<PAGE>
As filed with the Securities and Exchange Commission on April 7, 2000
Registration No. 333-30774
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 1 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>
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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>
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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. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed Maximum
Title of each Class of Amount Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered(1) Per Share(2) Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share....... 9,200,000 $13.00 $119,600,000 $31,574
- -------------------------------------------------------------------------------
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</TABLE>
(1) Includes 1,200,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(a) promulgated under the Securities Act of 1933.
(3) $23,760 of this fee was paid in connection with our initial filing on
February 18, 2000.
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.
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<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 APRIL 7, 2000
8,000,000 Shares
LOGO OF ORCHID BIOSCIENCES
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$11.00 and $13.00 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 1,200,000
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>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Robertson Stephens
Salomon Smith Barney
The date of this prospectus is , 2000.
<PAGE>
Inside front cover depicts the steps involved in the process in the
"Technology" section. Gatefold layout of graphic representation of our SNP-
IT(TM) primer-extension technology. Photos will represent our product and
service offerings, including SNPstream, SNPware kits and microfluidic
technology, as well as an artistic rendition of our proposed MegaSNPatron
facility.
Caption on inside front cover in upper left hand corner. Our SNP-IT(TM)
technology is designed to rapidly and efficiently detect and analyze the subtle
genetic variations among people, known as single nucleotide polymorphisms, or
SNPs.
Our SNP-IT(TM) technology involves three basic steps:
Captions centered on the inside front cover page.
1. Prepare the DNA sample.
2. Selectively add a single base at the location of the SNP.
3. Detect the presence or absence of the SNP.
Captions on the gatefold layout are as follows:
"Orchid's opportunities in genetic diversity"
Caption on gatefold layout in bottom right hand corner: "Orchid provides
products, services and technology for SNPscoring and other genetic diversity
analyses."
Caption under artistic rendition of MegaSNPatron: "Artist's rendition of
proposed future MegaSNPatron(TM) facility"
Caption under depiction of microfluidic chips in right hand lower corner.
<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............................ 34
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management....................... 53
Transactions With Executive
Officers, Directors And Five
Percent Stockholders............ 66
Principal Stockholders........... 68
Description Of Capital Stock..... 70
Shares Eligible For Future Sale.. 73
Underwriting..................... 75
Notice To Canadian Residents..... 77
Legal Matters.................... 78
Experts.......................... 78
Where You Can Find More
Information..................... 78
Index To Financial Statements.... F-1
</TABLE>
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 ASSOCIATE, SNP WIDEMAP, GENESCREEN IDENTITY, GENESCREEN FORENSIC,
GENESCREEN TRANSPLANT TESTING, and the Orchid logo are our trademarks for which
registration applications have been filed with the United States Patent and
Trademark Office. All other trademarks or trade names referred to in this
prospectus are the property of their respective owners.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information you should consider before
buying shares in the offering. Therefore, you should read the entire prospectus
carefully.
Orchid BioSciences
We are a leader in the development and commercialization of 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
We believe our proprietary SNP-IT primer-extension SNP scoring technology is
superior to conventional SNP scoring technologies. 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 a 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.
We believe our unique approach to SNP scoring will enable pharmaceutical
companies to improve their identification of lead drug candidates for
optimization and development by allowing them to generate and rapidly convert
genetic variation data into diverse collections of potentially useful targets
and drug candidates. In addition, we believe 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.
4
<PAGE>
Our Target Markets
We are targeting our SNP scoring technologies at a number of the most
rapidly developing markets in the field of genetic diversity. Specifically, we
believe our SNP scoring technologies can provide significant value in many
aspects of drug discovery, development and marketing as well as disease
predisposition assessment, diagnostic test development, transplantation
matching and development of agricultural products. Each of these markets
presents us with a wide range of opportunities for our technologies, including
SNP confirmation and SNP association studies, as well as the application of SNP
scoring to clinical trials and in clinical diagnostics.
Our Strategy
Our objective is to become the premier provider of instruments, consumables,
services and technologies for SNP scoring and of other genetic diversity tests.
The key elements of our strategy to achieve this objective include the
following:
. Rapid commercialization. We intend to rapidly commercialize our products
and services, including our line of SNPstream instruments and SNPware
kits for SNP scoring. We intend to commercialize SNPware kits for use on
our hardware instrument platform, as well as on other SNP scoring
platforms. For example, we are developing our SNPware consumable product
line for Affymetrix, a leading DNA chip company. In addition, we intend
to offer our products and services to other major companies for
distribution to their customers. We currently provide SNP scoring
services at our high-throughput MegaSNPatron facility.
. Market extension. We intend to leverage our strong position in the
research market to expand into the clinical and diagnostic markets. We
believe these markets have the largest long-term growth potential in the
genetic diversity field. We also intend to expand geographically by
establishing international SNP scoring facilities to create additional
service revenue and promote the sale of our entire line of products. We
also intend to provide SNP scoring directly to consumers and physicians
through one of our Web sites.
. Proprietary SNP value creation. We intend to continue to create
proprietary rights covering the association of SNPs with medically
important attributes. We expect this will result in proprietary rights
covering a broad range of new and existing drugs consisting of both
"composition of matter patents," which cover the drugs themselves, and
"use patents," which extend the drugs' label coverage.
. Sustained competitive advantage. We plan to 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.
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.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock we are offering............. 8,000,000 shares
Common stock to be outstanding after this
offering................................ 33,998,606 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.
------------
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 24,790,787 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 24,766,417 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 $88.3 million from the sale of 8,000,000 shares of common stock in
this offering at an assumed initial public offering price of $12.00 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.......... -- -- -- -- -- 9,778
General and administrative.......... 37 718 2,927 5,199 9,611 17,105
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 41,429
------ ------- ------- -------- -------- --------
Operating loss....................... (37) (1,215) (9,977) (12,345) (22,265) (25,889)
Other income (expenses), net......... 31 91 49 866 (5,955) (5,935)
------ ------- ------- -------- -------- --------
Net loss............................. (6) (1,124) (9,928) (11,479) (28,220) (31,824)
====== ======= ======= ======== ======== ========
Net loss allocable to common
stockholders........................ (6) (1,124) (9,928) (11,479) (72,774) (76,378)
====== ======= ======= ======== ======== ========
Basic and diluted net loss per share
allocable to common stockholders.... $ (.05) $ (3.45) $(27.57) $ (17.09) $ (95.87) $(100.62)
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 $ 63,378 $151,657
Working capital................................ 27,175 56,748 145,028
Total assets................................... 94,686 124,260 212,540
Long-term debt, less current position.......... 4,122 4,122 4,122
Mandatorily redeemable convertible preferred
stock......................................... 88,846 -- --
Total stockholders' equity (deficit)........... (8,455) 109,964 198,244
</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 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 such relationships, 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;
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. 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
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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.
The scope of our issued patents may not provide us with adequate protection
of our intellectual property, which would harm our competitive position.
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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.
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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 as well as
the need to effectively sell the benefits of our
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products and services to 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.
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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.
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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 million shares of
preferred stock and to determine the price, privileges and other terms of
these shares. The Board of Directors may exercise this authority without any
further approval of our stockholders. The rights of the holders of common
stock may be adversely affected by the rights of our holders of our preferred
stock that may be issued in the future.
We have various mechanisms in place 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 26.7% of our common stock
following this offering. These stockholders, acting together, will
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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 $12.00 per share,
if you purchase shares of common stock in this offering, you will suffer
immediate and substantial dilution of $7.51 per share in the 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, we will have approximately 33,998,606 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 33,998,606 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............................... 1,481,500
180 days after the date of this prospectus................... 5,000,136
At various times after 180 days from the date of this
prospectus.................................................. 19,516,970
</TABLE>
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found
in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Business," as well as in this
prospectus generally. We generally use words such as "believe," "intend,"
"expect," "anticipate," "plan," and similar expressions to identify forward-
looking statements. This prospectus also contains third-party estimates
regarding the size and growth of the biotechnology market in general. You
should not place undue reliance on these forward-looking statements. Our actual
results could differ materially from those anticipated in the forward-looking
statements for many reasons, including the risks described above and elsewhere
in this prospectus.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on which
the statements are made, and we cannot assure you that our future results,
levels of activity, performance or achievements will meet these expectations.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of the forward-looking statements. We are under no
duty to update any of the forward-looking statements after the date of this
prospectus to conform these statements to actual results or to changes in our
expectations.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of 8,000,000 shares of
common stock we are offering, at an assumed initial public offering price of
$12.00 per share, will be $88.3 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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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 $88.3 million
from the sale of 8,000,000 shares of common stock offered by us in this
offering at an assumed initial public offering price of $12.00 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, 15,366,594 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)............................. 88,846 -- --
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, 25,611,867 and
33,611,867 issued and outstanding on an
actual, pro forma or pro forma as adjusted
basis..................................... 1 26 34
Common stock to be issued (10,000 shares)
.......................................... 76 76 76
Additional paid-in capital................. 50,155 168,550 256,822
Deferred compensation...................... (7,930) (7,930) (7,930)
Accumulated deficit........................ (50,758) (50,758) (50,758)
-------- -------- --------
Total stockholders' equity (deficit)....... (8,455) 109,964 198,244
-------- -------- --------
Total capitalization..................... $ 85,654 $115,227 $203,507
======== ======== ========
</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.
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 $33.0 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 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 8,000,000 shares of common stock offered by this prospectus at an assumed
initial public offering price of $12.00 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 $150.8 million,
or $4.49 per share. This represents an immediate increase in net tangible book
value to existing investors of $2.05 per share and decrease in net tangible
book value of $7.51 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................... $12.00
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................ 2.05
-----
Pro forma net tangible book value per share after this offering 4.49
------
Dilution per share to new investors............................... $ 7.51
======
</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 issuance in January 2000 of Series E
mandatorily redeemable preferred stock recorded as Series E to be issued at
December 31, 1999, differences between the number of shares of common stock
purchased from us, the total consideration paid and the average price per share
paid by existing stockholders and by the new investors purchasing shares of
common stock in this offering.
<TABLE>
<CAPTION>
Total Cash
Shares Purchased Consideration Paid Average
------------------ -------------------- price per
Number Percent Number Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 25,611,867 76.2% $105,258,000 52.3% $4.11
New investors................. 8,000,000 23.8 96,000,000 42.7 12.00
---------- ----- ------------ -----
Total....................... 32,611,867 100.0% $201,258,000 100.0%
========== ===== ============ =====
</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
(unaudited)............ $ (15.61)
Shares used in computing
pro forma basic and
diluted shares
allocable to common
stockholders
(unaudited)............ 4,663
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
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 27,175
Total assets............................ 1,961 2,406 6,884 15,599 94,686
Long-term debt, less current portion.... -- -- -- 3,547 4,122
Mandatorily redeemable preferred stock.. -- -- 9,230 27,530 88,846
Convertible preferred stock............. 1 1 1 212 1
Total stockholders' equity (deficit).... 795 188 (8,009) (18,123) (8,455)
</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. The historical
consolidated balance sheet as of December 31, 1999 reflects our acquisition of
GeneScreen.
On December 30, 1999, we acquired all of the outstanding shares of common
and preferred stock of GeneScreen in exchange for a price of $42.5 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 $28,360,000 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 (276,374)(1) 9,778,307
General and
administrative....... 9,547,089 5,922,537 (902,490)(2) 17,045,176
(687,960)(1)
3,166,000 (3)
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 1,299,176 41,432,636
------------ ----------- ----------- ------------
Operating loss...... (22,265,328) (2,328,512) (1,299,176) (25,893,016)
Other income (expenses):
Interest income....... 202,699 -- (33,000)(4) 169,699
Interest expense...... (6,157,662) (159,698) 212,869 (5) (6,104,491)
------------ ----------- ----------- ------------
Total other income
(expenses)......... (5,954,963) (159,698) 179,869 (5,934,792)
------------ ----------- ----------- ------------
Loss from continuing
operations......... (28,220,291) (2,488,210) (1,119,307) (31,827,808)
------------ ----------- ----------- ------------
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) $(1,119,307) $(76,381,808)
============ =========== =========== ============
Basic and diluted loss
from continuing
operations before
nonrecurring charges
directly attributable
to the acquisition per
share allocable to
common stockholders.... $ (95.87) $ (100.62)
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 compensation expense from equity issuances directly
attributable to our acquisition of GeneScreen which required accelerated
vesting for all unvested options and allowed certain cashless exercise of
GeneScreen common stock options. No deferred compensation had been
required to be recorded when the options were originally issued.
(2) Adjustment to reduce general and administrative expense for transaction
related costs incurred by GeneScreen in connection with our acquisition of
GeneScreen.
(3) Adjustment to record the amortization of goodwill and other intangible
assets on a straight line basis over the estimated useful life. In the
application of purchase accounting for our acquisition of GeneScreen, we
allocated $42,900,000 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....................................... 30,813,000 15 years
Other intangible assets........................ 586,000 4 years
-----------
$42,951,000
===========
</TABLE>
(4) Adjustment to reduce our interest income by $33,000, assuming an interest
rate of 6% per annum. This amount represents interest income that would
have been earned on $550,000, 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.
(5) 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.
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 a leader in the development and commercialization of genetic
diversity technologies, products and services. Since we began operations in
March 1995, we have devoted substantially all of our resources to the
development and application of a portfolio of products and services using our
proprietary biochemistry for scoring SNPs and microfluidics technologies for
applications in drug discovery, principally in the field of pharmacogenetics
and DNA synthesis.
For the first three years of our existence, we were primarily focused on
developing our microfluidics technologies for applications in high-throughput
synthesis of small molecules under collaborative research programs with
SmithKline Beecham and Sarnoff Corporation. During this period, we derived most
of our revenue from payments from 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 $42.5 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 $28.4 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 $42.9 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 related to these deferred
equity-based compensation expenses will be amortized over the vesting periods
of the respective options, typically four years. Accordingly, we anticipate
recording compensation charges resulting from such amortization approximately
as follows: $2.5 million in 2000, $2.2 million in 2001, $1.9 million in 2002
and $1.3 million in 2003. Some of these amounts result from grants to
consultants which are subject to remeasurement at the end of each reporting
period based upon changes in the fair value of our common stock, until the
consultant completes performance under his or her respective option agreement.
Thus, these amortization charges may increase or decrease over the four year
period.
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
28
<PAGE>
recognize a compensation charge of $4.2 million over the respective vesting
periods of the options. On March 31, 2000, we granted 289,660 stock options at
exercise prices of $12.00 for which we will recognize an $800,000 compensation
charge over the respective vesting periods of the options. We anticipate
recording total compensation charges resulting from the amortization of the
deferred compensation for both the February and March grants approximately as
follows: $1.4 million in 2000, $1.3 million in 2001, $1.1 million in 2002,
$1.0 million in 2003 and $0.2 million in 2004. 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. In addition, we issued 855,000 performance based stock
options at exercise prices of $6 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 $8.5 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 $15.4 million for the year ended December 31, 1999.
Research and Development Expenses. Research and development expenses consist
primarily of salaries and related personnel costs, fees paid to consultants and
outside service providers for chip development, material costs for prototype
and test units, and other expenses related to the design, development, testing
and enhancement of our products. We expense our research and development costs
as 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 of $2.2 million and increased lab supplies and chemicals 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 litigation, 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 $17.0 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 $4.3 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 SNPstreatm 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 MegaSNPatrion 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 was $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
$0.3 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 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 to warrants issued in connection with
our 1999 bridge financing and accrued interest 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 $27.2 million at December 31,
1999 from approximately $5.8 million at December 31, 1998. The increase in
working capital was primarily due to our Series E mandatorily redeemable
convertible preferred stock financing in December 1999.
At 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 4, 2000 we
entered into a binding agreement with Sarnoff to terminate our License and
Option Agreement subject to our 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. 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 for
the two option fields in December 2000 under the License and Option Agreement.
As the licensed technology has not reached technological feasibility and has no
alternative uses, the cash payment and the fair value of the equity securities
will be charged to research and development expense.
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;
. 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;
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. 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. We are in the process of evaluating this SAB
and the effect it will have in our financial statements and current revenue
recognition policy.
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BUSINESS
Overview
We are a leader 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 is superior to
conventional SNP scoring technologies and overcomes most of the limitations
present in other SNP scoring systems. 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. One of our customers who
conducted a recent independent analysis has confirmed the accuracy of our
SNP scoring technologies and reported that our technologies were 100%
accurate in performing 4,000 SNP scores.
. 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 unique
flexibility of our SNP-IT primer-extension technology permits
commercialization opportunities on multiple platforms to provide the best
combination of price and performance for a wide range and large number of
customers.
. Cost. We expect the use of our SNP-IT primer-extension technology for SNP
scoring will provide a significant reduction in data point analysis
relative to current hybridization-based methods. We believe eliminating
the need for repetitive SNP scoring tests will reduce costs associated
with both clinical trial sample collection and SNP scoring.
. Robustness. Our 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.
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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.
. 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.
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. 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.
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.
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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.
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.
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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.
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
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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.
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
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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. 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.
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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>
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'
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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.
<TABLE>
<S> <C>
Step 1: Step 2: Step 3:
Prepare SNP-IT Detect
</TABLE>
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 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 due
unless the agreement which 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 4, 2000 we entered into a binding letter of
intent with Sarnoff to terminate our License and Option Agreement, subject to
payment of certain consideration. Under the terms of this agreement, we have
agreed, in lieu of our future cash 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. 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 would be owed
for the two option fields in December 2000 under the License and Option
Agreement. As this licensed technology has not reached technological
feasibility and has no alternative uses, the cash payment and the fair value of
the equity securities will be charged to research and development expense.
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
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which stop the extension of a DNA chain. As part of the agreement, we issued to
NEN 125,000 shares of our common stock and will pay to NEN an agreed upon price
for the terminators. 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, production planning and
scheduling, inventory tracking and control and batch records, with links to
document control for all manufacturing, quality control, quality assurance and
regulatory compliance procedures.
We also perform service testing at all of our facilities. Three of our
facilities have the Clinical Laboratory Improvement Act, or CLIA,
accreditations necessary to be in compliance with the required regulations.
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Distribution
We intend to expand our business internationally by establishing
relationships with distributors in several countries. In larger countries, we
will consider establishing our own direct sales force. Our international
operations would also serve as service locations and redistribution centers for
our consumables.
Intellectual Property
We have implemented and continue to implement an aggressive patent strategy
designed to provide us with a unique proprietary position in the fields of
pharmacogenetics and microfluidics. This strategy will continue to focus on
protecting and commercializing our current and future products. Our patent
portfolio reflects our international ambitions and includes pursuing patent
protection in many of the industrialized nations of the world. We currently
own, or have exclusive licenses to, 44 United States patents and 6 foreign
patents, and have received notices of allowance for 4 additional U.S. and 1
Australian patent applications. Additionally, we have 175 pending patent
applications of which 70 are United States applications and 105 are foreign
patent applications.
Our commercial success will also depend, in part on 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.
Competition
The markets for our products are competitive, and we expect the intensity of
competition to increase. Currently, we compete primarily with other companies
that are pursuing technologies and products that are similar to our
technologies and products. Many of our competitors have greater financial,
operational, sales and
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marketing resources, and more experience in research and development and
commercialization than we have. Moreover, competitors may have greater name
recognition than we do, and may offer discounts as a competitive tactic. These
competitors and other companies may have developed or could in the future
develop new technologies that compete with our products or which could render
our products obsolete. We cannot assure you that we will be able to make the
enhancements to our technologies necessary to compete successfully with newly
emerging techniques.
In the SNP scoring field, we compete with several companies offering
alternative technology concepts based on indirect detection of the molecule
through hybridization and/or labeling. These companies include: Affymetrix,
Inc., Amersham Pharmacia Biotech Ltd., Genometrix Inc., Luminex Corporation,
Nanogen, Inc., PE Corporation, Rapigene, Inc., Sequenom, Inc., Third Wave
Technologies, Inc. and Visible Genetics, Inc.
Our principal competitors in the field of pharmacogenetics research and
development include: Celera Genomics Corporation, CLONTECH Laboratories, Inc.,
CuraGen Corporation, Genaissance Pharmaceuticals, Inc., GENSET Corp.,
Millennium Pharmaceuticals, Inc., Myriad Genetics, Inc. and Variagenics, Inc.
Our competitors in the field of DNA testing include: Identagene Corporation,
Laboratory Corporation of America and Lifecodes Corporation, and in the field
of microfluidics include: ACLARA Biosciences Corporation and Caliper
Technologies Corporation.
Government Regulation
While most of our initial research products will not be subject to
government regulation, we anticipate the manufacturing, labeling, distribution
and marketing of some or all of our future diagnostic products and services
developed or performed using our SNP-related technologies or microfluidics will
be subject to government regulation in the United States and in certain other
countries.
In the United States, the FDA regulates, as medical devices, most diagnostic
tests and in vitro reagents that 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 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
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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 approximate 19,000 square foot
facility in Dallas, Texas; an approximate 12,500 square foot facility in
Dayton, Ohio; and an approximate 5,100 square foot facility in Sacramento,
California. The latter three facilities include CLIA approved laboratories
where our genetic DNA diversity testing services are located. We currently
believe our facilities are sufficient to meet our space requirements through
the year 2000.
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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................ 42 Chairman, Chief Executive Officer,
President
Donald R. Marvin................... 47 Senior Vice President, Chief Operating
Officer, Chief Financial Officer and
Secretary
Keith W. Brown..................... 46 Vice President and General Manager of
GeneScreen
Michael T. Boyce-Jacino, Ph.D. .... 40 Vice President of Research and
Development
Sarajane N. Mackenzie.............. 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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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........................................... 730,000(1)
Donald R. Marvin.............................................. 557,000(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 $12.00 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 $2,932,966 $4,788,948
Donald R. Marvin........ 67,300 7.0 $1.25 2009 $1,231,370 $2,010,581
</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 $12.00 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. ....... 65,017 197,336 $2,398,679 $746,693
Donald R. Marvin............ 41,933 110,367 $1,159,496 $ 94,842
</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
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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 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. A total of 360,000 of these newly issued options shall 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. A total of 240,000 of these newly issued
options shall 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 18,882,691 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 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
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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 25,998,606 shares of common stock
outstanding on March 31, 2000 and 33,998,606 shares of common stock outstanding
after completion of this offering. This table assumes no exercise of the
underwriters' over-allotment option. Unless otherwise indicated in the
footnotes, the address of each of the individuals named below is: c/o Orchid
BioSciences, Inc., 303 College Road East, Princeton, NJ 08540.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially
Owned
-----------------
Shares Prior to After
Name and Address of Beneficial Owner(1) Beneficially Owned Offering Offering
--------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Stockholders owning approximately 5% or
more
OrbiMed Advisors, LLC (2)................ 2,469,031 9.4% 7.2%
767 Third Avenue, 6th Floor
New York, NY 10017
Oracle Strategic Partners, LP (3)........ 2,150,000 8.3% 6.3%
712 5th Avenue, 45th Floor,
New York, NY 10019
INVESCO Global Health Sciences Fund(4)... 1,703,023 6.5% 5.0%
7800 East Union Avenue, Mail Stop 1102
Denver, CO 80237
Sarnoff Corporation(5)................... 1,588,328 6.1% 4.3%
201 Washington Road
Princeton, NJ 08543-5300
SmithKline Beecham plc(6)................ 1,321,474 5.0% 3.8%
New Horizons Court, Brentford
Middlesex, TW89EP, England
Directors and Executive Officers
Dale R. Pfost, Ph.D.(7).................. 223,905 0.8% 0.6%
Donald R. Marvin(8)...................... 162,012 0.6% 0.4%
Sidney M. Hecht, Ph.D.(9)................ 15,054 * *
Samuel D. Isaly(10)...................... 2,469,031 9.4% 7.2%
Jeremy M. Levin, D.Phil., MB.BChir.(11).. 9,999 * *
Ernest Mario, Ph.D.(12).................. 833 * *
George Poste, DVM, Ph.D.(13)............. 4,166 * *
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 (8 persons)(16)................... 5,779,002 10.9% 8.4%
</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 808,336 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, 410,542 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, 527,369 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 1,300,801 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 473,237 shares of common stock owned by SmithKline Beecham plc,
573,237 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 109,014 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, there will be:
. 33,998,606 shares of common stock outstanding;
. 3,250,995 options to purchase shares of common stock outstanding of which
441,077 will be exercisable upon the closing of the offering;
. 1,237,138 warrants to purchase shares of common stock outstanding,
1,079,638 of which will be exercisable upon the closing of this offering;
and
. no shares of preferred stock outstanding.
Common Stock
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are entitled to
receive proportionately any such dividends declared by the board of directors,
out of legally available funds for the dividends subject to the rights of the
holders of our preferred stock and any preferences that may be applicable to
any other then outstanding preferred stock. Upon our liquidation, dissolution
or winding up, the holders of our common stock are entitled to receive ratably
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 24,790,787 shares
of common stock.
Under the terms of our certificate of incorporation, our Board of Directors
will be authorized to issue up to 5,000,000 shares of preferred stock in one or
more series without stockholder approval. Our Board of Directors also has
discretion to determine the rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences of each series of preferred stock.
The purpose of authorizing our Board of Directors to issue preferred stock
in one or more series and determine the number of shares in the series and its
rights and preferences is to eliminate delays associated with a stockholder
vote on specific issuances. Examples of rights and preferences that the Board
of Directors may fix are (1) dividend rights, (2) dividend rates, (3)
conversion rights, (4) voting rights, (5) terms of redemption, including
sinking price or prices, and (6) liquidation preferences. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could make it more
difficult for a third party to acquire, or could discourage a third party from
acquiring, a
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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 24,790,787 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 may at any time after the completion of this offering require us to file
a registration statement under the Securities Act on Form S-3 with respect to
shares of common stock owned by them having an offering price of at least
$150,000.
All of these registration rights are subject to various conditions and
limitations, among them certain rights of the underwriters of an offering to
limit the number of shares included in a registration and our right not to
effect a requested registration within 90 days after the effective date of a
previous registration on a Form S-1 or within 90 days after the effective date
of a registration which included all shares requested by holders of registrable
shares. We will bear all of the expenses incurred in connection with all
exercises of these registration rights.
Delaware Law and Certain Charter and By-law Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law statute. Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the person becomes an interested
stockholder, unless the business combination is approved in a prescribed
manner. A business combination includes mergers, asset sales
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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 75% of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors to
amend or repeal any of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains certain provisions permitted under
the Delaware General Corporation Law statute relating to the limitation of
liability of directors. These provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the certificate of incorporation contains
provisions to indemnify our directors and officers to the fullest extent
permitted by the Delaware General Corporation Law statute. We believe these
provisions will assist us in attracting and retaining qualified individuals to
serve as our directors.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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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 33,998,606 shares of common stock
outstanding based upon the number of shares outstanding as of March 31, 1999.
Of these shares, the 8,000,000 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 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.
. 1,481,500 shares may be sold immediately after completion of this
offering; and
. 5,000,136 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 24,790,787 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............................................................ 8,000,000
=========
</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 1,200,000 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 400,000 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 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-29
Independent Auditors' Report............................................. F-30
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1998 and December 29, 1999.. F-31
Consolidated Statements of Operations for the year ended December 31,
1998 and the period from January 1, 1999 to December 29, 1999.......... F-32
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-33
Consolidated Statements of Cash Flows for the year ended December 31,
1998 and the period from January 1, 1999 to December 29, 1999.......... F-34
Notes to Consolidated Financial Statements.............................. F-35
</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 and the
eleventh paragraph of note 16
which is as of April 4, 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 30,880,518 30,880,518
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 $94,686,310 $94,686,310
=========== =========== ===========
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 4,877,157 4,877,157
Due to related party..................... 381,033 63,519 63,519
Deferred revenue......................... 250,000 789,091 789,091
----------- ----------- -----------
Total current liabilities................ 2,644,429 10,173,120 10,173,120
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 17,719,774 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, (4,951,452 shares, including
518,534 shares subject to repurchase
rights at December 31, 1999) (Aggregate
liquidation value of $22,281,534 at
December 31, 1999)...................... -- 22,281,533 --
----------- ----------- -----------
27,530,000 88,846,142 --
----------- ----------- -----------
</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 (19,639,964 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 19,640
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 50,154,522 138,982,944
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) (8,455,309) 80,390,833
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit)................... $15,599,425 $94,686,310 $94,686,310
=========== =========== ===========
</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... -- -- -- 28,360,000 -- -- 28,360,000
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 50,154,522 (7,930,030) (50,757,971) (8,455,309)
======= ====== ============ =========== =========== ============ =============
</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 issuance of common
stock/ exercise of 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 $ 10,185,707
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....................... -- -- 28,360,000
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 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 Technoloty.................................................... 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
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.
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
F-10
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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 18,794,514 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.
Recent Pronouncement
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. SAB 101 requires
registrants to adopt the accounting guidance contained therein by no later than
the second fiscal quarter of the fiscal year beginning after December 15, 1999.
The Company is currently assessing the requirements of SAB 101 and has not yet
determined the impact of applying the accounting guidance of SAB 101 on its
financial position or results of operations or current revenue recognition
policy.
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 $28,360,000 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 $42,541,000, 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........................................................ 30,813,000
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)
-----------
$42,541,000
===========
</TABLE>
As of December 31, 1999, none of the 4,000,000 shares had been issued. Of
these, 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 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
F-14
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
repurchase these shares after certain dates falling within one year from the
acquisition date. These repurchase rights expire upon the closing of an initial
public offering of the Company's common stock with gross proceeds of at least
$25 million. Additionally, the Company estimates that approximately $400,000
will be paid in lieu of issuing Series E shares to satisfy certain regulatory
requirements and to eliminate fractional shares. This equates to approximately
88,889 shares of Series E, which are not expected to be issued. At December 31,
1999, 3,911,111 estimated shares remain to be issued which is recorded as
Series E manditorily redeemable convertible preferred stock to be issued in the
consolidated balance sheet. The total value at the date of acquisition of the
Series E to be issued, including the beneficial conversion feature, was
$45,960,000.
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........................................................ $(31,823,808)
============
Net loss allocable to common stockholders....................... $(76,377,808)
============
Basic and diluted net loss per share allocable to common
stockholders................................................... $ (100.62)
============
</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 1,456,420
---------- ----------
$1,008,536 $4,877,157
========== ==========
</TABLE>
(9) Income Taxes
No Federal or state taxes are payable as of December 31, 1998 and 1999. As
of December 31, 1999, the Company has approximately $40,000,000 of Federal and
$44,000,000 of state net operating loss ("NOL") carryforwards available to
offset future taxable income. The Federal and state NOL carryforwards will
begin expiring in 2003 if not utilized.
The Tax Reform Act of 1986 ("the Act") provides for a limitation on the
annual use of NOL carryforwards (following certain ownership changes, as
defined by the Act) which could significantly limit the
F-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
$42,541,000, 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 $9,121,641, $2,056,953 and
$930,677, respectively. The Company's office was also located in the Sarnoff
facility until 1998 and Sarnoff provides certain administrative support, for
which the Company paid Sarnoff; expenses related to these items totalled
$114,636, $251,449 and $63,519 in 1997, 1998 and 1999, respectively. 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 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
F-19
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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 $3.0 million outside of the original
scope. Accordingly, as the Company was obligated to incur these costs in
fulfilling the terms of the Agreements without any increase in corresponding
contract revenue, this obligation was recorded as research and development
expense during 1997. The Company fulfilled its obligation and incurred these
costs during 1998.
In December 1997, the Company entered into a License and Option Agreement
("Option Agreement") with Sarnoff under which the Company has options to obtain
exclusive licenses for the use of certain technology in four designated areas:
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 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.
F-20
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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. On October 25, 1999, this agreement was
terminated. In 1999, Motorola made additional payments under this agreement
aggregating $505,000, of which the Company recognized $245,000 as revenue and
$260,000 is recorded as a liability at December 31, 1999 as it relates to work
which will not be performed given the termination of the agreement. The Company
has also 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. 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 $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
F-21
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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. The Company paid ABS a non-refundable
$100,000 payment upon signing the agreement, which was recorded as research and
development expenses in 1998. In 1999, the Company made payments aggregating
$225,000 to ABS, all of which was recorded as research and development.
In October 1999, the Company entered in a one year license and supply
agreement with a licensee to provide an instrument, consumables and related
support for automated SNP scoring analysis. As consideration for access to
certain technology and an instrument of the Company, the licensee paid
$500,000, which is refundable on a pro-rata basis upon certain events. The
licensee is obligated to purchase a minimum order of consumables and may elect
to purchase the instrument from the Company. The Company is required to provide
technical support. The licensee may terminate the contract, in which case the
Company would be entitled to a termination fee of $100,000 and to bill the
remaining minimum amount of consumables to the licensee. As of December 31,
1999, the Company has recognized approximately $104,000 of the license fee and
deferred the remaining $396,000. 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
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.
F-22
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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>
<S> <C> <C> <C> <C> <C>
Options outstanding Options exercisable
------------------------------- ------------
<CAPTION>
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, under certain circumstances,
$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. Neither put was
exercisable at issuance. In December 1999, the triggering event for one of the
puts occurred, however, the Company has not exercised its option as of December
31, 1999. These put options expire in December 2001. 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. 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
F-25
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
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, at
the time the performance criteria is met.
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, we issued 125,000 shares of our common stock and have agreed to
pay NEN a certain percentage of net sales revenue based on the number of
SNPkits we sell which contain terminators, plus a percentage of net sales
revenue with respect to each SNPkit sold. The 125,000 shares had a fair value
of $1,625,000 on the date of the agreement. As the products being supplied are
used in Orchid's
F-28
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
current products and may be used in future products, the Company will defer and
amortize the fair value of the common stock over the estimated four year term
of the agreement on a straight-line basis. 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 $330,000, 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 4, 2000, we entered into a binding letter of intent with Sarnoff to
terminate our Option Agreement. Under the terms of the agreement, in lieu of
future cash payment and stock issuance obligations, the Company will make a
payment to them of approximately $3 million and issue 250,000 shares of common
stock and five-year warrants to purchase 75,000 shares of common stock at the
initial public offering price. 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 for the two option fields in December 2000 under the Option
Agreement. As this licensed technology has not reached technological
feasibility and has no alternative uses, the cash payment and the fair value of
the equity securities will be charged to research and development expense.
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 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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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.
F-36
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
(2) Discontinued Operations of Molecular Tool, Inc.
In May 1998, the Board of Directors approved a plan to sell the MTool
assets, except that the Company retained certain rights to the SNP-IT
technology of MTool to permit the Company to continue implementation of the
SNP-IT testing processes.
In September 1998, the MTool assets were acquired by Orchid. GeneScreen
received $2,806,807 in cash and $3,547,821 in a subordinated convertible note
receivable, and $380,000 was placed in escrow.
The escrow was to be released to GeneScreen by Orchid upon approval by
certain Federal regulatory agencies of Orchid as a valid recipient of
outstanding MTool grant funds and totaled $380,000 and $0 at December 31, 1998
and December 29, 1999. The note receivable of $3,547,821, bears interest at 6%
annually, and is due on September 11, 2008. As part of this agreement,
GeneScreen retained a lien on the existing MTool patents until settlement of
this note has occurred. This note was cancelled in the acquisition of
GeneScreen by Orchid (see note 11).
This sale resulted in a gain for the Company of $6,205,297. Of this amount,
$3,927,821, which is equal to the convertible note receivable plus the escrow,
was deferred at December 31, 1998, until the respective settlements of these
items occur. The convertible note receivable was cancelled as part of the
acquisition by Orchid (see note 11) and the escrow funds of $380,000 were
received in 1999 and $357,175 was recorded as a gain, net of tax.
