 predisposition and adverse drug
metabolism, and on the products, methods and services we develop. We may not be
able to obtain new patents for our SNPware consumables, kits and SNPstream
systems. 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.
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 parties 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. 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.
12
<PAGE>
The scope of our issued patents may not provide us with adequate protection
of our intellectual property, which would harm our competitive position.
Any issued patents that cover our proprietary technologies may not provide
us with substantial protection or be commercially beneficial to us. The
issuance of a patent is not conclusive as to its validity or its
enforceability. The United States Patent and Trademark Office may invalidate
our patents. In addition, third parties may have patents of their own which
could, if asserted, prevent us from practicing our patented technologies
including the methods we use to conduct SNP scoring. If we are otherwise unable
to practice our patented technologies, we may not be able to commercialize our
technologies, products or services and our competitors could commercialize our
technologies.
If significant data on identified SNPs becomes unavailable or available only
on unacceptable terms, we could experience increased research and development
expenses.
We currently obtain and rely on our continued access to significant data on
SNPs from several sources, including The SNP Consortium, Ltd., a group of
leading pharmaceutical companies identifying SNPs. Although many of these
sources make information relating to identified non-proprietary SNPs publicly
and freely available, we cannot be sure that we will continue to obtain this
SNP data without paying licensing or other fees to third parties. If SNP data
is no longer publicly or freely available or is available only at significant
costs, we may be unable to implement our business strategy.
We may need to initiate lawsuits to protect or enforce our patents and other
intellectual property rights, which could result in the forfeiture of these
rights.
In order to protect or enforce our patent rights, we may need to 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 could result in the invalidation or a
limitation in the scope of our patents or forfeiture of the rights associated
with our patents. We cannot assure you that we will prevail or that a court
will not find damages or award other remedies in favor of our opposing party in
any of these suits. 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. Securities analysts or investors may
perceive these announcements to be negative, which 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 could affect our results of
operations. If we do not prevail in any intellectual property 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 or design around the intellectual
property in question. If we are unable to obtain a required license on
acceptable terms, or are unable to design around any third party patent, we may
be unable to sell some of our products and services, which would result in
reduced revenue.
Other rights and measures that we rely upon to protect our intellectual
property may not be adequate to protect our products and services and could
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 property rights. While we
require employees, 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; or
. others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets
or disclose such technologies.
13
<PAGE>
If for any of the above reasons our intellectual property is disclosed or
misappropriated, it would harm our ability to protect our rights and our
competitive position.
Future acquisitions or investments could disrupt our ongoing operations,
increase our expenses and adversely affect our revenue.
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
revenue.
Our failure to comply with any applicable government regulation may affect our
ability to develop, produce, or market our potential products and may adversely
affect our results of operation.
Our research and development, manufacturing 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, as
well as the conveyance, processing, and storage of and data on patient samples.
Further, we are subject to the Clinical Laboratory Improvement Act, or CLIA, as
a result of our recent acquisition of three GeneScreen laboratories. CLIA
imposes certain certification requirements on all clinical laboratories
performing tests on human specimens for the purpose of providing information
for the diagnosis, prevention or testing of any diseases. Although we believe
we comply in all material respects with the standards prescribed by federal,
state and local laws and regulations, if we fail to comply with applicable laws
or regulations, including CLIA, or if an accident occurs, we could be required
to pay significant penalties or be held liable for any damages that result and
this liability could exceed our financial resources.
If we fail to comply with federal and state industry regulations, we may not be
able to provide certain services at our laboratories.
All three of our GeneScreen laboratories must comply with various industry
regulations and accreditation standards in order to continue to provide our
paternity testing, forensic testing and bone marrow typing services. For
example, our GeneScreen laboratories have obtained accreditation from the
American Association of Blood Bank in order to provide paternity testing, from
the National Forensic Science Testing Center in order to provide criminal
forensic testing services and from the American Society of Histocompatibility
and Immunology in order to provide bone marrow donor typing services. We cannot
assure you that we will be able to maintain our accreditations with any of
these authorities. 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, the relevant authority could require us to close our laboratories,
which could eliminate or significantly reduce the revenue supporting our
GeneScreen business results of operation.
The sale of our SNPware consumables, SNPkits, and SNPstream instruments
involves a lengthy and expensive sales cycle that may not result in sales.
Our ability to obtain customers for our SNPware consumables, SNPkits, and
SNPstream instruments 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 to
effectively sell the benefits of our products and services to
14
<PAGE>
a variety of constituencies within potential customers, including research and
development personnel and key management. As a result, in many instances we may
expend significant human and capital resources to market our products, without
any resulting sales.
If our customers fail to accurately prepare DNA samples for use with our
SNPware and SNPstream product line or for analysis at our MegaSNPatron
facility, our products and services may fail to produce accurate results.
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
they do not prepare DNA samples appropriately, our SNPstream products and
MegaSNPatron SNP scoring service will not generate an accurate reading.
Alternatively, they may achieve lower levels of throughput than the levels for
which our system was designed. If our customers generate inaccurate readings or
are unable to achieve expected levels of throughput, they may not continue to
purchase our consumables, instruments or services, which could materially and
adversely affect our revenue.
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.
Our Regional GeneScreen Centers provide pharmacogenetic, forensic, and
paternity testing services. Claims may be brought against us for false
identification of paternity or other inaccuracies. Litigation of these claims
can be costly. We could expend significant funds during any litigation
proceeding brought against us. Further, if a court were to require us to pay
damages to a plaintiff, the amount of such damages could significantly harm our
financial condition.
If our vendors fail to supply us with components for which availability is
limited, we may experience delays in our product development and
commercialization.
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
rely on third parties to provide DNA samples to us and to perform DNA
synthesis. It could be time consuming and expensive for us to seek alternative
sources of supply. Consequently, if any events cause delays or interruptions in
the supply of our components, we may not be able to supply our customers with
our products and services on a timely basis which would adversely affect our
results of operations.
If we fail to retain our key personnel and hire, train and retain qualified
employees, we may not be able to compete effectively, which could result in
reduced revenue.
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.
If either of Dr. Pfost or Mr. Marvin were to be hired away from us by a
competitor, or if for any reason they could not continue to work for us, we
would have difficulty hiring officers with equivalent skills in general and
financial management. We do not currently carry "key man" life insurance, so
the loss of the services of either of these individuals could seriously impair
our ability to operate or to compete in our industry.
15
<PAGE>
In addition, our researchers, scientists and technicians have significant
experience in research and development related to genetic diversity. If we were
to lose these employees to our competitors, we could spend a significant amount
of time and resources to replace them, which could impair our research and
development efforts. Further, in order to scale-up our manufacturing capability
and to further our research and development efforts, we will need to hire,
train, and retain additional research, scientific, and technical personnel. If
we are unable to do so, we may experience delays in the research, development
and commercialization of our technologies, products and services.
Risks Related to the Biotechnology Industry
Public opinion regarding ethical issues surrounding the use of genetic
information may adversely affect demand for our products.
Public opinion regarding ethical issues related to the confidentiality and
appropriate use of genetic testing results may influence governmental
authorities to call for limits on, or regulation of the use of, genetic
testing. In addition, such authorities could 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 revenue.
Commercializing pharmaceutical products has associated risks, including
compliance with pre-clinical and clinical testing and manufacturing
regulations.
Although it is likely to be years before we develop any potential
pharmaceutical products, any future products will require significant research,
development and pre-clinical and clinical testing before we submit any
regulatory application for their commercial use. If we were to undertake any of
these activities without the collaboration of others, we would have to expend
significant funds. Any of our 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
collaborative partners from marketing such products; or
. that third parties will market superior or equivalent products.
If we have difficulty managing these risks, we may not be able to develop any
commercially viable products.
In addition, 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 we do, any coverage we obtain could be insufficient or
costly. In addition, should we choose to manufacture or 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.
16
<PAGE>
Risks Associated With This Offering
Future issuance of our preferred stock may dilute the rights of our common
stockholders.
Our Board of Directors has the authority to issue up to 5,000,000 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 that you as a stockholder may not consider
favorable, which may discourage takeover attempts.
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, even if the change of control would be beneficial to stockholders.
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, our stock incentive plan may discourage, delay or prevent a
change in control of our company.
You could lose all or part of your investment if the market price of our
common stock falls below the initial public offering price.
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 investment.
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 30% of our common stock
following this offering. These stockholders, acting together, will
17
<PAGE>
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 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 will have broad discretion as to the use of proceeds of this offering and
may fail to use them 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 in this offering.
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 $8.50 per share, if
you purchase shares of common stock in this offering, you will suffer immediate
and substantial dilution of $5.07 per share in the pro forma net tangible book
value of the common stock at December 31, 1999 after giving effect to the sale
of Series E mandatorily redeemable convertible preferred stock in January 2000.
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.
After this offering, based on the number of shares outstanding on March 31,
2000, we will have approximately 31,989,381 shares of common stock outstanding.
All of the shares being offered in this offering will generally be freely
tradable.
Sales of a substantial number of these 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 25,989,381 shares of our common stock
that are not being sold in the offering but which were outstanding as of March
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............................... 910,754
180 days after the date of this prospectus................... 6,474,484
At various times after 180 days from the date of this
prospectus.................................................. 18,604,143
</TABLE>
18
<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.
------------------
This prospectus contains references to our trademarks SNP-IT(TM) and
GeneScreen(R), SNPstream, SNPware, SNPkit, DNAstream, Chemtel, MegaSNPatron,
SNPcode, Clinical Genetics Network, Regional GeneScreen Center, SNP CONFIRM,
SNP ASSOCIATION, SNP WIDEMAP, GENESCREEN IDENTITY, GENESCREEN FORENSIC,
GENESCREEN TRANSPLANT TESTING, and the Orchid logo are our trademarks for which
we have filed registration applications 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.
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<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of 6,000,000 shares of
common stock we are offering, at an assumed initial public offering price of
$8.50 per share, will be $45.9 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 and to construct or acquire additional manufacturing capacity.
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 increase 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.
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<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
for net proceeds of $29,573,564 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 estimated net proceeds of $45.9 million
from the sale of 6,000,000 shares of common stock offered by us in this
offering at an assumed initial public offering price of $8.50 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 related notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- ----------- -----------
(unaudited) (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, 15,389,836 shares issued and
outstanding or to be issued on an actual
basis (none designated, issued or
outstanding on a pro forma or pro forma as
adjusted basis)............................. 88,946 -- --
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 or pro
forma basis (5,000,000 shares authorized
and none issued or outstanding on a 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 issued or
outstanding on a pro forma basis and none
designated on a pro forma as adjusted
basis).................................... 1 -- --
Common stock, $.001 par value, 30,000,000
shares authorized, 845,450, 25,627,012 and
31,627,012 issued and outstanding on an
actual, pro forma or pro forma as adjusted
basis..................................... 1 26 32
Common stock to be issued (10,000 shares)
.......................................... 76 76 76
Additional paid-in capital................. 50,325 168,820 214,744
Deferred compensation...................... (7,930) (7,930) (7,930)
Accumulated deficit........................ (50,758) (50,758) (50,758)
-------- -------- --------
Total stockholders' equity (deficit)....... (8,285) 110,234 156,164
-------- -------- --------
Total capitalization..................... $ 85,924 $115,497 $161,427
======== ======== ========
</TABLE>
This table excludes the following:
. 1,463,011 shares of common stock that we may issue upon exercise of stock
options outstanding as of December 31, 1999 at a weighted average exercise
price of $1.04; and
. 1,237,138 shares of common stock that we may issue upon the exercise of
warrants outstanding or that we were obligated to issue as of December 31,
1999 at a weighted average exercise price of $4.64.
. 250,000 shares of common stock and a warrant to purchase 75,000 shares of
common stock at an exercise price equal to the price per share in this
offering, which were issued in April 2000.
21
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of December 31,
1999, after reflecting the conversion of all shares of convertible preferred
stock and mandatorily redeemable convertible preferred stock outstanding and
recorded as to be issued at December 31, 1999 into shares of common stock upon
the closing of this offering, was $33.1 million, or $1.68 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, as of December 31, 1999, of all then
outstanding shares (and those shares recorded in our Consolidated Financial
Statements as "Series E to be issued") of mandatorily redeemable convertible
preferred stock and convertible preferred stock into shares of common stock. We
have adjusted this pro forma net tangible book value to show the increase
attributable to the shares of Series E mandatorily redeemable convertible
preferred stock sold in January 2000. 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 pro forma net
tangible book value per share of our common stock immediately afterwards.
Assuming the sale of 6,000,000 shares of common stock offered by this
prospectus at an assumed initial public offering price of $8.50 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, after giving effect to the sale of Series E mandatorily redeemable
convertible preferred stock in January 2000, would have been approximately
$108.6 million, or $3.43 per share. This represents an immediate increase in
net tangible book value to existing investors of $0.99 per share and decrease
in net tangible book value of $5.07 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.................... $8.50
Pro forma net tangible book value per share as of December 31,
1999............................................................ $1.68
Increase per share attributable to the Series E sold in January
2000............................................................ 0.76
Increase per share attributable to new investors................. 0.99
-----
Pro forma net tangible book value per share after this offering 3.43
-----
Dilution per share to new investors................................ $5.07
=====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, assuming the conversion 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 Series E mandatorily redeemable
preferred stock recorded in our Consolidated Financial Statements as "Series E
to be issued" at December 31, 1999, differences between the number of shares of
common stock purchased from us, the total cash 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>
Total Cash
Shares Purchased Consideration Paid Average
------------------ -------------------- price per
Number Percent Number Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 25,627,012 81.0% $105,258,000 67.4% $4.11
New investors................. 6,000,000 19.0 51,000,000 32.6 8.50
---------- ----- ------------ -----
Total....................... 31,627,012 100.0% $156,258,000 100.0%
========== ===== ============ =====
</TABLE>
22
<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--
related parties....... 2,795 6,230 3,763 2,748 --
Contract revenue--
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 2,927 5,199 9,611
Research and
development........... 2,795 6,727 10,813 7,574 14,447
Acquisition of in-
process research and
development........... -- -- -- 2,353 --
------ ------- ------- -------- --------
Total operating
expenses............... 2,832 7,445 13,740 15,126 24,058
------ ------- ------- -------- --------
Operating loss.......... (37) (1,215) (9,977) (12,345) (22,265)
------ ------- ------- -------- --------
Other income (expense):
Interest income........ 31 91 49 932 203
Interest expense....... -- -- -- (66) (6,158)
------ ------- ------- -------- --------
Total other income
(expenses)............. 31 91 49 866 (5,955)
------ ------- ------- -------- --------
Net loss................ (6) (1,124) (9,928) (11,479) (28,220)
Beneficial conversion
feature of preferred
stock.................. -- -- -- -- 44,554
------ ------- ------- -------- --------
Net loss allocable to
common stockholders.... (6) (1,124) (9,928) (11,479) (72,774)
====== ======= ======= ======== ========
Basic and diluted net
loss per share
allocable to common
stockholders........... $ (.05) $ (3.45) $(27.57) $ (17.09) $ (95.87)
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.... $ (15.61)
Shares used in computing
pro forma basic and
diluted shares
allocable to common
stockholders........... 4,663
Consolidated Balance
Sheet Data (at end of
period): 1995 1996 1997 1998 1999
------ ------- ------- -------- --------
Cash and cash
equivalents............ 1,710 1,618 6,405 473 33,804
Working capital......... 544 (201) 773 5,751 27,275
Total assets............ 1,961 2,406 6,884 15,599 94,856
Long-term debt, less
current portion........ -- -- -- 3,548 4,122
Mandatorily redeemable
preferred stock........ -- -- 9,230 27,530 88,946
Convertible preferred
stock.................. 1 1 1 212 1
Total stockholders'
equity (deficit)....... 795 188 (8,009) (18,123) (8,285)
</TABLE>
- --------------------
Please see Note 1 to our consolidated financial statements for an
explanation of the method used to calculate the net loss per share 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.
The following transactions had a material effect on the comparability of the
data presented in the consolidated financial data above, as follows: contract
revenue received from related parties relating to the SmithKline Beecham
agreement, the acquisition of certain Molecular Tool assets in September 1998,
the acquisition of GeneScreen in December 1999, the sale of Series C
mandatorily redeemable convertible preferred stock in December 1997 and March
1998 and the sale of Series E mandatorily redeemable convertible preferred
stock in December 1999. Please see our notes to the consolidated financial
statements for further discussions of these transactions.
23
<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. Our 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 common
and preferred stock of GeneScreen in exchange for a price of $42.7 million
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 the Molecular Tool assets 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. We have
included $28,530,000 as a beneficial conversion feature in the purchase price
which was recorded as an increase to additional paid-in capital. The amount of
the beneficial conversion feature was calculated as the difference between the
$11.75 per share fair value of our common stock on December 22, 1999, the
commitment date, over the $4.50 per share conversion price of the stock.
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.
24
<PAGE>
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.... $ -- $13,746,615 $ -- $ 13,746,615
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 13,746,615 -- 15,539,620
Operating expenses:
Cost of laboratory
testing.............. -- 10,054,681(5) 10,054,681(5)
General and
administrative....... 9,547,089 5,922,537(5) (902,490)(1) 17,744,136(5)
3,177,000 (2)
General and
administrative--
related party........ 63,519 -- -- 63,519
Research and
development.......... 11,695,798 97,909 -- 11,793,707
Research and
development--related
party................ 2,751,927 -- -- 2,751,927
------------ ----------- ----------- ------------
Total operating
expenses........... 24,058,333 16,075,127 2,274,510 42,407,970
------------ ----------- ----------- ------------
Operating loss...... (22,265,328) (2,328,512) (2,274,510) (26,868,350)
Other income (expenses):
Interest income....... 202,699 -- (27,000)(3) 175,699
Interest expense...... (6,157,662) (159,698) 212,869 (4) (6,104,491)
------------ ----------- ----------- ------------
Total other income
(expenses)......... (5,954,963) (159,698) 185,869 (5,928,792)
------------ ----------- ----------- ------------
Loss from continuing
operations......... (28,220,291) (2,488,210) (2,088,641) (32,797,142)
------------ ----------- ----------- ------------
Beneficial conversion
feature of preferred
stock.................. 44,554,000 -- -- 44,554,000
------------ ----------- ----------- ------------
Loss from continuing
operations before
nonrecurring
charges directly
attributable to the
acquisition
allocable to common
stockholders....... $(72,774,291) $(2,488,210) $(2,088,641) $(77,351,142)
============ =========== =========== ============
Basic and diluted loss
from continuing
operations before
nonrecurring charges
directly attributable
to the acquisition per
share allocable to
common stockholders.... $ (95.87) $ (101.90)
Shares used in computing
basic and diluted loss
from continuing
operations before
nonrecurring charges
directly attributable
to the acquisition per
share allocable to
common stockholders.... 759,078 759,078
============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations.
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The unaudited pro forma consolidated financial information is based on our
historical consolidated financial statements and those of our subsidiary,
GeneScreen, adjusted to give pro forma effect to our acquisition of GeneScreen.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999 gives effect to the GeneScreen acquisition as if it
occurred on January 1, 1999. The unaudited pro forma adjustments set forth
below are based upon available information and assumptions that we believe are
reasonable under the circumstances. The unaudited pro forma consolidated
statements of operations do not purport to project our 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 general and administrative expense for transaction
related costs incurred by GeneScreen in connection with our acquisition of
GeneScreen.
(2) Adjustment to record the amortization of goodwill and other intangible
assets on a straight line basis over their estimated useful lives. In the
application of purchase accounting for our acquisition of GeneScreen, we
allocated $43,121,000 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....................................... 30,983,000 15 years
Other intangible assets........................ 586,000 4 years
-----------
$43,121,000
===========
</TABLE>
(3) Adjustment to reduce our interest income by $27,000, assuming an interest
rate of 6% per annum. This amount represents interest income that would
have been earned on $450,000, the amount of cash we estimated for payment
to GeneScreen stockholders in lieu of issuing Series E shares and
transaction costs incurred in the acquisition of GeneScreen.
(4) Adjustment to reduce interest expense on our 6% per annum $3,547,821 note
payable to GeneScreen, which was cancelled in connection with the
acquisition of GeneScreen.
(5) Cost of laboratory testing and general and administrative expenses include
$276,374 and $687,960, respectively, of compensation expense resulting
from our acquisition of GeneScreen, the terms of which required
accelerated vesting for all unvested GeneScreen options and certain
cashless exercises of GeneScreen options.
26
<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 engaged 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 SmithKline Beecham. Revenue during these
early years fluctuated due to the timing of both work performed under the
contract with SmithKline Beecham 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 apply
our research and development efforts to the fields of pharmacogenetics and DNA
synthesis. As a result of this review of our business focus, we acquired
substantially all of the assets of 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 SNP-IT 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 current SNP technology, products and services.
On December 30, 1999, we acquired GeneScreen, Inc. for a net purchase price
of $42.7 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 owed to GeneScreen. We included $28.5 million as a beneficial
conversion feature in the purchase price. The amount of the beneficial
conversion feature was calculated as the difference between the $11.75 per
share fair value of our common stock on December 22, 1999, the commitment date
which was the date of the merger agreement for the acquisition, over the $4.50
per share conversion price of the stock. 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 70.6%
of their revenue in 1999. Forensic testing services, which represent a small
but growing segment of GeneScreen's revenue, represented 3.6% of GeneScreen's
revenue in 1999. In 1999, GeneScreen provided transplantation testing for over
71,000 bone marrow donors. Transplantation testing services represented 25.2%
of GeneScreen's revenue in 1999, most of which was related to a contract which
was not renewed. In connection with the acquisition of GeneScreen, we recorded
approximately $43.1 million of goodwill and other intangible assets, which we
will amortize over periods ranging from 4 to 15 years. As a result, our results
of operations during the next 15 years will be impacted by non-cash
amortization charges resulting from the GeneScreen acquisition which will range
from approximately $2.2 to $3.2 million per year.
Most of our current activities and resources are directed toward
commercializing our SNP scoring products and services which apply our
proprietary SNP-IT primer-extension technology. We expect to recognize
27
<PAGE>
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 SNP-IT and microfluidics technologies will be able to
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 derives its transplantation business through contracts on a
bid basis 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.
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. We
introduced our SNPstream 25K SNP-IT-based SNP scoring system, SNPware
consumables and related services in late 1999. We intend to develop additional
models of SNPstream instruments with lower throughput capabilities. Because our
proprietary SNP-IT 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.
We based our proprietary SNP value creation strategy 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.
We do not expect royalties from commercial sale or license of intellectual
property rights generated by using our technologies for at least several years,
if at all.
Through December 31, 1999, we had recorded an aggregate of $9.8 million of
deferred compensation expense resulting from the granting of stock options to
employees, directors or consultants covering shares of common stock, which
stock options had exercise prices below the fair value of the underlying common
stock at the date of their grant. Net of prior amortization, net deferred
compensation of $7.9 million at December 31, 1999 will be amortized over the
vesting periods of the respective options, typically four years. In January and
February 2000, we issued 36,500, 679,400, 40,750 and 40,750 stock options at
exercise prices of $1.25, $6.00, $12.00 and at the per share price of this
offering, respectively, for which we will record deferred compensation of $4.2
million which will be amortized over the respective vesting periods of the
options. Included in the 679,400 options are 520,000 options granted to
executive officers at an exercise price of $6.00 per share for which we will
record deferred compensation of $3.1 million, which is included in the $4.2
million, and which will be amortized over the respective vesting periods. On
March 31, 2000, we granted 289,660 stock options at exercise prices of $12.00
for which we will record deferred compensation of $800,000 which will be
amortized over the respective vesting periods of the options. In addition, in
February 2000, we issued 855,000 performance based stock options at exercise
prices of $6.00 per share, including 600,000 options granted to executive
officers, for which compensation expense will be measured as the difference
between the fair value of our common stock at the time the performance criteria
is met and the exercise price and will be immediately recorded as compensation
expense.
28
<PAGE>
We anticipate recording total compensation charges resulting from the
amortization of the deferred compensation recorded as of December 31, 1999 and
for deferred compensation to be recorded for the January, February and March
2000 grants approximately as follows, in millions:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$3.9 $3.5 $3.0 $2.3 $0.2
</TABLE>
Some of these amounts result from grants to consultants which are subject to
remeasurement at the end of each reporting period based upon the changes in the
fair value of the common stock until the consultant completes performance under
his or her respective option agreement. Also, certain grants of performance
based options have been made for which no deferred compensation expense has
been recorded and for which compensation expense will be measured at the time
the performance criteria is met.
We have incurred losses since our inception and, as of December 31, 1999, we
had a total stockholders' deficit of $8.3 million, including an accumulated
deficit of $50.8 million. We anticipate incurring additional losses over at
least the next several years. We expect these losses 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. We
expect this expansion 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 have had, and expect in the future to have, several sources of revenue.
Prior to our acquisition of GeneScreen, we derived substantially all of our
revenue from research and development collaborations, technology grants and
awards from several governmental agencies. GeneScreen derives its revenue from
the performance of laboratory DNA testing services. In 1999, we derived our
first revenue from the sale and lease of our first commercial SNPstream
hardware systems, and commencing in 2000, we anticipate deriving increasing
amounts of revenue from the sale of SNPware consumables.
In connection with the research and development collaborations that provided
the majority of our revenue in the early years of our corporate history, we
recognized revenue when related research expenses were incurred and when we
satisfied specific performance obligations under the terms of the respective
research contracts. Up front licensing fees obtained in connection with such
agreements are deferred and amortized over the estimated performance period of
the respective research contract.
GeneScreen DNA laboratory and SNP testing services testing revenue is
recognized on an accrual basis at the time test results are reported. Deferred
revenue represents the unearned portion of payments received in advance of
tests being completed.
To date, we have offered our SNPstream system hardware in two basic types of
transactions, either a purchase and sale or an operating lease. Revenue on the
sale of the hardware is recorded upon transfer of title and after we have met
all of our significant performance obligations. Revenue from lease transactions
is recognized on a straight-line basis over the term of the lease in accordance
with the lease agreement.
We have only recently begun to record revenue from the sale of SNPware
consumables. Such revenue is recognized upon the transfer of title, generally
when the SNPware products are shipped to our customer from our facility.
Results of Operations
Pro forma results discussed below give pro forma effect to our acquisition
of GeneScreen as if it were acquired on January 1, 1999.
29
<PAGE>
Years Ended December 31, 1999 and 1998
Revenue. 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, which we 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 $15.5 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 we incur them. Research and development expenses increased to approximately
$14.4 million for the year ended December 31, 1999 from approximately $7.6
million for the comparable period in 1998. We attributed the increase to
continued growth of research and development activities, including increased
personnel costs of $2.2 million and increased lab supplies and chemicals costs
of $1.8 million 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 of $0.6 million, increased non-cash expenses from equity
issuances for licensed technology of $1.0 million, and increased amortization
of deferred compensation of $0.6 million. On a pro forma basis, research and
development expenses for 1999 were not materially different from research and
development expenses in 1998. 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 protection, and
other corporate expenses including business development and general legal
activities. General and administrative expenses increased to approximately $9.6
million for the year ended December 31, 1999 from approximately $5.2 million
for the comparable period in 1998. The increase was primarily due to increased
compensation for general and administrative personnel of $1.0 million, higher
operating expenses as a result of our move to a larger facility in May 1999 of
$0.7 million, increased costs related to intellectual property prosecution and
protection and other professional services of $0.8 million and increased
amortization of deferred compensation of $0.9 million. 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 $17.8 million for the year
ended December 31, 1999. The increase in these expenses was related to
amortization of goodwill and other intangibles of $3.2 million and $5.0 million
of costs related to the additional staffing to operate and to manage GeneScreen
DNA testing business.
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 certain Molecular Tool assets in 1998, including an
in-process research and development component which we immediately charged to
expense upon acquisition. We did not incur any comparable charge in 1999.
Please see Note 2 to the Notes to Consolidated Financial Statements for a
discussion of this charge.
The principal corporate activity of Molecular Tool at the date of
acquisition was the continued technical development of our product programs in
the areas of SNPware consumables, MegaSNPatron services, SNPstream hardware
systems and SNP-IT Chips. At the date of acquisition, none of the products or
services under development by Molecular Tool, Inc. had achieved technological
feasibility or had been sold on the market. Substantial risks and significant
uncertainty still existed 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. We identified and
proposed the SNP-IT Chips
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as a new technology development area at the time of the acquisition. However,
Molecular Tool, Inc. had not yet demonstrated major components of the chip as
feasible. These components have required and will continue to require
substantial investment. Molecular Tool, Inc. had not yet shown the following
elements of these components to be feasible: chip materials fabrication and
biocompatibility; method and composition of bioactive surface preparation; and
method and composition of optical detection systems compatible with chip
design. The MegaSNPatron services, while currently more commercially advanced
than the SNP-IT Chips, required additional development and feasibility
demonstration in several key areas, including the method and composition of the
bioarray components; the ability to capture and process results data from the
MegaSNPstream process; and the composition of stable, viable, and cost
effective reagents for the tests. In the case of the SNPstream hardware
systems, development of the analysis machine was largely complete but was still
expected to face engineering challenges before ultimate completion. We faced
challenges in our efforts to successfully commercialize our SNPstream hardware
and SNPware reagents such as the feasibility of adapting an off-the-shelf
robotic system as the SNPstream platform; development of software systems for
data management; and development and validation of viable, stable and cost
effective reagents usable in the SNPware kits. An overall risk facing these
projects was the potential development of competing technologies to facilitate
cost reduction in genetic assays prior to marketing the Molecular Tool
products. Accordingly, a significant portion of the purchase price was
allocated to in-process research and development. These product candidates will
significantly impact future results of operations and cash flows.
The primary valuable elements of the product candidates were separated into
base technology, supporting patents, and the element associated with in-process
research & development. The base technology and patent elements were separately
valued and reported in the acquisition balance sheet. The valuable elements
qualified to receive treatment as in-process research and development were
separately valued as such.
The remaining development cost and time required to develop the project
candidates into commercially viable products as of December 31, 1999 are as
follows: $1.5 million through 2003 for SNP-IT Chips and $800,000 through 2001
for MegaSNPatron services. The SNPware consummables, and SNPstream hardware
systems are currently commercial products.
Material risks affecting the timely completion and commercialization of the
products included the ability to secure raw materials and material supply
agreements for our SNPware kits and MegaSNPatron services, including dyes and
enzymes necessary for the performance of our SNPware kits and services, and
reliance on the development of outside technology for optical components and
some aspects of robotic instrumentation from our SNPstream OEM. The remaining
development cost and time for these products reflect, in part the acquisition
through supply agreement, development and validation of the raw materials
needed for commercialization. Additionally the remaining development cost and
time reflects, in part, the identification, validation and development of the
technologies external to us needed to select our SNP-IT technology. An
additional material risk affecting commercialization was the presence of
competing technologies.
Interest Income. Interest income consists of income from our cash and short-
term investments. Interest income decreased to $.2 million for the year ended
December 31, 1999 from $.9 million for the comparable period of 1998. This $.7
million decrease resulted from a lower average cash and short-term investment
balance due to cash used in operating activities.
Interest Expense. Interest expense increased to $6.2 million for the year
ended December 31, 1999 from $.1 million in the comparable period of 1998. This
$6.1 million increase resulted substantially from interest on the bridge notes
which converted into Series E mandatorily redeemable convertible preferred
stock in December 1999 of $0.5 million, interest on the convertible note
payable to GeneScreen which we cancelled in the GeneScreen acquisition of $0.2
million, and interest attributable to warrants issued in connection with our
bridge financing of $5.2 million and borrowings on our line of credit in 1999
of $0.2 million.
Net Loss. Due to the factors discussed above, our net loss was $28.2 million
for the year ended December 31, 1999 compared with a net loss of $11.5 million
for the comparable period in 1998.
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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 due
to a reduction in our expenditures at Sarnoff Corporation including 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 $5.2 million for the year ended December 31, 1998 from $2.9
million for the comparable period in 1997. The $2.3 million increase was
primarily due to increased costs of $0.5 million resulting from the hiring of
additional personnel to support our growing business activities, increased
professional services fees of $1.2 million and increased facility charges of
$0.2 million.
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 certain Molecular Tool assets in
1998, including an in-process research and development component which we
immediately charged to expense upon acquisition. We did not incur any
comparable charge 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 average cash
and short-term investment balance due to the sale of Series C mandatorily
redeemable convertible preferred stock in a private placement in December 1997
and March 1998.
Net loss. Due to the factors discussed above, our net loss was $11.5 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 $102
million. The sale of the Series E mandatorily redeemable convertible preferred
stock in December 1999 resulted in a $44,554,000 beneficial conversion feature
which is 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 $29,574,000 beneficial conversion
feature which will increase net loss allocable to common stockholders and net
loss per share allocable to common stockholders in the first quarter of 2000.
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, this funding
commitment expired and we had borrowings of $4.6 million outstanding under this
facility. We lease our corporate and primary research facility under an
operating lease which expires in 2008.
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. The principal amount of these notes and all accrued interest thereon
were automatically converted into shares of Series E mandatorily redeemable
convertible preferred stock in December 1999 in connection with the sale of
Series E mandatorily redeemable convertible preferred stock.
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
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this note and all accrued interest thereon also 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 $15.4 million compared with approximately $11.5 million for the
comparable period in 1998. Non-cash charges in 1999 included compensation
expense of $1.6 million and research and development expense from the issuance
of equity securities of $1.8 million, depreciation and amortization expense of
$1.4 million and interest expense related primarily to warrants issued in
connection with our 1999 bridge financing and accrued interest on the bridge
notes which converted into Series E mandatorily redeemable preferred stock of
$6.0 million. 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 $27.3 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 February 29, 2000, we held cash and cash equivalents of approximately
$57.4 million. We believe that our 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.
As part of our transition from a business model based on microfluidics
technologies to one based on SNP scoring technologies, on April 13, 2000 we
amended our License and Option Agreement with Sarnoff by making a single
payment of approximately $3.0 million, issuing 250,000 shares of common stock
and delivering a five-year warrant to purchase 75,000 shares of our common
stock at the initial public offering price, or at $12 per share if we have not
closed an initial public offering by April 13, 2001. Previously on February 2,
2000, we issued 100,000 shares of common stock to Sarnoff as an advance on the
issuances which would be owed in December 2000 for the two option fields
previously exercised under the License and Option Agreement. As the licensed
technology has not reached technological feasibility and has no alternative
uses, the cash payment of approximately $3.0 million and the fair value of the
equity securities of approximately $4.8 million will be charged to research and
development expense in 2000.
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. 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.
We have not yet determined the extent to which limitations may have been
triggered as a result of past or future financings, including this offering.
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 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;
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. 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,
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.
Inflation
We do not believe inflation has had a material impact on our business or
operating results during the periods presented.
Recently Issued Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission issued
a Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements, including the recognition of non-refundable fees received
upon entering into arrangements. Our revenue recognition policies are
consistent with the provisions of SAB 101 and our financial statements reflect
this policy for all periods presented.
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BUSINESS
Overview
We are engaged in the development and commercialization of technologies,
products and services designed to measure and use information related to
genetic diversity. 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. The
pharmaceutical and medical communities can use genetic diversity information 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.
History
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. After our 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 apply our technology
to the fields of pharmacogenetics and DNA synthesis. As a result of this review
of our business focus, we acquired substantially all of the assets of Molecular
Tool, Inc., a wholly owned subsidiary of GeneScreen, Inc., in September 1998.
Molecular Tool's proprietary SNP-IT primer-extension technology for scoring
SNPs matched very well with our microfluidics technologies that we had
developed earlier and has together formed the basis for our current SNP
technology, products and services.
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
Pharmacogenetics is the study of the impact of genetic variation on the
efficacy, pharmacology and toxicity of a drug. As scientists and researchers
have acquired a greater understanding of genetic variation, they have realized
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. Typically,
pharmaceutical companies develop drugs 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, because of genetic variation, have a slightly
modified version of 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.
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We expect that the methods used by the pharmaceutical industry to develop
new drugs and to improve existing drugs will undergo a fundamental
transformation to take genetic variation into account. However, the usefulness
of genetic variation information is not limited to drug development. In fact,
genetic variation can play a significant role in all stages of drug discovery
and development. Pharmaceutical companies can improve drugs already on the
market by using genetic variation information to select the best drug for a
particular patient. Genetic variation information may also be used to improve
the success of organ and bone marrow transplantations by matching the
compatibility of donors to recipients as well as for paternity testing,
forensics testing and for agricultural and livestock breeding programs.
SNPs: A Key Indicator of Genetic Variation
DNA sequences contain a variety of known polymorphisms. 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 biotechnology and
pharmaceutical industries have recently focused attention on the discovery of
SNPs. For example, in 1999, a group of leading pharmaceutical companies formed
The SNP Consortium Ltd. for the primary purpose of discovering new SNPs and
making them publicly available. The SNP Consortium members include: The
Wellcome Trust, Amersham Pharmacia Biotech, 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. We believe that the mere discovery
of SNPs has not been of significant value in the treatment of disease. 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. Recently reported data indicates
that there are 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. 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 in hundreds of
thousands of individuals.
As the Human Genome Project nears completion, the number of identified SNPs
will increase dramatically. Scientists and researchers will require SNP
association studies 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. This increase in demand 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 that 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. Research and clinical laboratories will require the use of a highly
accurate, high-throughput SNP scoring technology that can be implemented at a
competitive cost to find these valuable SNPs.
The SNP Consortium has announced its intention to identify a set of
approximately 300,000 SNPs by the end of 2001. If research laboratories were to
score all of these SNPs in a group of 1,000 patients, they 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
estimate they will require the performance of billions of SNP scores over the
next few years and potentially a thousand-fold more over the next decade. Since
performing SNP scoring using conventional sequencing methods can cost several
dollars per SNP score, these studies would be cost-prohibitive without further
technological advancement.
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Traditional Methods of SNP Analysis and Their Limitations
Current methods for discovering SNPs rely on DNA sequencing, which is
currently conducted by large dedicated laboratories using automated
electrophoresis instruments. While DNA sequencing is an efficient SNP discovery
tool, it is expensive and complex when used to conduct SNP scoring.
Researchers have developed variations upon standard DNA sequencing methods,
such as DNA hybridization. DNA hybridization relies upon the principle 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.
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 actual recognition, or scoring of the
SNP, 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.
There are certain key criteria of both hardware and wetware 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 adaptability of the biochemistry wetware 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 function through
a range of production size requirements 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 of the biotechnology and pharmaceutical industries
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.
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Orchid's Unique Solutions
Our Proprietary Wetware -- SNP-IT
We conduct SNP scoring using our proprietary SNP-IT primer-extension
technology. SNP-IT 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 presence or absence of the SNP. In order to
conduct SNP-IT primer extension, we first bind a specially synthesized DNA
primer to the sample DNA to expose the DNA site of interest where a SNP may be
present. We then add DNA polymerase, a naturally occurring molecule that
accurately and reliably inserts the appropriate complementary base to a chain
of DNA, to extend the DNA chain by one base at the suspected SNP location. We
then use one of several conventional methods, including fluorescence, optical
density, electrophoresis and mass spectroscopy, to detect this single base
extension. 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 SNP-IT primer-extension technology has certain
advantages over other alternative SNP scoring technologies because it can
produce accurate results in less than ideal conditions. Further, our SNP-IT
primer-extension technology uses experimental steps and instruments already
familiar to technicians and scientists in the life sciences field. SNP-IT
primer extension is distinct 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 SNP-IT 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.
. Flexibility. Our biochemistry wetware component is compatible not only
with our hardware platform, but also with the 100,000 other instrument
systems we estimate are already installed around the world. Unlike the
wetware components of competing systems, we may apply our wetware to a
wide range of formats and systems including: arrays, gels and beads, as
well as mass spectroscopy and optical systems. We believe the flexibility
of our SNP-IT primer-extension technology may permit us to provide our
products and services to customers who use different platforms with a
combination of price and performance tailored to their needs.
. Cost. We expect the use of our SNP-IT primer-extension technology for SNP
scoring will reduce the amount of data required to be analyzed when
conducting SNP association studies relative to current alternative
methods of primer extension. We believe eliminating the need for
repetitive SNP scoring tests will reduce costs associated with both
clinical trial sample collection and SNP scoring.
. Robustness. We believe SNP-IT 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.
There are, however, elements of our SNP-IT technology which may be perceived as
limitations by our potential customers. These limitations include:
. Reliance upon third party prepared primers. The accuracy of results that
customers may achieve with our SNP-IT technology and our SNPstream
instruments relies upon the accuracy and quality of primers
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prepared by these customers or third parties. If primers are not properly
prepared, our technology may not produce accurate results. Our competitors
who use other technologies such as hybridization similarly rely on primers
prepared by third parties.
. Adoption of technology. A number of potential customers in our industry
may be slow to adopt our SNP-IT technology in part, because it has not
achieved widespread use or proof in the market and because these
potential customers are not aware of the advantages of our technology.
Many of our competitors offer more widely recognized technology that may
be selected by customers because of the familiarity they may have with
our competitor's technology.
. Reliance upon third party sequence information. Our SNP-IT technology
relies on having complete sequence information for the bases surrounding
a potential SNP site in order to design a primer that will bind with that
SNP. By contrast, our competitors who are engaged in the discovery of
SNPs through the use of DNA sequencing do not require sequence
information about the bases surrounding a potential SNP site.
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. We can manufacture our primer arrays 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. Many of our chemistries and technologies involve novel uses of
instrumentation, software and technologies that still require validation in
commercial applications. Many alternative chemistries and technologies
currently in use have been demonstrated to be commercially viable.
Nonetheless, rapid changes in the development of technology in the field of
genetic diversity can quickly make genetic diversity technologies, including
our own, obsolete. We intend to continue to pursue new chemistries and
technologies which improve our core technology position in SNP scoring and
analysis.
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 described below:
The Use of SNP Scoring in Drug Discovery
. Target Identification. Researchers can use correlations between
individuals with a given disease and SNPs 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. Researchers can
use SNP studies 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. Pharmaceutical companies can identify lead compounds
which act not only on the proteins encoded by the target gene, but also
the proteins encoded by the SNP variants of the gene. In this manner,
they can identify lead compounds that act on multiple versions of a
target protein.
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. Lead Validation. Pharmaceutical companies can conduct biological assays
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. Pharmaceutical companies can use studies on known SNP
variants of targets to improve existing drugs by seeking broader efficacy
over larger populations with genetic variations. They can also use SNP
scoring 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.
. Preclinical 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. Pharmaceutical companies may select patients for
clinical trials based on the presence or absence of SNPs known to be
associated with drug response. Our technologies may reduce the duration
and expense of clinical trials through the use of SNP scoring in smaller
patient populations.
The Use of SNP Scoring in Drug Marketing
. Market Extension. Pharmaceutical companies can use SNP scoring 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, these companies may use SNP scoring 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. Pharmaceutical companies can use SNP scoring to discover
novel uses of existing non-proprietary drugs.
. Drug Revival. Pharmaceutical companies can use SNP scoring 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.
The Use of SNP Scoring and Other Polymorphism Analyses in Healthcare Delivery
. Clinical Diagnostics. Healthcare providers can use SNP scoring in patient
testing for disease diagnosis or in determining the appropriate medical
treatment for a patient.
. Drug Selection. Healthcare providers can use SNP scoring 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. They may
also use tailored formulations to develop more cost-effective formularies
for managed care systems.
. Medical Treatment Selection. Healthcare providers can use SNP scoring 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. We expect the reduction of the
time required to identify an effective treatment will 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 Prospective 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. We describe the impact of new
and expanding uses of SNP scoring as the lifecycle of a SNP, consisting of the
following five stages.
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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, healthcare providers can
use SNP associations to determine the optimal drug selection for each patient
SNP type.
Stage 4: Clinical Trials. Use of the knowledge of the presence or absence of
one or more SNPs to predict or improve the outcome of clinical trials.
Stage 5: Diagnostic Testing and Industrial Application. Use of SNPs in the
clinical diagnostic testing of a patient to determine appropriate drug or
alternative treatment 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, the laboratory would
probably want to use a SNP scoring technology such as SNP-IT 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, we
expect that researchers will use more and more SNPs 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 SNP-IT primer-extension
technology, which can adapt to existing diagnostic testing instruments, will
have significant market appeal.
Industrial Applications of Genetic Diversity
Genetic diversity also has many commercial and industrial applications.
