-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fkrjn/vamSj2h6Mhb408t4NwI9GvXhANhGQJn3upiby+caf3iCIhF85nPl//21JP T+1BXZg9R86sTyIgc/HgMg== 0000927016-00-003028.txt : 20000922 0000927016-00-003028.hdr.sgml : 20000922 ACCESSION NUMBER: 0000927016-00-003028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 DATE AS OF CHANGE: 20000906 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORCHID BIOSCIENCES INC CENTRAL INDEX KEY: 0001107216 STANDARD INDUSTRIAL CLASSIFICATION: 8731 IRS NUMBER: 223392819 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-30267 FILM NUMBER: 701501 BUSINESS ADDRESS: STREET 1: 303 COLLEGE RD. EAST CITY: PRINCETON STATE: NJ ZIP: 08540 BUSINESS PHONE: 6097502200 MAIL ADDRESS: STREET 1: 303 COLLEGE RD. EAST CITY: PRINCETON STATE: NJ ZIP: 08540 10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number: 000-30267 ORCHID BIOSCIENCES, INC. (Exact name of registrant as specified in its charter) DELAWARE 22-3392819 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 303 COLLEGE ROAD EAST, PRINCETON, NJ 08540 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (609) 750-2200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [_] No [X] The number of shares outstanding of the registrant's Common Stock, $.001 par value, as of July 30, 2000, was 33,164,609. ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q PART I FINANCIAL INFORMATION......................................... 1 Item 1. Financial Statements......................................... 1 Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999.................................... 2 Condensed Consolidated Statements Of Operations for the three and six months ended June 30, 2000 and 1999 (unaudited).............. 3 Consolidated Statements Of Cash Flows for the six months ended June 30, 2000 and 1999 (unaudited)................................... 4 Notes To Condensed Consolidated Financial Statements (unaudited)..... 5 Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations.................................... 10 Item 3. Quantitative And Qualitative Disclosures About Market Risk... 16 PART II OTHER INFORMATION........................................... 18 Item 1. Legal Proceedings............................................ 18 Item 2. Changes In Securities And Use Of Proceeds.................... 18 Item 3. Defaults Upon Senior Securities.............................. 18 Item 4. Submission Of Matters To A Vote Of Security Holders.......... 19 Item 5. Other Information............................................ 19 Item 6. Exhibits And Reports On Form 8-K............................. 19 i PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, DECEMBER 31, 2000 1999 ---------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................................. $ 49,675 $33,804 Restricted cash........................................................... -- 400 Short-term investments.................................................... 38,176 ---- Accounts receivable, net.................................................. 4,519 2,102 Inventory................................................................. 1,968 --- Other current assets...................................................... 1,834 1,041 -------- ------- Total current assets...................................................... 96,172 37,347 Equipment and leasehold improvements, net................................. 12,497 9,474 Goodwill, net............................................................. 30,004 31,051 Other intangibles, net.................................................... 15,732 16,519 Other assets.............................................................. 1,499 465 -------- ------- Total assets.............................................................. $155,904 $94,856 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Note payable--bank........................................................ $ -- $ 1,000 Current portion of long-term debt......................................... 1,158 1,141 Accounts payable.......................................................... 4,369 2,302 Accrued expenses.......................................................... 2,088 4,777 Due to related party...................................................... -- 64 Deferred revenue.......................................................... 1,219 789 -------- ------- Total current liabilities................................................. 8,834 10,073 Long-term debt, less current portion...................................... 3,598 4,122 Commitments and contingencies Manditorily redeemable convertible preferred stock, $.001 par value, none authorized at June 30, 2000 (note 1): Series C, at redemption value; issued and outstanding 0 and 2,480,176 shares at June 30, 2000 and December 31, 1999, respectively........................................................ -- 27,530 Series E issued and outstanding 0 and 7,934,966 shares at June 30, 2000 and December 31, 1999, respectively.............................................................. -- 39,035 Series E to be issued, at redemption value, (4,974,694 shares at December 31, 1999)..................................................... -- 22,381 -------- ------- -- 88,946 -------- ------- See accompanying notes to condensed consolidated financial statements.
1 ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS--(CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, DECEMBER 31, 2000 1999 --------- ----------- (UNAUDITED) Stockholders' equity (deficit): Preferred stock, $.001 par value. Authorized 5,000,000 shares; no shares issued or outstanding...................................... $ -- $ -- Convertible preferred stock, $.001 par value (See note 11): Series A; issued and outstanding 0 and 970,900 shares at June 30, 2000 and December 31, 1999, respectively.. -- 1 Series B, issued and outstanding 0 and 103,840 shares at June 30, 2000 and December 31, 1999, respectively...................................... -- -- Common stock, $.001 par value. Authorized 50,000,000 shares; Issued and outstanding 33,155,057 and 845,450 shares at June 30, 2000 and December 31, 1999, respectively............................. 33 1 Common stock to be issued (10,000 shares at December 31, 1999)................................................... -- 76 Additional paid-in capital........................................... 239,710 50,325 Deferred compensation................................................ (19,966) (7,930) Accumulated deficit.................................................. (76,305) (50,758) --------- ----------- Total stockholders' equity (deficit)................................. 143,472 (8,285) --------- ----------- Total liabilities and stockholders' equity (deficit)................. $ 155,904 $ 94,856 ========= ===========
See accompanying notes to condensed consolidated financial statements. 2 ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
Three months Six months ended June 30, ended June 30, 2000 1999 2000 1999 ----------- -------- ---------- -------- Revenues: Product revenue and access fees................................ $ 695 $ -- $ 930 $ -- Clinical laboratory testing.................................... 3,279 -- 6,160 -- Grant revenue.................................................. 86 307 378 307 Collaboration revenue.......................................... -- 250 -- 500 License and other revenue...................................... 534 -- 592 -- ----------- -------- ---------- -------- Total revenues................................................. 4,594 557 8,060 807 ----------- -------- ---------- -------- Operating expenses: Cost of product revenue and access fees........................ 547 -- 610 -- Cost of clinical laboratory testing............................ 2,595 -- 4,835 -- Selling, general and administrative............................ 8,233 2,365 13,176 4,000 Research and development....................................... 12,341 3,381 16,742 6,157 ----------- -------- ---------- -------- Total operating expenses....................................... 23,716 5,746 35,363 10,157 ----------- -------- ---------- -------- Other income (expense): Interest income................................................ 1,300 29 2,090 106 Interest expense............................................... (146) (500) (258) (504) Other expense.................................................. -- -- (76) -- ----------- -------- ---------- -------- 1,154 (471) 1,756 (398) ----------- ---------- Net loss....................................................... (17,968) (5,660) (25,547) (9,748) Beneficial conversion feature of preferred stock............... -- -- 29,574 -- ----------- -------- ---------- -------- Net loss allocable to common stockholders...................... $ (17,968) $ (5,660) $ (55,121) $ (9,748) =========== ======== ========== ======== Basic and diluted net loss per share allocable to common stockholders (note 2).......................................... $(0.94) $(7.77) $(5.52) $(13.39) =========== ======== ========== ======== Shares used in computing basic and diluted net loss per share allocable to common stockholders (note 2)...................... 19,040,917 728,890 9,981,418 727,934 =========== ======== ========== ========
See accompanying notes to condensed consolidated financial statements. 3 ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six months ended June 30, ---------------- 2000 1999 ------- ------ Cash flows from operating activities: Net loss................................................. (25,547) (9,748) Adjustments to reconcile net loss to net cash used in operating activities: Noncash research and development expense................. 4,775 -- Noncash compensation expense............................. 4,016 294 Noncash interest expense................................. -- 90 Depreciation and amortization............................ 2,701 457 Changes in assets and liabilities: Accounts receivable...................................... (2,417) -- Inventory................................................ (1,968) -- Other current assets..................................... (793) 164 Other assets............................................. 332 140 Accounts payable......................................... 2,067 244 Accrued expenses......................................... (2,689) 411 Due to related party (64) (381) Deferred revenue......................................... 430 (250) ------- ------ Net cash used in operating activities (19,157) (8,579) ------- ------ Cash flows from investing activities:.................... Capital expenditures..................................... (3,756) (4,976) Decrease in restricted cash.............................. 400 -- Maturities of short-term investments..................... 7,703 7,615 Purchase of short term investments....................... (45,879) -- ------ ------ Net cash (used in) provided by investing activities...... (41,532) 2,639 ------- ------ Cash flows from financing activities: Net proceeds from issuance of Series E manditorily redeemable convertible preferred stock................... 29,574 -- Proceeds from issuance of debt from line of credit....... -- 1,894 Repayment of debt on lines of credit..................... (1,507) (58) Proceed from convertible term notes...................... -- 6,515 Proceeds from issuance of common stock................... 48,405 -- Proceed from issuance of common stock warrants........... -- 1,075 Proceeds from exercise of common stock options........... 88 2 ------- ------ Net cash provided by financing activities................ 76,560 9,428 ------- ------ Net increase in cash and cash equivalents................ 15,871 3,488 Cash and cash equivalents at beginning of period......... 33,804 473 ------- ------ Cash and cash equivalents at end of period............... 49,675 3,961 ======= ====== Supplemental disclosure of noncash financing and investing activities: Deferred compensation from grant of common stock options................................................ 16,052 638 Issuance of common stock and common stock warrants for technology licenses................................. 4,775 -- Issuance of common stock in connection with supply agreement....................................... 1,500 -- Issuance of common stock warrants in connection.......... with borrowings on line of credit........................ -- 8 Conversion of manditorily redeemable convertible preferred stock and convertible preferred stock into common stock.. 118,521 --