The accompanying consolidated financial statements include the Company's
investment in MTool on the equity basis and MTool's operations as discontinued
operations. The Company's investment, on the equity basis, in the net assets of
MTool at the time of the sale on September 11, 1998 was determined as follows:
<TABLE>
<S> <C>
Current assets..................................................... $156,858
Property and equipment............................................. 69,402
Intangible assets.................................................. 399,919
Liabilities (reduced by $1,335 in cash)............................ (396,848)
--------
Basis in MTool assets.............................................. $229,331
========
</TABLE>
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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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 $400,000 will be paid in lieu
of issuing Series E shares to satisfy certain regulatory requirements and
eliminate fractional shares. This equates to approximately 88,889 shares of
Series E, which are not expected to be issued. Also, as part of the
acquisition, the note receivable from Orchid of $3,547,821 was cancelled.
GeneScreen incurred costs totaling $902,490 for fees to outside advisors
related to this transaction which are included in general and administrative
expenses in the 1999 consolidated statements of operations. Amounts included in
the accompanying consolidated financial statements are stated on a historical
cost basis and do not reflect any fair value adjustments which might result
from the application of purchase accounting as a result of the acquisition of
the Company by Orchid.
F-43
<PAGE>
Inside back cover contains a description of our strategy including our goals of
rapid commercialization, sustained competitive advantage, market extension and
proprietary SNP Value Creation.
Right-hand side of page depicts graphic illustration of our SNPstream
instrument, our SNPstream kit, proposed MegaSNPatron facility, a patient, and
Orchid logo.
Text on left-hand side of page:
Title: Orchid's strategy
Top caption: Orchid's SNP-IT(TM) technology is designed to reveal valuable
associations between medically important attributes and SNPs in raw genetic
samples. We believe an understanding of these associations may lead to
improvements in pharmaceuticals and diagnostics.
Bottom caption: Orchid BioSciences intends to lead the development and
commercialization of genetic diversity technologies to address unmet medical
and industrial needs.
<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.................................. 325,000
Legal fees and expenses....................................... 400,000
Printing and mailing expenses................................. 300,000
Miscellaneous................................................. 6,000
----------
Total....................................................... $1,121,659
==========
</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............................. 301,030 $ .30
April 1, 1998 to March 31, 1999, May-Aug 98 $.75/share...... 364,088 $1.12
April 1, 1999 to March 31, 2000............................. 1,736,579 $3.96
</TABLE>
B. Issuances of capital stock
1. In December 1997, we entered into a License and Option Agreement with
Sarnoff Corporation, a five percent beneficial stockholder, under which we
received a license under certain technology to research, develop and sell
products and services in the field of combinatorial chemistry and in vitro
diagnostics and options to obtain exclusive licenses for the use of technology
in four designated areas of microfluidics. In consideration of grant of those
licenses, we issued Sarnoff 82,500 shares of our common stock and 167,500
shares of our Series A convertible preferred stock. Concurrent with the
exercise of each option, we are obligated to issue Sarnoff 33,300 shares of our
common stock and 66,700 shares of our Series A convertible preferred stock and
to fund research to be performed by Sarnoff in an amount as defined in the
agreement, but no less than $5.5 million in the aggregate. We exercised one
option in each of December 1998 and 1999. In consideration of the exercise of
each option, we issued Sarnoff 33,300 shares of our common stock and 66,700
shares of our Series A convertible preferred stock in 1998 and in 1999. In
connection with this agreement we also issued SmithKline Beecham an aggregate
of 75,000 shares of our common stock.
II-2
<PAGE>
2. From December 23, 1997 through March 27, 1998, we sold approximately
2,480,176 shares of our Series C convertible preferred stock in a private
placement to sixteen accredited investors for an aggregate purchase price of
$27,500,000.
3. On April 1, 1998, in partial consideration of the execution of a License
Agreement with Dynal A.S., we issued 90,090 shares of our common stock to
Dynal.
4. On December 31, 1999, in connection with the achievement of a milestone
under the Development and License Agreement August 1995, with SmithKline
Beecham, we issued SmithKline Beecham an aggregate of 35,200 shares of our
Series B convertible preferred stock.
5. On December 10, 1998, in connection with the exercise of options under
our License and Option Agreement with Sarnoff Corporation, we issued Sarnoff an
aggregate of 33,300 shares of our common stock and 66,700 shares of our Series
A convertible preferred stock. In connection with the exercise of one of the
options under this agreement, we also issued SmithKline Beecham an aggregate of
5,000 shares of our common stock.
6. In June 1999, we consummated a bridge financing in which we issued
subordinated convertible term notes in the aggregate principal amount of
$7,590,000 and warrants to purchase 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 1,916,849 shares of
our Series E convertible preferred stock in December 1999.
7. On November 5, 1999, we consummated a bridge financing in which we issued
a senior convertible promissory note in the original principal amount of
$2,250,000 to Affymetrix, Inc. The aggregate principal amount of this note, and
all accrued interest thereon, was automatically converted into 505,897 shares
of our Series E convertible preferred stock in January 2000. In connection with
the closing of this bridge financing, Affymetrix granted us two put options to
require Affymetrix to purchase an aggregate of approximately 55,555 shares of
common stock at a purchase price of $9.00 per share. The put options are
exercisable by us upon the occurrence of certain triggering events and expire,
if not exercised, on the second anniversary of their issuance.
8. On December 10, 1999, in connection with the exercise of certain options
under our License and Option Agreement with Sarnoff Corporation, we issued
Sarnoff an aggregate of 83,300 shares of our common stock and 66,700 shares of
our Series A convertible preferred stock. In connection with the agreement, we
also issued SmithKline Beecham an aggregate of 5,000 shares of our Series B
convertible preferred stock.
9. 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.
10. From December 22, 1999 through January 27, 2000, we sold an aggregate of
19,000,000 shares of our Series E convertible preferred stock in a private
placement to 147 investors at an aggregate purchase price of $85,500,000.
11. 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.
12. 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.
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.
II-3
<PAGE>
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.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
* 1 Form of Underwriting Agreement
#3.1 Certificate of Incorporation of the Registrant
3.2 Restated Certificate of Incorporation of the Registrant, to be
effective 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
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 and on April 7, 2000
# Previously filed
II-4
<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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Princeton, New Jersey, on this 7th
day of April, 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 April 7, 2000
______________________________________ Officer and Director
Dale R. Pfost, Ph.D. (principal executive
officer)
/s/ Donald R. Marvin Senior Vice President, April 7, 2000
______________________________________ Chief Operating Officer
Donald R. Marvin and Chief Financial
Officer (principal
financial and accounting
officer)
* Director April 7, 2000
______________________________________
Sidney M. Hecht, Ph.D.
* Director April 7, 2000
______________________________________
Samuel D. Isaly
* Director April 7, 2000
______________________________________
Jeremy M. Levin, D.Phil., MB.BChir.
* Director April 7, 2000
______________________________________
Anne M. VanLent
* Director April 7, 2000
______________________________________
Robert M. Tien, M.D., M.P.H.
Director
______________________________________
Ernest Mario, Ph.D.
Director
______________________________________
George Poste, DYM, Ph.D.
</TABLE>
* By executing his name hereto on April 7, 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-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
* 1 Form of Underwriting Agreement
#3.1 Certificate of Incorporation of the Registrant
3.2 Restated Certificate of Incorporation of the Registrant, to be
effective 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
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 and on April 7, 2000
# Previously filed
<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.
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
BioSciences, 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:
FIRST: The name of the corporation is Orchid BioSciences, 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.
<PAGE>
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 __________ shares, consisting of __________
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.
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
2
<PAGE>
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, preferences or rights of any such additional
shares of such series or shares of such other series;
3
<PAGE>
(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 Bylaws 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 Bylaws 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 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
4
<PAGE>
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
Bylaws 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 Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws 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 Bylaws 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 Bylaws of the Corporation.
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
5
<PAGE>
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 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.
6
<PAGE>
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 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
7
<PAGE>
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 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
8
<PAGE>
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,
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.
9
<PAGE>
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
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed this __ day of _____________, 2000.
ORCHID BIOSCIENCES, INC.
By: __________________________
Name:
Title:
11
<PAGE>
EXHIBIT 3.4
Orchid Biosciences, Inc.
Amended and Restated Bylaws
Adopted on _________________ __, 2000
<PAGE>
EXHIBIT 3.4
Table of Contents
<TABLE>
<S> <C>
ARTICLE I - STOCKHOLDERS................................................. 1
Section 1. Annual Meeting............................................. 1
Section 2. Special Meetings........................................... 1
Section 3. Notice of Meetings......................................... 1
Section 4. Quorum..................................................... 1
Section 5. Organization and Conduct of Business....................... 2
Section 6. Notice of Stockholder Business and Nominations............. 2
Section 7. Proxies and Voting......................................... 4
Section 8. Action Without Meeting..................................... 5
Section 9. Stock List................................................. 5
ARTICLE II - BOARD OF DIRECTORS.......................................... 5
Section 1. General Powers, Number, Election, Tenure and Qualification. 5
Section 2. Vacancies and Newly Created Directorships.................. 6
Section 3. Resignation and Removal.................................... 6
Section 4. Regular Meetings........................................... 7
Section 5. Special Meetings........................................... 7
Section 6. Quorum..................................................... 7
Section 7. Action by Consent.......................................... 7
Section 8. Participation in Meetings By Conference Telephone.......... 7
Section 9. Conduct of Business........................................ 7
Section 10. Powers..................................................... 8
Section 11. Compensation of Directors.................................. 8
ARTICLE III - COMMITTEES................................................. 8
Section 1. Committees of the Board of Directors....................... 8
Section 2. Conduct of Business........................................ 9
ARTICLE IV - OFFICERS.................................................... 9
Section 1. Enumeration................................................ 9
Section 2. Election................................................... 9
Section 3. Qualification.............................................. 9
Section 4. Tenure and Removal......................................... 10
Section 5. Chairman of the Board...................................... 10
Section 6. Chief Executive Officer.................................... 10
Section 7. President.................................................. 10
Section 8. Chief Operating Officer.................................... 11
Section 9. Vice Presidents............................................ 11
Section 10. Treasurer and Assistant Treasurers......................... 11
Section 11. Secretary and Assistant Secretaries........................ 12
Section 12. Bond....................................................... 12
Section 13. Action with Respect to Securities of Other Corporations.... 12
ARTICLE V - STOCK........................................................ 12
Section 1. Certificates of Stock...................................... 12
Section 2. Transfers of Stock......................................... 12
Section 3. Record Date................................................ 13
Section 4. Lost, Stolen or Destroyed Certificates..................... 13
Section 5. Regulations................................................ 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 6. Interpretation.............................................. 13
ARTICLE VI - NOTICES..................................................... 14
Section 1. Notices..................................................... 14
Section 2. Waiver of Notice............................................ 14
ARTICLE VII -INDEMNIFICATION OF DIRECTORS AND OFFICERS............. 14
Section 1. Right to Indemnification.................................... 14
Section 2. Right to Advancement of Expenses............................ 15
Section 3. Right of Indemnitees to Bring Suit.......................... 15
Section 4. Non-Exclusivity of Rights................................... 16
Section 5. Insurance................................................... 16
Section 6. Indemnification of Employees and Agents of the
Corporation............................................... 16
ARTICLE VIII - CERTAIN TRANSACTIONS...................................... 16
Section 1. Transactions with Interested Parties........................ 16
Section 2. Quorum...................................................... 17
ARTICLE IX - MISCELLANEOUS............................................... 17
Section 1. Facsimile Signatures........................................ 17
Section 2. Corporate Seal.............................................. 17
Section 3. Reliance upon Books, Reports and Records.................... 17
Section 4. Fiscal Year................................................. 17
Section 5. Time Periods................................................ 17
Section 6. Pronouns.................................................... 18
ARTICLE X - AMENDMENTS................................................... 18
</TABLE>
<PAGE>
EXHIBIT 3.4
ORCHID BIOSCIENCES, INC.
RESTATED BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall fix each year.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of directors authorized. Special meetings of the
stockholders may be held at such place within or without the State of Delaware
as may be stated in such resolution.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation, as amended and restated from time to time).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such class or
<PAGE>
classes present in person or represented by proxy shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
Section 5. Organization and Conduct of Business.
The Chairman of the Board of Directors or, in his or her absence, the Chief
Executive Officer of the Corporation or, in his or her absence, the President
or, in his or her absence, such person as the Board of Directors may have
designated, shall call to order any meeting of the stockholders and shall
preside at and act as chairman of the meeting. In the absence of the Secretary
of the Corporation, the secretary of the meeting shall be such person as the
chairman of the meeting appoints. The chairman of any meeting of stockholders
shall determine the order of business and the procedures at the meeting,
including such regulation of the manner of voting and the conduct of discussion
as he or she deems to be appropriate.
Section 6. Notice of Stockholder Business and Nominations.
A. Annual Meetings of Stockholders.
Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section.
B. Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of stockholders
as shall have been brought before the meeting pursuant to the notice of meeting
given pursuant to Section 2 above. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected (a) by or at the direction of the Board of Directors
or (b) provided that the Board of Directors has determined that directors shall
be elected at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice of the special meeting,
who shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section.
C. Certain Matters Pertaining to Stockholder Business and Nominations.
(1) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph A of this
Section or a special meeting pursuant to paragraph B of this Section, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation and such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice pertaining to an annual
meeting
2
<PAGE>
shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the sixtieth (60) day nor
earlier than the close of business on the ninetieth (90th) day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such an anniversary date, notice
by the stockholder to be timely must be so delivered not earlier than the close
of business on the ninetieth (90) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such stockholder's notice for an annual meeting or a special
meeting shall set forth: (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case, pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation that are owned beneficially and held of record by
such stockholder and such beneficial owner. A stockholder shall also comply with
all applicable requirements of the Exchange Act (or any successor provision),
and the rules and regulations thereunder with respect to the matters set forth
in these Bylaws.
(2) Notwithstanding anything in the second sentence of paragraph C
(1) of this Section to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
seventy (70) days prior to the first anniversary of the preceding year's annual
meeting (or, if the annual meeting is held more than thirty (30) days before or
sixty (60) days after such anniversary date, at least seventy (70) days prior to
such annual meeting), a stockholder's notice required by this Section shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive office of the Corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the Corporation.
(3) In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Corporation's
notice of meeting, if the stockholder's notice required by paragraph C(1) of
this Section shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting nor later than the close of business on the later of the
sixtieth (60th) day prior to such special meeting, or the tenth (10th) day
following
3
<PAGE>
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting.
D. General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Section. Except as otherwise provided by law or these Bylaws, the chairman
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth in this Section
and, if any proposed nomination or business is not in compliance herewith, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section shall be deemed to affect any rights (i)
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect directors under specified
circumstances.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section may
be substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile telecommunication or other reproduction shall
be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by voice vote. Any vote not taken by voice
shall be taken by ballots, each of which shall state the name of the stockholder
or proxy voting and such other information as may be required under the
procedure established for the meeting. The Corporation may, and to the extent
required by law, shall, in advance of any meeting of stockholders, appoint one
or more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If
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no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting may, and to the extent required by law, shall,
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability.
Except as otherwise provided in the terms of any class or series of
Preferred Stock of the Corporation, all elections at any meeting of stockholders
shall be determined by a plurality of the votes cast, and except as otherwise
required by law, all other matters determined by stockholders at a meeting shall
be determined by a majority of the votes cast affirmatively or negatively.
Section 8. Action Without Meeting.
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 may not be effected by written consent.
Section 9. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. Such list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Election, Tenure and Qualification.
A. The business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors.
B. Subject to the rights of the holders 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.
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C. On or prior to the Effective Time, as defined in Article FOURTH of the
Corporation's Restated Certificate of Incorporation, the Board of Directors of
the Corporation shall divide the directors into three classes, as nearly equal
in number as reasonably possible, with the term of office of the first class to
expire at the annual meeting of stockholders or any special meeting in lieu
thereof in 2001, the term of office of the second class to expire at the annual
meeting of stockholders or any special meeting in lieu thereof in 2002, and the
term of office of the third class to expire at the annual meeting of
stockholders or any special meeting in lieu thereof in 2003. 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.
Section 2. Vacancies and Newly Created Directorships.
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. In the event of a vacancy in the Board of Directors, the
remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
Section 3. Resignation and Removal.
Any director may resign at any time upon written notice to the Corporation
at its principal place of business or to the Chairman of the Board, Chief
Executive Officer, President or Secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event. 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. A director may
be removed for cause by the holders of a majority of the shares of the
Corporation then entitled to vote at an election of a director and only after a
reasonable notice and opportunity to be heard before the stockholders.
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Section 4. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
written notice of each regular meeting shall not be required.
Section 5. Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman of
the Board of Directors or the Chief Executive Officer, and shall be called by
the Secretary if requested by a majority of the Board of Directors, and shall be
held at such place, on such date, and at such time as he or she or they shall
fix. Notice of the place, date, and time of each such special meeting shall be
given to each director by whom it is not waived by mailing written notice not
less than three (3) days before the meeting or orally, by telegraph, telex,
cable or telecopy given not less than twenty-four (24) hours before the meeting.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Section 6. Quorum.
At any meeting of the Board of Directors, a majority of the total number of
members of the Board of Directors shall constitute a quorum for all purposes. If
a quorum shall fail to attend any meeting, a majority of those present may
adjourn the meeting to another place, date, or time, without further notice or
waiver thereof.
Section 7. Action by Consent.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 8. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 9. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.
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Section 10. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, to borrow
funds and guarantee obligations, and to do all things necessary
in connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any
officer upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and
agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as
it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of
the Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business
and affairs.
Section 11. Compensation of Directors.
Directors, as such, may receive, pursuant to a resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it
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thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a director or directors to
serve as the member or members, designating, if it desires, other directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board of Directors, 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 to the fullest extent authorized by law. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members of any
committee shall constitute a quorum unless the committee shall consist of one
(1) or two (2) members, in which event one (1) member shall constitute a quorum;
and all matters shall be determined by a majority vote of the members present.
Action may be taken by any committee without a meeting if all members thereof
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of such committee.
ARTICLE IV - OFFICERS
Section 1. Enumeration.
The officers of the Corporation shall consist of a Chairman of the Board,
Chief Executive Officer, President, Chief Operating Officer, Treasurer,
Secretary and such other officers as the Board of Directors or the Chief
Executive Officer may determine, including, but not limited to, a Chief
Technology Officer, and one or more Vice Presidents, Assistant Treasurers and
Assistant Secretaries.
Section 2. Election.
The Chairman of the Board, Chief Executive Officer, President, Chief
Operating Officer, Treasurer and the Secretary shall be elected annually by the
Board of Directors at their first meeting following the annual meeting of the
stockholders. The Board of Directors or the Chief Executive Officer, may, from
time to time, elect or appoint such other officers as it or he or she may
determine, including, but not limited to, a Chief Technology Officer, and one or
more Vice Presidents, Assistant Treasurers and Assistant Secretaries.
Section 3. Qualification.
The Chairman of the Board, if any, and any Vice Chairman appointed to act
in the absence of the Chairman, if any, shall be elected by and from the Board
of Directors, but no other officer need
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be a director. Two or more offices may be held by any one person. If required by
vote of the Board of Directors, an officer shall give bond to the Corporation
for the faithful performance of his or her duties, in such form and amount and
with such sureties as the Board of Directors may determine. The premiums for
such bonds shall be paid by the Corporation.
Section 4. Tenure and Removal.
Each officer elected or appointed by the Board of Directors shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of the stockholders and until his or her successor is elected or
appointed and qualified, or until he or she dies, resigns, is removed or becomes
disqualified, unless a shorter term is specified in the vote electing or
appointing said officer. Each officer appointed by the Chief Executive Officer,
shall hold office until his or her successor is elected or appointed and
qualified, or until he or she dies, resigns, is removed or becomes disqualified,
unless a shorter term is specified by any agreement or other instrument
appointing such officer. Any officer may resign by giving written notice of his
or her resignation to the Chief Executive Officer, the President, or the
Secretary, or to the Board of Directors at a meeting of the Board, and such
resignation shall become effective at the time specified therein. Any officer
elected or appointed by the Board of Directors may be removed from office with
or without cause only by vote of a majority of the directors. Any officer
appointed by the Chief Executive Officer may be removed with or without cause by
the Chief Executive Officer or by vote of a majority of the directors.
Section 5. Chairman of the Board.
The Chairman of the Board, if any, shall preside at all meetings of the
Board of Directors and stockholders at which he or she is present and shall have
such authority and perform such duties as may be prescribed by these Bylaws or
from time to time be determined by the Board of Directors.
Section 6. Chief Executive Officer.
The Chief Executive Officer shall be the chief executive officer of the
Corporation and shall, subject to the direction of the Board of Directors, have
general supervision and control of its business. Unless otherwise provided by
resolution of the Board of Directors, in the absence of the Chairman of the
Board, the Chief Executive Officer shall preside at all meetings of the
stockholders and, if a director, meetings of the Board of Directors. The Chief
Executive Officer shall have general supervision and direction of all of the
officers, employees and agents of the Corporation. The Chief Executive Officer
shall also have the power and authority to determine the duties of all officers,
employees and agents of the Corporation, shall determine the compensation of any
officers whose compensation is not established by the Board of Directors and
shall have the power and authority to sign all stock certificates, contracts and
other instruments of the Corporation which are authorized.
Section 7. President.
Except for meetings at which the Chief Executive Officer or the Chairman of
the Board, if any, presides, the President shall, if present, preside at all
meetings of stockholders, and if a director, at all meetings of the Board of
Directors. The President shall, subject to the control and
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direction of the Chief Executive Officer and the Board of Directors, have and
perform such powers and duties as may be prescribed by these Bylaws or from time
to time be determined by the Chief Executive Officer or the Board of Directors.
The President shall have power to sign all stock certificates, contracts and
other instruments of the Corporation which are authorized. In the absence of a
Chief Executive Officer, the President shall be the chief executive officer of
the Corporation and shall, subject to the direction of the Board of Directors,
have general supervision and control of its business and shall have general
supervision and direction of all of the officers, employees and agents of the
Corporation.
Section 8. Chief Operating Officer.
The Chief Operating Officer shall be the chief operating officer of the
Corporation and shall, subject to the direction of the Board of Directors, have
general supervision and control of its business. The Chief Operating Officer
shall have general supervision and direction and perform the powers and duties
of the Chief Executive Officer or President (or such of the powers and duties as
the Board of Directors and the Chief Executive Officer may determine) whenever
the Chief Executive Officer or the President, respectively, is absent or unable
to act.
Section 9. Vice Presidents.
The Vice Presidents, if any, in the order of their election, or in such
other order as the Board of Directors or the Chief Executive Officer may
determine, shall have and perform the powers and duties of the President (or
such of the powers and duties as the Board of Directors or the Chief Executive
Officer may determine) whenever the President is absent or unable to act. The
Vice Presidents, if any, shall also have such other powers and duties as may
from time to time be determined by the Board of Directors or the Chief Executive
Officer.
Section 10. Treasurer and Assistant Treasurers.
The Treasurer shall, subject to the control and direction of the Board of
Directors and the Chief Executive Officer, have and perform such powers and
duties as may be prescribed in these Bylaws or be determined from time to time
by the Board of Directors and the Chief Executive Officer. All property of the
Corporation in the custody of the Treasurer shall be subject at all times to the
inspection and control of the Board of Directors and the Chief Executive
Officer. The Treasurer shall have the responsibility for maintaining the
financial records of the Corporation. The Treasurer shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all such transactions and of the financial
condition of the Corporation. Unless otherwise voted by the Board of Directors
or by the Chief Executive Officer, each Assistant Treasurer, if any, shall have
and perform the powers and duties of the Treasurer whenever the Treasurer is
absent or unable to act, and may at any time exercise such of the powers of the
Treasurer, and such other powers and duties, as may from time to time be
determined by the Board of Directors or the Chief Executive Officer.
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Section 11. Secretary and Assistant Secretaries.
The Board of Directors or the Chief Executive Officer shall appoint a
Secretary and, in his or her absence, an Assistant Secretary. Unless otherwise
directed by the Board of Directors, the Secretary or, in his or her absence, any
Assistant Secretary, shall attend all meetings of the directors and stockholders
and shall record all votes of the Board of Directors and stockholders and
minutes of the proceedings at such meetings. The Secretary or, in his or her
absence, any Assistant Secretary, shall notify the directors of their meetings,
and shall have and perform such other powers and duties as may from time to time
be determined by the Board of Directors. If the Secretary or an Assistant
Secretary is elected but is not present at any meeting of directors or
stockholders, a temporary Secretary may be appointed by the directors or the
Chief Executive Officer at the meeting
Section 12. Bond.
If required by the Board of Directors, any officer shall give the
Corporation a bond in such sum and with such surety or sureties and upon such
terms and conditions as shall be satisfactory to the Board of Directors,
including without limitation a bond for the faithful performance of the duties
of his office and for the restoration to the Corporation of all books, papers,
vouchers, money and other property of whatever kind in his or her possession or
under his control and belonging to the Corporation.
Section 13. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors or the Chief Executive
Officer, the Chief Operating Officer and Treasurer shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by the Chairman of the Board of Directors, Chief
Executive Officer, or the President or a Vice President, and by the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary, certifying
the number of shares owned by him or her. Any or all of the signatures on the
certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of this Article of
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these Bylaws, an outstanding certificate for the number of shares involved shall
be surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
Section 6. Interpretation.
The Board of Directors shall have the power to interpret all of the terms
and provisions of these Bylaws, which interpretation shall be conclusive.
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ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, or by sending such notice by courier service, prepaid telegram or
mailgram, or telecopy, cable, or telex. Any such notice shall be addressed to
such stockholder, director, officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through the
mail or by courier, telegram, mailgram, telecopy, cable, or telex shall be the
time of the giving of the notice.
Section 2. Waiver of Notice.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a director or stockholder at a meeting without protesting prior
thereto or at its commencement the lack of notice shall also constitute a waiver
of notice by such director or stockholder.
ARTICLE VII -INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved (including, without limitation, as a witness) in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or an officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "Indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith; provided, however, that,
except as provided in Section 3 of this Article with respect to proceedings to
enforce rights to indemnification or as otherwise required by law, the
Corporation shall not be required to indemnify or advance expenses to any such
Indemnitee in connection with a proceeding (or part thereof) initiated by such
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Indemnitee unless such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation.
Section 2. Right to Advancement of Expenses.
The right to indemnification conferred in Section 1 of this Article shall
include the right to be paid by the Corporation the expenses (including
attorney's fees) incurred in defending any such proceeding in advance of its
final disposition; provided, however, that, if the Delaware General Corporation
Law requires, an advancement of expenses incurred by an Indemnitee in his
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such Indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such Indemnitee is
not entitled to be indemnified for such expenses under this Section 2 or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Sections 1 and 2 of this Article shall be contract rights and such
rights shall continue as to an Indemnitee who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators. Any repeal or modification of any of the
provisions of this Article shall not adversely affect any right or protection of
an Indemnitee existing at the time of such repeal or modification.
Section 3. Right of Indemnitees to Bring Suit.
If a claim under Section 1 or 2 of this Article is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty (20) days, the Indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the Indemnitee shall also be entitled
to be paid the expenses of prosecuting or defending such suit. In (i) any suit
brought by the Indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the Indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the Indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its board of directors, independent
legal counsel, or its stockholders) that the Indemnitee has not met such
applicable standard of conduct, shall create a presumption that the Indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the Indemnitee, be a defense to such suit. In any suit brought by the
Indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
15
<PAGE>
that the Indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article or otherwise shall be on the Corporation.
Section 4. Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses conferred
in this Article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, the Corporation's Certificate of
Incorporation as amended from time to time, these Bylaws, any agreement, any
vote of stockholders or disinterested directors or otherwise.
Section 5. Insurance.
The Corporation may 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 against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
ARTICLE VIII - CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties.
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereof which authorizes the contract or transaction or solely because
the votes of such director or officer are counted for such purpose, if:
(a) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the Board
of Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
16
<PAGE>
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee thereof, or the stockholders.
Section 2. Quorum.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
ARTICLE IX - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
Except as otherwise determined by the Board of Directors from time to time,
the fiscal year of the Corporation shall end on the last day of December of each
year.
Section 5. Time Periods.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
17
<PAGE>
Section 6. Pronouns.
Whenever the context may require, any pronouns used in these Bylaws shall
include the corresponding masculine, feminine or neuter forms.
ARTICLE X - AMENDMENTS
These Bylaws may be amended or repealed by the affirmative vote of a
majority of the whole Board or by the stockholders by the affirmative vote of
seventy percent (70%) of the outstanding voting power of the then-outstanding
shares of capital stock of the Corporation, entitled to vote generally in the
election of directors, at any meeting at which a proposal to amend or repeal
these Bylaws is properly presented.
18
<PAGE>
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
617 542 6000
617 542 2241 fax
EXHIBIT 5
April ___, 2000
Orchid BioSciences, Inc.
303 College Road East
Princeton, NJ 08540
Ladies and Gentlemen:
We have acted as counsel to Orchid BioSciences, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission (the "Commission") of a Registration
Statement on Form S-1, Registration No. 333-30774 (the "Registration
Statement"), as amended, pursuant to which the Company is registering under the
Securities Act of 1933, as amended, a total of _________ shares (the "Shares")
of its common stock, $.001 par value per share (the "Common Stock"). The Shares
are to be sold to a group of underwriters (the "Underwriters") who will be
parties to an Underwriting Agreement with the Company, the form of which
Agreement will be filed as an exhibit to the Registration Statement. All of the
shares being registered pursuant to the Registration Statement are being
registered for sale to the Underwriters by the Company (including an aggregate
of ________ shares for an over-allotment option granted to the Underwriters).
This opinion is being rendered in connection with the filing of the Registration
Statement. All capitalized terms used herein and not otherwise defined shall
have the respective meanings given to them in the Registration Statement.
In connection with this opinion, we have examined the Company's Certificate
of Incorporation and Bylaws; the minutes of all pertinent meetings of
stockholders and directors of the Company relating to the Registration Statement
and the transactions contemplated thereby; such other records of the corporate
proceedings of the Company and certificates of the Company's officers as we
deemed relevant; and the Registration Statement and the exhibits thereto filed
with the Commission.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such copies.
Based upon the foregoing, and subject to the limitations set forth below,
we are of the opinion that the Shares, when issued and delivered by the Company
against payment therefor as
Boston New York Reston Washington
<PAGE>
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Orchid BioSciences, Inc.
April __, 2000
Page 2
contemplated by the Underwriting Agreement, will be duly and validly issued,
fully paid and non-assessable shares of the Common Stock.
Our opinion is limited to the General Corporation Law of the State of
Delaware, and we express no opinion with respect to the laws of any other
jurisdiction. No opinion is expressed herein with respect to the qualification
of the Shares under the securities or blue sky laws of any state or any foreign
jurisdiction.
We understand that you wish to file this opinion as an exhibit to the
Registration Statement, and we hereby consent thereto. We hereby further
consent to the reference to us under the caption "Legal Matters" in the
prospectus included in the Registration Statement.
Very truly yours,
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
<PAGE>
EXHIBIT 10.2
ORCHID BIOSCIENCES, INC.
2000 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN
ADOPTED ON FEBRUARY 2, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS...................................................................................... 1
-----------
2. PURPOSES OF THE PLAN............................................................................. 3
--------------------
3. SHARES SUBJECT TO THE PLAN....................................................................... 3
--------------------------
4. ADMINISTRATION OF THE PLAN....................................................................... 3
--------------------------
5. ELIGIBILITY FOR PARTICIPATION.................................................................... 4
-----------------------------
6. TERMS AND CONDITIONS OF OPTIONS.................................................................. 4
-------------------------------
A. Non-Qualified Options....................................................................... 4
---------------------
B. ISOs........................................................................................ 5
----
7. TERMS AND CONDITIONS OF STOCK GRANTS............................................................. 6
------------------------------------
8. EXERCISE OF OPTIONS AND ISSUE OF SHARES.......................................................... 7
---------------------------------------
9. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES.................................................... 8
---------------------------------------------
10. RIGHTS AS A SHAREHOLDER.......................................................................... 9
-----------------------
11. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS................................................ 9
-------------------------------------------------
12. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN FOR "CAUSE" OR DEATH OR DISABILITY........ 9
-----------------------------------------------------------------------------------------
13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR "CAUSE".......................................... 10
-------------------------------------------------------
14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY....................................... 11
----------------------------------------------------------
15. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT............................. 12
--------------------------------------------------------------------
16. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS................................................. 12
------------------------------------------------
17. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN FOR "CAUSE" OR DEATH OR DISABILITY... 13
----------------------------------------------------------------------------------------------
18. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR "CAUSE"..................................... 13
------------------------------------------------------------
19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.................................. 14
---------------------------------------------------------------
20. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT........................ 14
-------------------------------------------------------------------------
21. PURCHASE FOR INVESTMENT.......................................................................... 14
-----------------------
22. DISSOLUTION OR LIQUIDATION OF THE COMPANY........................................................ 15
-----------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
23. ADJUSTMENTS...................................................................................... 15
-----------
A. Stock Dividends and Stock Splits.............................................................. 15
--------------------------------
B. Consolidations or Mergers..................................................................... 16
-------------------------
C. Recapitalization or Reorganization............................................................ 16
----------------------------------
D. Modification of ISOs.......................................................................... 16
--------------------
24. ISSUANCES OF SECURITIES.......................................................................... 17
-----------------------
25. FRACTIONAL SHARES................................................................................ 17
-----------------
26. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS............................... 17
------------------------------------------------------------------
27. WITHHOLDING...................................................................................... 18
-----------
28. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION................................................... 18
----------------------------------------------
29. TERMINATION OF THE PLAN.......................................................................... 18
-----------------------
30. AMENDMENT OF THE PLAN AND AGREEMENTS............................................................. 18
------------------------------------
31. EMPLOYMENT OR OTHER RELATIONSHIP................................................................. 19
--------------------------------
32. GOVERNING LAW.................................................................................... 19
-------------
</TABLE>
<PAGE>
EXHIBIT 10.2
ORCHID BIOSCIENCES, INC.
2000 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN
1. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Orchid BioSciences 2000 Employee, Director and
Consultant Stock Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated
power to act on its behalf to the Committee, in which case the
Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
Code means the United States Internal Revenue Code of 1986, as
amended.
Committee means the committee of the Board of Directors to which the
Board of Directors has delegated power to act under or pursuant to the
provisions of the Plan.
Common Stock means shares of the Company's common stock, $.001 par
value per share.
Company means Orchid BioSciences Inc., a Delaware corporation.
Disability or Disabled means permanent and total disability as defined
in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities exchange or
traded in the over-the-counter market and sales prices are regularly
reported for the Common Stock, the closing or last price of the Common
Stock on the Composite Tape or other comparable reporting system for
the trading day immediately preceding the applicable date;
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices
are not regularly reported for the Common Stock for the trading day
referred to in clause (1), and if bid and
<PAGE>
asked prices for the Common Stock are regularly reported, the mean
between the bid and the asked price for the Common Stock at the close
of trading in the over-the- counter market for the trading day on
which Common Stock was traded immediately preceding the applicable
date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
under Section 422 of the Code.