State and other government agencies can use information related to genetic
diversity between individuals to determine identity and paternity. For example,
we can test DNA material collected from a crime scene to determine if a
particular individual was involved in the crime. Similarly, we can match the
DNA of a child 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. We also test DNA for
likely compatibility of organs or tissues for transplantation between
individuals. Our technologies enable us to screen large numbers of potential
donors 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. Agricultural companies and livestock breeders can
optimize traditional plant hybridization and breeding programs by using genetic
variation information to more rapidly attain desired quality traits of plants
and animals without engaging in genetic engineering.
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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 currently include
our SNPstream hardware instruments, our SNPware wetware consumables and our
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 currently sell SNPware consumables for use in SNP scoring and provide
non-exclusive, one-time use licenses of our SNP-IT primer-extension technology
in connection with each sale solely for the purpose of performing SNP scoring
using the quantity of samples and SNPs contained in each kit. We also expect to
generate substantial recurring revenue from the sale of our SNPware consumables
to purchasers of our SNPstream hardware systems.
We also intend to expand the market for our proprietary SNP scoring
biochemistry wetware through our platform propogation strategy by offering it
for use on instruments made and sold by other companies. We expect to implement
this strategy in the third quarter of 2000 by selling SNPware consumables and
kits directly to the existing customer base of such companies. In addition, we
will continue to 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, including 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 these
instrument platforms 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.
Market Extension
The pharmaceutical and research communities are currently our largest SNP
scoring markets. Although we expect these markets to grow rapidly over the next
several years, we believe the application of SNP scoring in the clinical and
diagnostic markets, which are still in the early stages of development, has the
most significant long-term potential. We designed our market extension strategy
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 high-throughput MegaSNPatron facility, to enable us
to expand into the clinical markets within the next 12 months. 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 we can readily adapt these
technologies to many systems in the clinical and diagnostic markets. As a
result, we believe we are well positioned to collaborate with companies with
large installed bases of clinical systems.
We have already started to expand 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. As a result of this acquisition, we believe we
are currently the second largest provider of paternity tests in the United
States. We intend to consider other acquisition opportunities to further expand
applications of SNP scoring in industrial and clinical markets.
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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. We expect to establish
the first of these Regional GeneScreen Centers within the next 12 months.
As the clinical value of SNPs becomes more accepted, we believe consumers
and their physicians will represent a significant potential market for our
products and services. We plan to develop a Web site based service which we
expect will become operational in the first quarter of 2001. This service would
offer SNP scoring on patient samples. This service would provide a report on
the patients, which patients may share with their doctors, that would indicate
the adverse drug responses to which they may be susceptible or assist in the
selection of drugs which may work best for the patient. We plan to provide a
related service to the healthcare industry which we would design to provide
important topical information about our available services and the field of
pharmacogenetics generally. We plan to provide 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
and expect to form collaborations with members of the agricultural industry
community in the last quarter of 2001.
Proprietary SNP Value Creation
We have based our proprietary SNP value creation strategy 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 healthcare providers to screen patients more
accurately for appropriate medication and treatment. 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.
We believe we can also use our proprietary SNP value creation strategy 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 we may either license these extended patents to
pharmaceutical companies or develop them commercially.
We believe SNPs will be useful in a variety of research and clinical
applications. As researchers and scientists associate SNPs with medically or
commercially important attributes, we can assemble them into SNP scoring panels
designed for specific applications. Once researchers and scientists find these
SNP associations, we expect to file patents on the use of specific SNPs. For
example, we could package a panel of five SNPs that were all known to correlate
with a lack of response to a certain drug 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 SNP-IT primer extension technology as well as from
our growing portfolio of proprietary uses of SNPs.
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Sustained Competitive Advantage
In order to build and sustain our competitive advantage in the field of
genetic diversity, we plan to form strategic alliances and scientific
collaborations and make strategic acquisitions. We believe our financial and
technology positions will make us an attractive partner to a variety of other
participants in this industry. In early 2001, 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 we can use our SNP scoring technologies 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 already 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. 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 SNP-IT 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. The equipment manufacturer installs and
services this system. We support the SNP scoring applications. We intend to
develop a lower-throughput version of our SNPstream system that will enable
users to analyze up to 1,000 SNPs per day. In addition, we intend to introduce
a medium-throughput SNP scoring system capable of scoring between 1,000 and
10,000 SNPs per day. These systems are in development and we expect completion
of beta testing by the end of 2000.
DNAstream Product Line
We are designing our DNAstream line of products to enable the simultaneous
synthesis of up to 384 oligonucleotides. Purchasers of DNAstream products may
use these oligonucleotides as the DNA primers for our SNP-IT primer-extension
technology. We are also developing our proprietary Chemtel microfluidic chips
for use in DNA synthesis instruments. We expect the unique control features of
our Chemtel chip will enable our customers to use 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.
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We may also use the high-throughput versions of this line of products
internally to produce the DNA required for our high-throughput MegaSNPatron
facility and/or offered on a service basis. We currently expect to launch the
DNAstream product line in 2003.
SNPware Consumables -- Wetware
Customers may conduct our SNP scoring biochemistry by using a set of
approximately ten reagents. These reagents can be pre-dispensed in the
necessary amounts to run a specific number of SNP scores. We assemble this set
of reagents along with the labware and instructions in a kit for the
convenience of our customers. We intend to sell these kits under our SNPware
brand name for use on our own SNPstream systems as well as the systems of other
companies. We also intend to market our SNPware on one of our Web sites, where
individuals could order custom panels of SNPs to fit their 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. We typically format these kits 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
We designed the initial version of SNPcode kits for use with the Affymetrix
GeneChip system, which will enable users to run SNP-IT primer extension for SNP
scoring on the Affymetrix GeneChip system. We currently anticipate launching
this line of kits in the third quarter of 2000.
Additional SNPware Products
In the future, we anticipate commercializing SNP-IT 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.
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 to 2002 2001 to 2003
Products............... instruments
</TABLE>
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Services
We provide, or intend to provide, a variety of genetic diversity services
through our high-throughput MegaSNPatron facility and Regional GeneScreen
Centers.
MegaSNPatron Facility Services
We intend 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 in order to perform over one million SNP scores per day by the
first quarter of 2001.
. SNP CONFIRM service. We offer customers SNP confirmation services in
which we score new SNPs and verify the existence of SNPs discovered
through DNA sequencing. We currently provide this service to The SNP
Consortium.
. SNP ASSOCIATION service. We offer our SNP association service to
pharmaceutical companies who design and undertake studies in order to
discover associations between SNPs and multiple patients' medically
important attributes. The discovery of these associations is a critical
phase in the lifecycle of a SNP. Further, we are able to enhance these
studies with information that we gather from 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. In order to identify genome regions of
interest for further mapping studies and candidate gene location a
researcher or scientist typically uses 300 to 3,000 SNPs. 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.
. 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.
. INTERNET-BASED service. We plan to provide SNP scoring services via the
Internet through one of our Web sites within the next 12 months.
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Technology
SNP-IT
An experiment using SNP-IT primer extension would typically include the
following steps:
. Preparation of the target DNA sample.
. Capture of the target DNA from a patient sample by hybridization. The
SNP-IT primer, which includes approximately twenty nucleotide bases
ending immediately prior to the location of the suspected SNP on the
patient's sample, is then synthesized. Selective extension of the SNP-IT
primer with labeled DNA, or primer extension, will only occur when the
base available at the expected location of the SNP matches the modified
base available for extension.
. Analysis of the SNP-IT primer-extension product. We can analyze the SNP-
IT primer extension product by a variety of means including
fluorescence, optical density and mass spectroscopy.
[Graphic Illustration of the three steps in SNP-IT primer extension]
Step 1: Step 2: Step 3:
Prepare SNP-IT Detect
Since we can perform SNP-IT primer extension in both solution and solid-
phase formats, the operational advantages of our system can be significant. We
can automate the biochemistry using liquid handling robots and can automate the
data acquisition and analysis of test results using readily available array
scanners or Microtiter plate readers that transmit quantitative information to
a computer. We can then automatically interpret this digitized data to provide
custom tailored reports and statistical information on SNP scoring results.
We facilitate the standardization and reproducibility of SNP-IT primer
extension by the stable attachment or capture and detection of oligonucleotide
primers to the solid phase. This permits large-scale batch preparation of the
SNP-IT arrays, signal uniformity and quality control of the test.
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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. Electrodes in the channel create simple pneumatic or hydraulic
pressure and electrohydrodynamic pumping. Once the flow is halted, pressure or
electric current can reinitiate the flow.
Combined Technologies
We design our microfluidics technologies to drive genetic analysis and drug
discovery to higher throughput while achieving lower costs. By applying our
SNP-IT 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. We expect that this will 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
significantly reduce the cost of SNP scoring.
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.
We have entered into license agreements with Affymetrix and NEN Life Science
Products, Inc. We have also entered into license and collaboration agreements
with SmithKline Beecham and Motorola relating to the microfluidics field,
neither of which is material to our current business. In addition, we have a
license agreement with Sarnoff which is no longer material to our current
business and which we have agreed to terminate upon certain terms described
below.
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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 SNP-IT-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 SNP-IT primer-extension tests to be used on the Affymetrix GeneChip system.
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
agreed-upon prices. The parties have agreed, through a collaboration committee
to set minimum annual sales requirements for Affymetrix in connection with
sales of its Generic and Standard Kits. The collaboration committee has not yet
set these minimum annual sales requirements and therefore we cannot determine
at this time the materiality or the value of this agreement to us or to our
business. The collaboration agreement has an initial term of five years and may
be renewed for additional one year terms upon written notice by either party to
the other.
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 with a fair value of $185,626 and 167,500 shares of
our Series A convertible preferred stock with a fair value of $1,289,750. 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 consideration for the
options, we issued to Sarnoff 33,300 shares of common stock in each of 1998 and
1999, with a fair value of $114,885 in 1998 and $391,275 in 1999 and 66,700
shares of Series A in each of 1998 and 1999 with a fair value of $400,200 in
1998 and $783,725 in 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. Accordingly, we issued 50,000 shares
of common stock with a fair value of $587,500 in 1999 to Sarnoff related to the
option exercised in December 1998. We are also obligated to make royalty
payments on future net sales of products and services developed under these
licenses, if any. The Sarnoff agreement has a term which continues until
terminated by mutual agreement or by Sarnoff if we fail to make any payment
when due unless the failure is cured within 90 days of notice from Sarnoff.
As part of our transition from our historical business model based on
microfluidics technologies to our current business model based on our SNP
scoring technologies, on April 13, 2000 we amended our License and Option
Agreement with Sarnoff pursuant to which we mutually agreed to convert our
existing licenses in each relevant field from an ongoing royalty-based license
to a license paid in full. In addition, we exercised and fully paid up our
exclusive option to the genomics and research products fields. We waived our
exclusivity (but retained our non-exclusive licenses) to the fields of high-
throughput screening and cell-based assay fields. Under the terms of this
amendment, we have agreed, in lieu of all our future cash payment, research
funding, potential royalty payment and stock issuance obligations, to make a
one-time payment to Sarnoff in the aggregate amount of approximately
$3.0 million and to issue to Sarnoff 250,000 shares of our common stock and a
warrant to purchase 75,000 shares of our common stock at the price of this
initial public offering or at $12 per share if we have not closed an initial
public offering by April 13, 2001. Upon payment of this consideration, we will
receive exclusive licenses in the fields formerly covered by options under our
License and Option Agreement. Previously on February 2, 2000, we issued 100,000
shares of common stock to Sarnoff as an advance on the issuances which
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would be owed in December 2000 for the two option fields previously exercised
under the License and Option Agreement. As this licensed technology has not
reached technological feasibility and has no alternative uses, the cash payment
of approximately $3.0 million and the fair value of the equity securities of
approximately $4.8 million will be charged to research and development expense
in 2000.
NEN Life Science Products, Inc.
In February 2000, we entered into an agreement with NEN Life Science
Products, Inc., under which NEN has agreed to supply us with all of our
required terminators for use in our SNPkits. Terminators are nucleotides which
stop the extension of a DNA chain. In consideration of NEN's agreement to
supply us with terminators at preferential prices, we sold to NEN 125,000
shares of our common stock for a purchase price of $750,000 and paid NEN an up-
front fee of $750,000. Under the supply agreement we will pay NEN a royalty fee
based on our revenues for SNPkits we sell. We are also required to purchase
minimum quantities of terminators during each year of the agreement as follows:
first year $333,000; second year $700,000; third year $990,000; and fourth year
$1,320,000. Since the products being supplied are used in our current product
and may be used in future products, we will defer and amortize the $750,000 up
front fee plus the difference between the fair value of the stock issued to NEN
(approximately $1.5 million) over the purchase price for the stock, or a total
of $1.5 million over the estimated four year term of the agreement on a
straight-line basis. We measured the fair value of the common stock on the date
of the agreement as these shares were fully paid and nonforfeitable on that
date. Either party can terminate the agreement any time after four years from
the commencement date, without cause, upon 90 days prior written notice. Either
party can also terminate the agreement for cause, such as a failure to make
payments or for any breach that remains uncured following 60 days from the
receipt of notice of the breach.
Other Licenses and Collaborations
In the past, we have entered into license and collaboration agreements with
respect to our microfluidics technology with Motorola and various other 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. We produce critical components in an environmentally controlled
clean room which is isolated from the rest of the facility. We are planning to
comply 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,
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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.
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 our ability to obtain
patent protection on the SNPs for which we discover utility and on the
products, methods and services for which we base such discoveries. We have
sought and intend to continue to seek patent protection for novel uses of SNPs,
which may have initially been patented by third parties. In such cases, we may
need to license these SNPs from the patent holders to make, use of 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. Most of 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.
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 or 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.
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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 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 companies market 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. The American
Association of Blood Banks, or AABB, has accredited our CLIA laboratories. The
AABB 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 these guidelines may affect.
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
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require a 510(k). With respect to devices reviewed through the 510(k) process,
we may not market a device until the FDA issues an order 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, 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. The FDA could also
require us to conduct clinical studies to support either a 510(k) submission or
a PMA application 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 a material adverse impact on our business and
results of operations.
Our current DNA testing laboratories are regulated under CLIA. The intent of
CLIA is 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,
waived, moderately complex and 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 March 31, 2000, we employed 220 persons, of whom 38 hold Ph.D. or M.D.
degrees and 13 hold other advanced degrees. Approximately 71 employees are
engaged in research and development, 18 employees are engaged in business
development, sales and marketing, 80 employees are engaged in manufacturing and
DNA testing services and 51 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 two facilities which provide us with 40,000 square feet for our
operations in Princeton, New Jersey which serve as our headquarters and as the
base for marketing and product support operations, research and development and
manufacturing activities. We also lease an approximately 19,000 square foot
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facility in Dallas, Texas; an approximately 12,500 square foot facility in
Dayton, Ohio; and an approximately 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. We are engaged in
discussions with Motorola in an attempt to resolve certain areas of
disagreement that have arisen under our existing collaboration in the area of
microfluidics. The primary issue of disagreement between the parties relates to
whether, under the terms of our agreement, Motorola has a right to obtain a
license to our SNP-IT technology for use with Motorola's microfluidic chips.
While we believe that, under the terms of our agreement, Motorola has no rights
to our SNP-IT technology, we cannot assure you that we can reach agreement with
Motorola on this issue or that we would prevail if this dispute were to develop
into arbitration or litigation. Furthermore, we are likely to incur substantial
costs and expend substantial personnel time in resolving this issue if it
becomes the subject of arbitration or litigation. Nonetheless, we believe that,
even if we fail to successfully resolve this issue or to prevail in any such
arbitration or litigation, we would only be obligated to grant Motorola a non-
exclusive license to use our SNP-IT technology with their microfluidic chips on
terms no less favorable than those offered to other licensees. We do not
believe that this result is likely to have a material adverse affect on our
business or financial condition.
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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 March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Dale R. Pfost, Ph.D................ 43 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.............. 45 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
Kevin B. Nash, Esquire............. 35 Senior Director of Licensing and
Intellectual Property Counsel
William M. Testa, CPA.............. 34 Corporate Controller
Peter A. Bell, Ph.D. .............. 38 Director of Kit Development
Sheldon M. Kugelmass, Ph.D. ....... 35 Director of Manufacturing and Process
Development
Michael S. Pettigrew............... 38 Director of Worldwide Commercial
Programs
Rolf E. Swenson, Ph.D. ............ 37 Director of Chemistry
Sidney M. Hecht, Ph.D.(1),(2)...... 55 Director
Samuel D. Isaly(1),(2)............. 55 Director
Jeremy M. Levin, D.Phil., 45 Director
MB.BChir.(1),(2)..................
Ernest Mario, Ph.D. ............... 61 Director
George Poste, DVM, Ph.D. .......... 55 Director
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 1984, Dr. Pfost was the President and a founder of
Infinitek, Inc., the company that developed the Biomek 1000. From 1984 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
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services to emerging growth life services companies. From 1986 to 1994, Mr.
Marvin was President and Chief Executive Officer of Diatron Corporation, a
biomedical company developing fluorescence-based instrument 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
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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.
Kevin B. Nash, Esq. has served as our Senior 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.
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.
Peter A. Bell, Ph.D. has served as our Director of Kit Development since
March 2000. From 1997 to 2000, Dr. Bell was employed at Amersham Pharmacia
Biotech as Research and Development Section Manager of Expression Technologies
and Genotyping--SNP Analysis. From 1992 to 1997, he was at Pharmacia Biotech
where he held various senior scientific positions in the research areas of gene
expression, mutation detection, DNA sequencing and recombinant antibodies. Dr.
Bell received his B.S. in Biology from the University of Illinois, Urbana-
Champaign and his Ph.D. in Oncology from the University of Wisconsin-Madison.
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.
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
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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 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.
Ernest Mario, Ph.D. has served as a member of our Board of Directors since
March 2000. Since 1993, Dr. Mario has served as Chairman and Chief Executive
Officer of ALZA, a designer and producer of therapeutic drug delivery systems.
From 1986 to 1993, Dr. Mario was at Glaxo, where his most recent position was
Deputy Chairman and Chief Executive of Glaxo Wellcome. From 1977 to 1985, Dr.
Mario worked with Squibb Corporation where he served most recently President
and Chief Executive Officer of its medical products division and as a member of
the Board of Directors for the company. Dr. Mario currently serves as Chairman
of the Board of the Duke University Health System and the American Foundation
for Pharmaceutical Education. Dr. Mario received his B.S. degree in pharmacy
from Rutgers University and his M.S. and Ph.D. degrees in physical science from
the University of Rhode Island.
George Poste, DVM, Ph.D. has served as a member of our Board of Directors
since March 2000. He currently serves as Chief Executive Officer of Health
Technology Networks, a consulting group specializing in the impact of genetics,
computing and other advanced technologies on healthcare research and
development and internet-based systems for healthcare delivery. From 1992 to
1999, Dr. Poste was President of Research and Development, Chief Science and
Technology Officer and a member of the Board of Directors at SmithKline
Beecham. Dr. Poste is a non-executive chairman of diaDexus, LLC, the joint
venture in molecular diagnostics between SmithKline Beecham and Incyte
Pharmaceuticals, and a non-executive chairman of Structural GenomiX. He serves
on the Board of Directors of Maxygen, Inc. and Illumina, Inc. Dr. Poste
received his degree in veterinary medicine and his Ph.D. in virology from the
University of Bristol, England. He is a Board-certified pathologist and a
Fellow of the Royal Society.
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.
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<PAGE>
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), three Class II directors (Messrs. Tien, Levin and
Mario) and three Class III directors (Messrs. Pfost, Isaly and Poste). 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.
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
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<PAGE>
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 Tool, 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-inventor of the VLSIPS
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.
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
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<PAGE>
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. 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 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.
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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:
. 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
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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.
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, and by our stockholders 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
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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.
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 to a non-qualified retirement plan on
behalf of Dr. Pfost in accordance with Dr. Pfost's employment agreement.
(2) Includes $10,500 contributed by us to a non-qualified retirement plan on
behalf of Mr. Marvin in accordance with Mr. Marvin's employment agreement.
On February 2, 2000, the Compensation Committee of our Board of Directors
increased Dr. Pfost's and Mr. Marvin's annual compensation retroactive to
January 1, 2000 as follows:
<TABLE>
<CAPTION>
Annual
Compensation
--------------
Name Salary Bonus
- ---- -------- -----
<S> <C> <C>
Dale R. Pfost, Ph.D.............................................. $350,000 (1)
Donald R. Marvin................................................. $275,000 (2)
</TABLE>
(1) We will pay Dr. Pfost an annual bonus of up to 25% of his salary upon our
achievement of specific performance milestones. If we substantially exceed
these milestones, Dr. Pfost's annual bonus may be increased to up to 35%
of his salary, as determined in good faith by the Board of Directors in
its sole discretion.
(2) We will pay Mr. Marvin an annual bonus of up to 25% of his salary upon our
achievement of specific performance milestones. If we substantially exceed
these milestones, Mr. Marvin's annual bonus may be increased to up to 35%
of his salary, as determined in good faith by the Board of Directors in
its sole discretion.
On February 2, 2000, the Compensation Committee of our Board of Directors
also granted additional options to purchase common stock to Dr. Pfost and Mr.
Marvin as follows:
<TABLE>
<CAPTION>
Long-Term
Performance-Based
Options
-----------------
<S> <C>
Dale R. Pfost, Ph.D........................................... 630,000(1)
Donald R. Marvin.............................................. 490,000(1)
</TABLE>
(1) A portion of these options will vest upon our achievement of certain price
per share targets.
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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 $8.50 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 $1,913,387 $3,012,446
Donald R. Marvin........ 67,300 7.0 $1.25 2009 $ 803,312 $1,264,738
</TABLE>
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 $8.50 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. ....... 65,017 195,283 $495,331 $1,441,843
Donald R. Marvin............ 41,933 110,367 $345,864 $ 832,710
</TABLE>
Corporate 401(k) Plan
We sponsor a 401(k) plan covering 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 a percentage of
employee contributions, on a discretionary basis, as determined by our Board of
Directors. We may make other discretionary contributions to the 401(k) plan,
although pursuant to a determination by our Board, we currently match 50% of
the first 4% of employee contributions.
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, up to 50% of their regular
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base 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
We entered into a three year employment agreement with Dale R. Pfost, Ph.D.,
effective as of January 2000, to serve as our President and Chief Executive
Officer at an annual base salary of $350,000. Under the terms of his employment
agreement, Dr. Pfost is entitled to receive an annual bonus of up to 25% of his
base salary to be awarded based upon our achievement of specific performance
milestones. If our Board determines in good faith that our performance has
exceeded such milestones, it may increase Dr. Pfost's bonus to up to 35% of his
base salary. 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, upon execution of the agreement, we issued
to Dr. Pfost options to purchase an aggregate of 730,000 shares of our common
stock. Of these 730,000 options, options to purchase 100,000 shares were
previously granted in December 1999 with an exercise price of $1.25 per share.
The remaining 630,000 options have an exercise price of $6.00 per share. A
total of 360,000 of these newly issued options with $6.00 per share exercise
prices will vest if and when the price of our stock exceeds certain specified
levels for 45 consecutive trading days. We may terminate the agreement with or
without cause at any time. If we terminate Dr. Pfost's employment for cause, we
are only obligated to pay him severance equal to his accrued base salary up to
the date of termination. If we terminate Dr. Pfost's employment without cause,
or if Dr. Pfost terminates his employment for good reason, we are obligated to
pay Dr. Pfost a severance amount equal to his annual base salary and benefits
for an eighteen month period following the effective date of termination. We
must provide Dr. Pfost with notice of termination in advance of the effective
termination date. The advance notice period ranges from six to eighteen months,
depending on the timing of the effective date of the termination.
We entered into a three year employment agreement with Donald R. Marvin,
effective as of January 2000, to serve as our Senior Vice President, Corporate
Development and Chief Operating Officer at an annual base salary of $275,000.
Under the terms of his employment agreement, Mr. Marvin is entitled to receive
an annual bonus of up to 25% of his base salary to be awarded based upon our
achievement of specific performance milestones. If our Board determines in good
faith that our performance has exceeded such milestones, it may increase
Mr. Marvin's bonus to up to 35% of his base salary. In addition, upon execution
of the agreement, we issued to Mr. Marvin options to purchase an aggregate of
557,000 shares of our common stock. Of these 557,000 options, options to
purchase 67,000 shares were previously granted in December 1999 with an
exercise price of $1.25 per share. The remaining 490,000 options have an
exercise price of $6.00 per share. A total of 240,000 of these newly issued
options with $6.00 per share exercise prices will vest if and when the price of
our stock exceeds certain specified levels for 45 consecutive trading days. 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. We may
terminate the agreement with or without cause at any time. If we terminate Mr.
Marvin's employment for cause, we are only obligated to pay him severance equal
to his accrued base salary up to the date of termination. If we terminate Mr.
Marvin's employment without cause, or if Mr. Marvin terminates his employment
for good reason, we are obligated to pay Mr. Marvin a severance amount equal to
his annual base salary and benefits for an eighteen month period following the
effective date of termination. We must provide Mr. Marvin with notice of
termination in advance of the effective termination date. The advance notice
period ranges from six to eighteen months, depending on the timing of the
effective date of the termination.
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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. Since the technology licensed to us under the
License and Option Agreement with Sarnoff relates to, and was developed under
funding provided in part by, and involves certain rights of, SmithKline Beecham
Corporation, we also agreed, as a condition to the execution of the agreement,
to issue SmithKline Beecham additional shares of our common stock as options
are exercised by us. Consequently, in connection with the exercise of the two
options, we issued SmithKline Beecham 10,000 shares of our common stock on
February 2, 2000, 5,000 of which shares should have been issued as of December
31, 1998 and as of December 31, 1999, respectively.
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 381,500 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
PHARMAw/HEALTH, notes in the aggregate principal amount of $2,750,000 and
warrants to purchase an aggregate of 137,500 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 $1,800,000 and warrants to purchase 90,000 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,
additional warrants to purchase an additional 137,500 and 89,910 shares of
stock, respectively.
In November 1999, we completed a bridge financing in which we issued a
subordinated convertible term note in the aggregate principal amount of
$2,250,000 to Affymetrix, Inc., a five percent beneficial owner of the Series E
mandatorily redeemable convertible preferred stock. In November 1999, we also
entered into a collaboration agreement with Affymetrix to develop, manufacture,
market and sell SNP-IT based SNP detection kits on Affymetrix GeneChip systems.
See "Business--Collaborations and Licenses" for a description of this
agreement.
In December 1999 and January 2000, we completed a private placement in which
we issued 18,881,563 shares of Series E convertible preferred stock, which
amount includes the shares issued in connection with the acquisition of
GeneScreen. 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
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of Series E convertible preferred stock in this offering for an aggregate
purchase price of $2,903,350 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
$1,903,350. OrbiMed Advisors, LLC, a five percent beneficial stockholder,
through each of Caduceus Capital 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 $5,907,888 in this offering consisting
of cash in the aggregate amount of $3,000,000, 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 $2,907,860. 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. Affymetrix, Inc., a
five percent beneficial owner of the Series E convertible preferred stock,
purchased an aggregate of 1,005,897 shares of the Series E convertible
preferred stock for an aggregate purchase price of $4,526,537, consisting of
cash in the aggregate amount of $2,250,000 and the conversion of the principal
amount of and accrued interest on a bridge note held by Affymetrix in the
aggregate amount of $2,276,888. Deutsche Vermogensbildungsgesellschaft mbH
(DVG), a five percent beneficial owner of the Series E convertible preferred
stock, purchased an aggregate of 1,100,000 shares of the Series E convertible
preferred stock in this offering for an aggregate purchase price of $4,950,000.
President (BVI) International Investment Holdings, Ltd., a five percent
beneficial owner of the Series E convertible preferred stock, purchased an
aggregate of 1,000,000 shares of the Series E convertible preferred stock in
this offering for an aggregate purchase price of $4,500,000. 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 March 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 March 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 25,989,381 shares of common stock
outstanding on March 31, 2000 and 31,989,381 shares of common stock outstanding
after completion of this offering based on the number of shares outstanding on
March 31, 2000. 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 more than
approximately 5%
OrbiMed Advisors, LLC (2)................ 2,467,562 9.4% 7.7%
767 Third Avenue, 6th Floor
New York, NY 10017
Oracle Strategic Partners, LP (3)........ 2,150,000 8.3% 6.7%
712 5th Avenue, 45th Floor,
New York, NY 10019
INVESCO Global Health Sciences Fund(4)... 1,701,555 6.5% 5.3%
7800 East Union Avenue, Mail Stop 1102
Denver, CO 80237
Sarnoff Corporation(5)................... 1,591,661 6.1% 4.6%
201 Washington Road
Princeton, NJ 08543-5300
SmithKline Beecham plc(6)................ 1,355,206 5.1% 4.2%
New Horizons Court, Brentford
Middlesex, TW89EP, England
Directors and Executive Officers
Dale R. Pfost, Ph.D.(7).................. 238,488 0.9% 0.7%
Donald R. Marvin(8)...................... 161,762 0.6% 0.5%
Sidney M. Hecht, Ph.D.(9)................ 15,054 * *
Samuel D. Isaly(10)...................... 2,467,562 9.4% 7.6%
Jeremy M. Levin, D.Phil., MB.BChir.(11).. 9,999 * *
Ernest Mario, Ph.D.(12).................. 1,250 * *
George Poste, DVM, Ph.D.(13)............. 8,333 * *
Robert M. Tien, M.D., M.P.H.(14)......... 2,500 * *
Anne M. VanLent(15)...................... 2,000 * *
All directors and executive officers as a
group (9 persons)(16)................... 2,906,948 10.9% 8.9%
</TABLE>
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- ---------------------
* 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) Represents 807,749 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, 410,254 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, 526,782 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
3,333 shares of common stock subject to a currently exercisable option
held by OrbiMed Advisors, LLC. OrbiMed Advisors, LLC is the investment
advisor for each of these funds, whose Managing Member, Samuel D. Isaly,
has sole authority to vote such shares and as such is considered the
beneficial owner of the common stock held by each of these funds.
(3) Larry Fineberg, who is a general partner of Oracle Strategic Partners, LP,
has the authority to vote such shares.
(4) Represents 1,299,333 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. John Schroer, Senior Vice President of INVESCO
Global Health Science Fund, which manages each of Pirate Ship & Co. and
Global Health Science Fund, has authority to vote such shares.
(5) Represents 1,264,539 shares of common stock held by Sarnoff Corporation
and 323,789 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. The executive officers of Sarnoff Corporation have sole
authority to vote such shares.
(6) Represents 490,103 shares of common stock owned by SmithKline Beecham plc,
590,103 shares of common stock owned by SmithKline Beecham Corporation and
275,000 shares of common stock subject to a warrant held by SmithKline
Beecham Corporation of which 137,500 shares are currently exercisable.
Donald F. Parman, Vice President and Secretary of Smithkline Beecham
Corporation, has sole authority pursuant to a limited power of attorney
granted by SmithKline Beecham, plc to vote such shares.
(7) Includes 123,597 shares of common stock subject to currently exercisable
options.
(8) Includes 49,862 shares of common stock subject to currently exercisable
options, 70,000 shares of common stock subject to currently exercisable
warrants held by Cairn Investments Inc. and 42,150 shares of common stock
held by Cairn Investments Inc. Cairn Investments Inc. is an investment
corporation whose stockholders consist of Mr. Marvin and his wife.
(9) Represents 15,054 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.
(10) 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.
(11) Represents 9,999 shares of common stock subject to currently exercisable
options.
(12) Represents 833 shares of common stock subject to a currently exercisable
option.
(13) Represents 4,166 shares of common stock subject to a currently exercisable
option.
(14) Represents 2,000 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.
(15) 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 5.
(16) Represents 194,761 shares subject to currently exercisable options and
345,000 shares subject to currently exercisable warrants.
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DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of 50,000,000
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, based on the number of shares
outstanding on March 31, 2000 there will be:
. 31,989,381 shares of common stock outstanding;
. 3,250,995 options to purchase shares of common stock outstanding of which
310,476 are exercisable as of March 31, 2000;
. 1,237,138 warrants to purchase shares of common stock outstanding,
1,085,138 of which are exercisable as of March 31, 2000; 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
with the holders of our Series C convertible preferred stock and Series E
convertible preferred stock 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 24,781,562 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,
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<PAGE>
could make it more difficult for a third party to acquire, or could discourage
a third party from acquiring, a 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 March 31, 2000, there were outstanding warrants to purchase 1,237,138
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 $4.64 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 24,906,562 shares of
common stock will be entitled to rights with respect to the registration of
those shares under the Securities Act of 1933 as follows:
Demand Rights. 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.
Registration Rights. 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.
S-3 Registration Rights. Finally, the former holders of not less than 25% of
the Series C convertible preferred stock and Series E convertible preferred
stock and a certain holder of common stock may 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. This right
will accrue to the holders of Series C convertible preferred stock and Series E
convertible preferred stock at any time after the completion of this offering
and to the holder of common stock at any time after the first anniversary of
the completion of this offering.
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
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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
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 70% 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.
74
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our securities.
After completion of this offering and assuming no exercise of the underwriter's
over-allotment option, there will be 31,989,381 shares of common stock
outstanding based upon the number of shares outstanding as of March 31, 1999.
Of these shares, the 6,000,000 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 25,989,381 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.
. 910,754 shares may be sold immediately after completion of this offering;
and
. 6,474,484 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 substantially all of the
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.
Registration Rights
Upon completion of this offering, the holders of 24,906,562 shares of common
stock will be entitled to various rights with respect to the registration of
these shares under the Securities Act. Registration of these shares under the
Securities Act would result in these shares becoming freely tradable without
restriction under the Securities Act immediately upon the effectiveness of the
registration, except for shares purchased by affiliates. See "Description of
Capital Stock--Registration Rights" for a more complete description 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.
75
<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............................................................ 6,000,000
=========
</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 900,000 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 not 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;
76
<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 300,000 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.
77
<PAGE>
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 such
purchase confirmation is received that (1) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (2) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (3) such 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 such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or 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 such 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 such purchaser pursuant to 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 us. 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.
78
<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 and employees of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. own 833 shares of common stock and options to purchase an aggregate of
4,267 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.
79
<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-30
Independent Auditors' Report............................................. F-31
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1998 and December 29, 1999.. F-32
Consolidated Statements of Operations for the year ended December 31,
1998 and the period from January 1, 1999 to December 29, 1999.......... F-33
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-34
Consolidated Statements of Cash Flows for the year ended December 31,
1998 and the period from January 1, 1999 to December 29, 1999.......... F-35
Notes to Consolidated Financial Statements.............................. F-36
</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 except as to
the seventh paragraph of note 16
which is as of March 17, 2000,
the eighth paragraph of note 16
which is as of February 15,
2000, the ninth paragraph of
note 16 which is as of
February 21, 2000, the tenth
paragraph of note 16 which is as
of March 31, 2000 the eleventh
paragraph of note 16 which is as
of April 13, 2000 and the
twelfth paragraph of note 16
which is as of May 1, 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 $33,803,935 $33,803,935
Restricted cash.......................... -- 400,000 400,000
Short-term investments................... 7,615,127 -- --
Accounts receivable, net................. -- 2,102,563 2,102,563
Laboratory materials and supplies........ -- 182,532 182,532
Other current assets..................... 307,340 858,774 858,774
----------- ----------- -----------
Total current assets..................... 8,395,192 37,347,804 37,347,804
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 31,050,518 31,050,518
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 $94,856,310 $94,856,310
=========== =========== ===========
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 4,777,157 4,777,157
Due to related party..................... 381,033 63,519 63,519
Deferred revenue......................... 250,000 789,091 789,091
----------- ----------- -----------
Total current liabilities................ 2,644,429 10,073,120 10,073,120
Long-term debt, less current portion..... 3,547,821 4,122,357 4,122,357
Commitments and contingencies............
Manditorily redeemable convertible
preferred stock, $.001 par value
(converts into 17,734,919 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 7,934,966 shares
at December 31, 1999 (Aggregate
liquidation value of $35,707,320 at
December 31, 1999)...................... -- 39,034,609 --
Series E to be issued, at redemption
value, (4,974,694 shares, including
518,534 shares subject to repurchase
rights at December 31, 1999) (Aggregate
liquidation value of $22,281,534 at
December 31, 1999)...................... -- 22,381,533 --
----------- ----------- -----------
27,530,000 88,946,142 --
----------- ----------- -----------
</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 (19,655,109 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 19,655
Common stock to be issued (5,000 and
10,000 shares at December 31, 1998 and
1999, respectively)................... 17,500 76,250 76,250
Additional paid-in capital............. 4,808,773 50,324,522 139,252,929
Deferred compensation.................. (624,318) (7,930,030) (7,930,030)
Accumulated deficit.................... (22,537,680) (50,757,971) (50,757,971)
----------- ----------- -----------
Total stockholders' equity
(deficit).......................... (18,122,825) (8,285,309) 80,660,833
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit)................... $15,599,425 $94,856,310 $94,856,310
=========== =========== ===========
</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-related party...... $ 3,763,000 $ 2,747,800 $ --
Contract revenue-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 ......... 2,812,815 4,947,786 9,547,089
General and administrative-related
party.............................. 114,636 251,449 63,519
Research and development............ 46,845 4,984,575 11,695,798
Research and development-related
party.............................. 10,765,767 2,589,538 2,751,927
Acquisition of in-process research
and development.................... -- 2,352,838 --
----------- ------------ ------------
Total operating expenses.......... 13,740,063 15,126,186 24,058,333
----------- ------------ ------------
Operating loss.................... (9,977,063) (12,345,234) (22,265,328)
----------- ------------ ------------
Other income (expense):
Interest income..................... 49,303 931,390 202,699
Interest expense.................... -- (65,635) (6,157,662)
----------- ------------ ------------
Total other income (expenses)..... 49,303 865,755 (5,954,963)
----------- ------------ ------------
Net loss.......................... (9,927,760) (11,479,479) (28,220,291)
Beneficial conversion feature of
preferred stock...................... -- -- 44,554,000
----------- ------------ ------------
Net loss allocable to common
stockholders..................... $(9,927,760) $(11,479,479) $(72,774,291)
=========== ============ ============
Basic and diluted net loss per share
allocable to common stockholders
(note 1)............................. $ (27.57) $ (17.09) $ (95.87)
=========== ============ ============
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 for
technology
licenses........ -- -- -- -- --
Issuance of
restricted
common stock.... -- -- -- -- --
Issuance of
Series A
convertible
preferred stock
for technology
license......... 167,500 167 -- -- --
Deferred
compensation
resulting from
the grant of
options......... -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- --
Exercise of
common stock
options......... -- -- -- -- --
Net loss........ -- -- -- -- --
------- ---- ------- ---- --------
Balance, December
31, 1997......... 837,500 837 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
redeemable
convertible
preferred
stock........... -- -- -- -- --
Beneficial
conversion
feature on
issuance of
Series E
manditorily
redeemable
convertible
preferred stock
in connection
with acquisition
of GeneScreen... -- -- -- -- --
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
--------------
Number Common stock Additional Deferred Total
of to be paid-in compen- Accumulated stockholders'
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 for
technology
licenses........ 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......... -- -- -- 1,289,583 -- -- 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......... 601,779 602 -- 3,407,832 (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 58,750 1,762,350 -- -- 1,821,250
Series B
convertible
preferred stock
to be issued.... -- -- -- 211,165 -- -- --
Warrants in
connection with
convertible term
loans........... -- -- -- 5,232,000 -- -- 5,232,000
Warrants in
connection with
draws on line of
credit.......... -- -- -- 76,000 -- -- 76,000
Warrants in
connection with
sale of Series E
manditorily
redeemable
convertible
preferred
stock........... -- -- -- 753,000 -- -- 753,000
Beneficial
conversion
feature on
issuance of
Series E
manditorily
redeemable
convertible
preferred stock
in connection
with acquisition
of GeneScreen... -- -- -- 28,530,000 -- -- 28,530,000
Deferred
compensation
resulting from
the grant of
options......... -- -- -- 8,937,071 (8,937,071) -- --
Amortization of
deferred
compensation.... -- -- -- -- 1,631,359 -- 1,631,359
Exercise of
common stock
options......... 35,399 35 -- 14,163 -- -- 14,198
Net loss........ -- -- -- -- -- (28,220,291) (28,220,291)
------- ------ ------------ ----------- ----------- ------------ -------------
Balance, December
31, 1999......... 845,450 $845 76,250 50,324,522 (7,930,030) (50,757,971) (8,285,309)
======= ====== ============ =========== =========== ============ =============
</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) $(28,220,291)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Noncash research and development
expense............................. 1,644,126 3,133,171 1,821,250
Noncash compensation expense......... 85,697 174,613 1,631,359
Noncash amortization of debt
issuance costs and interest expense
.................................... -- -- 5,985,749
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) 155,745
Accounts payable.................... 117,460 609,699 756,938
Accrued expenses.................... 481,457 309,352 1,519,486
Due to related party................ (1,469,907) 51,074 (317,514)
Milestone advance................... 1,320,000 (1,108,800) --
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) (11,533,867) (15,356,787)
----------- ------------ ------------
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........................ -- -- 1,051,207
Capital expenditures................. (43,229) (1,691,404) (8,246,338)
Increase in restricted cash.......... -- -- (400,000)
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) 19,996
----------- ------------ ------------
Cash flows from financing activities:
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..................... -- -- 34,165,197
Proceeds from convertible term
notes............................... 8,765,000
Proceeds from issuance of debt from
line of credit...................... -- -- 5,036,570
Proceeds from common stock warrants.. -- -- 1,075,000
Repayment of debt on line of credit.. -- -- (387,964)
Proceeds from exercise of common
stock options....................... 4 -- 14,198
----------- ------------ ------------
Net cash provided by financing
activities........................ 9,230,004 18,300,000 48,668,001
----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents..................... 4,787,696 (5,932,691) 33,331,210
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 $ 33,803,935
=========== ============ ============
Supplemental disclosure of noncash
financing and investing activities:
Deferred compensation from issuance
of restricted stock, grant of
options and warrants................ $ 446,328 $ 438,300 $ 8,937,071
Issuance of common stock and Series A
convertible preferred stock for
technology licenses................. 1,475,376 762,833 1,762,500
Common stock granted or to be issued
to SB............................... 168,750 17,500 58,750
Beneficial conversion feature on
issuance of Series E mandatorily
redeemable convertible preferred
stock in connection with acquisition
of GeneScreen....................... -- -- 28,530,000
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 --
Issuance of Series B convertible
preferred stock in exchange for
milestone advance................... -- 211,200 --
Cancellation of long-term debt in
connection with acquisition of
GeneScreen, Inc..................... -- -- 3,547,821
Issuance of common stock 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 --
Issuance of common stock warrants in
connection with the Series E
mandatorily redeemable convertible
preferred stock private placement... -- -- 753,000
=========== ============ ============
</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. (previously known as Orchid Biocomputer, 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 $50,757,971 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, and other intangibles are amortized on a straight-line basis
over its estimated useful lives, as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Customer lists..................................................... 11
Base technology.................................................... 12-15
Trademarks and tradename........................................... 15
Goodwill........................................................... 10-15
Patents............................................................ 15
Other intangibles.................................................. 4
</TABLE>
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.
F-9
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Revenue Recognition
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 provides the SEC staff's views on the
recognition of revenue including nonrefundable technology access fees received
by registrants in connection with research collaborations with third parties.
SAB 101 states that in certain circumstances the SEC staff believes that up-
front fees, even if nonrefundable, should be deferred and recognized
systematically over the term of the research arrangement. The Company's revenue
recognition policies are consistent with the provisions of SAB 101 and the
accompanying consolidated financial statements reflect this policy for all
periods presented.
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.
Revenue on DNA laboratory testing and from SNP testing services are
recognized on an accrual basis at the time test results are reported. Deferred
revenue represents the unearned portion of payments received in advance of
tests being completed. Unbilled receivables represent revenue which has been
earned on completed tests which have not been billed to the customer.
Revenue on product sales is recorded on transfer of title and after all
significant performance obligations of the Company have been met. Revenue from
operating lease transactions is recognized on a straight-line basis over the
term of the lease in accordance with the lease agreement.