See accompanying notes to condensed consolidated financial statements. 4 ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (unaudited) (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Orchid BioSciences, Inc. and subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results that may be expected for a full year. The accompanying unaudited condensed consolidated financial statements include the results of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company's Registration Statement on Form S-1 (File No. 333-30774) filed with the Securities and Exchange Commission and declared effective on May 4, 2000. (2) Net Loss Per Share Net loss per share is computed in accordance with SFAS No. 128, "Earnings Per Share," by dividing the net loss allocable to common stockholders by the weighted average number of shares of common stock outstanding. During each period presented, the Company has certain options, warrants, convertible preferred stock and/or mandatorily redeemable convertible preferred stock, 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 period are equal. The Company has reflected $29,573,564 as a beneficial conversion feature in the net loss allocable to common stockholders for the six months ended June 30, 2000 for the 5,971,903 shares of Series E mandatorily redeemable convertible preferred stock ("Series E stock") sold in January 2000. 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. (3) GeneScreen, Inc. Pro Forma Financial Information The following unaudited pro forma financial information presents the combined results of operations of Orchid and GeneScreen, Inc. ("GeneScreen") as if the acquisition of GeneScreen by Orchid had occurred as of January 1, 1999, after giving effect to certain pro forma adjustments, including amortization of goodwill and other intangibles, and decreased interest expense from the cancellation of Orchid's note payable to GeneScreen. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had Orchid and GeneScreen constituted a single entity during this period or the results of operations which may occur in the future. 5
Three months ended June 30, Six months ended June 30, ---------------------------- -------------------------- (in thousands) 1999 1999 Revenues $ 3,306 $ 6,851 Net loss allocable to common stockholders $ (6,449) $(39,951) Basic and diluted net loss per share allocable to common stockholders $ (8.84) $ (54.88)
(4) Employment Agreements Effective January 2000, the Company entered into three year employment agreements with two executives of the Company. In certain cases, the Company may be obligated to pay the executive's salary and benefits for up to eighteen months after leaving the Company. (5) Sale of Convertible Preferred Stock In January 2000, the Company completed the sale of 5,971,903 shares of Series E stock for gross proceeds of $29,573,564. The issuance of these securities resulted in a $29,573,564 beneficial conversion feature which increased net loss per share allocable to common stockholders in the six months ended June 30, 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 stock. The Company also issued 1,040,341 shares of Series E stock related to the conversion of the Affymetrix convertible promissory note and for cash received by December 31, 1999 for which shares were not issued, and which was included in Series E stock to be issued at December 31, 1999. (6) 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 initial public offering (see note 12), respectively, for which an initial compensation charge of approximately $4.3 million was recorded in the first quarter of 2000 and 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 600,000 performance based stock options at exercise prices of $6.00 for which compensation expense will be measured as the difference between the fair value of our common stock at the time the performance criteria is met and the exercise price and will be immediately recorded as compensation expense. On March 31, 2000, the Company granted 289,660 stock options under the 1995 Stock Incentive Plan at exercise prices of $12 per share for which an initial compensation charge of approximately $800,000 was recorded in the first quarter of 2000 and 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. During the quarter ended June 30, 2000, the Company issued approximately 300,000 stock options at various exercise prices to certain employees, directors and consultants for which an initial compensation charge of approximately $5.1 million was recorded and 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. (7) 2000 Employee, Director and Consultant Stock Incentive Plan On February 11, 2000 and March 17, 2000, respectively, the Board of Directors and stockholders of the Company approved the 2000 Employee, Director and Consultant Stock Incentive Plan ("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. 6 (8) ABS Termination Effective February 15, 2000, the Company's Collaborative Development and Marketing Agreement with Advanced Bioanalytical Services, Inc. ("ABS") was terminated. The Company paid ABS $75,000 in full and final settlement of all amounts owed under this agreement. (9) NEN Agreement On February 21, 2000, the Company entered into an Agreement for the License and Supply of Terminators with NEN Life Science Products, Inc. ("NEN") pursuant to which NEN has agreed to supply the Company with terminators for use in the Company's SNPkits. In consideration of NEN's agreement to supply the Company with terminators at favorable prices, the Company sold NEN 125,000 shares of its common stock for a purchase price of $750,000 and paid NEN an up-front fee of $750,000. The Company also agreed to pay NEN a certain percentage of net sales revenue based on the number of SNPkits sold, in certain cases. The 125,000 shares had a fair value of $1,500,000 on the date of the agreement. Since the products being supplied are used in the Company's current products and may be used in future products, the Company deferred and is amortizing the $750,000 up- front fee plus the $750,000 excess of the fair value of the issued common stock over the purchase price (or a total of $1.5 million) over the estimated four year term of the agreement on a straight-line basis. The Company measured the fair value of the common stock on the date of the agreement as these shares were fully paid and nonforfeitable on that date. The Company is required to purchase quantities of products with an approximate minimum value during each annual period from the effective date as follows: first year $333,000, second year $700,000, third year $990,000 and fourth year $1,320,000. Either party can terminate the agreement any time after four years from the commencement date, without cause, upon 90 days written notice. (10) Sarnoff Agreement On April 13, 2000, the Company amended its License and Option Agreement with Sarnoff Corporation ("Sarnoff"). Under the terms of the amendment, in lieu of all future cash payment, research funding, potential royalty payment and stock issuance obligations, the Company made a payment to Sarnoff of approximately $3 million, issued 250,000 shares of common stock and granted five-year warrants to purchase 75,000 shares of common stock to Sarnoff at an exercise price of $8.00 per share. The Company exercised the remaining two option fields on a non-exclusive basis as a result of this amendment. Previously, on February 2, 2000, the Company issued 100,000 shares of common stock to Sarnoff as an advance on the issuances which would be owed in December 2000 for the two option fields previously issued under the License and Option Agreement. As this licensed technology has not reached technological feasibility and has no alternative future uses, the cash payment of approximately $3.0 million and the fair value of the equity securities of approximately $4.8 million was charged to research and development expense; $1.2 million was recorded in the quarter ended March 31, 2000 and $6.6 was recorded in the quarter ended June 30, 2000. (11) Change in Authorized Shares On May 10, 2000, the Company filed a restated certificate of incorporation which increased its authorized shares of common stock to 50,000,000 shares, revoked all existing preferred stock designations and authorized 5,000,000 shares of preferred stock. The Board of Directors has the authority, without any further stockholder approval, to determine the price, privileges and other terms of the shares of unissued preferred stock. (12) Initial Public Offering In May 2000 the Company completed its initial public offering of 6,900,000 shares of common stock at a price of $8.00 per share (excluding underwriters' discounts), generating net proceeds of approximately $48.4 million. All shares of Series A Convertible Preferred Stock ("Series A stock"), Series B Convertible Preferred Stock ("Series B stock"), and Series E stock outstanding as of the closing date of the offering were automatically converted into shares of common stock on a one-for-one basis. The 2,480,176 shares outstanding of Series C Convertible Preferred Stock ("Series C stock") converted into 4,825,259 shares of common stock. No dividends were paid on any of the Series A, B, C, or E stock. 7 (13) Inventory Inventory at June 30, 2000 consists entirely of raw materials. (14) Legal Matters The Company is not a party to any material legal proceeding. The Company is engaged in discussions with Motorola, Inc. ("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. (15) Self-Insurance Reserve GeneScreen Inc., the Company's wholly owned subsidiary, 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 June 30, 2000 was $156,000. 8 (16) 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. Prior to the acquisition of GeneScreen on December 30, 1999, the Company was operated and managed as one business. Segment information as of and for the three and six months ended June 30, 2000 for Orchid and GeneScreen is as follows:
Orchid GeneScreen Total -------- ----------- -------- (in thousands) Six months: Revenues from external customers 1,900 6,160 8,060 Segment net loss (23,660) (1,887) (25,547) Three months: Revenues from external customers 1,315 3,279 4,594 Segment net loss (17,023) (945) (17,968) Total assets 112,929 42,975 155,904
(17) Subsequent Events In July 2000, the Company entered into a collaboration with the SNP Consortium Ltd. under which the Company will perform certain SNP scoring service for determining the allelic frequency of 60,000 SNP genomic markers in diverse populations. The term of this collaboration is through the earlier of March 1, 2001 or completion of the project. The Company will bear all costs to perform these services. Incremental costs are estimated to be between $3 to $6 million and the Company will additionally need to accelerate previously planned capital expenditures of approximately $4 million. In exchange, the Company has the right to commercialize certain technology developed as a result of performing these services. 9 ORCHID BIOSCIENCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2000 and for the three and six month periods ended June 30, 2000 and 1999 should be read in conjunction with the sections of our Registration Statement on Form S-1 filed with the Securities and Exchange Commission and declared effective on May 4, 2000, as amended, entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following discussion of the financial condition and results of our operations should be read in conjunction with our Condensed Consolidated Financial Statements, including the Notes thereto, included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this report or elsewhere by management from time to time, the words "believe," "anticipates," "intends," "plans," "estimates," and similar expressions are forward looking statements. Such forward looking statements contained herein are based on current expectations. Prospective investors are cautioned that any such forward- looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. For a more detailed discussion of such forward looking statements and the potential risks and uncertainties that may impact upon their accuracy, see the "Forward Looking Statements" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations and also the potential risks and uncertainties set forth in the "Overview" section hereof and in the "Risk Factors" section of our final prospectus dated May 4, 2000, comprising a part of our Registration Statement on Form S-1 filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligations to update any forward looking statements. You should also carefully consider the factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission. OVERVIEW We are engaged in the development and commercialization of genetic diversity technologies, products and services. Since we began operations in March 1995, we have devoted substantially all of our resources to the development and application of a portfolio of products and services using our proprietary biochemistry for scoring SNPs and microfluidics technologies for applications in drug discovery, principally in the field of pharmacogenetics and DNA synthesis. For the first three years of our existence, we were primarily focused on developing our microfluidics technologies for applications in high-throughput synthesis of small molecules under collaborative research programs with SmithKline Beecham and Sarnoff Corporation. During this period, we derived most of our revenue from payments from SmithKline Beecham. Revenue during these early years fluctuated due to the timing of both work performed under the contract with SmithKline Beecham and of earning milestone revenue. After management and an independent third-party consulting firm conducted a strategic review of our business strategy in the first half of 1998, we decided to apply our research and development efforts to the fields of pharmacogenetics and DNA synthesis. As a result of this review of our business focus, we acquired substantially all of the assets of Molecular Tool, Inc., in September 1998, a wholly-owned subsidiary of GeneScreen, Inc., for approximately $7.1 million in cash, debt and equity securities. Molecular Tool's proprietary SNP-IT primer-extension technology for scoring SNPs matched very well with our microfluidics technologies that we developed earlier. Together, these technologies formed the basis for our current SNP technology, products and services. On December 30, 1999, we acquired GeneScreen, Inc. for a net purchase price of $42.7 million consisting of a combination of cash and shares of our Series E mandatorily redeemable convertible preferred stock, offset by the cancellation of certain debt owed to GeneScreen. We included $28.5 million as a beneficial conversion feature in the purchase price. The amount of the beneficial conversion feature was calculated as the difference between the $11.75 per share fair value of our common stock on December 22, 1999, the commitment date which was the date of the merger agreement for the acquisition, over the $4.50 per share conversion price of the stock. GeneScreen is a company engaged in DNA laboratory analysis for paternity, forensics and transplantation testing and had revenues of approximately $13.7 million in 1999. In connection with the acquisition of GeneScreen, we recorded approximately $43.1 million of goodwill and other intangible assets, which we will amortize over periods ranging from 4 to 15 years. 