Key Employee means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by
the Administrator to be eligible to be granted one or more Stock
Rights under the Plan.
Non-Qualified Option means an option which is not intended to qualify
as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
Option Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Participant means a Key Employee, director or consultant to whom one
or more Stock Rights are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Plan means this Orchid BioSciences 2000 Employee, Director and
Consultant Stock Plan.
Shares means shares of the Common Stock as to which Stock Rights have
been or may be granted under the Plan or any shares of capital stock
into which the Shares are changed or for which they are exchanged
within the provisions of Paragraph 3 of the Plan. The Shares issued
under the Plan may be authorized and unissued shares or shares held by
the Company in its treasury, or both.
Stock Grant means a grant by the Company of Shares under the Plan.
Stock Grant Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Stock Right means a right to Shares of the Company granted pursuant to
the Plan -- an ISO, a Non-Qualified Option or a Stock Grant.
2
<PAGE>
Survivors means a deceased Participant's legal representatives and/or
any person or persons who acquired the Participant's rights to a Stock
Right by will or by the laws of descent and distribution.
2. PURPOSES OF THE PLAN.
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the granting of ISOs, Non-
Qualified Options and Stock Grants.
3. SHARES SUBJECT TO THE PLAN.
The number of Shares which may be issued from time to time pursuant to this
Plan shall be 1,500,000 shares of Common Stock or the equivalent of such number
of Shares after the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination, recapitalization or
similar transaction in accordance with Paragraph 23 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, or if the
Company shall reacquire any Shares issued pursuant to a Stock Grant, the Shares
which were subject to such Option and any Shares so reacquired by the Company
shall be available for the granting of other Stock Rights under the Plan. Any
Option shall be treated as "outstanding" until such Option is exercised in full,
or terminates or expires under the provisions of the Plan, or by agreement of
the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to the Committee, in which
case the Committee shall be the Administrator. Subject to the provisions of the
Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option or Stock Grant
and to make all rules and determinations which it deems necessary or
advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors
and consultants shall be granted Stock Rights;
3
<PAGE>
c. Determine the number of Shares for which a Stock Right or Stock Rights
shall be granted, provided, however, that in no event shall Stock
Rights with respect to more than 750,000 shares be granted to any
Participant in any fiscal year; and
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
The Administrator will, in its sole discretion, name the Participants in the
Plan, provided, however, that each Participant must be a Key Employee, director
or consultant of the Company or of an Affiliate at the time a Stock Right is
granted. Notwithstanding the foregoing, the Administrator may authorize the
grant of a Stock Right to a person not then an employee, director or consultant
of the Company or of an Affiliate; provided, however, that the actual grant of
such Stock Right shall be conditioned upon such person becoming eligible to
become a Participant at or prior to the time of the delivery of the Agreement
evidencing such Stock Right. ISOs may be granted only to Key Employees. Non-
Qualified Options and Stock Grants may be granted to any Key Employee, director
or consultant of the Company or an Affiliate. The granting of any Stock Right
to any individual shall neither entitle that individual to, nor disqualify him
or her from, participation in any other grant of Stock Rights.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such terms and conditions, consistent with the terms and
conditions specifically required under this Plan, as the Administrator may deem
appropriate including, without limitation, subsequent approval by the
shareholders of the Company of this Plan or any amendments thereto.
A. Non-Qualified Options -: Each Option intended to be a Non-Qualified
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best interest of
the Company, subject to the following minimum standards for any such
Non-Qualified Option:
4
<PAGE>
a. Option Price: Each Option Agreement shall state the option price
(per share) of the Shares covered by each Option, which option
price shall be determined by the Administrator but shall not be
less than the par value per share of Common Stock.
b. Each Option Agreement shall state the number of Shares to which
it pertains;
c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or
become exercisable in installments over a period of months or
years, or upon the occurrence of certain conditions or the
attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to
the Administrator providing for certain protections for the
Company and its other shareholders, including requirements that:
i. The Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and must
also acknowledge that the Shares will bear legends noting
any applicable restrictions.
B. ISOs : Each Option intended to be an ISO shall be issued only to a Key
Employee and be subject to at least the following terms and
conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with
Section 422 of the Code and relevant regulations and rulings of the
Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described in Paragraph 6(A)
above, except clause (a) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting power
of all classes of stock of the Company or an Affiliate, the
Option price per share of the Shares covered by each Option
shall not be less than one hundred percent (100%) of the
Fair Market Value per share of the Shares on the date of the
grant of the Option.
5
<PAGE>
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred ten
percent (110%) of the said Fair Market Value on the date of
grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting power
of all classes of stock of the Company or an Affiliate, each
Option shall terminate not more than ten (10) years from the
date of the grant or at such earlier time as the Option
Agreement may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than five
(5) years from the date of the grant or at such earlier time
as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company or
an Affiliate) so that the aggregate Fair Market Value (determined
at the time each ISO is granted) of the stock with respect to
which ISOs are exercisable for the first time by the Participant
in any calendar year does not exceed one hundred thousand dollars
($100,000), provided that this subparagraph (d) shall have no
force or effect if its inclusion in the Plan is not necessary for
Options issued as ISOs to qualify as ISOs pursuant to Section
422(d) of the Code.
7. TERMS AND CONDITIONS OF STOCK GRANTS.
Each offer of a Stock Grant to a Participant shall state the date prior to
which the Stock Grant must be accepted by the Participant, and the principal
terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Grant Agreement shall be in a form
approved by the Administrator and shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
(a) Each Stock Grant Agreement shall state the purchase price (per share),
if any, of the Shares covered by each Stock Grant, which purchase
price shall be determined by the Administrator but shall not be less
than the minimum consideration required by the Delaware Law on the
date of the grant of the Stock Grant;
6
<PAGE>
(b) Each Stock Grant Agreement shall state the number of Shares to which
the Stock Grant pertains; and
(c) Each Stock Grant Agreement shall include the terms of any right of the
Company to reacquire the Shares subject to the Stock Grant, including
the time and events upon which such rights shall accrue and the
purchase price therefor, if any.
8. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Option Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (e) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Administrator, or (f) at the discretion of the Administrator, by
any combination of (a), (b), (c), (d) and (e) above. Notwithstanding the
foregoing, the Administrator shall accept only such payment on exercise of an
ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which such
Option was exercised to the Participant (or to the Participant's Survivors, as
the case may be). In determining what constitutes "reasonably promptly," it is
expressly understood that the issuance and delivery of the Shares may be delayed
by the Company in order to comply with any law or regulation (including, without
limitation, state securities or "blue sky" laws) which requires the Company to
take any action with respect to the Shares prior to their issuance. The Shares
shall, upon delivery, be evidenced by an appropriate certificate or certificates
for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise of
any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 26) if such acceleration would violate the
7
<PAGE>
annual vesting limitation contained in Section 422(d) of the Code, as described
in Paragraph 6.B.d.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option provided (i) such term or condition as amended is permitted
by the Plan, (ii) any such amendment shall be made only with the consent of the
Participant to whom the Option was granted, or in the event of the death of the
Participant, the Participant's Survivors, if the amendment is adverse to the
Participant, and (iii) any such amendment of any ISO shall be made only after
the Administrator, after consulting the counsel for the Company, determines
whether such amendment would constitute a "modification" of any Option which is
an ISO (as that term is defined in Section 424(h) of the Code) or would cause
any adverse tax consequences for the holder of such ISO.
9. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES.
A Stock Grant (or any part or installment thereof) shall be accepted by
executing the Stock Grant Agreement and delivering it to the Company at its
principal office address, together with provision for payment of the full
purchase price, if any, in accordance with this Paragraph for the Shares as to
which such Stock Grant is being accepted, and upon compliance with any other
conditions set forth in the Stock Grant Agreement. Payment of the purchase
price for the Shares as to which such Stock Grant is being accepted shall be
made (a) in United States dollars in cash or by check, or (b) at the discretion
of the Administrator, through delivery of shares of Common Stock having a fair
market value equal as of the date of acceptance of the Stock Grant to the
purchase price of the Stock Grant determined in good faith by the Administrator,
or (c) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (d) at the discretion of the Administrator, by any combination of
(a), (b) and (c) above.
The Company shall then reasonably promptly deliver the Shares as to which such
Stock Grant was accepted to the Participant (or to the Participant's Survivors,
as the case may be), subject to any escrow provision set forth in the Stock
Grant Agreement. In determining what constitutes "reasonably promptly," it is
expressly understood that the issuance and delivery of the Shares may be delayed
by the Company in order to comply with any law or regulation (including, without
limitation, state securities or "blue sky" laws) which requires the Company to
take any action with respect to the Shares prior to their issuance.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Stock Grant or Stock Grant Agreement provided (i) such term or
condition as amended is permitted by the Plan, and (ii) any such amendment shall
be made only with the consent of the Participant to whom the Stock Grant was
made, if the amendment is adverse to the Participant.
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10. RIGHTS AS A SHAREHOLDER.
No Participant to whom a Stock Right has been granted shall have rights as a
shareholder with respect to any Shares covered by such Stock Right, except after
due exercise of the Option or acceptance of the Stock Grant and tender of the
full purchase price, if any, for the Shares being purchased pursuant to such
exercise or acceptance and registration of the Shares in the Company's share
register in the name of the Participant.
11. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
By its terms, a Stock Right granted to a Participant shall not be transferable
by the Participant other than (i) by will or by the laws of descent and
distribution, or (ii) as otherwise determined by the Administrator and set forth
in the applicable Option Agreement or Stock Grant Agreement. The designation of
a beneficiary of a Stock Right by a Participant shall not be deemed a transfer
prohibited by this Paragraph. Except as provided above, a Stock Right shall
only be exercisable or may only be accepted, during the Participant's lifetime,
by such Participant (or by his or her legal representative) and shall not be
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Any attempted transfer, assignment, pledge, hypothecation or other disposition
of any Stock Right or of any rights granted thereunder contrary to the
provisions of this Plan, or the levy of any attachment or similar process upon a
Stock Right, shall be null and void.
12. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN FOR "CAUSE" OR DEATH
OR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement in the event of
a termination of service (whether as an employee, director or consultant) with
the Company or an Affiliate before the Participant has exercised an Option, the
following rules apply:
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination
for "cause", Disability, or death for which events there are special
rules in Paragraphs 13, 14, and 15, respectively), may exercise any
Option granted to him or her to the extent that the Option is
exercisable on the date of such termination of service, but only
within such term as the Administrator has designated in the pertinent
Option Agreement.
b. Except as provided in Subparagraph (c) below, or Paragraph 14 or 15,
in no event may an Option Agreement provide, if an Option is intended
to be an ISO, that the time for exercise be later than three (3)
months after the Participant's termination of employment.
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<PAGE>
c. The provisions of this Paragraph, and not the provisions of Paragraph
14 or 15, shall apply to a Participant who subsequently becomes
Disabled or dies after the termination of employment, director status
or consultancy, provided, however, in the case of a Participant's
Disability or death within three (3) months after the termination of
employment, director status or consultancy, the Participant or the
Participant's Survivors may exercise the Option within one (1) year
after the date of the Participant's termination of employment, but in
no event after the date of expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director
status or termination of consultancy, but prior to the exercise of an
Option, the Board of Directors determines that, either prior or
subsequent to the Participant's termination, the Participant engaged
in conduct which would constitute "cause", then such Participant shall
forthwith cease to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have
terminated such Participant's employment, director status or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide.
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by any
change of a Participant's status within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate.
13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR "CAUSE".
Except as otherwise provided in the pertinent Option Agreement, the following
rules apply if the Participant's service (whether as an employee, director or
consultant) with the Company or an Affiliate is terminated for "cause" prior to
the time that all his or her outstanding Options have been exercised:
a. All outstanding and unexercised Options as of the time the Participant
is notified his or her service is terminated for "cause" will
immediately be forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential
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information, and conduct substantially prejudicial to the business of
the Company or any Affiliate. The determination of the Administrator
as to the existence of "cause" will be conclusive on the Participant
and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause", then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement, a Participant
who ceases to be an employee, director or consultant of the Company or of an
Affiliate by reason of Disability may exercise any Option granted to such
Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability.
The proration shall be based upon the number of days of such accrual
period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date of the Participant's termination of
employment, directorship or consultancy, as the case may be, notwithstanding
that the Participant might have been able to exercise the Option as to some or
all of the Shares on a later date if the Participant had not become disabled and
had continued to be an employee, director or consultant or, if earlier, within
the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability has
occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
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15. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Option Agreement, in the event
of the death of a Participant while the Participant is an employee, director or
consultant of the Company or of an Affiliate, such Option may be exercised by
the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration
shall be based upon the number of days of such accrual period prior to
the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take all
necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
16. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS.
In the event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate for any reason before the
Participant has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to
whom a Stock Grant has been offered under the Plan who is absent from work with
the Company or with an Affiliate because of temporary disability (any disability
other than a permanent and total Disability as defined in Paragraph 1 hereof),
or who is on leave of absence for any purpose, shall not, during the period of
any such absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment, director status or consultancy with the Company
or with an Affiliate, except as the Administrator may otherwise expressly
provide.
In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any
change of employment or other service within or among the Company and any
Affiliates shall not be treated as a termination of employment, director status
or consultancy so long as the Participant continues to be an employee, director
or consultant of the Company or any Affiliate.
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<PAGE>
17. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN FOR "CAUSE" OR
DEATH OR DISABILITY.
Except as otherwise provided in the pertinent Stock Grant Agreement, in the
event of a termination of service (whether as an employee, director or
consultant), other than termination for "cause," Disability, or death for which
events there are special rules in Paragraphs 18, 19, and 20, respectively,
before all Company rights of repurchase shall have lapsed, then the Company
shall have the right to repurchase that number of Shares subject to a Stock
Grant as to which the Company's repurchase rights have not lapsed.
18. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR "CAUSE".
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated for
"cause":
a. All Shares subject to any Stock Grant shall be immediately subject to
repurchase by the Company at the purchase price, if any, thereof.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized
disclosure of confidential information, and conduct substantially
prejudicial to the business of the Company or any Affiliate. The
determination of the Administrator as to the existence of "cause" will
be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service, that either prior or subsequent to the Participant's
termination the Participant engaged in conduct which would constitute
"cause," then the Company's right to repurchase all of such
Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
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19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if a Participant ceases to be an employee, director or
consultant of the Company or of an Affiliate by reason of Disability: to the
extent the Company's rights of repurchase have not lapsed on the date of
Disability, they shall be exercisable; provided, however, that in the event such
rights of repurchase lapse periodically, such rights shall lapse to the extent
of a pro rata portion of the Shares subject to such Stock Grant as would have
lapsed had the Participant not become Disabled prior to the end of the vesting
period which next ends following the date of Disability. The proration shall be
based upon the number of days of such vesting period prior to the date of
Disability.
The Administrator shall make the determination both of whether Disability has
occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
20. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply in the event of the death of a Participant while the
Participant is an employee, director or consultant of the Company or of an
Affiliate: to the extent the Company's rights of repurchase have not lapsed on
the date of death, they shall be exercisable; provided, however, that in the
event such rights of repurchase lapse periodically, such rights shall lapse to
the extent of a pro rata portion of the Shares subject to such Stock Grant as
would have lapsed had the Participant not died prior to the end of the vesting
period which next ends following the date of death. The proration shall be
based upon the number of days of such vesting period prior to the Participant's
death.
21. PURCHASE FOR INVESTMENT.
Unless the offering and sale of the Shares to be issued upon the particular
exercise or acceptance of a Stock Right shall have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended (the
"1933 Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:
a. The person(s) who exercise(s) or accept(s) such Stock Right shall
warrant to the Company, prior to the receipt of such Shares, that such
person(s) are acquiring
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such Shares for their own respective accounts, for investment, and not
with a view to, or for sale in connection with, the distribution of
any such Shares, in which event the person(s) acquiring such Shares
shall be bound by the provisions of the following legend which shall
be endorsed upon the certificate(s) evidencing their Shares issued
pursuant to such exercise or such grant:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued upon
such particular exercise or acceptance in compliance with the 1933 Act
without registration thereunder.
22. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
Upon the dissolution or liquidation of the Company, all Options granted under
this Plan which as of such date shall not have been exercised and all Stock
Grants which have not been accepted will terminate and become null and void;
provided, however, that if the rights of a Participant or a Participant's
Survivors have not otherwise terminated and expired, the Participant or the
Participant's Survivors will have the right immediately prior to such
dissolution or liquidation to exercise or accept any Stock Right to the extent
that the Stock Right is exercisable or subject to acceptance as of the date
immediately prior to such dissolution or liquidation.
23. ADJUSTMENTS.
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Stock Right granted to him or her hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
pertinent Option Agreement or Stock Grant Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise or acceptance of such Stock Right may be
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<PAGE>
appropriately increased or decreased proportionately, and appropriate
adjustments may be made in the purchase price per share to reflect such events.
The number of Shares subject to the limitation in Paragraph 4(c) shall also be
proportionately adjusted upon the occurrence of such events.
B. Consolidations or Mergers. If the Company is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the Administrator or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, 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 either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph) 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 such Options
(either to the extent then exercisable or, at the discretion of the
Administrator, all Options being made fully exercisable for purposes of this
Subparagraph) over the exercise price thereof.
With respect to outstanding Stock Grants, the Administrator or the Successor
Board, shall either (i) make appropriate provisions for the continuation of such
Stock Grants by substituting on an equitable basis for the Shares then subject
to such Stock Grants either the consideration payable with respect to the
outstanding Shares of Common Stock in connection with the Acquisition or
securities of any successor or acquiring entity; or (ii) upon written notice to
the Participants, provide that all Stock Grants must be accepted (to the extent
then subject to acceptance) within a specified number of days of the date of
such notice, at the end of which period the offer of the Stock Grants shall
terminate; or (iii) terminate all Stock Grants in exchange for a cash payment
equal to the excess of the Fair Market Value of the Shares subject to such Stock
Grants over the purchase price thereof, if any. In addition, in the event of an
Acquisition, the Administrator may waive any or all Company repurchase rights
with respect to outstanding Stock Grants.
C. Recapitalization or Reorganization. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
Subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising or accepting a Stock Right shall be entitled to
receive for the purchase price, if any, paid upon such exercise or acceptance
the securities which would have been received if such Stock Right had been
exercised or accepted prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to Subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such
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adjustments would constitute a "modification" of such ISOs (as that term is
defined in Section 424(h) of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Administrator determines that
such adjustments made with respect to ISOs would constitute a modification of
such ISOs, it may refrain from making such adjustments, unless the holder of an
ISO specifically requests in writing that such adjustment be made and such
writing indicates that the holder has full knowledge of the consequences of such
"modification" on his or her income tax treatment with respect to the ISO.
24. ISSUANCES OF SECURITIES.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares subject to Stock Rights. Except as expressly
provided herein, no adjustments shall be made for dividends paid in cash or in
property (including without limitation, securities) of the Company prior to any
issuance of Shares pursuant to a Stock Right.
25. FRACTIONAL SHARES.
No fractional shares shall be issued under the Plan and the person exercising
a Stock Right shall receive from the Company cash in lieu of such fractional
shares equal to the Fair Market Value thereof.
26. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such
conversion, the Administrator (with the consent of the Participant) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed
to give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
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27. WITHHOLDING.
In the event that any federal, state, or local income taxes, employment taxes,
Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other amounts
are required by applicable law or governmental regulation to be withheld from
the Participant's salary, wages or other remuneration in connection with the
exercise or acceptance of a Stock Right or in connection with a Disqualifying
Disposition (as defined in Paragraph 28) or upon the lapsing of any right of
repurchase, the Company may withhold from the Participant's compensation, if
any, or may require that the Participant advance in cash to the Company, or to
any Affiliate of the Company which employs or employed the Participant, the
amount of such withholdings unless a different withholding arrangement,
including the use of shares of Common Stock or a promissory note, is authorized
by the Administrator (and permitted by law). For purposes hereof, the fair
market value of the shares withheld for purposes of payroll withholding shall be
determined in the manner provided in Paragraph 1 above, as of the most recent
practicable date prior to the date of exercise. If the fair market value of the
shares withheld is less than the amount of payroll withholdings required, the
Participant may be required to advance the difference in cash to the Company or
the Affiliate employer. The Administrator in its discretion may condition the
exercise of an Option for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
28. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
29. TERMINATION OF THE PLAN.
The Plan will terminate on 10 years after adoption, the date which is ten (10)
years from the earlier of the date of its adoption and the date of its approval
by the shareholders of the Company. The Plan may be terminated at an earlier
date by vote of the shareholders of the Company; provided, however, that any
such earlier termination shall not affect any Option Agreements or Stock Grant
Agreements executed prior to the effective date of such termination.
30. AMENDMENT OF THE PLAN AND AGREEMENTS.
The Plan may be amended by the shareholders of the Company. The Plan may also
be amended by the Administrator, including, without limitation, to the extent
necessary to qualify
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any or all outstanding Stock Rights granted under the Plan or Stock Rights to be
granted under the Plan for favorable federal income tax treatment (including
deferral of taxation upon exercise) as may be afforded incentive stock options
under Section 422 of the Code, and to the extent necessary to qualify the shares
issuable upon exercise or acceptance of any outstanding Stock Rights granted, or
Stock Rights to be granted, under the Plan for listing on any national
securities exchange or quotation in any national automated quotation system of
securities dealers. Any amendment approved by the Administrator which the
Administrator determines is of a scope that requires shareholder approval shall
be subject to obtaining such shareholder approval. Any modification or amendment
of the Plan shall not, without the consent of a Participant, adversely affect
his or her rights under a Stock Right previously granted to him or her. With the
consent of the Participant affected, the Administrator may amend outstanding
Option Agreements and Stock Grant Agreements in a manner which may be adverse to
the Participant but which is not inconsistent with the Plan. In the discretion
of the Administrator, outstanding Option Agreements and Stock Grant Agreements
may be amended by the Administrator in a manner which is not adverse to the
Participant.
31. EMPLOYMENT OR OTHER RELATIONSHIP.
Nothing in this Plan or any Option Agreement or Stock Grant Agreement shall be
deemed to prevent the Company or an Affiliate from terminating the employment,
consultancy or director status of a Participant, nor to prevent a Participant
from terminating his or her own employment, consultancy or director status or to
give any Participant a right to be retained in employment or other service by
the Company or any Affiliate for any period of time.
32. GOVERNING LAW.
This Plan shall be construed and enforced in accordance with the law of the
State of Delaware.
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NON-QUALIFIED STOCK OPTION AGREEMENT
ORCHID BIOSCIENCES, INC.
AGREEMENT made as of the ___ day of ___________, ____, between Orchid
BioSciences, Inc. (the "Company"), a Delaware corporation having a principal
place of business in Princeton, New Jersey, and _______________ of ___________
(the "Participant").
WHEREAS, the Company desires to grant to the Participant an Option to
purchase shares of its common stock, $.001 par value per share (the "Shares"),
under and for the purposes set forth in the Company's 2000 Employee, Director
and Consultant Stock Plan (the "Plan");
WHEREAS, the Company and the Participant understand and agree that any
terms used and not defined herein have the same meanings as in the Plan; and
WHEREAS, the Company and the Participant each intend that the Option
granted herein shall be a Non-Qualified Option.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. GRANT OF OPTION.
---------------
The Company hereby grants to the Participant the right and option to
purchase all or any part of an aggregate of _______________ (_____) Shares, on
the terms and conditions and subject to all the limitations set forth herein and
in the Plan, which is incorporated herein by reference. The Participant
acknowledges receipt of a copy of the Plan.
2. PURCHASE PRICE.
--------------
The purchase price of the Shares covered by the Option shall be ___________
($_____) per Share, subject to adjustment, as provided in the Plan, in the event
of a stock split, reverse stock split or other events affecting the holders of
Shares. Payment shall be made in accordance with Paragraph 7 of the Plan.
3. EXERCISABILITY OF OPTION.
------------------------
Subject to the terms and conditions set forth in this Agreement and the
Plan, the Option granted hereby shall vest monthly on the last day of each month
in forty-eight (48) equal installments of 2.083% per month over a period of four
(4) years from the effective date of this agreement, with the first such vesting
to occur on the last day of the month of the effective date of this Agreement,
as first written above.
The foregoing rights are cumulative and are subject to the other terms
and conditions of this Agreement and the Plan.
<PAGE>
4. TERM OF OPTION.
--------------
The Option shall terminate ten (10) years from the date of this Agreement,
but shall be subject to earlier termination as provided herein or in the Plan.
If the Participant ceases to be an employee, director or consultant of the
Company or of an Affiliate (for any reason other than the death or Disability of
the Participant or termination of the Participant for "cause" (as defined in the
Plan), the Option may be exercised, if it has not previously terminated, within
three (3) months after the date the Participant ceases to be an employee,
director or consultant of the Company or an Affiliate, or within the originally
prescribed term of the Option, whichever is earlier, but may not be exercised
thereafter. In such event, the Option shall be exercisable only to the extent
that the Option has become exercisable and is in effect at the date of such
cessation of employment, directorship or consultancy.
Notwithstanding the foregoing, in the event of the Participant's Disability
or death within three (3) months after the termination of employment,
directorship or consultancy, the Participant or the Participant's Survivors may
exercise the Option within one (1) year after the date of the Participant's
termination of employment, directorship or consultancy, but in no event after
the date of expiration of the term of the Option.
In the event the Participant's employment, directorship or consultancy is
terminated by the Company or an Affiliate for "cause" (as defined in the Plan),
the Participant's right to exercise any unexercised portion of this Option shall
cease as of such termination, and this Option shall thereupon terminate.
Notwithstanding anything herein to the contrary, if subsequent to the
Participant's termination, but prior to the exercise of the Option, the Board of
Directors of the Company determines that, either prior or subsequent to the
Participant's termination, the Participant engaged in conduct which would
constitute "cause," then the Participant shall immediately cease to have any
right to exercise the Option and this Option shall thereupon terminate.
In the event of the Disability of the Participant, as determined in
accordance with the Plan, the Option shall be exercisable within one (1) year
after the Participant's termination of service or, if earlier, within the term
originally prescribed by the Option. In such event, the Option shall be
exercisable:
(a) to the extent exercisable but not exercised as of the date of
Disability; and
(b) in the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights to exercise the
Option as would have accrued had the Participant not become Disabled
prior to the end of the accrual period which next ends following the
date of Disability. The proration shall be based upon the number of
days during the accrual period prior to the date of Disability.
In the event of the death of the Participant while an employee, director or
consultant of the Company or of an Affiliate, the Option shall be exercisable by
the Participant's Survivors
<PAGE>
within one (1) year after the date of death of the Participant or, if earlier,
within the originally prescribed term of the Option. In such event, the Option
shall be exercisable:
(x) to the extent exercisable but not exercised as of the date of death;
and
(y) in the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights to exercise the
Option as would have accrued had the Participant not died prior to the
end of the accrual period which next ends following the date of death.
The proration shall be based upon the number of days during the
accrual period prior to the Participant's death.
5. METHOD OF EXERCISING OPTION.
---------------------------
Subject to the terms and conditions of this Agreement, the Option may be
exercised by written notice to the Company at its principal executive office, in
substantially the form of Exhibit A attached hereto. Such notice shall state the
---------
number of Shares with respect to which the Option is being exercised and shall
be signed by the person exercising the Option. Payment of the purchase price for
such Shares shall be made in accordance with Paragraph 8 of the Plan. The
Company shall deliver a certificate or certificates representing such Shares as
soon as practicable after the notice shall be received, provided, however, that
the Company may delay issuance of such Shares until completion of any action or
obtaining of any consent, which the Company deems necessary under any applicable
law (including, without limitation, state securities or "blue sky" laws). The
certificate or certificates for the Shares as to which the Option shall have
been so exercised shall be registered in the name of the person or persons so
exercising the Option (or, if the Option shall be exercised by the Participant
and if the Participant shall so request in the notice exercising the Option,
shall be registered in the name of the Participant and another person jointly,
with right of survivorship) and shall be delivered as provided above to or upon
the written order of the person or persons exercising the Option. In the event
the Option shall be exercised, pursuant to Section 4 hereof, by any person or
persons other than the Participant, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise the Option.
All Shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and nonassessable.
6. PARTIAL EXERCISE.
----------------
Exercise of this Option to the extent above stated may be made in part at
any time and from time to time within the above limits, except that no
fractional share shall be issued pursuant to this Option.
7. NON-ASSIGNABILITY.
-----------------
The Option shall not be transferable by the Participant otherwise than by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act or the rules thereunder. Except as provided in
the previous sentence, the Option shall be exercisable, during the Participant's
lifetime, only by the Participant (or, in the event of legal incapacity or
<PAGE>
incompetency, by the Participant's guardian or representative) and shall not be
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Any attempted transfer, assignment, pledge, hypothecation or other disposition
of the Option or of any rights granted hereunder contrary to the provisions of
this Section 7, or the levy of any attachment or similar process upon the Option
shall be null and void.
8. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
---------------------------------------
The Participant shall have no rights as a stockholder with respect to
Shares subject to this Agreement until registration of the Shares in the
Company's share register in the name of the Participant. Except as is expressly
provided in the Plan with respect to certain changes in the capitalization of
the Company, no adjustment shall be made for dividends or similar rights for
which the record date is prior to the date of such registration.
9. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
----------------------------------------
The Plan contains provisions covering the treatment of Options in a number
of contingencies such as stock splits and mergers. Provisions in the Plan for
adjustment with respect to stock subject to Options and the related provisions
with respect to successors to the business of the Company are hereby made
applicable hereunder and are incorporated herein by reference.
10. TAXES.
-----
The Participant acknowledges that upon exercise of the Option the
Participant will be deemed to have taxable income measured by the difference
between the then fair market value of the Shares received upon exercise and the
price paid for such Shares pursuant to this Agreement. The Participant
acknowledges that any income or other taxes due from him or her with respect to
this Option or the Shares issuable pursuant to this Option shall be the
Participant's responsibility.
The Participant agrees that the Company may withhold from the Participant's
remuneration, if any, the minimum statutory amount of federal, state and local
withholding taxes attributable to such amount that is considered compensation
includable in such person's gross income. At the Company's discretion, the
amount required to be withheld may be withheld in cash from such remuneration,
or in kind from the Shares otherwise deliverable to the Participant on exercise
of the Option. The Participant further agrees that, if the Company does not
withhold an amount from the Participant's remuneration sufficient to satisfy the
Company's income tax withholding obligation, the Participant will reimburse the
Company on demand, in cash, for the amount under-withheld.
11. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise of the Option shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
<PAGE>
(a) The person(s) who exercise the Option shall warrant to the Company, at
the time of such exercise, that such person(s) are acquiring such
Shares for their own respective accounts, for investment, and not with
a view to, or for sale in connection with, the distribution of any
such Shares, in which event the person(s) acquiring such Shares shall
be bound by the provisions of the following legend which shall be
endorsed upon the certificate(s) evidencing the Shares issued pursuant
to such exercise:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws;" and
(b) If the Company so requires, the Company shall have received an opinion
of its counsel that the Shares may be issued upon such particular
exercise in compliance with the 1933 Act without registration
thereunder. Without limiting the generality of the foregoing, the
Company may delay issuance of the Shares until completion of any
action or obtaining of any consent, which the Company deems necessary
under any applicable law (including without limitation state
securities or "blue sky" laws).
12. RESTRICTIONS ON TRANSFER OF SHARES.
----------------------------------
12.1 The Shares acquired by the Participant pursuant to the exercise of the
Option granted hereby shall not be transferred by the Participant except as
permitted herein.
12.2 In the event of the Participant's termination of service for any
reason, Disability or death the Company shall have the option, but not the
obligation, to repurchase all or any part of the Shares issued pursuant to this
Agreement (including, without limitation, Shares purchased after termination of
employment, Disability or death in accordance with Section 4 hereof). In the
event the Company does not, upon the termination of service of the Participant
(as described above), exercise its option pursuant to this Section 12.2, the
restrictions set forth in the balance of this Agreement shall not thereby lapse,
and the Participant for himself or herself, his or her heirs, legatees,
executors, administrators and other successors in interest, agrees that the
Shares shall remain subject to such restrictions. The following provisions shall
apply to a repurchase under this Section 12.2:
(i) The per share repurchase price of the Shares to be sold to the Company
upon exercise of its option under this Section 12.2 shall be equal to
the Fair Market Value of each such Share determined in accordance with
the Plan as of the date of termination of service Disability or death.
<PAGE>
(ii) The Company's option to repurchase the Participant's Shares in the
event of termination of service, Disability or death shall be valid
for a period of eighteen (18) months commencing with the date of such
termination of service.
(iii) In the event the Company shall be entitled to and shall elect to
exercise its option to repurchase the Participant's Shares under this
Section 12.2, the Company shall notify the Participant, or in case of
death, his or her representative, in writing of its intent to
repurchase the Shares. Such written notice may be mailed by the
Company up to and including the last day of the time period provided
for in Section 12.2(ii) for exercise of the Company's option to
repurchase.
(iv) The written notice to the Participant shall specify the address at,
and the time and date on, which payment of the repurchase price is to
be made (the "Closing"). The date specified shall not be less than
ten (10) days nor more than sixty (60) days from the date of the
mailing of the notice, and the Participant or his or her successor in
interest with respect to the Shares shall have no further rights as
the owner thereof from and after the date specified in the notice. At
the Closing, the repurchase price shall be delivered to the
Participant or his or her successor in interest and the Shares being
purchased, duly endorsed for transfer, shall, to the extent that they
are not then in the possession of the Company, be delivered to the
Company by the Participant or his or her successor in interest.
12.3 It shall be a condition precedent to the validity of any sale or
other transfer of any Shares by the Participant that the following restrictions
be complied with (except as hereinafter otherwise provided):
(i) No Shares owned by the Participant may be sold, pledged or otherwise
transferred (including by gift or devise) to any person or entity,
voluntarily, or by operation of law, except in accordance with the
terms and conditions hereinafter set forth.
(ii) Before selling or otherwise transferring all or part of the Shares,
the Participant shall give written notice of such intention to the
Company, which notice shall include the name of the proposed
transferee, the proposed purchase price per share, the terms of
payment of such purchase price and all other matters relating to such
sale or transfer and shall be accompanied by a copy of the binding
written agreement of the proposed transferee to purchase the Shares
of the Participant. Such notice shall constitute a binding offer by
the Participant to sell to the Company such number of the Shares then
held by the Participant as are proposed to be sold in the notice at
the monetary price per share designated in such notice, payable on
the terms offered to the Participant by the proposed transferee
(provided, however, that the Company shall not be required to meet
any non-monetary terms of the proposed transfer, including, without
limitation, delivery of other securities in exchange for the Shares
proposed to be sold). The Company shall give written notice to the
Participant as to whether such offer has been accepted in whole by
the Company within sixty (60) days after its receipt of
<PAGE>
written notice from the Participant. The Company may only accept such
offer in whole and may not accept such offer in part. Such acceptance
notice shall fix a time, location and date for the closing on such
purchase ("Closing Date") which shall not be less than ten (10) nor
more than sixty (60) days after the giving of the acceptance notice.
The place for such closing shall be at the Company's principal
office. At such closing, the Participant shall accept payment as set
forth herein and shall deliver to the Company in exchange therefor
certificates for the number of Shares stated in the notice
accompanied by duly executed instruments of transfer.