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 incurred and in accordance with the specific
contractual performance terms of such research agreements. Costs incurred in
obtaining technology licenses are charged to research and development expense
if the technology licensed has not reached technological feasibility and has no
alternative uses.
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.
F-10
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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, 12
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 $44,554,000 as a beneficial conversion feature in the net loss
allocable to common stockholders for the Series E mandatorily redeemable
convertible preferred stock ("Series E") issued or issuable in exchange for
cash at December 31, 1999. The amount of the beneficial conversion feature was
calculated as the difference between the fair value of the Company's common
stock on the commitment date of $11.75 per share over the conversion price of
$4.50 per share, with a limitation that the beneficial conversion feature can
not exceed the gross proceeds received from the issuance of the stock.
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.......................................... $ (15.61)
==========
Shares used in computing pro forma basic and diluted net loss
per share allocable to common stockholders................... 4,662,952
==========
</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 at December 31, 1999 automatically
convert into 18,809,659 shares of common stock (see note 13) 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 conversion of
the convertible preferred stock outstanding and the mandatorily redeemable
convertible preferred stock outstanding and to be issued as of December 31,
1999, into common stock as of December 31, 1999.
F-11
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 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>
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 base 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 SNP-IT, an approach to analyzing large numbers of
DNA samples for a given genetic effect, and the use of genetic variations
called single nucleotide polymorphisms ("SNPs").
The charge relating to the acquisition of Molecular Tool consists of
acquired in-process research and development of $2,352,838 which was
immediately charged to expense.
The value of acquired research and development related to this acquisition
represents the fair value of Molecular Tool products and services under
development. These products were associated with the application of SNP and
SNP-IT technologies under development by Molecular Tool as of the closing date
of the transaction. They include SNP Kits valued at $273,000, representing
collections of SNPs contained in plates and arrays to facilitate genetic
analysis; SNP Services valued at $418,000, representing the provision of
genetic analysis by Molecular Tool based on the SNP Kits under development; SNP
OEM equipment and machinery valued at $1.605 million, which is designed to
perform automated genetic analysis based on the technology and procedures
inherent in the SNP Kits; and SNP-IT Chips valued at $57,000, representing a
system permitting genetic analysis to be performed at the level of a silicon
chip in an effort to further automate genetic analysis.
F-12
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
At the date of acquisition, none of the products or services under
development by Molecular Tool, Inc. had achieved technological 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. The SNP-IT chips
had been identified and proposed as a new technology development area at the
time of the acquisition. However, major components of the chip had not been
demonstrated as feasible and have required and will continue to require
substantial investment. Areas not yet shown to be feasible included: chip
materials fabrication and biocompatibility; method and composition of bioactive
surface preparation; method and composition of optical detection systems
compatible with chip design. The Mega SNPatron Services, while now more
commercially advanced than the SNP-IT chips, faced the need for development and
feasibility demonstration in several key areas, most notably: method and
composition of the bioarray components; the ability to capture and process
results data from the Mega SNPstream process; and the composition of stable,
viable, and cost effective reagents for the tests. 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. The
challenges faced by SNPstream hardware and SNPware reagents to complete
successful commercialization included: feasibility of adapting an off-the-shelf
robotic system as the SNPstream platform; development of software systems for
data management; and development and validation of viable, stable and cost
effective reagents usable in the SNPware kits. 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. Further, these partially
completed products had no alternative future uses at the valuation date if the
contemplated programs were to fail, as the technology was highly specialized to
the targeted products.
The estimated values 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 base technology of Molecular Tool associated with SNP-IT
and single nucleotide polymorphisms.
The value of the acquired in-process research and development projects was
determined by projecting expected completion costs for the development projects
as well as projected cash flows resulting from their commercialization.
Material net cash inflows are projected to be realized for the development
programs in 2002, except for the SNP-IT Chip, which was projected at 2003 to
2004. The risk adjusted discount rates applied to the projects' cash flows were
40% for each of the projects except for the SNP-IT Chips, for which the risk
adjusted discount rate was 45%. In the development of projected cash flows a
completion percentage of 60.0% was employed for each project 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 base 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, and increased interest
F-13
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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 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 Company has
included $28,530,000 as a beneficial conversion feature attributable to the
Series E in the purchase price which was recorded as an increase to additional
paid-in capital. The amount of the beneficial conversion feature was calculated
as the difference between the $11.75 per share fair value of the Company's
common stock on December 22, 1999, the commitment date, over the $4.50 per
share conversion price.
The net purchase price of $42,711,000, including acquisition costs of
approximately $150,000, was allocated as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 1,064,000
Accounts receivable, net........................................ 2,103,000
Other assets.................................................... 721,000
Customer list................................................... 4,210,000
Base technology................................................. 5,580,000
Trademark/tradename............................................. 1,762,000
Other intangibles............................................... 586,000
Goodwill........................................................ 30,983,000
Current portion of long-term debt............................... (1,190,000)
Accounts payable and accrued expenses........................... (2,490,000)
Deferred revenue................................................ (193,000)
Long-term debt, less current portion............................ (425,000)
-----------
$42,711,000
===========
</TABLE>
As of December 31, 1999, none of the 4,000,000 shares had been issued. By
January 27, 2000, 3,934,353 shares were issued, which represents all of the
shares which will be issued and which are recorded as Series E mandatorily
redeemable convertible preferred stock to be issued in the December 31, 1999
consolidated balance sheet. Additionally, the Company recorded a liability at
December 31, 1999 of approximately $300,000 representing the 65,647 shares of
Series E which will not be issued and for which cash will be paid in lieu of
issuing Series E shares to satisfy certain regulatory requirements and to
eliminate fractional shares. Of the 4,000,000 shares, shares with a value of $1
million based on the stated value of $4.50 per share, allocated from the
GeneScreen stockholders on a pro rata basis, will remain in escrow for up to
one year to satisfy any claims
F-14
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
based upon any breach of representations and warranties by the GeneScreen
stockholders under the merger agreement or claims based upon any liability of
GeneScreen under ERISA with respect to eligibility requirements under
GeneScreen's 401(k) plan. The $1 million value of these shares has been
included in the recorded purchase price; payment of these shares in
satisfaction of claims would result in a reduction of goodwill. 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. The total value at the date of acquisition of the
Series E to be issued, including the beneficial conversion feature, was
$46,230,000.
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........................................................ $ 15,539,620
============
Net loss........................................................ $(32,797,142)
============
Net loss allocable to common stockholders....................... $(77,351,142)
============
Basic and diluted net loss per share allocable to common
stockholders................................................... $ (101.90)
============
</TABLE>
(4) Accounts Receivable and Credit Risks
Accounts receivable are comprised of the following at December 31, 1999:
<TABLE>
<S> <C>
Billed trade receivables....................................... $ 1,489,324
Unbilled trade receivables..................................... 831,705
------------
2,321,029
Less allowance for doubtful accounts........................... 218,466
------------
Accounts receivable, net....................................... $ 2,102,563
============
</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-15
<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/tradename................................. -- 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 to be 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. The note was collateralized by
$400,000 of pledged cash and cash equivalents on deposit at the financial
institution until the loan was repaid.
F-16
<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.............................................................. 1,240,582
2002.............................................................. 1,371,354
2003.............................................................. 1,510,421
----------
$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 1,356,420
---------- ----------
$1,008,536 $4,777,157
========== ==========
</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-17
<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. The Company has not
yet determined whether or not ownership changes, as defined by the Act, have
occurred. 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 $52,145,000 and
$42,711,000, respectively. No other segment information is presented as the
1999 activity is that of Orchid only.
One related party, SmithKline Beecham, accounted for 100%, 99% and 0% of
total revenue for 1997, 1998 and 1999, respectively, under the terms of the
August 1995 Development and License Agreement (see note 11).
F-18
<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 standard fees paid by third-parties, 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. No value was ascribed to the license
or the stock as the Company was controlled by Sarnoff at the time and because
the license had a carrying value of $0 on Sarnoff's books. In 1997, 1998 and
1999, Sarnoff provided contract research services of $6,121,641, $2,056,953 and
$930,677, respectively. Also included in research and development-related party
in the statement of operations for the year ended December 31, 1997 was $3.0
million which was accrued in 1997 related to the Company's obligation to fund
research for SB (see below) but for which services were provided by Sarnoff in
1998. 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. Certain administrative costs were
allocated from Sarnoff based on either a usage percentage of actual costs or an
approximation of market rates in the case of rent. Management believes these
allocation methods are reasonable. 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 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 advanced a portion of the second milestone payment. This advance
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 had been accomplished and therefore, a
portion of the second milestone payment equal to the $1,320,000 milestone
advance was therefore earned and non-refundable. No further performance
obligations remained related to this acknowledged portion of the milestone.
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 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. Any
payments to Sarnoff will be capitalized to the extent that the technology has
reached technological feasibility or has alternative uses; otherwise the
payments
F-19
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
will be expensed to research and development. 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 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, respectively. The fair value of
these 5,000 shares of common stock in 1998 and 1999 was $17,500 and
$58,750, respectively, and has been recorded as research and development
expense in the accompanying consolidated statements of operations. Common
stock to be issued has been recorded in the amounts of $17,500 and $76,250 at
December 31, 1998 and 1999, respectively. These 10,000 shares were issued in
February 2000.
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 which had already been incurred and
expensed in 1997 and $3.0 million outside of the original scope and solely for
the benefit of SB. The Company received new rights to certain microfluidic
technology related to low-throughput chemical synthesized devices containing
not greater than 864 reaction wells we previously developed under this
agreement in exchange for the aforementioned obligation to fund research
valued at $3.0 million. As the Company was obligated to incur these costs in
fulfilling the terms of the Agreements without any increase in corresponding
contract revenue, and as this technology to which the rights were received has
not reached technological feasibility and has no alternative future uses, the
acquisition of these rights for $3.0 million was recorded as research and
development expense in 1997. The Company fulfilled its obligation and funded
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: genomics, certain high throughput screening, analysis and synthesis and
cell-based assays. 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 fair value of $185,626 and 167,500 shares of
Series A, with a 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
F-20
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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 fair
value of $114,885 in 1998 and $391,275 in 1999, and 66,700 shares of Series A
in each of 1998 and 1999, with a fair value of $400,200 in 1998 and $783,725 in
1999, which amounts were recorded as research and development expense in the
accompanying 1998 and 1999 consolidated statements of operations. All of the
amounts noted above which were paid as consideration for licensed technology
have been recorded as research and development expense as the technology
licensed has not reached technological feasibility and has no alternative uses.
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 fair value of this stock was $587,500, 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
and will be recognized over the estimated term of the license. The Company also
issued an option to Motorola to purchase up to $5,000,000 of common stock at a
per share price of the lesser 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 were 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 as the related research and development
activities were performed. On October 25, 1999, this agreement was terminated
as allowed under the Collaboration Agreement, causing all research and
development activities to cease. In 1999, Motorola made additional payments
under this agreement aggregating $505,000, of which the Company recognized
$245,000 as revenue as the related research and development activities were
performed 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. In accordance with the terms of the Collaboration Agreement, the
Company has also recorded approximately $333,000 as contract revenue-unrelated
party in 1999 and as a termination fee receivable at December 31, 1999 and will
be reimbursed for certain shutdown costs not to exceed $178,000 in connection
with the termination. 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 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
F-21
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
$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")
under which Orchid obtained a license. Per the terms of the agreement, both
parties are to conduct certain research and development activities based upon a
mutually agreed upon budget and each party will bear their respective costs.
The Company paid ABS a non-refundable $100,000 license fee payment upon signing
the agreement, which was recorded as research and development expenses in 1998.
In 1999 upon certain technological achievements by ABS, the Company made
milestone 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 use of the
instrument for the one year, the licensee paid $500,000 license fee, which is
refundable on a pro-rata basis upon certain events. The licensee is obligated
to purchase a minimum order of consumables which are billed separately when
purchased and may elect to purchase the instrument from the Company for an
additional payment. 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. The remaining deferred license fee will be
recognized on a straight-line basis over the remaining term of the agreement.
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 Company agreed to collaborate on the development of three
types of kits, designated under our agreement as Generic Kits, Standard Kits
and Custom Kits. The Company is responsible for all development costs
associated with the development of Generic Kits and Custom Kits and the
optimization of the SNP-IT primer-extension tests to be used on the Affymetrix
GeneChip system. The Company and Affymetrix will share costs associated with
the development of 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 agreed upon prices. The agreement is for an initial term
of five years and is renewable for additional one-year terms 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
F-22
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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 in
the beneficial ownership of the Company, as defined, 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 .001--.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 .001--1.25
=========
</TABLE>
At December 31, 1999, the Plan had the following options outstanding and
exercisable by price range, as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------- ------------------------
Range Weighted average Weighted average Number Weighted average
of exercise Number remaining exercise price of exercise price
prices of shares contractual life per share shares per share
- ----------- --------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$.001-.10 165,980 7.7 years $.01 95,269 $.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>
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 weighted average fair values of common stock for the years
ended December 31, 1997, 1998 and 1999 were $1.26, $2.95 and $5.58 per share,
respectively. The difference between the respective exercise prices at the
grant dates and the fair value of the common stock on the dates of grant, as
determined by the Board of Directors, has been recorded as deferred
compensation ($291,700, $308,488 and $6,994,552 for 1997, 1998 and 1999,
respectively) which is being amortized on a straight-line basis to expense over
the respective vesting periods.
F-23
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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) $(72,774,291)
=========== ============ ============
Pro forma under SFAS No. 123.... $(9,932,266) $(11,484,871) $(72,974,593)
=========== ============ ============
Basic and diluted net loss per
share allocable to common
stockholders:
As reported..................... $ (27.57) $ (17.09) $ (95.87)
=========== ============ ============
Pro forma under SFAS No. 123.... $ (27.58) $ (17.10) $ (96.14)
=========== ============ ============
</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 using the methodology
prescribed in FASB Interpretation No. 28 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 $8.71 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 $7.34 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; volatility is not applicable for
employees as the Company is private 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.
(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.
F-24
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
In May and June 1999, the Company issued an aggregate of $7,590,000 of
convertible subordinated term notes and warrants to purchase 381,500 shares of
the Company's common stock. The notes were to be convertible into Series E at
$6 per share, subject to adjustment, at any time at the option of the holder or
automatically upon the closing of a private placement financing with proceeds
of at least $24 million. 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 at a conversion price
of $4.50, the price per share in the Series E financing, in accordance with the
original conversion terms, with this combined amount being recorded as Series
E. Based upon the issuance price per share of the Series E and the conversion
not occurring until December 1999, 382,410 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 fair
value of the originally issued and additional warrants, using a Black Scholes
option pricing model, was approximately $5,232,000 and was recorded as interest
expense in 1999 and an increase in additional paid-in capital.
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 a separate agreement, Affymetrix
granted the Company two put options to sell $250,000 of common stock of the
Company at $9.00 per share for each put as a means of providing additional
equity financing to the Company. One put option becomes exercisable upon the
closing of the acquisition of GeneScreen and the other becomes exercisable upon
a certain type of kit contemplated under the collaboration agreement with
Affymetrix having been developed, manufactured and ready for commercial
release. Neither put was exercisable and each had a fair value of $0 at
issuance at which time the fair value of the Company's common stock was $11.75
per share. Upon the closing of the Gene Screen acquisition in December 1999,
one of the puts became exercisable, however, the Company has not exercised its
option as of December 31, 1999. These put options expire in December 2001. If
these puts are exercised, the proceeds will be recorded in stockholders'
equity.
In December 1999, the Company completed the sale of 6,151,457 shares of the
Series E, through a private placement for aggregate net proceeds of
$31,008,818. In connection with this sale, the Company will issue five year
warrants to purchase 86,334 shares of common stock at an exercise price of
$6.00 per share. The Company recorded $753,000 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 $44,554,000 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 in
accordance with EITF Issue 98-5.
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.
F-25
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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.
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 $925,979 in
1999.
F-26
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Legal Matters
The Company is not a party to any material legal proceeding. The Company is
engaged in discussions with Motorola in an attempt to resolve certain areas of
disagreement that have arisen under the existing collaboration in the area of
microfluidics. The primary issue of disagreement between the parties relates to
whether, under the terms of the agreement with Motorola, Motorola has a right
to obtain a license to the Company's SNP-IT technology for use with Motorola's
microfluidic chips. While the Company believes that, under the terms of the
agreement, Motorola has no rights to its SNP-IT technology, there can be no
assurance that an agreement can be reached with Motorola on this issue or that
the Company would prevail if this dispute were to develop into arbitration or
litigation. Nonetheless, the Company believes that, even if it fails to
successfully resolve this issue or to prevail in any such arbitration or
litigation, it would only be obligated to grant Motorola a non-exclusive
license to use its SNP-IT technology with their microfluidic chips on terms no
less favorable than those offered to other licensees. The Company does not
believe that such a result is likely to have a material adverse affect on the
Company's business, financial condition and operating results.
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 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
Employment agreements
Effective January 2000, we entered into three year employment agreements
with two executives of the Company. In certain cases, the Company may be
obligated to pay the executives salary and benefits for up to eighteen months
after leaving the Company.
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 gross proceeds of $29,573,564. The issuance of these securities
will result in a $29,573,564 beneficial conversion feature which will increase
net loss per share allocable to common stockholders in the first quarter of
2000. The fair value of the Company's common stock on the commitment date was
$11.75; however, the amount of the beneficial conversion feature was limited to
the amount of gross proceeds received from the issuance of the Series E. 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.
F-27
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Stock Option Grants
In January and on February 2, 2000, the Company granted 36,500, 679,400,
40,750 and 40,750 stock options under the 2000 Employee, Director and
Consultant Stock Plan at exercise prices of $1.25, $6, $12 and at the per share
price of the offering contemplated herein, respectively, for which a
compensation charge of approximately $4.2 million will be recognized over the
respective vesting periods of the options. Some of these amounts result from
grants to consultants which are subject to remeasurement at the end of each
reporting period based upon the changes in the fair value of the common stock
until the consultant completes performance under the option agreement. In
addition, the Company issued 855,000 performance based stock options at
exercise prices of $6.00 for which compensation expense will be measured as the
difference between the fair value of our common stock, at the time the
performance criteria is met and the external price and will be immediately
recorded as compensation expense.
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 4,833,356 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. The Board of
Directors will have the authority, without any further stockholder approval to
determine the price, privileges and other terms of the shares.
2000 Employee, Director and Consultant Stock Incentive Plan
On February 11, 2000 and March 17, 2000, the Board of Directors and
stockholders approved, respectively, 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 1,500,000
options under this plan and 3,500,000 under the 1995 Stock Incentive Plan.
ABS Termination
Effective February 15, 2000, the Collaborative Development and Marketing
Agreement with ABS was terminated, with Orchid paying ABS $75,000 in full and
final settlement of all amounts owed under this agreement.
NEN Agreement
On February 21, 2000, we entered into an Agreement with NEN Life Science
Products, Inc. pursuant to which NEN has agreed to supply us with terminators
for use in our SNPkits. In consideration of NEN's agreement to supply us with
terminators at favorable prices, we sold 125,000 shares of our common stock for
a purchase price of $750,000 and paid NEN an up-front fee of $750,000. We also
agreed to pay NEN a certain percentage of net sales revenue based on the number
of SNPkits we sell. The 125,000 shares had a fair value of $1,500,000 on the
date of the agreement. Since the products being supplied are used in Orchid's
current
F-28
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
products and may be used in future products, the Company will defer and
amortize the $750,000 up-front fee plus the $750,000 excess of the fair value
of the issued common stock over the purchase price (or a total of $1.5 million)
over the estimated four year term of the agreement on a straight-line basis.
The Company measured the fair value of the common stock on the date of the
agreement as these shares were fully paid and nonforfeitable on that date. We
are required to purchase quantities of products with an approximate minimum
value during each annual period from the effective date as follows: first year
$333,000, second year $700,000, third year $990,000 and fourth year $1,320,000.
Either party can terminate the agreement any time after four years from the
commencement date, without cause, upon 90 days written notice.
Grant of Stock Options
On March 31, 2000, the Company granted 289,660 stock options under the Plan
at exercise prices of $12 per share for which a compensation charge of
approximately $800,000 will be recognized over the respective vesting periods
of the options. Some of these amounts result from grants to consultants which
are subject to remeasurement at the end of each reporting period based upon the
changes in the fair value of the common stock until the consultant completes
performance under the option agreement.
Sarnoff Agreement
On April 13, 2000, we amended our Option Agreement with Sarnoff. Under the
terms of the amendment in lieu of all future cash payment, research funding,
potential royalty payment and stock issuance obligations, the Company made a
payment to Sarnoff of approximately $3 million and issued 250,000 shares of
common stock and granted five-year warrants to purchase 75,000 shares of common
stock at the initial public offering price, or at $12 per share if there has
been no initial public offering one year after issuance of the warrant. The
Company will also not be able to exercise the remaining two option fields as a
result of this amendment. Previously on February 2, 2000, the Company issued
100,000 shares of common stock to Sarnoff as an advance on the issuances which
would be owed in December 2000 for the two option fields previously issued
under the Option Agreement. As this licensed technology has not reached
technological feasibility and has no alternative future uses, the cash payment
of approximately $3.0 million and the fair value of the equity securities of
approximately $4.8 million will be charged to research and development expense
in the quarter ended June 30, 2000.
Change in Automatic Conversion Terms
After previously obtaining requisite stockholder approval, on May 1, 2000,
the Company filed an amendment to its certificate of incorporation to reduce
the per share price required in an initial public offering to automatically
convert shares of Series C and Series E into shares of common stock to be
consistent with the $11.00-$13.00 per share price range contemplated in this
offering.
F-29
<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-30
<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-31
<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 .............................................. $ 1,873,302 $ 538,411
Restricted cash.................................... -- 400,000
Accounts receivable, net........................... 2,940,560 2,228,554
Laboratory materials and supplies.................. 413,792 304,938
Escrow receivable.................................. 380,000 --
Prepaid expenses and other current assets.......... 196,203 156,108
----------- -----------
Total current assets............................. 5,803,857 3,628,011
Property and equipment, net.......................... 574,637 382,563
Note receivable...................................... 3,547,821 3,547,821
Other assets......................................... 111,297 47,920
----------- -----------
Total assets..................................... $10,037,612 $ 7,606,315
=========== ===========
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................................... 207,154 193,046
----------- -----------
Total current liabilities........................ 5,151,790 3,873,759
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................................ 9,408,430 7,869,033
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................................ (7,108,240) (9,239,275)
----------- -----------
Total stockholders' equity (deficit)............. 629,182 (262,718)
Commitments and contingencies........................
----------- -----------
Total liabilities and stockholders' equity
(deficit)....................................... $10,037,612 $ 7,606,315
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<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>
Revenue:
Laboratory testing.................................. $15,399,991 $13,746,615
----------- -----------
Operating expenses:
Cost of laboratory testing.......................... 12,190,514 10,054,681
General and administrative.......................... 4,953,158 5,922,537
Research and development............................ 84,843 97,909
----------- -----------
Total operating expenses.......................... 17,228,515 16,075,127
----------- -----------
Operating loss.................................... (1,828,524) (2,328,512)
Other expense:
Interest expense.................................... (208,858) (159,698)
----------- -----------
Loss from continuing operations................... (2,037,382) (2,488,210)
----------- -----------
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.......................................... $ (699,770) $(2,131,035)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<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) (6,408,470) 1,279,881
Exercise of
common stock
options......... -- -- -- -- 996 10 307 -- -- -- 317
Cancellation of
note receivable
from
stockholder..... -- -- -- -- -- -- -- -- 48,754 -- 48,754
Net loss........ -- -- -- -- -- -- -- -- -- (699,770) (699,770)
------- ------- ------- ------- --------- ------- --------- --- ------- ---------- ----------
Balance,
December 31,
1998............ 350,000 $17,500 691,723 $34,586 2,620,493 $26,205 7,695,716 (22) (36,563) (7,108,240) 629,182
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........ -- -- -- -- -- -- -- -- -- (2,131,035) (2,131,035)
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) -- (9,239,275) (262,718)
======= ======= ======= ======= ========= ======= ========= === ======= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<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........................................... $ (699,770) $(2,131,035)
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............................ (1,055,400) 712,006
Laboratory materials and supplies.............. (79,162) 108,854
Prepaid expenses and other current assets...... 63,481 56,864
Accounts payable............................... 102,954 (766,314)
Accrued liabilities............................ 595,848 751,753
Deferred revenue............................... 51,810 (14,108)
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)
Increase in restricted cash........................ -- (400,000)
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 (231,249)
----------- -----------
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 (1,334,891)
Cash at beginning of year............................ 22,268 1,873,302
----------- -----------
Cash at end of year.................................. $ 1,873,302 $ 538,411
=========== ===========
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-35
<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 SNP-IT primer-extension technology ("SNP-IT") 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 an accrual basis at the time test results are
reported. Deferred revenue represents the unearned portion of payments received
in advance of tests being completed. Unbilled receivables represent revenue
which has been earned on completed tests which have not been billed to the
customer.
F-36
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
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.
(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 SNP-IT
technology of MTool to permit the Company to continue implementation of the
SNP-IT testing processes.
F-37
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
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>
Revenue 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-38
<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.............................. $2,130,827 $1,615,315
Unbilled trade receivables............................ 914,926 831,705
---------- ----------
3,045,753 2,447,020
Less allowance for doubtful accounts.................. 105,193 218,466
---------- ----------
Accounts receivable, net............................ $2,940,560 $2,228,554
========== ==========
</TABLE>
GeneScreen's accounts receivable are primarily composed of amounts owed by
government agencies. GeneScreen performs periodic credit evaluations of its
customers' 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 until the loan is repaid. 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-39
<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-40
<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-41
<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-42
<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
$702,693 and $2,170,710 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-43
<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 consideration
consisting primarily of 4,000,000 shares of Orchid Series E convertible
preferred stock ("Series E") (see note 9) with a stated value of $4.50 per
share. The Company estimates that approximately $300,000 will be paid in lieu
of issuing Series E shares to satisfy certain regulatory requirements and
eliminate fractional shares. This equates to 65,647 shares of Series E which
will not 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-44
<PAGE>
[Inside back cover contains the title "Orchid's Strategy" and an image in the
shape of our logo which shows the four parts of our strategy, including our
goals of rapid commercialization, sustained competitive advantage, market
extension and creation of new proprietary rights.
Right-hand side of page contains photographs of the following: our SNPstream
instrument, our SNPstream kit, a patient with a health care provider, capsules,
a graphic illustration of our proposed MegaSNPatron facility, and our Orchid
logo.
<PAGE>
[logo of ORCHID BIOSCIENCES]
<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.......................................... $ 31,574
NASD filing fee............................................... 12,460
Nasdaq National Market listing fee............................ 26,625
Blue Sky fees and expenses.................................... 10,000
Transfer Agent and Registrar fees............................. 10,000
Accounting fees and expenses.................................. 450,000
Legal fees and expenses....................................... 525,000
Printing and mailing expenses................................. 400,000
Miscellaneous................................................. 34,341
----------
Total....................................................... $1,500,000
==========
</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>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
April 1, 1997 to March 31, 1998.............................. 307,030 $ .30
April 1, 1998 to March 31, 1999.............................. 422,588 $1.12
April 1, 1999 to March 31, 2000.............................. 2,657,089 $4.34
</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
II-2
<PAGE>
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.
2. In December 1997, in consideration for an amendment to the Development
and License Agreement, we issued SmithKline Beecham 75,000 shares of our common
stock and warrants to purchase 275,000 shares of our common stock.
3. From December 24, 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
$27,530,000.
4. On April 1, 1998, in partial consideration of the execution of a License
Agreement with Dynal A.S., we issued 90,090 shares of our common stock to
Dynal.
5. On June 3, 1998 in connection with his executive compensation package, we
granted Donald R. Marvin a warrant to purchase 60,000 shares of our common
stock. Mr. Marvin's warrant is issued in the name of Cairn Investments Inc., an
investment company whose stockholders consist of Mr. Marvin and his wife.
6. On December 1, 1998, in connection with his executive compensation
package, we granted Donald R. Marvin a warrant to purchase 25,000 shares of our
common stock. Mr. Marvin's warrant is issued in the name of Cairn Investments
Inc.
7. On December 10, 1998, in connection with the exercise of an option 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 this option
under this agreement, we also issued SmithKline Beecham 5,000 shares of our
common stock.
8. On January 1, 1999 in connection with the achievement of a milestone
under the Development and License Agreement dated August 1995, with SmithKline
Beecham, we issued SmithKline Beecham an aggregate of 35,200 shares of our
Series B convertible preferred stock.
9. On March 4, 1999 in connection with an equipment financing transaction,
we granted two warrants to purchase an aggregate of 6,185 shares of our common
stock to Phoenixcor, Inc.
10. In May and 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 381,500 shares of our common stock to
twelve accredited investors. The aggregate principal amount of these notes, and
all accrued interest thereon, automatically converted into 1,783,509 shares of
our Series E convertible preferred stock in December 1999.
11. On September 16, 1999, in connection with an equipment financing
transaction, we granted a warrant to purchase 7,678 shares of our common stock
to Phoenixcor, Inc.
12. 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. 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.
13. On December 10, 1999 in connection with the exercise of an option and on
the one year anniversary of the exercise of another option under our License
and Option Agreement with Sarnoff Corporation, we issued
II-3
<PAGE>
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 exercise of
this option, we also issued SmithKline Beecham 5,000 shares of our common
stock.
14. 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.
15. From December 22, 1999 through January 27, 2000, we issued an aggregate
of 18,881,563 shares of our Series E convertible preferred stock in a private
placement to 147 investors at an aggregate purchase price of $85,500,000.
16. On December 28, 1999 in consideration of an equipment financing
transaction, we granted a warrant to purchase 7,031 shares of our common stock
to Phoenixcor, Inc.
17. On December 22, 1999 in consideration of advisory services provided in
connection with the Series E private placement, we granted EB Finance Co., Ltd.
a warrant to purchase 77,667 shares of our common stock.
18. On December 22, 1999 in consideration of advisory services provided in
connection with the Series E private placement, we granted Por Hsuing Lai a
warrant to purchase 8,667 shares of our common stock.
19. On December 22, 1999 in consideration of advisory services provided in
connection with our acquisition of Molecular Tool we granted NeoMed Innovation
AS a warrant to purchase 6,000 shares of our common stock.
20. On February 2, 2000, we issued Sarnoff Corporation an aggregate of
100,000 shares of our common stock as an advance of shares to be owed in the
future under the License and Option Agreement with Sarnoff.
21. On March 31, 2000, in partial consideration of the execution of our
Agreement for the License and Supply of Terminators with NEN Life Science
Products, Inc., we issued NEN and its affiliate an aggregate of 125,000 shares
of our common stock.
22. On April 13, 2000, in connection with the amendment to our License and
Option Agreement with Sarnoff Corporation we agreed to issue to Sarnoff 250,000
shares and grant a warrant to purchase 75,000 shares of our common stock.
The issuances of securities described in Part A were deemed to be exempt
from registration under the Securities Act by virtue of Rule 701 promulgated
thereunder as transactions pursuant to a written employee compensatory benefit
plan approved by the registrant's board of directors.
The issuances of securities described in Items 1 through 9 of Part B were
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2), Regulation D or Regulation S promulgated thereunder. The
recipients represented their intention to acquire the securities for investment
purposes only and not with a view to the distribution thereof. Appropriate
legends are affixed to the stock certificates issued in such transactions.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
#1 Underwriting Agreement
#2 Agreement and Plan of Merger by and among the Registrant, GS
Acquisition Corp. and GeneScreen, Inc. dated December 21, 1999
3.1 Certificate of Incorporation of the Registrant
3.2 Restated Certificate of Incorporation of the Registrant, to be
effective upon the closing of this offering
#3.3 Bylaws of the Registrant
#3.4 Amended and Restated Bylaws of the Registrant, to be effective
upon the closing of this offering
#4.1 Specimen certificate for shares of common stock
#5 Form of 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 non-statutory and incentive stock
options
#10.3 Executive Benefit Program, including Executive Deferred
Compensation Plan Executive and Severance Plan
#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, as amended by Amendment to
License and Option Agreement dated as of April 13, 2000 by and
between Sarnoff Corporation and the Registrant
10.7 Employment Agreement, effective as of January 1, 2000, by and
between the Registrant and Dale R. Pfost, Ph.D.
10.8 Employment Agreement, effective as of January 1, 2000 by and
between the Registrant and Donald R. Marvin
#+10.9 Agreement for the License and Supply of Terminators, dated
February 16, 2000 between the Registrant and NEN Life Science
Products, Inc.
#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, April 7, 2000, and May 1, 2000
# Previously filed
II-5
<PAGE>
(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.
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-6
<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 4th
day of May, 2000.
Orchid BioSciences, Inc.
/s/ Dale R. Pfost
By:__________________________________
Dale R. Pfost,
President and Chief Executive
Officer
POWER OF ATTORNEY
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 May 4, 2000
______________________________________ Officer and Director
Dale R. Pfost, Ph.D. (principal executive
officer)
/s/ Donald R. Marvin Senior Vice President, May 4, 2000
______________________________________ Chief Operating Officer
Donald R. Marvin and Chief Financial
Officer (principal
financial and accounting
officer)
* Director May 4, 2000
______________________________________
Sidney M. Hecht, Ph.D.
* Director May 4, 2000
______________________________________
Samuel D. Isaly
* Director May 4, 2000
______________________________________
Jeremy M. Levin, D.Phil., MB.BChir.
* Director May 4, 2000
______________________________________
Anne M. VanLent
* Director May 4, 2000
______________________________________
Robert M. Tien, M.D., M.P.H.
Director
______________________________________
Ernest Mario, Ph.D.
Director
______________________________________
George Poste, DVM, Ph.D.
</TABLE>
* By executing his name hereto on May 4, 2000, Dale R. Pfost is signing this
document on behalf of the persons indicated above pursuant to powers of
attorney duly executed by such persons and filed with the Securities and
Exchange Commission.
/s/ Dale R. Pfost, Ph.D.
By: _____________________________
Dale R. Pfost, Ph.D.
Attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
#1 Underwriting Agreement
#2 Agreement and Plan of Merger by and among the Registrant, GS
Acquisition Corp. and GeneScreen, Inc. dated December 21, 1999
3.1 Certificate of Incorporation of the Registrant
3.2 Restated Certificate of Incorporation of the Registrant, to be
effective upon the closing of this offering
#3.3 Bylaws of the Registrant
#3.4 Amended and Restated Bylaws of the Registrant, to be effective
upon the closing of this offering
#4.1 Specimen certificate for shares of common stock
#5 Form of 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 non-statutory and incentive stock
options
#10.3 Executive Benefit Program, including Executive Deferred
Compensation Plan Executive and Severance Plan
#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, as amended by Amendment to
License and Option Agreement dated as of April 13, 2000 by and
between Sarnoff Corporation and the Registrant
10.7 Employment Agreement, effective as of January 1, 2000, by and
between the Registrant and Dale R. Pfost, Ph.D.
10.8 Employment Agreement, effective as of January 1, 2000 by and
between the Registrant and Donald R. Marvin
#+10.9 Agreement for the License and Supply of Terminators, dated
February 16, 2000 between the Registrant and NEN Life Science
Products, Inc.
#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, April 7, 2000, and May 1, 2000
# Previously filed
<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 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
3
<PAGE>
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).
4
<PAGE>
(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
5
<PAGE>
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
6
<PAGE>
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,
7
<PAGE>
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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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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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
19
<PAGE>
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.
20
<PAGE>
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>
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 AMENDMENT
of the
CERTIFICATE OF INCORPORATION
of
ORCHID BIOSCIENCES, INC.
It is hereby certified that:
FIRST: The name of the corporation is Orchid BioSciences, Inc. (the
- ----- "Corporation"). The date of the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was
March 8, 1995.
SECOND: Article FOURTH of the Certificate of Incorporation is hereby amended
- ------ by deleting Section A.7(j) of the Certificate of Designation of the
Series C Convertible Preferred Stock of the Corporation dated December
24, 1997, as amended March 24, 1998 and December 22, 1999 in its
entirety and by substituting in lieu of the following:
"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 $10.00 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."
<PAGE>
THIRD: Article FOURTH of the Certificate of Incorporation be further revised
- ----- by amending the Certificate of Designation of the Series E Convertible
Preferred Stock of the Corporation dated December 22, 1999, as amended
January 27, 2000 and as corrected on January 13, 2000 (the "Series E
Certificate of Designation") by deleting Section 4.c(i) in its
entirety, and by inserting in lieu thereof the following:
"(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 $10.00 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")."
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 1st day of May, 2000.
ORCHID BIOSCIENCES, INC.
By: /s/ Donald R. Marvin
-----------------------------
Donald R. Marvin
Senior Vice President, COO & CFO
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ORCHID BIOSCIENCES, INC.
It is hereby certified that:
FIRST: The name of the corporation is Orchid BioSciences, Inc. (the
"Corporation"). The date of the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was
March 8, 1995.
SECOND: Article FOURTH of the Certificate of Incorporation is hereby amended by
deleting Section A.7(j) of the Certificate of Designation of the
Series C Convertible Preferred Stock of the Corporation dated December
24, 1997, as amended March 24, 1998, December 22, 1999 and May 1, 2000
in its entirety and by substituting in lieu of the following:
"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 $8.00 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."
<PAGE>
THIRD: Article FOURTH of the Certificate of Incorporation be further revised by
amending the Certificate of Designation of the Series E Convertible
Preferred Stock of the Corporation dated December 22, 1999, as amended
January 27, 2000, as corrected on January 13, 2000 and as amended on
May 1, 2000 (the "Series E Certificate of Designation") by deleting
Section 4.c(i) in its entirety, and by inserting in lieu thereof the
following:
"(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 $8.00 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")."
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 4th day of May, 2000.
ORCHID BIOSCIENCES, INC.
By: /s/ Donald R. Marvin
________________________________
Donald R. Marvin
Senior Vice President, COO & CFO
A:\#1326112 v1.doc
<PAGE>
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
ORCHID BIOSCIENCES, INC.
Orchid BioSciences, Inc., a Delaware corporation, hereby certifies as
follows:
1. The present name of the corporation (hereinafter called the
"Corporation") is Orchid BioSciences, Inc. The date of the filing of its
original Certificate of Incorporation with the Secretary of State of the State
of Delaware was March 8, 1995. The original name of the Corporation is Sarnoff
Sub Eight, Inc.
2. The certificate of incorporation is hereby amended by deleting Articles
FIRST, through NINTH in their entirety and replacing in lieu thereof the
Restated Certificate of Incorporation hereinafter provided.
3. The provisions of the certificate of incorporation of the Corporation as
heretofore amended and/or supplemented, and as herein amended, are hereby
restated and integrated into the single instrument which is hereinafter set
forth, and which is entitled Restated Certificate of Incorporation of Orchid
Biocomputer, Inc. without any further amendments other than the amendments
herein certified and without any discrepancy between the provisions of the
certificate of incorporation as heretofore amended and supplemented and the
provisions of the said single instrument hereinafter set forth.
4. The amendments and the restatement of the certificate or incorporation
herein certified have been duly adopted by the Directors in accordance with the
provisions of Sections 242 and 245 and filed in accordance with the provisions
of Section 103 of the General Corporation Law of the State of Delaware.
5. The effective time of the restated certificate of incorporation and of
the amendments herein certified shall be upon filing with the Secretary of
State.
The certificate of incorporation of the Corporation, as amended and
restated hereunder shall at the effective time of this Restated Certificate of
Incorporation, read as follows:
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
ORCHID BIOSCIENCES, INC.
The text of the Certificate of Incorporation is hereby amended and restated
in its entirety as follows:
FIRST: The name of the corporation is Orchid Biocomputer, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle;
and the name of the registered agent of the Corporation in the State of Delaware
is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity or carry on any business for which corporations may be organized under
the Delaware General Corporation Law or any successor statue.
FOURTH:
A. Designation and Number of Shares.
--------------------------------
The total number of shares of all classes of stock which the Corporation
shall have the authority to issue is 55,000,000 shares, consisting of 50,000,000
shares of common stock, $.001 par value per share (the "Common Stock") and
5,000,000 shares of Preferred Stock, $.001 par value per share (the "Preferred
Stock").
A statement of the designations of the different classes of stock of the
Corporation and of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, and of the authority conferred upon the
Board of Directors to fix by resolution or resolutions any of the foregoing in
connection with the creation of one or more series of Preferred Stock and the
limitation of variations between or among such series, is set forth below in
this Article FOURTH.
B. Common Stock.
------------
The relative powers, preferences, rights, qualifications, limitations and
restrictions of the shares of the Common Stock are as follows:
1. Dividends. Subject to the preferential rights, if any, of the Preferred
---------
Stock, the holders of shares of Common Stock shall be entitled to receive, when
and if declared by the Board of Directors, out of the assets of the Corporation
which are by law available therefor, dividends payable either in cash, in
property, or in shares of Common Stock.
2. Liquidation. In the event of any liquidation, dissolution or winding up
-----------
of the Corporation, whether voluntary or involuntary, after payment or provision
for payment of the debts and other liabilities of the Corporation and the
amounts to which the holders of any Preferred Stock shall be entitled, the
holders of Common Stock shall be entitled to share ratably in the remaining
assets of the Corporation.
3. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held. There shall be no cumulative voting.
C. Preferred Stock
---------------
1. Shares of Preferred Stock may be issued in one or more series at such
time or times and for such consideration as the Board of Directors may
determine.
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<PAGE>
2. Authority is hereby expressly granted to the Board of Directors to fix
from time to time, by resolution or resolutions providing for the establishment
and/or issuance of any series of Preferred Stock, the designation of such series
and the powers, preferences and rights of the shares of such series, and the
qualifications, limitations or restrictions thereof, to the fullest extent such
authority may be conferred upon the Board of Directors under the Delaware
General Corporation Law, including, without limitation, the authority to fix the
following:
(a) The distinctive designation and number of shares comprising such
series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below
the number of shares then outstanding) from time to time by action of the
Board of Directors;
(b) The rate of dividends, if any, on the shares of that series,
whether dividends shall be (i) non-cumulative, (ii) cumulative to the
extent earned or (iii) cumulative (and, if cumulative, from which date or
dates), whether dividends shall be payable in cash, property or rights, or
in shares of the Corporation's capital stock, and the relative rights of
priority, if any, of payment of dividends on shares of that series over
shares of any other series or class;
(c) Whether the shares of that series shall be redeemable and, if so,
the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share
payable in case of redemption (which amount may vary under different
conditions and at different redemption dates) or the property or rights,
including securities of any other corporation, payable in case of
redemption;
(d) Whether the series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amounts payable
into such sinking fund;
(e) The rights to which the holders of the shares of that series shall
be entitled in the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series in any such event;
(f) Whether the shares of that series shall be convertible into or
exchangeable for shares of stock of any other class or any other series
and, if so, the terms and conditions of such conversion or exchange,
including the rate or rates of conversion or exchange, the date or dates
upon or after which they shall be convertible or exchangeable, the period
or periods during which they shall be convertible or exchangeable, the
event or events upon or after which they shall be convertible or
exchangeable or at whose option they shall be convertible or exchangeable,
and the method (if any) of adjusting the rates of conversion or exchange in
the event of a stock split, stock dividend, combination of shares or
similar event;
(g) Whether the issuance of any additional shares of such series, or
of any shares of any other series, shall be subject to restrictions as to
issuance, or as to the powers,
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preferences or rights of any such additional shares of such series or
shares of such other series;
(h) Whether or not the shares of that series shall have voting rights,
the extent of such voting rights on specified matters or on all matters,
the number of votes to which the holder of a share of such series shall be
entitled in respect of such share, whether such series shall vote generally
with the Common Stock on all matters or (either generally or upon the
occurrence of specified circumstances) shall vote separately as a class or
with other series of Preferred Stock; and
(i) Any other preferences, privileges and powers and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions of such series, as the Board of Directors may
deem advisable and as shall not be inconsistent with the provisions of this
Restated Certificate of Incorporation and to the full extent now or
hereafter permitted by the Delaware General Corporation Law.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Restated Certificate of
Incorporation or the By-Laws of the Corporation as in effect from time to time,
the directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the By-Laws so provide.
C. Any action required or permitted to be taken by the stockholders of the
Corporation may be effected only at a duly called annual or special meeting of
stockholders of the Corporation and not by written consent.