10 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 revenues from both the placements of our SNPstream instrument systems and the sales of our SNPware consumables. We also expect each SNPstream system we place 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 industries through our ultra high-throughput MegaSNPatron facility. GeneScreen's established business in paternity testing, forensics and transplantation supports 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 to use 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 to use these laboratories to conduct SNP scoring services we plan to offer via 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 tissue typing and donor drive support services with independent bone marrow donor registries, under contract with the National Marrow Program(R) (NMDP), and on a fee-for- service basis directly with NMDP-affiliated donor centers. Bone marrow registries are not-for-profit agencies that facilitate hematopoietic cell transplants through organizing volunteer donor drives, maintaining donor registries 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 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 and SNP-IT technology for use on instruments made or sold by other companies. Our collaborations with Affymetrix, Inc. and Amersham Pharmacia Biotech are examples of this platform propagation strategy. We based our proprietary SNP value creation strategy on the creation of proprietary rights covering the identification of SNPs and their associations to medically important attributes of patients. We intend to develop intellectual property rights in this area through collaborations with members of our Clinical Genetics Network, pharmaceutical and biotechnology companies. We do not expect royalties from commercial sale or license of intellectual property rights generated by using our technologies for at least several years, if at all. Through December 31, 1999, we had recorded an aggregate of $9.8 million of deferred compensation expense resulting from the granting of stock options to employees, directors or consultants covering shares of common stock, which stock options had exercise prices below the fair value of the underlying common stock at the date of their grant. Net of prior amortization, net deferred compensation of $7.9 million at December 31, 1999 will be amortized over the vesting periods of the respective options, typically four years. In January and February 2000, we issued 36,500, 679,400, 40,750 and 40,750 stock options at exercise prices of $1.25, $6.00, $12.00 and at the per share price of this offering, respectively, for which we recorded deferred compensation of $4.3 million which will be amortized over the respective vesting periods of the options. Included in the 679,400 options are 520,000 options granted to executive officers at an exercise price of $6.00 per share for which we recorded deferred compensation of $3.1 million, which is included in the $4.3 million, and which will be amortized over the respective vesting periods. On March 31, 2000, we granted 289,660 stock options at exercise prices of $12.00 for which we recorded deferred compensation of $800,000 which will be amortized over the respective vesting periods of the options. In addition, in February 2000, we issued 600,000 performance based stock options, at exercise prices of $6.00 per share, to executive officers, for 11 which compensation expense will be measured as the difference between the fair value of our common stock at the time the performance criteria is met and the exercise price and will be immediately recorded as compensation expense. During the quarter ended June 30, 2000, the Company issued approximately 300,000 stock options at various exercise prices to certain employees, directors and consultants for which an initial compensation charge of approximately $5.1 million was recorded and will be recognized over the respective vesting periods of the options. Amortization of deferred compensation and compensation charges from remeasurement of consultant options for the six months ended June 30, 2000 totaled $4.0 million. We anticipate recording total compensation charges resulting from the amortization of the deferred compensation recorded as of June 30, 2000 approximately as follows, in millions: Six months ending, Year ending, ------------------ -------------------------------------- December 31 ----------- 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- $4.0 $7.2 $4.8 $3.5 $0.5 Some of these amounts result from grants to consultants which are subject to remeasurement at the end of each reporting period based upon the changes in the fair value of the common stock until the consultant completes performance under his or her respective option agreement. Also, certain grants of performance based options have been made for which no deferred compensation expense has been recorded and for which compensation expense will be measured at the time the performance criteria is met. We have incurred losses since inception, and, as of June 30, 2000, we had total stockholders' equity of $143.5 million, including an accumulated deficit of $76.3 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 revenues from the placement of our first commercial SNPstream hardware system, 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 scoring services 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 arrangement in which the customer takes possession of the system and pays an access fee to use it. Revenue on the sale of the hardware is recorded upon transfer of title and after we have met all of our significant performance obligations. Access fees payments, which are received when a system is initially placed, are deferred and revenue is recognized on a straight-line basis over the term of the agreement. 12 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 Three Months Ended June 30, 2000 and 1999 Revenue. Revenue for the three months ended June 30, 2000 of $4.6 million represents an increase of $4.0 million as compared to revenue of $0.6 million for the corresponding period of 1999. The increase was largely due to the addition of our GeneScreen DNA testing operations and the access fees related to the placements of our SNPstream(TM) 25K instrument systems, sales of SNPware(TM) consumables and license revenue from an agreement to license our SNP-IT technology. The results of operations for the quarter ended June 30, 1999 do not include those of GeneScreen, Inc., which we acquired on December 30, 1999. Cost of product revenue and access fees. Cost of product revenue and access fees for the three months ended June 30, 2000 was $0.5 million. The increase was attributable to the costs associated with the SNPstream instrument placements, primarily depreciation, and consumables sold, in the three months ended June 30, 2000. There were no sales for the quarter ended June 30, 1999. Cost of clinical laboratory testing. Cost of clinical laboratory testing was $2.6 million for the three months ended June 30, 2000. The increase was attributable to the acquisition of GeneScreen on December 30, 1999, which provides 100% of the clinical laboratory testing. Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruiting expenses, professional fees, legal expenses resulting from intellectual property prosecution and protection, and other corporate expense including business development and general legal activities. Selling, general and administrative expenses for the three months ended June 30, 2000 was $8.2 million, an increase of $5.8 million, as compared to $2.4 million for the corresponding period of 1999. This increase was primarily attributable to the expansion of administration facilities and the hiring of additional personnel as we increased our executive and administrative staffing in anticipation of becoming a public company and supporting our future growth, amortization of deferred compensation expense of $2.4 million and operating costs of $1.6 million related to GeneScreen which was acquired on December 30, 1999, of which $0.8 million represents amortization of intangibles related to the acquisition. 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 prototypes and test units, and other expenses related to the design, development, testing and enhancement of our products. Research and development expenses for the three months ended June 30, 2000 was $12.3 million, compared to $3.4 million for the corresponding period of 1999. The increase in research and development expenses of $8.9 million, was primarily attributable to increased expenses as we hired additional research and development personnel, increased purchases of laboratory supplies, increased equipment depreciation, amortization of deferred compensation expense of $0.8 million, increased facilities expenses in connection with the expansion of our internal and collaborative research efforts and $6.6 million related to a $3.0 million cash payment made to and the fair value of 250,000 shares of common stock and 75,000 warrants to purchase common stock issued to Sarnoff Corporation under an amendment to a License and Option Agreement. As the technology licensed under this agreement has not reached technological feasibility and has no alternative uses, the $6.6 million has been charged to research and development. Future research and development expenses are expected to increase as additional personnel are hired and research and development facilities are expanded to accommodate our strategic collaborations and internal research. Interest income. Interest income for the three months ended June 30, 2000 was $1.3 million, compared to interest income of approximately $0 for the first three months of 1999. This increase was primarily due to interest received on larger cash, cash equivalent and short-term investment balances which we held as a result of our receipt of proceeds from our Series E private placement in December 1999 and January 2000 and our initial public offering in May 2000, offset by amounts used in operating activities. 13 Interest expense. Interest expense for the three months ended June 30, 2000 was $0.1 million compared to $0.5 million in the corresponding period in 1999. This was due to greater outstanding debt balance related to the bridge financing completed in June 1999 as compared to the lower outstanding debt balance in 2000 comprised entirely of borrowings on our equipment line of credit. Net loss allocable to common stockholders. Due to the factors discussed above, for the three months ended June 30, 2000, we reported a net loss allocable to common stockholders of $18.0 million as compared to $5.7 million in the corresponding period in 1999. Six Months Ended June 30, 2000 and 1999 Revenue. Revenue for the six months ended June 30, 2000 of $8.1 million represents an increase of $7.3 million as compared to revenue of $0.8 million for the corresponding period of 1999. The increase was largely due to the addition of our GeneScreen DNA testing operations and the access fees related to the placements of our SNPstream(TM) 25K instrument systems, Sales of consumables, license revenue from an agreement to license our SNP-IT technology and grant revenue. The results of operations for the six months ended June 30, 1999 do not include those of GeneScreen, Inc., which we acquired on December 30, 1999. Cost of product revenue and access fees. Cost of product revenue and access fees for the six months ended June 30, 2000 was $0.6 million. The increase was attributable to the costs associated with the SNPstream instrument placements, primarily depreciation, and consumables sold, in the first six months of 2000. There were no sales for the six months ended June 30, 1999. Cost of clinical laboratory testing. Cost of clinical laboratory testing was $4.8 million for the six months ended June 30, 2000. The increase was attributable to the acquisition of GeneScreen on December 30, 1999, which provides 100% of the clinical laboratory testing. Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruiting expenses, professional fees, legal expenses resulting from intellectual property prosecution and protection, and other corporate expense including business development and general legal activities. Selling, general and administrative expenses for the six months ended June 30, 2000 were $13.2 million, an increase of $9.2 million, as compared to $4.0 million for the corresponding period of 1999. This increase was primarily attributable to the expansion of administration facilities and the hiring of additional personnel as we increased our executive and administrative staffing in anticipation of becoming a public company and supporting our future growth, amortization of deferred compensation expense of $3.2 million and operating costs of $3.1 million related to GeneScreen which was acquired on December 30, 1999, of which $1.6 million represents amortization of intangibles related to the acquisition. 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 prototypes and test units, and other expenses related to the design, development, testing and enhancement of our products. Research and development expenses for the six months ended June 30, 2000 were $16.7 million, compared to $6.2 million for the corresponding period of 1999. The increase in research and development expenses of $10.5 million for the six months ended June 30, 2000, was primarily attributable to increased expenses as we hired additional research and development personnel, increased purchases of laboratory supplies, increased equipment depreciation, amortization of deferred compensation expense of $0.8 million, increased facilities expenses in connection with the expansion of our internal and collaborative research efforts and $7.8 million related to a $3.0 million cash payment made to and the fair value of 350,000 shares of common stock and 75,000 warrants to purchase common stock issued to Sarnoff Corporation as an advance on the issuances that would have been owed in December 2000 under a License and Option Agreement and an amendment of that agreement. As the technology licensed under this agreement has not reached technological feasibility and has no alternative uses, the $7.8 million has been charged to research and development. Future research and development expenses are expected to increase as additional personnel are hired and research and development facilities are expanded to accommodate our strategic collaborations and internal research. 14 Interest income. Interest income for the six months ended June 30, 2000 of $2.1 million increased $2.0 million compared to interest income of $0.1 million for the first six months of 1999. This $2.0 million increase was primarily due to interest received on larger cash, cash equivalent and short- term investment balances which we held as a result of our receipt of proceeds from our Series E private placement in December 1999 and January 2000 and our initial public offering in May 2000, offset by amounts used in operating activities. Interest expense. Interest expense for the six months ended June 30, 2000 was $0.3 million compared to $0.5 million for the corresponding period in 1999. This was due to greater outstanding debt balance related to the bridge financing completed in June 1999 as compared to the lower outstanding debt balance in 2000, comprised entirely of borrowings on our equipment line of credit. Net loss allocable to common stockholders. Due to the factors discussed above, for the six months ended June 30, 2000, we reported a net loss allocable to common stockholders of $55.1 million as compared to $9.7 million for the first six months of 1999. Net loss allocable to common stockholders includes a beneficial conversion feature on preferred stock for the six months ended June 30, 2000 of $29.6 million. 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 in December 1999 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 $44.6 million beneficial conversion feature which was included in net loss allocable to common stockholders in 1999. The closing of Series E mandatorily redeemable convertible preferred stock in January 2000 resulted in an additional $29.6 million beneficial conversion feature which was included in net loss allocable to common stockholders in the six months ended June 30, 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 at June 30, 2000 we had borrowings of $4.3 million outstanding under this facility. We lease our corporate and primary research facility under an operating lease which expires in 2008. As part of our transition from a business model based on microfluidics technologies to one based on SNP scoring technologies, on April 13, 2000 we amended our License and Option Agreement with Sarnoff by making a single payment of approximately $3.0 million, issuing 250,000 shares of common stock and delivering a five-year warrant to purchase 75,000 shares of our common stock at an exercise price of $8.00 per share. Previously, on February 2, 2000, we issued 100,000 shares of common stock to Sarnoff as an advance on the issuances which would be owed in December 2000 for the two option fields previously exercised under the License and Option Agreement. As the licensed technology has not reached technological feasibility and has no alternative uses, the cash payment of approximately $3.0 million and the fair value of the equity securities of approximately $4.8 million was charged to research and development expense in the six months ended June 30, 2000. As of June 30, 2000, we had $87.9 million in cash and cash equivalents and short-term investments, compared to $33.8 million as of December 31, 1999. This increase primarily reflects the completion of our private placement of equity securities and our initial public offering in May 2000 which generated approximately $48.4 million of proceeds, net of underwriting discounts and commissions and offering expenses, from the sale of a total of 6,900,000 shares of common stock, including the underwriters' over-allotment shares. To date, inflation has not had a material effect on our business. We believe that our cash reserves, expected short-term revenue, and the net proceeds of the initial public offering completed in May 2000 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. Net cash used in operations for the six months ended June 30, 2000 was approximately $19.2 million compared with approximately $8.6 million for the comparable period in 1999. Non-cash charges in the six months ended June 30, 2000 included compensation expense of $4.0 million and research and development expense from the issuance of equity securities of $4.8 million and depreciation and amortization expense of $2.7 million. Investing activities included $3.8 million in cash used during the six months June 30, 2000 for equipment purchases and $38.2 million for the net purchases of short term investments. Financing activities included the use of $1.5 million to repay debt from lines of credit and proceeds of $48.4 million from our initial public offering in May 2000 and $29.6 million from the sale of our Series E preferred stock in January 2000. 15 Working capital increased to approximately $87.3 million at June 30, 2000 from approximately $27.3 million at December 31, 1999. The increase in working capital was primarily due to our Series E mandatorily redeemable convertible preferred stock financing in January 2000 and our initial public offering in May 2000. 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; - - - 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk is principally confined to our cash equivalents and short-term investments, all of which have maturities of less than one year. We maintain a non-trading investment portfolio of investment grade, liquid debt securities that limits the amount of credit exposure to any one issue, issuer or type of instrument. The fair value of these securities approximates their cost. 16 FORWARD LOOKING STATEMENTS This report may contain forward-looking statements. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties that could cause actual results or outcomes to differ materially from those described in such forward-looking statements. These statements address or may address the following subjects: results of operations; customer growth and retention; development of technology; losses or earnings; operating expenses, including, without limitation, marketing expense and technology and development expense; and revenue growth. We caution investors that there can be no assurance that actual results, outcomes or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, among others, our limited operating history, unpredictability of future revenues and operating results, and competitive pressures. For further information, refer to the more specific factors and uncertainties discussed throughout this report. 17 PART II OTHER INFORMATION ITEM 1. 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 results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. In April, May and June 2000, nine individuals exercised options to purchase an aggregate of 26,208 shares of our common stock for an aggregate purchase price of $24,711. No underwriters were involved in the foregoing offers and sales of securities. Such offers and sales were made in reliance upon an exemption from the registration provisions of the Securities Act of 1933, as amended (the "Securities Act"), set forth in Section 4(2) thereof relative to sales by an issuer not involving any public offering or the rules and regulations thereunder, or in the case of the exercise of options to purchase common stock, Rule 701 under the Securities Act. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act. We intend to use approximately $4 million of the net proceeds for capital expenditures associated with technology and systems upgrades and expansion of our headquarters. We have no specific plan at this time for use of the remaining proceeds and expect to use such proceeds for working capital and general corporate purposes including the payment of sales and marketing expenses. We may, when the opportunity arises, use an unspecified portion of the net proceeds to acquire or invest in complementary businesses, products and technologies. From time to time, in the ordinary course of business, we expect to evaluate potential acquisitions of such businesses, products or technologies. However, we have no present understandings, commitments or agreements with respect to any material acquisition. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q. Exhibit Number Description - - ------ ----------- * 10.1 Non-Exclusive License Agreement by and between Registrant and PE Biosystems dated as of July 1, 2000. * 10.2 Non-Exclusive License Agreement by and between Registrant and Amersham Pharmacia Biotech, Inc. dated as of June 12, 2000. * 10.3 License and Supply Agreement for Automated SNP Analysis by and between Registrant and Bristol-Myers Squibb Company dated as of June 12, 2000. 27 Financial Data Schedule - - --------- * 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 August 14, 2000. (b) Reports on Form 8-K No reports on Form 8-K have been filed during the six months ended June 30, 2000. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ORCHID BIOSCIENCES, INC. Date: August 14, 2000 By: /s/ Donald R. Marvin --------------- --- ----------------------------------------------- DONALD R. MARVIN Senior Vice President, Chief Operating Officer, Chief Financial Officer (principal financial and accounting officer) 20 EX-10.1 2 0002.txt NON-EXCLUSIVE LICENSE AGREEMENT AS OF JULY 1, 2000 EXHIBIT 10.1 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 1 ORCHID BIOSCIENCES, INC. HAS REQUESTED THAT THE MARKED PORTIONS OF THIS DOCUMENT BE ACCORDED 406 CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT, AS AMENDED. [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NON-EXCLUSIVE LICENSE AGREEMENT As of July 1, 2000 Orchid BioSciences, Inc., a Delaware corporation having a principal place of business at 303 College Road East, Princeton, NJ 08540 (hereafter "Orchid"), and PE Biosystems a stock group of the PE Corporation, Inc., a Delaware corporation having a principal place of business at 850 Lincoln Centre Drive, Foster City, CA (hereafter "PE") agree as follows: WHEREAS, Orchid owns patents relating to Primer Extension regarding detection of single nucleotide polymorphisms; and WHEREAS, PE desires to take a non-exclusive license to said patents relating to the Primer Extension; WHEREAS, Orchid is willing to grant to PE a royalty-bearing, nonexclusive license under said patents relating to Primer Extension under the following terms; NOW, THEREFORE, the parties agree as follows: ARTICLE I - DEFINITIONS 1.1 "Approved Instruments" mean automated electrophoresis nucleotide sequencing instruments approved by Orchid for the purposes of this license. [*] 1.2 [*] 1.3 "End User" means a Third Party licensed to use a Licensed Product pursuant to an End User License received in connection with the Third Party's purchase of the Licensed Product. Where the Third Party is a corporate, institutional, or other non - person legal entity, End User includes the licensed Third Party's organizational units and divisions which are not legal entities separate from the licensed Third Party. [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NON-EXCLUSIVE LICENSE AGREEMENT PAGE 2 1.4 "End User License" means a limited non-transferable license in form and substance as set forth in Appendix A, granted by Orchid to End Users to use only the material included in the Licensed Product in the Licensed Field to perform the specified number of Genotypes specified in the literature (packaging, product inserts, catalog listings, promotional items, etc) supplied by PE with each unit of Licensed Product. 1.5 "Genotype" means the detection or quantification of an individual SNP within a single sample (whether or not the genome of the sample is heterozygous for the given SNP). 1.6 "Kit" means a product designed for performing Primer Extension comprising one or more Reagents, the sale or offer for sale of which, without the licenses granted herein, would infringe or contribute to the infringement of at least one claim of a Licensed Patent. 1.7 "Primer Extension" means a nucleic acid template-dependent primer extension reaction to determine the identity of a single nucleotide base at a specific position in a nucleic acid of interest in which the reaction is performed in the presence of two or more terminators and in the absence of extendable nucleotides. 1.8 "Licensed Field" means the use of a Licensed Product on Approved Instruments for Research Purposes only. 1.9 "Licensed Product" means a Kit and an End User License. 1.10 "Licensed Patents" means US Patent No. 5,888,819 and 6,004,744 and any divisionals, continuations, reissues, and foreign counterparts thereof. To date foreign patents include the Australian Patent No. 660,173. 1.11 "Reagent" means an enzyme, buffer, primer extension chain-terminating compound or other composition useful for Primer Extension. 1.12 "Related Company" means (a) any entity that, or an individual who, owns at least a 20% interest in PE by stock ownership or otherwise; (b) any entity in which PE owns at least a 20% interest by stock ownership or otherwise; or (c) any entity in which at least a 20% interest by stock ownership or otherwise is owned by any entity that, or an individual who, also owns at least at 20% interest in PE by stock ownership or otherwise. 1.13 "Research Purposes" means the detection and analysis of SNPs in samples for research purposes only and specifically excludes performing services for a Third Party, and further excludes any and all diagnostic or therapeutic uses. 1.14 "Sales Price" means the most recent list price of PE's single unit of a Licensed Product, as set forth in the most recent PE catalogs, and, in the NON-EXCLUSIVE LICENSE AGREEMENT PAGE 3 case that PE grants a discount on the Sales Price to an End User, then the Sales Price used to calculate the Royalty due under Section 3.03 shall not be reduced more than [*] of the list price. 1.15 "SNP" means single nucleotide polymorphism. 1.16 "Third Party" means any person or entity other than Orchid and PE. 1.17 "Third Party Licensee" means any Third Party that has a valid license from Orchid to use Kits for purposes other than Research Purposes, as confirmed by Orchid pursuant to Section 2.2. 1.18 "Territory" means the entire world. ARTICLE II - LICENSE GRANT 2.1 Non-exclusive License Grant. Orchid hereby grants to PE under the Licensed Patents a non-exclusive license, without the right to grant sublicenses, to make, sell, offer for sale or otherwise dispose of Licensed Products in the Territory solely for use in the Licensed Field. Under this license, PE may use the Licensed Products only to the extent necessary for PE to perform quality control functions on lots of the Licensed Products, but under no circumstances may PE use the Licensed Products for Research Purposes or for any other purpose within or outside the License Field. 2.2 Additional Limited License Grant. 2.2.1 Orchid additionally grants to PE, under the Licensed Patents, a non- exclusive license, without the right to grant sublicenses, to make, sell, offer for sale or otherwise dispose of Kits in the Territory to a Third Party Licensee for use in the Licensed Field or otherwise consistent with such Third Party Licensee's license from Orchid. Under this license, PE may use the Kits only to the extent necessary for PE to perform quality control functions on lots of the Kits, but under no circumstances may PE use the Kits for Research Purposes or for any other purpose within or outside the License Field. 2.2.2 Prior to the promotion, sale, offer to sell or any other marketing activity by PE of a Kit to such Third Party Licensee, PE will have requested and received from Orchid a written confirmation that such Third Party is, in fact, a Third Party Licensee pursuant to Section 1.17. [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NON-EXCLUSIVE LICENSE AGREEMENT PAGE 4 2.2.3 Notwithstanding anything herein to the contrary, PE may recommend that its customers contact Orchid directly to explore the possibility of becoming Third Party Licensees. 2.2.4 In all cases, PE will pay royalties pursuant to Section 3.2 for all sales of Kits to Third Party Licensees. 2.2.5 The validity and effectiveness of the license granted under Section 2.2.1 is subject to PE's compliance with Section 2.2.2. 2.3 [*] ARTICLE III - FEES, ROYALTIES, AND REPORTS 3.1 License Fee. On before July 1, 2000, PE will pay to Orchid a License Fee [*] 3.2 Royalties. PE will pay Orchid a royalty of [*] of the Sales Price of all Licensed Products sold or otherwise disposed of to End Users and all Kits sold or otherwise disposed of to Third Party Licensees. 3.2.1 For purposes of this Article 3, the phrase "otherwise disposed of" as used in conjunction with a Licensed Product or Kit means any Licensed Product or Kit not sold but delivered by PE to a Third Party or Third Party Licensee, regardless of the compensation paid to PE, if any. 3.2.2 A Licensed Product or Kit will be considered sold on the date it is shipped or the date invoiced, whichever is earlier. A Licensed Product or Kit will be considered otherwise disposed of on the date shipped. Only one Royalty Fee will be due for each Licensed Product or Kit. 3.3 Reports. Within thirty (30) days after March 31, June 30, September 30, and December 31 of each calendar year, PE will send to Orchid a written report setting forth the Licensed Products and Kits, and the Genotypes enabled thereby, sold or otherwise disposed of during the preceding three months. The first such report will include all Licensed Products and Kits sold or otherwise disposed of since the Effective Date. A report will be sent to Orchid even when no Licensed Products or Kits were sold or otherwise disposed of during the period subject to the report. Each such report will be accompanied by payment of the [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NON-EXCLUSIVE LICENSE AGREEMENT PAGE 5 Royalties due pursuant to Section 3.2 hereof. A final report will be sent to Orchid within sixty (60) days after termination or expiration of this Agreement specifying Licensed Products and Kits sold or otherwise disposed of since the immediately preceding report and Licensed Products and Kits made but not sold or otherwise disposed of as of the date of termination or expiration, and payment for all such Licensed Products and Kits will accompany the final report. 3.4 Records. PE will keep good and accurate books of account sufficient to permit determination of the Royalties due hereunder and will make such books of account available for inspection by an independent auditor designated by Orchid and reasonably acceptable to PE.. Such inspections will be no more frequent than once each calendar year during the term hereof and once within six months after termination of this Agreement. The designated auditor will retain in confidence the information in the books of account and will report to Orchid only the accuracy or inaccuracy of the reports rendered pursuant to Section 3.3 hereof. Such inspections will be at Orchid's expense unless the designated accountant identifies underpayment of Royalties due to Orchid by five percent (5%) or more, in which event PE will pay for such inspection. Orchid's failure to inspect will not constitute a waiver of Orchid's right to object to the accuracy of the reports rendered or payments made under this Agreement. ARTICLE IV - TERM AND TERMINATION 4.1 Term. The Term of this Agreement begins when Orchid receives the License Fee (the "Effective Date") and will expire on the last day of the last to expire Licensed Patent. 4.2 Termination for Breach. Either party may terminate this Agreement for a material breach of the provisions of this Agreement. Such termination will be effective if the breach has not been cured in fourteen (14) days, if breach is for failure to make any payment (other than payment of the License Fee), or in sixty (60) days, if the breach is for any other reason, after written notice of said breach. 4.3 Surviving Rights. In the event of termination of this Agreement, PE will have the right to complete all contracts for the sale or disposition of Licensed Products or Kits under which PE is obligated on the date of termination provided PE pays the associated Royalties on such sales or dispositions as required in Article III hereof and provided all such sales or dispositions are completed within three (3) months after the date of termination. 4.4 Remedies. The right of either party to terminate under the provisions of this Article will not be an exclusive remedy, and either party will be entitled, if the circumstances warrant, alternatively or cumulatively, to damages for breach of this Agreement, to an order requiring performance of the obligations of this Agreement, or to any other legally available remedy. NON-EXCLUSIVE LICENSE AGREEMENT PAGE 6 ARTICLE V - FURTHER LICENSES AND TECHNICAL ASSISTANCE 5.1 No Implied License. The license granted herein is limited to the Licensed Patents in the Licensed Field, and under this Agreement no license is granted under any other patent or technology now or hereafter owned by Orchid for practice in the Licensed Field or any other purpose, other than the limited license granted by Orchid to PE with respect to Third Party Licensees pursuant to Section 2.2. 5.2 Technical Information. Orchid has no obligation to provide to PE with any manufacturing or technical information or any other technical assistance regarding the Licensed Products or Kits. ARTICLE VI - MARKING 6.1 Patent Marking. PE will prominently display on all Licensed Products and Kits on a visible surface thereof or, if impractical, on tags, labels, manuals, and other materials with which Licensed Products and Kits are sold, with the applicable numbers of the Licensed Patents under applicable law to enable the patent rights to be enforced to their full extent in any country where the Licensed Products or Kits are made, used or sold. 6.2 License Marking. 