(iii) If the Company shall fail to accept any such offer, the Participant
shall be free to sell all, but not less than all, of the Shares set
forth in his or her notice to the designated transferee at the price
and terms designated in the Participant's notice, provided that (i)
such sale is consummated within six (6) months after the giving of
notice by the Participant to the Company as aforesaid, and (ii) the
transferee first agrees in writing to be bound by the provisions of
this Section 12 so that such transferee (and all subsequent
transferees) shall thereafter only be permitted to sell or transfer
the Shares in accordance with the terms hereof. After the expiration
of such six (6) months, the provisions of this Section 12.3 shall
again apply with respect to any proposed voluntary transfer of the
Participant's Shares.
(iv) The restrictions on transfer contained in this Section 12.3 shall not
apply to (a) transfers by the Participant to his or her spouse or
children or to a trust for the benefit of his or her spouse or
children, (b) transfers by the Participant to his or her guardian or
conservator, and (c) or transfers by the Participant, in the event of
his or her death, to his or her executor(s) or administrator(s) or to
trustee(s) under his or her will (collectively, "Permitted
Transferees"); provided however, that in any such event the Shares so
transferred in the hands of each such Permitted Transferee shall
remain subject to this Agreement, and each such Permitted Transferee
shall so acknowledge in writing as a condition precedent to the
effectiveness of such transfer.
(v) The provisions of this Section 12.3 may be waived by the Company. Any
such waiver may be unconditional or based upon such conditions as the
Company may impose.
12.4 In the event that the Participant or his or her successor in interest
fails to deliver the Shares to be repurchased by the Company under this
Agreement, the Company may elect (a) to establish a segregated account in the
amount of the repurchase price, such account to be turned over to the
Participant or his or her successor in interest upon delivery of such Shares,
and (b) immediately to take such action as is appropriate to transfer record
title of such Shares from the Participant to the Company and to treat the
Participant and such Shares in all respects as if delivery of such Shares had
been made as required by this Agreement. The Participant hereby irrevocably
grants the Company a power of attorney which shall be coupled with an interest
for the purpose of effectuating the preceding sentence.
<PAGE>
12.5 If the Company shall pay a stock dividend or declare a stock split on
or with respect to any of its Common Stock, or otherwise distribute securities
of the Company to the holders of its Common Stock, the number of shares of stock
or other securities of Company issued with respect to the shares then subject to
the restrictions contained in this Agreement shall be added to the Shares
subject to the Company's rights to repurchase pursuant to this Agreement. If the
Company shall distribute to its stockholders shares of stock of another
corporation, the shares of stock of such other corporation, distributed with
respect to the Shares then subject to the restrictions contained in this
Agreement, shall be added to the Shares subject to the Company's rights to
repurchase pursuant to this Agreement.
12.6 If the outstanding shares of Common Stock of the Company shall be
subdivided into a greater number of shares or combined into a smaller number of
shares, or in the event of a reclassification of the outstanding shares of
Common Stock of the Company, or if the Company shall be a party to a merger,
consolidation or capital reorganization, there shall be substituted for the
Shares then subject to the restrictions contained in this Agreement such amount
and kind of securities as are issued in such subdivision, combination,
reclassification, merger, consolidation or capital reorganization in respect of
the Shares subject immediately prior thereto to the Company's rights to
repurchase pursuant to this Agreement.
12.7 The Company shall not be required to transfer any Shares on its books
which shall have been sold, assigned or otherwise transferred in violation of
this Agreement, or to treat as owner of such Shares, or to accord the right to
vote as such owner or to pay dividends to, any person or organization to which
any such Shares shall have been so sold, assigned or otherwise transferred, in
violation of this Agreement.
12.8 The provisions of Sections 12.1, 12.2 and 12.3 shall terminate
upon the consummation of a public offering of any of the Company's securities
pursuant to a registration statement filed with the Securities and Exchange
Commission pursuant to the Securities Act in which the aggregate gross proceeds
to the Company exceed $25,000,000.
12.9 If, in connection with a registration statement filed by the Company
pursuant to the Securities Act, the Company or its underwriter so requests, the
Participant will agree not to sell any Shares for a period not to exceed 180
days following the effectiveness of such registration.
12.10 The Participant acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Participant any material information regarding the business of
the Company or affecting the value of the Shares before, at the time of, or
following a termination of the employment of the Participant by the Company,
including, without limitation, any information concerning plans for the Company
to make a public offering of its securities or to be acquired by or merged with
or into another firm or entity.
12.11 All certificates representing the Shares to be issued to the
Participant pursuant to this Agreement shall have endorsed thereon a legend
substantially as follows: "The shares represented by this certificate are
subject to restrictions set forth in a Non-Qualified Stock Option
<PAGE>
Agreement dated ________, 200__ with this Company, a copy of which Agreement is
available for inspection at the offices of the Company or will be made available
upon request."
13. NO OBLIGATION TO MAINTAIN RELATIONSHIP.
--------------------------------------
The Company is not by the Plan or this Option obligated to continue the
Participant as an employee, director or consultant of the Company.
14. NOTICES.
-------
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by recognized courier service, facsimile, registered or
certified mail, return receipt requested, addressed as follows:
If to the Company:
Orchid BioSciences, Inc.
----------------------------------------
303 College Road East
----------------------------------------
Princeton, NJ
----------------------------------------
If to the Participant:
________________________________________
________________________________________
________________________________________
or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given upon
the earlier of receipt, one business day following delivery to a recognized
courier service or three business days following mailing by registered or
certified mail.
15. GOVERNING LAW.
-------------
This Agreement shall be construed and enforced in accordance with the law
of the State of Delaware, without giving effect to the conflict of law
principles thereof.
16. BENEFIT OF AGREEMENT.
--------------------
Subject to the provisions of the Plan and the other provisions hereof, this
Agreement shall be for the benefit of and shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
17. ENTIRE AGREEMENT.
----------------
This Agreement, together with the Plan, embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No
<PAGE>
statement, representation, warranty, covenant or agreement not expressly set
forth in this Agreement shall affect or be used to interpret, change or
restrict, the express terms and provisions of this Agreement, provided, however,
in any event, this Agreement shall be subject to and governed by the Plan.
18. MODIFICATIONS AND AMENDMENTS.
----------------------------
The terms and provisions of this Agreement may be modified or amended as
provided in the Plan.
19. WAIVERS AND CONSENTS.
--------------------
Except as provided in the Plan, the terms and provisions of this Agreement
may be waived, or consent for the departure therefrom granted, only by written
document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and the Participant has hereunto set his or her
hand, all as of the day and year first above written.
ORCHID BIOSCIENCES, INC.
By:________________________________
Donald R. Marvin
Senior Vice President, COO & CFO
___________________________________
Participant
<PAGE>
Exhibit A
---------
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION
[Form For Unregistered Shares]
To: Orchid BioSciences, Inc.
303 College Road East
Princeton, NJ 08540
Ladies and Gentlemen:
I hereby exercise my Non-Qualified Stock Option to purchase __________
shares (the "Shares") of the common stock, $.01 par value, of Orchid
BioSciences, Inc. (the "Company"), at the exercise price of $----- per share,
pursuant to and subject to the terms of that certain Non-Qualified Stock Option
Agreement between the undersigned and the Company dated --------, 200_.
I am aware that the Shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"), or any state securities laws. I
understand that the reliance by the Company on exemptions under the 1933 Act is
predicated in part upon the truth and accuracy of the statements by me in this
Notice of Exercise.
I hereby represent and warrant that (1) I have been furnished with all
information which I deem necessary to evaluate the merits and risks of the
purchase of the Shares; (2) I have had the opportunity to ask questions
concerning the Shares and the Company and all questions posed have been answered
to my satisfaction; (3) I have been given the opportunity to obtain any
additional information I deem necessary to verify the accuracy of any
information obtained concerning the Shares and the Company; and (4) I have such
knowledge and experience in financial and business matters that I am able to
evaluate the merits and risks of purchasing the Shares and to make an informed
investment decision relating thereto.
I hereby represent and warrant that I am purchasing the Shares for my own
personal account for investment and not with a view to the sale or distribution
of all or any part of the Shares.
I understand that because the Shares have not been registered under the
1933 Act, I must continue to bear the economic risk of the investment for an
indefinite time and the Shares cannot be sold unless the Shares are subsequently
registered under applicable federal and state securities laws or an exemption
from such registration requirements is available.
I agree that I will in no event sell or distribute or otherwise dispose of
all or any part of the Shares unless (1) there is an effective registration
statement under the 1933 Act and applicable state securities laws covering any
such transaction involving the Shares or (2) the Company receives an opinion of
my legal counsel (concurred in by legal counsel for the
<PAGE>
Company) stating that such transaction is exempt from registration or the
Company otherwise satisfies itself that such transaction is exempt from
registration.
I consent to the placing of a legend on my certificate for the Shares
stating that the Shares have not been registered and setting forth the
restriction on transfer contemplated hereby and to the placing of a stop
transfer order on the books of the Company and with any transfer agents against
the Shares until the Shares may be legally resold or distributed without
restriction.
I understand that at the present time Rule 144 of the Securities and
Exchange Commission (the "SEC") may not be relied on for the resale or
distribution of the Shares by me. I understand that the Company has no
obligation to me to register the sale of the Shares with the SEC and has not
represented to me that it will register the sale of the Shares.
I understand the terms and restrictions on the right to dispose of the
Shares set forth in the 2000 Employee, Director and Consultant Stock Plan and
the Non-Qualified Stock Option Agreement, both of which I have carefully
reviewed. I consent to the placing of a legend on my certificate for the Shares
referring to such restriction and the placing of stop transfer orders until the
Shares may be transferred in accordance with the terms of such restrictions.
I have considered the Federal, state and local income tax implications of
the exercise of my Option and the purchase and subsequent sale of the Shares.
I am paying the option exercise price for the Shares as follows:
_____________________________
Please issue the stock certificate for the Shares (check one):
[_] to me; or
[_] to me and ________________, as joint tenants with right of
survivorship
and mail the certificate to me at the following address:
_____________________
_____________________
_____________________
<PAGE>
My mailing address for shareholder communications, if different from
the address listed above is:
_____________________
_____________________
_____________________
Very truly yours,
______________________________________
Participant (signature)
______________________________________
Print Name
______________________________________
Date
______________________________________
Social Security Number
<PAGE>
Exhibit A
---------
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION
[Form For Registered Shares]
To: Orchid BioSciences, Inc.
303 College Road East
Princeton, NJ 08540
IMPORTANT NOTICE: This form of Notice of Exercise may only be used at such time
as the Company has filed a Registration Statement with the Securities and
Exchange Commission under which the issuance of the Shares for which this
exercise is being made is registered and such Registration Statement remains
effective.
Ladies and Gentlemen:
I hereby exercise my Non-Qualified Stock Option to purchase _________
shares (the "Shares") of the common stock, $.001 par value, of Orchid
BioSciences, Inc. (the "Company"), at the exercise price of $-------- per share,
pursuant to and subject to the terms of that certain Non-Qualified Stock Option
Agreement between the undersigned and the Company dated ---------------, 200_.
I understand the nature of the investment I am making and the financial
risks thereof. I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.
I am paying the option exercise price for the Shares as follows:
____________________________________
Please issue the stock certificate for the Shares (check one):
[_] to me; or
[_] to me and __________________________, as joint tenants with right of
survivorship,
and mail the certificate to me at the following address:
__________________________________
__________________________________
__________________________________
<PAGE>
My mailing address for shareholder communications, if different from the
address listed above, is:
__________________________________
__________________________________
__________________________________
Very truly yours,
______________________________________
Participant (signature)
______________________________________
Print Name
______________________________________
Date
______________________________________
Social Security Number
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
ORCHID BIOSCIENCES, INC.
AGREEMENT made as of the ___ day of ___________, ____, between Orchid
BioSciences, Inc. (the "Company"), a Delaware corporation having a principal
place of business in Princeton, New Jersey, and ____________ of ____________, an
employee of the Company (the "Employee").
WHEREAS, the Company desires to grant to the Employee an Option to purchase
shares of its common stock, $.001 par value per share (the "Shares"), under and
for the purposes set forth in the Company's 2000 Employee, Director and
Consultant Stock Plan (the "Plan");
WHEREAS, the Company and the Employee understand and agree that any terms
used and not defined herein have the same meanings as in the Plan; and
WHEREAS, the Company and the Employee each intend that the Option granted
herein qualify as an ISO.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. GRANT OF OPTION.
---------------
The Company hereby grants to the Employee the right and option to purchase
all or any part of an aggregate of ________________ (_____) Shares, on the terms
and conditions and subject to all the limitations set forth herein and in the
Plan, which is incorporated herein by reference. The Employee acknowledges
receipt of a copy of the Plan.
2. PURCHASE PRICE.
--------------
The purchase price of the Shares covered by the Option shall be
____________ ($____) per Share, subject to adjustment, as provided in the Plan,
in the event of a stock split, reverse stock split or other events affecting the
holders of Shares. Payment shall be made in accordance with Paragraph 7 of the
Plan.
3. EXERCISABILITY OF OPTION.
------------------------
Subject to the terms and conditions set forth in this Agreement and the
Plan, the Option granted hereby shall vest monthly on the last day of each month
in forty-eight (48) equal installments of 2.083% per month over a period of four
(4) years from the effective date of this agreement, with the first such vesting
to occur on the last day of the month of the effective date of this Agreement,
as first written above.
The foregoing rights are cumulative and are subject to the other terms and
conditions of this Agreement and the Plan.
<PAGE>
4. TERM OF OPTION.
--------------
The Option shall terminate ten (10) years from the date of this Agreement
or, if the Employee owns as of the date hereof more than ten percent (10%) of
the total combined voting power of all classes of capital stock of the Company
or an Affiliate, five (5) years from the date of this Agreement, but shall be
subject to earlier termination as provided herein or in the Plan.
If the Employee ceases to be an employee of the Company or of an Affiliate
(for any reason other than the death or Disability of the Employee or
termination of the Employee's employment for "cause" (as defined in the Plan),
the Option may be exercised, if it has not previously terminated, within three
(3) months after the date the Employee ceases to be an employee of the Company
or an Affiliate, or within the originally prescribed term of the Option,
whichever is earlier, but may not be exercised thereafter. In such event, the
Option shall be exercisable only to the extent that the Option has become
exercisable and is in effect at the date of such cessation of employment.
Notwithstanding the foregoing, in the event of the Employee's Disability or
death within three (3) months after the termination of employment, the Employee
or the Employee's Survivors may exercise the Option within one (1) year after
the date of the Employee's termination of employment, but in no event after the
date of expiration of the term of the Option.
In the event the Employee's employment is terminated by the Employee's
employer for "cause" (as defined in the Plan), the Employee's right to exercise
any unexercised portion of this Option shall cease as of such termination, and
this Option shall thereupon terminate. Notwithstanding anything herein to the
contrary, if subsequent to the Employee's termination as an employee, but prior
to the exercise of the Option, the Board of Directors of the Company determines
that, either prior or subsequent to the Employee's termination, the Employee
engaged in conduct which would constitute "cause," then the Employee shall
immediately cease to have any right to exercise the Option and this Option shall
thereupon terminate.
In the event of the Disability of the Employee, as determined in accordance
with the Plan, the Option shall be exercisable within one (1) year after the
Employee's termination of employment or, if earlier, within the term originally
prescribed by the Option. In such event, the Option shall be exercisable:
(a) to the extent exercisable but not exercised as of the date of
Disability; and
(b) in the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights to exercise the
Option as would have accrued had the Employee not become Disabled
prior to the end of the accrual period which next ends following the
date of Disability. The proration shall be based upon the number of
days during the accrual period prior to the date of Disability.
In the event of the death of the Employee while an employee of the Company
or of an Affiliate, the Option shall be exercisable by the Participant's
Survivors within one (1) year after
<PAGE>
the date of death of the Employee or, if earlier, within the originally
prescribed term of the Option. In such event, the Option shall be exercisable:
(x) to the extent exercisable but not exercised as of the date of death;
and
(y) in the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights to exercise the
Option as would have accrued had the Employee not died prior to the
end of the accrual period which next ends following the date of death.
The proration shall be based upon the number of days during the
accrual period prior to the Employee's death.
5. METHOD OF EXERCISING OPTION.
---------------------------
Subject to the terms and conditions of this Agreement, the Option may be
exercised by written notice to the Company at its principal executive office, in
substantially the form of Exhibit A attached hereto. Such notice shall state
---------
the number of Shares with respect to which the Option is being exercised and
shall be signed by the person exercising the Option. Payment of the purchase
price for such Shares shall be made in accordance with Paragraph 8 of the Plan.
The Company shall deliver a certificate or certificates representing such Shares
as soon as practicable after the notice shall be received, provided, however,
that the Company may delay issuance of such Shares until completion of any
action or obtaining of any consent, which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws). The certificate or certificates for the Shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Employee and if the Employee shall so request in the notice exercising the
Option, shall be registered in the name of the Employee and another person
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising the Option. In
the event the Option shall be exercised, pursuant to Section 4 hereof, by any
person or persons other than the Employee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise the Option.
All Shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and nonassessable.
6. PARTIAL EXERCISE.
----------------
Exercise of this Option to the extent above stated may be made in part at
any time and from time to time within the above limits, except that no
fractional share shall be issued pursuant to this Option.
7. NON-ASSIGNABILITY.
-----------------
The Option shall not be transferable by the Employee otherwise than by will
or by the laws of descent and distribution. The Option shall be exercisable,
during the Employee's lifetime, only by the Employee (or, in the event of legal
incapacity or incompetency, by the Employee's guardian or representative) and
shall not be assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) and shall not be subject to execution,
<PAGE>
attachment or similar process. Any attempted transfer, assignment, pledge,
hypothecation or other disposition of the Option or of any rights granted
hereunder contrary to the provisions of this Section 7, or the levy of any
attachment or similar process upon the Option shall be null and void.
8. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
---------------------------------------
The Employee shall have no rights as a stockholder with respect to Shares
subject to this Agreement until registration of the Shares in the Company's
share register in the name of the Employee. Except as is expressly provided in
the Plan with respect to certain changes in the capitalization of the Company,
no adjustment shall be made for dividends or similar rights for which the record
date is prior to the date of such registration.
9. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
----------------------------------------
The Plan contains provisions covering the treatment of Options in a number
of contingencies such as stock splits and mergers. Provisions in the Plan for
adjustment with respect to stock subject to Options and the related provisions
with respect to successors to the business of the Company are hereby made
applicable hereunder and are incorporated herein by reference.
10. TAXES.
-----
The Employee acknowledges that any income or other taxes due from him or
her with respect to this Option or the Shares issuable pursuant to this Option
shall be the Employee's responsibility.
In the event of a Disqualifying Disposition (as defined in Section 15
below) or if the Option is converted into a Non-Qualified Option and such Non-
Qualified Option is exercised, the Company may withhold from the Employee's
remuneration, if any, the minimum statutory amount of federal, state and local
withholding taxes attributable to such amount that is considered compensation
includable in such person's gross income. At the Company's discretion, the
amount required to be withheld may be withheld in cash from such remuneration,
or in kind from the Shares otherwise deliverable to the Employee on exercise of
the Option. The Employee further agrees that, if the Company does not withhold
an amount from the Employee's remuneration sufficient to satisfy the Company's
income tax withholding obligation, the Employee will reimburse the Company on
demand, in cash, for the amount under-withheld.
11. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise of the Option shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
<PAGE>
(a) The person(s) who exercise the Option shall warrant to the Company, at
the time of such exercise, that such person(s) are acquiring such
Shares for their own respective accounts, for investment, and not with
a view to, or for sale in connection with, the distribution of any
such Shares, in which event the person(s) acquiring such Shares shall
be bound by the provisions of the following legend which shall be
endorsed upon the certificate(s) evidencing the Shares issued pursuant
to such exercise:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws;" and
(b) If the Company so requires, the Company shall have received an opinion
of its counsel that the Shares may be issued upon such particular
exercise in compliance with the 1933 Act without registration
thereunder. Without limiting the generality of the foregoing, the
Company may delay issuance of the Shares until completion of any
action or obtaining of any consent, which the Company deems necessary
under any applicable law (including without limitation state
securities or "blue sky" laws).
12. RESTRICTIONS ON TRANSFER OF SHARES.
----------------------------------
12.1 The Shares acquired by the Employee pursuant to the exercise of the
Option granted hereby shall not be transferred by the Employee except as
permitted herein.
12.2 In the event of the Employee's termination of employment for any
reason, the Company shall have the option, but not the obligation, to repurchase
all or any part of the Shares issued pursuant to this Agreement (including,
without limitation, Shares purchased after termination of employment, Disability
or death in accordance with Section 4 hereof). In the event the Company does
not, upon the termination of employment of the Employee (as described above),
exercise its option pursuant to this Section 12.2, the restrictions set forth in
the balance of this Agreement shall not thereby lapse, and the Employee for
himself or herself, his or her heirs, legatees, executors, administrators and
other successors in interest, agrees that the Shares shall remain subject to
such restrictions. The following provisions shall apply to a repurchase under
this Section 12.2:
(i) The per share repurchase price of the Shares to be sold to the Company
upon exercise of its option under this Section 12.2 shall be equal to
the Fair Market Value of each such Share determined in accordance with
the Plan as of the date of termination of employment, Disability or
death.
<PAGE>
(ii) The Company's option to repurchase the Employee's Shares in the event
of termination of employment, Disability or death shall be valid for
a period of eighteen (18) months commencing with the date of such
termination of employment.
(iii) In the event the Company shall be entitled to and shall elect to
exercise its option to repurchase the Employee's Shares under this
Section 12.2, the Company shall notify the Employee, or in case of
death, his or her representative, in writing of its intent to
repurchase the Shares. Such written notice may be mailed by the
Company up to and including the last day of the time period provided
for in Section 12.2(ii) for exercise of the Company's option to
repurchase.
(iv) The written notice to the Employee shall specify the address at, and
the time and date on, which payment of the repurchase price is to be
made (the "Closing"). The date specified shall not be less than ten
(10) days nor more than sixty (60) days from the date of the mailing
of the notice, and the Employee or his or her successor in interest
with respect to the Shares shall have no further rights as the owner
thereof from and after the date specified in the notice. At the
Closing, the repurchase price shall be delivered to the Employee or
his or her successor in interest and the Shares being purchased, duly
endorsed for transfer, shall, to the extent that they are not then in
the possession of the Company, be delivered to the Company by the
Employee or his or her successor in interest.
12.3 It shall be a condition precedent to the validity of any sale or
other transfer of any Shares by the Employee that the following restrictions be
complied with (except as hereinafter otherwise provided):
(i) No Shares owned by the Employee may be sold, pledged or otherwise
transferred (including by gift or devise) to any person or entity,
voluntarily, or by operation of law, except in accordance with the
terms and conditions hereinafter set forth.
(ii) Before selling or otherwise transferring all or part of the Shares,
the Employee shall give written notice of such intention to the
Company, which notice shall include the name of the proposed
transferee, the proposed purchase price per share, the terms of
payment of such purchase price and all other matters relating to such
sale or transfer and shall be accompanied by a copy of the binding
written agreement of the proposed transferee to purchase the Shares
of the Employee. Such notice shall constitute a binding offer by the
Employee to sell to the Company such number of the Shares then held
by the Employee as are proposed to be sold in the notice at the
monetary price per share designated in such notice, payable on the
terms offered to the Employee by the proposed transferee (provided,
however, that the Company shall not be required to meet any non-
monetary terms of the proposed transfer, including, without
limitation, delivery of other securities in exchange for the Shares
proposed to be sold). The Company shall give written notice to the
Employee as to whether such offer has been accepted in whole by the
Company within sixty (60) days after its receipt of
<PAGE>
written notice from the Employee. The Company may only accept such
offer in whole and may not accept such offer in part. Such acceptance
notice shall fix a time, location and date for the closing on such
purchase ("Closing Date") which shall not be less than ten (10) nor
more than sixty (60) days after the giving of the acceptance notice.
The place for such closing shall be at the Company's principal
office. At such closing, the Employee shall accept payment as set
forth herein and shall deliver to the Company in exchange therefor
certificates for the number of Shares stated in the notice
accompanied by duly executed instruments of transfer.
(iii) If the Company shall fail to accept any such offer, the Employee
shall be free to sell all, but not less than all, of the Shares set
forth in his or her notice to the designated transferee at the price
and terms designated in the Employee's notice, provided that (i) such
sale is consummated within six (6) months after the giving of notice
by the Employee to the Company as aforesaid, and (ii) the transferee
first agrees in writing to be bound by the provisions of this Section
12 so that such transferee (and all subsequent transferees) shall
thereafter only be permitted to sell or transfer the Shares in
accordance with the terms hereof. After the expiration of such six
(6) months, the provisions of this Section 12.3 shall again apply
with respect to any proposed voluntary transfer of the Employee's
Shares.
(iv) The restrictions on transfer contained in this Section 12.3 shall not
apply to (a) transfers by the Employee to his or her spouse or
children or to a trust for the benefit of his or her spouse or
children, (b) transfers by the Employee to his or her guardian or
conservator, and (c) or transfers by the Employee, in the event of
his or her death, to his or her executor(s) or administrator(s) or to
trustee(s) under his or her will (collectively, "Permitted
Transferees"); provided, however, that in any such event the Shares
so transferred in the hands of each such Permitted Transferee shall
remain subject to this Agreement, and each such Permitted Transferee
shall so acknowledge in writing as a condition precedent to the
effectiveness of such transfer.
(v) The provisions of this Section 12.3 may be waived by the Company. Any
such waiver may be unconditional or based upon such conditions as the
Company may impose.
12.4 In the event that the Employee or his or her successor in interest
fails to deliver the Shares to be repurchased by the Company under this
Agreement, the Company may elect (a) to establish a segregated account in the
amount of the repurchase price, such account to be turned over to the Employee
or his or her successor in interest upon delivery of such Shares, and (b)
immediately to take such action as is appropriate to transfer record title of
such Shares from the Employee to the Company and to treat the Employee and such
Shares in all respects as if delivery of such Shares had been made as required
by this Agreement. The Employee hereby irrevocably grants the Company a power
of attorney which shall be coupled with an interest for the purpose of
effectuating the preceding sentence.
<PAGE>
12.5 If the Company shall pay a stock dividend or declare a stock split on
or with respect to any of its Common Stock, or otherwise distribute securities
of the Company to the holders of its Common Stock, the number of shares of stock
or other securities of Company issued with respect to the shares then subject to
the restrictions contained in this Agreement shall be added to the Shares
subject to the Company's rights to repurchase pursuant to this Agreement. If
the Company shall distribute to its stockholders shares of stock of another
corporation, the shares of stock of such other corporation, distributed with
respect to the Shares then subject to the restrictions contained in this
Agreement, shall be added to the Shares subject to the Company's rights to
repurchase pursuant to this Agreement.
12.6 If the outstanding shares of Common Stock of the Company shall be
subdivided into a greater number of shares or combined into a smaller number of
shares, or in the event of a reclassification of the outstanding shares of
Common Stock of the Company, or if the Company shall be a party to a merger,
consolidation or capital reorganization, there shall be substituted for the
Shares then subject to the restrictions contained in this Agreement such amount
and kind of securities as are issued in such subdivision, combination,
reclassification, merger, consolidation or capital reorganization in respect of
the Shares subject immediately prior thereto to the Company's rights to
repurchase pursuant to this Agreement.
12.7 The Company shall not be required to transfer any Shares on its books
which shall have been sold, assigned or otherwise transferred in violation of
this Agreement, or to treat as owner of such Shares, or to accord the right to
vote as such owner or to pay dividends to, any person or organization to which
any such Shares shall have been so sold, assigned or otherwise transferred, in
violation of this Agreement.
12.8 The provisions of Sections 12.1, 12.2 and 12.3 shall terminate upon
the consummation of a public offering of any of the Company's securities
pursuant to a registration statement filed with the Securities and Exchange
Commission pursuant to the Securities Act in which the aggregate gross proceeds
to the Company exceed $25,000,000.
12.9 If, in connection with a registration statement filed by the Company
pursuant to the Securities Act, the Company or its underwriter so requests, the
Employee will agree not to sell any Shares for a period not to exceed 180 days
following the effectiveness of such registration.
12.10 The Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Employee any material information regarding the business of the
Company or affecting the value of the Shares before, at the time of, or
following a termination of the employment of the Employee by the Company,
including, without limitation, any information concerning plans for the Company
to make a public offering of its securities or to be acquired by or merged with
or into another firm or entity.
12.11 All certificates representing the Shares to be issued to the Employee
pursuant to this Agreement shall have endorsed thereon a legend substantially as
follows: "The shares represented by this certificate are subject to restrictions
set forth in an Incentive Stock Option
<PAGE>
Agreement dated __________, 20__ with this Company, a copy of which Agreement is
available for inspection at the offices of the Company or will be made available
upon request."
13. NO OBLIGATION TO EMPLOY.
-----------------------
The Company is not by the Plan or this Option obligated to continue the
Employee as an employee of the Company.
14. OPTION IS INTENDED TO BE AN ISO.
-------------------------------
The parties each intend that the Option be an ISO so that the Employee (or
the Employee's Survivors) may qualify for the favorable tax treatment provided
to holders of Options that meet the standards of Section 422 of the Code. Any
provision of this Agreement or the Plan which conflicts with the Code so that
this Option would not be deemed an ISO is null and void and any ambiguities
shall be resolved so that the Option qualifies as an ISO. Nonetheless, if the
Option is determined not to be an ISO, the Employee understands that neither the
Company nor any Affiliate is responsible to compensate him or her or otherwise
make up for the treatment of the Option as a Non-qualified Option and not as an
ISO. The Employee should consult with the Employee's own tax advisors regarding
the tax effects of the Option and the requirements necessary to obtain favorable
tax treatment under Section 422 of the Code, including, but not limited to,
holding period requirements.
15. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
----------------------------------------------
The Employee agrees to notify the Company in writing immediately after the
Employee makes a Disqualifying Disposition of any of the Shares acquired
pursuant to the exercise of the Option. A Disqualifying Disposition is defined
in Section 424(c) of the Code and includes any disposition (including any sale)
of such Shares before the later of (a) two years after the date the Employee was
granted the Option or (b) one year after the date the Employee acquired Shares
by exercising the Option, except as otherwise provided in Section 424(c) of the
Code. If the Employee has died before the Shares are sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
16. NOTICES.
-------
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by recognized courier service, facsimile, registered or
certified mail, return receipt requested, addressed as follows:
If to the Company:
Orchid BioSciences, Inc.
-----------------------------------
303 College Road East
-----------------------------------
Princeton, NJ
-----------------------------------
If to the Employee:
<PAGE>
___________________________________
___________________________________
___________________________________
or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given upon
the earlier of receipt, one business day following delivery to a recognized
courier service or three business days following mailing by registered or
certified mail.
17. GOVERNING LAW.
-------------
This Agreement shall be construed and enforced in accordance with the law
of the State of Delaware, without giving effect to the conflict of law
principles thereof.
18. BENEFIT OF AGREEMENT.
--------------------
Subject to the provisions of the Plan and the other provisions hereof, this
Agreement shall be for the benefit of and shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
19. ENTIRE AGREEMENT.
----------------
This Agreement, together with the Plan, embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement not expressly set forth in this Agreement shall affect or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement, provided, however, in any event, this Agreement shall be subject
to and governed by the Plan.
20. MODIFICATIONS AND AMENDMENTS.
----------------------------
The terms and provisions of this Agreement may be modified or amended as
provided in the Plan.
21. WAIVERS AND CONSENTS.
--------------------
Except as provided in the Plan, the terms and provisions of this Agreement
may be waived, or consent for the departure therefrom granted, only by written
document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and the Employee has hereunto set his or her hand,
all as of the day and year first above written.
Orchid BioSciences, Inc.
By: ___________________________________
Donald R. Marvin
Senior Vice President, COO & CFO
_______________________________________
Employee
<PAGE>
Exhibit A
---------
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
[Form For Unregistered Shares]
To: Orchid BioSciences, Inc.
303 College Road East
Princeton, NJ 08540
Ladies and Gentlemen:
I hereby exercise my Incentive Stock Option to purchase ___________ shares
(the "Shares") of the common stock, $.001 par value, of Orchid BioSciences, Inc.
(the "Company"), at the exercise price of $____ per share, pursuant to and
subject to the terms of that certain Incentive Stock Option Agreement between
the undersigned and the Company dated _________, 20__.
I am aware that the Shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"), or any state securities laws. I
understand that the reliance by the Company on exemptions under the 1933 Act is
predicated in part upon the truth and accuracy of the statements by me in this
Notice of Exercise.
I hereby represent and warrant that (1) I have been furnished with all
information which I deem necessary to evaluate the merits and risks of the
purchase of the Shares; (2) I have had the opportunity to ask questions
concerning the Shares and the Company and all questions posed have been answered
to my satisfaction; (3) I have been given the opportunity to obtain any
additional information I deem necessary to verify the accuracy of any
information obtained concerning the Shares and the Company; and (4) I have such
knowledge and experience in financial and business matters that I am able to
evaluate the merits and risks of purchasing the Shares and to make an informed
investment decision relating thereto.
I hereby represent and warrant that I am purchasing the Shares for my own
personal account for investment and not with a view to the sale or distribution
of all or any part of the Shares.
I understand that because the Shares have not been registered under the
1933 Act, I must continue to bear the economic risk of the investment for an
indefinite time and the Shares cannot be sold unless the Shares are subsequently
registered under applicable federal and state securities laws or an exemption
from such registration requirements is available.
I agree that I will in no event sell or distribute or otherwise dispose of
all or any part of the Shares unless (1) there is an effective registration
statement under the 1933 Act and applicable state securities laws covering any
such transaction involving the Shares or (2) the Company receives an opinion of
my legal counsel (concurred in by legal counsel for the Company) stating that
such transaction is exempt from registration or the Company otherwise satisfies
itself that such transaction is exempt from registration.
<PAGE>
I consent to the placing of a legend on my certificate for the Shares
stating that the Shares have not been registered and setting forth the
restriction on transfer contemplated hereby and to the placing of a stop
transfer order on the books of the Company and with any transfer agents against
the Shares until the Shares may be legally resold or distributed without
restriction.
I understand that at the present time Rule 144 of the Securities and
Exchange Commission (the "SEC") may not be relied on for the resale or
distribution of the Shares by me. I understand that the Company has no
obligation to me to register the sale of the Shares with the SEC and has not
represented to me that it will register the sale of the Shares.
I understand the terms and restrictions on the right to dispose of the
Shares set forth in the 2000 Employee, Director and Consultant Stock Plan and
the Incentive Stock Option Agreement, both of which I have carefully reviewed.
I consent to the placing of a legend on my certificate for the Shares referring
to such restriction and the placing of stop transfer orders until the Shares may
be transferred in accordance with the terms of such restrictions.
I have considered the Federal, state and local income tax implications of
the exercise of my Option and the purchase and subsequent sale of the Shares.
I am paying the option exercise price for the Shares as follows:
___________________________________________________
Please issue the stock certificate for the Shares (check one):
[_] to me; or
[_] to me and ________________, as joint tenants with right of survivorship
and mail the certificate to me at the following address:
______________________________
______________________________
______________________________
<PAGE>
My mailing address for shareholder communications, if different from the
address listed above is:
______________________________
______________________________
______________________________
Very truly yours,
____________________________________
Employee (signature)
____________________________________
Print Name
____________________________________
Date
____________________________________
Social Security Number
<PAGE>
Exhibit A
---------
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
[Form For Registered Shares]
To: Orchid BioSciences, Inc.