D. Special meetings of the stockholders may only be called by the Board of
Directors.
SEVENTH: A. Subject to the rights of the holders of shares of any series of
Preferred Stock then outstanding to elect additional directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Board of Directors.
B. The Board of Directors of the Corporation shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term of
office of the first class to expire at the 2001 annual meeting of stockholders
or any special meeting in lieu thereof, the term of office of
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the second class to expire at the 2002 annual meeting of stockholders or any
special meeting in lieu thereof, and the term of office of the third class to
expire at the 2003 annual meeting of stockholders or any special meeting in lieu
thereof. At each annual meeting of stockholders or special meeting in lieu
thereof following such initial classification, directors elected to succeed
those directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders or special meeting
in lieu thereof after their election and until their successors are duly elected
and qualified.
C. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he is a member until the expiration of his current term or
his prior death, retirement, removal or resignation and (ii) the newly created
or eliminated directorships resulting from such increase or decrease shall if
reasonably possible be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent reasonably possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships shall be subtracted
from those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, although less
than a quorum.
D. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the By-
Laws of the Corporation.
E. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director, or the entire Board of Directors, may be removed
from office at any time only for cause by the affirmative vote of the holders of
a majority of the outstanding shares of capital stock then entitled to vote at
an election of the directors. A director may be removed for cause only after a
reasonable notice and opportunity to be heard by the stockholders.
EIGHTH: The Board of Directors is expressly empowered to adopt, amend or
repeal By-Laws of the Corporation. Any adoption, amendment or repeal of the By-
Laws of the Corporation by the Board of Directors shall require the approval of
a majority of the Board of Directors. The stockholders shall also have power to
adopt, amend or repeal the By-Laws of the Corporation; provided, that in
--------
addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Restated Certificate of Incorporation,
the affirmative vote of the holders of at least seventy percent (70%) of the
voting power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the stockholders to adopt,
amend or repeal any provision of the By-Laws of the Corporation.
5
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NINTH. 1. Actions, Suits and Proceedings Other than by or in the Right of
---------------------------------------------------------------
the Corporation. The Corporation shall indemnify each person who was or is a
- ---------------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, 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 Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The Corporation
------------------------------------------------------
shall indemnify any Indemnitee who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was, or has agreed to become, a director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) and, to the extent permitted by law, amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
action, suit or proceeding and any appeal therefrom, 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 Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of Delaware shall determine upon application that, despite the
adjudication of
6
<PAGE>
such liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses (including
attorneys' fees) which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
------------------------------------------------
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
---------------
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. As a condition precedent to his right
---------------------------------
to be indemnified, the Indemnitee must notify the Corporation in writing as soon
as practicable of any action, suit, proceeding or investigation involving him
for which indemnity will or could be sought. With respect to any action, suit,
proceeding or investigation of which the Corporation is so notified, the
Corporation will be entitled to participate therein at its own expense and/or to
assume the defense thereof at its own expense, with legal counsel reasonably
acceptable to the Indemnitee. After notice from the Corporation to the
Indemnitee of its election so to assume such defense, the Corporation shall not
be liable to the Indemnitee for any legal or other expenses subsequently
incurred by the Indemnitee in connection with such claim, other than as provided
below in this Section 4. The Indemnitee shall have the right to employ his own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article. The Corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any claim brought by or in the right of the
Corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below, in
-------------------
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this
7
<PAGE>
Article, any expenses (including attorneys' fees) incurred by an Indemnitee in
defending a civil or criminal action, suit, proceeding or investigation or any
appeal therefrom shall be paid by the Corporation in advance of the final
disposition of such matter; provided, however, that the payment of such expenses
incurred by an Indemnitee in advance of the final disposition of such matter
shall be made only upon receipt of an undertaking by or on behalf of the
Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Corporation as authorized in this Article. Such undertaking shall be
accepted without reference to the financial ability of the Indemnitee to make
such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority vote
of the directors of the Corporation consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation), or (e) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment termination or repeal of this Article
--------------------
or
8
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of the relevant provisions of the General Corporation Law of Delaware or any
other applicable laws shall affect or diminish in any way the rights of any
Indemnitee to indemnification under the provisions hereof with respect to any
action, suit proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment termination or repeal.
9. Other Rights. The indemnification and advancement of expenses provided
------------
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation Law
of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such .merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit proceeding or investigation, whether civil,
9
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criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware is
----------------------
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH: The Corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation in the manner prescribed
by the Delaware General Corporation Law and all rights conferred upon
stockholders are granted subject to this reservation; provided that in addition
--------
to the vote of the holders of any class or series of stock of the Corporation
required by law or by this Restated Certificate of Incorporation, the
affirmative vote of the holders of shares of voting stock of the Corporation
representing at least seventy percent (70%) of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to (i) reduce the number of authorized shares of Common Stock or the
number of authorized shares of Preferred Stock set forth in Article FOURTH or
(ii) amend, alter or repeal, or adopt any provision inconsistent with, Articles
SIXTH, SEVENTH, EIGHTH, NINTH and this Article TENTH of this Restated
Certificate of Incorporation.
ELEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the Delaware General Corporation Law or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of the Delaware General
Corporation Law, order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this Corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
10
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IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its President and Chief Executive Officer this __ day of February,
2000.
ORCHID BIOCOMPUTER, INC.
By: __________________________
Name:
Title:
11
<PAGE>
EXHIBIT 10.6
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,
<PAGE>
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 (a) fund at least $9 million to Sarnoff in research funding
over a period lasting up to three (3) years and a minimum of $3 million for each
year after the first three years with a minimum first year funding of $1.75
million to undertake research or development activities in such Option Field, or
(b) pay an option exercise fee determined by the formula set forth below to
Sarnoff and fund at least $4.5 million to Sarnoff in research funding over a
period lasting up to three years, which shall commence within one year after the
exercise of the Option. The option exercise fee shall be calculated as follows:
F = ((R - X)/M) times FF
where F = the prorated option exercise fee;
R = $9 million;
X = the level of research funding to be provided to Sarnoff over the first
three years;
M = $4.5 million; and
FF= $1 million.
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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 the use of a Chip to undertake
any medical or clinical assessment of the health or physical condition of a
human or animal, or the assessment of the condition of a plant, when such
assessment is performed outside the body of the human, animal or plant and
environmental or food testing where testing is for the presence of microbes or
cellular components such as nucleic acids, proteins or toxins. Such assessment
includes, but is not limited to, the testing of body tissue, fluids, or cells;
nucleic acid analysis; immunological analysis; therapy monitoring;
predisposition analysis; viral analysis; microbiological analysis; therapeutic
or abused drug analysis; and chemical analysis of tissue, fluids or cells.
Without limiting the generality of the foregoing, the In-vitro Diagnostic Field
does not include the use of a Chip for the purpose of discovering, developing,
manufacturing, using and selling pharmaceutical products, but does include the
use of Chips for Environmental Testing.
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 the amount billed or invoiced on sales of all
Products or Services by Orchid, its Affiliates or sublicensees less: (a) trade,
quantity or cash discounts and non-affiliated brokers' or agents' commissions
actually allowed and taken; (b) amounts repaid or credited by reason of
rejection or return; (c) taxes and duties levied on and/or other governmental
charges made as to production, sale, transportation, importation, delivery or
use and paid by or on behalf of Orchid; and/or (d) shipping and insurance
charges. In the event a Product consists of a system which incorporates
substantial elements which are not Chips, Input/Output Devices, Storage Devices,
Ancillary Devices or other components or software which employ Licensed
Technology licensed to Orchid under Section 2.1 (for example computers or
separate sample preparation devices), Net Sales for such product shall be
determined by multiplying Net Sales for the entire system by a fraction, the
numerator of which is the fair market value of the Chips, Input/Output Devices
or Storage Devices, Ancillary Devices or other components or software which
employ Licensed Technology licensed to Orchid under Section 2.1 in the system
and the denominator of which is the Net Sales for the entire system. Any sales,
leases or transfers between or among Orchid, its Affiliates or sublicensees
shall not be treated as Net Sales unless there is no further sale, lease or
transfer to a third party.
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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 the use of Chips in:
(a) Genomics, that is, nucleic acid-based analysis for discovery or
development of human and animal pharmaceuticals or agricultural chemicals to
treat plant diseases and pests and for the discovery of plant genes for the
purpose of modifying plant traits;
(b) Non-nucleic acid-based and non-cell based analyses for high throughout
screening, that is for discovering and developing human and animal
pharmaceuticals and agricultural chemicals to treat plant diseases and pests;
(c) Analysis and synthesis Research Products for use in the Life Sciences
and in chemistry and materials research; and
(d) Cell-based assays for lead discovery, lead optimization and
pharmaceutical development, including assays for drug metabolism,
pharmacokinetics, toxicology and bioavailability.
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 (a) the use of Chips to carry out
Combinatorial Chemistry for the purpose of discovering human, animal or plant
pharmaceuticals, herbicides or pesticides, (b) the In-vitro Diagnostic Field,
and (c) all Option Fields for which Orchid has exercised its Option hereunder as
provided in Section 2.3 and has an exclusive license.
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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 standardized instruments or devices
and related consumables designed for sale in the open market in the ordinary
course of business without substantial specialized modification for each
customer and intended to be used in vitro in a research laboratory environment.
Research Products shall not include instruments for diagnostics, clinical,
investigational or therapeutic uses requiring notification to or approval from
any regulatory or governmental body or general purpose devices not related
specifically to the subject of the research (e.g., computers).
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.
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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 $200,000 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.
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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) One and one-half percent (1.5%) 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 one percent
(1%) of Net Sales;
(b) Three fourths of one percent (.75%) 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 ten percent (10%) 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) One and one-half percent (1.5%) 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,
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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 one percent
(1%) of Net Sales; and
(b) Three fourths of one percent (.75%) 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 ten percent (10%) 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: (i) on January 1, 2002,
$50,000 per Option Field, (ii) on January 1, 2003, $100,000 per Option Field,
and (iii) on January 1, 2004 and each subsequent January 1, $200,000 per Option
Field per year. These minimum royalties shall be a credit for royalties to be
paid under Section 3.5(a) on an Option Field-by-Option Field basis for the
calendar year for which the minimum royalty payment is made. For Option Fields
which are exclusively licensed to Orchid, the provisions of Section 3.4 shall
govern and no royalties or fees shall be due pursuant to this Section 3.5. 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
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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 fifty
percent (50%) 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 fifty percent (50%) 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 fifty percent (50%) 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
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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
<TABLE>
<CAPTION>
TITLE INVENTORS COUNTRY DOCKET STATUS SERIAL NO.
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Partitioned Microelectronic And Fluidic Device Zanzucchi, P.J. Cherukui, U.S. 11402 PATENT 08/338703
Array For Clinical Diagnostics And Chemical S.C. McBride, S.E.
Synthesis
- ------------------------------------------------------------------------------------------------------------------------------
Partitioned Microelectronic Device Array Zanzucchi, P.J. Cherukui, U.S. 11402A PATENT 08/455016
S.C. McBride, S.E., Judd,
A.K.
- ------------------------------------------------------------------------------------------------------------------------------
Method of Synthesis of Plurality of Compounds Zanzucchi, P.J. Cherukui, U.S. 11402C PATENT 08/454781
in Parallel Using a Partitioned Solid Support S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array Zanzucchi, P.J. Cherukui, U.S. 11402D PATENT 08/454774
S.C. McBride, S.E. Judd,
A.K.
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Distribution System Zanzucchi, P.J. Cherukui, U.S. 11402G APPLICATION 08/556036
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Distribution System Zanzucchi, P.J. Cherukui, EPO 11402G APPLICATION 95939862.9
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array Zanzucchi, P.J. Cherukui, EPO 11402 APPLICATION 95940666.1
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
A partitioned Microelectronic Device Array Zanzucchi, P.J Cherukui, JAPAN 11402 APPLICATION 8-516200
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Distribution System Zanzucchi, P.J. Cherukui, SINGAPORE 11402G APPLICATION 9701983-0
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array Zanzucchi, P.J. Cherukui, SINGAPORE 11402 APPLICATION 9701985-5
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array Zanzucchi, P.J. Cherukui, AUSTRALIA 11402 APPLICATION 4233796
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Distribution System Zanzucchi, P.J. Cherukui, AUSTRALIA 11402G APPLICATION 4,152,396
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array Zanzucchi, P.J. Cherukui, CANADA 11402 APPLICATION 2205066
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Distribution System Zanzucchi, P.J. Cherukui, CANADA 11402G APPLICATION 2204912
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array Zanzucchi, P.J. Cherukui, KOREA 11402 APPLICATION 703200/97
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Distribution System Zanzucchi, P.J. Cherukui, JAPAN 11402G APPLICATION 8-516201
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Distribution System Zanzucchi, P.J. Cherukui, KOREA 11402G APPLICATION (PCT)703201/97
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array Zanzucchi, P.J. Cherukui, U.S. 11402EA APPLICATION 08/705058
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array Zanzucchi, P.J. Cherukui, U.S. 11402BA APPLICATION 08/789739
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Immunological Assay Conducted In A Zanzucchi, P.J. Cherukui, U.S. 11402FA APPLICATION 08/914941
Microlaboratory Array S.C. McBride, S.E. Judd,
A.K.
- ------------------------------------------------------------------------------------------------------------------------------
System For Liquid Distribution Levine, A.W. Cherukui, U.S. 11637 APPLICATION 08/745767
S.C. Matey, J.R.
- ------------------------------------------------------------------------------------------------------------------------------
Apparatus And Methods For Controlling Fluid Zanzucchi, P.J. McBride, U.S. 11717 PATENT 08/469238
Flow In Microchannels S.E. Burton, C.A.
Cherukui, S.C.
- ------------------------------------------------------------------------------------------------------------------------------
Electrokinetic Pumping Zanzucchi, P.J. McBride, U.S. 11717A APPLICATION 08/556423
S.E. Burton C. A. Demers,
R.
- ------------------------------------------------------------------------------------------------------------------------------
Electrokinetic Pumping Zanzucchi, P.J. McBride, EPO 11717A APPLICATION US95/14586
S.E., Burton, C.A. Demers,
R.
- ------------------------------------------------------------------------------------------------------------------------------
Electrokinetic Pumping Zanzucchi, P.J. McBride, JAPAN 11717A APPLICATION
S.E. Burton, C.A. Demers,
R.
- ------------------------------------------------------------------------------------------------------------------------------
Electrokinetic Pumping Zanzucchi, P.J. McBride, KOREA 11717A APPLICATION
S.E. Burton, C.A. Demers,
R.
- ------------------------------------------------------------------------------------------------------------------------------
Electrokinetic Pumping Zanzucchi, P.J. McBride, SINGAPORE 11717A APPLICATION US95/14586
S.E. Burton, C.A. Demers,
R.
- ------------------------------------------------------------------------------------------------------------------------------
Electrokinetic Pumping Zanzucchi, P.J. McBride, AUSTRALIA 11717A APPLICATION 95/14586
S.E. Burton, C.A. Demers,
R.
- ------------------------------------------------------------------------------------------------------------------------------
Electrokinetic Pumping Zanzucchi, P.J. McBride, CANADA 11717A APPLICATION US95/14586
S.E. Burton, C.A. Demers,
R.
- ------------------------------------------------------------------------------------------------------------------------------
Electrokinetic Pumping Zanzucchi, P.J. McBride, U.S. 11717B APPLICATION 08/645966
S.E. Burton, C.A. Demers,
R.
- ------------------------------------------------------------------------------------------------------------------------------
Electrokinetic Pumping Zanzucchi, P.J. McBride, PCT 11717B APPLICATION 97/07880
S.E. Burton, C.A. Demers,
R.
- ------------------------------------------------------------------------------------------------------------------------------
Method And System For Inhibiting Cherukui, S.C. Demers, U.S. 11740 PATENT 08/483331
Cross-Contamination In Fluids Of Fan, Z.H. Levine, A.W.
Combinatorial Chemistry Device McBride, S.E. Zanzucchi,
P.J.
- ------------------------------------------------------------------------------------------------------------------------------
Method And System For Inhibiting Cherukui, S.C. Demers, U.S. 11740A APPLICATION 08/726953
Cross-Contamination In Fluids Of Fan, Z.H. Levine, A.W.
Combinatorial Chemistry Device McBride, S.E. Zanzucchi,
P.J.
- ------------------------------------------------------------------------------------------------------------------------------
Assay System Andrevski, Z.M. Roach, W.R. U.S. 11772 APPLICATION 08/742317
- ------------------------------------------------------------------------------------------------------------------------------
Assay System And Method For Conducting Assays Andrevski, Z.M. Roach, PCT 11772 APPLICATION 96/17116
W.R. Southgate, D.
Zanzucchi, P.J.
- ------------------------------------------------------------------------------------------------------------------------------
Field-Assisted Sealing Fan, Z.H. Cherukui, S.C. PCT 11865 APPLICATION 95/14654
Levine, A.W. Lipp, S.A
- ------------------------------------------------------------------------------------------------------------------------------
Field-Assisted Sealing Fan, Z.H. Cherukui, S.C. U.S. 11865 APPLICATION 08/745766
Levine, A.W. Lipp, S.A
- ------------------------------------------------------------------------------------------------------------------------------
Parallel Reaction Cassette And Associated Roach, W.R. Southgate, U.S. 11895 APPLICATION 08/786956
Devices P.D. Andrevski, Z.M.
Zanzucchi, P.J.
- ------------------------------------------------------------------------------------------------------------------------------
Parallel Reaction Cassette And Associated Roach, W.R. Southgate, PCT 11895 APPLICATION 97/00298
Devices P.D. Andrevski, Z.M.
Zanzucchi, P.J.
- ------------------------------------------------------------------------------------------------------------------------------
Magnet McBride, S.E. U.S. 11904A APPLICATION 08/742971
- ------------------------------------------------------------------------------------------------------------------------------
Magnet McBride, S.E. PCT 11904 APPLICATION 96/17398
- ------------------------------------------------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits Thaler, B.J. Quinn, R.L. U.S. 11948 APPLICATION 08/554887
Braun, P.L. Zanzucchi,
P.J. Burton, C.A. McBride,
S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits Thaler, B.J. Quinn, R.L. EPO 11948 APPLICATION PCT95/14587
Braun, P.L. Zanzucchi,
P.J. Burton, C.A. McBride,
S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits Thaler, B.J. Quinn, R.L. JAPAN 11948 APPLICATION PCT95/14587
Braun, P.L. Zanzucchi,
P.J. Burton, C.A. McBride,
S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Method Of Producing Micro-Electric conduits Thaler, B.J. Quinn, R.L. KOREA 11948 APPLICATION PCT95/14587
Braun, P.L. Zanzucchi,
P.J. Burton, C. A.
McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits Thaler, B.J. Quinn, R.L. CANADA 11948 APPLICATION PCT95/14587
Braun, P.L. Zanzucchi,
P.J. Burton, C. A.
McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits Thaler, B.J. Quinn, R.L. AUSTRALIA 11948 APPLICATION PCT95/14587
Braun, P.L. Zanzucchi,
P.J. Burton, C. A.
McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits Thaler, B.J. Quinn, R.L. SINGAPORE 11948 APPLICATION PCT95/14587
Braun, P.L. Zanzucchi,
P.J. Burton, C. A.
McBride, S.E
- ------------------------------------------------------------------------------------------------------------------------------
Bead Disbursement Devices Demers, R. Cherukui, S.C. U.S. 12012 APPLICATION 08/805413
- ------------------------------------------------------------------------------------------------------------------------------
Method For Polynucleotide Sequencing Kumar, R. Heaney, P. U.S. 12024 APPLICATION 08/665210
- ------------------------------------------------------------------------------------------------------------------------------
Method For Polynucleotide Sequencing Kumar, R. Heaney, P. PCT 12024 APPLICATION 97/09664
- ------------------------------------------------------------------------------------------------------------------------------
Method For Polynucleotide Sequencing Kumar, R. Heaney, P. U.S. 12024A APPLICATION 08/950,709
- ------------------------------------------------------------------------------------------------------------------------------
Massively Parallel Detection Stabile, P. Ludington, D. U.S. 12034B APPLICATION 08/721427
York, P.K. Rosen, A.
Cherukui, S. Zanzucchi, P.
- ------------------------------------------------------------------------------------------------------------------------------
Massively Parallel Detection Stabile, P. Ludington, D. U.S. 12034A APPLICATION 08/721432
York, P.K.
- ------------------------------------------------------------------------------------------------------------------------------
Massively Parallel Detection Stabile, P. Ludington, D. PCT 12034 APPLICATION 97/17930
York, P. K. Rosen, A.
Cherukui, S. Zanzucchi, P.
- ------------------------------------------------------------------------------------------------------------------------------
Nuclease Protection Assays Kumar, R. U.S. 12038 APPLICATION 08/665104
- ------------------------------------------------------------------------------------------------------------------------------
Nuclease Protection Assays Kumar, R. PCT 12038 APPLICATION 97/09800
- ------------------------------------------------------------------------------------------------------------------------------
Method For Capturing A Nucleic Acid Loewy, Z. Kumar, R. U.S. 12049 APPLICATION 08/881282
- ------------------------------------------------------------------------------------------------------------------------------
Microfluidic Method For Nucleic Acid Loewy, Z. G. Kumar, R. U.S. 12050 APPLICATION 08/665209
Amplification
- ------------------------------------------------------------------------------------------------------------------------------
Microfluidic Method For Nucleic Acid Loewy, Z. G. Kumar, R. PCT 12050 APPLICATION 97/09663
Amplification
- ------------------------------------------------------------------------------------------------------------------------------
Method For Amplifying A Polypeptide Loewy, Z. G. U.S. 12081 APPLICATION 08/6633688
- ------------------------------------------------------------------------------------------------------------------------------
Method For Amplifying A Polynucleotide Loewy, Z. G. Kumar, R. PCT 12081 APPLICATION 97/09665
- ------------------------------------------------------------------------------------------------------------------------------
Apportioning System Demers, R. R. PCT 12087 APPLICATION 97/05153
- ------------------------------------------------------------------------------------------------------------------------------
Apportionment System Demers, R. R. U.S. 12087 APPLICATION 08/630047
- ------------------------------------------------------------------------------------------------------------------------------
Plate For Reaction System Demers, R. R. Cherukui, U.S. 12098 APPLICATION 08/630018
S.C. Levine, A. W. O'Mara,
K. D.
- ------------------------------------------------------------------------------------------------------------------------------
Plate For Reaction System Demers, R. R. Cherukui, PCT 12098 APPLICATION 97/05841
S.C. Levine, A. W. O'Mara,
K. D.
- ------------------------------------------------------------------------------------------------------------------------------
Plate For Reaction System Demers, R. R. Cherukui, U.S. 12098A APPLICATION 08/850669
S.C. Levine, A. W. O'Mara,
K. D.
- ------------------------------------------------------------------------------------------------------------------------------
Automated nucleic Acid Preparation Southgate, P. D. Loewy, U.S. 12120 APPLICATION 08/664780
Z.G.
- ------------------------------------------------------------------------------------------------------------------------------
Automated Nucleic Acid Isolation Southgate, P. D. Loewy, Z. PCT 12120 APPLICATION 97/09801
G.
- ------------------------------------------------------------------------------------------------------------------------------
Padlock Probe Detection Kumar, R. U.S. 12162 APPLICATION 08/665208
- ------------------------------------------------------------------------------------------------------------------------------
Padlock Probe Detection Kumar, R. PCT 12162 APPLICATION 97/09802
- ------------------------------------------------------------------------------------------------------------------------------
Indirect Electrode-Based Pumps McBride, S.E. Chiang, W. U.S. 12189 APPLICATION 08/848413
Heaney, P.J. Cherukui, S.C.
- ------------------------------------------------------------------------------------------------------------------------------
Method for Enhancing Fluorescence Zanzucchi, P.J. U.S. 12215 APPLICATION 08/961860
- ------------------------------------------------------------------------------------------------------------------------------
Capacitive Denaturation Of Nucleic Acid Moroney, R. M. Kumar, R. U.S. 12288 APPLICATION 08/936323
Fishman, D.M.
- ------------------------------------------------------------------------------------------------------------------------------
Amplification Method For A Polynucleotide Kumar, R. U.S. 12317 APPLICATION 08/924763
- ------------------------------------------------------------------------------------------------------------------------------
Balanced Asymmetric Electronic Pulse Patterns McBride, S.E. U.S. 12337 APPLICATION 08/821480
For Operating Electrode-Based Pumps
- ------------------------------------------------------------------------------------------------------------------------------
Method For Capturing A Microorganism Kumar, R. Fan, Z.H. U.S. 12339 APPLICATION 08/927389
Hoghoogi, B. Stabile, P.J.
- ------------------------------------------------------------------------------------------------------------------------------
Flow Control In Microfluidics Devices By Fare, T. L. Fan, Z. H. U.S. 12365 APPLICATION 08/
Controlled Bubble Formation Heaney, P. J.
- ------------------------------------------------------------------------------------------------------------------------------
Method For Translocating Microparticles In A Fan, Z. H. McBride, S.E. U.S. 12368 APPLICATION 08/838102
Microfabricated Device Cherukui, S.C.
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Distribution System Zanzucchi, P.J. Cherukui, U.S. 12385A APPLICATION 08/744386
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Distribution System Zanzucchi, P.J. Cherukui, PCT 12385 APPLICATION 97/18266
S.C. McBride, S.E.
- ------------------------------------------------------------------------------------------------------------------------------
Vertical EHD Pump Integrated With Capillary McBride, S.E. York, P. K. U.S. 12519P APPLICATION 60/046321
Stop Or Break
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TITLE PATENT NO. FILING DATE ISSUE DATE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Partitioned Microelectronic And Fluidic Device 5,585,069 11/10/94 12/17/96
Array For Clinical Diagnostics And Chemical
Synthesis
- -------------------------------------------------------------------------------------
Partitioned Microelectronic Device Array 5,593,838 5/31/1995 1/14/97
- -------------------------------------------------------------------------------------
Method of Synthesis of Plurality of Compounds 5,643,738 5/31/1995 7/1/97
in Parallel Using a Partitioned Solid Support
- -------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array 5,681,484 5/31/1995 10/28/97
- -------------------------------------------------------------------------------------
Liquid Distribution System 11/9/1995
- -------------------------------------------------------------------------------------
Liquid Distribution System 11/9/1995
- -------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array 0 808 456 11/9/1995
- -------------------------------------------------------------------------------------
A partitioned Microelectronic Device Array 11/9/1995
- -------------------------------------------------------------------------------------
Liquid Distribution System 11/9/1995
- -------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array 11/9/1995
- -------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array 11/9/1995
- -------------------------------------------------------------------------------------
Liquid Distribution System 11/9/1995
- -------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array 11/9/1995
- -------------------------------------------------------------------------------------
Liquid Distribution System 11/9/1995
- -------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array 11/9/1995
- -------------------------------------------------------------------------------------
Liquid Distribution System 11/9/1995
- -------------------------------------------------------------------------------------
Liquid Distribution System 11/9/1995
- -------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array 8/29/1996
- -------------------------------------------------------------------------------------
A Partitioned Microelectronic Device Array 1/27/97
- -------------------------------------------------------------------------------------
Immunological Assay Conducted In A 8/20/97
Microlaboratory Array
- -------------------------------------------------------------------------------------
System For Liquid Distribution 11/08/1996
- -------------------------------------------------------------------------------------
Apparatus And Methods For Controlling Fluid 5,632,876 6/6/1995 5/27/97
Flow In Microchannels
- -------------------------------------------------------------------------------------
Electrokinetic Pumping 11/9/1995
- -------------------------------------------------------------------------------------
Electrokinetic Pumping 11/9/1995
- -------------------------------------------------------------------------------------
Electrokinetic Pumping 11/9/1995
- -------------------------------------------------------------------------------------
Electrokinetic Pumping 11/9/1995
- -------------------------------------------------------------------------------------
Electrokinetic Pumping 11/9/1995
- -------------------------------------------------------------------------------------
Electrokinetic Pumping 11/9/1995
- -------------------------------------------------------------------------------------
Electrokinetic Pumping 11/9/1995
- -------------------------------------------------------------------------------------
Electrokinetic Pumping 5/10/96
- -------------------------------------------------------------------------------------
Electrokinetic Pumping 5/12/97
- -------------------------------------------------------------------------------------
Method And System For Inhibiting 5,603,351 6/7/1995 2/18/97
Cross-Contamination In Fluids Of
Combinatorial Chemistry Device
- -------------------------------------------------------------------------------------
Method And System For Inhibiting 10/7/96
Cross-Contamination In Fluids Of
Combinatorial Chemistry Device
- -------------------------------------------------------------------------------------
Assay System 11/1/1996
- -------------------------------------------------------------------------------------
Assay System And Method For Conducting Assays 11/1/1996
- -------------------------------------------------------------------------------------
Field-Assisted Sealing 11/9/1995
- -------------------------------------------------------------------------------------
Field-Assisted Sealing 11/08/1996
- -------------------------------------------------------------------------------------
Parallel Reaction Cassette And Associated 1/23/1997
Devices
- -------------------------------------------------------------------------------------
Parallel Reaction Cassette And Associated 1/24/1997
Devices
- -------------------------------------------------------------------------------------
Magnet 11/1/96
- -------------------------------------------------------------------------------------
Magnet 11/3/1996
- -------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits 11/9/1995
- -------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits 11/9/1995
- -------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits 11/9/1995
- -------------------------------------------------------------------------------------
Method Of Producing Micro-Electric conduits 11/9/1995
- -------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits 11/9/1995
- -------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits 11/9/1995
- -------------------------------------------------------------------------------------
Method Of Producing Micro-Electric Conduits 11/9/1995
- -------------------------------------------------------------------------------------
Bead Disbursement Devices 2/26/97
- -------------------------------------------------------------------------------------
Method For Polynucleotide Sequencing 6/14/1996
- -------------------------------------------------------------------------------------
Method For Polynucleotide Sequencing 6/13/97
- -------------------------------------------------------------------------------------
Method For Polynucleotide Sequencing 10/15/97
- -------------------------------------------------------------------------------------
Massively Parallel Detection 9/26/1996
- -------------------------------------------------------------------------------------
Massively Parallel Detection 9/26/1996
- -------------------------------------------------------------------------------------
Massively Parallel Detection 9/25/97
- -------------------------------------------------------------------------------------
Nuclease Protection Assays 6/14/1996
- -------------------------------------------------------------------------------------
Nuclease Protection Assays 6/16/1997
- -------------------------------------------------------------------------------------
Method For Capturing A Nucleic Acid 6/24/97
- -------------------------------------------------------------------------------------
Microfluidic Method For Nucleic Acid 6/14/1996
Amplification
- -------------------------------------------------------------------------------------
Microfluidic Method For Nucleic Acid 6/13/1997
Amplification
- -------------------------------------------------------------------------------------
Method For Amplifying A Polypeptide 6/14/1996
- -------------------------------------------------------------------------------------
Method For Amplifying A Polynucleotide 6/13/1997
- -------------------------------------------------------------------------------------
Apportioning System
- -------------------------------------------------------------------------------------
Apportionment System 4/9/96
- -------------------------------------------------------------------------------------
Plate For Reaction System 4/9/96
- -------------------------------------------------------------------------------------
Plate For Reaction System 4/9/97
- -------------------------------------------------------------------------------------
Plate For Reaction System 5/2/97
- -------------------------------------------------------------------------------------
Automated nucleic Acid Preparation 6/14/1996
- -------------------------------------------------------------------------------------
Automated Nucleic Acid Isolation 6/16/1997
- -------------------------------------------------------------------------------------
Padlock Probe Detection 6/14/1996
- -------------------------------------------------------------------------------------
Padlock Probe Detection 6/16/97
- -------------------------------------------------------------------------------------
Indirect Electrode-Based Pumps 5/8/97
- -------------------------------------------------------------------------------------
Method for Enhancing Fluorescence 10/31/97
- -------------------------------------------------------------------------------------
Capacitive Denaturation Of Nucleic Acid 9/24/97
- -------------------------------------------------------------------------------------
Amplification Method For A Polynucleotide 8/27/97
- -------------------------------------------------------------------------------------
Balanced Asymmetric Electronic Pulse Patterns 3/21/97
For Operating Electrode-Based Pumps
- -------------------------------------------------------------------------------------
Method For Capturing A Microorganism 8/26/97
- -------------------------------------------------------------------------------------
Flow Control In Microfluidics Devices By 11/19/97
Controlled Bubble Formation
- -------------------------------------------------------------------------------------
Method For Translocating Microparticles In A 4/15/97
Microfabricated Device
- -------------------------------------------------------------------------------------
Liquid Distribution System 11/7/96
- -------------------------------------------------------------------------------------
Liquid Distribution System 10/10/97
- -------------------------------------------------------------------------------------
Vertical EHD Pump Integrated With Capillary 5/13/97
Stop Or Break
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Amendment to License and Option Agreement
THIS AMENDMENT, dated as of April 13, 2000 ("Closing Date"), is by and
between SARNOFF CORPORATION, a New Jersey corporation having a principal place
of business at 201 Washington Road, Princeton, New Jersey 08543 ("Sarnoff"), and
ORCHID BIOSCIENCES, INC.(formerly known as Orchid Biocomputer, Inc.), a Delaware
corporation having a principal place of business at 303 College Road East,
Princeton, New Jersey 08540 ("Orchid").
WHEREAS, Orchid (as Orchid Biocomputer, Inc.) and Sarnoff entered into a
License and Option Agreement dated as of December 10, 1997 ("License
Agreement"); and
WHEREAS, Orchid and Sarnoff wish to amend the License Agreement as set
forth herein.
NOW, THEREFORE, Sarnoff and Orchid hereby agree that the License Agreement
is amended as follows:
1. DEFINITIONS.
(a) All capitalized terms, unless otherwise defined herein, will have
the meanings given to them in the License Agreement.
(b) The following definitions in Section 1 of the License Agreement are
amended as follows:
1.13 The definition of "Funded Research Program" deleted in its
entirety and the following is inserted in its place:
"Funded Research Program" means the research or development
activities that have been conducted by the Parties (or their
respective designees) for the Option Fields set forth in Section
1.21(a) and (c) and for which Sarnoff received research funding
from Orchid prior to December 31, 1999.
28
<PAGE>
1.19 The definition of "Net Sales" is deleted in its entirety and
"Intentionally Omitted" is inserted in its place.
1.21 The definition of "Option Fields" is deleted in its entirety and
the following is inserted in its place:
"Option Field(s)" shall mean the use of Chips in:
(a) Genomics, that is, nucleic acid-based analysis for discovery or
development of human and animal pharmaceuticals or agricultural
chemicals to treat plant diseases and pests and for the discovery of
plant genes for the purpose of modifying plant traits ("Genomics
Field");
(b) Non-nucleic acid-based and non-cell based analyses for high
throughout screening, that is for discovering and developing human and
animal pharmaceuticals and agricultural chemicals to treat plant
diseases and pests ("HTS Field");
(c) Analysis and synthesis Research Products for use in the Life
Sciences and in chemistry and materials research ("Research Products
Field"); and
(d) Cell-based assays for lead discovery, lead optimization and
pharmaceutical development, including assays for drug metabolism,
pharmacokinetics, toxicology and bioavailability ("Cell-Based Assay
Field").
1.22. The definition of "Option Period" is deleted in its entirety and
the following is inserted in its place:
"Option Field" means that period of time terminating on the Closing
Date.
1.24. The definition of "Orchid Field" is deleted in its entirety and
the following is inserted in its place:
"Orchid Field" shall mean (a) the use of Chips to carry out
Combinatorial Chemistry for the purpose of discovering human, animal or
plant pharmaceuticals, herbicides or pesticides, (b) the In-vitro
Diagnostic Field, (c) the Genomics Field; and (d) the Research Products
Field. The Orchid Field does not include the HTS Field and the Cell-
based Assay Field.
29
<PAGE>
(c) The following definition is added to Section 1 of the License
Agreement:
1.40 "IPO Price" means the price per share of the common stock of Orchid
upon the closing of a firm commitment underwritten initial public
offering by Orchid of its common stock to the public pursuant to an
effective registration statement under the Securities Act of 1933, as
amended ("IPO").
2. AMENDMENTS TO GRANT OF RIGHTS.
(a) Section 2.1 of the License Agreement is amended as follows:
2.1.1 Section 2.1.1 of the License Agreement is deleted in its
entirety and the following is inserted in its place:
Subject to the terms and conditions of this Agreement, Sarnoff
hereby grants to Orchid an exclusive, fully paid-up, 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 Research Products Field, 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 Section 2.1.2.1 of the License Agreement is deleted in
its entirety and the following is inserted in its place:
Subject to the terms and conditions of this Agreement, Sarnoff
hereby grants to Orchid a non-exclusive, fully paid-
30
<PAGE>
up, 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 (a) any Products, Storage Devices and Input/
Output Devices and provide any Services (i) in the HTS Field and the
Cell-Based Assay Field, 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 1.17(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 Section 2.1.2.2 of the License Agreement is deleted in
its entirety and the following is inserted in its place:
Subject to the terms and conditions of this Agreement, Sarnoff
hereby grants to Orchid a non-exclusive, fully paid-up, 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 the HTS
Field and the Cell-Based Assay Field, 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 Section 2.1.2.3 of the License Agreement is deleted in
its entirety and the following is inserted in its place:
Subject to the terms and conditions of this Agreement, Sarnoff
hereby grants to Orchid a non-exclusive, fully paid-up,
worldwide, right and license under Licensed Technology, with the
right to sublicense, to develop, have developed, make, have made,
use, have used, import, have
31
<PAGE>
imported, offer for sale, sell, have sold or lease Input/Output
Devices for Type 2 Storage Devices in the Orchid Field.
2.1.3 Section 2.1.3 of the License Agreement is deleted in its
entirety and "Intentionally Omitted" is inserted in its place.
2.1.4 Section 2.1.4 is hereby deleted in its entirety and
"Intentionally Omitted" is inserted in its place.
2.1.6 Section 2.1.6 is deleted in its entirety and the
following is inserted in its place:
Sarnoff represents to Orchid that, as of the Closing Date, none of
the Licensed Technology has been licensed from a third party.
2.1.8 Section 2.1.8 is deleted in its entirety and the
following is inserted in its place:
All tangible instruments, devices, prototypes or components thereof
which are produced in Funded Research Programs at Sarnoff funded by
Orchid (collectively, the "Tangible Instruments") shall be owned by
Orchid. Sarnoff will deliver all Tangible Instruments of which it is
aware to Orchid by no later than August 31, 2000. Thereafter, Orchid
will notify Sarnoff in writing of any Tangible Instruments that
Sarnoff is required, but failed, to deliver to Orchid under this
Section 2.1.8, and Sarnoff will deliver to Orchid any such Tangible
Instrument within 30 days of Orchid's notice. Orchid shall have the
right to use and to reproduce all such Tangible Instruments under
the terms of this Agreement.
2.2 Section 2.2 is deleted in its entirety and the following
is inserted in its place:
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
32
<PAGE>
foregoing, for a period of one (1) year, Sarnoff and its wholly-
owned subsidiaries will 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, (ii) designing or modifying Type
1 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 (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 optimize a system that includes Chips for use in the
Orchid Field; 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.
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 or from developing, licensing or selling products of general
applicability which may be useful in the Orchid Field 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
33
<PAGE>
Input/Output Devices from using such Ancillary Devices, Storage
Devices or Input/Output Devices in the Orchid Field, 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, products developed or licensed to them by Sarnoff, as long as
Sarnoff or its wholly-owned subsidiaries do not contribute to the
modification.
2. 2.3 Amendments to Option Grant.
2.1 (a) Sections 2.3 (paragraphs 2.3.1 - 2.3.5 inclusive), 2.4 and
2.5 of the License Agreement are deleted in their entirety and the
following is inserted in their place:
2.3. The Parties acknowledge that Orchid has exercised the
exclusive option to include the Genomics Field and the Research Products
Field in the Orchid Field and to receive exclusive licenses in such
Option Fields. No other options are granted by Sarnoff to Orchid
hereunder to the remaining Option Fields, with respect to which
remaining Option Fields Orchid has and retains a non-exclusive license
pursuant to the terms and conditions of this Agreement, as amended.
2.3.1 The Parties agree that, in consideration of the payments
to be made and securities to be delivered by Orchid to Sarnoff
pursuant to Sections 3.1(c) and 3.5 below, as of the Closing Date
of this Amendment:
(i) Sarnoff will not conduct any further research and
development activities for Orchid with respect to the
Genomics Field and the Research Products Field; the Funded
Research Program in connection with the Genomics Field and
the Research Products Field are deemed to be fully paid-up,
funded and completed and Orchid does not and will not owe
Sarnoff any monies for
34
<PAGE>
royalties, option exercise fees or otherwise in connection
with such fields;
(ii) no further options are exercisable under the License
Agreement; and
(iii) the Parties will not engage in any further funded
research or development activities in connection with any
Option Field, unless under a separate written agreement.
2.3.2 Intentionally omitted.
2.3.3 Intentionally omitted.
2.3.4 Intentionally omitted.
2.3.5 Sarnoff has delivered to Orchid and Orchid has
accepted a detailed list of all Licensed Technology which, to
the best of Sarnoff's knowledge, was invented or developed
during the course of the Funded Research Programs, or
incorporated in devices or systems as part of any such Funded
Research Programs as of the Closing Date. A list which has been
mutually agreed upon by the Parties and appended to this
Agreement (as amended) (Exhibit A) includes Licensed Technology
attributable to such Funded Research Programs as well as other
technology licensed hereunder as Research Technology. After the
Closing Date, if Sarnoff becomes aware of any Licensed
Technology that had not been delivered, Sarnoff will promptly
deliver such Licensed Technology to Orchid. If Orchid becomes
aware of any Licensed Technology that had not been delivered by
Sarnoff on or after the Closing Date in accordance with this
Section 2.3.5, Orchid will notify Sarnoff in writing and the
parties will negotiate the terms of its delivery to Orchid.
2.4 Notwithstanding any provision of this Agreement, (a) the failure by
Orchid to exercise any Option which was granted by Sarnoff under this
35
<PAGE>
Agreement shall not in any way affect any exclusive licenses
granted to Orchid hereunder, any non-exclusive licenses granted
to Orchid with respect to the HTS Field and the Cell-Based
Assay Field 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 Section 2.5 of the License Agreement is deleted in its
entirety and "Intentionally Omitted" is inserted in its place.
(b) Section 2.6.2 of the License Agreement is deleted in its entirety
and the following is inserted in its place:
2.6.2 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 any Joint Inventions 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, 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.
3. AMENDMENTS TO CONSIDERATION.
(a) Section 3.1(b) of the License Agreement is amended as follows:
has previously issued 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
36
<PAGE>
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
3.2 (b) Section 3.1(c) of the License Agreement is deleted in its
entirety and the following is inserted in its place:
agrees, as full and final payment for all obligations of Orchid to
Sarnoff under this License Agreement with respect to the Research
Products Field and the Genomics Field including, without
limitation, any and all obligations to conduct or fund research
and/or development, make royalty or other payments or issue any of
its common or preferred stock or any other Orchid security, to:
(i) Pay $970,000 and issue 50,000 shares of Orchid's
common stock to Sarnoff with respect to the Research
Products Field;
(ii) Pay $2,000,000 and issue 100,000 shares of Orchid's
common stock to Sarnoff with respect to the Genomics
Field; and
(iii) Issue an additional 50,000 shares of Orchid's common
stock to Sarnoff as a full, advance payment of any
and all future royalties that may be owed to Sarnoff
by Orchid with respect to royalty-bearing Products
or Services marketed in the Genomics Field or
Research Products Field.
3.3 (c) Section 3.2 of the License Agreement is deleted in its
entirety and the following is inserted in its place:
3.2 Option Consideration.
(a) With respect to the exercise of the Option for the Research
Products Field, Orchid previously issued to Sarnoff 33,300
shares of
37
<PAGE>
Common Stock of Orchid, par value $.001 and 66,700 shares of
Class A Preferred Stock of Orchid, par value $.001. With
respect to the exercise of the Option for the Genomics Field,
Orchid previously issued to Sarnoff 100,000 shares of Common
Stock of Orchid, par value $.001 of Common Stock of Orchid.