6.1.1 PE will prominently display on each unit of Licensed Product (1) an End User License; (2) a label license limiting the use of the Licensed Products to a specified number of Genotypes; (3) a label license indicating that the Licensed Product may not be used outside the Licensed Field; and (4) the fact that U.S. Patent Nos. 5,888,819 and 6,004,704 and their foreign counterparts are owned by Orchid BioSciences, Inc. 6.1.2 PE will prominently display on each unit of Kit (1) a label license indicating that the Kit may not be used outside the field for which the Third Party has a license from Orchid; and (2) the fact that U.S. Patent Nos. 5,888,819 and 6,004,704 and their foreign counterparts are owned by Orchid BioSciences, Inc. ARTICLE VII - ASSIGNMENT 7.1 PE Assignment. This Agreement has been entered into by Orchid in reliance on the particular qualifications of PE and is personal to PE. Neither this Agreement nor any rights or obligations hereunder may be assigned, pledged, or encumbered by PE without the express prior written approval of Orchid. ARTICLE VIII--INFRINGEMENT 8.1 Infringement. PE will promptly notify Orchid of any Third Party PE knows to be materially infringing a Licensed Patent and will provide to Orchid any information NON-EXCLUSIVE LICENSE AGREEMENT PAGE 7 PE has in support of such belief, provide such information is not subject to a confidentiality agreement. Orchid will have the right, but not the obligation, to use such information in an infringement action against such Third Party. PE agrees to cooperate with Orchid in any action for infringement of a Licensed Patent brought by Orchid, and Orchid will reimburse PE for all reasonable costs incurred by it in providing cooperation requested by Orchid. ARTICLE IX--PRODUCT SPECIFICATIONS & LITERATURE REPORTING 9.1 Copies of Literature. PE will provide Orchid with copies of product specification sheets, product inserts, user manuals, user bulletins, and user product updates and any other customer materials such as copies of web pages or other electronic information relating to Licensed Products or Kits at least 10 (ten) days prior to the public release of such information. The copies of such customer materials provided to Orchid need not be identical to the customer materials supplied to customers and the public, provided the material supplied to Orchid by PE is substantially the same as the actual customer materials with respect to (1) the markings required by Article VI of this agreement, (2) the suggested uses for the Licensed Products and Kits, and (3) the number of Genotypes enabled by Licensed Products and Kits. PE's duty to supply customer material to Orchid does not extend to material that is essentially duplicative of customer material that has previously been supplied to Orchid. 9.2 Promotion. - PE agrees that it will not promote by any means the Licensed Products or Kits to any Third Party in contradiction to the End User License, except in the single permitted situation described in section 2.2.3 in the case of Kits. ARTICLE X - [*] 10.1 [*] 10.2 [*] [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NON-EXCLUSIVE LICENSE AGREEMENT PAGE 8 10.3 [*] ARTICLE XI - REPRESENTATIONS & WARRANTIES 11.1 No Representations. Nothing in this Agreement will be construed as: 11.1.1 A warranty or representation by Orchid as to the validity or scope of any Licensed Patent; 11.1.2 A warranty or representation by Orchid that anything made, used, sold, or otherwise disposed of under the license granted in this Agreement will not infringe patents of third parties; 11.1.3 A requirement that Orchid will file any patent application, secure any patent, or maintain any patent in force; or 11.1.4 An obligation of Orchid to bring or prosecute actions or suits against third parties for infringement of any patent; or 11.2 Orchid Authority. Orchid warrants and represents that it has the full right and power to make promises and grant the licenses and covenants set forth in this Agreement and that there are no outstanding agreements, assignments, or encumbrances inconsistent with the provisions of this Agreement. 11.3 PE Authority. PE warrants and represents that it has the full right and power to make promises and grant the licenses and covenants set forth in this Agreement and that there are no outstanding agreements, assignments, or encumbrances inconsistent with the provisions of this Agreement. 11.4 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, ORCHID MAKES NO OTHER REPRESENTATION OR WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING WARRANTIES AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ARTICLE XII--INDEMNIFICATION 12.1 PE Indemnification. PE agrees to indemnify, defend and hold harmless Orchid, its subsidiaries or affiliates, their agents, directors, officers, employees and assigns ("Orchid Indemnitees"), from and against all losses, liabilities, damages, demands and expenses (including reasonable attorneys' fees and expenses) arising out of (i) the negligent actions of PE, its employees or any third party acting on behalf of or under authority of PE in the performance of this Agreement, (ii) any representation or warranty of PE in this Agreement; (iii) any sale or use by PE of a Licensed Product [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NON-EXCLUSIVE LICENSE AGREEMENT PAGE 9 or Kit; (iv) any use of a Licensed Product by an End User; and (v) any use of a Kit by a Third Party Licensee. 12.2 Limitation of Liability. IN NO EVENT WILL ORCHID BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE LICENSES GRANTED PURSUANT TO THIS AGREEMENT OR THE USE OR COMMERCIAL DEVELOPMENT OF ANY LICENSED PRODUCT OR KIT. ARTICLE XIII--MISCELLANEOUS 13.1 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with regard to the subject matter hereof and merges and supersedes all prior discussions, negotiations, understandings, and agreements between the parties concerning the subject matter hereof. Neither party will be bound by any definition, condition, warranty, right, duty, or covenant other than as expressly stated in this Agreement or as subsequently set forth in a written document signed by both parties. 13.2 Choice of Laws. This Agreement will be interpreted and construed, and the legal relations created herein will be determined, in accordance with the laws of the State of California (excluding conflicts of laws) and of the United States. 13.3 Press Releases. The press release attached as Appendix B may be released on the Effective Date of this agreement. Otherwise, no press releases about this Agreement may be made without the mutual written consent of both PE and Orchid. 13.4 Notices. Any and all notices or other communications required or permitted by this Agreement or by law to be served on or given to either party hereto by the other party will be in writing and delivered or sent to the addresses specified in the preamble of this Agreement. Each party may change its address for purposes of this Agreement by written notice to the other party. All notices or other communications will be deemed duly served and given on the date when personally delivered to the party to whom it is directed, when transmitted electronically by telex or facsimile, or when deposited for delivery in an expedited service such as Federal Express, DHL, and the like. 13.5 Confidentiality. Neither party may disclose the terms of this Agreement to any Third Party without the prior written consent to the other party. 13.6 Headings. The headings used in this Agreement are for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 13.7 Amendment. No amendment or modification hereof shall be valid or binding upon the parties unless made in writing and signed by both parties. NON-EXCLUSIVE LICENSE AGREEMENT PAGE 10 13.8 Force Majeure. Any delays in performance by any party under this Agreement (other than the payment of monies due) shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the party affected, including but not limited to, acts of God, embargoes, governmental restrictions, strikes or other concerted acts of workers, fire, flood, explosion, riots, wars, civil disorder, rebellion or sabotage. The party suffering such occurrence shall immediately notify the other party and any time for performance hereunder shall be extended by the actual time of delay caused by the occurrence. 13.9 Independent Contractors. In making and performing this Agreement, Orchid and PE act and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between Orchid and PE. At no time shall one party make commitments or incur any charges or expenses for or in the name of the other party except as specifically provided herein. 13.10 Severability. If any term, condition or provision of this Agreement is held to be unenforceable for any reason, it shall, if possible, be interpreted rather than voided, in order to achieve the intent of the parties to this Agreement to the extent possible. In any event, all other terms, conditions and provisions of this Agreement shall be deemed valid and enforceable to the full extent. 13.11 Waiver. None of the terms, covenants, and conditions of this Agreement can be waived except by the written consent of the party waiving compliance. NON-EXCLUSIVE LICENSE AGREEMENT PAGE 11 IN WITNESS WHEREOF, duly authorized officers of Orchid and PE have executed this Agreement in duplicate on the signature page hereof. ORCHID BIOSCIENCES, INC. PE BIOSYSTEMS, INC. /s/ Dale Pfost /s/ Elaine J. Heron - - -------------------------------- ------------------------------------- Name Name CEO Vice President, PE Biosystems - - -------------------------------- ------------------------------------- Title Title July 5, 2000 July 5, 2000 - - -------------------------------- ------------------------------------- Date Date NON-EXCLUSIVE LICENSE AGREEMENT PAGE 12 APPENDIX A END USER LICENSE "The purchase price of this product includes a limited, non-transferable license under U.S. Patent Nos. 5,888,819, 6,004,744 and their foreign counterparts owned by Orchid Biosciences, Inc. of Princeton, New Jersey, to perform [X] number of Genotypes (For purposes of this End User License, Genotype means the detection or quantification of an individual SNP within a single sample.) solely for the detection and analysis of SNPs in samples for research purposes only and only on automated electrophoresis nucleotide sequencers. This license specifically excludes performing services for a third party and any and all diagnostic or therapeutic uses. Information about purchasing licenses to practice primer extension technology covered by Orchid BioSciences, Inc. patents for any other use may be obtained by contacting the Senior Director for Business Development at Orchid BioSciences, Inc., Princeton, New Jersey, U.S.A., at (609) 750-2200. NON-EXCLUSIVE LICENSE AGREEMENT PAGE 13 APPENDIX B PRESS RELEASE EX-10.2 3 0003.txt NON-EXCLUSIVE LICENSE AGREEMENT AS OF JUNE 12, 2000 EXHIBIT 10.2 ------------ NON-EXCLUSIVE LICENSE AGREEMENT PAGE 1 ORCHID BIOSCIENCES, INC. HAS REQUESTED THAT THE MARKED PORTIONS OF THIS DOCUMENT BE ACCORDED 406 CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT, AS AMENDED. [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NON-EXCLUSIVE LICENSE AGREEMENT Effective June 12, 2000 (the "Effective Date"), Orchid BioSciences, Inc., a Delaware corporation having a principal place of business at 303 College Road East, Princeton, NJ 08540 (hereafter "Orchid"), and Amersham Pharmacia Biotech, Inc., a Delaware corporation having a principal place of business at 800 Centennial Ave. Piscataway, NJ 08855 (hereafter "LICENSEE") agree as follows: WHEREAS, Orchid owns patents relating to Primer Extension regarding detection of single nucleotide polymorphisms; and WHEREAS, LICENSEE desires to take a non-exclusive license to said patents relating to the Primer Extension; WHEREAS, Orchid is willing to grant to LICENSEE a royalty-bearing, nonexclusive license under said patents relating to Primer Extension under the following terms; NOW, THEREFORE, the parties agree as follows: ARTICLE I - DEFINITIONS 1.1 "Approved Instruments" mean instruments used for gel electrophoretic separation for nucleotide analysis that are approved by Orchid for the purposes of this license. [*] 1.2 "End User" means any Third Party licensed to use a Licensed Product pursuant to an End User License received in connection with the purchase by such Third Party of a Licensed Product. 1.3 "End User License" means a limited non-transferable license in form and substance as set forth in Appendix A, granted by Orchid to End Users to use only the material included in the Licensed Product in the Licensed Field to perform the specified number of Genotypes specified in the literature (packaging, product inserts, catalog listings, promotional items, etc) supplied by LICENSEE with each unit of Licensed Product. [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 1 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 2 1.4 "Genotype" means the detection or quantification of an individual SNP within a single sample. 1.5 "Kit" means a product designed for performing Primer Extension comprising one or more Reagents, the sale or offer for sale of which, without the licenses granted herein, would infringe or contribute to the infringement of at least one claim of a Licensed Patent. 1.6 "Licensed Field" means the use of a Licensed Product on an Approved Instrument for Research Purposes only. 1.7 "Licensed Product" means a Kit and an End User License. 1.8 "Licensed Patents" means US Patent No. 5,888,819 and 6,004,744 and any divisionals, continuations, reissues, and foreign counterparts thereof. To date foreign patents include the Australian Patent No. 660,173. 1.9 "Primer Extension" means a nucleic acid template-dependent primer extension reaction to determine the identity of a single nucleotide base at a specific position in a nucleic acid of interest in which the reaction is performed in the presence of two or more terminators and in the absence of extendible nucleotide 1.10 "Reagent" means an enzyme, buffer, primer extension chain-terminating compound or other composition useful for Primer Extension. 1.11 "Related Company" means (a) any entity that, or an individual who, owns at least a 20% interest in LICENSEE by stock ownership or otherwise; (b) any entity in which LICENSEE owns at least a 20% interest by stock ownership or otherwise; or (c) any entity in which at least a 20% interest by stock ownership or otherwise is owned by any entity that, or an individual who, also owns at least at 20% interest in LICENSEE by stock ownership or otherwise. 