303 College Road East
Princeton, NJ 08540
IMPORTANT NOTICE: This form of Notice of Exercise may only be used at such time
as the Company has filed a Registration Statement with the Securities and
Exchange Commission under which the issuance of the Shares for which this
exercise is being made is registered and such Registration Statement remains
effective.
Ladies and Gentlemen:
I hereby exercise my Incentive Stock Option to purchase _________ shares
(the "Shares") of the common stock, $.001 par value, of Orchid BioSciences, Inc.
(the "Company"), at the exercise price of $________ per share, pursuant to and
subject to the terms of that certain Incentive Stock Option Agreement between
the undersigned and the Company dated ___________, 2000.
I understand the nature of the investment I am making and the financial
risks thereof. I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.
I am paying the option exercise price for the Shares as follows:
Please issue the stock certificate for the Shares (check one):
[_] to me; or
[_] to me and ____________________________, as joint tenants with right of
survivorship,
and mail the certificate to me at the following address:
______________________________
______________________________
______________________________
<PAGE>
My mailing address for shareholder communications, if different from the
address listed above, is:
______________________________
______________________________
______________________________
Very truly yours,
____________________________________
Employee (signature)
____________________________________
Print Name
____________________________________
Date
____________________________________
Social Security Number
<PAGE>
EXHIBIT 10.3
Orchid Biocomputer, Inc.
Supplemental Executive Benefit Program
Issued: May 5, 1999
<PAGE>
Supplemental Executive Benefit Program
Table of Contents
Article 1. Purpose and Overview
Article 2. Definitions
Article 3. Benefits
Article 4. Administration
Article 5. Eligibility and Participation
Article 6. Funding
Article 7. Income Tax Consequences
Article 8. Applicable Laws
Article 9 Employment Rights
Execution
<PAGE>
Orchid Biocomputer, Inc. (the "Company") hereby establishes the Orchid
Biocomputer, Inc. Executive Benefit Program (the "Program") for the benefit of a
select group of its employees and directors.
Article 1. Purpose and Overview
--------------------------------
1.1. Purpose of the Program. The purpose of the program is to attract and
retain qualified executive talent and provide them with a competitive and
attractive executive benefit program.
1.2. Overview. The program offers the opportunity for a select group of
executives and directors to supplement their life insurance and disability
insurance coverage, to provide additional financial security in the event
of termination from employment with the Company and to provide the
opportunity to build additional retirement savings. It is intended that
this program be exempt from participation, vesting, funding and fiduciary
requirements as set forth in Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA") and the Internal Revenue Code of 1986, as
amended ("The Code"). The benefits described in these Articles are
detailed in separate plan documents, the terms of which are incorporated by
reference in this Program.
Article 2. Definitions
-----------------------
2.1. Definitions. The following definitions are in addition to any other
definitions set forth elsewhere in the Program. Whenever used in the
Program, the capitalized terms in this section shall have the meanings set
forth below unless otherwise required by the context in which they are
used:
a. "Administrator" shall mean the person(s) appointed by the Committee to
administer the Program pursuant to Article 4.
b. "Annual Base Pay" shall mean the Executive's hourly pay rate times
2080.
c. "Beneficiary" shall mean the person(s) or trust(s) designated by the
Participant as the recipient of death, disability, severance or
retirement benefits of the Program.
d. "Board" shall mean the Company's Board of Directors.
e. "Committee" shall mean the Compensation Committee of the Board.
f. "Company" shall mean Orchid Biocomputer, Inc. a Delaware corporation.
g. "Director" shall mean a member of the Company's Board of Directors.
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h. "Executive" shall mean an employee of the Company who is employed in a
key executive capacity as determined by the Chief Executive Officer of
the Company or the Board. No employee shall be treated as an
"Executive" under the Program if his or her participation in the
Program would result in the Program ceasing to be an unfunded program
maintained primarily for the purpose of providing deferred
compensation and other benefits to a select group of management or
highly compensated employees under Section 201(2), 301(a)(3) and
401(a)(l) of the Employee Retirement Income Security Act of 1974.
i. "Loan" shall mean the Executive Benefit Loan.
j. "Participant" shall mean an eligible Executive or Director of the
Company who has become covered by the terms of the Program.
k. "Permanent Disability" shall have the same meaning as found in the
long-term disability insurance policy covering a Participant under
this program.
1. "Program" shall mean the Orchid Biocomputer, Inc. Executive Benefit
Program, as in effect from time to time.
m. "Retirement" shall mean any voluntary termination of employment with
the Company after the later often years of employment or age 55.
Article 3. Benefits
--------------------
3.1. Life Insurance Benefits.
The program shall allow the Participant to apply for supplemental life
insurance coverage. The coverage will be in the form of a permanent, cash-
value building insurance policy. The policy may include various coverage
options at the election of the Participant. The Participant will be the
owner of the policy. The Participant shall designate the beneficiary of
the policy. Eligibility for the life insurance coverage will be subject to
the insurance company's underwriting policies and procedures. The
insurance company may decline, limit or otherwise condition coverage at its
discretion. The Company does not guarantee the availability of coverage at
standard or other rates. A Participant's rights and benefits will be
governed by the terms of the policy issued to the Participant.
3.2. Disability Insurance Benefits.
The program shall allow the Participant to apply for supplemental
individual disability insurance coverage. The coverage will be in the form
of a long-term disability insurance policy which may include various
coverage options at the election of the Participant. The Participant will
be the owner and beneficiary of the policy. Eligibility for the disability
insurance coverage will be subject to the insurance company's underwriting
policies and procedures. The insurance company may decline, limit or
otherwise condition coverage
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at its discretion. The Company does not guarantee the availability of
coverage at standard or other rates. A Participant's rights and benefits
will be governed by the terms of the policy issued to the Participant.
3.3. Supplemental Retirement Income Benefits.
The Company has established the Orchid Biocomputer, Inc. Executive Deferred
Compensation Plan. A Participant's rights thereunder are governed by the
terms of the Executive Deferred Compensation Plan as in effect from time to
time, and this Section 3.3 is merely a summary description creating no
substantive rights.
This plan offers the opportunity for a select group of executives and
directors to defer the payment of certain cash compensation.
Each Participant in the Executive Deferred Compensation Plan may elect to
defer receipt of a portion of their regular base salary, bonus or other
cash incentive compensation. Any such election must be made by entering
into a Deferred Compensation Agreement with the Company, as evidenced by a
form approved by and filed with the Company on or before the deadline
specified by the Company.
The Supplemental Retirement Income Benefits shall be "unfunded" (within the
meaning of Section 401(a)(1) of the Employee Retirement Income Security Act
of 1974.
3.4. Severance Pay Benefits.
The Company has established the Orchid Biocomputer, Inc. Executive
Severance Pay Plan. A Participant's rights thereunder are governed by the
terms of the Executive Severance Pay Plan as in effect from time to time,
and this Section 3.3 is merely a summary description creating no
substantive rights.
This plan provides, to a select group of executives, additional financial
security in the event of termination from employment with the Company.
Each Participant in the Executive Severance Pay Plan shall enter into a
Severance Pay Agreement which sets forth the calculation of the severance
pay and the payment terms and conditions.
The Severance Pay Benefits shall be funded through an irrevocable trust.
3.5. Should any of the Benefits of the Program be changed, eliminated or any new
Benefits added, such changes shall be incorporated into this Program by
reference. All provisions of these benefits are contained (as applicable)
in the underlying plan documents, Company policies, contracts and insurance
policies.
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Article 4. Administration
--------------------------
4.1. Administrator. The Company shall appoint an Administrator of the
Program or separate Administrators of the various components of the
program. The Administrator(s) shall perform such administrative
functions as the Company may delegate from time to time.
4.2. Notice of Address. Any payment to a Participant or Beneficiary, at the
last known post office address on file with the Company, shall
constitute a complete acquittance and discharge to the Company and any
director or officer with respect thereto.
4.3. Claims Procedure.
a. Claims for benefits under the terms of the life and disability
insurance policies must be filed with the insurance company
issuing the policy.
b. Claims for severance, retirement or other benefits must be filed
with the Administrator in a form acceptable to the Administrator.
c. If any claim for benefits under the Program filed with the
Administrator is wholly or partially denied, the claimant shall
be given notice in writing, within 60 days of such denial,
setting forth the specific reasons for such denial, specific
reference to pertinent Program provisions on which the denial is
based, a description of any material or information necessary for
claimant to perfect the claim, and an explanation of the
Program's claims review procedure.
d. The claimant (or his or her duly authorized representative) may
request a review by the Board of the Administrator's decision
denying the claim by filing with the Administrator, within 60
days after such notice has been received by the claimant, a
written request for such review, and that he or she may review
pertinent documents, and submit issues and comments in writing
within the same 60-day period. If such a request is so filed,
such review shall be made by the Board within 60 days after
receipt of such request.
e. The claimant shall be given written notice of the decision
resulting from such review, including specific reasons for the
decision and specific references to the pertinent Program
provisions on which the decision is based.
f. These claims procedures shall be subordinate to any claims
procedures outlined in the separate plan documents, in place from
time to time.
Article 5. Eligibility and Participation
-----------------------------------------
5.1. Eligibility. This program is intended to qualify as a "top-hat" program
under the Department of Labor Regulations and as such participation in the
Program will be limited to Participants who would be considered highly
compensated, key-employees or Directors of the Company.
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5.2. Participation. An eligible Executive or Director may elect not to
participate in the Program.
5.3. Term. An eligible Executive or Director who becomes a Participant shall
remain an active Participant until the earlier of (a) the death or
permanent disability of the Executive or Director or, (b) the date the
Participant ceases to qualify as an Executive or Director of the Company or
(c) the mutual agreement of the parties hereto.
Article 6. Funding
-------------------
6.1. Executive Benefit Allowance. The Company shall provide an annual cash
allowance to the Executive to be used solely to pay the premiums for the
supplemental life insurance and the supplemental disability insurance
described in Article 3.
a. The Executive Benefit Allowance shall be a percentage of the
Executive's Annual Base Pay as follows:
Chief Executive Officer and Chief Operating Officer: 15%
All other Participants: 10%
b. The Participant may annually elect the allocation of the Executive
Benefit Allowance between the life insurance and disability insurance
policies under this Program. Such election shall be made in a form
acceptable to the Company.
c. The Company shall pay directly to the insurance companies the amounts
set forth herein, in accordance with the Participant's allocation
election.
6.2. Executive Benefit Loan. The Company shall loan to the Participant, on a
nonrecourse and interest-free basis the amount set forth in an Executive
Benefit Loan Agreement.
The Participant shall allocate the proceeds of the Loan between the life
insurance and disability insurance policies under this Program. The
Participant shall provide evidence of premium payments to the company in a
form acceptable to the Company.
6.3. The Executive Benefit Allowance and the Executive Benefit Loan shall be
disbursed in advance, no less frequently than monthly, as the Company
determines appropriate.
6.4. Upon the Participant's cessation of employment as a result of Permanent
Disability, Retirement or involuntary termination for other than Gross
Misconduct (as defined in the Executive Severance Pay Plan), the
Participant may elect to make a substitution of collateral using the cash
value of the supplemental life insurance policy described in Article 3.1 to
collateralize any or all of the Executive Benefit Loan. The amount of the
Executive Benefit Loan so secured shall be due and payable no sooner than
24 months following cessation of employment.
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Article 7. Income Tax Consequences
----------------------------------
7.1. Income Tax Consequences.
a. Each year, the Company will report to the Participant taxable income
in an amount which represents the compensatory component of the Loan,
determined under applicable law and regulations. This amount shall be
the imputed interest as measured by the Applicable Federal Rate
("AFR").
b. Each year, the Company will report to the Participant any other
amounts deemed to be taxable income as determined by a good faith
interpretation of the Internal Revenue Code and appropriate state
income tax laws, as in effect from time to time.
Article 8. Applicable Laws
---------------------------
8.1. The Program shall be construed and governed in accordance with applicable
federal law and, to the extent not preempted by federal law, including the
Employee Retirement Income Security Act of 1974, as amended, and the laws
of the State of New Jersey.
Article 9. Employment Rights
-----------------------------
9.1. Employment Rights. Nothing in this Program should be construed as
conferring any legal rights upon any Participant or any other person for a
continuation of employment, nor shall it interfere with the rights of the
Company to discharge any person.
Execution
---------
IN WITNESS WHEREOF, on the date(s) indicated below, the Company, by its
duly authorized officer, has adopted and executed this Supplemental Executive
Benefit Program.
Orchid Biocomputer, Inc.
Date_________________________ By____________________________
Name:
Title:
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Orchid Biocomputer, Inc.
Executive Deferred Compensation Plan
Issued May 5, 1999
<PAGE>
Executive Deferred Compensation Plan
Table of Contents
Article 1. Purpose and Overview
1.1. Purpose of the Plan
1.2. Overview
Article 2. Definitions
2.1. Definitions
2.2. Gender and Number
Article 3. Administration
3.1. Administrator
Article 4. Eligibility and Participation
4.1. Eligibility
4.2. Participation
Article 5. Deferrals
5.1. Salary Deferrals
5.2. Deferrals of Bonuses and Other Cash Incentive Compensation
5.3. Deferral Procedures
5.4. Election of Time and Manner of Payment
5.5. Deferral Accounts
5.6. Maintenance of Deferral Accounts
5.7. Earnings and Losses
5.8. Designation of Investment Measuring Device
<PAGE>
5.9. Payment of Deferred Amounts
5.10. Acceleration of Payment
Article 6. General Provisions
6.1. Unfunded Obligation
6.2. Beneficiary
6.3. Incapacity of Participant or Beneficiary
6.4. Nonassignment
6.5. No Right to Continued Employment
6.6. Tax Withholding
6.7. Claims Procedure
6.8. Termination and Amendment
6.9. Notice of Address
6.10. Applicable Law
Execution
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Orchid Biocomputer, Inc. (the "Company") hereby establishes the Orchid
Biocomputer, Inc. Deferred Compensation Plan (the "Plan"), as set forth in this
document for the benefit of a select group of its employees and directors.
Article 1. Purpose and Overview
---------------------------------
1.1. Purpose of the Plan. The purpose of the Plan is to attract and retain
qualified executive talent and provide them with an important component of
a competitive and attractive executive benefit program.
1.2. Overview. The Plan offers the opportunity for a select group of executives
and directors to defer the payment of certain cash compensation that they
may earn and in turn provide the opportunity to build additional
retirement savings. This Plan is unfunded and is maintained primarily for
the purpose of providing deferred compensation for a select group of
management or highly compensated employees. It is accordingly intended to
be exempt from the participation, vesting, funding and fiduciary
requirements set forth in Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA").
Article 2. Definitions
-----------------------
2.1. Definitions. The following definitions are in addition to any other
definitions set forth elsewhere in the Plan. Whenever used in the Plan,
the capitalized terms in this section shall have the meanings set forth
below unless otherwise required by the context in which they are used:
a. "Administrator" shall mean the person(s) described in section 3.1 that
is/are selected by the Committee to assist in the administration of
the Plan.
b. "Beneficiary" shall mean the individual or trust entitled to receive
any benefit payments that remain to be paid after a Participant's
death, as determined under section 6.2.
c. "Board" shall mean the Company's Board of Directors.
d. "Committee" shall mean the Compensation Committee of the Board.
e. "Company" shall mean Orchid Biocomputer, Inc., a Delaware corporation.
f. "Deferral Account" shall mean the account representing deferrals of
cash compensation, plus investment adjustments, as described in
sections 5.5 and 5.7.
g. "Director" shall mean a member of the Company's Board of Directors.
h. "Earnings" shall mean the amount of interest, dividends, gains or
appreciation and income of every sort which would be paid on the
principal amount deferred by a
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Participant if such principal had actually been invested in the
Investment Measuring Device, reduced by any administrative fees, sales
charges and withdrawal charges which would be deducted from an
investment in the Investment Measuring Device.
i. "Executive" shall mean an employee of the Company who is employed in a
key executive capacity as determined by the Committee. No employee
shall be treated as an "Executive" under the Plan if his or her
participation in the Plan would result in the Plan ceasing to be an
unfunded program maintained primarily for the purpose of providing
deferred compensation and other benefits to a select group of
management or highly compensated employees under Section 201(2),
301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act
of 1974.
j. "Investment Measuring Device" shall mean one or more investments
chosen by a Participant by which Earnings and Losses on the principal
amount of deferred compensation allocated to such investment will be
measured in order to determine the amount in the Participant's
Deferral Account which is payable under this Plan. The available
Investment Measuring Devices shall be designated and may be amended,
terminated or replaced from time to time by the Committee, provided
that at all times, at least one Investment Measuring Device shall be a
specified money market fund.
k. "Losses" shall mean the amount of market, contract, or other losses
which would reduce the principal amount deferred by a Participant if
such principal had actually been invested in the Investment Measuring
Device.
l. "Participant" shall mean an Executive or Director who meets the
eligibility and participation requirements of the Plan, as set forth
in Article 4, and includes, where appropriate to the context any
former Executive or Director who is entitled to benefits under this
Plan.
m. "Plan" shall mean the Orchid Biocomputer Deferred Compensation Plan,
as in effect from time to time.
n. "Plan Year" shall mean the calendar year.
o. "Retirement" shall mean any voluntary cessation of employment with the
Company after the later of ten years of employment or age 55.
p. "Termination" shall mean any cessation of employment with the Company
and its Subsidiaries other than by death, permanent disability or
retirement.
q. "Subsidiary" shall mean a corporation or other business entity in
which the Company owns, directly or indirectly, securities with more
than 80 percent of the total voting power.
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r. "Valuation Date" shall mean each December 31 and any other date
designated from time to time by the Committee for the purpose of
determining the value of a Participant's Deferral Account balance
pursuant to section 5.5.
2.2. Gender and Number. Except when otherwise indicated by the context, any
masculine or feminine terminology shall also include the neuter and other
gender, and the use of any term in the singular or plural shall also
include the opposite number.
Article 3. Administration
--------------------------
3.1. Administrator. The Committee shall administer the Plan and may select one
or more persons to serve as the Administrator. The Administrator shall
perform such administrative functions as the Committee may delegate to it
from time to time. Any person selected to serve as the Administrator may,
but need not, be a Committee member, a Director or an officer or employee
of the Company. However, if a person serving as Administrator or a member
of the Committee is a Participant, such person may not vote on a matter
affecting his individual interest as a Participant.
The Committee shall have the discretionary authority to construe and
interpret the Plan provisions and resolve any ambiguities thereunder; to
prescribe, amend and rescind administrative rules relating to the Plan; to
select the Directors or Executives who may participate and to terminate
the future participation of any such Director or Executives; to determine
eligibility for benefits under the Plan; and to take all other actions
that are necessary or appropriate for the administration of the Plan.
Where the Committee has delegated its responsibility for matters of
interpretation and Plan administration to the Administrator, the actions
of the Administrator shall constitute actions of the Committee with
respect to such delegated matters.
Article 4. Eligibility and Participation
-----------------------------------------
4.1. Eligibility. This Plan is intended to qualify as a "top-hat" Plan under
the Department of Labor Regulations and as such participation in the Plan
will be limited to Participants who would be considered highly
compensated, key-employees or Directors of the Company or any Subsidiary.
4.2. Participation. Directors, officers and other key employees of the Company
and each of its Subsidiaries shall be eligible to participate in this Plan
upon selection by the Committee. To be nominated for participation, an
employee must be highly compensated or have significant responsibility for
the management, direction and/or success of the Company as a whole or a
particular business unit thereof. Directors of the Company shall be
eligible to participate in the Plan.
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Article 5. Deferrals
---------------------
5.1. Salary Deferrals. Each Participant selected under section 4.2 may elect to
defer up to 50 percent of his regular base salary (subject to the
provisions of this Article 5). Any such election must be made by entering
into a deferred compensation agreement with the Company, as evidenced by a
form approved by and filed with the Administrator on or before the
deadline specified by the Committee (which shall be no earlier than one
month prior to, but not later than, the beginning of the election period
for which the deferred salary is to be earned). For this purpose, The
election period shall be the calendar year; provided, however, that during
periods in which the Plan is not in effect for a full calendar year or a
Director or Executive is not a Participant for a full calendar year, the
election period shall be the portion of the calendar year during which the
Plan is in effect and the Director or Executive is an eligible
Participant. Notwithstanding the foregoing, a person who is not a
Participant at the beginning of a calendar year shall not be allowed to
elect a deferral of compensation that takes effect during that year
without the consent of the Committee. Salary deferrals that have been
elected shall occur throughout the election period in equal increments for
each payroll period.
5.2. Deferral of Bonuses and Other Cash Incentive Compensation. Each
Participant may elect to defer all or any portion (subject to the
provisions of this Article 5) of any amount that he subsequently cams
under an annual cash bonus program and/or long-term cash incentive
compensation program of the Company or a participating Subsidiary. Any
such election must be made by entering a deferred compensation agreement
with the Company, as evidenced by a form approved by the Committee that is
filed with the Administrator on or before the deadline specified by the
Committee. For annual cash bonuses, this deadline shall be no earlier than
one month prior to the beginning of the year (or portion thereof) for
which the bonus will be earned. For other cash incentive compensation,
this deadline shall be no later than six months before the end of the year
or other period for which the cash incentive compensation will be earned.
Rules similar to those in section 5.1 shall apply in cases where the Plan
is not in existence or an employee is not a Participant for the full
period in which an annual cash bonus or long-term incentive compensation
award is earned.
5.3. Deferral Procedures. Participants eligible to elect salary deferrals under
Section 5.1 shall have an opportunity to do so each year. Participants
eligible to elect deferrals under section 5.2 shall have a separate
opportunity to do so for each cash bonus under an annual bonus program and
for each other cash bonus or incentive payment under a long-term incentive
plan that they may cam.
If a deferral is elected, the election shall be irrevocable with respect
to the particular compensation that is subject to the election. Deferral
elections shall be made on a form prescribed by the Committee or
Administrator. As provided in section 6.6, any deferral is subject to
appropriate tax withholding measures and may be reduced to satisfy tax-
withholding requirements.
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5.4. Election of Time and Manner of Payment. At the time a Participant makes a
deferral election under sections 5.1 or 5.2, the Participant shall also
designate the manner of payment and the date on which payments from his or
her Deferral Account shall begin, from among the following options:
a. a lump sum payable by the end of February of any year that the
Participant specifies;
b. a lump sum payable by the end of February in the year immediately
following the Participants Retirement;
c. a series of annual installments, commencing in any year selected by
the Participant and payable each year on or before the end of
February, over a period of four years;
d. a series of annual installments, commencing in the year following the
Participant's Retirement and payable each year on or before the end of
February, over a period of five, ten or fifteen years, as designated
by the Participant.
However, if a Participant terminates employment for any reason other than
death, permanent disability or Retirement, the payment of the
Participant's entire Deferral Account, including any unpaid installments
pursuant to clause (c) above, shall be made in a single lump sum by the
end of February in the next year following the year in which the
Participant terminates employment, notwithstanding the terms of the
Participant's election.
Any election of a specified payment date pursuant to clauses (a) or (c)
shall be subject to any restrictions that the Company may, in its sole
discretion, choose to establish in order to limit the number of different
payment dates that a Participant may have in effect at any one time.
If payment is due in the form of a lump sum, the payment shall equal the
balance of the Deferral Account being paid, determined as of the Valuation
Date coincident with or immediately preceding the payment date. If payment
is due in the form of installments, the amount of each installment shall
be equal to the quotient determined by dividing (A) the value of the
portion of the Deferral Account to which the installment payment election
applies (determined as of the Valuation Date coincident with or
immediately preceding the date the payment is to be made), by (B) the
number of years over which the installment payments are to be made, less
the number of years in which the prior payments attributable to such
installment payment election have been made.
5.5. Deferral Accounts. The Company shall establish a Deferral Account for each
Participant who has elected a deferral under section 5.1 or 5.2, and its
accounting records for the Plan with respect to each such Participant
shall include a separate Deferral Account or subaccount for each deferral
election of the Participant that could cause a payment to be made at a
different time or in a different form from other payments of deferrals
elected by
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the same Participant. Each Deferral Account balance shall reflect the
Company's obligation to pay a deferred amount to a Participant or
Beneficiary as provided in this Article 5.
Such Deferral Account shall consist of credits equal to the principal
amount of compensation deferred by each Participant, increased by any
Earnings and decreased by any Losses as described in Section 5.7.
Notwithstanding the establishment of Deferral Accounts for record keeping
purposes, the Company shall not establish any trust or fund, or purchase
any insurance policy, annuity contract or other asset specifically
allocated to the benefit of any one (or more) Participant(s). Principal
amounts deferred by a Participant under Section 5.1 or 5.2 shall be
credited to the Participant's Deferral Account as of the time when such
amount would otherwise have been paid to the Participant absent his
election to defer hereunder.
5.6. Maintenance of Deferral Accounts. The Accounts of each Participant shall
be entered on the books of the Company and shall represent a liability,
payable when due under this Plan, out of the general assets of the
Company. Prior to benefits becoming due hereunder, the Company shall
expense the liability for such accounts in accordance with policies
determined appropriate by the Company's auditors. Except to the extent
provided pursuant to the second paragraph of this section 5.6, the
Accounts created for a Participant by the Company shall not be funded by a
trust or an insurance contract; nor shall any assets of the Company be
segregated or identified to such account; nor shall any property or assets
of the Company be pledged, encumbered, or otherwise subjected to a lien or
security interest for payment of benefits hereunder.
Notwithstanding that the amounts to be paid hereunder to Participants
constitute an unfunded obligation of the Company, an amount equal to the
Deferral Accounts shall be paid into one or more grantor trusts that shall
be established by the Company for the purpose of providing a potential
source of funds to pay Plan benefits. The Company may designate an
investment advisor to direct the investment of funds that may be used to
pay benefits, including the investment of the assets of any grantor trusts
hereunder.
5.7. Earnings and Losses. The principal amount of deferred compensation shall
be adjusted for hypothetical Earnings and Losses as follows:
For amounts deferred, Earnings and Losses shall be measured by one or more
of the Investment Measuring Devices chosen by a Participant pursuant to
Section 5.8.a. or defaulted into by Section 5.8.b.
For amounts deferred during all periods, the Deferral Account or portion
of the Deferral Account of a Participant who selected a life insurance
policy as the Investment Measuring Device shall be equal to the amount of
the cash surrender value of the hypothetical insurance policy, or, in
event of the death of the Participant, in the amount of the face value of
the hypothetical policy, reduced, in either case, by the policy loans the
Employer would have had to borrow in order to pay premiums on such policy
or to make such payments as may otherwise be required under this Plan.
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<PAGE>
There shall be no guarantee of principal for any Investment Measuring
Device.
5.8. Designation of Investment Measuring Device. The designation of Investment
Measuring Device shall be made according to the following:
a. From time to time and in accordance with such administrative rules as
the Company may impose, each Participant may designate one or more
Investment Measuring Devices for compensation which is deferred. A
Participant may make a similar election to change the Investment
Measuring Device with respect to compensation deferred prior to such
election (and any Earnings and Losses thereon). An election to change
Investment Measuring Devices for past deferrals shall be effective on
the same date as an election of Investment Measuring Devices for
deferrals from current pay as described in this Section 5.8.
b. If no designation of Investment Measuring Devices is made by a
Participant, the Participant's Investment Measuring Device shall be
the Charles Schwab Money Market Fund (or other similar Money Market
Fund designated by the Company).
5.9. Payment of Deferred Amounts. A Participant shall have a fully vested,
nonforfeitable interest in his or her Deferral Account balance at all
times. However, vesting does not confer a right to payment other than in
the manner elected by the Participant pursuant to section 5.4 or increase
the rights of the Participant above those of any general unsecured
creditor of the Company. Upon the expiration of a deferral period selected
by the Participant in one or more deferral elections, the Company shall
pay to such Participant (or to the Participant's Beneficiary, in the case
of the Participant's death) an amount equal to the balance of the
Participant's Deferral Account attributable to such expiring deferral
elections, plus assumed earnings (determined by the Company pursuant to
section 5.7) thereon.
If the Participant has an outstanding unsecured loan from the Company,
payments from the Participant's Deferral Account shall first be used to
satisfy the outstanding loan.
5.10. Acceleration of Payment. The Committee, in its discretion, upon receipt of
a written request from a Participant or Beneficiary, may accelerate the
payment of all or any portion of the unpaid balance of a Participant's
Deferral Account in the event of the Participant's Retirement, death,
permanent disability, or Termination, or upon its determination that the
Participant (or his Beneficiary in the case of his death) has incurred a
severe, unforeseeable financial hardship creating an immediate and heavy
need for cash that cannot reasonably be satisfied from sources other than
an accelerated payment from this Plan. The Committee in making its
determination may consider such factors and require such information as it
deems appropriate, and the Committee will not be obligated to accelerate
payment in any particular instance.
Article 6. General Provisions
------------------------------
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<PAGE>
6.1 Unfunded Obligation. The deferred amounts to be paid to Participants
pursuant to this Plan constitute unsecured and unfunded general
obligations of the Company. Except to the extent specifically provided
hereunder, the Company is not required to segregate any monies from its
general funds or to make any special deposits with respect to this
obligation.
6.2. Beneficiary. The term "Beneficiary" shall mean the individual or trust to
whom payments are to be paid pursuant to the terms of the Plan in the
event of the Participant's death. A Participant may designate a
Beneficiary on a form provided by the Administrator, executed by the
Participant, and delivered to the Administrator. The Administrator may
require the consent of the Participant's spouse to a designation if the
designation specifies a Beneficiary other than the spouse. Subject to the
foregoing, a Participant may change a Beneficiary designation at any time.
Subject to the property rights of any prior spouse, if no Beneficiary is
designated, if the designation is ineffective, or if the Beneficiary dies
before the balance of the Deferral Account is paid, the balance shall be
paid to the Participant's surviving spouse, or if there is no surviving
spouse, to the Participant's estate.
6.3. Incapacity of Participant or Beneficiary. Every person receiving or
claiming benefits under the Plan shall be conclusively presumed to be
mentally competent and of age until the date on which the Administrator
receives a written notice, in a form and manner acceptable to the
Administrator, that such person is incompetent or a minor, for whom a
guardian or other person legally vested with the care of his person or
estate has been appointed; provided, however, that if the Administrator
finds that any person to whom a benefit is payable under the Plan is
unable to care for his or her affairs because of incompetency, or because
he or she is a minor, any payment due (unless a prior claim therefor shall
have been made by a duly appointed legal representative) may be paid to
the spouse, a child, a parent, a brother or sister, or to any person or
institution considered by the Administrator to have incurred expense for
such person otherwise entitled to payment. To the extent permitted by law,
any such payment so made shall be a complete discharge of liability
therefor under the Plan.
If a guardian of the estate of any person receiving or claiming benefits
under the Plan is appointed by a court of competent jurisdiction, benefit
payments may be made to such guardian provided that proper proof of
appointment and continuing qualification is furnished in a form and manner
acceptable to the Administrator. In the event a person claiming or
receiving benefits under the Plan is a minor, payment may be made to the
custodian of an account for such person under the Uniform Transfers to
Minors Act. To the extent permitted by law, any such payment so made shall
be a complete discharge of any liability therefor under the Plan.
6.4. Nonassignment. The right of a Participant or Beneficiary to the payment of
any amounts under the Plan may not be assigned, transferred, pledged or
encumbered (except as security for any promissory note given by the
Participant to the Company in connection with the Company's Supplemental
Executive Benefit Program), and, to the maximum
8
<PAGE>
extent permitted by law, such right or other interests shall not be
subject to attachment, garnishment, execution, or other legal process
(except by the Company).
6.5. No Right to Continued Employment. Nothing in the Plan shall be construed
to confer upon any Participant any right to continued employment with the
Company, nor shall the Plan interfere in any way with the right of the
Company to terminate the employment of such Participant at any time
without assigning any reason therefor.
6.6. Tax Withholding. Appropriate taxes shall be withheld from cash payments
made to Participants pursuant to the Plan. To the extent tax withholding
is payable in connection with the Participant's deferral of income rather
than in connection with the payment of deferred amounts, such withholding
may be made from other wages and salary currently payable to the
Participant, or, as determined by the Administrator, the amount of the
deferral elected by the Participant may be reduced in order to satisfy
required tax withholding for employment taxes and any other taxes.
6.7. Claims Procedure. The Company shall establish a reasonable claims
procedure consistent with the requirements of the Employee Retirement
Income Security Act of 1974, as amended. The claims procedure shall
include the following:
a. Claims for benefits must be filed with the Administrator in a form
acceptable to the Administrator.
b. If any claim for benefits under the Plan filed with the Administrator
is wholly or partially denied, the claimant shall be given notice in
writing, within 60 days of such denial, setting forth the specific
reasons for such denial, specific reference to pertinent Plan
provisions on which the denial is based, a description of any material
or information necessary for claimant to perfect the claim, and an
explanation of the Plan's claims review procedure.
c. The claimant (or his or her duly authorized representative) may
request a review by the Board of the Administrator's decision denying
the claim by filing with the Administrator, within 60 days after such
notice has been received by the claimant, a written request for such
review, and that he or she may review pertinent documents, and submit
issues and comments in writing within the same 60-day period. If such
a request is so filed, such review shall be made by the Board within
60 days after receipt of such request.
d. The claimant shall be given written notice of the decision resulting
from such review, including specific reasons for the decision and
specific references to the pertinent Plan provisions on which the
decision is based.
6.8. Termination and Amendment. The Committee may from time to time amend,
suspend or terminate the Plan, in whole or in part, and if the Plan is
suspended or terminated, the Committee may reinstate any or all of its
provisions. Except as otherwise required by law, the committee may
delegate to the Administrator all or any of its foregoing powers
9
<PAGE>
to amend, suspend, or terminate the Plan. Any such amendment, suspension,
or termination may affect future deferrals without consent of any
Participant or Beneficiary. However, with respect to deferrals that have
already occurred, no amendment, suspension or termination may impair the
right of a Participant or a designated Beneficiary to receive payment of
the related deferred compensation in accordance with the terms of the Plan
prior to the effective date of such amendment, suspension or termination,
unless the affected Participant or Beneficiary gives his express written
consent to the change. However, notwithstanding the foregoing, upon
termination of the Plan, the Committee may require payment of any
Participant's Deferral Account not in excess of $100,000 to such
Participant (or his or her Beneficiary) at such time and in such form of
payment as the Committee determines (notwithstanding the Participant's
election of another form of payment or another date for payment).
6.9. Notice of Address. Any payment to a Participant or Beneficiary, at the
last known post office address on file with the Company, shall constitute
a complete acquittance and discharge to the Company and any director or
officer with respect thereto.
6.10. Applicable Law. The Plan shall be construed and governed in accordance
with applicable federal law and, to the extent not preempted by such
federal law, the laws of the State of New Jersey.
Execution
---------
IN WITNESS WHEREOF, on the date(s) indicated below, the Company, by its
duly authorized officer, has adopted and executed this Executive Deferred
Compensation Plan.
Orchid Biocomputer, Inc.
Date: February 3, 1999 By /s/ Donald R. Marvin
-------------------- ------------------------
Name: Donald R. Marvin
Title: Secretary
10
<PAGE>
Orchid Biocomputer, Inc.