(b) Subject to the performance by Orchid of its obligations
under Sections 3.1(c) and 3.5, from and after the Closing Date
of this Amendment, (i) Orchid and Sarnoff will have no further
obligations to the other to conduct, continue or fund any
research program in any field, including any Funded Research
Program, and (ii) the Options to the HTS Field and the Cell-
Based Assay Field are terminated and without further force and
effect.
(d) Sections 3.4, 3.5 and 3.6 are each deleted in their entirety and the
following is inserted in the place of each such Section:
3.4 The Parties agree that in consideration of the delivery of
securities by Orchid to Sarnoff pursuant to Sections 3.1(c) and Section
3.5 below, any and all royalty obligations (including any minimum
payments) under the License Agreement, whether under the exclusive or
non-exclusive licenses granted to Orchid thereunder and whether in the
Orchid Field or any Option Field, are fully paid-up, and the licenses
granted to Orchid under the License Agreement are royalty-free, as of
the Closing Date of this Amendment.
3.5 As additional consideration for Sarnoff granting Orchid a
fully paid-up license under the License Agreement, Orchid will deliver
to Sarnoff:
(i) 50,000 shares of Orchid common stock as a full,
advance payment of any and all future royalties that
may be owed to Sarnoff by Orchid with respect to
royalty-bearing Products or Services marketed in
38
<PAGE>
the HTS Field or Cell-Based Assay Field under the
non-exclusive license granted to Orchid by Sarnoff
under the License Agreement; and
(ii) a warrant to purchase 75,000 shares of Orchid common
stock as a full, advance payment of any and all other
future obligations of Orchid to pay royalties to
Sarnoff under the License Agreement, pursuant to a
Warrant Agreement in the form attached as Exhibit A
---------
("Warrant Agreement").
3.6 All payments and delivery of securities to be made by
Orchid pursuant to Sections 3.1(c) and 3.5 above shall be made
as of the Closing Date.
3.4 (e) Sections 3.7, 3.8 and 3.10 are each deleted in their entirety
and "Intentionally Omitted " is inserted in the place of each such Section.
4. AMENDMENT TO DISCLOSURE OF LICENSED TECHNOLOGY.
Section 5.2.4 of the License Agreement is amended as follows:
5.2.4. 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
39
<PAGE>
obligation, to assume responsibility for prosecution and maintenance
of such patent or patent 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 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. INFRINGEMENT.
There are no modifications to Section 6 of the License Agreement.
6. TERM.
6.1 Section 7.1 of the License Agreement is amended to read as follows:
This Agreement shall be effective as of the Effective Date and
shall continue in full force and effect unless terminated by mutual
agreement.
6.2 Section 7.2 of the License Agreement is deleted in its entirety and
"Intentionally Omitted" is inserted in its place.
8. MISCELLANEOUS.
40
<PAGE>
8.1 (a) Except as amended or modified hereby, the License Agreement
remains in full force and effect.
8.2 (b) In the case of any conflict between the terms of this Amendment
and the terms of the License Agreement, the terms of this Amendment will
govern.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
Closing Date.
SARNOFF CORPORATION ORCHID BIOSCIENCES, INC.
By: /s/ William J. Burke By: /s/ Donald R. Marvin
---------------------------- --------------------------
Name: William J. Burke Name: Donald R. Marvin
Title: VP, Patents & Licensing Title: SVP, COO and CFO
41
<PAGE>
Exhibit A
Licensed Technology
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
11404 10/12/93 Sensors In Microwell Immuno Assay Combined DSRC Combined into 11402 ORCHI Orchid and SKB
Plate For One Step Assays And For have licenses
Improved Automation Of
Pharmaceutical Testing
11512 3/11/94 Solid-Phase Oligonucleotide Combined DSRC Combined into 11402 ORCHI Orchid and SKB
Synthesis Approaches Adapted For have licenses
Planar, Computer Controlled
Devices For Incorporation Into
Microlab
11561 5/18/94 Pulsed Pneumatic Reaction Closed DSRC NONE None
Dispenser
11576 6/16/94 Synthesis On Pad Array, MicroLab Closed DSRC NONE None
Technology
11577 6/15/94 Electrode Geometries And Channel Combined DSRC Combined into 11402 ORCHI Orchid and SKB
Cross-Over Designs For have licenses
Low-Voltage, High-Field,
Combinatorial Synthesis On
MicroLab
11637 9/30/94 Structure And Manufacturing Sold ORCHI 11749 & 11746 combined ORCHI Sarnoff has a
Method For A Miniature Laboratory into this case portions license outside
Reactor System combined into 11402G; FOU; SKB has a
Orchid accepts license
responsibility 11/10/99
11638 10/3/94 Sarnoff MicroChemlab Array Series Combined DSRC Combined into 11402 ORCHI Orchid and SKB
For Parallel Clinical Diagnostics have licenses
And Screening
11644 10/12/94 MicroChemlab Array Using Ceramic Closed DSRC ORCHI Orchid and SKB
Technology have licenses
11717 1/24/95 Electrohydrodynamic Pump For Filed DSRC See 11752 and 11760 ORCHI Orchid and SKB
MicroLab Fluid Transport have licenses
11740 2/21/95 Method Of Inhibiting Filed DSRC 11759 combined into this ORCHI Orchid and SKB
Cross-Contamination In Fluids Of case; also combined into have licenses
Combinatorial Chemistry Device 11402G
11745 2/24/95 Stable Miniaturized Reaction Combined DSRC Combined into 11402G ORCHI Orchid and SKB
Cassette have licenses
11746 2/24/95 Fluid Control Using Thermally Combined DSRC Combined into 11402G KEMSY None
Non-Isotropic Elements (AL this
title changed from disclosure
page check page 2)
11747 2/24/95 Immobilization Of Synthetic Combined DSRC Combined into 11402G ORCHI Orchid and SKB
Intermediates And Products have licenses
11748 2/24/95 Miniaturized Synthesis Cassette Closed DSRC ORCHI Orchid and SKB
Suitable For Standard Assay have licenses
Methods
11749 2/24/95 Miniature Laboratory Reactor Combined DSRC Combined into 11402G ORCHI Orchid and SKB
System With On-Board Mechanical have licenses
Pumping
11752 2/28/95 A Combined Combined DSRC Combined into 11717 ORCHI Orchid and SKB
Electrohydrodynamic- have licenses
Electroosmotic Pump For MicroLab
Fluid Transport
11759 3/3/95 Method Of Inhibiting Combined DSRC Combined into 11740 and ORCHI Orchid and SKB
Cross-Contamination In Fluids Of 11402G have licenses
Combinatorial Chemistry Device
11760 3/9/95 Electronic Fluid Flow Control For Combined DSRC Combined into 11717 ORCHI Orchid and SKB
Electrohydrodynamic And have licenses
Electro-Osmotic Pumps
11761 3/13/95 Single-Site Small-Scale Bio-Assay Combined DSRC Combined into 11772 NIST U.S. GOV. has a
System license
11762 3/14/95 Microlab Intercavity Barrier Closed DSRC ORCHI Orchid and SKB
have licenses
</TABLE>
Page 1
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
11772 4/4/95 A Miniaturized Reagent Filed DSRC 11761, 11845, 11850 & NIST U.S. GOV. has a
Distribution And Chemical 11851 combined into this license
Reaction Laboratory, A case
MicroLaboratory On A Disk
11785 4/13/95 Etched Glass Immobilization Layers Combined DSRC Combined into 11402G ORCHI Orchid and SKB
have licenses
11845 6/8/95 Source For Rapid Thermal Cycling Combined DSRC Combined into 11772 NIST U.S. GOV. has a
Of PCR license
11850 6/20/95 Thin-Walled Reaction Cell System Combined DSRC Combined into 11772 NIST U.S. GOV. has a
license
11851 6/20/95 Thermoelectric Fast Temperature Combined DSRC Combined into 11772 NIST U.S. GOV. has a
Cycler license
11865 7/11/95 Field Assisted Glass-To-Glass Filed DSRC ORCHI Orchid and SKB
Sealing have licenses
11895 9/6/95 Multi-Channel PCR Cassette Filed DSRC 11899 & 11967 combined NIST U.S. GOV. has a
into this case license
11899 9/11/95 Valves And Pumps For Combined DSRC Combined into 11895 NIST U.S. GOV. has a
Multi-Channel PCR Cassette license
11904 9/19/95 Novel Magnetic System To Filed DSRC See 11906 NIST U.S. GOV. has a
Transport, Stir And Hold Magnetic license
Beads
11906 9/21/95 Multipole Magnetic System To Combined DSRC Combined into 11904 NIST U.S. GOV. has a
Transport, Stir and Hold Magnetic license
Beads
11937 10/17/95 Pushing Actuator Closed U.S. NIST Sarnoff has a
("Pushuator")/Floppy Cassette license
Approach To Microlab
11947 10/23/95 Electrode Formation For Core Combined DSRC Combined into 11948 ORCHI Orchid and SKB
Cassette Pumps have licenses
11948 10/23/95 Method For Forming Protruding Sold ORCHI See 11947; Orchid ORCHI Sarnoff has a
Electrodes For Core Cassette Pumps accepts responsibility license outside
11/10/99 FOU; SKB has a
license
11967 11/3/95 Valves And Pumps For Combined DSRC Combined into 11895 NIST U.S. GOV. has a
Multi-Channel PCR Cassette license
11984 11/17/95 Model For Electrohydrodynamic Combined DSRC Combined into 11402G and ORCHI Orchid and SKB
(EHD) Pumping of Non-Aqueous 11717A have licenses
Fluids
12017 12/21/95 DNA Detection System Using Fiber Combined DSRC Combined into 11895 NIST U.S. GOV. has a
Bundle license
12024 1/10/96 Redundant Nucleotide String Filed DSRC 12025, 12028 and 12029 NIST U.S. GOV. has a
Identification Of Genes combined into this case license
12025 1/10/96 A DNA Sequencing Method Based Combined DSRC Combined into 12024 NIST U.S. GOV. has a
Upon Sequential Addition And license
Determination of Nucleotides
12028 1/11/96 A Method For Determination Of Non Combined DSRC Combined into 12024 NIST U.S. GOV. has a
Redundant Strings At 3' Ends Of license
Expressed Genes
12029 1/11/96 A Novel Method For Determination Combined DSRC Combined into 12024 NIST U.S. GOV. has a
Of DNA Sequence at 3' Ends Of license
Expressed Genes
12034 1/17/96 Advanced Detection Approaches For Sold ORCHI Orchid accepts ORCHI Licenses granted
Screening, Genomics, And responsibility 11/10/99 in MicroLab
Diagnostics technology;
Sarnoff has a
license outside
FOU
12038 1/18/96 R/Nase/S1 Nuclease Protection Filed DSRC 12046-12048 and NIST U.S. GOV. has a
Assays With Oligonucleotides 12052-12057 combined license
Synthesized In Vitro In the into this case
Orchid/MicroLab Format
12043 1/22/96 Silicon Fitments For Microlab Closed U.S. NIST Sarnoff has a
Cassettes license
12044 1/22/96 Assuring Performance Of Toridal Closed U.S. NIST Sarnoff has a
Reservoirs In Microlab Cassettes license
By Preferred Choices Of Geometry
12045 1/24/96 Application Of An Atomic Force Closed DSRC ORCHI Orchid and SKB
Microscope As A Tool Of Bioassays have licenses
</TABLE>
Page 2
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
12046 1/24/96 Use Of A Nucleic Acid Array For Combined DSRC Combined into 12038 NIST U.S. GOV. has a
Analysis Of Multiple Nucleic license
Acids By Nuclease Protection
12047 1/24/96 An Immobilized Nucleic Acid Combined DSRC Combined into 12038 NIST U.S. GOV. has a
Nuclease Protection Assay license
12048 1/24/96 Use Of An Oligonucleotide Array Combined DSRC Combined into 12038 NIST U.S. GOV. has a
For Gene Expression Analysis By license
Nuclease Protection Assay
12049 1/24/96 Application Of Repetitive Filed DSRC 12288, 12342, 12353 and NIST U.S. GOV. has a
Sequences For Human Genomic DNA 12364 combined into this license
Target Capture case
12050 1/24/96 Application Of Chemical Filed DSRC 12051, 12118, 12127, NIST U.S. GOV. has a
Denaturation To Nucleic Acid 12140 AND 12161 combined license
Amplification into this case
12051 1/26/96 Automated System For Combined DSRC Combined into 12050 NIST U.S. GOV. has a
Amplification Of Nucleic Acids license
12052 1/26/96 DNA/RNA Sequencing By Nuclease Combined DSRC Combined into 12038 NIST U.S. GOV. has a
Protection Assay license
12053 1/26/96 Oligonucleotides Probes Combined DSRC Combined into 12038 NIST U.S. GOV. has a
Consisting Of PolyT Tail And license
Contiguous Nucleotides For
Nuclease Protection
12054 1/26/96 Solution Nuclease Protection Combined DSRC Combined into 12038 NIST U.S. GOV. has a
Assay Followed By Capture And license
Detection Of Protected Probes
12055 1/26/96 Use Of A Nuclease Resistant Combined DSRC Combined into 12038 NIST U.S. GOV. has a
Linker For Oligonucleotide license
Immobilization For Use In
Nuclease Protection Assay
12056 1/26/96 A Rotating Cylinder Containing Combined DSRC Combined into 12038 NIST U.S. GOV. has a
Oligonucleotide Array For license
Nuclease Protection Assay And
Analysis Of A Large Number Of
Nucleic Acids Thereby
12057 1/26/96 A Method For Optimizing Combined DSRC Combined into 12038 NIST U.S. GOV. has a
Sensitivity Of Oligonucleotide license
Array For Nuclease Protection
Assay For Different Levels Of
Target Nucleic Acids
12078 2/14/96 Oligonucleotide Ligation Assay Combined DSRC Combined into 12081 NIST U.S. GOV. has a
Using Energy-Transfer Fluorescent license
Dyes
12081 2/16/96 Coupled Transcription-Litigation Filed DSRC 12078 combined into this NIST U.S. GOV. has a
Amplification System case license
12087 2/19/96 Compound Apportioning System Sold ORCHI Orchid accepts NONE Sarnoff has a
responsibility 11/10/99 license outside
FOU
12092 2/21/96 Improved Actuator For Microlab Closed U. S. NIST Sarnoff has a
Valves license
12098 2/23/96 Nanoscale Formats For Massively Sold ORCHI 12119 and 12124 were ORCHI Sarnoff has a
Parallel Chemistry Experiments combined into this case; license outside
Orchid accepts FOU; SKB has a
responsibility 11/10/99 license
12101 2/27/96 Ultra-High Throughput Screening Combined DSRC Combined into 12034 NONE Orchid has a
Of Natural And Synthetic Product license - see SB
Libraries For Pharmaceutical Development
Discovery Agreement
12118 3/12/96 Automated System For Chemical Combined DSRC Combined into 12050 NIST U.S. GOV. has a
Amplification Of Nucleic Acids license
12119 3/11/96 Architectural And Operational Combined DSRC Combined into 12098 ORCHI Orchid and SKB
Aspects Of Wells And Fluid Supply have licenses
Features For Biochemical
Microprocessors
</TABLE>
Page 3
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
12120 3/13/96 Automated Biological Sample Sold ORCHI Orchid accepts NIST U.S. GOV. has a
Preparation System responsibility 11/10/99 license; Sarnoff
has a license
outside FOU
12124 3/18/96 Architectural And Fluid-Transfer Combined DSRC Combined into 12098 ORCHI Orchid and SKB
Operational Details Of have licenses
Biochemical Microprocessor
Cassettes
12127 3/20/96 Integrated Automated System For Combined DSRC Combined into 12050 NIST U.S. GOV. has a
Nucleic Acid Diagnostics license
12131 3/22/96 An Improved Modified Capillary Closed DSRC NONE None
Solute Transfer Method
12140 3/28/96 Automated System For Isothermal Combined DSRC Combined into 12050 NIST U.S. GOV. has a
Amplification license
12156 4/5/96 Fabrication Of A Complex Geometry Combined DSRC Combined into 12098 ORCHI Orchid and SKB
Gasket Layer have licenses
12160 4/9/96 Microfluidic Systems Approach For Combined DSRC Combined into 12050 and NIST U.S. GOV. has a
Nucleic Acid Amplification 12081 license
12161 4/11/96 Electrostatic Denaturation Of Combined DSRC Combined into 12050 NIST U.S. GOV. has a
Nucleic Acids During Isothermal license
Amplification
12162 4/11/96 A Method For Generating Padlock Filed DSRC 12163 combined into this NIST U.S. GOV. has a
Probes Using Oligonucleotides case license
That Are Labeled With Biotin On
Both 5' and 3' Ends
12163 4/11/96 A Method For Specific Nucleic Combined DSRC Combined into 12162 NIST U.S. GOV. has a
Acid Detection And Signal license
Amplification Using Padlock Probes
12169 4/15/96 Die Stop For Heat Sealing Closed U.S. NIST Sarnoff has a
license
12181 4/18/96 A Method For Increasing The Closed U.S. NIST U.S. GOV. has a
Sensitivity Of Detection Of license
Double Strand DNA By
Hybridization Through Treatment
With Lambda Exonclease
12189 4/24/96 Electrokinetic Actuator For Fluid Sold ORCHI Incorporates 12270; ORCHI Sarnoff has a
Delivery And Control Orchid accepts license outside
responsibility 11/10/99 FOU; SKB has a
license
12194 4/29/96 Integrated Microfluidic System Closed U. S. Sent to Orchid 8/98; NIST U.S. GOV. has a
For Real Time Monitoring Of Requested extension license; Sarnoff
Amplification until 11/30/98; Orchid has a license
not interested 9/30/98; outside FOU
SPS sent notice 10/5/98;
Sent to US GOV; Sarnoff
has a license back
12223 5/24/96 Microlens Arrays To Assist Assay Closed DSRC ORCHI Orchid and SKB
And Detection In Biochemical have licenses
Microcomputers
12224 5/24/96 Back Fill System To Prevent Air Closed U. S. Sent to Orchid 8/98; NIST U.S. GOV. has a
Contamination In An Automated Requested extension license; Sarnoff
Chemistry Cartridge until 11/30/98; Orchid has a license
will not pursue outside FOU
(10/26/98); SPS sent
notice 10/29/98; Sent to
US GOV; Sarnoff has a
license back
12225 5/24/96 Mg Sample Introduction System For Closed U. S. Sent to Orchid 8/98; NIST U.S. GOV. has a
Automated Chemistry Cassettes Requested extension license; Sarnoff
until 11/30/98; Orchid has a license
will not pursue outside FOU
10/26/98; SPS sent
notice 10/29/98; Sent to
US GOV; Sarnoff has a
license back
</TABLE>
Page 4
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
12226 5/28/96 Quantitative Distribution Of Test Closed DSRC NONE None
Compounds For Assay/Screening
12233 6/5/96 Effects of Dopants In Filed DSRC CIP of 11717A ORCHI Orchid and SKB
Eletrohydrodynamic (EHD) Pumping have licenses
Of Organic Chemicals
12244 6/19/96 Enhancement Of The Sensitivity Of Filed ORCHI Orchid filed Provisional NIST U.S. GOV. has a
Solution Concentration 11/30/98 license; Sarnoff
has a license
outside FOU
12245 6/20/96 Microlab Unified Block Concept Closed U.S. NIST U.S. GOV. has a
license
12246 6/20/96 Microlab Valve Actuator Shim Closed U.S. NIST U.S. GOV. has a
license
12254 7/1/96 Method To Purge And Wash Fluid Combined DSRC Combined into 12385 ORCHI Orchid and SKB
Feeds In Orchid mfluidic Devices have licenses
12269 7/12/96 Sub-Miniature Electronically Closed DSRC NONE None
Controlled Fluidic Pumps And
Valves
12270 7/12/96 Universal Electrokinetic Fluid Combined DSRC Combined into 12189 and NONE None
Pump filed
12278 7/23/96 Microlab Compliant Fill Concept Closed U.S. NIST U.S. GOV. has a
license
12283 7/24/96 Improved Method For Anodic Closed DSRC ORCHI Orchid and SKB
Bonding - Moving Electrodes have licenses
12288 8/2/96 Denaturing DNA By Capacitive Sold ORCHI Orchid accepts NIST U.S. GOV. has a
Charging responsibility 11/10/99 license; Sarnoff
has a license
outside FOU
12290 8/6/96 Microlab Seal Separator Closed U.S. NIST U.S. GOV. has a
license
12302 8/19/96 Wash Liquid Control In A Sealed Closed U.S. NIST U.S. GOV. has a
Cassette license
12303 8/19/96 Sample Injection System For Blue Closed U. S. Sent to Orchid 8/98; NIST U.S. GOV. has a
Chip Cassettes Requested extension license; Sarnoff
until 11/30/98; 12304 has a license
combined into this case; outside FOU
Orchid will not pursue
9/30/98; SPS notified
10/29/98; Sent to US
GOV; Sarnoff has a
license back
12304 8/19/96 Septum Needle Containment Closed U. S. Was combined into 12303; NIST Sarnoff has a
SPS notified of no license
filing 11/20/98; Orchid
not interested 7/23/99
12317 9/3/96 A Method For Performing Filed DSRC See 12091 includes 12367 DARPA U.S. GOV. has a
Ligation-Mediated Amplification license
Which Is Suitable For The
Microscale Volumes
12326 9/17/96 Microlab Sample Transfer Plate Closed DSRC Filed as a Provisional NONE None
12/3/96
12328 9/18/96 Chemical Transport Capillary Wick Closed DSRC NONE None
Array
12331 9/19/96 Method For Apportioning Fluids Closed DSRC Combined into 12328; NONE None
For Nanoscale Screening 12328 became inactivated
12337 10/2/96 Electrokinetic Pumping Of Highly Filed DSRC ORCHI Orchid and SKB
Conductive Fluids That Undergo have licenses
Electrochemistry Using Asymmetric
Pulse Excitation
12339 10/4/96 A Method For Capture Of Organisms Filed DSRC See 12091; 12537 DARPA U.S. GOV. has a
For Subsequent Biochemical combined into this case license
Processing
</TABLE>
Page 5
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
12342 10/9/96 A Microfluidics-Enabled Combined DSRC Combined into 12049 DARPA U.S. GOV. has a
Hybridization And Detection license
Chamber For Multiple Analyte
Detection
12348 10/14/96 Fluid Flow Sensor For Fluidic Closed ORCHI Was combined into 12560; ORCHI Sarnoff has a
Systems Orchid not interested in license outside
this disclosure (1/99) FOU; SKB has a
license
12354 10/17/96 Direct Feed Of Fluid From Combined DSRC Provisional filed and ORCHI Orchid and SKB
Distribution Channels Into abandoned; No 111(a) have licenses
Reaction Wells filed; Combined into
12560; Orchid not
interested 10/26/98
12359 10/18/96 Grit-Blast Pretreatment Of Glass Closed DSRC ORCHI Orchid and SKB
Surface For Laser Drilling have licenses
Process Improvement
12364 10/18/96 Microfluidic Enabled Combined DSRC Combined into 12049 NIST U.S. GOV. has a
Sequence-Specific Enrichment license
System
12365 10/18/96 Flow Break In Microfluidic Sold ORCHI Orchid accepts DARPA U.S. GOV. has a
Channels Induced By Bubble responsibility 11/10/99 license; Sarnoff
Formation has a license
outside FOU
12366 10/18/96 Microcassette Fluidics Design To Closed DSRC ORCHI Orchid and SKB
Permit Well Size Reduction And have licenses
Center-To-Center Pitch Reduction
(Densification)
12367 10/22/96 Methods And Strategies For Combined DSRC Combined into 12317 DARPA U.S. GOV. has a
Microfluidics-Enabled Target license
Amplification
12368 10/23/96 Use Of Magnetic Beads In Sold ORCHI Orchid accepts DARPA U.S. GOV. has a
Microfabricated Devices responsibility 11/10/99 license; Sarnoff
has a license
outside FOU
12375 10/28/96 Low Fluid Flow Resistance Closed ORCHI Was combined into 12560; ORCHI Sarnoff has a
Reaction Cell Orchid not interested in license outside
this disclosure (1/99) FOU; SKB has a
license
12385 10/4/96 Liquid Distribution System Sold ORCHI Orchid accepts ORCHI Sarnoff has a
responsibility 11/10/99 license outside
FOU; SKB has a
license
12400 11/14/96 Method And Apparatus To Amplify Sold ORCHI Orchid filed Provisional NIST U.S. GOV. has a
DNA 11/30/98; Orchid not license; Sarnoff
filing 111(a) per AH has a license
11/19/99 outside FOU
12415 11/27/96 Turbine Pumped/Electrostatic Closed U. S. Sent to Orchid 8/98; DARPA U.S. GOV. has a
Capture Air Sampler Requested extension license; Sarnoff
until 11/30/98; Orchid has a license
will not pursue 9/30/98; outside FOU
Notice to SPS sent
10/5/98; Sent to US GOV;
Sarnoff has a license
back
12433 12/13/96 An Electrostatic Fluid Control Sold ORCHI Filed by Orchid ORCHI Sarnoff and SKB
And Detecting Structure have licenses
outside FOU
12439 12/19/96 Integrated Planar EO And/Or EHD Closed U. S. Sent to Orchid 8/98; DARPA U.S. GOV. has a
Pumps And Electromagnet Separator Requested extension license; Sarnoff
until 11/30/98; Orchid has a license
will not pursue 9/30/98; outside FOU
Notice to SPS sent
10/5/98; Sent to US GOV;
Sarnoff has a license
back
12441 12/17/96 Organic Synthesis In A Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Microfabricated Fluidic Array Orchid will file (11/98) license outside
Structure FOU; SKB has a
license
</TABLE>
Page 6
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
12451 1/10/97 System For Delivering Reagents In Sold ORCHI Orchid accepts ORCHI Sarnoff has a
Quantitative Volumes In responsibility 11/10/99 license outside
Microscale Devices FOU
12458 1/15/97 Self-Sealing High Aspect Ratio Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Reaction And/Or Assay Well Plates Orchid not interested license outside
Made Of Silicone Elastomers 10/26/98 FOU; SKB has a
license
12485 2/6/97 Direct Liquid Capture And Filed ORCHI Orchid filed Provisional DARPA U.S. GOV. has a
Separation Of Airborne Particles 11/30/98; Orchid will license; Sarnoff
not file a 111(a) per AH has a license
11/19/99; SPS notified outside FOU
11/22/99
12491 2/10/97 Active Apportionment System Using Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Electronically Switched Membrane Orchid will not file and license outside
will send to SKB FOU; SKB has a
(11/11/98) license
12496 2/14/97 A Microfluidics-Based Device For Sold ORCHI Orchid filed Provisional DARPA U.S. GOV. has a
DNA Target Amplification 3/18/99; Orchid will not license; Sarnoff
file a 111(a) per AH has a license
11/19/99; SPS notified outside FOU
11/22/99
12500 2/19/97 DNA Direct III Sample Preparation Closed U. S. Sent to Orchid 8/98; NIST U.S. GOV. has a
Cassette Requested extension license; Sarnoff
until 11/30/98; Orchid has a license
will not pursue 9/30/98; outside FOU
Notice to SPS sent
10/5/98; Sent to US GOV;
Sarnoff has a license
back
12504 2/19/97 Microfluidic Enabled Sample Closed ORCHI Sent to Orchid 8/98; NONE Sarnoff has a
Preparation Orchid will not file license outside
(11/98) FOU
12508 2/20/97 High Density Array Bead Closed DSRC ORCHI Orchid and SKB
Transporter have licenses
12511 2/21/97 A Novel Electrode For Improved Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Anodic Bonding Orchid will not file and license outside
will send to SKB (11/98) FOU; SKB has a
license
12514 2/25/97 mMass Fluid Flow Controller For Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Integrated Planar mFluidic Systems Orchid not interested license outside
10/26/98 FOU; SKB has a
license
12519 3/3/97 Novel Point/Ring Vertical EHD Filed DSRC ORCHI Orchid and SKB
Pump Integrated With Capillary have licenses
Stop Or Break
12520 3/4/97 Fluid Delivery To Multiple Cells Sold ORCHI 12546 combined into this ORCHI Sarnoff has a
In A mFabricated Array Structure case; Sent to Orchid license outside
Using A Transient Pressure Head 8/98; Filed by Orchid FOU; SKB has a
7/9/99 license
12523 3/5/97 mFluidic Array Printer Filed DSRC NONE None
12524 3/15/97 Microfluidic Printer Cartridge Filed DSRC NONE None
12528 3/11/97 Microfluidic Printer Combined DSRC Combined into 12590 NONE None
12531 3/13/97 Back Flow Stop Valve To Prevent Closed DSRC ORCHI Orchid and SKB
Contamination In An Array Of have licenses
Reaction Wells
12532 3/13/97 Hard Copy Media Activated By Combined DSRC Combined into 12523 NONE None
Physical Phenomena
12536 3/19/97 Chemical Synthesis In A Chip Closed ORCHI Orchid not interested ORCHI Sarnoff has a
Format 1: Reagent Characterization 10/26/98 license outside
FOU; SKB has a
license
12537 3/19/97 Bacteria Capture In A Combined DSRC Combined into 12339 DARPA U.S. GOV. has a
Microfabricated Device license
12539 3/19/97 Integrated Optical Detector For Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
mFluidic Systems Using Planar Orchid will not file and license outside
Optical Waveguide will send to SKB (11/98) FOU; SKB has a
license
12540 3/20/97 Device To Increase Optical Closed ORCHI Sent to Orchid 8/98; NONE Sarnoff has a
Pathlength For UV Still being reviewed by license outside
Absorbance-Based Permeability Orchid (11/98); Orchid FOU
Measurement will not pursue 1/99
</TABLE>
Page 7
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
12543 3/24/97 Combinatorial Chemistry On A Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Chip: Catalysis Orchid not interested license outside
10/26/98 FOU; SKB has a
license
12544 3/27/97 Horizontal Capillary Break And Combined DSRC Combined into 12385 ORCHI Orchid and SKB
Method To Reset It Using Gas have licenses
Pressure Supplied By A Gas
Distribution Network
12546 3/31/97 All Direct Feed Synthesis System: Combined DSRC Combined into 12520 ORCHI Orchid and SKB
Applications To Peptides And have licenses
Oligonucleotides
12548 4/2/97 Solution-Phase Combinatorial Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Chemistry In The Orchid Synthesis Orchid will file (11/98) license outside
System FOU; SKB has a
license
12556 4/22/97 Syringe Pump Sample Prep System Filed DSRC Sent to Orchid 8/98; NIST U.S. GOV. has a
Requested extension license;
until 11/30/98; Orchid Intelecast Ex. C,
will not pursue Licensed
10/26/98; Notice sent to Technologies,
SPS 10/29/98; Sent to US Non-Exclusive,
GOV; Sarnoff has a Non-Compete
license back; Sarnoff
files a Provisional
11/4/98; 12824P combined
into this 111(a)
12560 4/25/97 Input Configuration For Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
"Capillary Reset" Gas Orchid not interested license outside
10/26/98 FOU; SKB has a
license
12562 4/28/97 A Novel Screening Approach For Closed ORCHI 12650 combined into this NONE Sarnoff has a
Drug Discovery: Cell Culture case; Sent to Orchid license outside
Microarray 8/98; Orchid will not FOU
file (11/98)
12564 4/28/97 Passive And Active Matrix Filed DSRC NONE None
Multi-Element Print Heads
12572 5/12/97 Electrohydrodynamic Pumping Of Closed DSRC NONE None
Pigment Dispersions In Organic
Solvents
12590 5/21/97 Microfluidic Area Array Printer Filed DSRC Provisional filed 9/29/97 NONE None
12646 7/17/97 Microfluidics Enabled, Massively Closed ORCHI Sent to Orchid 8/98; NONE Sarnoff has a
Parallel, Gene Expression Still being reviewed by license outside
Analysis System Orchid (11/98); Orchid FOU
will not pursue 1/99
12650 7/25/97 A Device For Characterizing The Combined DSRC Combined into 12562 NONE None
Bacterial Uptake Of A Drug
Compound By Using The Bacteria As
A Chromotography Column Medium
12656 7/30/97 Stabilized Electro-Osmotic Closed U.S. Sent to Orchid 8/98; DARPA U.S. GOV. has a
Micropump Orchid will handle license; Sarnoff
10/7/98; Orchid decides has a license
not to file 5/99; outside FOU
Notified SPS 5/99
12658 7/31/97 Inter-Leaved uFluidic Mixer Closed U.S. Sent to Orchid 8/98; DARPA U.S. GOV. has a
Orchid will handle license; Sarnoff
10/7/98; Orchid decides has a license
not to file 5/99; Sent outside FOU
to SPS 5/99
12666 8/11/97 Compact Multi-Tube Ferrule Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Interconnect Orchid not interested license outside
10/26/98 FOU; SKB has a
license
12668 8/13/97 An Elastomeric Plate For The Closed ORCHI Combined into 12687 ORCHI Sarnoff has a
Orchid Cassette Assembly disclosure; Orchid not license outside
interested 10/26/98 FOU; SKB has a
license
12670 8/13/97 Pulsed Fluid Pumping In Sold ORCHI Sent to Orchid 4/98; DARPA U.S. Gov. has a
Microfabricated Devices Must file by 10/8/99; license; Sarnoff
Orchid will handle has a license
10/7/98 outside FOU
</TABLE>
Page 8
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
12677 8/19/97 Electrohydrodynamic Trap To Seize Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Beads, Bacteria, Cells And, Orchid not interested license outside
Dielectric Objects In Channels 10/26/98 FOU; SKB has a
And Reaction Cells in m Structures license
12678 8/19/97 Integrated Electroosmotic Pump Sold ORCHI Filed by Orchid ORCHI Sarnoff has a
And Capillary Break license outside
FOU; SKB has a
license
12687 8/25/97 Planer Seal Fabrication By Closed ORCHI 12668 combined into this ORCHI Sarnoff has a
Pattern Transfer Process case; Sent to Orchid license outside
8/98; Orchid not FOU; SKB has a
interested 10/26/98 license
12694 9/4/97 High Density Multi-Tube Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Ferrule-Less Interconnect Orchid not interested license outside
10/26/98 FOU; SKB has a
license
12706 9/12/97 A Method For Controlling The Sold ORCHI Sent to Orchid 8/98; DARPA U.S. GOV. has a
Traffic Of Reagents Flowing Must file by 9/23/99; license; Sarnoff
Through Channels In Microdevices Orchid will handle has a license
By Using Several Alternating 10/7/98 outside FOU
Phases Of Pumping
12710 9/15/97 Check Valve For Microfluidics Closed U. S. Sent to Orchid 8/98; DARPA Sarnoff has a
Orchid will not pursue license outside
9/30/98; Notice to SPS FOU
sent 10/5/98; Sent to US
GOV; Sarnoff has a
license back
12725 10/13/97 Interface And Back-Plane Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Interconnects For Integrated Orchid will file (11/98) license outside
Fluidic/Optic/Electronic Devices, FOU; SKB has a
Micro-To-Macro Interface license
12726 10/13/97 Matrix Electronic Addressing Of Closed ORCHI Same invention as 12564 ORCHI Sarnoff has a
EHD Pumps of Kane (4/28/97) license outside
FOU; SKB has a
license
12753 11/7/97 Fluidic Transmission Lines and Sold ORCHI Filed by Orchid 7/9/99 ORCHI Sarnoff has a
Waveguides: AC Fluidics license outside
FOU
12762 11/14/97 EHD Positional Pumping With Closed ORCHI Sent to Orchid 8/98; NONE Sarnoff has a
Multiple Fluids Orchid will not file license outside
(11/98) FOU
12783 11/24/97 Chemical Reactor For Liquid And Closed ORCHI Sent to Orchid 8/98; ORCHI Sarnoff has a
Solid Phase Chemistries Suitable Orchid will file (11/98) license outside
For High Temperature And FOU
Pressures In Microarray Formats
12814 12/15/97 Innovative Microfabricated Closed U. S. Sent to Orchid 8/98; DARPA Sarnoff has a
Geometries To Enhance Orchid will not pursue license outside
Microfluidic Processes, Including 9/30/98; Notice to SPS FOU
Chemical Reactions, Mixing, sent 10/5/98; Sent to US
Particle Capture And Material GOV; Sarnoff has a
Transport license back
12815 12/15/97 Entrapment Device For Particles Closed U. S. Sent to Orchid 8/98; DARPA Sarnoff has a
In Micro-Fluidic Channels Orchid will not pursue license outside
9/30/98; Notice to SPS FOU
sent 10/5/98; Sent to US
GOV; Sarnoff has a
license back
12816 12/15/97 Physical Entrapment Device Sold ORCHI Sent to Orchid 8/98; DARPA U.S. GOV. has a
Must file by 8/31/99; license; Sarnoff
Orchid will handle has a license
10/7/98; Orchid will outside FOU
file 5/99
</TABLE>
Page 9
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
12817 12/15/97 Microfluidics-Enabled Polymerase Closed U. S. Sent to Orchid 8/98; DARPA Sarnoff has a
Chain Reaction Protocol And Device Orchid will not pursue license outside
9/30/98; Notice to SPS FOU
sent 10/5/98; Sent to US
GOV; Sarnoff has a
license back
12822 12/18/97 Microfluidic Reaction Chamber For Closed U.S. Sent to Orchid 8/98; DARPA Sarnoff has a
Paramagnetic Bead Capture And Must file by 8/31/99; license outside
Chemical Processing Orchid will handle FOU
10/7/98; Orchid will not
file 5/99; Notified SPS
5/99
12855 1/30/98 Microfluidics Differential Closed ORCHI Sent to Orchid 8/98; NONE Sarnoff has a
Display Chip Still being reviewed by license outside
Orchid (11/98) FOU
12860 2/3/98 A Microfluidic, Immobilized Closed U. S. Sent to Orchid 8/98; DARPA Sarnoff has a
Enzyme Column For Replicating Orchid will not pursue license outside
Nucleic Acid Sequences 9/30/98; Notice to SPS FOU
sent 10/5/98; Sent to US
GOV; Sarnoff has a
license back.
12912 3/5/98 Back And Forth, Continuous Flow, Closed U. S. Sent to Orchid 8/98; DARPA Sarnoff has a
DNA Amplification Orchid will not pursue license outside
9/30/98; Notice to SPS FOU; SPAWAR/DAR
sent 10/5/98; Sent to US
GOV; Sarnoff has a
license back.
12959 3/26/98 Continuous Flow Ligation Rapid Closed U.S. Sent to Orchid 8/98; DARPA U.S. GOV. has a
Thermal Multi-Cycle Device Orchid will not pursue license; Sarnoff
9/30/98; Notice to SPS has a license
sent 10/5/98; Sent to US outside FOU
GOV; Sarnoff has a
license back
12968 3/31/98 Electrohydrodynamic Switch For Sold ORCHI Filed by Orchid ORCHI Sarnoff has a
Fluid Control And Delivery In license outside
Microfluidic Structures FOU
13005 4/24/98 Continuous Flow Parallel DNA Sold ORCHI Sent to Orchid 8/98; DARPA U.S. GOV. has a
Amplification Microfluidic Device Orchid will handle license; Sarnoff
10/7/98; Orchid will has a license
file 5/99; Must file by outside FOU
8/31/99
13021 5/5/98 A Method To Fabricate Closed ORCHI Sent to Orchid 8/98; NONE Sarnoff has a
Elastomer/Glass Hybrid For Orchid will not file license outside
Microfluidics (11/98) FOU
13051 5/28/98 Compact Device For Nucleic Acid Sold ORCHI Sent to Orchid 8/98; DARPA U.S. GOV. has a
Amplification Orchid will handle license; Sarnoff
10/7/98; Orchid will has a license
file 5/99; Must file by outside FOU
8/31/99
13106 7/8/98 Indirect Electro-Pumping Of Fluids Closed ORCHI Sent to Orchid 11/98; DARPA U.S. Gov. has a
Orchid not pursuing license; Sarnoff
(3/18/99); Notified SPS has a license
4/16/99 outside FOU
13173 9/1/98 Micro-Elastomeric Seal, Rapid Sold ORCHI Sent to Orchid 9/98; NONE Sarnoff has a
Production Process Orchid filed 5/19/99 license outside
FOU
13176 9/4/98 Alignment Method For Facing Closed ORCHI Sent to Orchid 9/98; ORCHI Sarnoff has a
Features On Mating Items Orchid will not file license outside
(11/98); Orchid not FOU
interested 7/23/99
13177 9/4/98 Method To Detect Nucleic Acid Closed ORCHI Sent to Orchid 9/98; ORCHI Sarnoff has a
Sequences With Amplification Still being reviewed by license outside
Probes In Microchannels Orchid (11/98); Orchid FOU
will not pursue 1/99
</TABLE>
Page 10
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
13184 9/8/98 Reaction Wells For Microchemistry Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Systems Orchid will not file license outside
this disclosure (per FOU
KNash 11/29/99)
13185 9/8/98 Electrohydrodynamic Pumping Of Closed ORCHI Sent to Orchid 1/14/99 ORCHI Sarnoff has a
Aqueous Solutions license outside
FOU
13186 9/8/98 Optimized Electrohydrodynamic Closed ORCHI Sent to Orchid 1/14/99 ORCHI Sarnoff has a
Pump Configuration license outside
FOU
13190 9/10/98 Flow Sensing By Detecting A Fluid Closed ORCHI Sent to Orchid 11/98; ORCHI Sarnoff has a
Transported Pulse Orchid not pursuing license outside
(3/18/99) FOU
13191 9/10/98 Integrated Micro-Sieve Or Filter Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
And Method To Seize Particles In Orchid not pursuing license outside
Microfluidic Devices (3/18/99) FOU
13192 9/10/98 An Electrohydrodynamic Active Closed ORCHI Sent to Orchid 1/14/99 ORCHI Sarnoff has a
Valve To Control Fluid Flow Of license outside
Organic Solvents And Reagents, FOU
Aqueous Solution, Strong
Electrolytes And Hydrocarbons In
Microfluidic Devices
13193 9/10/98 A Fluid Gun: A New Closed ORCHI Sent to Orchid 1/14/99 ORCHI Sarnoff has a
Electrohydrodynamic Microfluidic license outside
Pressure Generation Device With FOU
De-Coupled Charge Creation And
Pressure Generation Fields
13195 9/4/98 A Device For Electronic Pumping Closed ORCHI Sent to Orchid 1/14/99 ORCHI Sarnoff has a
Of Aqueous Solutions license outside
FOU
13196 9/11/98 Cleavage System For Performing Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Microchemistry On A Chip Orchid not interested license outside
7/23/99 FOU
13197 9/11/98 Reagent Reservoir System For A Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Microchemistry Chip Orchid not interested license outside
7/23/99 FOU
13198 9/11/98 Mechanical Alignment Method For Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Fluidic Microchips Orchid not interested license outside
7/23/99 FOU
13199 9/11/98 High Density Valving System For Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Microchemistry Chip Orchid not interested license outside
7/23/99 FOU
13200 9/11/98 Button Electrode For A Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Microchemistry Chip Orchid not pursuing license outside
(3/18/99) FOU
13201 9/14/98 A Method To Balance The Fluid Sold ORCHI Filed by Orchid ORCHI Sarnoff has a
Distribution In A Network For license outside
Pressure Pumping FOU
13209 9/16/98 A Microfluidic Continuous Flow Filed ORCHI Sent to Orchid 9/98; DARPA U.S. GOV. has a
Approach To Detect And Identify Still being reviewed by license; Sarnoff
Biological Agents By Nucleic Acid Orchid (11/98); Orchid has a license
Target Signatures will pursue 1/99; Orchid outside FOU
filed Provisional 3/18/99
13210 9/16/98 Use Of Caged Molecules In Filed ORCHI Provisional filed by DARPA U.S. Gov. has a
Microfluidic Devices For Spatial Orchid 3/18/99; Orchid license; Sarnoff
And Temporal Control Of Reactions abandons this has a license
Provisional and U.S. outside FOU
Gov. notified 1/12/00
13216 9/18/98 Method Of Using The Reaction Well Closed ORCHI Sent to Orchid 9/98; ORCHI Sarnoff has a
Surface As The Solid Support For Still being reviewed by license outside
Solid Phase Organic Synthesis: Orchid (11/98) FOU
Elimination Of The Need To Load
Current Forms Of Solid Supports
In The Orchid Well Plate
</TABLE>
Page 11
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
13217 9/18/98 Surface Chemistries For Closed ORCHI Sent to Orchid 9/98; ORCHI Sarnoff has a
Applications In Microdevices Still being reviewed by license outside
Orchid (11/98); Orchid FOU
not interested 7/23/99
13218 9/18/98 Cleaning System For A Closed ORCHI Sent to Orchid 9/98; ORCHI Sarnoff has a
Microchemistry Chip Orchid will not file license outside
(11/98) FOU
13221 9/18/98 Electrical Isolation In Closed ORCHI Sent to Orchid 1/14/99 ORCHI Sarnoff has a
Microfluidic Structures license outside
FOU
13231 9/22/98 Microfabricated Devices For DNA Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Analyses Using Dynamic Orchid will file 2/1/99 license outside
Hybridization FOU
13234 9/25/98 Amplification Device In A High Closed ORCHI Sent to Orchid 1/14/99 ORCHI Sarnoff has a
Throughput, Compact, Arrayed, license outside
Microscale Format FOU
13236 9/25/98 Cleaning Of Microfluidic Chips By Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Vacuuming Individual Fluid Drops Orchid not pursuing license outside
(3/18/99) FOU
13237 9/25/98 Enabling Uniform Cell Filling In Closed ORCHI Sent to Orchid 1/14/99 ORCHI Sarnoff has a
Pressure Fed Systems license outside
FOU
13238 9/25/98 Five-Solvent Chip Cleaning For Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Reproduceable Electronic Pumping Orchid not pursuing license outside
(3/18/99) FOU
13239 9/25/98 Methods For Separating The Well Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Plate/ Synthesis Chip Assembly Orchid not interested license outside
7/23/99 FOU
13240 9/25/98 Control Of Pressure And Filling Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
In Microfluidic Chips Orchid not pursuing license outside
(3/18/99) FOU
13244 9/28/98 A Method To Improve Feature Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Formation In Substrates Using Orchid not interested license outside
Surface/ Bulk Modifications, 7/23/99 FOU
Surface Coatings, And Fabricated
Substrates
13250 9/30/98 Indirect Electronic Pressure Closed ORCHI Sent to Orchid 1/14/99; DARPA U.S. GOV. has a
Pumping Of Fluids Orchid not pursuing license; Sarnoff
(3/18/99); Notified has a license
Government of our outside FOU
decision not to file
(3/18/99)
13251 9/30/98 Vertically Stacked Interleaved Closed ORCHI Sent to Orchid 1/14/99; DARPA U.S. GOV. has a
Layer Micro-Fluidic Mixer Orchid not pursuing license; Sarnoff
(3/18/99); Notified has a license
Government of our outside FOU
decision not to file
(3/18/99)
13253 10/1/98 Effluent System For Performing Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
Microchemistry On A Chip Orchid not interested license outside
7/23/99 FOU
13339 11/16/98 The Method And Process Of Dynamic Closed ORCHI Sent to Orchid 1/14/99; ORCHI Sarnoff has a
DNA Hybridization Orchid will file 2/1/99 license outside
FOU
13436 2/1/99 Method For Combining Reagents In Closed U. S. Must file by 2/3/2000; DARPA Sarnoff has a
A Microfluidic Chamber Sent to Orchid 4/99; license; U.S.