1.12 Bona Fide Collaboration means a substantive research and/or development collaboration or agreement between an End-User and any Third Party which includes the ability for End-User to obtain samples from and share data with such Third Parties. For the avoidance of doubt, End-Users shall not be allowed to charge such collaborators on a fee for service basis or perform genotyping services for such collaborators. 1.13 "Research Purposes" means the detection and analysis of SNPs in samples for research and development purposes only, either alone or in Bona Fide Collaborations with one or more Third Parties, and specifically excludes performing services for a Third Party, and further excludes any and all diagnostic or therapeutic uses. 1.14 "Sales Price" means the most recent list price of LICENSEE's United States list 2 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 3 price for a single unit of a Licensed Product, as set forth in the most recent LICENSEE catalogs or such other documentation as may be employed by Licensee (and provided by LICENSEE to Orchid from time to time), and, in the case that LICENSEE grants a discount on the Sales Price to an End User, then the Sales Price used to calculate the Royalty due under Section 3 shall not be reduced more than [*] of the list price. 1.15 "SNP" means single nucleotide polymorphism. 1.16 "Third Party" means any person or entity other than Orchid and LICENSEE. 1.17 "Third Party Licensee" means any Third Party that has a valid license from Orchid to use Kits for purposes other than Research Purposes, as confirmed by Orchid pursuant to Section 2.2. 1.18 "Territory" means the entire world. ARTICLE II - LICENSE GRANT 2.1 Non-exclusive License Grant. Orchid hereby grants to LICENSEE under the Licensed Patents a non-exclusive license, without the right to grant sublicenses, to research and develop, to make, have made (with prior notification to Orchid), sell, offer for sale or otherwise dispose of Licensed Products in the Territory solely for use in the Licensed Field. Under this license, LICENSEE may use the Licensed Product only to the extent necessary to perform research and development on Licensed Products for sale hereunder and/or quality control functions on lots of the Licensed Products, but under no circumstances may LICENSEE use the Licensed Products for Research Purposes or for any other purpose within or outside the Licensed Field. 2.2 Additional Limited License Grant. 2.2.1 Orchid additionally grants to LICENSEE, under the Licensed Patents, a non-exclusive license, without the right to grant sublicenses, to research and develop, to make, have made (with prior notification to Orchid), sell, offer for sale or otherwise dispose of Kits in the Territory to a Third Party Licensee for use in the Licensed Field or otherwise consistent with such Third Party Licensee's license from Orchid. Under this license, LICENSEE may use the Kits only to the extent necessary for LICENSEE to perform research and development on Kits for sale hereunder and/or quality control functions on lots of the Kits, but under no circumstances may LICENSEE use the Kits for Research Purposes or for any other purpose within or outside the License Field. 2.2.2 Prior to the promotion, sale, offer to sell or any other marketing activity by LICENSEE of a Kit to such Third Party Licensee, LICENSEE will have [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 3 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 4 requested and received from Orchid a written confirmation that such Third Party is, in fact, a Third Party Licensee pursuant to Section 1.16. The validity and effectiveness of the license granted under Section 2.2.1 is subject to LICENSEE's compliance with Section 2.2.2. 2.2.3 Notwithstanding anything herein to the contrary, LICENSEE may recommend that its customers contact Orchid directly to explore the possibility of becoming Third Party Licensees. 2.2.4 In all cases, LICENSEE will pay royalties pursuant to Section 3.2 for all sales of Kits to Third Party Licensees. In all cases Orchid shall use reasonable efforts to cause Third Party Licensees to purchase Kits only from a licensed provider under similar terms. 2.3 Labeling. LICENSEE shall label the Licensed Products sold hereunder in accordance with Article VI. It is expressly understood, however, that LICENSEE has no responsibility to police its customers or otherwise ensure their compliance with the terms of the license granted hereunder. All such policing and enforcement efforts shall be the responsibility of Orchid. ARTICLE III - FEES, ROYALTIES, AND REPORTS 3.1 License Fee. Within twenty-one (21) days of the Effective Date of this Agreement, LICENSEE will pay to Orchid a License Fee of [*] 3.1.1 [*] 3.2 Royalties. LICENSEE will pay Orchid a royalty of [*] of the Sales Price of all Licensed Products sold or otherwise disposed of. 3.2.1 For purposes of this Article 3, the phrase "otherwise disposed of" as used in conjunction with a Licensed Product or Kit means (a) any Licensed Product or Kit not sold but delivered by LICENSEE to a Third Party regardless of the compensation paid to LICENSEE, if any. 3.2.2 A Licensed Product or Kit will be considered sold on the date it is shipped or the date invoiced whichever is earlier. A Licensed Product or Kit will be considered otherwise disposed of on the date shipped. Only one Royalty Fee will be due for each Licensed Product or Kit. 3.3 Reports. Within thirty (30) days after March 31, June 30, September 30, and [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 4 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 5 December 31 of each calendar year, LICENSEE will send to Orchid a written report setting forth the Licensed Products and Kits, and the Genotypes enabled thereby, sold or otherwise disposed of during the preceding three months. The first such report will include all Licensed Products and Kits sold or otherwise disposed of since the Effective Date. A report will be sent to Orchid even when no Licensed Products or Kits were sold or otherwise disposed of during the period subject to the report. Each such report will be accompanied by payment of the Royalties due pursuant to Section 3.2 hereof. A final report will be sent to Orchid within sixty (60) days after termination or expiration of this Agreement specifying Licensed Products and Kits sold or otherwise disposed of since the immediately preceding report and Licensed Products made but not sold or otherwise disposed of as of the date of termination or expiration, and payment for all such Licensed Products and Kits will accompany the final report. 3.4 Records. LICENSEE will keep good and accurate books of account sufficient to permit determination of the Royalties due hereunder and will make such books of account available for inspection by an independent auditor, who shall be a Certified Public Accountant, designated by Orchid and reasonably acceptable to LICENSEE. Such inspections will be no more frequent than once each calendar year during the term hereof and once within six months after termination of this Agreement. The designated auditor will retain in confidence the information in the books of account and will report to Orchid only the accuracy or inaccuracy of the reports rendered pursuant to Section 3.3 hereof. Such inspections will be at Orchid's expense unless the designated accountant identifies underpayment of Royalties due to Orchid by five percent (5%) or more, in which event LICENSEE will pay for such inspection. Orchid's failure to inspect will not constitute a waiver of Orchid's right to object to the accuracy of the reports rendered or payments made under this Agreement. ARTICLE IV - TERM AND TERMINATION 4.1 Term. The term of this agreement begins on the Effective Date and will expire on the last day of the last to expire Licensed Patents. 4.2 Termination for Breach. Either party may terminate this Agreement for a material breach of the provisions of this Agreement. Such termination will be effective if the breach has not been cured in fourteen (14) days, if breach is for failure to make any payment (other than payment of the License Fee), or in sixty (60) days, if the breach is for any other reason, after written notice of said breach. 4.3 Surviving Rights. In the event of termination of this Agreement, LICENSEE will have the right to complete all contracts for the sale or disposition of Licensed Products or Kits under which LICENSEE is obligated on the date of termination provided LICENSEE pays the associated Royalties on such sales or dispositions as required in Article III hereof and provided all such sales or dispositions are 5 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 6 completed within three (3) months after the date of termination. 4.4 Remedies. The right of either party to terminate under the provisions of this Article will not be an exclusive remedy, and either party will be entitled, if the circumstances warrant, alternatively or cumulatively, to damages for breach of this Agreement, to an order requiring performance of the obligations of this Agreement, or to any other legally available remedy. ARTICLE V - FURTHER LICENSES AND TECHNICAL ASSISTANCE 5.1 No Implied License. The license granted herein is limited to the Licensed Patents in the Licensed Field, and under this Agreement no license is granted under any other patent or technology now or hereafter owned by Orchid for practice in the Licensed Field or any other purpose, other than the limited license granted by Orchid to LICENSEE with respect to Third Party Licensees pursuant to Section 2.2. 5.2 Technical Information. Orchid has no obligation to provide to LICENSEE with any manufacturing or technical information or any other technical assistance regarding the Licensed Products or Kits. ARTICLE VI - MARKING 6.1 Patent Marking. LICENSEE will prominently display on all Licensed Products and Kits on a visible surface thereof or, if impractical, on tags, labels, manuals, and other materials with which Licensed Products and Kits are sold, with the applicable numbers of the Licensed Patents under applicable law to enable the patent rights to be enforced to their full extent in any country where the Licensed Products or Kits are made, used or sold. 6.2 License Marking. 6.2.1 LICENSEE will prominently display on the outside of each unit of Licensed Product (1) an End User License; (2) a label license limiting the use of the Licensed Products to a specified number of Genotypes; (3) a label license indicating that the Licensed Product may not be used outside the Field; and (4) the fact that U.S. Patent Nos. 5,888,819 and 6,004,704 and their foreign counterparts are owned by Orchid BioSciences, Inc. 6.2.2 LICENSEE will prominently display on each Kit (1) a label license indicating that the Kit may not be used outside the field for which the Third Party has a license from Orchid; and (2) the fact that U.S. Patent Nos. 5,888,819 and 6,004,704 and their foreign counterparts are owned by Orchid BioSciences, Inc. 6 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 7 ARTICLE VII - ASSIGNMENT 7.1 LICENSEE Assignment. This Agreement has been entered into by Orchid in reliance on the particular qualifications of LICENSEE and is personal to LICENSEE. Neither this Agreement nor any rights or obligations hereunder may be assigned, pledged, or encumbered by LICENSEE without the express prior written approval of Orchid. ARTICLE VIII- INFRINGEMENT 8.1 Infringement. LICENSEE will use reasonable efforts to promptly notify Orchid of any Third Party LICENSEE believes may be infringing a Licensed Patent and will, to the greatest extent possible, provide to Orchid any information LICENSEE has in support of such belief. Orchid will have the right, but not the obligation, to use such information in an infringement action against such Third Party. LICENSEE agrees to cooperate with Orchid in any action for infringement of a Licensed Patent brought by Orchid, and Orchid will reimburse LICENSEE for all reasonable costs incurred by it in providing cooperation requested by Orchid. ARTICLE IX - PRODUCT SPECIFICATIONS & LITERATURE REPORTING 9.1 Copies of Literature. LICENSEE will provide Orchid with copies of product specification sheets, product inserts, user manuals, user bulletins, and user product updates and any other customer materials such as copies of web pages or other electronic information relating to Licensed Products and Kits at least 10 (ten) days prior to the public release of such information. The copies of such customer materials provided to Orchid need not be identical to the customer materials supplied to customers and the public, provided the material supplied to Orchid by LICENSEE is substantially the same as the actual customer materials with respect to (1) the markings required by Article VI of this agreement, (2) the suggested uses for the Licensed Products and Kits, and (3) the number of Genotypes enabled by Licensed Products and Kits. 9.2 Promotion. LICENSEE agrees that it will not promote by any means the Licensed Products or Kits to any Third Party in contradiction to the End User License, except in the single situation permitted by Section 2.2.3 in the case of Kits. [*] [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 7 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 8 ARTICLE XI - REPRESENTATIONS & WARRANTIES 11.1 No Representations. Nothing in this Agreement will be construed as: 11.1.1 A warranty or representation by Orchid as to the validity or scope of any Licensed Patent; 11.1.2 A warranty or representation by Orchid that anything made, used, sold, or otherwise disposed of under the license granted in this Agreement will not infringe patents of third parties; 11.1.3 A requirement that Orchid will file any patent application, secure any patent, or maintain any patent in force; or 11.1.4 An obligation of Orchid to bring or prosecute actions or suits against third parties for infringement of any patent; or 11.2 Orchid Authority. Orchid warrants and represents that it has the full right and power to make promises and grant the licenses and covenants set forth in this Agreement and that there are no outstanding agreements, assignments, or encumbrances inconsistent with the provisions of this Agreement. 