Executive Severance Pay Plan
Issued May 5, 1999
5/5/99 1:23 PM
<PAGE>
Executive Severance Pay Plan
Table of Contents
Article 1. Purpose and Overview
1.1. Purpose of the Plan
1.2. Overview
Article 2. Definitions
2.1. Definitions
2.2. Gender and Number
Article 3. Administration
3.1. Administrator
Article 4. Eligibility and Participation
4.1. Eligibility
4.2. Participation
Article 5. Severance Pay
5.1. Calculation of Severance Pay
5.2. Monthly Installments of Severance Pay
Article 6. Funded Obligation
Article 7. General Provisions
7.1. Interpretation as Severance Pay for Labor Law Purposes
7.2. Severability Clause
7.3. Gross Misconduct
7.4. Beneficiary
7.5. Incapacity of Participant or Beneficiary
<PAGE>
7.6. Nonassignment
7.7. No Right to Continued Employment
7.8. Tax Withholding
7.9. Claims Procedure
7.10. Amendment
7.11. Notice of Address
7.12. Applicable Law Execution
Execution
<PAGE>
Orchid Biocomputer, Inc. (the "Company") hereby establishes the Orchid
Biocomputer, Inc. Executive Severance Pay Plan (the "Plan"), as set forth in
this document for the benefit of a select group of its employees.
Article 1. Purpose and Overview
--------------------------------
1.1. Purpose of the Plan. The purpose of the Plan is to attract and retain
qualified executive talent and provide them with an important component of
a competitive and attractive executive benefit program.
1.2. Overview. The Plan provides, to a select group of executives, additional
financial security in the event of termination from employment with the
Company. This Plan is funded and is maintained primarily for the purpose of
providing severance payments to a select group of management or highly
compensated employees. It is accordingly intended to be exempt from the
participation, vesting, funding and fiduciary requirements set forth in
Title I of the Employee Retirement Income Security Act of 1974 ("ERISA").
Article 2. Definitions
-----------------------
2.1. Definitions. The following definitions are in addition to any other
definitions set forth elsewhere in the Plan. Whenever used in the Plan, the
capitalized terms in this section shall have the meanings set forth below
unless otherwise required by the context in which they are used:
a. "Administrator" shall mean the person(s) described in section 3.1 that
is/are selected by the Committee to assist in the administration of
the Plan.
b. "Beneficiary" shall mean the individual or trust entitled to receive
any benefit payments that remain to be paid after a Participant's
death, as determined under section 7.5.
c. "Board" shall mean the Company's Board of Directors.
d. "Committee" shall mean the Compensation Committee of the Board.
e. "Company" shall mean Orchid Biocomputer, Inc., a Delaware corporation.
f. "Executive" shall mean an employee of the Company who is employed in a
key executive capacity as determined by the Committee the Company or
the Board. No employee shall be treated as an "Executive" under the
Plan if his or her participation in the Plan would result in the Plan
ceasing to be a program maintained primarily for the purpose of
providing other benefits to a select group of management or highly
compensated employees.
1
<PAGE>
g. "Participant" shall mean an Executive who meets the eligibility and
participation requirements of the Plan, as set forth in Article 4, and
includes, where appropriate to the context, any former Executive who
is entitled to benefits under this Plan.
h. "Plan" shall mean the Orchid Biocomputer, Inc. Executive Severance Pay
Plan, as in effect from time to time.
i. "Retirement" shall mean any voluntary cessation of employment with the
Company after the later of ten years of employment or age 55.
j. "Termination" shall mean 1.) any involuntary cessation of employment
with the Company and its Subsidiaries other than by death or
disability or 2.) voluntary resignation in the event that the
Executive's duties, responsibilities or compensation are significantly
reduced.
k. "Severance Pay" shall mean the amount payable to the Executive upon
Termination or Retirement pursuant to a Severance Pay Agreement
between the Executive and the Company.
l. "Subsidiary" shall mean a corporation or other business entity in
which the Company owns, directly or indirectly, securities with more
than 80 percent of the total voting power.
2.2. Gender and Number. Except when otherwise indicated by the context, any
masculine or feminine terminology shall also include the neuter and other
gender, and the use of any term in the singular or plural shall also
include the opposite number.
Article 3. Administration
--------------------------
3.1. Administrator. The Committee shall administer the Plan and may select one
or more persons to serve as the Administrator. The Administrator shall
perform such administrative functions as the Committee may delegate to it
from time to time. Any person selected to serve as the Administrator may,
but need not, be a Committee member, a Director or an officer or employee
of the Company. However, if a person serving as Administrator or a member
of the Committee is a Participant, such person may not vote on a matter
affecting his individual interest as a Participant.
The Committee shall have the discretionary authority to construe and
interpret the Plan provisions and resolve any ambiguities thereunder; to
prescribe, amend and rescind administrative rules relating to the Plan; to
select the Executives who may participate, to determine eligibility for
benefits under the Plan; and to take all other actions that are necessary
or appropriate for the administration of the Plan. Where the Committee has
delegated its responsibility for matters of interpretation and Plan
administration to the Administrator, the actions of the Administrator shall
constitute actions of the Committee with respect to such delegated matters.
2
<PAGE>
Article 4. Eligibility and Participation
-----------------------------------------
4.1. Eligibility. This Plan is intended to qualify as a "top-hat" Plan under
the Department of Labor Regulations and as such participation in the Plan
will be limited to Participants who would be considered highly compensated,
key-employees of the Company or any Subsidiary.
4.2. Participation. Officers and other key employees of the Company and each
of its Subsidiaries shall be eligible to participate in this Plan upon
selection by the Committee. To be nominated for participation, an
Executive must be highly compensated or have significant responsibility for
the management, direction and/or success of the Company as a whole or a
particular business unit thereof.
Article 5. Severance Pay
-------------------------
5.1. Calculation of Severance Pay. In addition to the annual base
compensation, bonus compensation, accumulated vacation pay and other
employee benefits payable to the Executive (if any), in the event of the
Executive's 1.) Retirement, 2.) death after the later of ten years of
service or age 55, 3.) permanent disability after the later of ten years of
service or age 55 or 4.) Termination for any reason other than his own
Gross Misconduct, the Executive shall be entitled to receive Severance Pay
in an amount determined pursuant to a Severance Pay Agreement between
Executive and Company.
5.2. Monthly Installments of Severance Pay. The Executive's Severance Pay
shall be paid to him, without interest, in monthly installments over the
twenty-four (24) months commencing on the last business day of the month of
Termination or Retirement and thereafter on the last business day of each
calendar month until paid in full. In the event of Executive's death after
commencement of payments, the balance of payments shall be made to his
estate or named beneficiary.
Article 6. Funded Obligation
-----------------------------
6.1. Funded Obligation of Company. The obligation of the Company to pay
Severance Pay shall be funded. The Company shall establish an irrevocable
trust in order to facilitate the funding of this Plan. The funding shall
be done in a manner that will ensure that Executive will not recognize
taxable income until Severance Pay has been paid.
All payments made by the Trust shall reduce the obligation of the Company
to pay benefits under this Plan. The Company shall remain liable for
benefits to the extent that the assets of the Trust are insufficient to pay
Plan benefits.
Article 7. General Provisions
------------------------------
7.1. Interpretation as Severance Pay for Labor Law Purposes. The provisions of
this Agreement are intended to constitute a severance pay plan within the
meaning of Labor
3
<PAGE>
Regulation 29 C.F.R. Section 2510.302(b) and shall be construed and
interpreted in a manner consistent with this intention.
7.2. Severability Clause. In the event that any provision of this Plan shall
be held to be illegal, invalid or unenforceable for any reason, said
illegality, invalidity or unenforceability shall not affect the remaining
provisions, but shall be fully severable and the Plan shall be construed
and enforced as if said illegal, invalid or unenforceable provisions had
never been contained herein.
7.3. Gross Misconduct. For purposes of this Plan, "Gross Misconduct" shall be
commission of any of the following actions by Executive during the term of
his employment by Company:
a. personal dishonesty, fraud or breach of trust involving personal
profit in connection with the Executive's employment by the Company;
b. willful misconduct that is materially injurious to the Company or any
of its subsidiaries, stockholders or affiliates;
c. flagrant and repeated gross negligence in the performance of
Executive's assigned duties, which remains, uncured after written
warning by the Company.
7.4. Beneficiary. The term "Beneficiary" shall mean the individual or trust to
whom payments are to be paid pursuant to the terms of the Plan in the event
of the Participant's death. A Participant may designate a Beneficiary on a
form provided by the Administrator, executed by the Participant, and
delivered to the Administrator. The Administrator may require the consent
of the Participant's spouse to a designation if the designation specifies a
Beneficiary other than the spouse. Subject to the foregoing, a Participant
may change a Beneficiary designation at anytime. Subject to the property
rights of any prior spouse, if no Beneficiary is designated, if the
designation is ineffective, or if the Beneficiary dies before the balance
of the Severance Pay is paid, the balance shall be paid to the
Participant's surviving spouse, or if there is no surviving spouse, to the
Participant's estate.
7.5. Incapacity of Participant or Beneficiary. Every person receiving or
claiming benefits under the Plan shall be conclusively presumed to be
mentally competent and of age until the date on which the Administrator
receives a written notice, in a form and manner acceptable to the
Administrator, that such person is incompetent or a minor, for whom a
guardian or other person legally vested with the care of his person or
estate has been appointed; provided, however, that if the Administrator
finds that any person to whom a benefit is payable under the Plan is unable
to care for his or her affairs because of incompetency, or because he or
she is a minor, any payment due (unless a prior claim therefor shall have
been made by a duly appointed legal representative) may be paid to the
spouse, a child, a parent, a brother or sister, or to any person or
institution considered by the Administrator to have incurred expense for
such person otherwise entitled to
4
<PAGE>
payment. To the extent permitted by law, any such payment so made shall be
a complete discharge of liability therefor under the Plan.
If a guardian of the estate of any person receiving or claiming benefits
under the Plan is appointed by a court of competent jurisdiction, benefit
payments may be made to such guardian provided that proper proof of
appointment and continuing qualification is furnished in a form and manner
acceptable to the Administrator. In the event a person claiming or
receiving benefits under the Plan is a minor, payment may be made to the
custodian of an account for such person under the Uniform Transfers to
Minors Act. To the extent permitted by law, any such payment so made shall
be a complete discharge of any liability therefor under the Plan.
7.6. Nonassignment. The right of a Participant or Beneficiary to the payment
of any amounts under the Plan may not be assigned, transferred, pledged or
encumbered and to the maximum extent permitted by law, such right or other
interests shall not be subject to attachment, garnishment, execution, or
other legal process.
7.7. No Right to Continued Employment. Nothing in the Plan shall be construed
to confer upon any Participant any right to continued employment with the
Company, nor shall the Plan interfere in any way with the right of the
Company to terminate the employment of such Participant at any time without
assigning any reason therefor.
7.8. Tax Withholding. Appropriate taxes shall be withheld from cash payments
made to Participants pursuant to the Plan.
7.9. Claims Procedure. The Company shall establish a reasonable claims
procedure consistent with the requirements of the Employee Retirement
Income Security Act of 1974, as amended. The claims procedure shall
include the following:
a. Claims for benefits must be filed with the Administrator in a form
acceptable to the Administrator.
b. If any claim for benefits under the Plan filed with the Administrator
is wholly or partially denied, the claimant shall be given notice in
writing, within 60 days of such denial, setting forth the specific
reasons for such denial, specific reference to pertinent Plan
provisions on which the denial is based, a description of any material
or information necessary for claimant to perfect the claim, and an
explanation of the Plan's claims review procedure.
c. The claimant (or his or her duly authorized representative) may
request a review by the Board of the Administrator's decision denying
the claim by filing with the Administrator, within 60 days after such
notice has been received by the claimant, a written request for such
review, and that he or she may review pertinent documents, and submit
issues and comments in writing within the same 60-day period. If such
a request is so filed, such review shall be made by the Board within
60 days after receipt of such request.
5
<PAGE>
d. The claimant shall be given written notice of the decision resulting
from such review, including specific reasons for the decision and
specific references to the pertinent Plan provisions on which the
decision is based.
7.10. Amendment. This Agreement may be amended by written agreement signed by
Company and Executive.
7.11. Notice of Address. Any payment to a Participant or Beneficiary, at the
last known post office address on file with the Company, shall constitute
a complete acquittance and discharge to the Company and any director or
officer with respect thereto.
7.12. Applicable Law. This Plan shall be construed and interpreted in accordance
with the laws of the State of New Jersey, except to the extent preempted
by ERISA.
Execution
---------
IN WITNESS WHEREOF, on the date(s) indicated below, the Company, by its
duly authorized officer, has adopted and executed this Executive Severance Pay
Plan.
Orchid Biocomputer, Inc.
Date: February 3, 1999 By /s/ Donald R. Marvin
------------------ ----------------------
Name: Donald R. Marvin
Title: Secretary
6
<PAGE>
Orchid BioSciences, Inc.
Executive Severance Pay Agreement
AGREEMENT made this ____ day of _____, _____ by and between Orchid
BioSciences, Inc. (the "Company") and ______________ (the "Executive").
WHEREAS, the Company has adopted the Orchid Biocomputer, Inc. Executive
Severance Pay Plan (the "Plan");
WHEREAS, the Company desires to encourage the Executive to continue in the
employ of the Company;
WHEREAS, The Company has selected the Executive to participate in the Plan;
WHEREAS, the Executive and the Company desire to set forth in writing the
terms of their agreement to provide Severance Pay pursuant to the Plan to the
Executive;
NOW, THEREFORE, the parties agree as follows:
1. CALCULATION OF SEVERANCE PAY: In addition to the annual base compensation,
bonus compensation, accumulated vacation pay and other employee benefits
(if any) payable to the Executive, in the event of the Executive's
Retirement or Termination for any reason other than his own Gross
Misconduct (as defined in the Plan) the Executive shall be entitled to
receive Severance Pay in an amount equal to
________________________________.
2. SPENDTHRIFT CLAUSE: The right of the Executive to receive Severance Pay
may not be assigned, alienated, pledged or otherwise encumbered by the
Executive and any attempt to do so shall be void and of no force or effect.
3. ENTIRETY OF AGREEMENT: This Agreement represents the entire agreement
between the parties with respect to Severance Pay and supersedes any prior
understanding whether written or oral regarding Severance Pay.
4. AMENDMENT: This Agreement may be amended by written agreement signed by
Company and Executive.
5. APPLICABLE LAW: This Agreement shall be construed and interpreted in
accordance with the laws of the State of New Jersey, except to the extent
preempted by ERISA.
6. NOTICE: Any notice or direction to be given in accordance with the
Agreement shall be deemed to have been effectively given if hand delivered
to the recipient with written
<PAGE>
acknowledgment of receipt, or sent by certified mail, return receipt
requested, to the recipient at the recipient's last known address.
7. SUCCESSORS AND ASSIGNS: The Agreement, and all actions and decisions
hereunder, shall be binding upon the Company, its representatives,
successors and assigns, and upon the Executive, his heirs, executors,
successors and assigns.
8. SEVERABILITY CLAUSE: In the event that any provision of this Agreement
shall be held to be illegal, invalid or unenforceable for any reason, said
illegality, invalidity or unenforceability shall not affect the remaining
provisions, but shall be fully severable and the Agreement shall be
construed and enforced as if said illegal, invalid or unenforceable
provisions had never been contained herein.
9. MISCELLANEOUS:
A. All payments under the Agreement shall be made from either 1.) the
Trust established under the Plan or 2.) the general assets of Company.
B. Nothing contained in the Agreement shall be construed as conferring
upon Executive the right to continue in the employ of Company nor to
limit the right of Company to discharge Executive.
IN WITNESS WHEREOF, on the date(s) indicated below, the parties have executed
the foregoing Agreement.
Orchid BioSciences, Inc.
Date:________________________ By: ______________________________
Date:________________________ __________________________________
Executive
2
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, effective January 1, 2000 (the "Effective
Date"), by and between ORCHID BIOSCIENCES, 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
---------
The options to purchase 730,000 shares of the Company's common stock
issued to the Executive on February 2, 2000, include:
1. The option to purchase 100,000 shares at $1.25 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.
- -------
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 BIOSCIENCES, 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
-------- -------
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
- -------- -------
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.
-2-
<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
-------- -------
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.
-3-
<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.
-----------
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,
-------- -------
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
-------- -------
(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
-------- -------
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
-------- -------
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.
-10-
<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
---------
The options to purchase 557,000 shares of the Company's common stock
issued to the Executive on February 2, 2000, include:
1. The option to purchase 67,000 shares at $1.25 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.
- -------
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 10.9
AGREEMENT FOR THE LICENSE AND SUPPLY OF TERMINATORS
This Agreement, effective this 16th day of February, 2000, (the "Effective
Date") is between ORCHID BIOCOMPUTER, INC., a corporation organized and existing
under the laws of the State of Delaware, having a principal place of business at
303 College Road East, Princeton, New Jersey 08543 ("Orchid"), and NEN LIFE
SCIENCE PRODUCTS, INC., a corporation organized and existing under the laws of
the State of Delaware, having a principal place of business at 549 Albany
Street, Boston, Massachusetts 02118-2512 ("NEN").
WHEREAS, NEN develops, manufactures and sells Terminators for use in the
detection of genetic polymorphisms by the method of GBA;
WHEREAS, NEN owns rights and interests in and to the NEN Patents and other
proprietary rights in and to certain Terminators;
WHEREAS, Orchid uses and sells Kits containing Terminators as a component
or part for the detection of genetic polymorphisms by the method of GBA;
WHEREAS, Orchid owns, or is licensor of, rights and interests in and to
patents and other proprietary rights in and to the detection of polymorphisms by
the method of GBA;
WHEREAS, NEN desires to make an equity investment in Orchid; and
WHEREAS, NEN and Orchid mutually desire to conduct research to further the
development of detection of polymorphisms by the method of GBA; NOW THEREFORE,
the parties, agree as follows:
1. Definitions
For all purposes of this Agreement, the following terms have the meanings
set forth below:
1.1 "Affiliate" means any legal entity directly or indirectly controlling,
controlled by or under common control with Orchid or NEN. For purposes
of this Agreement, "control" means the direct or indirect ownership of
more than fifty percent (50%) of the outstanding voting securities of
the legal entity, or the right to receive more than fifty percent
(50%) of the profits or earnings of the legal entity.
1.2 "Commercially Reasonable Efforts" means efforts and resources used to
bring to market an idea, discovery, product, or method of similar
market potential at a similar stage in its life taking into
consideration potential and market established competitive
alternatives, the competitiveness of the market place, the proprietary
nature of the idea, discovery, product, or method, the regulatory
structure involved, the profitability potential of the idea,
discovery, product or method, and
1
<PAGE>
other relevant factors. The level of efforts and resources appropriate
are unique for each idea, discovery, product, or method, and change
over time in reflection of changes in its development and in the
marketplace.
1.3 "GBA" means Genetic Bit Analysis or a primer extension assay defined
in the claims of Orchid Patents.
1.4 "Kit" means a kit containing one or more Terminators other than ddNTPs
and one or more reagents to be used for performing GBA.
1.5 "NEN Build-to-Ship Lead Time" means [*][[*]] days measured from the
date an order for Terminators is submitted by Orchid, or such time
period as NEN and Orchid may agree to from time to time, provided,
that if the total quantity ordered for delivery in a given month
exceeds the amount forecasted by Orchid for that month by the lesser
of [*][[*]] percent ([*][[*]]%) of the forecast or [*][[*]]
micromoles, the parties shall negotiate an acceptable lead time.
1.6 "NEN Patents" means U.S. Patent Nos. 5,047,519 and 5,151,507, any
issued divisions, continuations, continuations-in-part re-issues, re-
examinations, renewals or extensions thereof, and any non-U.S.
counterpart of either of said U.S. patents and any divisions,
continuations, continuations-in-part re-issues, re-examinations,
renewals or extensions thereof, which are owned by NEN, or under which
NEN has or obtains the right to grant rights, and which claim a
Terminator or the use of a Terminator, which claim has not lapsed,
become abandoned or been declared invalid or unenforceable by a non-
appealed or unappealable decision or judgement of a court or tribunal
of competent jurisdiction.
1.7 "Net Sales Revenues" means the total revenues invoiced by Orchid for
sales of Kits to third parties for use in the detection of genetic
polymorphisms by a method encompassed by at least one claim in the
Orchid Patents but using a technology platform other than an Orchid
technology platform less (i) sales taxes, tariff duties, and value
added or other excise taxes; (ii) transportation costs; (iii) amounts
credited on returns, replacements and allowances; and (iv) adjustments
for invoice errors (such as pricing errors) that do not involve
product returns, and excluding samples provided for promotional
purposes.
1.8 "Orchid Patents" means U.S. Patent No. 5,888,819, 5,952,174, 6,004,744
and 6,013,431 and any and all patent applications pending and patents
issuing from patent applications pending, or filed during the term of
this Agreement, any where in the world, or issuing from any divisions,
continuations, continuations-in-part of such applications, as well as
all other patents, including re-issues, re-examinations, renewals or
extensions thereof, any where in the world which are owned by Orchid,
or under which Orchid has or obtains the right to grant rights, and
which claim the use of a Terminator, or a method in which a Terminator
may be used, which claim has not lapsed, become abandoned or been
declared invalid or unenforceable by a non-appealed or unappealable
decision or judgment of a court or tribunal of competent jurisdiction.
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
2
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1.9 "Specifications" means the physical, chemical, quality, technical and
other standards for Terminators set forth on attached Schedule 1.9,
as same may be amended from time to time.
1.10 "Term" means the period beginning on the Effective Date and
continuing until the date of the last to expire NEN Patent, unless
earlier terminated as provided herein.
1.11 "Terminators" means alkynylamino acycloterminator analogs ("acyNTP"),
alkynylamino dideoxynucleotide analogs ("ddNTPs"), and other analogs
as to which the parties may agree, which are defined in NEN Patents
and act as chain terminators for a DNA/RNA polymerase.
2. License
2.1 NEN grants to Orchid an exclusive, royalty free, worldwide right and
license in and to the NEN Patents to manufacture, distribute, sell
and use Kits (with the right to grant sub-licenses to resellers who
are not Orchid distributors to sell Kits and to end-users to use
Kits) solely for the detection of genetic polymorphisms by GBA. The
right and license to manufacture granted in this provision does not
include the right to manufacture Terminators except as provided in
paragraphs 3.4.3 and 3.10.2. NEN further grants to Orchid a non-
exclusive, royalty free, worldwide right and license in and to the
NEN Patents to use Terminators, other than ddNTPs, (with the right to
grant sub-licenses) alone for GBA.
2.2 Orchid has been a distributor of ddNTPs purchased from NEN since
January 1, 1998, and, as such a distributor, has had and will
continue to have the right to use and sell ddNTPs purchased by Orchid
from NEN.
2.3 The right to grant sub-licenses under paragraph 2.1 to end-users to
use Terminators, other than ddNTPs, alone and not as a component or
part of a Kit is limited to the use by each end-user of no more than
one (1) micromole of Terminators in any consecutive twelve (12) month
period.
2.4 Notwithstanding paragraph 2.3, in the event Orchid no longer
manufactures, distributes, sells or uses Kits, then Orchid will have
a non-exclusive, royalty-free, worldwide right and license in and to
the NEN Patents to distribute, sell and use Terminators purchased
from NEN(with the right to grant sub-licenses) alone for GBA.
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3. Supply of Terminators
3.1 Purchase
3.1.1 During the Term of this Agreement, NEN will sell to Orchid, and
Orchid will purchase from NEN all of Orchid's requirements of
Terminators, except as provided by paragraphs 3.4.3 and 3.10.2.
3.1.2 All purchase orders placed by Orchid with NEN for Terminators
under this Agreement shall be in writing. The purchase orders
are subject and subordinate to and do not vary the terms and
provisions of this Agreement which, if other or different than
those of the purchase order, will be controlling even if the
purchase order is accepted and filled by NEN.
3.1.3 All purchase orders will be accepted on receipt unless NEN
notifies Orchid within ten (10) days of receipt of the purchase
order that NEN cannot or will not fill the purchase order.
3.1.4 Orchid agrees to provide NEN on the date that this Agreement is
signed by Orchid, and thereafter by the last business day of
each following calendar quarter, with a written, good faith,
rolling twelve (12) month, non-binding monthly forecast of its
expected purchases of Terminators. No forecast can increase the
purchase quantity forecasted for the first quarter over the
quantity forecasted in the last previous forecast for that
quarter by more than the lesser of [*][[*]] percent ([*][[*]]%)
of the last previous forecast for that quarter and [*][[*]]
micromoles.
3.1.5 Orchid agrees to place within fifteen (15) calendar days from
the date Orchid signs this Agreement a binding, non-cancelable
purchase order with NEN to purchase at least [*][[*]] dollars
($[*][[*]] ) of Terminators for the year 2000; such purchase
order not to be deferrable beyond December 31, 2000.
3.1.6 Orchid agrees that it shall not, in any purchase order placed
with NEN pursuant to this Agreement or in any instructions or
other communication related thereto, specify a release or
shipment date to NEN with respect to any order or any portion
thereof such that the period from the date of submission of
order to (i) the release date is less than the NEN Build-to-
Ship Lead Time in effect as of the date of the submission of
the order and (ii) the delivery date is less than the NEN
Build-to-Ship Lead Time in effect as of the date of the
submission of the order plus one (1) business day.
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COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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3.1.7 Orchid may defer or cancel delivery of any portion or all of
the Terminators specified in a purchase order by notifying NEN
at least three (3) business days prior to the requested
delivery date; provided that any such deferment or cancellation
shall not result in Orchid not meeting its purchase commitment
set forth in paragraph 3.1.5.
3.2 Minimum Orders
3.2.1 During the Term of this Agreement, Orchid will order and take
delivery of the following minimum quantities of Terminators
from NEN:
(1) During the first twelve (12) month period following the
Effective Date:
[*] micromoles;
(2) During the second twelve (12) month period:
[*] micromoles;
(3) During the third twelve (12) month period:
[*] micromoles;
(4) During the fourth twelve (12) month period, and each
subsequent twelve (12) month period:
[*] micromoles.
3.2.2 In the event that Orchid fails to order and take delivery of
the minimum quantity of Terminators in a twelve-month period,
Orchid will pay to NEN, within thirty (30) days after receipt
of an invoice therefore at the end of that twelve-month period,
a sum equal to the purchase price of the quantity of
Terminators by which Orchid failed to reach the minimum
quantity, calculated as if such quantity of Terminators were
purchased in a single order for single delivery at the average
price chargeable for all Terminators in such single order
quantity for that twelve-month period.
3.2.3 If this Agreement is terminated by NEN without cause or by
Orchid for cause (as the term "cause" is used in section 14 of
this Agreement) or pursuant to paragraph 14.2 prior to the end
of a twelve-month period, the minimum quantity of Terminators
Orchid is obligated to order and take delivery from NEN for
that twelve-month period will be pro-rata reduced in proportion
to the time the Agreement was not in effect during the twelve-
month period.
3.2.4 Receipt of payment of the sum set forth in paragraph 3.2.2 is
NEN's sole
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COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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and exclusive remedy for any failure of Orchid to order from
NEN any quantity of Terminators, but not for any failure of
Orchid to meet its purchasing obligations under paragraph 3.1.5
or for any failure of Orchid to accept delivery of any quantity
of Terminators ordered if such order is not timely deferred or
canceled pursuant to paragraph 3.1.7.
3.2.5 The minimum quantity of Terminators of Orchid's purchase
commitment set forth in paragraph 3.2.1 for any given twelve-
month period, or shorter period if the Agreement is terminated,
shall be reduced to the extent that, during that twelve-month
period, (a) NEN is unable or fails for any reason to supply or
deliver a quantity of Terminators against an order submitted by
Orchid and Orchid is not in material breach of this Agreement,
unless such inability or failure is by reason of (i) Orchid not
complying with the provisions of paragraph 3.1.6 or (ii)
Orchid's failure to place and not cancel or defer beyond the
period in question purchase orders for delivery of the minimum
quantity, (b) Orchid purchases Third Party Terminators as
provided by paragraph 3.4.3, and (c) Orchid manufactures or
obtains from another source Terminators as provided by
paragraph 3.10.2.
3.3 Preferred Terminators
3.3.1 Orchid and NEN mutually prefer that, at some future time,
Orchid will have no need for ddNTP Terminators and that NEN
will supply and sell to Orchid all acyNTP Terminators needed.
3.3.2 Both Orchid and NEN, however, recognize that at present Orchid
needs [*] Kits and GBA instrumentation.
3.3.3 Orchid will use Commercially Reasonable Efforts to diligently
refine and develop Kits and GBA instrumentation.
3.3.4 NEN will use Commercially Reasonable Efforts to diligently
refine and develop acyNTP Terminators for optimal use in Kits
and Orchid's present and future GBA instrumentation.
3.3.5 Until such time as Orchid's Kits and GBA instrumentation make
optimal use of acyNTP Terminators to the satisfaction of Orchid
and Orchid's customers, to the extent manufactured by NEN, NEN
will continue to supply and sell to Orchid ddNTP Terminators
and other Terminators under this Agreement.
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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3.4 Improved Terminators
3.4.1 NEN will promptly notify Orchid of any new Terminators
developed by or for it, or supplied to it, when any such new
Terminator is ready for evaluation, and will provide samples of
such new Terminators for Orchid to determine whether the new
Terminator is an improvement (in price or performance) over
existing Terminators.
3.4.2 NEN will offer for sale to Orchid any new Terminators developed
by or for it, or supplied to or manufactured by it, and will
sell such new Terminators to Orchid, if Orchid so desires, on
mutually agreeable terms and conditions; such terms and
conditions to be no less favorable than those by which NEN may
sell such new Terminator to any third party and include a
provision that NEN will not sell such new Terminator to any
third party in quantities of [*] micromoles or more for use in
genotyping applications at a price that is less than [*]
percent ([*]%) of the price charged Orchid for equivalent
quantities of that Terminator.
3.4.3 In the event that, at any time during the Term of this
Agreement, any third party sells or offers to sell any chain
terminators for a DNA/RNA polymerase reactions ("Third Party
Terminator") which is not subject of a claim of a NEN Patent,
and which, in Orchid's reasonable judgment, is an improvement
(in price for similar quantities to be purchased or
performance) over a Terminator then sold to Orchid by NEN,
Orchid may meet any or all of its requirements for Terminators
through purchase of Third Party Terminators from the third
party.
3.4.4 Orchid's right to purchase Third Party Terminators from third
parties notwithstanding the provisions of paragraph 3.1.1 may
not be exercised until NEN has been afforded thirty (30) days
to make an offer to sell to Orchid Terminators which are, in
Orchid's sole and reasonable judgment, at least equal or better
in price and performance to the Third Party Terminators offered
by the third party. The thirty (30) day period mentioned in
this provision shall not begin until Orchid has advised NEN in
writing of the performance and/or price specifications of the
Third Party Terminator and the basis on which Orchid has
concluded that the Third Party Terminator is an improvement
over a Terminator then sold to Orchid by NEN.
3.5 Delivery
3.5.1 Time of Delivery
(1) NEN's obligation of delivery is and will remain on a best
efforts basis. NEN will use its best efforts to deliver to
Orchid such quantity of Terminators or any portion thereof
on or before the date requested in Orchid's purchase order;
provided Orchid is not
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COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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in material breach of this Agreement and each such purchase
order and other written communication from Orchid to NEN as
to the delivery of such quantity or any portion thereof is
in compliance with paragraphs 3.1.6.
(2) Orchid may cancel any purchase order, in whole or in part
if not delivered on time.
(3) In case of deliveries that would be late if shipped through
normal shipment channels, Orchid may require NEN to ship by
express and NEN will pay the difference between the freight
and the express rate.
3.5.2 NEN will ship Terminators, freight prepaid, F.O.B. NEN's
facility at 549 Albany Street, Boston, Massachusetts.
3.5.3 Orchid will be invoiced for all taxes assessed and NEN's
standard handling fee in lieu of all shipping charges, freight,
insurance, special handling (where required) and similar costs.
3.6 Price
3.6.1 Price Schedule
(1) The price schedule for Terminators is on attached Schedule
3.6.1(1). The prices are for Terminators defined as either
ddNTPs or acyNTPs and each group has attached either a
hapten or dye marker and are for single shipment orders.
Quantities of different Terminators within each grouping
and marker type ordered in the same purchase order and
shipped in a single shipment may be added to determine the
lowest unit price for that grouping.
(2) Orchid will be entitled to the single shipment price even
in the event NEN is unable, or unwilling, to ship an order
in a single shipment if the Terminators have been ordered
by Orchid in a single purchase order with a specified
preference in said purchase order for a single shipment of
all Terminators ordered.
(3) The prices for acyNTP Terminators are discounted from the
prices for ddNTP Terminators based on their having equal
biological performance. This discount may be adjusted by
mutual agreement of the parties to reflect any inequity in
performance, but NEN agrees that, during the Term of this
Agreement, the prices for acyNTP Terminators will always be
at discounted prices from those charged by NEN for ddNTP
Terminators.
3.6.2 Price Increases
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(1) NEN, at any time after one (1) year from the Effective Date of
this Agreement, may increase its prices (and amend Schedule
3.6.1(1) accordingly) if it incurs extraordinary increases in its
cost of delivering (including manufacture) Terminators to Orchid
by giving Orchid thirty (30) days prior written notice of such
price change and documentation demonstrating the extraordinary
costs. Prices may be increased by any amount up to [*] of that
Terminator before NEN incurred the extraordinary cost. For the
purpose of this provision, "extraordinary increases" in cost of
delivery means a cumulative increase during the term hereof in
NEN's total cost of delivery (including manufacture) of more than
[*] percent ([*]%) since the latter of the Effective Date or the
last previous price adjustment pursuant to this paragraph.
(2) Orders accepted by NEN prior to the effective date of any price
increase will be invoiced at the accepted price and will not be
subject to the price increase.
(3) As of the effective date of any price increase to Orchid, the
prices charged third parties will be adjusted by NEN such that
they are at least [*] percent ([*]%) of the increased price to
Orchid for equivalent quantities of the same Terminator.
3.7 Premium
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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(1)
3.7.2 Orchid shall, for a period of at least three (3) years after
any report required by paragraph 3.7.3, maintain at its
principal place of business true and complete books of account,
records and other data (hereinafter "Records") containing all
particulars reasonably necessary to determine the amounts
payable by Orchid to NEN at the end of each year pursuant to
paragraph 3.7.1. During such three-years periods, NEN shall
have the right to engage an independent, nationally-recognized
accounting firm, reasonably acceptable to Orchid, which firm
may examine during normal business hours and at times
reasonably acceptable to Orchid, on at least two (2) weeks
prior written notice, such Records reasonably necessary to
verify the accuracy of any amounts paid by Orchid to NEN
pursuant to paragraph 3.7.1; provided, however, that such
examination shall not take place more often than once per year
and shall not cover such Records for more than the preceding
three (3) years and provided further that such accounting firm
shall report only to NEN and Orchid only as to the accuracy of
the payments and the reports thereof and shall not disclose any
other information to NEN or any third party disclosed,
discerned or derived from the examination. In the event any
examination on behalf of NEN of Orchid's Records disclose
underpayment to NEN which for any year exceeds [*] percent
([*]%) of the amount theretofore actually paid by Orchid to NEN
with respect to such year, Orchid shall reimburse NEN on demand
for the reasonable and documented costs and expenses,
including, but not limited to, all professional fees, incurred
in connection with any such examination and shall compensate
NEN in an amount equal to the sum of the amount of the
underpayment and all applicable late fees.