Orchid not interested Gov. has a
11/11/99; SPS notified license
11/11/99
13437 2/1/99 Vertical Bead Separation Method Closed U. S. Must file by 2/3/2000; DARPA Sarnoff has a
For Glass Microchannels Sent to Orchid 4/99; license; U.S.Gov.
Orchid not interested has a license
11/11/99; SPS notified
11/11/99
</TABLE>
Page 12
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
CASE NO. DISCLOSURE DATE TITLE STATUS OWNER REMARKS CLIENT LICENSE INFO
<S> <C> <C> <C> <C> <C> <C> <C>
13547 4/15/99 In Vitro Reconstituted Pathways Open DSRC Must file by 4/19/2000; DARPA U.S. Gov. has a
Implemented In Microfluidic Requested 1 mon. license
Devices For Use In Drug extension from SPS
Discovery, Diagnostics And 3/9/00 (per AH); Sent to
Toxicology Orchid 3/9/00
13619 6/23/99 Controlling Surface Wetting Closed DSRC Sent to Orchid 7/6/99 NONE None
Characteristics-Applications In
Microdevices
</TABLE>
Page 13
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11402 EP PCT Sold A Partitioned 95940666.1 11/9/95 0 808 456 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 US ORD Sold Partitioned 08/338703 11/10/94 5,585,069 12/17/96 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
And Fluidic Device combined into
Array For Clinical this case;
Diagnostics And Related Cases:
Chemical Synthesis Divisionals
08/454771,
08/454781,
08/454774,
08/454772 and
08/454768; PTO
notified of
merger 4/99;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 KR PCT Sold A Partitioned 703200/97 11/9/95 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case; CPA
amend claims
see 11402 EPO;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 CA PCT Sold A Partitioned 2205066 11/9/95 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 AU PCT Sold A Partitioned 4233796 11/9/95 705659 9/2/99 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 SG PCT Sold A Partitioned 9701985-5 11/9/95 41056 7/20/99 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 JP PCT Sold A Partitioned 8-516200 11/9/95 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case; CPA
amend claims
see 11402 EPO;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 WO ORD Abandoned A Partitioned 95/14589 11/9/95 DSRC 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case
EP95940666.1;
Designated:
All Countries
</TABLE>
Page 1
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11402 A US DIV Sold Partitioned 08/455016 5/31/95 5,593,838 1/14/97 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case;
Div. of 11402;
PTO notified of
merger 4/99;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 B US DIV Abandoned A Partitioned 08/454771 5/31/95 DSRC 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case;
Div. of 11402
11402 BA US FWC Sold A Partitioned 08/789739 1/27/97 5,863,708 1/26/99 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case; FWC
of 11402B which
is Div. of
11402; PTO
notified of
merger 8/98;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 C US DIV Sold Method Of 08/454781 5/31/95 5,643,738 7/1/97 ORCHI 11404, 11512,
Synthesis Of 11577 & 11638
Plurality Of combined into
Compounds In this case;
Parallel Using A Div. of 11402;
Partitioned Solid PTO notified of
Support merger 4/99;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 D US DIV Sold A Partitioned 08/454774 5/31/95 5,681,484 10/28/97 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case;
Div. of 11402;
PTO notified of
merger 4/99;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 E US DIV Abandoned A Partitioned 08/454772 5/31/95 DSRC 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case;
Div. of 11402;
FWC filed
11402 EA US FWC Sold Partitioned 08/705058 8/29/96 5,755,942 5/26/98 ORCHI 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case; FWC
of 11402E which
is a Div. of
11402; PTO
notified of
merger 4/99;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 F US DIV Abandoned A Partitioned 08/454768 5/31/95 DSRC 11404, 11512,
Microelectronic 11577 & 11638
Device Array combined into
this case;
Abandoned for
FWC; Div. of
11402
</TABLE>
Page 2
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11402 FA US FWC Sold Immunilogical 08/914941 8/20/97 5,858,804 1/12/99 ORCHI 11404, 11512,
Assay Conducted In 11577 & 11638
A Microlaboratory combined into
Array this case; Div.
of 11402; FWC
of 11402F;
Merger doc.
submitted with
Issue Fee
Trans. 8/98;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11402 G WO ORD Abandoned Liquid 95/14590 11/9/95 DSRC CIP of 11402,
Distribution System 11717 and 11740
11404, 11512,
11577 & 11638
combined into
this case;
Designated:
All Countries
11402 G KR PCT Pending Liquid 97/703201 11/9/95 DSRC CIP of 11402,
Distribution System 11717 and 11740
11404, 11512,
11577 & 11638
combined into
this case; CPA
amend claims
see11402 EPO;
Examination
requested 10/98
11402 G JP PCT Pending Liquid 8-516201 11/9/95 DSRC CIP of 11402,
Distribution System 11717 and 11740
11404, 11512,
11577 & 11638
combined into
this case; CPA
amend claims
see 11402 EPO;
Examination
requested 10/98
11402 G AU PCT Granted Liquid 705351 11/9/95 4,152,396 8/26/99 DSRC CIP of 11402,
Distribution System 11717 and 11740
11404, 11512,
11577 & 11638
combined into
this case
11402 G CA PCT Pending Liquid 2204912 11/9/95 DSRC CIP of 11402,
Distribution System 11717 and 11740
11404, 11512,
11577 & 11638
combined into
this case
11402 G EP PCT Pending Liquid 95939862.9 11/9/95 DSRC CIP of 11402,
Distribution System 11717 and 11740
11404, 11512,
11577 & 11638
combined into
this case
11402 G SG PCT Pending Liquid 9701983-0 11/9/95 DSRC CIP of 11402,
Distribution System 11717 and 11740
11404, 11512,
11577 & 11638
combined into
this case
11402 G US CIP Granted Liquid 08/556036 11/9/95 5,846,396 12/8/98 DSRC CIP of 11402,
Distribution System 11717 and 11740
11404, 11512,
11577 & 11638
combined into
this case; PTO
notified of
merger 4/99
</TABLE>
Page 3
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11637 US ORD Sold System For Liquid 08/745767 11/8/96 5,958,344 9/28/99 ORCHI 11749 & 11746
Distribution combined into
this case, part
of this also in
11402G
provisional;
No Foreign
Filing;
Related Cases:
11402G 11637P;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11637 PR US PRO Abandoned System For Liquid 60/006409 11/9/95 DSRC into 11749 &
Distribution 11746 combined
into this case
part of this
also in
11402G
provisional;
No Foreign
Filing; 11999
Rule 111(a)
case filed
11402G
11717 US ORD Sold Apparatus And 08/469238 6/6/95 5,632,876 5/27/97 ORCHI See 11752 and
Methods For 11760; No
Controlling Fluid Foreign Filing;
Flow In PTO notified of
Microchannels merger 4/99;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11717 A US CIP Granted Electrokinetic 08/556423 11/9/95 5,858,193 1/12/99 DSRC See 11740-,
Pumping 11752 and
11760; Related
Cases: CIP of
11717 and
11740; PTO
notified of
merger 8/98
11717 A CA PCT Pending Electrokinetic 2,223,099 11/9/95 DSRC 11717, 11740,
Pumping 11752 and 11760
combined into
this case;
Related Cases:
CIP of 11717
and 11740
11717 A KR PCT Pending Electrokinetic 97/708874 11/9/95 DSRC 11717, 11740,
Pumping 11752 and 11760
combined into
this case;
Related Cases:
CIP of 11717
and 11740
11717 A WO ORD Abandoned Electrokinetic 95/14586 11/9/95 DSRC 11717, 11740,
Pumping 11752 and
11760
combined into
this case;
Designated:
All Countries;
Related Cases:
CIP of 11717
and 11740
11717 A JP PCT Pending Electrokinetic 9-500,408 11/9/95 DSRC 11717, 11740,
Pumping 11752 and 11760
combined into
this case;
Related Cases:
CIP of 11717
and 11740
11717 A SG PCT Pending Electrokinetic 9705796-2 11/9/95 DSRC 11717, 11740,
Pumping 11752 and 11760
combined into
this case;
Related Cases:
CIP of 11717
and 11740
</TABLE>
Page 4
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11717 A AU PCT Pending Electrokinetic 4233496 11/9/95 DSRC 11717, 11740,
Pumping 11752 and 11760
combined into
this case;
Related Cases:
CIP of 11717
and 11740;
Orchid has no
interest in
filing a
divisional
application in
Australia
(9/22/99)
11717 A CN PCT Pending Electrokinetic 95197935.3 11/9/95 DSRC 11717, 11740,
Pumping 11752 and 11760
combined into
this case;
Related Cases:
CIP of 11717
and 11740
11717 A EP PCT Published Electrokinetic 95940663.8 11/9/95 DSRC 11717, 11740,
Pumping 11752 and 11760
combined into
this case;
Related Cases:
CIP of 11717
and 11740
11717 B US CIP Sold Chemical Processes 08/645966 5/10/96 5,985,119 11/16/99 ORCHI See 11740-,
in a Microfluidic 11752 and
Apparatus 11760; Related
Cases: CIP of
11717A, 11717
and 11740;
Merger
notification
1/20/99;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11717 B EP PCT Sold Electrokinetic 97923614.8 5/12/97 ORCHI Orchid filed
Pumping through
National Stages
11717 B CA PCT Sold Electrokinetic 5/12/97 ORCHI Orchid filed
Pumping through
National Stages
11717 B WO ORD Abandoned Electrokinetic 97/07880 5/12/97 DSRC See 11740-,
Pumping 11752 and
11760; EP
application no.
97923614.8;
Designated:
All Countries;
Related Cases:
CIP of 11717A,
11717 and
11740; Orchid
handled
National Stages
11717 C US CIP Sold Electrokinetic 09/025387 2/18/98 ORCHI See 11740,
Pumping 11752 and
11760; Related
Cases: CIP of
11717A and
11717B; Offered
to Orchid to
file PCT 9/98
(due 2/18/99);
Orchid does not
want to file
PCT application
(2/9/99); AJ
late filing
response to OA;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
</TABLE>
Page 5
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11740 US ORD Sold Method And System 08/483331 6/7/95 5,603,351 2/18/97 ORCHI 11759 combined
For Inhibiting into this case;
Cross-Contamination PTO notified of
In Fluids Of merger 4/99;
Combinatorial Offered to
Chemistry Device Orchid 8/15/99;
Orchid accepts
responsibility
11/10/99
11740 WO ORD Abandoned Method And System 96/08686 6/7/96 DSRC All matter
For Inhibiting contained in
Cross-Contamination 11402G and
In Fluids Of 11717A; 11759
Combinatorial combined into
Chemistry Device this case; No
Foreign Filing
11740 A US ORD Sold Device For 08/726953 10/7/96 5,980,704 11/9/99 ORCHI 11759 combined
Selective into this case;
Distribution Of Offered to
Liquids Orchid 8/15/99;
Orchid accepts
responsibility
11/10/99
11740 AA US DIV Pending Device For 09/152861 8/14/98 ORCHI Divisional of
Selective 11740A; Filed
Distribution Of by Orchid
Liquids
11772 US ORD Granted Assay System And 08/742317 11/1/96 5,882,903 3/16/99 DSRC 11761, 11845,
Method For 11850 & 11851
Conducting Assays combined into
this case; U.S.
GOV. CASE; PTO
notified of
merger 12/98
11772 JP PCT Abandoned Assay System And 9-517420 11/1/96 DSRC 11761, 11845,
Method For 11850 & 11851
Conducting Assays combined into
this case;
Designated:
All Countries;
U.S. GOV. CASE;
Orchid does not
wish to further
prosecute
(9/30/98); All
foreign cases
to go abandoned
per WJB 9/30/98
11772 KR PCT Abandoned Assay System And 703287/98 11/1/96 DSRC 11761, 11845,
Method For 11850 & 11851
Conducting Assays combined into
this case;
Designated:
All Countries;
U.S. GOV. CASE;
Orchid does not
wish to further
prosecute
(9/30/98)
11772 EP PCT Abandoned Assay System And 96941947.2 11/1/96 DSRC 11761, 11845,
Method For 11850 & 11851
Conducting Assays combined into
this case;
Designated:
All Countries;
U.S. GOV. CASE;
Orchid does not
wish to further
prosecute
(9/30/98); All
foreign cases
to go abandoned
per WJB 9/30/98
</TABLE>
Page 6
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11772 SG PCT Abandoned Assay System And 9802585-1 11/1/96 DSRC 11761, 11845,
Method For 11850 & 11851
Conducting Assays combined into
this case;
Designated:
All Countries;
U.S. GOV. CASE;
Orchid does not
wish to further
prosecute
(9/30/98) - All
foreign cases
to go abandoned
per WJB 9/30/98
11772 CA PCT Abandoned Assay System And 2236451 11/1/96 DSRC 11761, 11845,
Method For 11850 & 11851
Conducting Assays combined into
this case;
Designated:
All Countries;
U.S. GOV. CASE;
Orchid does not
wish to further
prosecute
(9/30/98); All
foreign cases
to go abandoned
per WJB 9/30/98
11772 AU PCT Abandoned Assay System And 1115697 11/1/96 DSRC 11761, 11845,
Method For 11850 & 11851
Conducting Assays combined into
this case;
Designated:
All Countries;
U.S. GOV. CASE;
Offered to
Orchid for
further
prosecution
8/98; Orchid
does not wish
to further
prosecute
(9/30/98)
11772 WO ORD Abandoned Assay System And 96/17116 11/1/96 DSRC 11761, 11845,
Method For 11850 & 11851
Conducting Assays combined into
this case;
Designated:
All Countries;
U.S. GOV. CASE
11772 PR US PRO Abandoned Assay System 60/009517 11/3/95 DSRC 11761, 11845,
11850 & 11851
combined into
this case;
Related Cases:
11999 Rule
111(a) case
filed; U.S.
GOV. CASE
11865 JP PCT Abandoned Field- Assisted 9-504027 11/9/95 DSRC Offered to
Sealing Orchid 3/11/99;
Orchid not
interested
6/11/99;
Offered to
Orchid to
8/16/99;
Abandoned per
AH/WJB 10/12/99
11865 SG PCT Abandoned Field-Assisted 9802838-4 11/9/95 DSRC Offered to
Sealing Orchid 3/11/99;
Orchid not
interested
6/11/99;
Offered to
Orchid to
8/16/99;
Abandoned per
AH/WJB
10/12/99; CPI
not responsible
</TABLE>
Page 7
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11865 EP PCT Abandoned Field- Assisted 95939120.2 11/9/95 DSRC Offered to
Sealing Orchid 3/11/99;
Orchid not
interested
6/11/99;
Offered to SKB
7/13/99;
Offered to
Orchid to
8/16/99;
Abandoned per
AH/WJB
10/12/99; CPI
not responsible
11865 CA PCT Abandoned Field-Assisted 2236788 11/9/95 DSRC Offered to
Sealing Orchid 3/11/99;
Orchid not
interested
6/11/99;
Offered to
Orchid to
8/16/99;
Abandoned per
AH/WJB
10/12/99; CPI
not responsible
11865 KR PCT Abandoned Field- Assisted 703423/98 11/9/95 DSRC Offered to
Sealing Orchid 3/11/99;
Orchid not
interested
6/11/99;
Offered to
Orchid to
8/16/99;
Abandoned per
AH/WJB 10/12/99
11865 AU PCT Abandoned Field- Assisted 4106996 11/9/95 DSRC Offered to
Sealing Orchid to
further
prosecute 8/98;
Orchid not
interested
9/98; Watermark
notified 9/98
to let case go
abandoned
11865 WO ORD Abandoned Field- Assisted 95/14654 11/9/95 DSRC Designated:
Sealing All Countries
11865 US ORD Abandoned Field-Assisted 08/745766 11/8/96 5,747,169 5/5/98 DSRC PTO notified of
Sealing merger 4/99;
Offered to
Orchid to
8/16/99; SK
does not have
an interest in
this case
8/12/99;
Abandoned per
AH/WJB 10/12/99
11865 PR US PRO Abandoned Field Assisted 60/006588 11/9/95 DSRC Related Cases:
Sealing 11999 Rule
111(a) case
filed
</TABLE>
Page 8
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11895 US ORD Granted Parallel Reaction 08/786956 1/23/97 5,863,502 1/26/99 DSRC 11899 & 11967
Cassette And combined into
Associated Devices this case; U.S.
GOV. CASE; PTO
notified of
merger 10/27/98
11895 WO ORD Abandoned Parallel Reaction 97/00298 1/24/97 DSRC 11899 & 11967
Cassette And combined into
Associated Devices this case; No
Foreign Filing;
Orchid given
notice of
Nationals on
6/25/98;
Notified P.
Bruno on
7/24/98 that we
have abandoned
this PCT case;
U.S. GOV. CASE;
PCT costs
written off
10/26/99
11895 PR US PRO Abandoned Parallel Reaction 60/010513 1/24/96 DSRC 11899 & 11967
Cassette And combined into
Associated Devices this case; U.S.
GOV. CASE
11904 WO ORD Abandoned Magnet 96/17398 11/3/96 DSRC 11906 combined
into this
case;
Designated all
states; U.S.
GOV. CASE
11904 KR PCT Abandoned Magnet 703228/98 11/3/96 DSRC 11906 combined
into this
case;
Designated all
states; U.S.
GOV. CASE;
Notified SPS
that Sarnoff
and Orchid no
longer will be
pursuing this
application
(3/15/00)
11904 EP PCT Abandoned Magnet 96937082.4 11/3/96 DSRC 11906 combined
into this
case;
Designated all
states; U.S.
GOV. CASE;
Notified SPS
that Sarnoff
and Orchid no
longer will be
pursuing this
application
(3/15/00)
11904 JP PCT Abandoned Magnet 9-517509 11/3/96 DSRC 11906 combined
into this
case;
Designated all
states; U.S.
GOV. CASE;
Notified SPS
that Sarnoff
and Orchid no
longer will be
pursuing this
application
(3/15/00)
11904 A US CPA Abandoned Magnet 08/742971 11/1/96 DSRC 11906 combined
into this case
(This case
should be 11904
- misidentified
by DP&R);
Related Cases:
11904; U.S.
GOV. CASE; PTO
notified of
merger 12/98;
CPA was filed
4/21/98;
Offered to
Orchid per WJB
11/16/99; CPA
filed 11/24/99;
Orchid and
Sarnoff do not
want to pursue
this
application;
SPS notified
12/3/99
11904 PR US PRO Abandoned Magnet 60/006,202 11/3/95 DSRC 11906 combined
into this case;
U.S. GOV. CASE
11948 US ORD Sold Method Of 08/554887 11/9/95 5,842,106 11/24/98 ORCHI 11947 combined
Producing into this
Micro-Electric case; Related
Conduits Cases: CIP of
11717 and
11740; PTO
notified of
merger 8/98;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11948 CA PCT Sold Method Of 2,223,166 11/9/95 ORCHI See 11947;
Producing Related Cases:
Micro-Electric CIP of 11717
Conduits and 11740;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
</TABLE>
Page 9
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11948 EP PCT Sold Method Of 95940664.6 11/9/95 ORCHI See 11947;
Producing Related Cases:
Micro-Electric CIP of 11717
Conduits and 11740;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11948 JP PCT Sold Method Of 9-500,409 11/9/95 ORCHI See 11947;
Producing Related Cases:
Micro-Electric CIP of 11717
Conduits and 11740;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11948 KR PCT Sold Method Of 97/708693 11/9/95 ORCHI See 11947;
Producing Related Cases:
Micro-Electric CIP of 11717
Conduits and 11740;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11948 AU PCT Sold Method Of 4233596 11/9/95 714664 1/6/00 ORCHI See 11947;
Producing Related Cases:
Micro-Electric CIP of 11717
Conduits and 11740;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11948 SG PCT Sold Method Of 9705800-2 11/9/95 ORCHI See 11947;
Producing Related Cases:
Micro-Electric CIP of 11717
Conduits and 11740;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
11948 WO ORD Abandoned Method Of 95/14587 11/9/95 DSRC See 11947;
Producing Designated:
Micro-Electric All Countries;
Conduits Related Cases:
CIP of 11717
and 11740
12024 CA PCT Sold Method For 2258511 6/13/97 ORCHI Orchid filed
Polynucleotide through
Sequencing National Stages
12024 IL PCT Sold Method For 127560 6/13/97 ORCHI Orchid filed
Polynucleotide through
Sequencing National Stages
12024 EP PCT Sold Method For 97936015.3 6/13/97 ORCHI Orchid filed
Polynucleotide through
Sequencing National Stages
12024 JP PCT Sold Method For 10-501677 6/13/97 ORCHI Orchid filed
Polynucleotide through
Sequencing National Stages
12024 AU PCT Sold Method For 38784/97 6/13/97 ORCHI Orchid filed
Polynucleotide through
Sequencing National Stages
12024 US ORD Abandoned Method For 08/665210 6/14/96 DSRC 12025, 12028
Polynucleotide and 12029
Sequencing combined into
this case; U.S.
GOV. CASE; PTO
notified of
merger 12/98;
FWC filed
</TABLE>
Page 10
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12024 WO ORD Abandoned Method For 97/09664 6/13/97 ORCHI 12025, 12028
Polynucleotide and 12029
Sequencing combined into
this case;
Designated:
All Countries;
European
Application No.
97936015.3;
Offered
National Stage
filing to
Orchid 8/98;
Orchid will
handle
Nationals Stage
filing
11/17/98; U.S.
GOV. CASE
12024 A US FWC Granted A Sequential Step 08/950709 10/15/97 5,908,755 6/1/99 DSRC 12025, 12028
Method For and 12029
Sequencing And combined into
Identifying this case;
Polynucleotides Related Cases:
FWC of 12024;
U.S. GOV. CASE
12034 WO ORD Abandoned Massively Parallel 97/17930 9/25/97 DSRC 12034A and
Detection 12034B claimed
priority;
Designated:
All Countries,
except U.S.; EP
Application no.
97944614.3;
Orchid shares
costs; Offered
to Orchid to do
Nationals
1/19/99; Orchid
does not want
to do Nationals
2/1/99, case
abandoned.
12034 A US ORD Sold Massively Parallel 08/721432 9/26/96 5,854,684 12/29/98 ORCHI Orchid shares
Detection costs; PTO
notified of
merger 8/98;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
12034 B US ORD Sold Massively Parallel 08/721427 9/26/96 5,872,623 2/16/99 ORCHI Orchid shares
Detection costs; PTO
notified of
merger 11/98;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
12038 AU PCT Sold Nuclease 32320/97 6/16/97 ORCHI Orchid filed
Protection Assays through
National Stages
12038 CA PCT Sold Nuclease 2258745 6/16/97 ORCHI Orchid filed
Protection Assays through
National Stages
12038 EP PCT Sold Nuclease 97927995.7 6/16/97 ORCHI Orchid filed
Protection Assays through
National Stages
12038 WO ORD Abandoned Nuclease 97/09800 6/16/97 ORCHI 12046-12048 and
Protection Assays 12052-12057
combined into
this case;
Designated:
All Countries;
European
Application No.
97927995.7;
Offered
National Stage
filing to
Orchid 8/98;
U.S. GOV. CASE;
Orchid will
take
responsibility
of National
Stage filing
(9/30/98)
</TABLE>
Page 11
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12038 US ORD Granted Nuclease 08/665104 6/14/96 5,770,370 6/23/98 DSRC 12046-12048 and
Protection Assays 12052-12057
combined into
this case; U.S.
GOV. CASE; PTO
notified of
merger 4/99
12038 IL PCT Sold Nuclease 127562 6/16/97 ORCHI Orchid filed
Protection Assays through
National Stages
12038 JP PCT Sold Nuclease 10-501695 6/16/97 ORCHI Orchid filed
Protection Assays through
National Stages
12049 US ORD Granted Method For 08/881282 6/24/97 5,939,261 8/17/99 DSRC 12342, 12353,
Capturing A 12364; U.S.
Nucleic Acid GOV. CASE
12049 WO ORD Sold Method For 98/13217 6/24/98 ORCHI 12342, 12353,
Capturing A 12364; JVS
Nucleic Acid filed this PCT
for Orchid - we
didn't turn it
over in time so
he is taking
care of
initiating the
PCT procedure
for them;
Orchid will
prosecute this
case; U.S. GOV.
CASE; To Orchid
6/98; European
patent
application no.
98931586.6
12050 US CPA Granted Microfluidic 08/665209 6/14/96 5,939,291 8/17/99 DSRC 12051, 12118,
Method For Nucleic 12127, 12140
Acid Amplification AND 12161
combined into
this case; U.S.
GOV. CASE; PTO
notified of
merger 12/98
12050 WO ORD Abandoned Microfluidic 97/09663 6/13/97 DSRC 12051, 12118,
Method For Nucleic 12127, 12140
Acid Amplification AND 12161
combined into
this case;
Designated:
All Countries;
European
Application No.
97929789.2;
Offered
National Stage
filing to
Orchid 8/98;
U.S. GOV. CASE;
Orchid will not
pursue National
Stage filing
(9/30/98) -
Notice sent to
SPS 10/5/98;
Notified
Finance of
abandonment
11/98; PCT
costs written
off 10/26/99
12081 US ORD Granted Method For 08/663688 6/14/96 5,914,229 6/22/99 DSRC 12078 combined
Amplifying A into this case;
Polynucleotide U.S. GOV. CASE;
PTO notified of
merger 12/98
</TABLE>
Page 12
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12081 WO ORD Abandoned Method For 97/09665 6/13/97 DSRC 12078 combined
Amplifying A into this
Polynucleotide case;
Designated:
All Countries;
European
Application No.
97929790.0;
Offered
National Stage
filing to
Orchid 8/98;
U.S. GOV. CASE;
Orchid will not
pursue National
Stage filing
(9/30/98) -
Notice sent to
SPS 10/5/98;
Notified
Finance of
abandonment
11/98; PCT
costs written
off 10/26/99
12087 CA PCT Sold Apportioning System 4/8/97 ORCHI Orchid filed
through
National Stages
12087 WO ORD Abandoned Apportioning System 97/05153 4/8/97 ORCHI EP application
no. is
97917704.5;
Designated:
All Countries;
Offered
National Stage
filing to
Orchid 8/98;
Orchid will
file National
Stages (9/98);
Orchid files
National Stages
in Canada, EPO,
Japan (10/98)
12087 EP PCT Sold Apportioning System 97917704.5 4/8/97 ORCHI Orchid filed
this through
National Stages
12087 JP PCT Sold Apportionment 97/536257 4/8/97 ORCHI Orchid filed
System through
National Stages
12087 US ORD Sold Apportionment 08/630047 4/9/96 5,879,632 3/9/99 ORCHI PTO notified of
System merger 12/98;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
12098 US ORD Sold Plate For Reaction 08/630018 4/9/96 5,840,256 11/24/98 ORCHI A DIV of this
System case is
possible
(restriction);
PTO notified of
merger 4/99;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
12098 EP PCT Sold Plate For Reaction 97917901.7 4/9/97 ORCHI Orchid filed
System through
National Stage
12098 JP PCT Sold Plate For Reaction 97/536450 4/9/97 ORCHI Orchid filed
System through
National Stages
12098 CA PCT Sold Plate For Reaction 4/9/97 ORCHI Orchid filed
System through
National Stages
</TABLE>
Page 13
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12098 WO ORD Abandoned Plate For Reaction 97/05841 4/9/97 ORCHI EP application
System no.
97917901.7;
Designated:
All Countries;
Offered
National Stage
filing to
Orchid 8/98;
Orchid will
file National
Stage (9/98);
Orchid filed
National Stages
(10/98)
12098 A US CIP Abandoned Plate For Reaction 08/850669 5/2/97 DSRC Includes 12119,
System 12156, 12297
CIP of 12098 (
8/630,018),
12385
(08/730,636)
and 12385A
(08/744,386);
No Foreign
Filing; No
further
prosecution by
Sarnoff or
Orchid
(9/29/98) -
case abandoned
12120 WO ORD Abandoned Automated Nucleic 97/09801 6/16/97 DSRC Designated:
Acid Isolation All Countries;
European
Application No.
97927996.5;
Offered
National Stage
filing to
Orchid 8/98;
U.S. GOV. CASE;
Orchid will not
pursue National
Stage filing
(9/30/98) -
Notice sent to
SPS 10/5/98;
Notified
Finance of
abandonment
11/98; PCT
costs written
off 10/26/99
12120 US ORD Sold Automated Nucleic 08/664780 6/14/96 5,863,801 1/26/99 ORCHI PTO notified of
Acid Preparation merger 8/98;
U.S. GOV. CASE;
Orchid and
Sarnoff share
costs; Offered
to Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
12162 JP PCT Sold Padlock Probe 10-502697 6/16/97 ORCHI Orchid filed
Detection through
National Stages
12162 US ORD Granted Padlock Probe 08/665208 6/14/96 5,912,124 6/15/99 DSRC 12163 combined
Detection into this case;
U.S. GOV. CASE
12162 AU PCT Sold Padlock Probe 32300/97 6/16/97 ORCHI Orchid filed
Detection through
National Stages
12162 IL PCT Sold Padlock Probe 127561 6/16/97 ORCHI Orchid filed
Detection through
National Stages
12162 EP PCT Sold Padlock Probe 97927997.3 6/16/97 ORCHI Orchid filed
Detection through
National Stages
12162 CA PCT Sold Padlock Probe 2258742 6/16/97 ORCHI Orchid filed
Detection through
National Stages
</TABLE>
Page 14
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12162 WO ORD Abandoned Padlock Probe 97/09802 6/16/97 ORCHI 12163 combined
Detection into this
case;
Designated:
All Countries;
European
Application No.
97927997.3;
Offered
National Stage
filing to
Orchid 8/98;
U.S. GOV. CASE;
Orchid will
take
responsibility
of National
Stage filing
(9/30/98)
12189 US ORD Sold Indirect 08/848413 5/8/97 5,961,800 10/5/99 ORCHI 12270 combined
Electrode-Based into this case;
Pumps File in All
States per WJB
3/9/98; Offered
to Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
12189 WO ORD Abandoned Indirect 98/09417 5/7/98 ORCHI 12270 combined
Electrode-Based into this case;
Pumps File in All
States per WJB
3/9/98; Sent to
Orchid 8/98 to
see if they are
interested in
continuing
prosecution
(Sarnoff did
not file
Demand); Orchid
will prosecute
this PCT
10/26/98;
European patent
application no.
98921050.5;
Orchid not
interested in
pursuing this
application
overseas - no
national stage
filing (per
KNash 11/1/99)
12244 PR US PRO Sold Scattering-Assisted 60/110,365 11/30/98 ORCHI Orchid filed
Light Absorption this
Assay Provisional;
U.S. GOV. CASE
12288 US ORD Sold Capacitive 08/936323 9/24/97 5,993,611 11/30/99 ORCHI Foreign offered
Denaturation Of to Orchid,
Nucleic Acid refused by P.
Conway 7/17/98;
No Foreign
Filing per WJB
8/18/98; U.S.
GOV. CASE;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99; SPS
notified to
reverse
election to
foreign file
3/00
12317 WO ORD Sold Amplification 98/17773 8/27/98 ORCHI 12367 combined
Method For A into this case;
Polynucleotide U.S. GOV. CASE;
Sarnoff filed
the PCT
application for
Orchid; Orchid
will prosecute
PCT application
</TABLE>
Page 15
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12317 US ORD Granted Amplification 08/924763 8/27/97 5,916,776 6/29/99 DSRC 12367 combined
Method For A into this case;
Polynucleotide U.S. GOV. CASE
12326 PR US PRO Abandoned Microlab Sample 60/032441 12/3/96 DSRC
Transfer Plate
12337 US ORD Granted Balanced 08/821480 3/21/97 5,964,997 10/12/99 DSRC PTO notified of
Asymmetric merger 12/98;
Electronic Pulse Printer Case
Patterns For
Operating
Electrode-Based
Pumps
12337 WO ORD Sold Balanced 98/05485 3/20/98 ORCHI Printer Case;
Asymmetric PCT designates
Electronic Pulse all countries;
Patterns For Nationals filed
Operating by Orchid (per
Electrode-Based AH 9/27/99);
Pumps European patent
application no.
98910505.1
12339 US CPA Abandoned Method For 08/927389 8/26/97 GOV 12537 combined
Capturing A into this case;
Microorgansim U.S. GOV. CASE;
No Foreign
Filing (Orchid
was not
interested in
filing a PCT
8/98); SPS
notified of no
foreign filing;
CPA filed 3/99;
U.S. case given
to Government
(SPS) 9/99; P.
Bruno notified
10/11/99
12354 PR US PRO Abandoned Liquid 60/035974 1/21/97 DSRC Related Cases:
Distribution System 12385, 11999
Rule 111(a)
case filed
12365 US ORD Sold Flow Control In 08/974258 11/19/97 5,992,820 11/30/99 ORCHI Must file by
Microfluidics 10/18/97; 6mo
Devices By XTN REQ; U.S.
Controlled Bubble GOV. CASE;
Formation Offered to
Orchid to file
PCT 9/98 (Due
11/19/98);
Orchid will not
pursue PCT
filing
(9/30/98) -
Notice sent to
SPS 10/5/98;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
12368 WO ORD Abandoned Method For 98/07392 4/14/98 DSRC U.S. GOV. CASE;
Translocating European
Microparticles In application no.
A Microfabricated 98920838.4; No
Device National Stages
per WJB
6/22/99; Offer
to SK and
Orchid 7/16/99;
Offered to
Orchid to
8/16/99; SK
does not have
an interest in
this case
8/12/99; Orchid
not interested
(8/26/99); SPS
notified 8/27/99
</TABLE>
Page 16
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12368 US ORD Sold Method For 08/838102 4/15/97 ORCHI U.S. GOV. CASE;
Translocating Offered to
Microparticles In Orchid 8/6/99
A Microfabricated and Offered to
Device Orchid to
8/16/99; Orchid
will accept
responsibility
(8/26/99);
Deleted Final
OA from Actions
List per AH
(8/27/99);
Abandoned
2/25/00
12385 US ORD Abandoned Liquid 08/730636 10/11/96 DSRC CIP of 11402,
Distribution System 11402G, 11717
and 11740;
11404, 11512,
11577 & 11638
combined into
this case
12385 A JP PCT Sold Liquid 10/10/97 ORCHI Orchid filed
Distribution System through
National Stages
12385 A US CIP Sold Liquid 08/744386 11/7/96 6,033,544 3/7/00 ORCHI CIP of 12385;
Distribution System 12297 and 12560
combined into
this case;
Offered to
Orchid to
8/16/99; Orchid
accepts
responsibility
11/10/99
12385 A CA PCT Sold Liquid 10/10/97 ORCHI Orchid filed
Distribution System through
National Stages
12385 A EP PCT Sold Liquid 10/10/97 ORCHI Orchid filed
Distribution System through
National Stages
12385 A WO ORD Abandoned Liquid 97/18266 10/10/97 ORCHI CIP of 12385
Distribution System 12297 combined
into this
case;
Designated:
All Countries;
European
application no.
97912690.1;
Offered to
Orchid to do
Nationals
1/19/99; Orchid
will do
Nationals 2/1/99
12400 PR US PRO Sold Method And 60/110,366 11/30/98 ORCHI Orchid filed
Apparatus To this
Amplify DNA Provisional;
Orchid will not
file a 111(a)
per AH
11/19/99; SPS
notified
11/22/99; US
GOV. CASE
12433 US ORD Sold Method Of Moving 09/351207 7/9/99 ORCHI Filed by Orchid
And Detecting
Fluid In A
Microfluidic Device
12451 US ORD Sold Device For 09/025380 2/18/98 ORCHI Offered to
Delivering Defined Orchid to file
Volumes PCT 9/98 (due
2/18/99);
Orchid will
file PCT 7/99;
Offered to
Orchid to
8/16/99; Orchid
will pay issue
fee per AH
10/13/99; ;
Orchid assumes
responsibility
10/19/99
12451 WO ORD Sold Device For 99/03486 2/18/99 ORCHI Orchid filed
Delivering Defined this PCT
Volumes
</TABLE>
Page 17
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12485 PR US PRO Sold Direct Liquid 60/110,364 11/30/98 ORCHI Orchid filed
Capture And this
Separation Of Provisional;
Airborne Particles U.S. GOV. CASE;
Orchid will not
file a 111(a)
per AH
11/19/99; SPS
notified
11/22/99
12496 PR US PRO Sold A 60/110,367 11/30/98 ORCHI Orchid filed
Microfluidics-Based this
Device For DNA Provisional;
Target U.S. GOV. CASE;
Amplification Orchid will not
file a 111(a)
per AH
11/19/99; SPS
notified
11/22/99
12519 US ORD Allowed Electrode 08/998406 12/24/97 DSRC File in All
Combinations For States per WJB
Pumping Fluids 3/9/98 and
4/22/98;
Printer Case
12519 WO ORD Abandoned Electrode 98/09599 5/13/98 DSRC File in All
Combinations, States per WJB
Including A Ring 3/9/98 and
Electrode, For 4/22/98; Camera
Pumping Fluids case; European
patent
application no.
98921121.4;
Printer Case;
Offered to
Orchid to do
National Stages
9/15/99;
Sarnoff will
not file
National Stages
(10/99); PCT
costs written
off 10/26/99
12519 PR US PRO Abandoned Vertical EHD Pump 60/046321 5/13/97 DSRC
Integrated With
Capillary Stop Or
Break
12520 US ORD Sold Fluid Delivery 09/351206 7/9/99 ORCHI Filed by Orchid
System For A
Microfluidic
Device Using A
Pressure Pulse
12523 WO ORD Abandoned An 98/09582 5/12/98 DSRC 12532 combined
Electrohydrodynamic into this
Receptor case; Related
Cases: 12524,
12564, 12590;
Designate all
states per WJB
4/22/98; Camera
case; European
patent
application no.
98920371.6;
Printer Case;
Offered to
Orchid to do
National Stages
9/15/99;
Sarnoff will
not file
National Stages
(10/99); PCT
costs written
off 10/26/99
12523 US ORD Granted An 08/937817 9/29/97 5,980,719 11/9/99 DSRC 12532 combined
Electrohydrodynamic into this
Receptor case; Related
Cases: 12524,
12564, 12590;
Designate all
states per WJB
4/22/98;
Printer Case
12523 PR US PRO Abandoned Printer 60/046293 5/13/97 DSRC File in All
States per WJB
3/9/98
</TABLE>
Page 18
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12524 US CPA Pending Parallel Print 08/939769 9/29/97 DSRC Related Cases:
Array 12523, 12564,
12590;
Designate all
states per WJB
4/22/98;
Printer Case;
CPA filed
7/15/99
12524 WO ORD Abandoned Parallel Print 98/09579 5/12/98 DSRC Related Cases:
Array 12523, 12564,
12590;
Designate all
states per WJB
4/22/98; Camera
case; European
patent
application no.
98921114.9;
Printer Case;
Offered to
Orchid to do
National Stages
9/15/99;
Sarnoff will
not file
National Stages
(10/99); PCT
costs written
off 10/26/99
12524 PR US PRO Abandoned Printer Cartridge 60/046292 5/13/97 DSRC File in All
States per WJB
3/9/98
12556 US ORD Pending Automated Sample 09/433155 11/3/99 DSRC U.S. GOV. CASE;
Processor 12824 combined
into this
111(a);
Designate: EP,
JP, IN (per AH
11/2/99)
12556 WO ORD Pending Automated Sample 99/25917 11/4/99 DSRC U.S. GOV. CASE;
Processor 12824 combined
into this
111(a);
Designate: EP,
JP, IN (per AH
11/2/99); Sent
to R&P 12/14/99
12556 PR US PRO Abandoned Sample Injection 60/107021 11/4/98 DSRC U.S. GOV. CASE;
System For Sent to Orchid
Cassettes 8/98; Requested
extension until
11/30/98;
Orchid will not
pursue
10/26/98;
Notice sent to
SPS 10/29/98;
Sent to US GOV;
Sarnoff has a
license back;
Sarnoff files a
Provisional;
Sent to Art
Jackson to
prepare 111(a)
5/14/99 + (to
be combined
with 12824P);
Due 10/18/99
12564 US ORD Allowed Multi-Element 08/939767 9/29/97 DSRC Related Cases:
Fluid Delivery 12523, 12524,
Apparatus And 12590; File in
Methods All States per
WJB 3/9/98 and
4/22/98;
Printer Case
</TABLE>
Page 19
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12564 WO ORD Abandoned Multi-Element 98/09741 5/13/98 DSRC Related Cases:
Fluid Delivery 12523, 12524,
Apparatus And 12590; File in
Methods All States per
WJB 3/9/98 and
4/22/98; Camera
case; European
patent
application no.
98922242.7;
Printer Case;
Offered to
Orchid 9/30/99;
Sarnoff will
not file
National Stages
(10/99); PCT
costs written
off 10/26/99
12564 PR US PRO Abandoned Multi-Element 60/046291 5/13/97 DSRC
Print Heads And
Methods Therefor
12590 WO ORD Abandoned Print Array And 98/18503 9/25/98 DSRC 12528 combined
Method Of Fluid into this
Transfer application;
Related Cases:
12523, 12524,
12564;
Designate all
states per WJB
9/18/98;
European patent
application no.