3.7.3 The payments set forth in paragraph 3.7.1 shall, if overdue,
bear interest until payment at an annual rate of [*] percent
([*] %) computed from the date when the payment became overdue;
provided, however, that if such [*] percent ([*] %) rate shall
be in excess of that allowed by applicable law, then the
highest rate permitted by law shall apply.
3.8 Payment
3.8.1 Payments will be made in United States Dollars within thirty
(30) days of the invoice date or the shipment date, whichever
is later.
(1) Late payments shall bear interest at the prime rate as
published in The Wall Street Journal on the first business
day of each month in which the payment is late plus two
percent (2%), and calculated on the basis of a three
hundred sixty (360) day year.
3.9 Inspection and Return or Refund
3.9.1 Within thirty (30) days of delivery, Orchid may conduct
acceptance
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COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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testing or verification by [*] that received Terminators are in
conformance with Specifications, are not defective, and are in
good order and condition.
3.9.2 At Orchid's option, NEN will promptly replace, or refund any
payment made on, any Terminator that is in nonconformance with
Specifications, defective or not in good order or condition.
3.9.3 Orchid will as directed by NEN either destroy or return, at
NEN's expense, Terminators that do not conform to their
Specifications, are defective, or are not in good order or
condition.
3.9.4 Orchid's right to replacement or refund does not limit its
rights under paragraph 3.10.2.
3.10 Allocation and Alternate Source
3.10.1 In the event that demand for any Terminator should at any time
exceed NEN's capacity to fill and deliver all of its orders
(and its own need for Terminators), NEN will notify Orchid of
the excess demand. Until such time as the excess demand abates
or NEN's capacity becomes sufficient to meet such demand, NEN
will have the right to equitably allocate its available
supplies, manufacturing capacity, inventory and other
resources, among Orchid, itself and its other customers.
3.10.2 In the event NEN is unable for any reason, other than by
reason of Orchid placing orders that fail to comply with the
provisions of paragraph 3.1.6, to supply Orchid's total
requirements of Terminators for [*] ([*]) days from the
delivery date set out in Orchid's purchase order, Orchid may
itself manufacture or obtain from any other source any portion
or all of its requirements for Terminators for so long as NEN
is unable to supply all of Orchid's requirements and for [*]
months from the date NEN notifies Orchid it is once again able
to meet all of Orchid's requirements. NEN will provide Orchid
with technical assistance and information as may be reasonably
required by Orchid to establish an alternate source of
Terminators, including, but not limited to the right to
manufacture Terminators.
4. Collaborative Research Program
4.1 The parties shall, within [*] days from the Effective Date negotiate
in good faith a collaborative research program agreement.
5. Patent Enforcement
5.1 In the event either party learns that any third party is or might be
infringing, or preparing to infringe, any NEN Patent or Orchid Patent,
it will promptly notify the other of such third-party activity.
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COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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5.2 Each party will be solely responsible for and have the sole right of
taking any action against infringement of a patent or other
proprietary right which is exclusive to it, at its expense and for its
benefit. Neither party, however, has any obligation to take any action
against any infringement.
6. Labeling
6.1 Orchid will mark or label in an appropriate manner each Kit it sells
containing a Terminator encompassed by a claim of a NEN Patent with a
patent notice in accordance with the provisions of 35 U.S.C. (S) 287.
6.2 Orchid will label or mark in an appropriate manner each Kit it sells
containing an acyNTP Terminator(s) supplied by NEN with a statement
that the Kit incorporates a reagent(s) manufactured and supplied by
NEN.
6.3 Orchid also will label or mark in an appropriate manner each Kit it
sells containing an acyNTP Terminator with the respective language set
forth in attached Schedule 6.3.
6.4 For each Kit Orchid will display NEN's logo in an appropriate manner.
6.5 At NEN's earliest opportunity, but in no event later than ninety (90)
days from the Effective Date, NEN will label or mark in an appropriate
manner each Terminator (and in all marketing, advertising, promotional
and sales materials, whether print or electronic media, which
materials relate to the use of Terminators for genotyping) it sells to
any third party which may be used to practice any method encompassed
by a claim of an Orchid Patent with the language set forth in attached
Schedule 6.5.
7. Use of Names
7.1 Except as obligated by section 6, nothing in this Agreement confers to
either party any right to use in publicity, advertising, promotion, or
marketing any name, trade name, trade mark or other designation of the
other party, without the other party's prior permission, such
permission not to be unreasonably withheld.
7.2 Neither Orchid nor NEN will advertise, promote, market or sell any
product (including Terminators and Kits) under any trade name, trade
mark or trade dress which is the same as, or confusingly similar to,
any trade name, trademark, or trade dress in which the other, or its
Affiliates, have a prior and existing interest, whether as owner,
licensee or licensor.
8. Confidentiality
8.1 Both NEN and Orchid will keep confidential all (i) prices and price
schedules, (ii) information received from the other that is identified
in writing as being confidential or proprietary at the time it is
delivered or communicated, and (iii)
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information of the other which is delivered or disclosed in
performance of this Agreement and within thirty (30) days from and
after disclosure is identified in writing by the disclosing party to
the recipient as confidential, (collectively, and individually,
"Confidential Information").
8.2 Orchid and NEN will not disclose any Confidential Information of the
other to any person or party other than to employees, consultants or
agents of NEN and of its Affiliates or employees, consultants or
agents of Orchid and of its Affiliates engaged directly or indirectly
in activities related to the supply of Terminators or the
Collaborative Research Program and who have been properly instructed
to and have agreed in writing to maintain the Confidential Information
in confidence.
8.3 Orchid and NEN will take all steps as are reasonably required to
ensure that all persons to whom it is authorized to disclose
Confidential Information of the other will not disclose the same to
any unauthorized person.
8.4 Either Orchid or NEN, however, may disclose:
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8.4.1 Confidential Information of the disclosing party that is known
to the receiving party prior to the time of its disclosure or
communication thereto, to the extent evidenced by written
records;
8.4.2 Confidential Information of the disclosing party that is
disclosed to the receiving party by a third party not under an
obligation of confidentiality;
8.4.3 Confidential Information that becomes published or otherwise
part of the public domain other than as a result of acts by the
receiving party not authorized by this Agreement or otherwise
authorized by the disclosing party; and
8.4.4 Confidential Information that is required to be disclosed by
order of any governmental authority or court of competent
jurisdiction, provided, if the receiving party becomes legally
compelled to disclose Confidential Information of the
disclosing party, the receiving party will provide the
disclosing party with prompt notice so that the disclosing
party may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this Agreement,
and, if in the absence of a protective order or the receipt of
a waiver, the receiving party nevertheless is legally required
to disclose Confidential Information of the other to any
governmental authority or court of competent jurisdiction or
else stand liable for contempt or suffer other censure or
penalty, the receiving party may disclose such Confidential
Information, to the most limited extent feasible, without
liability under this Agreement.
8.5 The obligations of this section 8 survive any termination or
expiration of this Agreement.
9. Option to Manufacture
9.1 In the event that Orchid decides to engage a third party to
manufacture Kits for it, Orchid will notify NEN and afford NEN the
opportunity to make an offer to manufacture Kits for Orchid. At the
same time Orchid may solicit and entertain offers from third parties
for the manufacture of Kits. However, Orchid may not accept any third-
party offer until thirty (30) days after it offers the same terms and
conditions as the third-party offer to NEN and NEN has not accepted
such terms and conditions. The option and rights provided by this
paragraph are personal to NEN and may not be sub-licensed or otherwise
transferred without the prior express written approval of Orchid.
9.2 Notwithstanding paragraph 9.1, Orchid agrees not to engage any third
party to manufacture for it any Kit containing a Terminator supplied
to Orchid by NEN.
10. Equity Investment
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<PAGE>
10.1 On or before the date Orchid fulfills its payment obligation under
paragraph 3.6.2(2) to NEN, NEN will purchase one hundred twenty-five
thousand (125,000) shares of Orchid common stock, par value $0.001 per
share, at six dollars ($6.00) per share for an aggregate purchase
price of seven hundred fifty thousand dollars ($750,000), pursuant to
the terms and conditions set forth in the Common Stock Purchase
Agreement to be executed between Orchid and NEN in substantially the
form attached as Schedule 10.1. The parties acknowledge that the per
share purchase price includes a premium over current fair market value
of Orchid's Common Stock as partial consideration for the obligations
of Orchid set forth herein.
11. Announcements
11.1 NEN and Orchid will together draft and make public a joint press
release announcing their execution of this Agreement and its general
terms, but not any prices or price schedules, within ten (10) days of
execution of this Agreement by both parties.
11.2 Any further public announcements of the existence, terms or
performance of this Agreement will be at times and in manners as NEN
and Orchid may mutually agree.
11.3 Nothing in this Agreement, however, prevents either party from making
any public announcement which it is or becomes legally obligated to
make.
12. Warranties
12.1 NEN warrants that, at the time of shipment, any Terminator supplied or
sold to Orchid will (i) be free and clear of all liens and
encumbrances, with NEN having good title thereto, (ii) be free from
any defects in materials and workmanship, and (iii) conform to its
Specifications. NEN warrants that the sale of any Terminator delivered
hereunder will not infringe the claims of any patent covering the
Terminators themselves, but does not warrant against infringement by
reason of the use thereof in combination with other products or in the
operation of any process. Unless stated elsewhere in this Agreement,
NEN MAKES NO OTHER WARRANTY, EXPRESSED OR IMPLIED, WITH RESPECT TO THE
PRODUCTS INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE. Notification of any breach of warranty under (ii)
and (iii), above, must be made within thirty (30) days of Orchid's
receipt of the order unless otherwise provided in writing by NEN. No
claim shall be honored if Orchid fails to notify NEN within the period
specified. THE SOLE AND EXCLUSIVE REMEDY OF ORCHID FOR ANY LIABILITY
OF NEN OF ANY KIND INCLUDING LIABILITY BASED UPON WARRANTY (EXPRESSED
OR IMPLIED, WHETHER CONTAINED HEREIN OR ELSEWHERE), STRICT LIABILITY,
CONTRACT, OR OTHERWISE IS LIMITED TO THE REPLACEMENT OF THE GOODS OR
THE REFUND OF THE INVOICE PRICE OF THE GOODS. NEN SHALL
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<PAGE>
NOT IN ANY CASE BE LIABLE FOR SPECIAL, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES OF ANY KIND.
12.2 NEN represents and warrants that none of the NEN Patents are the
subject of any litigation and that it is not aware of any
infringement of any of the NEN Patents.
12.3 NEN MAKES NO WARRANTY OR REPRESENTATION THAT ANY COMBINATION OF A
TERMINATOR WITH ANY OTHER PRODUCT, OR ANY USE OF A TERMINATOR WILL
NOT INFRINGE ANY PATENT, TRADE SECRET OR OTHER PROPRIETARY RIGHT,
FOREIGN OR DOMESTIC, OF ANY THIRD PARTY.
12.4 THERE ARE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, RESPECTING
TERMINATORS AND NONE ARE CREATED, WHETHER UNDER THE UNIFORM
COMMERCIAL CODE, CUSTOM OR USAGE IN THE INDUSTRY OR THE COURSE OF
DEALINGS BETWEEN THE PARTIES.
13. Indemnification
13.1 NEN agrees to indemnify, defend, and hold harmless Orchid, its
Affiliates and their directors, officers, agents, employees,
representatives and assigns, from and against all liabilities,
damages, expenses and losses (including reasonable attorney fees and
costs), arising out of (i) the negligent actions of NEN, its
employees or any third party acting on behalf or under authority of
NEN in the performance of this Agreement, (ii) any alleged patent
infringement, contributory patent infringement, inducing patent
infringement, or trade secret infringement based on Orchid's purchase
or sale pursuant to the provisions of this Agreement of the
Terminators. At any time during the course of any action involving a
Terminator, or if in NEN's opinion a Terminator is likely to become
the subject of a patent infringement claim, NEN may at its option and
expense, (i) procure for Orchid the right to continue using and
selling pursuant to the provisions of this Agreement the Terminator,
(ii) replace or modify the Terminator so that it becomes non-
infringing or (iii) accept return of the Terminator and refund the
purchase price.
13.2 NEN will not be liable to Orchid under paragraph 13.1 if the patent
or trade secret infringement claim is based on an alteration or
modification of the Terminator.
13.3 Orchid agrees to indemnify, defend and hold harmless NEN, its
Affiliates, and their directors, officers, agents, employees, and
assigns, from and against all liabilities, demands, damages, expenses
and losses (including reasonable attorney fees and costs) arising out
of (i) the negligent actions of Orchid, its employees or any third
party acting on behalf or under authority of Orchid in the
performance of this Agreement, (ii) any sale or use by Orchid of any
Kit or Terminator, except those liabilities, demands, damages,
expenses and losses resulting from NEN's (or its employees' or
agents') negligence, willful misconduct or breach of any
representation or warranty and (iii) any alleged patent infringement,
contributory
16
<PAGE>
patent infringement, inducing patent infringement, or trade secret
infringement based on Orchid's use of the Terminators.
13.4 A party seeking indemnification under this Agreement will give prompt
written notice to the indemnifying party of the commencement of any
action (and any prior claims relating to such action) for which the
party seeks indemnification. An indemnifying party will have no
liability or responsibility of any kind to the party seeking the
indemnification if it is not promptly notified.
13.5 If an indemnifying party is given prompt notice, but fails or
declines to assume the defense of any such claim or action within
fifteen (15) days after notice thereof, the indemnified party may
assume the defense of such claim or action for the account and at the
risk of the indemnifying party, and any liabilities related thereto
shall be conclusively deemed a liability of the indemnifying party.
13.6 Except as provided in paragraph 13.5, an indemnifying party will have
sole control of the defense of the action and of all negotiations for
its settlement or compromise. An indemnifying party, however is not
permitted to settle or compromise any claim or action giving rise in
a manner that imposes any restrictions or obligations on the
indemnified party, without the indemnified party's prior written
consent.
13.7 The indemnification rights of an indemnified party under this
Agreement are in addition to all other rights which the indemnified
party may have at law or in equity or otherwise.
13.8 Nothing in this section 13 shall be construed to prohibit the
indemnified party, at its own cost and expense, from retaining
counsel to participate in the claim or action as to which the party
is indemnified.
13.9 This section 13 survives any termination or expiration of this
Agreement.
14. Term and Termination
14.1 The Term of this Agreement is from the Effective Date through to the
expiration date of the last to expire NEN Patent, unless this
Agreement is earlier terminated pursuant to the provisions of
paragraph 14.2, 14.3 or 14.4.
14.2 Orchid and NEN each has the right to terminate this Agreement at any
time after [*] years from the Effective Date, without reason or
cause, upon ninety (90) days prior written notice.
14.3 Orchid and NEN each have the right to terminate this Agreement for
cause if the other fails to make any payment due and owing, or
commits breach of any material provision of this Agreement and fails
to make such payment or remedy such breach within sixty (60) days
after receiving written notice of such default or breach.
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
17
<PAGE>
14.4 NEN and Orchid each have the right to terminate this Agreement for
cause if any proceeding is instituted by or against the other seeking
to adjudicate it bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking an entry of an order for relief or the appointment of a
receiver, trustee or other similar official for it or any substantial
part of its property or taking any action to authorize any of the
foregoing or similar actions if the proceeding or order or action is
not vacated, denied or dismissed within ninety (90) days after the
other receives written notice of termination from the terminating
party. All rights and licenses granted under this Agreement are
deemed to be, for purposes of Section 365(n) of the United States
Bankruptcy Code, license or rights to "intellectual property" as
defined by Section 101(56) of the United States Bankruptcy Code. The
parties agree to relief from the automatic stay provisions under
Section 362 of the Bankruptcy Code.
14.5 Termination or expiration of this Agreement does not release Orchid
or NEN from any obligation theretofore accrued.
15. Rights After Termination
15.1 Upon a party giving notice of termination of this Agreement, NEN will
fill all accepted purchase orders of Orchid, unless cancelled by
Orchid, and Orchid, its Affiliates and sub-licensees may finish all
Kits in the process of manufacture, and advertise, promote, market
and sell such Kits and all Kits in inventory. Orchid shall pay for
all such outstanding purchase orders filled and shall not submit any
purchase orders after the date of the notice of termination.
15.2 This section 15 shall survive termination of this Agreement.
16. Miscellaneous
16.1 The relationship of Orchid and NEN under this Agreement is that of
independent contractors. The provisions of this Agreement will not be
construed to create between Orchid and NEN the relationship of
principal and agent, joint venturers, co-partners or any other
similar relationship, the existence of which is hereby denied by
Orchid and NEN. Neither party will be liable in any way for any
engagement, obligation, liability, contract, representation or
warranty of the other party to or with any third party. Orchid is not
an agent for NEN and NEN is not an agent for Orchid for any purpose
and each party has no right or authority to assume or create any
obligations, express or implied, on behalf or in the name of the
other party.
16.2 No waiver of any breach of any provision of this Agreement will
constitute a waiver of any prior, concurrent or subsequent breach of
the same or any other provision of this Agreement; and no waiver will
be effective unless in writing.
18
<PAGE>
16.3 Any notice required or permitted under this Agreement will be
sufficiently provided and effectively made as of the delivery date if
sent by facsimile and either hand-delivered or sent by overnight
express courier (e.g. Federal Express) and addressed to the receiving
party at its respective address as follows:
Orchid Biocomputer, Inc.
303 College Road East
Princeton, NJ 08540
Facsimile: 609-750-2250
Attn: President
With a courtesy copy to:
Kalow Springut & Bressler LLP
488 Madison Avenue
New York, NY 10022
Facsimile: (212) 813-9600
Attn.: David A. Kalow
Kenneth L. Bressler
NEN Life Science Products, Inc.
549 Albany Street
Boston, MA 02118
Facsimile: 617-542-8463
Attn: President
With a courtesy copy to:
NEN Life Science Products, Inc.
549 Albany Street
Boston, MA 02118
Facsimile: 617-542-8463
Attn: Company Secretary
or such other address of which the receiving party has given notice
pursuant to this paragraph 16.3. The effective date of the notice is
the date of receipt of the hand or courier delivery.
16.4 In the event that the performance of this Agreement or of an
obligation hereunder, other than the payment of money, is prevented,
restricted or interfered with by reason of any cause not within the
control of the respective party, and which could not by reasonable
diligence have been avoided by such party, the party so affected,
upon the giving of prompt notice to the other party, as to the nature
and probable duration of such event, will be excused from such
performance to the extent and for the duration of such prevention,
restriction or interference,
19
<PAGE>
provided that the party so affected uses its reasonable efforts to
avoid or remove such cause of non-performance and will fulfill and
continue performance under this Agreement whenever and to the extent
such cause or causes are removed. For the purpose of this paragraph,
but without limiting the generality hereof, the following are not
within the control of a party: acts of God; acts or omissions of a
governmental agency or body; compliance with requests,
recommendations, rules, regulations, or orders of any governmental
authority or any officer, department, agency, or instrument thereof;
flood; storm; earthquake; fire; war; insurrection; riot; accidents;
acts of the public enemy; invasion; disease: quarantine restrictions;
strike; labor lockout; differences with workmen; embargoes; delays or
failures in transportation; and acts of a similar nature.
16.5 The laws of the State of Delaware, without regard to conflicts of
laws provisions, govern this Agreement.
16.6 Both NEN and Orchid consent to the personal jurisdiction and venue of
the United States District Court for the District of Delaware; and
such court will have exclusive jurisdiction over any dispute between
the parties arising under this Agreement. NEN and Orchid both further
consent that any process or notice of motion or other application to
the Court or Judge thereof may be served by registered or certified
mail or by personal service, provided a reasonable period of time for
appearance is allowed.
16.7 If any provision of this Agreement is held to be invalid, illegal,
unenforceable or void, such will be without effect on the validity,
legality and enforceability of the remaining provisions or this
Agreement as a whole. Both parties will endeavor to replace the
invalid, illegal, unenforceable or void provision with a valid and
enforceable one which in its equitable effect is most consistent with
the prior provision.
16.8 The section and paragraph headings and numbering are for convenience
only and cannot have any effect on the interpretation or construction
of this Agreement.
16.9 This Agreement is binding upon and inures to the benefit of the
heirs, successors and assigns of the parties hereto, provided that
this Agreement, in whole or in part, is not assignable by either
party without the prior written consent of the other party, such
consent not to be unreasonably withheld, except that either party may
assign this Agreement to any successor by merger or sale of a party
or of substantially all of its business or assets to which this
Agreement pertains and Orchid may assign this Agreement to an
Affiliate of Orchid without any such consent, provided Orchid
guarantees all performance obligations of Affiliate under this
Agreement post assignment. Any effort to assign in violation hereof
is void. In the event of any assignment, the assigning party must
provide the other party with appropriate documentation of the
assignment.
16.10 Each party acknowledges that it has read this Agreement, understands
it, and agrees to be bound by its terms and further agrees that it
constitutes the complete
20
<PAGE>
and exclusive understanding between the parties, which supersedes and
merges all prior proposals, understandings and all other agreements,
oral and written, between the parties regarding the subject matter of
this Agreement, including without limitation the letter from NEN to
Orchid dated August 19, 1999; and no party has relied on any
representation not expressly set forth or referred to in this
Agreement.
16.11 No amendment, variation, waiver or modification of any of the terms
or provisions of this Agreement will be effected unless set forth in
writing, specifically referencing this Agreement, and duly signed by
an authorized officer of the party to be bound thereby.
16.12 This Agreement may be executed in two or more counterparts, all of
which constitute one and the same legal instrument and each of which
shall constitute an original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
NEN LIFE SCIENCE PRODUCTS, INC. ORCHID BIOCOMPUTER, INC.
By: /s/ Russell D. Hays By: /s/ Dale R. Pfost
----------------------------- -----------------------------
Russell D. Hays Name: Dale Pfost
President and Chief Executive Officer ---------------------------
Title: CEO
--------------------------
21
<PAGE>
SCHEDULE 1.9
SPECIFICATIONS
--------------
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
22
<PAGE>
SCHEDULE 3.6.1(1)
PRICE
-----
1. AcyNTP Pricing per Micromole (based on per purchase order/single shipment)
TERMINATOR REPORTER
MICROMOLES HAPTEN DYE
---------- ------ ---
[*]
2. ddNTP Pricing per Micromole (based on per purchase order/single shipment)
-------------------------------------------------------------------------
TERMINATOR REPORTER
MICROMOLES HAPTEN DYE
---------- ------ ---
[*]
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
23
<PAGE>
SCHEDULE 6.3
ORCHID KIT AND TERMINATOR LABELING
----------------------------------
Labeling to be placed on Kits by Orchid:
- ---------------------------------------
"This product is distributed and sold under licenses from Orchid Biocomputer,
Inc. and contains reagents sold under license from NEN LIFE SCIENCE PRODUCTS,
INC., for research use only for the detection of genetic polymorphisms by the
method of Genetic Bit Analysis (GBA/(R)/) and are not authorized nor intended
for diagnostic or therapeutic use or for any development of these products. No
other license is intended or granted through sale of this product to purchaser.
Purchase other than by an authorized distributor or reseller does not include
the right to resell or transfer this product either as a stand alone product or
as a component of another product or to otherwise commercially exploit this
product. Any use of this product other than the licensed use without the prior,
express written authorizations of Orchid Biocomputer, Inc. and NEN LIFE SCIENCE
PRODUCTS, INC. is strictly prohibited."
Labeling to be placed by Orchid on acyNTP Terminators sold independent of Kits:
- ------------------------------------------------------------------------------
"This product is distributed and sold under licenses from Orchid Biocomputer,
Inc. and NEN LIFE SCIENCE PRODUCTS, INC., for research use only for the
detection of genetic polymorphisms by the method of Genetic Bit Analysis
(GBA/(R)/) and are not authorized nor intended for diagnostic or therapeutic use
or for any development of these products. No other license is intended or
granted through sale of this product to purchaser. Purchase does not include or
carry any right to resell or transfer this product either as a standalone
product or as a component of another product or to otherwise commercially
exploit this product. Any use of this product other than the licensed use
without the prior, express written authorization of Orchid Biocomputer, Inc. and
NEN LIFE SCIENCE PRODUCTS, INC. is strictly prohibited.
"This product may not be used for DNA sequencing unless (a) used with a DNA
sequencer instrument purchased from NEN Life Science Products, Inc. or its
sublicensees, or (b) a separate license for such use is obtained from PE
Biosystems, Inc., Foster City, CA."
Labeling to be placed by Orchid on ddNTP Terminators:
- ----------------------------------------------------
"This product is distributed and sold under licenses from Orchid Biocomputer,
Inc. and NEN LIFE SCIENCE PRODUCTS, INC., for research use only for the
detection of genetic polymorphisms by the method of Genetic Bit Analysis
(GBA/(R)/) and are not authorized nor intended for diagnostic or therapeutic use
or for any development of these products. No other license is intended or
granted through sale of this product to purchaser. Purchase does not include or
carry any right to resell or transfer this product either as a stand alone
product or as a component of another product or to otherwise commercially
exploit this product. Any use of this product other than the licensed use
without the prior, express written authorization of Orchid Biocomputer, Inc. and
NEN LIFE SCIENCE PRODUCTS, INC. is strictly prohibited.
"This product may not be used for DNA sequencing unless (a) used with a DNA
sequencer instrument purchased from NEN Life Science Products, Inc. or its
sublicensees, or (b) a separate license for such use is obtained from PE
Biosystems, Inc., Foster City, CA.
"For Research Use Only: This product is distributed and sold under an
arrangement between ENZO DIAGNOSTICS, INC. and NEN LIFE SCIENCE PRODUCTS, INC.
for research purposes only by the end-user in the research market and is not
intended for diagnostic or therapeutic use. Purchase does not include or carry
any right or license to use, develop, or otherwise exploit this product
commercially. Any commercial use, development or exploitation of this product
without the express prior written authorization of ENZO DIAGNOSTICS, INC. and
NEN LIFE SCIENCE PRODUCTS, INC. is strictly prohibited.
"This product or the use of this product may be covered by one or more Enzo
patents, including the following: U.S. Patent Nos. 4,994,373, 5,476,928,
5,328,824; 5,449,767; 4,707,440; 4,952,685; 5,002,885; and 5,013,831; and DK 164
407 8; and by one or more patents owned by NEN, including U.S. Patent Nos.
5,047,519; 5,151,507; and 5,608,063."
24
<PAGE>
SCHEDULE 6.5
NEN TERMINATOR LABELING
-----------------------
Labels to be placed by NEN on Terminators:
- -----------------------------------------
"This product may not be used for Genetic Bit Analysis(R) unless (A) used with a
SNPstream(R) instrument purchased from Orchid Biocomputer, Inc., or (B) a
separate license for such use is obtained from Orchid Biocomputer, Inc. of
Princeton NJ."
25
<PAGE>
SCHEDULE 10.1
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
THIS AGREEMENT dated as of February 16, 2000 is by and between ORCHID
BIOSCIENCES, INC. (the "Company"), a Delaware corporation with principal offices
at 303 College Rd. East, Princeton, NJ 08543, USA, and NEN Life Science
Products, Inc. (the "Purchaser"), a Delaware corporation with principal offices
at 549 Albany St., Boston, MA 02118.
WHEREAS the Company wishes to obtain equity financing and the Purchaser is
willing to purchase and the Company is willing to sell, on the terms and
conditions contained in this Agreement, shares of Common Stock of the Company.
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
parties agree as follows:
SECTION 1. Authorization of Sale of the Shares. The Company has authorized
-----------------------------------
the sale to the Purchaser of 125,000 shares (the "Shares") of the Common Stock,
par value per share, of the Company (the "Common Stock") at a purchase price of
$ [*]per share, which price is at a premium to the current fair market value of
the Common Stock.
SECTION 2. Sale and Purchase of Shares; Limitations on Transfer; Certain
-------------------------------------------------------------
Other Rights.
- ------------
2.1 Sale and Purchase of Shares. At the Closing (as defined in Section
---------------------------
3), the Company will sell to the Purchaser, and the Purchaser will buy from the
Company, upon the terms and conditions hereinafter set forth, the Shares, at an
aggregate purchase price of $ (the "Purchase Price").
2.2 Right of First Refusal. If the Purchaser desires to sell all or any
----------------------
part of the Shares at any time after the Closing and has received in writing an
irrevocable and unconditional bona fide offer (the "Bona Fide Offer") for the
purchase thereof from a third party (the "Offeror"), the Purchaser shall give
written notice (the "BFO Notice") to the Company setting forth the
26
<PAGE>
Purchaser's desire to sell such Shares, which BFO Notice shall be accompanied by
a photocopy of the original executed Bona Fide Offer and shall set forth at
least the name and address of the Offeror and the price and terms of the Bona
Fide Offer. The Company and/or its designees may elect to purchase some or all
of the Shares to be transferred (the "Offered Shares") upon the terms and
conditions set forth in the BFO Notice by delivering a written notice of such
election to the Purchaser within twenty (20) days after the date of mailing of
the BFO Notice by the Purchaser. The closing of the purchase and sale of the
Offered Shares shall take place on a date agreed upon by the Purchaser and the
Company but in any event within forty-five (45) days after the date of the
mailing of the BFO Notice, at the principal office of the Company, or such other
place as may be agreed to by the Purchaser and the Company. If the Company and
its designees do not elect to purchase all of the Offered Shares, the Purchaser
may transfer and sell any Offered Shares for which such an election is not made
to the Offeror at a price and on terms no more favorable to the Offeror than
those specified in the BFO Notice, provided that such transfer and sale is
consummated during the 60-day period immediately following the date of mailing
of the BFO Notice by the Purchaser. Any Offered Shares not sold or transferred
during such 60-day period will again be subject to the provisions of this
Section 2.2.
2.3 Restrictions on Offeror. Any Offeror purchasing all or any portion of
-----------------------
the Shares from the Purchaser under Section 2.2 shall be subject to the terms
of this Agreement.
2.4 Exempted Transfers. (a) The Purchaser shall be permitted to transfer
------------------
the Shares owned by it without complying with the provisions of this Section 2
solely in the event of transfer by the Purchaser to any Affiliate of the
Purchaser (a "Permitted Transferee"), provided that any such Permitted
Transferee shall have delivered to the Company the written agreement of such
Permitted Transferee to be bound by all of the provisions of this Agreement to
the same extent as the Purchaser. For the purposes of this Section, "Affiliate"
shall mean any corporation, firm, 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, directly or through one or more
affiliates, of 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
27
<PAGE>
party controls or has the right to control the Board of Directors of directors
or equivalent governing body of a corporation or other entity.
(b) The rights of the Company under Section 2.2 hereof shall not
apply to any pledge of Shares by the Purchaser which creates a mere security
interest, provided the pledgee provides the Company with a written agreement to
be bound hereby to the same extent as the Purchaser.
2.5 Failure to Deliver Shares. If the Purchaser becomes obligated to sell
-------------------------
any Shares to the Company or its designee under this Section 2 and fails to
deliver such Shares in accordance with the terms of this Agreement, the Company
or its designee may, at its option, in addition to all other remedies it may
have, send to the Purchaser the purchase price for such Shares as is herein
specified. Thereupon, the Company upon written notice to the Purchaser, (i)
shall cancel on its books the certificate or certificates representing the
Shares to be sold and (ii) shall issue, in lieu thereof, in the name of the
Company or its assignee, a new certificate or certificates representing such
Shares, and thereupon all of the Purchaser's rights in and to such Shares shall
terminate.
2.6 Term. The provisions of Sections 2.2 through 2.5 shall terminate upon
----
the effective date of the registration of the Shares pursuant to the United
States Securities Exchange Act of 1934.
2.7 Legend. Each certificate evidencing any of the Shares shall bear a
------
legend substantially as follows:
"The shares represented by this certificate are subject to
restrictions on transfer and may not be sold, exchanged, transferred,
pledged, hypothecated, or otherwise disposed of except in accordance
with and subject to all the terms and conditions of a certain Common
Stock Purchase Agreement dated as of March __, 2000, a copy of which
the Company will furnish to the holder of this certificate upon
request and without charge."
2.8 Lock-Up. If, in connection with a registration statement filed by the
-------
Company pursuant to the Securities Act, the Company or its underwriter so
requests, the Purchaser will agree not to sell any Shares for a period not to
exceed 180 days following the effectiveness of such registration.
28
<PAGE>
SECTION 3. Delivery of the Shares at the Closing. The completion of the
-------------------------------------
purchase and sale of the Shares being purchased and sold pursuant to this
Agreement (the "Closing") shall occur on a date to be specified by the parties
which shall be no later than March __, 2000, at the offices of Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston,
Massachusetts 02111 (the "Closing Date"). At the Closing, the Purchaser shall
pay to the Company an amount equal to the Purchase Price and the Company shall
deliver to the Purchaser one or more stock certificates representing the Shares
purchased by the Purchaser, each such certificate to be registered in the name
of the Purchaser. The Company's obligation to close the transaction shall be
subject to the following conditions, any of which may be waived by the Company:
(y) receipt by the Company of funds in the full amount of the Purchase Price for
the Shares being purchased hereunder; and (z) the accuracy of the
representations and warranties made by the Purchaser and the fulfillment of
those undertakings of the Purchaser to be fulfilled prior to the Closing. The
Purchaser's obligation to close the transaction shall be subject to the
fulfillment of the following conditions: (a) the execution and delivery by the
Company of the Registration Rights Agreement in the form attached on Exhibit 1
---------
attached hereto (the "Registration Rights Agreement"); (b) the receipt by the
Purchaser of an opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
counsel to the Company, in the form attached hereto as Exhibit 2; (c) the
---------
receipt by the Purchaser of a copy of a certificate, dated on or immediately
prior to the Closing Date, as to the good standing of the Company in the state
of Delaware; (d) the receipt by the Purchaser of a stock certificate,
representing the Shares; and (e) the receipt by the Purchaser of a certificate
of the Secretary of the Company as to the incumbency of certain officers
executing the Transaction Documents in the form attached hereto as Exhibit 3.
---------
This Agreement and the Registration Rights Agreement are collectively referred
to herein as the "Transaction Documents".
SECTION 4. Representations, Warranties and Covenants of the Company. As
--------------------------------------------------------
used herein, "best knowledge" shall mean and include only actual knowledge of
any officers or directors of the Company. The Company hereby represents and
warrants to, and covenants with, the Purchaser as follows:
4.1. Organization. The Company is duly organized, validly existing
------------
and in
29
<PAGE>
good standing under the laws of the State of Delaware. The Company has full
corporate power and authority to own, operate and occupy its properties and to
conduct its business as presently conducted and is registered or qualified to do
business and in good standing in each jurisdiction in which it owns or leases
property or transacts business and where the failure to be so qualified would
have a material adverse effect upon the business, financial condition,
properties or operations of the Company. The Company has delivered to the
Purchaser an accurate and complete copy of its Certificate of Incorporation and
all amendments thereto, including without limitation, all Certificates of
Designation filed with the Secretary of State of Delaware.
4.2. Due Authorization. The Company has all requisite corporate
-----------------
power and authority to execute, deliver and perform its obligations under the
Transaction Documents, and the Transaction Documents have been duly authorized
and validly executed and delivered by the Company and constitute legal, valid
and binding agreements of the Company enforceable against the Company in
accordance with their terms.