98950612.6;
Offered to
Orchid to do
National Stages
9/15/99;
Deleted
National Stage
actions and
application
abandoned (per
AH 3/29/00)
12590 US CPA Pending Print Array And 09/159564 9/24/98 DSRC 12528 combined
Method Of Fluid into this
Transfer application;
Related Cases:
12523, 12524,
12564;
Designate all
states per WJB
9/18/98; CPA
filed 11/9/99
12590 PR US PRO Abandoned Microfluidic Area 60/060321 9/29/97 DSRC 12528 combined
Array Printer into this
case; Related
Cases: 12523,
12524, 12564;
Designate all
states per WJB
9/18/98
12678 US ORD Sold 09/352670 7/9/99 ORCHI Filed by Orchid
12753 US ORD Sold Fluid Delivery 09/349438 7/9/99 ORCHI Filed by
System For A Orchid; Orchid
Microfluidic pays all costs
Device Using
Alternating
Pressure Waveforms
12968 US ORD Sold 09/350762 7/9/99 ORCHI Filed by Orchid
13173 US ORD Sold Method Of Forming 09/315216 5/19/99 ORCHI Orchid filed
Seals For A this application
Microfluidic Device
13201 US ORD Sold Method And 09/349550 7/9/99 ORCHI Filed by Orchid
Apparatus For
Distributing Fluid
In A Microfluidic
Device
13209 PR US PRO Sold Microfluidic 60/125064 3/18/99 ORCHI Orchid filed
Continuous Flow this
Approach To Detect Provisional;
And Identify U.S. GOV. CASE;
Biological Agents Orchid will not
By Nucleic Acid file a 111(a)
Target Signatures (1/00); SPS
notified 1/4/00
</TABLE>
Page 20
<PAGE>
ORCHID BIOSCIENCES
<TABLE>
<CAPTION>
Sub Case Application Filing Patent Issue Owner-
Case No. Case Country Type Status Title No. Date No. Date ship Remarks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
13210 PR US PRO Sold Use Of Caged 60/125060 3/18/99 ORCHI Orchid filed
Molecules In this
Microfluidic Provisional;
Devices For U.S. GOV. CASE;
Spatial And Orchid abandons
Temporal Control this
Of Reactions application
1/12/00;
Offered to Gov.
1/12/00
</TABLE>
Page 21
<PAGE>
Execution Copy
--------------
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE ACT
AND SUCH LAWS OR (1) REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED AND (2) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY IS
FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED.
ORCHID BIOSCIENCES, INC.
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, Sarnoff Corporation (the "Holder") is
------
entitled to subscribe for and purchase up to Seventy Five Thousand (75,000)
shares (subject to adjustment from time to time pursuant to the provisions of
Section 5 hereof) of fully paid and nonassessable Common Stock of Orchid
BioSciences, Inc., a Delaware corporation (the "Company"), at the Warrant Price
-------
(as defined in Section 2 hereof), subject to the provisions and upon the terms
and conditions hereinafter set forth.
As used herein, the term "Common Stock" shall mean the Company's Common Stock,
------------
$.001 par value per share, and any stock into or for which such Common Stock may
hereafter be converted or exchanged.
1. Term of Warrant. The purchase or conversion right represented by this
---------------
warrant (hereinafter the "Warrant") is exercisable, in whole or in part
-------
at any time during the period commencing on April 13, 2000 (the
"Effective Date") and continuing until the fifth anniversary thereof.
--------------
2. Warrant Price. The initial exercise price of this Warrant shall be
-------------
equal to the price per share of the Company's Common Stock in the
Initial Public Offering, subject to adjustment from time to time
pursuant to the provisions of Section 5 hereof (the "Warrant Price").
-------------
If there is no Initial Public Offering on or prior to April 13, 2001,
the Warrant Price shall be twelve dollars ($12.00) per share.
3. Method of Exercise or Conversion; Payment; Issuance of New Warrant.
------------------------------------------------------------------
(a) Exercise. Subject to Section 1 hereof, the purchase right
--------
represented by this Warrant may be exercised by the Holder hereof, in whole
or in part, by the surrender of this Warrant (with the notice of exercise
form attached hereto as Exhibit 1 duly executed) at the principal office of
---------
the Company and (i) by the payment to the Company, by check or wire
transfer, of an amount equal to the then applicable Warrant Price per share
multiplied by the number of shares then being purchased; or (ii) by
exercise of the Conversion Right under paragraph (b) below. The Company
agrees that the shares so purchased shall be deemed to be issued to the
Holder hereof as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment (or exercise of the
<PAGE>
Conversion Right) made for such shares as aforesaid. In the event of any
exercise of this Warrant and, in any event, certificates for the shares of
stock so purchased shall be delivered promptly to the Holder hereof (and,
in any event, within 15 days thereafter) and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
shares, if any, with respect to which this Warrant shall not then have been
exercised, shall also be issued promptly to the Holder hereof (and, in any
event, within fifteen (15) days).
(b) Conversion. Subject to Section 1 hereof, the Holder may convert
----------
this Warrant (the "Conversion Right"), in whole or in part, into the number
----------------
of shares of Common Stock of the Company calculated pursuant to the
following formula by surrendering this Warrant (with the notice of exercise
form attached hereto as Exhibit 1 duly executed) at the principal office of
------- -
the Company specifying the number of shares of Common Stock of the Company,
the rights to purchase which the Holder desires to convert:
X = Y (A - B)
---------
A
where: X = the number of shares of Common Stock to be issued to the
Holder;
Y = the number of shares of Common Stock subject to this
Warrant for which the Conversion Right is being exercised;
A = the fair market value of one share of Common Stock; and
B = the Warrant Price.
As used herein, the fair market value of a share of Common Stock shall mean
with respect to each share of Common Stock the closing price per share of
the Company's Common Stock on the principal national securities exchange on
which the Common Stock is then listed or admitted to trading or, if not
then listed or admitted to trading on any such exchange, on the NASDAQ
National Market System, or if not then listed or traded on any such
exchange or system, the average of the bid and asked prices per share on
NASDAQ Small-Cap Market or, if not then listed or traded, in the sole
discretion of the Board of Directors of the Company, any other over-the-
counter market, including the OTC Bulletin Board, which reports bid, asked
and last sale prices and volume of sales, averaged over the 10 trading days
consisting of the day as of which the current fair market value of Common
Stock is being determined and the nine consecutive business days prior to
such day. If at any time such quotations are not available, the current
fair market value of a share of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as reasonably determined in good faith by
the Board of Directors of the Company, unless (i) the Company shall become
subject to a merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, in which case the current fair
market value of a
2
<PAGE>
share of Common Stock shall be deemed to be the value received by the
holders of the Company's Common Stock for each share of Common Stock
pursuant to the Company's acquisition; or (ii) the Holder shall exercise
its Conversion Right to purchase such shares within 15 days prior to the
closing date of the initial underwritten public offering of the Company's
Common Stock pursuant to a registration statement filed under the Act, in
which case, the fair market value of a share of Common Stock shall be the
price per share at which all registered shares are sold to the public in
such offering. The Company agrees that the shares so converted shall be
deemed to be issued to the Holder hereof as the record owner of such shares
as of the close of business on the date on which this Warrant shall have
been surrendered as aforesaid. In the event of any conversion of this
Warrant, certificates for the shares of stock so converted shall be
delivered promptly to the holder hereof (and, in any event, within 15 days
thereafter) and, unless this Warrant has been fully converted or expired, a
new Warrant representing the portion of the shares, if any, with respect to
which this Warrant shall not then have been converted, shall also be issued
promptly to the holder hereof (and, in any event, within fifteen (15)
days).
4. Stock Fully Paid; Reservation of Shares. All Common Stock which may be
---------------------------------------
issued upon the exercise or conversion of this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof. During the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of the
issuance upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant. The Company will take all such action
as may be necessary to ensure that such shares of Common Stock will be issued
without violation of any applicable law or regulation or of any requirements of
any domestic securities exchange or quotation system upon which the Common Stock
may be traded; provided, however, that the Company shall not be required to
effect a registration under federal or state securities laws with respect to
such exercise. The Company shall use its best efforts, on and after the date
the Company shall file a registration statement covering the shares of Common
Stock issued upon exercise of this Warrant, to list such shares upon any
securities exchange or quotation system on which the Common Stock is traded.
5. Adjustment of Purchase Price and Number of Shares. The kind of
-------------------------------------------------
securities purchasable upon the exercise of this Warrant, the Warrant Price and
the number of shares purchasable upon exercise of this Warrant shall be subject
to adjustment from time to time upon the occurrence of certain events as
follows:
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification, recapitalization, reorganization or change of outstanding
securities of the class issuable upon exercise of this Warrant (other than
a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in
case of any consolidation or merger of the Company with or into another
corporation, other than a merger with another corporation in which the
Company is a continuing corporation and which does not
3
<PAGE>
result in any reclassification or change of outstanding securities issuable
upon exercise of this Warrant, or in case of any sale of all or
substantially all of the assets of the Company, the Company, or such
successor or purchasing corporation, as the case may be, shall execute a
new Warrant, providing that the Holder of this Warrant shall have the right
to exercise such new Warrant and procure upon such exercise, in lieu of
each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money
and property receivable upon such reclassification, recapitalization,
reorganization, change, consolidation, or merger by a holder of one share
of Common Stock. Such new Warrant shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 5. No consolidation or merger of the Company with or
into another corporation referred to in the first sentence of this
paragraph (a) shall be consummated unless the successor or purchasing
corporation referred to above shall have agreed to issue a new Warrant as
provided in this Section 5. The provisions of this subsection (a) shall
similarly apply to successive reclassification, changes, consolidations,
mergers and transfers.
(b) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Warrant Price shall be proportionately
decreased in the case of a subdivision or increased in the case of a
combination.
(c) Stock Dividends. If the Company at any time while this Warrant is
---------------
outstanding and unexpired shall pay a dividend with respect to Common Stock
payable in, or make any other distribution with respect to Common Stock
(except any distribution specifically provided for in the foregoing
subparagraphs (b) or (c)) of, Common Stock, then the Warrant Price shall be
adjusted, from and after the date of determination of stockholders entitled
to receive such dividend or distribution, to that price determined by
multiplying the Warrant Price in effect immediately prior to such date of
determination by a fraction (a) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such
dividend or distribution and (b) the denominator of which shall be the
total number of shares of Common Stock outstanding immediately after such
dividend or distribution.
(d) Cash Dividends and Distributions. If at any time or from time to
--------------------------------
time the holders of Common Stock (or any shares of stock or other
securities at the time receivable upon the exercise of this Warrant) shall
have received or become entitled to receive, without payment therefor, any
cash, stock, other securities or property, the holder hereof shall, upon
the exercise of this Warrant, receive, in addition to the number of shares
of Common Stock receivable thereupon, and without payment of any additional
consideration therefor, the amount of cash, stock, other securities and
property which such holder would have received had he been the holder of
record of such Common Stock as of the date on which holders of Common Stock
received or became entitled to receive such cash, stock, other securities
and property.
4
<PAGE>
(e) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price pursuant to any of Sections 5 (a) through (c), the number of
shares of Common Stock purchasable hereunder shall be adjusted, to the
nearest whole share, to the product obtained by multiplying the number of
shares purchasable immediately prior to such adjustment in the Warrant
Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be
the Warrant Price immediately thereafter.
6. Notice of Adjustments. Whenever any Warrant Price shall be
---------------------
adjusted pursuant to Section 5 hereof, the Company shall prepare a certificate
signed by its chief financial officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, the Warrant Price after giving effect to
such adjustment and the number of shares then purchasable upon exercise of this
Warrant, and shall cause copies of such certificate to be mailed (by first class
mail, postage prepaid) to the holder of this Warrant at the address specified in
Section 11(d) hereof, or at such other address as may be provided to the Company
in writing by the holder of this Warrant.
7. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
8. Compliance with the Act. The holder of this Warrant, by
-----------------------
acceptance hereof, agrees that this Warrant and the shares of Common Stock to be
issued upon exercise hereof are being acquired for investment for such holder's
own account and not with a view toward distribution thereof, and that it will
not offer, sell or otherwise dispose of this Warrant or any shares of Common
Stock to be issued upon exercise hereof unless this Warrant has been registered
under the Act and applicable state securities laws or registration under
applicable state securities laws is not required and (ii) if reasonably
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is furnished to the Company to the effect that registration under the
Act is not required.
9. Transfer and Exchange of Warrant.
--------------------------------
(a) Transfer. This Warrant may be transferred to or succeeded by any
person; provided, however, that the Company is given written notice by the
--------- -------
transferee at the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which such rights
are being assigned.
(b) Exchange. Subject to compliance with the terms hereof, this
--------
Warrant and all rights hereunder are transferable, in whole or in part, at
the office of the Company by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed.
Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that this Warrant, when endorsed in blank, shall be
deemed negotiable; provided, that the last holder of this Warrant as
--------
registered on the books of the Company may be treated by the
5
<PAGE>
Company and all persons dealing with this Warrant as the absolute owner
hereof for any purposes and as the person entitled to exercise the rights
represented by this Warrant or to transfer hereof on the books of the
Company, any notice to the contrary notwithstanding, unless and until such
holder seeks to transfer registered ownership of this Warrant on the books
of the Company and such transfer is effected.
10. Liquidating Dividends. If the Company pays a dividend or makes a
---------------------
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the holder
of this Warrant, upon the exercise hereof, in addition to the Common Stock
purchased upon such exercise, the Liquidating Dividend which would have been
paid to such holder if he had been the owner of record of such shares of Common
Stock immediately prior to the date on which a record was taken for such
Liquidating Dividend or, if no record was taken, the date as of which the record
holders of Common Stock entitled to such dividends or distribution were
determined.
11. Miscellaneous.
-------------
(a) No Rights as Shareholder. Except as provided in the Agreement, no
------------------------
holder of the Warrant or Warrants shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities
of the Company which may at any time be issuable on the exercise hereof for
any purpose, nor shall anything contained herein be construed to confer
upon the holder of this Warrant, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock,
change of par value or change of stock to no par value, consolidation,
merger, conveyance or otherwise) or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until the Warrant or
Warrants shall have been exercised and the shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
(b) Replacement. On receipt of evidence reasonably satisfactory to
-----------
the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement, or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of
this Warrant, the Company, at its expense, will execute and deliver, in
lieu of this Warrant, a new Warrant of like tenor.
(c) Notice of Capital Changes. In case:
-------------------------
(i) the Company shall declare any dividend or distribution
payable to the holders of its Common Stock;
6
<PAGE>
(ii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation or business organization in which
the holders of the Company's voting securities before the transaction
beneficially own less than 50% of the voting securities of the
surviving entity; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give the holder
of this Warrant written notice, in the manner set forth in subparagraph (d)
below, of the date on which a record shall be taken for such dividend, or
distribution or for determining stockholders entitled to vote upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and of the date when any such transaction shall
take place, as the case may be. Such written notice shall be given at least
30 days prior to the transaction in question and not less than 20 days
prior to the record date in respect thereof.
(d) Notice. Any notice given to either party under this Warrant shall
------
be in writing, and any notice hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or by
standard form of telecommunication or three (3) business days after the
mailing thereof if sent registered mail with postage prepaid, addressed to
the Company at its principal executive offices and to the holder at its
address set forth in the Company's books and records or at such other
address as the holder may have provided to the Company in writing.
(e) No Impairment. The Company will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization,
recapitalization, reclassification, 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 Company, but will at all
times in good faith assist in the carrying out of all the provisions in the
Warrant.
(f) Governing Law. This Warrant shall be governed by and construed
-------------
under the laws of the State of Delaware.
(g) Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon the exercise of the Warrant shall be made without charge to the
holder of the Warrant for any issue tax in respect thereof; provided,
however, that the Company 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 then holder of the Warrant
being exercised.
(h) Amendments and Waiver. Any term of this Warrant may be amended or
---------------------
waived only with the written consent of the Company and by a majority in
interest of the holders of
7
<PAGE>
outstanding Warrants of the Company issued under the Purchase Agreement
(determined by reference to the number of shares underlying such Warrants).
In the event that such required consent is obtained, such amendment or
waiver shall be binding on the holder of this Warrant, the other Warrants
and such holders' assigns. Any such waiver of a breach of any provision of
this Warrant shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of
this Warrant.
(i) Automatic Conversion. In the event that the holder of this
--------------------
Warrant has not exercised this Warrant or any portion hereof as of the
expiration date hereof and on such date the Warrant Price is less than the
fair market value of the Company's Common Stock, the holder of this Warrant
shall be deemed to have exercised this Warrant in accordance with the
Conversion Right under Section 3(b) as of the date of expiration of the
Warrant.
IN WITNESS WHEREOF, this Warrant is executed as of this 13th day of April, 2000.
Orchid BioSciences, Inc.
By:
---------------------
Donald R. Marvin
Senior Vice President
& Chief Operating Officer
8
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: ORCHID BIOSCIENCES, INC.
1. Check Box that Applies:
__ The undersigned hereby elects to purchase _________ shares of
Common Stock of ORCHID BIOSCIENCES, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
__ The undersigned hereby elects to convert the attached warrant
into _________ shares of Common Stock of ORCHID BIOSCIENCES, INC. pursuant to
the terms of the attached Warrant.
2. Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
-------------------------------------
(Name)
-------------------------------------
-------------------------------------
(Address)
3. The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
-------------------------------------
Signature
9
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, effective January 1, 2000 (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 and the Executive were parties to an Employment
Agreement, dated November 1, 1996 (the "1996 Employment Agreement"); and
WHEREAS, the Company and Executive wish to terminate the 1996
Employment Agreement; and
WHEREAS, the Company wishes to continue its employment of the
Executive as President and Chief Executive Officer under the terms and
conditions set forth herein; and
WHEREAS, the Executive wishes to continue his employment with Company
under the terms and conditions set forth herein.
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. TERMINATION OF 1996 EMPLOYMENT AGREEMENT.
----------------------------------------
The Company and the Executive agree that, as of the Effective Date,
the 1996 Employment Agreement shall be and hereby is terminated, including any
guarantees of Sarnoff Corporation.
2. TERM OF EMPLOYMENT.
------------------
2.1 Term. The Term of this Agreement shall be the three-year period
----
commencing on January 1, 2000 and ending on December 31, 2002, unless terminated
earlier pursuant to Section 7 of this Agreement or extended to December 31, 2003
pursuant to Section 2.2 of this Agreement.
2.2 Notice of Continued Employment. The Company shall notify the
------------------------------
Executive no later than June 30, 2002 as to whether it intends to continue (or
not continue) the Executive's employment beyond December 31, 2002. If the
Company notifies the Executive that it does not intend to continue his
employment beyond December 31, 2002, the Term of this Agreement shall be
extended through and until December 31, 2003. If the Company notifies the
Executive that it intends to continue his employment beyond December 31, 2002,
and the Executive agrees to continue his employment beyond December 31, 2002,
the parties shall negotiate and memorialize in a written agreement the terms of
the Executive's continued employment; provided, however, if the parties fail to
-------- -------
execute such a written agreement, the terms of this Agreement shall continue
through and until June 30, 2003. If the Company notifies the
<PAGE>
Executive pursuant to this Section 2.2 that it intends to continue his
employment, and the Executive does not agree to continue his employment after
December 31, 2002 and does not terminate his employment before December 31, 2002
for Good Reason (as defined in Section 7.5), the Executive shall be deemed to
have resigned his employment voluntarily on the earlier of December 31, 2002 and
the effective date of any prior termination without Good Reason, as defined in
this Agreement; his resignation shall constitute a Termination without Good
Reason under this Agreement; and the Executive shall not be entitled to any
severance pay. If the Company fails to notify the Executive by June 30, 2002 as
to whether it intends to continue his employment, such failure shall not be
considered a breach of this Agreement, and the Term shall be extended one day
for each day after June 30, 2002 that the Company fails to provide the Employee
with such notice.
3. POSITIONS AND DUTIES.
--------------------
3.1 Duties. During the Term of Employment, the Executive will serve
------
as President and Chief Executive Officer of the Company with responsibility for
the business, affairs and operations of the Company, 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 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 Agreement to the contrary, the
Executive 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, as determined in the
sole discretion of the Board of Directors of the Company.
3.2 Nomination to Board. So long as the Executive is the President,
-------------------
and/or Chief Executive Officer of the Company, the Company will continue to use
diligent efforts to maintain the Executive's election as a director of the Board
of the Company.
4. COMPENSATION.
------------
4.1 Salary. The Company will, commencing with the Effective Date and
------
during the Term of Employment, pay the Executive as compensation for the
performance of his duties and obligations hereunder a salary at the rate of
Three Hundred Fifty Thousand Dollars ($350,000) per annum, less applicable and
customary withholdings ("Salary"), payable in approximately equal installments
not less than twice per month and otherwise in accordance with the Company's
customary payroll practices. Such salary shall be reviewed, and increases in
such salary, if any, 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.
-2-
<PAGE>
4.2 Grant of Options. By resolution of the Board of Directors, dated
----------------
February 2, 2000, the Company issued to the Executive as of such date the
options to purchase 730,000 shares of the Company's common stock (the "Shares"),
subject to the exercise prices and vesting schedule set forth in Exhibit A,
which shall be formalized in a separate stock option agreement.
5. EXPENSES AND BENEFITS.
---------------------
5.1 Business Expenses. All travel and other reasonable and ordinary
-----------------
business expenses incident to rendering 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.
5.2 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 benefit plans and programs
generally offered 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. The Company
reserves its right to modify or terminate any of its employee and fringe benefit
plans and programs at any time. Notwithstanding the foregoing, the Company shall
provide the Executive, at Company cost, the following:
5.2.1 Medical insurance for the Executive and his family
consistent with the medical insurance benefits made available by the Company to
its employees;
5.2.2 Life insurance coverage in an amount equal to three (3)
times the Executive's Salary;
5.2.3 Business travel insurance;
5.2.4 Contributory long-term disability insurance consistent
with Company policy; and
5.2.5 Contributory short-term disability insurance consistent
with Company policy.
5.3 Cash and Stock Bonuses; Stock Options. The Company shall pay to
-------------------------------------
the Executive an annual bonus of up to 25% of Salary for each year during the
Term of Employment," subject to achievement of specific performance milestones
set forth in the Company's Business Plan. The Company shall pay to the
Executive an annual bonus of up to 35% of Salary for each year during the Term
of Employment," if such specific performance milestones are substantially
exceeded, as determined in good faith by the Board of Directors in its
discretion.
-3-
<PAGE>
5.4 Retirement Plan. The Company shall contribute an amount equal to
---------------
10% per year of the Executive's Salary to a non-qualified retirement plan
established for the benefit of the Executive. Such contributions shall be made
on a quarterly basis.
5.5 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 any vacation time remaining
at the end of any year; provided however, that all accrued but unpaid vacation
-------- -------
pay shall be paid to the Executive upon any termination of the Executive's
employment. In addition, any such accrued vacation may be paid to the Executive
prior to termination upon the approval of the Board of Directors.
5.6 Sick Leave; Holidays. During the Term of Employment, the
--------------------
Executive shall be entitled to sick leave and holidays in accordance with the
established policies of the Company from time to time in effect.
5.7 Waiver of Compensation for Board Service. The Executive waives
----------------------------------------
any right to receive additional compensation in respect of service as a director
of the Company or a member of any committees of the Board of Directors, and
agrees that the consideration set forth in this Agreement shall constitute
compensation for such services as may be requested of the Executive by the
Company.
5.8 Legal Expenses for Review of this Agreement. The Company agrees
-------------------------------------------
to reimburse the Executive for all reasonable legal expenses incurred by him in
connection with the review, negotiation, and finalization of this Agreement.
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 the
Executive's bonus, if any, for the previous year and the Salary for the
following year pursuant to Sections 5.3 and 2.1, respectively.
7. TERMINATION.
-----------
7.1 Death. This Agreement shall be terminated by the death of the
-----
Executive. In the event that the Executive's employment is terminated by reason
of death, the Executive's estate shall receive his accrued but unpaid Salary,
accrued but unpaid vacation pay, and benefits in accordance with the Company's
benefit plans, programs, and/or policies.
7.2 Disability. This Agreement may be terminated by the Board of
----------
Directors of the Company for "Disability" if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the Executive's duties hereunder on a full time basis for six (6)
months. In the event that the Executive receives disability insurance benefits
paid for by the Company during any period prior to the termination of this
Agreement
-4-
<PAGE>
by reason of Disability pursuant to this Section, the Executive's Salary shall
be reduced by an amount equal to such disability insurance benefits received
during such period. If the Executive's employment hereunder is terminated by
reason of Disability of the Executive, the Company shall give ten (10) days
written notice to that effect to the Executive in the manner provided herein. In
such case, the Executive shall receive as severance Salary for a period of
eighteen (18) months after the date of termination; provided, however, that the
-------- -------
severance payments payable hereunder by the Company to the Executive during such
eighteen-month period shall be reduced by an amount equal to any disability
insurance benefits paid for by the Company and received by the Executive during
such eighteen-month 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 the Executive.
7.3 For Cause. The Company shall have the right to terminate the
---------
Executive's employment for Cause (as hereinafter defined). In the event that the
Executive's employment hereunder is terminated for Cause (as hereinafter
defined), the Company shall pay to the Executive only the Salary earned to the
date of termination and any accrued but unpaid vacation pay, and the Executive
shall not be entitled to any severance pay. For purposes of this Agreement,
"Cause" shall mean (i) conviction of any crime (whether or not involving the
Company) constituting a felony in the jurisdiction involved; (ii) engaging in
any substantiated act involving moral turpitude; (iii) gross neglect or
misconduct in the performance of Executive's duties hereunder; (iv) willful
failure or refusal to perform such duties as may reasonably be delegated to
Executive; or (v) material breach of any provision of this Agreement by
Executive; provided, however, that with respect to clauses (iii), (iv) or (v),
-------- -------
Executive shall have received written notice from the Company setting forth the
alleged act or failure to act constituting "Cause" hereunder, and Executive
shall not have cured such act or refusal to act within thirty (30) days of his
actual receipt of notice.
7.4 Termination Without Cause. The Company may terminate the
-------------------------
Executive's employment at any time without Cause.
7.4.1 Termination on or before December 31, 2000. If the
------------------------------------------
Executive's employment is terminated under this Section 7.4 on or before
December 31, 2000, the Company shall provide the Executive with six (6) months'
notice of such termination and shall pay to the Executive, in lieu of any
further compensation and benefits for the balance of the Term and provided that
the Executive complies with paragraph 7.7, severance pay equal to the Salary
that the Executive would have otherwise received during the eighteen (18) month
period immediately following the effective date of the termination.
7.4.2 Termination after December 31, 2000 but on or before
----------------------------------------------------
December 31, 2001. If the Executive's employment is terminated under this
- -----------------
Section 7.4 after December 31, 2000 but before January 1, 2002, the Company
shall provide the Executive with twelve (12) months' notice of such termination
and shall pay to the Executive, in lieu of any further compensation and benefits
for the balance of the Term and provided that the Executive complies with
paragraph 7.7, severance pay equal to the Salary that the Executive would have
otherwise received during the eighteen (18) month period immediately following
the effective date of the termination.
-5-
<PAGE>
7.4.3 Termination after December 31, 2001 but on or before June
----------------------------------------------------------
30, 2002. If the Executive's employment is terminated under this Section 7.4
- --------
after December 31, 2001 but before July 1, 2002, the Company shall provide the
Executive with eighteen (18) months' notice of such termination and shall pay to
the Executive, in lieu of any further compensation and benefits for the balance
of the Term and provided that the Executive complies with paragraph 7.7,
severance pay equal to eighteen (18) months of Salary following the effective
date of termination.
7.4.4 Termination after June 30, 2002.
-------------------------------
7.4.4.1 If Company Has Previously Notified Executive of
------------------------------------------------
Intent Not to Continue Employment. If the Executive's employment is terminated
- ---------------------------------
under this Section 7.4 after June 30, 2002 and the Company has notified the
Executive pursuant to Section 2.2 of its intention not to continue the
Executive's employment, the Company shall pay to the Executive, in lieu of any
further compensation and benefits for the balance of the Term, as extended
pursuant to Section 2.2 of this Agreement, and provided that the Executive
complies with section 7.7, severance pay equal to the Salary the Executive would
have received for the balance of the Term plus severance pay equal to eighteen
(18) months of Salary payments, to be paid consecutively.
7.4.4.2 If Company Has Previously Notified Executive of
-----------------------------------------------
Intent to Continue Employment. If the Executive's employment is terminated
- -----------------------------
under this Section 7.4 after June 30, 2002 (but before the expiration of the
Term) and the Company has notified the Executive pursuant to Section 2.2 that it
intended to continue his employment, the Company shall provide the Executive
with eighteen (18) months' notice of such termination and shall pay to the
Executive, in lieu of any further compensation and benefits for the balance of
the Term and provided that the Executive complies with section 7.7, severance
pay equal to eighteen (18) months of Salary following the effective date of
termination; provided, however, if the parties fail to execute a written
-------- -------
agreement by June 30, 2003 and the Company at any time thereafter terminates the
Executive's employment without Cause, the Company shall provide the Executive
with twelve (12) months' notice of such termination and shall pay to the
Executive, in lieu of any further compensation and benefits for the balance of
the Term and provided that the Executive complies with section 7.7, severance
pay equal to eighteen (18) months of Salary following the effective date of
termination.
7.4.4.3 If Company Has Previously Not Notified Executive
------------------------------------------------
of Intent to Continue Employment. If the Executive's employment is terminated
- --------------------------------
under this Section 7.4 after June 30, 2002 and the Company has not notified the
Executive pursuant to Section 2.2 as to whether it intended to continue (or not
continue) his employment, the Company shall provide the Executive with eighteen
(18) months' notice of such termination and shall pay to the Executive, in lieu
of any further compensation and benefits for the balance of the Term, as
extended, and provided that the Executive complies with section 7.7, severance
pay equal to eighteen (18) months of Salary.
-6-
<PAGE>
7.4.5 Payment of Severance to Be Made in Installments. The
-----------------------------------------------
severance pay under this Section 7.4 shall be paid in equal installments no less
frequently than on a monthly basis.
7.4.6 Right to Severance Ceases upon Breach of Sections 8, 9,
-------------------------------------------------------
or 10. Notwithstanding anything to the contrary contained herein, in the event
- -----
that the Executive shall breach Section 8, 9 or 10 of this Agreement and such
breach clearly is not insignificant, as determined by at least a two-thirds
majority of the Board of Directors of the Company, in addition to any other
remedies the Company may have in the event the Executive breaches this
Agreement, the Company's obligation pursuant to this Section to continue such
Salary shall cease and the Executive's rights thereto shall terminate and shall
be forfeited.
7.4.7 Rights of the Company after Notice of Termination.
-------------------------------------------------
Notwithstanding any other provision of this Agreement, upon the Company's
notification of the Executive of the termination of his employment under this
Section 7, the Company shall be entitled (i) to hire a co-Chief Executive
Officer to serve concurrently with the Executive and perform some or all of the
functions previously performed by the Executive, as determined by the Board of
Directors in its sole discretion and (ii) to reduce or otherwise modify the
responsibilities of the Executive in its sole discretion.
7.5 Termination by the Executive for Good Reason. The Executive
--------------------------------------------
shall have the right to terminate this Agreement for Good Reason. For purposes
of this Agreement, "Good Reason" shall be defined as (i) any material diminution
in the Executive's title or responsibilities or (ii) the Company's breach of
Section 4 of this Agreement, provided that such diminution or breach is not
cured within thirty (30) days after the Executive provides written notice of
such diminution or breach. If the Executive terminates his employment pursuant
to this Section, the Company shall pay to the Executive, in lieu of any further
compensation and benefits for the balance of the Term, severance pay equal to
the eighteen (18) months Salary. Severance pay under this Section shall be paid
in equal installments no less frequently than on a monthly basis.
Notwithstanding anything to the contrary contained herein, in the event that the
Executive shall breach Section 8, 9 or 10 of this Agreement and such breach
clearly is not insignificant, as determined by at least a two-thirds majority of
the Board of Directors of the Company, in addition to any other remedies the
Company may have in the event the Executive breaches this Agreement, the
Company's obligation pursuant to this Section to continue such Salary shall
cease and the Executive's rights thereto shall terminate and shall be forfeited.
7.6 Termination by the Executive Without Good Reason. The Executive
------------------------------------------------
shall have the right to terminate this Agreement without Good Reason. In the
event that the Executive terminates his employment with the Company without Good
Reason, the Company shall pay to the Executive only the Salary earned to the
date of termination and any accrued but unpaid vacation pay, and the Executive
shall not be entitled to any severance pay.
7.7. No Further Liability; Release. Payment made and performance by
-----------------------------
the Company in accordance with this Section 7 shall operate to fully discharge
and release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability with respect to
-7-
<PAGE>
Executive's employment and termination of employment. Other than paying
Executive's Base Salary through the date of termination of Executive's
employment and making any severance payment pursuant to and in accordance with
this Section 7 (as applicable), the Company and its directors, officers,
employees, subsidiaries, affiliates, stockholders, successors, assigns, agents
and representatives shall have no further obligation or liability to Executive
or any other person under this Agreement. The Company shall have the right to
condition the payment of any severance pursuant to this Section 7 upon the
delivery by Executive to the Company of a release substantially similar to the
form attached as Exhibit B of any and all claims Executive may have against the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives arising out of or
related to Executive's employment by the Company and the termination of such
employment.
7.8 Delivery of Resignations. In the event that the Executive's
------------------------
services hereunder are terminated under any of the provision of this Agreement
(except Section 7.1), 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 date
of employment as determined by the Board of Directors; provided, however, that
-------- -------
nothing herein shall be deemed to affect the provisions of Sections 8, 9, 10,
and 11 hereof. No severance payments under this Section 7 shall be made unless
the Board of Directors receives such written resignation.
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 that 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. NONDISCLOSURE.
-------------
9.1 Existence of Confidential Information. The Company owns and has
-------------------------------------
developed and compiled, and will develop and compile, certain proprietary
techniques and confidential information which have great value to its business
(referred to in this Agreement, collectively, as "Confidential Information").
Confidential Information includes not only information disclosed by the Company
to the Executive, but also information developed or learned by the Executive
during the course or as a result of employment with the Company, which
information shall be the property of the Company. Confidential Information
includes all information that has or could have commercial value or other
utility in the businesses in which
-8-
<PAGE>
the Company is engaged or contemplates engaging, and all information of which
the unauthorized disclosure could be detrimental to the interests of the
Company, whether or not such information is specifically labeled as Confidential
Information by such entity. By way of example and without limitation,
Confidential Information includes any and all information developed, obtained,
licensed by or to or owned by the Company concerning trade secrets, techniques,
know-how (including designs, plans, procedures, merchandising, marketing,
distribution and warehousing know-how, processes, and research records),
software, computer programs and designs, development tools, all proprietary
property, and any other intellectual property created, used or sold (through a
license or otherwise) by the Company, electronic data information know-how and
processes, innovations, discoveries, improvements, research, development, test
results, reports, specifications, data, formats, marketing data and plans,
business plans, strategies, forecasts, unpublished financial information,
orders, agreements and other forms of documents, price and cost information,
merchandising opportunities, expansion plans, budgets, projections, customer,
supplier, licensee, licensor and subcontractor identities, characteristics,
agreements and operating procedures, and salary, staffing and employment
information.
9.2 Protection of Confidential Information. The Executive
--------------------------------------
acknowledges and agrees that in the performance of Executive's duties hereunder
the Company may disclose to and entrust the Executive with Confidential
Information which is the exclusive property of such entities and which the
Executive may possess or use only in the performance of the Executive's duties
to the Company. The Executive also acknowledges that Executive is aware that the
unauthorized disclosure of Confidential Information, among other things, may be
prejudicial to the Company's interests, an invasion of privacy and an improper
disclosure of trade secrets. The Executive shall not, directly or indirectly,
use, make available, sell, disclose or otherwise communicate to any corporation,
partnership or other entity, individual or other third party, other than in the
course of the Executive's assigned duties and for the benefit of the Company,
any Confidential Information, either during the Term or thereafter. In the event
the Executive desires to publish the results of the Executive's work for or
experiences with the Company through literature, interviews or speeches, the
Executive will submit requests for such interviews or such literature or
speeches to the Board of Directors of the Company at least fourteen (14) days
before any anticipated dissemination of such information for a determination of
whether such disclosure is in the best interests of the Company, including
whether such disclosure may impair trade secret status or constitute an invasion
of privacy. The Executive agrees not to publish, disclose or otherwise
disseminate such information without the prior written approval of the Board of
Directors of the Company.
9.3 Delivery of Records, Etc. In the event the Executive's
-------------------------
employment with the Company ceases for any reason, the Executive will not remove
from the Company's premises without its prior written consent any records
(written or electronic), files, drawings, documents, equipment, materials and
writings received from, created for or belonging to the Company, including those
which relate to or contain Confidential Information, or any copies thereof.
Upon request or when employment with the Company terminates, the Executive will
immediately deliver the same to the Company.
-9-
<PAGE>
10. NON-COMPETITION AND NON-SOLICITATION.
------------------------------------
10.1 Non-competition. The Executive recognizes the highly
---------------
competitive nature of the Company's business and that the Executive's position
with the Company and access to and use of the Company's confidential records and
proprietary information renders the Executive special and unique. The Executive
hereby agrees that, during the Term of Employment and for a period of one (1)
year after the termination of the Executive's employment with the Company for
any reason, the Executive shall not, directly or indirectly, own, manage,
operate, join, control, participate in, invest in or otherwise be connected or
associated with, in any manner, including as an officer, director, employee,
independent contractor, stockholder, member, partner, consultant, advisor,
agent, proprietor, trustee or investor, any Competing Business located in the
United States; provided, however, that ownership of 2% or less of the stock or
-------- -------
other securities of a corporation, the stock of which is listed on a national
securities exchange or is quoted on The Nasdaq Stock Market, shall not
constitute a breach of this Section 10, so long as the Executive does not in
fact have the power to control, or direct the management of, or is not otherwise
associated with, such corporation.
For purposes hereof, the term "Competing Business" shall mean any
business or venture which, directly or indirectly, engages in a business that
competes with the business of the Company.
10.2 No Solicitation of Employment. During the Term of Employment
-----------------------------
and for a period of one (1) year thereafter, Executive shall not solicit or
encourage any employee of the Company to leave the Company for any reason, nor
assist any business in doing so, nor employ such an employee in a Competing
Business or any other business.
11. 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 cooperate with the Company in connection with the procurement of any such
insurance, and any claims thereunder.
12. REMEDIES FOR BREACH.
-------------------
The parties hereto agree that the Executive is obligated under this
Agreement to render personal services during the Term of Employment of a
special, unique, unusual, extraordinary and intellectual character, thereby
giving this Agreement special value, and, in the event of a breach or threatened
breach of any covenant of the Executive herein, the injury or imminent injury to
the value and the goodwill of the Company's business could not be reasonably or
adequately compensated in damages in an action at law. Accordingly, Executive
expressly acknowledges that the Company shall be entitled to specific
performance, injunctive relief or any other equitable remedy against the
Executive, without the posting of a bond, in the event of any breach or
threatened breach of any provision of this Agreement by the Executive
(including, without limitation, Sections 8, 9, and 10). Without limiting the
generality of the foregoing, if the Executive breaches or threatens to breach
Section 8, 9 or 10 of this Agreement, such breach or threatened breach will
entitle the Company, without posting of bond, to an
-10-
<PAGE>
injunction prohibiting (i) the Executive from disclosing any Confidential
Information to any Competing Business; (ii) such Competing Business from
receiving from the Executive or using any such Confidential Information; and
(iii) the Executive from, indirectly or directly, owning, managing, operating,
joining, controlling, participating in, investing in or otherwise being
connected or associated with, in any manner, any such Competing Business. The
rights and remedies of the parties hereto are cumulative and shall not be
exclusive, and each such party shall be entitled to pursue all legal and
equitable rights and remedies and to secure performance of the obligations and
duties of the other under this Agreement, and the enforcement of one or more of
such rights and remedies by a party shall in no way preclude such party from
pursuing, at the same time or subsequently, any and all other rights and
remedies available to it.
13. ASSIGNMENT AND TRANSFER.
-----------------------
13.1 The Company. This Agreement shall inure to the benefit of and be
-----------
enforceable by, and may be assigned by the Company to, any purchaser of all or
substantially all of the Company's business or assets, any successor to the
Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise).
13.2 The Executive. The Executive's rights and obligations under
-------------
this Agreement shall not be transferable by the Executive by assignment or
otherwise, and any purported assignment, transfer or delegation thereof shall be
void; provided, however, that if the Executive shall die, all amounts then
-------- -------
payable to the Executive hereunder 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. 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:
14.1 If to the Executive:
Dale R. Pfost, Ph.D.
4 Rosedale Way
Pennington, NJ 08534
14.2 If to the Company:
Orchid BioSciences, Inc.
303 College Road East
Princeton, NJ 08540
Attention: Chief Operating Officer
-11-
<PAGE>
15. 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.
16. 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 12 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
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.
17. SURVIVAL.
--------
The provisions of Sections 7 (regardless of the continuation of
Executive's Salary thereunder), 8, 9, 10, 12 and 17 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.
18. HEADINGS.
--------
The headings of this Agreement are for convenience of reference only
and are not part of the substance of this Agreement.
-12-
<PAGE>
19. 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.
EXECUTIVE ORCHID BIOSCIENCES, INC.
/s/ Dale R. Pfost By: /s/ Sidney M. Hecht
- -------------------- ---------------------
Dale R. Pfost, Ph.D. Name: Sidney M. Hecht
Title Director
-13-
<PAGE>
Exhibit A
---------
1. The option to purchase 100,000 shares of the Company's common
stock at $1.25 per share issued to the Executive on December 10, 1999,
shall vest in equal increments monthly over a period of four years; provided,
--------
however, vesting shall accelerate upon any acquisition of the Company.
- -------
The options to purchase 630,000 shares of the Company's common stock
issued to the Executive on February 2, 2000, include:
2. The option to purchase 270,000 shares at $6.00 per share, which
shall vest in equal increments monthly over a period of four years; provided,
--------
however, vesting shall accelerate upon any acquisition of the Company.
- -------
3. The option to purchase 120,000 shares at $6.00 per share, which
shall vest if and when the price of Orchid Biocomputer stock exceeds $16 within
the period between 6 and 18 months immediately following the Company's initial
public offering ("IPO") and is sustained for 45 trading days thereafter
(trailing 45-day average); provided, however, vesting shall accelerate if any
-------- -------
acquisition of the Company occurs with a stock or equivalent purchase price of
at least $16 per share.
4. The option to purchase 120,000 shares at $6.00 per share, which
shall vest if and when the price of Orchid Biocomputer stock exceeds $32 within
the period between 6 and 30 months immediately following the IPO and is
sustained for 45 trading days thereafter (trailing 45-day average); provided,
--------
however, vesting shall accelerate if any acquisition of the Company occurs with
- -------
a stock or equivalent purchase price of at least $32 per share.
5. The option to purchase 120,000 shares at $6.00 per share, which
shall vest if and when the price of Orchid Biocomputer stock exceeds $64 within
the period between 6 and 42 months immediately following the IPO and is
sustained for 45 trading days thereafter (trailing 45-day average); provided,
--------
however, vesting shall accelerate if any acquisition of the Company occurs with
- -------
a stock or equivalent purchase price of at least $64 per share.
To the extent permitted under the Internal Revenue Code and any other
applicable law, the options described above shall be Incentive Stock Options.
<PAGE>
EXHIBIT B
---------
SEVERANCE AGREEMENT AND GENERAL RELEASE
WHEREAS, ______________ (the "Employee") is an employee of Orchid
Biosciences, Inc. ("Orchid"); and
WHEREAS, the Employee is being terminated from employment with Orchid for
___________; and
WHEREAS, the Employee is entitled to certain severance benefits identified
in an Employment Agreement dated _____, 2000 (the "Employment Agreement"); and
WHEREAS, the severance benefits under the Employment Agreement are
contingent upon the execution of this Severance Agreement and General Release
(the "Agreement").
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth below, the Employee and Orchid agree as follows:
1. Last Day of Employment. The Employee's last day of employment with Orchid
----------------------
will be _____________, ______ (the "Termination Date").
2. General Benefits. Upon the Termination Date the Employee will be entitled
----------------
to the following general benefits:
a. All salary and wages through the Termination Date will be paid in
accordance with Orchid's normal payroll procedure or in a single lump
sum payment, as determined within the discretion of Orchid.
b. The Employee is entitled to accrued vacation pay, totaling $_________,
which will be included in the Employee's final paycheck for the period
ending on the Termination Date.
c. The Employee is entitled to elect to receive continuation health
coverage under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") after the Employee's Termination Date, which is the
date of a "qualifying event" under COBRA.
d. All group-term life insurance, long-term disability, short-term
disability, and other welfare benefits terminate in accordance with
the provisions of all plans. The Employee may be entitled to
individual conversion privileges under the various policies. Orchid
will provide information to the Employee regarding all individual
conversion rights.
e. The Employee's entitlement, if any, to a distribution of all benefits
under the Orchid
1
<PAGE>
Profit Sharing and Section 401(k) Plan (the "Section 401(k) Plan"),
will be made in accordance with the provisions of the Section 401(k)
Plan.
f. The Employee will be entitled to state unemployment benefits, if any,
in accordance with the rules for the State of the Employee's
employment.
3. Severance Benefits. Orchid will provide the Employee with a severance
------------------
benefit equal to all severance benefits identified in Section 7 of the
Employment Agreement.
All severance benefits will be paid by and in accordance with the Company's
normal payroll procedures. However, no severance benefits will be paid
until after 8 days after receipt of an executed copy of this Agreement by
Orchid, and the return of all property to Orchid, as provided in Section 5.
Severance benefits will also be reduced to the extent of any advance
payments, for any excess expense reimbursements, and for any amounts owed
to Orchid by the Employee.
Notwithstanding any provision to the contrary, the payment of any severance
benefits will not be treated as extending the Employee's employment for any
employee benefit or employment purposes.
4. Adequate Consideration. The Employee agrees that the severance benefit
----------------------
identified in Section 3 is adequate and sufficient consideration for the
Employee's execution of the General Release set forth below.
5. Return of Property. To the extent the Employee is in the possession of any
------------------
Orchid property, including personal computers ("PCs"), fax machines,
scanners, copiers, cellular phones, Orchid credit cards, and any Orchid
documents, correspondence and related corporate materials, the Employee
will return all property to Orchid on or before the Termination Date.
6. Expense Accounts and Reports. The Employee will be allowed to submit a
----------------------------
final expense reports and accountings to Orchid within 2 weeks after the
Termination Date, and will receive all necessary reimbursements from
Orchid.
7. General Release. The Employee agrees to fully release and forever
---------------
discharge Orchid, its successors, assigns and any related companies, and
their respective shareholders, officers, employees, agents and directors,
from all claims or demands the Employee may have arising out of or related
to the Employee's employment or termination with Orchid, including claims
of which the Employee is unaware and claims which are not specifically
released and identified below. These claims include, but are not limited
to, claims arising under the Constitution of the United States, a release
of any rights or claims the Employee may have under the Age Discrimination
in Employment Act of 1967 as amended ("ADEA"), 29 U.S.C. 621 et seq., which
-- ---
prohibits age discrimination in employment; Title VII of the Civil Right
Act of 1964, as amended, 42 U.S.C. 2000(e) et seq., which prohibits
-- ---
discrimination in employment based on race, color, national origin,
religion or sex; the Civil Rights Act of 1966, 42 U.S.C. 1981 et seq.; the
-- ---
Equal Pay Act, which prohibits paying men and women
2
<PAGE>
unequal pay for equal work; or any other federal, state or local laws or
regulations prohibiting employment discrimination; Employee Retirement
Income Security Act, 29 U.S.C. 1001 et seq.; Executive Orders 11246 and
-- ---
11141; the Constitution of the State of New Jersey or any other states in
which the Employee resides or works; any New Jersey or other state laws
against discrimination; any claims of breach of public policy of the State
of New Jersey or other state, negligence, breach of contract, wrongful
discharge, constructive discharge, breach of an implied covenant of good
faith and fair dealings; any express or implied contracts with Orchid or
any related companies; any federal or state common law and any federal,
state or local statutes, ordinances and regulations. The Employee further
waives any claim or right to payment of any attorney's fees or expenses.
Notwithstanding any provisions to the contrary, this release does not
include a release of (a) the Employee's rights under this Agreement; or (b)
the Employee's right, if any, to individual conversion privileges under any
medical, dental, long term disability, life insurance, and other welfare
program.
8. No Future Lawsuits. The Employee agrees that the Employee will not file,
------------------
or permit to be filed in the Employee's name or on the Employee's behalf,
any lawsuit or administrative claim against any of the person or entities
released in this Agreement based upon any act or event that is the subject
matter of this Agreement and which occurred before the effective date of
this Agreement.
9. Non-Admission of Liability. The use of this Agreement by Orchid does not
--------------------------
signify any liability by Orchid or any related companies to provide any
benefits.
10. Period for Review and Consideration of Agreement. The Employee understands
------------------------------------------------
that the Employee will be given a period of 21 days to review and consider
this Agreement before signing it. The Employee further understands that
the Employee may wait up to 21 day period prior to signing the Agreement,
--------
or may also execute the Agreement prior to the expiration of the 21 day
--------
review period.
11. Older Workers Benefit Protection Act. The Company is not required to
------------------------------------
provide the Employee with any demographic information required by the Older
Workers Benefit Protection Act of 1990, due to the individual nature of
this termination. [To confirm based upon future facts and law.]
12. Encouragement to Consult Attorney. The Employee is encouraged to consult
---------------------------------
with an attorney before signing this Agreement.
13. Right to Revoke Agreement. The Employee may revoke this Agreement within 7
-------------------------
days of the Employee's signing of this Agreement. If this Agreement has
not been revoked within such 7 day period it becomes effective on the 8th
day. Revocation can be made by delivering a written notice of revocation
to Sarajane N. Mackenzie, Vice President of Human Resources. For this
revocation to be effective, written notice must be received by Orchid no
later than close of business on the 7th day after the Employee signs this
Agreement. If the Employee fails to sign this Agreement or revokes this
Agreement, it will not be effective
3
<PAGE>
or enforceable and the Employee will not receive the severance benefit
described in Section 3 of this Agreement.
14. Confidentiality of Terms. The Employee and Orchid agree that the terms of
------------------------
this Agreement are confidential and will not be disclosed to any person
without the written consent of Orchid, except to the Employee's legal and
tax advisors and members of the Employee's immediate family, or to the
extent required by law. However, the Employee agrees and acknowledges that
this Agreement may be introduced as evidence by Orchid in the event the
Employee commences any legal, administrative, judicial or arbitration
proceeding against Orchid.
15. Non-Defamation. The Employee agrees that he will not, directly or
--------------
indirectly, in public or private, deprecate, impugn or otherwise make any
remarks that would tend to or be construed to tend to defame Orchid or its
reputation, nor will the Employee assist any other person, firm or company
in engaging in such activities. Orchid also agrees not to engage in any
activities, directly or indirectly, that would defame the Employee, or his
reputation.
16. Entire Agreement. This document, constitutes the entire Agreement between
----------------
the Employee and Orchid, concerning the subject matter hereof. Orchid has
made no promises to the Employee other than those in this Agreement,
concerning the subject matter hereof. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such
subject matters, except as provided in Section 20 below.
17. Severability Clause. If any one or more provisions contained in this
-------------------
Agreement will, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement, but
this Agreement will be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
18. No Release of Future Claims. This Agreement does not waive or release any
---------------------------
rights or claims that the Employee may have under the Age Discrimination in
Employment Act which arise after the effective date of the Agreement, if
applicable.
19. Reference. Reference inquiries from prospective employers will be handled
---------
by only verifying the Employee's dates of employment and last position held
with Orchid.
20. Employment Agreement. Notwithstanding any provisions to the contrary, all
--------------------
provisions of the Employment Agreement that survive the termination of the
Employment Agreement shall continue in full force and effect, including any
confidentiality, nonsoliciation and other provisions.
21. New Jersey Law. The Employee and Orchid agree that this Agreement and any
--------------
interpretation thereof will be governed by the laws of the State of New
Jersey, except as preempted by ERISA.
THE EMPLOYEE ACKNOWLEDGES THAT THE EMPLOYEE HAS READ THIS
4
<PAGE>
AGREEMENT, UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT.
EMPLOYEE
___________________ _____________________________
Dated
ORCHID BIOSCIENCES, INC.
___________________ By:____________________________
Dated
For internal use:
Date Delivered to Employee: _______, ______.
21 Day Period for Consideration Ends: _______________________
Date signed: ______________
7-Day Period for Revocation Ends: ______________________
5
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, effective January 1, 2000 (the "Effective
Date"), by and between ORCHID BIOCOMPUTER, INC., a Delaware corporation (the
"Company") and DONALD R. MARVIN, an individual (the "Executive").
PRELIMINARY STATEMENTS
----------------------
WHEREAS, the Company wishes to continue its employment of the
Executive as Senior Vice President of Corporate Development and Chief Operating
Officer under the terms and conditions set forth herein; and
WHEREAS, the Executive wishes to continue his employment with Company
under the terms and conditions set forth herein.
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.
------------------
1.1 Term. The Term of this Agreement shall be the three-year period
----
commencing on January 1, 2000 and ending on December 31, 2002, unless terminated
earlier pursuant to Section 7 of this Agreement or extended to December 31, 2003
pursuant to Section 2.2 of this Agreement.
1.2 Notice of Continued Employment. The Company shall notify the
------------------------------
Executive no later than June 30, 2002 as to whether it intends to continue (or
not continue) the Executive's employment beyond December 31, 2002. If the
Company notifies the Executive that it does not intend to continue his
employment beyond December 31, 2002, the Term of this Agreement shall be
extended through and until December 31, 2003. If the Company notifies the
Executive that it intends to continue his employment beyond December 31, 2002,
and the Executive agrees to continue his employment beyond December 31, 2002,
the parties shall negotiate and memorialize in a written agreement the terms of
the Executive's continued employment; provided, however, if the parties fail to
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execute such a written agreement, the terms of this Agreement shall continue
through and until June 30, 2003. If the Company notifies the Executive pursuant
to this Section 1.2 that it intends to continue his employment, and the
Executive does not agree to continue his employment after December 31, 2002 and
does not terminate his employment before December 31, 2002 for Good Reason (as
defined in Section 6.5), the Executive shall be deemed to have resigned his
employment voluntarily on the earlier of December 31, 2002 and the effective
date of any prior termination without Good Reason, as defined in this Agreement;
his resignation shall constitute a Termination without Good Reason under this
Agreement; and the Executive shall not be entitled to any severance pay. If the
Company fails to notify the Executive by June 30, 2002 as to whether it intends
to continue his employment, such failure shall not be considered a breach of
this Agreement, and the Term shall
<PAGE>
be extended one day for each day after June 30, 2002 that the Company fails to
provide the Employee with such notice.
2. POSITIONS AND DUTIES.
--------------------
During the Term of Employment, the Executive will serve as Senior Vice
President of Corporate Development and Chief Operating Officer of the Company
with responsibility for the business, affairs and operations of the Company,
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 Senior Vice President and Chief Operating Officer of
the Company, such other executive offices in the Company to which he may be
elected, appointed or assigned by the Company 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 Agreement to the
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contrary, the Executive 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 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, as determined in the sole discretion
of the Company.
3. COMPENSATION.
------------
3.1 Salary. The Company will, commencing with the Effective Date and
------
during the Term of Employment, pay the Executive as compensation for the
performance of his duties and obligations hereunder a salary at the rate of Two
Hundred Seventy-Five Thousand Dollars ($275,000) per annum, less applicable and
customary withholdings ("Salary"), payable in approximately equal installments
not less than twice per month and otherwise in accordance with the Company's
customary payroll practices. Such salary shall be reviewed, and increases in
such salary, if any, shall be determined by the Company at the end of each 12-
month period of employment after the Effective Date during the Term of
Employment.
3.2 Grant of Options. By resolution of the Board of Directors, dated
----------------
February 2, 2000, the Company issued to the Executive as of such date the
options to purchase 557,000 shares of the Company's common stock (the "Shares"),
subject to the exercise prices and vesting schedule set forth in Exhibit A,
which shall be formalized in a separate stock option agreement.
4. EXPENSES AND BENEFITS.
---------------------
4.1 Business Expenses. All travel and other reasonable and ordinary
-----------------
business expenses incident to rendering 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.
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<PAGE>
4.2 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 benefit plans and programs
generally offered 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. The Company
reserves its right to modify or terminate any of its employee and fringe benefit
plans and programs at any time. Notwithstanding the foregoing, the Company
shall provide the Executive, at Company cost, the following:
4.2.1 Medical insurance for the Executive and his family
consistent with the medical insurance benefits made available by the Company to
its employees;
4.2.2 Life insurance coverage in an amount equal to three (3)
times the Executive's Salary;
4.2.3 Business travel insurance;
4.2.4 Contributory long-term disability insurance consistent
with Company policy; and
4.2.5 Contributory short-term disability insurance consistent
with Company policy.
4.3 Cash and Stock Bonuses; Stock Options. The Company shall pay to
-------------------------------------
the Executive an annual bonus of up to 25% of Salary for each year during the
Term of Employment," subject to achievement of specific performance milestones
set forth in the Company's Business Plan. The Company shall pay to the
Executive an annual bonus of up to 35% of Salary for each year during the Term
of Employment," if such specific performance milestones are substantially
exceeded, as determined in good faith by the Company in its discretion.
4.4 Retirement Plan. The Company shall contribute an amount equal to
---------------
5% per year of the Executive's Salary to a non-qualified retirement plan
established for the benefit of the Executive. Such contributions shall be made
on a quarterly basis.
4.5 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 any vacation time
remaining at the end of any year; provided however, that all accrued but unpaid
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vacation pay shall be paid to the Executive upon any termination of the
Executive's employment. In addition, any such accrued vacation may be paid to
the Executive prior to termination upon the approval of the Company.
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<PAGE>
4.6 Sick Leave; Holidays. During the Term of Employment, the
--------------------
Executive shall be entitled to sick leave and holidays in accordance with the
established policies of the Company from time to time in effect.
4.7 Waiver of Compensation for Board Service. The Executive waives
----------------------------------------
any right to receive additional compensation in respect of service as a director
of the Company or a member of any committees of the Board of Directors, and
agrees that the consideration set forth in this Agreement shall constitute
compensation for such services as may be requested of the Executive by the
Company.
4.8 Legal Expenses for Review of this Agreement. The Company agrees
-------------------------------------------
to reimburse the Executive for all reasonable legal expenses incurred by him in
connection with the review, negotiation, and finalization of this Agreement.
5. ANNUAL REVIEW.
-------------
The Company shall conduct an annual review of the Executive's
performance, at which time the Board shall determine the Executive's bonus, if
any, for the previous year and the Salary for the following year pursuant to
Sections 4.3 and 1.1, respectively.
6. TERMINATION.
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6.1 Death. This Agreement shall be terminated by the death of the
-----
Executive. In the event that the Executive's employment is terminated by reason
of death, the Executive's estate shall receive his accrued but unpaid Salary,
accrued but unpaid vacation pay, and benefits in accordance with the Company's
benefit plans, programs, and/or policies.
6.2 Disability. This Agreement may be terminated by the Board of
----------
Directors of the Company for "Disability" if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the Executive's duties hereunder on a full time basis for six (6)
months. In the event that the Executive receives disability insurance benefits
paid for by the Company during any period prior to the termination of this
Agreement by reason of Disability pursuant to this Section, the Executive's
Salary shall be reduced by an amount equal to such disability insurance benefits
received during such period. If the Executive's employment hereunder is
terminated by reason of Disability of the Executive, the Company shall give ten
(10) days written notice to that effect to the Executive in the manner provided
herein. In such case, the Executive shall receive as severance Salary for a
period of eighteen (18) months after the date of termination; provided, however,
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that the severance payments payable hereunder by the Company to the Executive
during such eighteen-month period shall be reduced by an amount equal to any
disability insurance benefits paid for by the Company and received by the
Executive during such eighteen-month 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 the Executive.
6.3 For Cause. The Company shall have the right to terminate the
---------
Executive's employment for Cause (as hereinafter defined). In the event that
the Executive's employment
-4-
<PAGE>
hereunder is terminated for Cause (as hereinafter defined), the Company shall
pay to the Executive only the Salary earned to the date of termination and any
accrued but unpaid vacation pay, and the Executive shall not be entitled to any
severance pay. For purposes of this Agreement, "Cause" shall mean (i) conviction
of any crime (whether or not involving the Company) constituting a felony in the
jurisdiction involved; (ii) engaging in any substantiated act involving moral
turpitude; (iii) gross neglect or misconduct in the performance of Executive's
duties hereunder; (iv) willful failure or refusal to perform such duties as may
reasonably be delegated to Executive; or (v) material breach of any provision of
this Agreement by Executive; provided, however, that with respect to clauses
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(iii), (iv) or (v), Executive shall have received written notice from the
Company setting forth the alleged act or failure to act constituting "Cause"
hereunder, and Executive shall not have cured such act or refusal to act within
thirty (30) days of his actual receipt of notice.
6.4 Termination Without Cause. The Company may terminate the
-------------------------
Executive's employment at any time without Cause.
6.4.1 Termination on or before December 31, 2000. If the
------------------------------------------
Executive's employment is terminated under this Section 6.4 on or before
December 31, 2000, the Company shall provide the Executive with six (6) months'
notice of such termination and shall pay to the Executive, in lieu of any
further compensation and benefits for the balance of the Term and provided that
the Executive complies with paragraph 6.7, severance pay equal to the Salary
that the Executive would have otherwise received during the eighteen (18) month
period immediately following the effective date of the termination.
6.4.2 Termination after December 31, 2000 but on or before
----------------------------------------------------
December 31, 2001. If the Executive's employment is terminated under this
- -----------------
Section 6.4 after December 31, 2000 but before January 1, 2002, the Company
shall provide the Executive with twelve (12) months' notice of such termination
and shall pay to the Executive, in lieu of any further compensation and benefits
for the balance of the Term and provided that the Executive complies with
paragraph 6.7, severance pay equal to the Salary that the Executive would have
otherwise received during the eighteen (18) month period immediately following
the effective date of the termination.
6.4.3 Termination after December 31, 2001 but on or before June
---------------------------------------------------------
30, 2002. If the Executive's employment is terminated under this Section 6.4
- --------
after December 31, 2001 but before July 1, 2002, the Company shall provide the
Executive with eighteen (18) months' notice of such termination and shall pay to
the Executive, in lieu of any further compensation and benefits for the balance
of the Term and provided that the Executive complies with paragraph 6.7,
severance pay equal to eighteen (18) months of Salary following the effective
date of termination.
6.4.4 Termination after June 30, 2002.
-------------------------------
6.4.4.1 If Company Has Previously Notified Executive of
-----------------------------------------------
Intent Not to Continue Employment. If the Executive's employment is terminated
- ---------------------------------
under this Section 6.4 after June 30, 2002 and the Company has notified the
Executive pursuant to Section 1.2 of its
-5-
<PAGE>
intention not to continue the Executive's employment, the Company shall pay to
the Executive, in lieu of any further compensation and benefits for the balance
of the Term, as extended pursuant to Section 1.2 of this Agreement, and provided
that the Executive complies with section 6.7, severance pay equal to the Salary
the Executive would have received for the balance of the Term plus severance pay
equal to eighteen (18) months of Salary payments, to be paid consecutively.
6.4.4.2 If Company Has Previously Notified Executive of
------------------------------------------------
Intent to Continue Employment. If the Executive's employment is terminated under
- -----------------------------
this Section 6.4 after June 30, 2002 (but before the expiration of the Term) and
the Company has notified the Executive pursuant to Section 1.2 that it intended
to continue his employment, the Company shall provide the Executive with
eighteen (18) months' notice of such termination and shall pay to the Executive,
in lieu of any further compensation and benefits for the balance of the Term and
provided that the Executive complies with section 6.7, severance pay equal to
eighteen (18) months of Salary following the effective date of termination;
provided, however, if the parties fail to execute a written agreement by June
- -------- -------
30, 2003 and the Company at any time thereafter terminates the Executive's
employment without Cause, the Company shall provide the Executive with twelve
(12) months' notice of such termination and shall pay to the Executive, in lieu
of any further compensation and benefits for the balance of the Term and
provided that the Executive complies with section 6.7, severance pay equal to
eighteen (18) months of Salary following the effective date of termination.
6.4.4.3 If Company Has Previously Not Notified Executive
-------------------------------------------------
of Intent to Continue Employment. If the Executive's employment is terminated
- --------------------------------
under this under this Section 6.4 after June 30, 2002 and the Company has not
notified the Executive pursuant to Section 1.2 as to whether it intended to
continue (or not continue) his employment, the Company shall provide the
Executive with eighteen (18) months' notice of such termination and shall pay to
the Executive, in lieu of any further compensation and benefits for the balance
of the Term, as extended, and provided that the Executive complies with section
6.7, severance pay equal to eighteen (18) months of Salary.
6.4.5 Payment of Severance to Be Made in Installments. The
-----------------------------------------------
severance pay under this Section 6.4 shall be paid in equal installments no less
frequently than on a monthly basis.
6.4.6 Right to Severance Ceases upon Breach of Sections 8, 9, or
----------------------------------------------------------
10. Notwithstanding anything to the contrary contained herein, in the event
- --
that the Executive shall breach Section 7, 8, or 9 of this Agreement and such
breach clearly is not insignificant, as determined by at least a two-thirds
majority of the Board of Directors of the Company, in addition to any other
remedies the Company may have in the event the Executive breaches this
Agreement, the Company's obligation pursuant to this Section to continue such
Salary shall cease and the Executive's rights thereto shall terminate and shall
be forfeited.
6.4.7 Rights of the Company after Notice of Termination.
-------------------------------------------------
Notwithstanding any other provision of this Agreement, upon the Company's
notification of the Executive of the termination of his employment under this
Section 6, the Company shall be
-6-
<PAGE>
entitled (i) to hire a co-Chief Executive Officer to serve concurrently with the
Executive and perform some or all of the functions previously performed by the
Executive, as determined by the Board of Directors in its sole discretion and
(ii) to reduce or otherwise modify the responsibilities of the Executive in its
sole discretion.
6.5 Termination by the Executive for Good Reason. The Executive
--------------------------------------------
shall have the right to terminate this Agreement for Good Reason. For purposes
of this Agreement, "Good Reason" shall be defined as (i) any material diminution
in the Executive's title or responsibilities or (ii) the Company's breach of
Section 3 of this Agreement, provided that such diminution or breach is not
cured within thirty (30) days after the Executive provides written notice of
such diminution or breach. If the Executive terminates his employment pursuant
to this Section, the Company shall pay to the Executive, in lieu of any further
compensation and benefits for the balance of the Term, severance pay equal to
the eighteen (18) months Salary. Severance pay under this Section shall be paid
in equal installments no less frequently than on a monthly basis.
Notwithstanding anything to the contrary contained herein, in the event that the
Executive shall breach Section 7, 8, or 9 of this Agreement and such breach
clearly is not insignificant, as determined by at least a two-thirds majority of
the Board of Directors of the Company, in addition to any other remedies the
Company may have in the event the Executive breaches this Agreement, the
Company's obligation pursuant to this Section to continue such Salary shall
cease and the Executive's rights thereto shall terminate and shall be forfeited.
6.6 Termination by the Executive Without Good Reason. The Executive
------------------------------------------------
shall have the right to terminate this Agreement without Good Reason. In the
event that the Executive terminates his employment with the Company without Good
Reason, the Company shall pay to the Executive only the Salary earned to the
date of termination and any accrued but unpaid vacation pay, and the Executive
shall not be entitled to any severance pay.
6.7. No Further Liability; Release. Payment made and performance by
-----------------------------
the Company in accordance with this Section 6 shall operate to fully discharge
and release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability with respect to Executive's employment and
termination of employment. Other than paying Executive's Base Salary through
the date of termination of Executive's employment and making any severance
payment pursuant to and in accordance with this Section 6 (as applicable), the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives shall have no
further obligation or liability to Executive or any other person under this
Agreement. The Company shall have the right to condition the payment of any
severance pursuant to this Section 6 upon the delivery by Executive to the
Company of a release substantially similar to the form attached as Exhibit B of
any and all claims Executive may have against the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives arising out of or related to Executive's
employment by the Company and the termination of such employment.
6.8 Delivery of Resignations. In the event that the Executive's
------------------------
services hereunder are terminated under any of the provision of this Agreement
(except Section 6.1), the Executive agrees that he will deliver his written
resignation as an officer and/or director of the
-7-
<PAGE>
Company to the Board of Directors, such resignation to become effective as of
the date of his final date of employment as determined by the Board of
Directors; provided, however, that nothing herein shall be deemed to affect the
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provisions of Sections 7, 8, 9, and 11 hereof. No severance payments under this
Section 6 shall be made unless the Board of Directors receives such written
resignation.
7. 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
tot he Company all drawings, sketches, models and other data and records
relating to the Developments. In the event that 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.
8. NONDISCLOSURE.
-------------
8.1 Existence of Confidential Information. The Company owns and has
-------------------------------------
developed and compiled, and will develop and compile, certain proprietary
techniques and confidential information which have great value to its business
(referred to in this Agreement, collectively, as "Confidential Information").
Confidential Information includes not only information disclosed by the Company
to the Executive, but also information developed or learned by the Executive
during the course or as a result of employment with the Company, which
information shall be the property of the Company. Confidential Information
includes all information that has or could have commercial value or other
utility in the businesses in which the Company is engaged or contemplates
engaging, and all information of which the unauthorized disclosure could be
detrimental to the interests of the Company, whether or not such information is
specifically labeled as Confidential Information by such entity. By way of
example and without limitation, Confidential Information includes any and all
information developed, obtained, licensed by or to or owned by the Company
concerning trade secrets, techniques, know-how (including designs, plans,
procedures, merchandising, marketing, distribution and warehousing know-how,
processes, and research records), software, computer programs and designs,
development tools, all proprietary property, and any other intellectual property
created, used or sold (through a license or otherwise) by the Company,
electronic data information know-how and processes, innovations, discoveries,
improvements, research, development, test results, reports, specifications,
data, formats, marketing data and plans, business plans, strategies, forecasts,
unpublished financial information, orders, agreements and other forms of
documents, price and cost information, merchandising opportunities, expansion
plans, budgets, projections, customer, supplier, licensee, licensor and
subcontractor identities,
-8-
<PAGE>
characteristics, agreements and operating procedures, and salary, staffing and
employment information.
8.2 Protection of Confidential Information. The Executive
--------------------------------------
acknowledges and agrees that in the performance of Executive's duties hereunder
the Company may disclose to and entrust the Executive with Confidential
Information which is the exclusive property of such entities and which the
Executive may possess or use only in the performance of the Executive's duties
to the Company. The Executive also acknowledges that Executive is aware that
the unauthorized disclosure of Confidential Information, among other things, may
be prejudicial to the Company's interests, an invasion of privacy and an
improper disclosure of trade secrets. The Executive shall not, directly or
indirectly, use, make available, sell, disclose or otherwise communicate to any
corporation, partnership or other entity, individual or other third party, other
than in the course of the Executive's assigned duties and for the benefit of the
Company, any Confidential Information, either during the Term or thereafter. In
the event the Executive desires to publish the results of the Executive's work
for or experiences with the Company through literature, interviews or speeches,
the Executive will submit requests for such interviews or such literature or
speeches to the Board of Directors of the Company at least fourteen (14) days
before any anticipated dissemination of such information for a determination of
whether such disclosure is in the best interests of the Company, including
whether such disclosure may impair trade secret status or constitute an invasion
of privacy. The Executive agrees not to publish, disclose or otherwise
disseminate such information without the prior written approval of the Board of
Directors of the Company.
8.3 Delivery of Records, Etc. In the event the Executive's
-------------------------
employment with the Company ceases for any reason, the Executive will not remove
from the Company's premises without its prior written consent any records
(written or electronic), files, drawings, documents, equipment, materials and
writings received from, created for or belonging to the Company, including those
which relate to or contain Confidential Information, or any copies thereof.
Upon request or when employment with the Company terminates, the Executive will
immediately deliver the same to the Company.
9. NON-COMPETITION AND NON-SOLICITATION.
------------------------------------
9.1 Non-competition. The Executive recognizes the highly competitive
---------------
nature of the Company's business and that the Executive's position with the
Company and access to and use of the Company's confidential records and
proprietary information renders the Executive special and unique. The Executive
hereby agrees that, during the Term of Employment and for a period of one (1)
year after the termination of the Executive's employment with the Company for
any reason, the Executive shall not, directly or indirectly, own, manage,
operate, join, control, participate in, invest in or otherwise be connected or
associated with, in any manner, including as an officer, director, employee,
independent contractor, stockholder, member, partner, consultant, advisor,
agent, proprietor, trustee or investor, any Competing Business located in the
United States; provided, however, that ownership of 2% or less of the stock or
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other securities of a corporation, the stock of which is listed on a national
securities exchange or is quoted on The Nasdaq Stock Market, shall not
constitute a breach of this Section 10, so long as the Executive
-9-
<PAGE>
does not in fact have the power to control, or direct the management of, or is
not otherwise associated with, such corporation.
For purposes hereof, the term "Competing Business" shall mean any
business or venture which, directly or indirectly, engages in a business that
competes with the business of the Company.
9.2 No Solicitation of Employment. During the Term of Employment and
-----------------------------
for a period of one (1) year thereafter, Executive shall not solicit or
encourage any employee of the Company to leave the Company for any reason, nor
assist any business in doing so, nor employ such an employee in a Competing
Business or any other business.
10. 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 cooperate with the Company in connection with the procurement of any such
insurance, and any claims thereunder.
11. REMEDIES FOR BREACH.
-------------------
The parties hereto agree that the Executive is obligated under this
Agreement to render personal services during the Term of Employment of a
special, unique, unusual, extraordinary and intellectual character, thereby
giving this Agreement special value, and, in the event of a breach or threatened
breach of any covenant of the Executive herein, the injury or imminent injury to
the value and the goodwill of the Company's business could not be reasonably or
adequately compensated in damages in an action at law. Accordingly, Executive
expressly acknowledges that the Company shall be entitled to specific
performance, injunctive relief or any other equitable remedy against the
Executive, without the posting of a bond, in the event of any breach or
threatened breach of any provision of this Agreement by the Executive
(including, without limitation, Sections 7, 8, and 9). Without limiting the
generality of the foregoing, if the Executive breaches or threatens to breach
Section 7, 8 or 9 of this Agreement, such breach or threatened breach will
entitle the Company, without posting of bond, to an injunction prohibiting (i)
the Executive from disclosing any Confidential Information to any Competing
Business; (ii) such Competing Business from receiving from the Executive or
using any such Confidential Information; and (iii) the Executive from,
indirectly or directly, owning, managing, operating, joining, controlling,
participating in, investing in or otherwise being connected or associated with,
in any manner, any such Competing Business. The rights and remedies of the
parties hereto are cumulative and shall not be exclusive, and each such party
shall be entitled to pursue all legal and equitable rights and remedies and to
secure performance of the obligations and duties of the other under this
Agreement, and the enforcement of one or more of such rights and remedies by a
party shall in no way preclude such party from pursuing, at the same time or
subsequently, any and all other rights and remedies available to it.
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<PAGE>
12. ASSIGNMENT AND TRANSFER.
-----------------------
12.1 The Company. This Agreement shall inure to the benefit of and be
-----------
enforceable by, and may be assigned by the Company to, any purchaser of all or
substantially all of the Company's business or assets, any successor to the
Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise).
12.2 The Executive. The Executive's rights and obligations under
-------------
this Agreement shall not be transferable by the Executive by assignment or
otherwise, and any purported assignment, transfer or delegation thereof shall be
void; provided, however, that if the Executive shall die, all amounts then
-------- -------
payable to the Executive hereunder 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.
13. 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:
13.1 If to the Executive:
Donald R. Marvin
60 Fair Acres Court
Princeton, NJ 08540
13.2 If to the Company:
Orchid BioSciences, Inc.
303 College Road East
Princeton, NJ 08540
Attention: President and CEO
14. 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
-11-
<PAGE>
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.
15. VALIDITY.
--------
It is the intention of the Executive and the Company that the
provisions of this Agreement (including, without limitation, those of Sections
7, 8, 9, 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
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.
16. SURVIVAL.
--------
The provisions of Sections 7 (regardless of the continuation of
Executive's Salary thereunder), 8, 9, 10, 11 and 16 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.
17. HEADINGS.
--------
The headings of this Agreement are for convenience of reference only
and are not part of the substance of this Agreement.
18. 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.
EXECUTIVE ORCHID BIOSCIENCES, INC.
/s/ Donald R. Marvin By: /s/ Dale R. Pfost
- -------------------- --------------------------------
Donald R. Marvin Name: Dale R. Pfost
Title: Chairman, CEO & President
-12-
<PAGE>
Exhibit A
---------
1. The option to purchase 67,000 shares of the Company's common
stock at $1.25 per share issued to the Executive on December 10, 1999,
shall vest in equal increments monthly over a period of four years; provided,
--------
however, vesting shall accelerate upon any acquisition of the Company.
- -------
The options to purchase 490,000 shares of the Company's common stock
issued to the Executive on February 2, 2000, include:
2. The option to purchase 250,000 shares at $6.00 per share, which
shall vest in equal increments monthly over a period of four years; provided,
--------
however, vesting shall accelerate upon any acquisition of the Company.
- -------
3. The option to purchase 80,000 shares at $6.00 per share, which
shall vest if and when the price of Orchid Biocomputer stock exceeds $16 within
the period between 6 and 18 months immediately following the Company's initial
public offering ("IPO") and is sustained for 45 trading days thereafter
(trailing 45-day average); provided, however, vesting shall accelerate if any
-------- -------
acquisition of the Company occurs with a stock or equivalent purchase price of
at least $16 per share.
4. The option to purchase 80,000 shares at $6.00 per share, which
shall vest if and when the price of Orchid Biocomputer stock exceeds $32 within
the period between 6 and 30 months immediately following the IPO and is
sustained for 45 trading days thereafter (trailing 45-day average); provided,
--------
however, vesting shall accelerate if any acquisition of the Company occurs with
- -------
a stock or equivalent purchase price of at least $32 per share.
5. The option to purchase 80,000 shares at $6.00 per share, which
shall vest if and when the price of Orchid Biocomputer stock exceeds $64 within
the period between 6 and 42 months immediately following the IPO and is
sustained for 45 trading days thereafter (trailing 45-day average); provided,
--------
however, vesting shall accelerate if any acquisition of the Company occurs with
- -------
a stock or equivalent purchase price of at least $64 per share.
To the extent permitted under the Internal Revenue Code and any other
applicable law, the options described above shall be Incentive Stock Options.
<PAGE>
EXHIBIT B
---------
SEVERANCE AGREEMENT AND GENERAL RELEASE
WHEREAS, ______________ (the "Employee") is an employee of Orchid
Biosciences, Inc. ("Orchid"); and
WHEREAS, the Employee is being terminated from employment with Orchid for
___________; and
WHEREAS, the Employee is entitled to certain severance benefits identified
in an Employment Agreement dated _____, 2000 (the "Employment Agreement"); and
WHEREAS, the severance benefits under the Employment Agreement are
contingent upon the execution of this Severance Agreement and General Release
(the "Agreement").
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth below, the Employee and Orchid agree as follows:
1. Last Day of Employment. The Employee's last day of employment with Orchid
----------------------
will be _____________, ______ (the "Termination Date").
2. General Benefits. Upon the Termination Date the Employee will be entitled
----------------
to the following general benefits:
a. All salary and wages through the Termination Date will be paid in
accordance with Orchid's normal payroll procedure or in a single lump
sum payment, as determined within the discretion of Orchid.
b. The Employee is entitled to accrued vacation pay, totaling $_________,
which will be included in the Employee's final paycheck for the period
ending on the Termination Date.
c. The Employee is entitled to elect to receive continuation health
coverage under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") after the Employee's Termination Date, which is the
date of a "qualifying event" under COBRA.
d. All group-term life insurance, long-term disability, short-term
disability, and other welfare benefits terminate in accordance with
the provisions of all plans. The Employee may be entitled to
individual conversion privileges under the various policies. Orchid
will provide information to the Employee regarding all individual
conversion rights.
e. The Employee's entitlement, if any, to a distribution of all benefits
under the Orchid
1
<PAGE>
Profit Sharing and Section 401(k) Plan (the "Section 401(k) Plan"),
will be made in accordance with the provisions of the Section 401(k)
Plan.
f. The Employee will be entitled to state unemployment benefits, if any,
in accordance with the rules for the State of the Employee's
employment.
3. Severance Benefits. Orchid will provide the Employee with a severance
------------------
benefit equal to all severance benefits identified in Section 7 of the
Employment Agreement.
All severance benefits will be paid by and in accordance with the Company's
normal payroll procedures. However, no severance benefits will be paid
until after 8 days after receipt of an executed copy of this Agreement by
Orchid, and the return of all property to Orchid, as provided in Section 5.
Severance benefits will also be reduced to the extent of any advance
payments, for any excess expense reimbursements, and for any amounts owed
to Orchid by the Employee.
Notwithstanding any provision to the contrary, the payment of any severance
benefits will not be treated as extending the Employee's employment for any
employee benefit or employment purposes.
4. Adequate Consideration. The Employee agrees that the severance benefit
----------------------
identified in Section 3 is adequate and sufficient consideration for the
Employee's execution of the General Release set forth below.
5. Return of Property. To the extent the Employee is in the possession of any
------------------
Orchid property, including personal computers ("PCs"), fax machines,
scanners, copiers, cellular phones, Orchid credit cards, and any Orchid
documents, correspondence and related corporate materials, the Employee
will return all property to Orchid on or before the Termination Date.
6. Expense Accounts and Reports. The Employee will be allowed to submit a
----------------------------
final expense reports and accountings to Orchid within 2 weeks after the
Termination Date, and will receive all necessary reimbursements from
Orchid.
7. General Release. The Employee agrees to fully release and forever
---------------
discharge Orchid, its successors, assigns and any related companies, and
their respective shareholders, officers, employees, agents and directors,
from all claims or demands the Employee may have arising out of or related
to the Employee's employment or termination with Orchid, including claims
of which the Employee is unaware and claims which are not specifically
released and identified below. These claims include, but are not limited
to, claims arising under the Constitution of the United States, a release
of any rights or claims the Employee may have under the Age Discrimination
in Employment Act of 1967 as amended ("ADEA"), 29 U.S.C. 621 et seq., which
-- ---
prohibits age discrimination in employment; Title VII of the Civil Right
Act of 1964, as amended, 42 U.S.C. 2000(e) et seq., which prohibits
-- ---
discrimination in employment based on race, color, national origin,
religion or sex; the Civil Rights Act of 1966, 42 U.S.C. 1981 et seq.; the
-- ---
Equal Pay Act, which prohibits paying men and women
2
<PAGE>
unequal pay for equal work; or any other federal, state or local laws or
regulations prohibiting employment discrimination; Employee Retirement
Income Security Act, 29 U.S.C. 1001 et seq.; Executive Orders 11246 and
-- ---
11141; the Constitution of the State of New Jersey or any other states in
which the Employee resides or works; any New Jersey or other state laws
against discrimination; any claims of breach of public policy of the State
of New Jersey or other state, negligence, breach of contract, wrongful
discharge, constructive discharge, breach of an implied covenant of good
faith and fair dealings; any express or implied contracts with Orchid or
any related companies; any federal or state common law and any federal,
state or local statutes, ordinances and regulations. The Employee further
waives any claim or right to payment of any attorney's fees or expenses.
Notwithstanding any provisions to the contrary, this release does not
include a release of (a) the Employee's rights under this Agreement; or (b)
the Employee's right, if any, to individual conversion privileges under any
medical, dental, long term disability, life insurance, and other welfare
program.
8. No Future Lawsuits. The Employee agrees that the Employee will not file,
------------------
or permit to be filed in the Employee's name or on the Employee's behalf,
any lawsuit or administrative claim against any of the person or entities
released in this Agreement based upon any act or event that is the subject
matter of this Agreement and which occurred before the effective date of
this Agreement.
9. Non-Admission of Liability. The use of this Agreement by Orchid does not
--------------------------
signify any liability by Orchid or any related companies to provide any
benefits.
10. Period for Review and Consideration of Agreement. The Employee understands
------------------------------------------------
that the Employee will be given a period of 21 days to review and consider
this Agreement before signing it. The Employee further understands that
the Employee may wait up to 21 day period prior to signing the Agreement,
--------
or may also execute the Agreement prior to the expiration of the 21 day
--------
review period.
11. Older Workers Benefit Protection Act. The Company is not required to
------------------------------------
provide the Employee with any demographic information required by the Older
Workers Benefit Protection Act of 1990, due to the individual nature of
this termination. [To confirm based upon future facts and law.]
12. Encouragement to Consult Attorney. The Employee is encouraged to consult
---------------------------------
with an attorney before signing this Agreement.
13. Right to Revoke Agreement. The Employee may revoke this Agreement within 7
-------------------------
days of the Employee's signing of this Agreement. If this Agreement has
not been revoked within such 7 day period it becomes effective on the 8th
day. Revocation can be made by delivering a written notice of revocation
to Sarajane N. Mackenzie, Vice President of Human Resources. For this
revocation to be effective, written notice must be received by Orchid no
later than close of business on the 7th day after the Employee signs this
Agreement. If the Employee fails to sign this Agreement or revokes this
Agreement, it will not be effective
3
<PAGE>
or enforceable and the Employee will not receive the severance benefit
described in Section 3 of this Agreement.
14. Confidentiality of Terms. The Employee and Orchid agree that the terms of
------------------------
this Agreement are confidential and will not be disclosed to any person
without the written consent of Orchid, except to the Employee's legal and
tax advisors and members of the Employee's immediate family, or to the
extent required by law. However, the Employee agrees and acknowledges that
this Agreement may be introduced as evidence by Orchid in the event the
Employee commences any legal, administrative, judicial or arbitration
proceeding against Orchid.
15. Non-Defamation. The Employee agrees that he will not, directly or
--------------
indirectly, in public or private, deprecate, impugn or otherwise make any
remarks that would tend to or be construed to tend to defame Orchid or its
reputation, nor will the Employee assist any other person, firm or company
in engaging in such activities. Orchid also agrees not to engage in any
activities, directly or indirectly, that would defame the Employee, or his
reputation.
16. Entire Agreement. This document, constitutes the entire Agreement between
----------------
the Employee and Orchid, concerning the subject matter hereof. Orchid has
made no promises to the Employee other than those in this Agreement,
concerning the subject matter hereof. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such
subject matters, except as provided in Section 20 below.
17. Severability Clause. If any one or more provisions contained in this
-------------------
Agreement will, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement, but
this Agreement will be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
18. No Release of Future Claims. This Agreement does not waive or release any
---------------------------
rights or claims that the Employee may have under the Age Discrimination in
Employment Act which arise after the effective date of the Agreement, if
applicable.
19. Reference. Reference inquiries from prospective employers will be handled
---------
by only verifying the Employee's dates of employment and last position held
with Orchid.
20. Employment Agreement. Notwithstanding any provisions to the contrary, all
--------------------
provisions of the Employment Agreement that survive the termination of the
Employment Agreement shall continue in full force and effect, including any
confidentiality, nonsoliciation and other provisions.
21. New Jersey Law. The Employee and Orchid agree that this Agreement and any
--------------
interpretation thereof will be governed by the laws of the State of New
Jersey, except as preempted by ERISA.
THE EMPLOYEE ACKNOWLEDGES THAT THE EMPLOYEE HAS READ THIS
4
<PAGE>
AGREEMENT, UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT.
EMPLOYEE
- ------------------------ --------------------------------
Dated
ORCHID BIOSCIENCES, INC.
- ------------------------ By: ----------------------------
Dated
For internal use:
Date Delivered to Employee: _______, ______.
21 Day Period for Consideration Ends: _______________________
Date signed: ______________
7-Day Period for Revocation Ends: ______________________
5
<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.
/s/ KPMG LLP
_____________________________________
KPMG LLP
Princeton, New Jersey
May 4, 2000
<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
May 4, 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
May 3, 2000