4.3. Non-Contravention. The execution and delivery of the
-----------------
Transaction Documents, the issuance and sale of the Shares to be sold by the
Company hereunder, the fulfillment of the terms of the Transaction Documents and
the consummation of the transactions contemplated by the Transaction Documents
will not conflict with or constitute a violation of, or default or give rise to
any benefits or an acceleration of any rights of any third party (with the
passage of time or otherwise) under, any material agreement or instrument to
which the Company is a party or by which it is bound or the charter, by-laws or
other organizational documents of the Company nor result in the creation or
imposition of any lien, encumbrance, claim, security interest or restriction
whatsoever upon any of the material properties or assets of the Company or an
acceleration of indebtedness pursuant to any obligation, agreement or condition
contained in any material bond, debenture, note or any other evidence of
indebtedness or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company is a party or by which it is bound
or to which any of the property or assets of the Company is subject, nor
conflict with, or result in a violation of, any law, administrative regulation,
ordinance or order of any court or governmental agency, arbitration panel or
authority applicable to the Company. No consent, approval, authorization or
other order of, or registration, qualification or filing with, any regulatory
body, administrative agency, or other governmental body is required
30
<PAGE>
for the valid issuance and sale of the Shares to be sold pursuant to the
Agreement, other than such as have been or will be made or obtained.
4.4 Capitalization. The Shares to be sold pursuant to this Agreement
--------------
have been duly authorized, and when issued and paid for in accordance with the
terms of this Agreement will be validly issued, fully paid and non-assessable
and free of restrictions on transfer, other than restrictions on their transfer
under this Agreement, and under applicable state and federal securities laws.
The outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and non-assessable.
4.5 Related-Party Transactions. Except as disclosed on Schedule 4.5
-------------------------- ------------
attached hereto, no employee, officer, or director of the Company or member of
his or her immediate family is indebted to the Company, nor is the Company
indebted (or committed to make loans or extend or guarantee credit) to any of
them. To the best of the Company's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation that competes with the Company, except that employees,
officers, or directors of the Company and members of their immediate families
may own stock in publicly traded companies that may compete with the Company.
To the best of the Company's knowledge, no officer or director or any member of
their immediate families is, directly or indirectly, interested in any material
contract with the Company.
4.6 Permits. The Company has all franchises, permits, licenses, and
-------
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
4.7 Compliance With Other Instruments. The Company is not in
---------------------------------
violation or default of any provision of its Certificate of Incorporation or
Bylaws or in any material respect of any provision of any mortgage, indenture,
agreement, instrument, or contract to which it is a party or by which it is
bound or, to the best of its knowledge, of any federal or state judgment,
31
<PAGE>
order, writ, decree, statute, rule, or regulation applicable to the Company. The
execution, delivery, and performance by the Company of this Agreement, the
Registration Rights Agreement and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
material conflict with or constitute, with or without the passage of time or
giving of notice, either a material default under any such provision or an event
that results in the creation of any material lien, charge, or encumbrance upon
any assets of the Company or the suspension, revocation, impairment, forfeiture,
or non-renewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations, or any of its assets or
properties.
4.8 Litigation. There is no action, suit, proceeding, or
----------
investigation, to the best of the Company's knowledge, pending or currently
threatened against the Company that questions the validity of this Agreement,
the Registration Rights Agreement or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse change in the assets, business, properties, prospects, or financial
condition of the Company, or in any material change in the current equity
ownership of the Company. The foregoing includes, without limitation, any
action, suit, proceeding, or investigation pending or currently threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, their obligations under
any agreements with prior employers, or negotiations by the Company with
potential backers of, or investors in, the Company or its proposed business.
The Company is not a party to, or to the best of its knowledge, named in any
order, writ, injunction, judgment, or decree of any court, government agency, or
instrumentality. There is no action, suit, or proceeding by the Company
currently pending or that the Company currently intends to initiate.
4.9 Offering. Subject in part to the truth and accuracy of the
--------
Purchaser's representations set forth in Section 5.1 of this Agreement, the
offer, sale and issuance of the Shares as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
32
<PAGE>
4.10 Title to Property and Assets; Leases. The Company owns no real
------------------------------------
estate and leases facilities in Princeton, New Jersey. Except (i) as reflected
in the Financial Statements (as defined in paragraph 4.11), (ii) for liens for
current taxes not yet delinquent, (iii) for liens imposed by law and incurred in
the ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, materialmen and the like, (iv) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation or
(v) for minor defects in title, none of which, individually or in the aggregate,
materially interferes with the use of such property, the Company owns its
property and assets free and clear of all mortgages, liens, claims, and
encumbrances. With respect to the property and assets it leases, the Company is
in compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims, or encumbrances, subject to
clauses (i)-(v) above.
4.11 Financial Statements and Preliminary Financial Statements. The
---------------------------------------------------------
Company has delivered to the Purchaser its audited financial statements (balance
sheet and profit and loss statement, statement of stockholders' equity and
statement of cash flows including notes thereto) at December 31, 1998 and 1997
for the fiscal years then ended and shall, within thirty (30) days of the date
hereof, deliver to the Purchaser its audited financial statements for the fiscal
year ending December 31, 1999 and the twelve months ended December 31, 1999 (the
"Financial Statements"). The Financial Statements will have been prepared in
accordance with U.S. Generally Accepted Accounting Principles ("GAAP") applied
on a consistent basis throughout the periods indicated and with each other,
except that unaudited financial statements may not contain all footnotes
required by GAAP. The Financial Statements will fairly present the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein. Except as set forth in the Financial Statements,
the Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements, which, in both cases, individually do not exceed
$125,000, and in the aggregate do not exceed $800,000, other than commitments
set forth on Schedule 4.11 attached hereto. Except as disclosed in the
-------------
Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm, or corporation. The Company maintains
and will
33
<PAGE>
continue to maintain a standard system of accounting established and
administered in accordance with GAAP.
4.12 Changes. To the best of the Company's knowledge and except as
-------
set forth in Schedule 4.12 herein or as otherwise permitted by this Agreement,
-------------
since December 31, 1999, there has not been:
(a) any change in the assets, liabilities, financial condition, business
prospects or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the business, properties, prospects, or
financial condition of the Company (as such business is presently conducted and
as it is proposed to be conducted);
(c) any material change to a material contract or arrangement by which the
Company or any of its assets is bound or subject;
(d) any indebtedness incurred by the Company in excess of $25,000;
(e) any change made or authorized to the Company's By-Laws or Charter;
(f) any dividends, whether declared, set aside or paid, with respect to
its capital stock (whether in cash or in kind) or redemptions of any such
capital stock;
(g) any resignation or termination of employment of any key officer of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation of termination of employment of any such officer;
(h) receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of the Company;
(i) to the best of the Company's knowledge, any other event or condition
of any character that might materially and adversely affect the business,
properties, prospects, or financial condition of the Company (as such business
is presently conducted and as it is proposed to be conducted); or
(j) any agreement or commitment, whether written or oral, by the Company
to do any of the things described in this Section 4.12.
4.13 Patents and Trademarks. The Company owns or possesses sufficient
----------------------
legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses,
34
<PAGE>
information, and proprietary rights and processes presently used by the Company
in its business (the "Intellectual Property Rights"). To the best knowledge of
the Company, the Intellectual Property Rights are the only intellectual property
rights necessary for its business as now conducted and as proposed to be
conducted and, to the best knowledge of the Company, do not conflict with, or
infringe the rights of others. Except for agreements with its own employees or
consultants, there are no outstanding options, licenses, or agreements of any
kind relating to the foregoing, nor is the Company bound by or a party to any
options, licenses, or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, and proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets, or
other proprietary rights or processes of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree, or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will, to the best of the Company's knowledge, conflict with or result in a
breach of the terms, conditions, or provisions of, or constitute a default
under, any contract, covenant, or instrument under which any of such employees
is now obligated.
4.14 Employees; Employee Compensation. To the best of the Company's
--------------------------------
knowledge, there is no strike, or labor dispute or union organization activities
pending or threatened between it and its employees. None of the Company's
employees belongs to any union or collective bargaining unit. To the best of
its knowledge, the Company has complied in all material respects with all
applicable state and federal equal opportunity and other laws related to
employment. To the best of the Company's knowledge, no employee of the Company
is or will be in violation of any judgment, decree, or order, or any term of any
employment contract, patent disclosure agreement, or other contract or agreement
relating to the relationship of any such
35
<PAGE>
employee with the Company, or any other party because of the nature of the
business conducted or to be conducted by the Company or to the use by the
employee of his best efforts with respect to such business. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
4.15 Tax Returns, Payments, and Elections. The Company has filed all
------------------------------------
tax returns and reports as required by all applicable state and Federal laws.
These returns and reports are true and correct in all material respects. The
Company has paid all taxes and other assessments due, except those contested by
it in good faith; provided that for such contested taxes, the Company has
maintained an adequate reserve. The provision for taxes of the Company as shown
in the Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended ("Code"), to be treated as an S corporation or a collapsible
corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has
it made any other elections pursuant to the Code (other than elections that
relate solely to methods of accounting, depreciation, or amortization) that
would have a material effect on the business, properties, prospects, or
financial condition of the Company. The Company has never had any tax
deficiency proposed or assessed against it and has not executed any waiver of
any statute of limitations on the assessments or collection of any tax or
governmental charge. None of the Company's federal income tax returns and none
of its state income or franchise tax or sales or use tax returns has ever been
audited by governmental authorities. Since the date of the Financial
Statements, the Company has made adequate provisions on its books of account for
all taxes, assessments, and governmental charges with respect to its business,
properties, and operations for such period. The Company has withheld or
collected from each payment made to each of its employees, the amount of all
taxes, including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
4.16 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The
36
<PAGE>
Company has in full force and effect products liability and errors and omissions
insurance in amounts customary for companies similarly situated.
4.17 Environmental and Safety Laws. To the best of its knowledge, the
-----------------------------
Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety (including without
limitation the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended) and to the best of its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law, or regulation.
4.18 Disclosure. The Company has provided the Purchaser with all the
----------
information reasonably available to it that the Purchaser has requested for
deciding whether to purchase the Shares. To the best of the Company's
knowledge, neither this Agreement nor any other written statements or
certificates made or delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
SECTION 5. Representations, Warranties and Covenants of the
------------------------------------------------
Purchaser.
- ---------
5.1. The Purchaser represents and warrants to, and covenants with, the
Company, as of the date hereof and as of the Closing Date, that: (i) the
Purchaser is an "accredited investor" as defined in Regulation D under the
United States Securities Act of 1933, as amended (the "Securities Act"); and
also is knowledgeable and experienced in making investments in private placement
transactions such as the purchase of the Preferred Shares; (ii) the Purchaser is
knowledgeable, sophisticated and experienced in making, and is qualified to
make, decisions with respect to investments in securities presenting an
investment decision like that involved in the purchase of the Shares, including
investments in securities issued by companies comparable to the Company, and has
requested, received, reviewed and considered all information it deems relevant
in making an informed decision to purchase the Shares; (iii) the Purchaser is
acquiring the Shares set forth above for its own account for investment and with
no present intention of distributing any of such Shares, and no arrangement or
understanding exists with any other person regarding the distribution of any of
such Shares; (iv) the Purchaser will not, directly or indirectly, voluntarily
offer, sell, pledge, transfer or otherwise dispose of (or solicit
37
<PAGE>
any offers to buy, purchase or otherwise acquire or take a pledge of) any of the
Shares except (a) in the event the Shares are registered pursuant to an
effective registration statement under the Securities Act, (b) upon delivery of
an opinion of counsel (which shall be in form and substance reasonably
satisfactory to the Company) that such registration is not required, (c) in
connection with a sale, transfer or other disposition made pursuant to Section
144(k) of the Securities Act or (d) to an Affiliate of the Purchaser provided
that (i) in each of cases (a), (c) and (d) set forth above no opinion of counsel
shall be required and (ii) such offer, sale, pledge or transfer does not
otherwise violate the terms of this Agreement; and (v) the Purchaser has had an
opportunity to ask questions and receive answers from the management of the
Company regarding the Company, its business and the offering of the Shares.
5.2. The Purchaser further represents and warrants to, and covenants
with, the Company that (i) the Purchaser has full right, power, authority and
capacity to enter into this Agreement and the Registration Rights Agreement and
to consummate the transactions contemplated hereby and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement
and the Registration Rights Agreement, and (ii) upon the execution and delivery
of this Agreement and the Registration Rights Agreement, this Agreement and the
Registration Rights Agreement shall constitute valid and binding obligations of
the Purchaser enforceable in accordance with their terms.
5.3. The Purchaser acknowledges and understands that there is no
public market for the Shares and that the Purchaser must bear the economic risk
of its investment in the Shares for an indefinite period of time because the
Shares have not been registered under the Securities Act and, therefore, cannot
be sold unless subsequently registered under the Securities Act or an exemption
from such registration is available. The certificates representing the Shares
issued to Purchaser will bear a legend in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). SUCH SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN
OPINION OF COUNSEL (WHICH SHALL BE IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY), THAT SUCH
38
<PAGE>
REGISTRATION IS NOT REQUIRED, UNLESS SUCH SALE, TRANSFER OR OTHER
DISPOSITION IS MADE PURSUANT TO RULE 144(K) OF THE SECURITIES ACT, IN
WHICH CASE SUCH SALE, TRANSFER OR OTHER DISPOSITION MAY BE MADE AND NO
OPINION OF COUNSEL SHALL BE REQUIRED.
The Company agrees to remove such legend from the certificates representing the
Shares issued to Purchaser at such time as such Shares may be legally sold under
Rule 144 of the Securities Act (or any successor rule) without registration
under the Securities Act, at the request of the Purchaser and upon receipt from
the Purchaser of an opinion, which shall be in form and substance reasonably
satisfactory to the Company, that such legend may be removed.
The Purchaser agrees that any sale, transfer, pledge, hypothecation or
other disposition of the Shares shall be made in compliance with such legend
and the requirements set forth in Section 2.2.
SECTION 6. Survival of Representations, Warranties and Agreements.
------------------------------------------------------
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Purchaser herein shall survive the execution of this Agreement, the delivery
to the Purchaser of the Shares being purchased, and the payment therefor.
SECTION 7. No Fee. The parties hereto hereby represent that there are no
------
brokers or finders entitled to compensation in connection with the transactions
contemplated hereby.
SECTION 8. Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telex, telecopy or facsimile transmission, (iii) sent by overnight
courier, or (iv) sent by registered or certified mail, return receipt requested,
postage prepaid:
(a) if to the Company, to:
Orchid BioSciences, Inc.
303 College Road East
39
<PAGE>
Princeton, NJ 08543
USA
Facsimile: (609) 750-22-50
Attn: President
with a copy to:
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02110
USA
Facsimile: (617) 542-22-41
Attn: Jeffrey M. Wiesen, Esq.
(b) if to the Purchaser, to:
NEN Life Science Products, Inc.
549 Albany Street
Boston, MA 02118
Facsimile: 617-542-8463
Attn: President
With a courtesy copy to:
NEN Life Science Products, Inc.
549 Albany Street
Boston, MA 02118
Facsimile: 617-542-8463
Attn: Company Secretary
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the 5th business day following the day such mailing is
made.
40
<PAGE>
SECTION 9. Changes. Any term of this Agreement may be amended or
-------
compliance therewith waived only with the written consent of both parties
hereto.
SECTION 10. Assignment. The rights and obligations under this Agreement
----------
may not be assigned by either party hereto without the prior written consent of
the other party; provided, that such rights and obligations may be assigned by
the Purchaser to a Permitted Transferee (as defined herein).
SECTION 11. Benefit. All statements, representations, warranties,
-------
covenants and agreements in this Agreement shall be binding on the parties
hereto and shall inure to the benefit of the respective successors and permitted
assigns of each party hereto. Nothing in this Agreement shall be construed to
create any rights or obligations except among the parties hereto, and no person
or entity shall be regarded as a third-party beneficiary of this Agreement.
SECTION 12. Expenses. Each of the parties hereto shall pay its own fees
--------
and expenses (including the fees of any attorneys, accountants, appraisers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated.
SECTION 13. No Waiver; Cumulative Remedies. No failure or delay on the
------------------------------
part of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 14. Headings. The headings of the various sections of this
--------
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
41
<PAGE>
SECTION 15. Severability. In case any provision contained in this
------------
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
SECTION 16. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with (a) the internal laws of the State of New Jersey
without giving effect to principles of conflicts of law, and (b) United States
federal law.
SECTION 17. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument, and shall become effective when
one or more counterparts have been signed by each party hereto and delivered to
the other parties.
SECTION 18. Further Assurances. From and after the date of this
------------------
Agreement, upon the request of the Purchaser or the Company, the Company and the
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the
Shares.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the 16 day of February, 2000.
ORCHID BIOSCIENCES, INC.
By:______________________________________
Dale Pfost
Chairman and Chief Executive Officer
NEN LIFE SCIENCE PRODUCTS, INC.
By:_____________________________________
Name:
Title:
43
<PAGE>
Schedule 4.5
------------
Related Party Transaction
-------------------------
None
Schedule 4.12
-------------
Material Liabilities
--------------------
The Board of Directors of the Company has approved the adoption of a Restated
Certificate of Incorporation and Amended and Restated By laws in anticipation of
a possible public offering by the Company, which documents will be submitted to
the stockholders of the Company for approval at the Annual Meeting of the
shareholders scheduled to be held in March 2000.
44
<PAGE>
Exhibit 1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of February ____, 2000 by and among Orchid BioSciences, Inc., a Delaware
corporation (the "Company"), with principal offices at 303 College Road East,
Princeton, New Jersey 08540 and NEN Life Science Products Inc. (the
"Stockholder") with principal offices at 549 Albany Street, Boston, MA 02118.
Recitals
WHEREAS, the Company has issued to the Stockholder shares of its Common
Stock, par value per share (the "Common Stock"), pursuant to a Common Stock
Purchase Agreement dated as of the date hereof (the "Purchase Agreement"); and
WHEREAS, among the conditions to the consummation of the transactions
contemplated by the Purchase Agreement is the execution and delivery of a
Registration Rights Agreement providing for the registration rights described
herein.
NOW THEREFORE, in consideration of the foregoing and the mutual promises
herein contained the parties agree as follows:
Agreement
1. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS
1.1 Certain Definitions
-------------------
As used in this Agreement, the following terms shall have the meanings set
forth below:
(a) "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(c) "Holder" shall mean the Stockholder and any transferee to whom the
registration rights conferred by this Agreement have been transferred in
compliance with Section 1.2 and Section 1.8 hereof.
45
<PAGE>
(e) "Registrable Securities" shall mean (i) shares of Common Stock and
(ii) any shares of Common Stock issued as a dividend or other distribution with
respect to or in exchange for or in replacement of the shares referenced in (i)
above; provided however, that Registrable Securities shall not include any
shares of Common Stock (i) which have previously been registered or which have
been sold to the public, or which have been sold in a private transaction in
which the transferor's rights under this Agreement are not assigned, or (ii)
with respect to which the registration rights under this Agreement have
terminated under Section 1.15 of this Agreement.
(f) The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement.
(g) "Registration Expenses" shall mean all expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
and expenses of any regular or special audits incident to or required by any
such registration, but shall not include Selling Expenses.
(h) "Restricted Securities" shall mean any Registrable Securities required
to bear the legends set forth in Section 1.2(b) hereof.
(i) "Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(j) "Rule 145" shall mean Rule 145 as promulgated by the Commission under
the Securities Act as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
(k) "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar successor federal statute and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
(l) "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of counsel for any Holder (other than the
fees and disbursements of counsel included in Registration Expenses).
1.2 Restrictions on Transfer
------------------------
(a) Each Holder agrees not to make any disposition of all or any portion
of the Registrable Securities unless and until (i) there is then in effect a
registration statement under the
46
<PAGE>
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement or (ii) the transferee has agreed
in writing for the benefit of the Company prior to such transfer, and as a
condition thereof, delivers to the Company a written instrument by which such
transferee agrees to be bound by this Section 1.2, provided and to the extent
such Section is then applicable, and (A) such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (B) if requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require any of the
documents described in Section 1.2(a) above in connection with any transactions
made pursuant to Rule 144(k), except in unusual circumstances.
Notwithstanding the provisions of 1.2(i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Holder which is (A) a partnership to its partners or retired partners (who
retire after the date hereof) in accordance with partnership interests, of (B)
to the Holder's family member or trust for the benefit of an individual Holder,
provided such transfer is without consideration and the transferee will be
subject to the terms of this Section 1.2 to the same extent as if he were an
original Holder hereunder.
(b) Each certificate representing Registrable Securities shall (unless
otherwise permitted by the provisions of this Agreement) be stamped or otherwise
imprinted with legends substantially similar to the following (in addition to
any legend required under applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT OR AN OPINION OF COUNSEL WHICH SHALL BE IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE COMPANY (WHICH MAY BE THE HOLDER'S IN-HOUSE
COUNSEL), THAT SUCH REGISTRATION IS NOT REQUIRED, UNLESS SUCH SALE, TRANSFER OR
OTHER DISPOSITION IS MADE PURSUANT TO RULE 144 OF THE SECURITIES ACT, IN WHICH
CASE SUCH SALE, TRANSFER OR OTHER DISPOSITION MAY BE MADE AND NO OPINION OF
COUNSEL SHALL BE REQUIRED, OR EXCEPT AS OTHERWISE PERMITTED UNDER A CERTAIN
COMMON STOCK PURCHASE AGREEMENT DATED MARCH __, 2000 BETWEEN THE COMPANY AND THE
ORIGINAL HOLDER, A COPY OF WHICH IS AVAILABLE UPON REQUEST FROM THE COMPANY FOR
INSPECTION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE REGISTRATION
RIGHTS AGREEMENT DATED FEBRUARY __, 2000, AS AMENDED, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE OFFICES OF THE
47
<PAGE>
COMPANY OR MAY BE AVAILABLE UPON REQUEST.
(c) The Company shall be obligated to reissue promptly unlegended
Registrable Securities at the request of any Holder thereof if the Holder shall
have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the Registrable
Securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
(d) Any legend endorsed on any Registrable Securities pursuant to
applicable state securities laws and any stop-transfer instructions with respect
to any Registrable Securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
1.3 REGISTRATION ON FORM S-3
------------------------
(a) After the effective date of the Company's initial public offering (the
"Offering Effective Date"), the Company shall use its best efforts to qualify
for registration on Form S-3 or any comparable or successor form or forms.
After the Company has qualified for the use of Form S-3, the Holder of
Registrable Securities shall have the right, at any time on or after the first
anniversary of the Offering Effective Date, to request registrations on Form S-3
(such request shall be in writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended methods of disposition
of such shares by such Holder); provided, however, that the Company shall not be
-------- -------
obligated to effect any such registration if (i) the Holder, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) on Form S-3 at an aggregate price to the public of less than
$1,000,000; (ii) in a given twelve-month period, the Company has effected two
(2) such registrations, (iii) it is to be effected more than five (5) years
after the Offering Effective Date; or (iv) the Company shall have furnished to
such Holder a certificate signed by the President of the Company stating that in
good faith judgment of the Board of Directors of the Company, it would be
materially detrimental to the Company for such registration statement to be
filed in the near future and that it has, therefore, determined to defer the
filing of such registration statement, in which case the Company shall have the
right to defer such filing for a period of not more than one hundred eighty
(180) days after receipt of the request of the Holder, and, provided ,further,
-------- -------
that the Company shall not defer its obligation in this manner more than once in
any twelve-month period.
(b) The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.3:
(i) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act;
48
<PAGE>
(ii) After the Company has initiated two (2) such registrations
for the Holder pursuant to this Section 1.3 (counting for these
purposes only registrations which have been declared or ordered
effective and pursuant to which securities have been sold and
registrations which have been withdrawn by the Holder as to which the
Holder has not elected to bear the Registration Expenses pursuant to
Section 1.3(d) hereof and would, absent such election, have been
required to bear such expenses);
(iii) During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of
and ending on a date one hundred eighty (180) days after the effective
date of, a Company-initiated registration, including a demand
registration initiated by the Company on behalf of any holder of
demand registration rights; provided that the Company is actively
employing in good faith all reasonable efforts to cause such
registration statement to become effective.
(c) Subject to the foregoing, upon delivery by the Holder of the notice
described in Section 1.3(a) above, the Company shall (i) promptly give written
notice of the proposed registration to all other Holders (if any) and (ii) as
soon as practicable, use its best efforts to effect such registration
(including, without limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws and
appropriate compliance with the Securities Act) as would permit or facilitate
the sale and distribution of all or such portion of such Registrable Securities
as are specified in such request, together with all or such portion of the
Registrable Securities of any other Holder joining in such request as are
specified in a written request received by the Company within twenty (20) days
after such written notice from the Company is mailed or delivered. The
registration statement filed pursuant to the request of the Holder may, subject
to the provisions of Sections 1.3(b) and 1.10 hereof, include other securities
of the Company with respect to which registration rights have been granted, and
may include securities of the Company being sold for the account of the Company.
(d) All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 1.3 hereof shall
be borne by the Company.
(e) If the registration requested pursuant to Section 1.3 is underwritten,
the rights of the Holder to registration pursuant to Section 1.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder may elect to include in such underwriting all
or a part of its Registrable Securities. Notwithstanding the foregoing, the
Company shall not be obligated to register the Registrable Securities of any
Holder who fails promptly to provide to the Company such information as the
Company may reasonably request at the time to enable the Company to comply with
applicable laws or regulations or to facilitate preparation of the registration
statement.
(f) If the Company shall request inclusion in any registration pursuant to
Section 1.3
49
<PAGE>
of securities being sold for its own account, or if other persons shall request
inclusion in any registration pursuant to Section 1.3, the Holder shall offer to
include such securities in the underwriting and may condition such offer on
their acceptance of the further applicable provisions of this Section 1
(including Section 1.10). The Company shall (together with the Holder and other
persons proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters. Notwithstanding any other provision of this
Section 1.3, if the representative of the underwriters advises the Holder in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 1.10 hereof. If a person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Holder. Any
Registrable Securities or other securities excluded shall also be withdrawn from
such registration. If shares are so withdrawn from the registration and if the
number of shares to be included in such registration was previously reduced as a
result of marketing factors pursuant to this Section 1.3(f), then the Company
shall offer to all persons who have retained rights to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among such persons requesting additional inclusion in accordance
with Section 1.10.
1.4 Registration Procedures
-----------------------
In the case of each registration effected by the Company pursuant to
Section 1.3, the Company will keep each Holder advised in writing as to the
initiation of each registration and as to the completion thereof. At its
expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one hundred twenty
(120) days or until the Holder has completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
--------
however, that such 120-day period shall be extended, if necessary, to keep the
- -------
registration statement effective until all such Registrable Securities are sold,
provided that Rule 145, or any successor rule under the Securities Act, permits
an offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file a
post-effective amendment permit, in lieu of filing a post-effective amendment
that (I) includes any prospectus required by Section 10(a)(3) of the Securities
Act or (II) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
50
<PAGE>
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as the
Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that as thereafter delivered
to the purchasers of such shares such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant hereunder to
be listed on each securities exchange on which similar securities issued by the
Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant to such registration statement and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration; and
(g) Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the first
month after the effective date of the Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act.
1.5 Indemnification
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification, or compliance has been
effected pursuant to this Section 1, and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation
51
<PAGE>
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification, or
compliance, and will reimburse each such Holder, each of its officers,
directors, partners, legal counsel, and accountants and each person controlling
such Holder, each such underwriter, and each person who controls any such
underwriter for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder or underwriter specifically
for use in the preparation thereof. It is agreed that the indemnity agreement
contained in this Section 1.5(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by him are included
in the securities as to which such registration, qualification, or compliance is
being effected, indemnify the Company, each of its directors, officers, legal
counsel, and accountants and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, each other such Holder, and each of their officers, directors,
and partners, and each person controlling such Holder, against all expenses,
claims, losses, damages and liabilities (or actions, proceedings, or settlements
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular, or other document (including any related registration statement,
notification, or the like) incident to any such registration, qualification, or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holder,
directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred in connection with investigating and defending or settling any such
claim, loss, damage, liability, or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder
specifically for use in the preparation thereof; provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); and provided that in
no event shall any indemnity under this Section 1.5 exceed the gross proceeds
from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 1.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such
52
<PAGE>
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
1.5 to the extent such failure is not prejudicial. No Indemnifying Party in the
defense of any such claim or litigation shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof, the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation and no Indemnified Party shall consent to
entry of any judgment or settle such claim or litigation without the prior
written consent of the Indemnifying Party. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.5 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu to indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
1.6 Information by Holder
---------------------
Each Holder of Registrable Securities shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification, or compliance
referred to in this Section 1, except to the extent that the furnishing of such
information would violate any law or any contractual arrangement. The Company
shall not be obligated to register the Registrable Securities of any Holder who
fails promptly to provide to the Company such information as the Company may
reasonably request
53
<PAGE>
at the time to enable the Company to comply with applicable laws or regulations
or to facilitate preparation of the registration statement, including any
information that the Holder fails to provide on the basis that such information
would violate any law or any contractual arrangement.
1.7 Rule 144 Reporting
------------------
With a view to making available the benefits of certain rules and
regulations of the Commission that may permit the sale of the Restricted
Securities to the public without registration, the Company agrees to use its
best efforts to:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after ninety (90) days following the effective date of the
first registration under the Securities Act filed by the Company for an offering
of its securities to the general public;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(c) So long as a Holder owns any Restricted Securities, furnish to the
Holder forthwith upon written request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
1.8 Transfer or Assignment of Registration Rights
---------------------------------------------
The rights to cause the Company to register securities granted to a Holder
by the Company under this Section 1 may be transferred or assigned by a Holder
only to a transferee or assignee of not less than 50,000 shares of Registrable
Securities (as presently constituted and subject to subsequent adjustments for
stock splits, stock dividends, reverse stock splits, and the like), provided
that the Company is given written notice at the time of said transfer or
assignment stating the name and address of the transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned, and, provided further, that the transferee or
assignee of such rights assumes the obligations of such Holder under this
Section 1 and prior to such transfer, as a condition thereof, delivers to the
Company a written instrument by which such transferee agrees to be bound by this
Agreement.
1.9 "Market Stand-Off" Agreement
---------------------------
54
<PAGE>
If requested by the Company and an underwriter of Common Stock (or other
securities) of the Company, a stockholder shall not sell or otherwise transfer
or dispose of any Common Stock (or other securities) of the Company held by such
stockholder (other than those included in the registration) during the one
hundred eighty (180) day period following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
(a) if the stockholder is not an "affiliate" (as defined under Rule 144)
of the Company nor does it hold beneficially or of record 10% or more of the
outstanding equity securities of the Company at the time a registration
statement is filed, then such agreement shall only apply to the first such
registration statement of the Company including, without limitation, the
Company's initial public offering, including securities to be sold on its behalf
to the public in an underwritten offering; and
(b) all officers and directors of the Company enter into similar
agreements.
The obligations described in this Section 1.9 shall not apply to a
registration relating solely to employee benefit plans on Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said one hundred eighty (180) day period.
1.10 Allocation of Registration Opportunities
----------------------------------------
In any circumstance in which all of the Registrable Securities and other
shares of Common Stock of the Company (including shares of Common Stock issued
or issuable upon conversion of share of any currently unissued series of
Preferred Stock of the Company) with registration rights (the "Other Shares")
requested to be included in a registration on behalf of the Holder or other
selling stockholders cannot be so included as a result of limitations of the
aggregate number of shares of Registrable Securities and Other Shares that may
be so included, the number of shares of Registrable Securities and Other Shares
that may be so included shall be allocated among the Holders and the other
selling stockholders requesting inclusion of shares pro rata on the basis of the
number of shares of Registrable Securities and Other Shares held by such Holders
and other selling stockholders, assuming conversion, that such Holders and
selling stockholders had requested to be included in the registration.
1.11 Delay of Registration Opportunities
-----------------------------------
No Holder shall have any right to take any action to restrain, enjoin, or
otherwise delay any registration as the result of any controversy that might
arise with respect to the interpretation or implementation of this Section 1.
1.12 Termination of Registration Rights
----------------------------------
55
<PAGE>
The right of any Holder to request registration or inclusion in any
registration pursuant to Section 1.3 shall terminate on such date after the
Offering Effective Date as all shares of Registrable Securities held or entitled
to be held upon conversion by such Holder may immediately be sold under Rule 144
during any ninety (90) day period.
2. MISCELLANEOUS
2.1 Governing Law
-------------
This Agreement shall be governed in all respects by the laws of the State
of New Jersey, as if entered into by and between New Jersey residents
exclusively for performance entirely within New Jersey, and excluding that body
of laws pertaining to conflicts of laws.
2.2 Successors and Assigns
----------------------
Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of and be binding upon the successors, assigns, heirs,
executors and administrators of the parties hereto.
2.3 Entire Agreement; Amendment: Waiver
-----------------------------------
This Agreement (including the Exhibits hereto) constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. This Agreement supersedes any and all prior
understandings as to the subject matter of this Agreement. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated,
except by a written instrument signed by the Company and the Holders of at least
fifty percent (50%) of the Registrable Securities. Any such amendment, waiver,
discharge or termination shall be binding on all the Holders, but in no event
shall the obligation of any Holder hereunder be materially increased, except
upon the written consent of such Holder.
2.4 Notices, etc.
-------------
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by United States first-class mail, postage
prepaid, or delivered personally by hand or nationally recognized courier
addressed (a) if to the Stockholder, at the address set forth on the first page
of this Agreement, or at such other address as such holder or permitted assignee
shall have furnished to the Company in writing, or (b) if to the Company, at 303
College Road East, Princeton, New Jersey 08540, or at such other address as the
Company shall have furnished to each holder in writing. All such notices and
other written communications shall be effective on the date of mailing or
delivery.
2.5 Delays or Omissions
-------------------
No delay or omission to exercise any right, power or remedy accruing to any
Holder,
56
<PAGE>
upon any breach or default of the Company under this Agreement shall impair any
such right, power or remedy of such Holder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
therefore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Holder of any breach or default under
this Agreement or any waiver on the part of any Holder of any provisions or
conditions of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Holder, shall be
cumulative and not alternative.
2.6 Rights; Separability
--------------------
Unless otherwise expressly provided herein, a Holder's rights hereunder are
several rights, not rights jointly held with any of the other Holders. In case
any provision of the Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
2.7 Confidential Information
------------------------
Each Holder acknowledges that the information received by them pursuant
hereto may be confidential and for its use only, and it will not use such
confidential information in violation of the Exchange Act or reproduce, disclose
or disseminate such information to any other person (other than its employees or
agents having a need to know the contents of such information, and its
attorneys), except in connection with the exercise of rights under this
Agreement, unless the Company has made such information available to the public
generally or such Holder is required to disclose such information by a
governmental body.
2.8 Titles and Subtitles
--------------------
The titles of the paragraphs and subparagraphs of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
2.9 Counterparts
------------
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
[Remainder of page intentionally left blank]
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement effective as of the day and year first above written.
ORCHID BIOSCIENCES, INC.
By ____________________________
Name:
Titles:
NEN LIFE SCIENCES PRODUCTS, INC.
By ____________________________
Name:
Title:
58
<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
------------------------
Princeton, New Jersey KPMG LLP
April 3, 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
April 3, 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
April 6, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999, AND THE RELATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE NOTES
THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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88,846,142
1,075
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</TABLE>