11.3 LICENSEE Authority. LICENSEE warrants and represents that it has the full right and power to make promises and grant the licenses and covenants set forth in this Agreement and that there are no outstanding agreements, assignments, or encumbrances inconsistent with the provisions of this Agreement. 8 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 9 11.4 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, ORCHID MAKES NO OTHER REPRESENTATION OR WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING WARRANTIES AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ARTICLE XII - INDEMNIFICATION 12.1 LICENSEE Indemnification. LICENSEE agrees to indemnify, defend and hold harmless Orchid, its subsidiaries or affiliates, their agents, directors, officers, employees and assigns ("Orchid Indemnitees"), from and against all losses, liabilities, damages, demands and expenses (including reasonable attorneys' fees and expenses) arising out of (i) the negligent actions of LICENSEE, its employees or any third party acting on behalf of or under authority of LICENSEE in the performance of this Agreement, (ii) any representation or warranty of LICENSEE in this Agreement; (iii) any sale or use by LICENSEE of a Licensed Product or Kit; (iv) any use of a Licensed Product by an End User; and (v) any use of a Kit by a Third Party Licensee. 12.2 Limitation of Liability. NEITHER PARTY WILL BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE LICENSE GRANTED PURSUANT TO THIS AGREEMENT OR FROM THE USE OR COMMERCIAL DEVELOPMENT OF THE LICENSED PRODUCT OR KIT. ARTICLE XIII - MISCELLANEOUS 13.1 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with regard to the subject matter hereof and merges and supersedes all prior discussions, negotiations, understandings, and agreements between the parties concerning the subject matter hereof. Neither party will be bound by any definition, condition, warranty, right, duty, or covenant other than as expressly stated in this Agreement or as subsequently set forth in a written document signed by both parties. 13.2 Choice of Laws. This Agreement will be interpreted and construed, and the legal relations created herein will be determined, in accordance with the laws of the State of California (excluding conflicts of laws) and of the United States. 13.3 Press Releases. The press release attached as Appendix B may be released on the Effective Date of this agreement. Otherwise, no press releases about this Agreement may be made without the mutual written consent of both LICENSEE and Orchid. 13.4 Notices. Any and all notices or other communications required or permitted by this Agreement or by law to be served on or given to either party hereto by the 9 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 10 other party will be in writing and delivered or sent to the addresses specified in the preamble of this Agreement. Each party may change its address for purposes of this Agreement by written notice to the other party. All notices or other communications will be deemed duly served and given on the date when personally delivered to the party to whom it is directed, when transmitted electronically by telex or facsimile, or when deposited for delivery in an expedited service such as Federal Express, DHL, and the like. 13.5 Confidentiality. Neither party may disclose the terms of this Agreement to any Third Party without the prior written consent to the other party. 13.6 Headings. The headings used in this Agreement are for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 13.7 Amendment. No amendment or modification hereof shall be valid or binding upon the parties unless made in writing and signed by both parties. 13.8 Force Majeure. Any delays in performance by any party under this Agreement (other than the payment of monies due) shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the party affected, including but not limited to, acts of God, embargoes, governmental restrictions, strikes or other concerted acts of workers, fire, flood, explosion, riots, wars, civil disorder, rebellion or sabotage. The party suffering such occurrence shall immediately notify the other party and any time for performance hereunder shall be extended by the actual time of delay caused by the occurrence. 13.9 Independent Contractors. In making and performing this Agreement, Orchid and LICENSEE act and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between Orchid and LICENSEE. At no time shall one party make commitments or incur any charges or expenses for or in the name of the other party except as specifically provided herein. 13.10 Severability. If any term, condition or provision of this Agreement is held to be unenforceable for any reason, it shall, if possible, be interpreted rather than voided, in order to achieve the intent of the parties to this Agreement to the extent possible. In any event, all other terms, conditions and provisions of this Agreement shall be deemed valid and enforceable to the full extent. 13.11 Waiver. None of the terms, covenants, and conditions of this Agreement can be waived except by the written consent of the party waiving compliance. 10 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 11 IN WITNESS WHEREOF, duly authorized officers of Orchid and LICENSEE have executed this Agreement in duplicate on the signature page hereof. Orchid Biosciences, Inc. AMERSHAM PHARMACIA BIOTECH, INC. /s/ Donald R. Marvin Name /s/ Peter B. Loggins - - ----------------------------- ---------------------------- Name Name SVP, COO & CFO VP Drug Discovery - - ----------------------------- ---------------------------- Title Title June 12, 2000 June 7, 2000 - - ----------------------------- ---------------------------- Date Date 11 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 12 APPENDIX A END USER LICENSE "The purchase price of this product includes a limited, non-transferable license under U.S. Patent Nos. 5,888,819, 6,004,744 and their foreign counterparts owned by Orchid BioSciences, Inc. of Princeton, New Jersey, to perform only the number of Genotypes listed on the packaging for this product (For purposes of this End User License, Genotyping means the detection or quantification of an individual SNP within a single sample.) solely for the detection and analysis of SNPs in samples for research and development purposes, either alone or in bona fide research collaborations with one or more third parties, only and only on an instrument used for gel electrophoretic separation for nucleotide analysis. This license specifically excludes performing services for a third party and any and all diagnostic or therapeutic uses. Information about purchasing licenses to practice primer extension technology covered by Orchid BioSciences, Inc. patents for any other use may be obtained by contacting the Senior Director for Business Development at Orchid BioSciences, Inc., Princeton, New Jersey, U.S.A., at (609) 750-2200. 12 NON-EXCLUSIVE LICENSE AGREEMENT PAGE 13 Appendix B Press Release 13 EX-10.3 4 0004.txt LICENSE AND SUPPLY AGREEMENT AS OF JUNE 12, 2000 Exhibit 10.3 ORCHID BIOSCIENCES, INC. HAS REQUESTED THAT THE MARKED PORTIONS OF THIS DOCUMENT BE ACCORDED 406 CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT, AS AMENDED. [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. LICENSE AND SUPPLY AGREEMENT FOR AUTOMATED SNP ANALYSIS THIS AGREEMENT, dated June 12, 2000 (the "Effective Date"), is between ORCHID BIOSCIENCES, 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 BRISTOL-MYERS SQUIBB COMPANY, a corporation organized and existing under the laws of the State of Delaware, having a principal place of business at Route 206 and Province Line Road, Princeton, New Jersey 08543-4000 ("CUSTOMER"). WHEREAS, Orchid develops and /or manufactures SNPstream Instruments(TM), Software Packages, Consumables and Systems to perform automated SNP analysis; WHEREAS, Orchid makes its SNPstream Instruments, Software Packages, Consumables, and Intellectual Property available for purchase or license both separately and as part of Systems that provide turnkey ability for performing automated SNP analysis; and WHEREAS, CUSTOMER desires to have Orchid provide it with a turnkey System for performing automated SNP analysis; 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 a party to this Agreement. 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, or the right to direct the policy decisions of the legal entity. 1.2 "Analytic Software" means software for the analysis of data generated by the SNPstream Instrument. 1.3 "Assay Data" means all CUSTOMER assay or research plans, methods, objectives, results or analyses, DNA sequences, polymorphisms, genes, experimental protocols, genotyping results and other information relating to CUSTOMER's use of the System. 1.4 "Authorized Representative" means a company or individual who is authorized by Orchid to perform certain limited obligations under this Agreement. 1.5 "Consumables" means SNP Assay Kits and other items listed on Schedule 1.5 as amended from time to time. 1.6 "Improvements" means any and all new and useful processes, manufactures, compositions of matter or methods of use, first conceived, reduced to practice or developed after the Effective Date, and during the term of this Agreement, by CUSTOMER or its employees, consultants or contractors. 1.7 "Intellectual Property" means the patents, patent applications, copyrights and Know How relating to SNPstream Instruments, Software Packages, Consumables and Systems for performance of SNP-IT, owned by or licensed to Orchid. 1.8 "Know How" means Orchid's non-patented, proprietary information as of the Effective Date for performing automated SNP-IT. 1.9 "Operator's Manual" means the instructional manual and sheets for the proper operation and maintenance of the SNPstream Instrument provided by Orchid with each SNPstream Instrument as may be amended or supplemented by Orchid from time to time. 1.10 "Operation Software" means the software for the operation of the SNPstream Instrument. 1.11 "SNP Identification Technology" or "SNP-IT" means an assay that identifies one and only one base position of a target nucleic acid. 1.12 "SNPstream Instrument" means the platform for performing automated SNP-IT conforming to the Specifications. 1.13 "SNP Assay Kit" means the GenoPak(TM) preformatted consumable SNP assay kits containing validated and quality controlled reagents or similar kits for genotyping. 1.15 "Software Package" means Analytic Software and Operation Software. 1.16 "Specifications" means the features of the SNPstream Instrument, Software Package and Consumables as described on Schedule 1.15. 1.17 "System" means SNPstream Instrument, Software Package, Consumables, and Intellectual Property to perform automated SNP analysis. 1.18 "Technical Data" means all data and other information relating to the accuracy, speed, throughput rates, usage, duration of operations, downtime, disruptions in use, ease of use, errors, problems, solutions, and all other information regarding the performance of the SNPstream Instrument or Software Package, but not including any Assay Data. 2. SNPstream Instrument 2.1 Supply, Delivery and Assembly of SNPstream Instrument 2 2.1.1 Orchid will provide to CUSTOMER, for the term of this Agreement, one SNPstream Instrument pursuant to the terms of attached Schedule 2.1.1 for CUSTOMER to use in the manner specified in this Agreement. 2.1.2 Orchid will use reasonable commercial efforts to deliver, assemble and install the SNPstream Instrument at the location(s) and on the date(s) designated by CUSTOMER pursuant to Schedule 2.1.1, without charge to CUSTOMER, in accordance with its Standard Terms and Conditions of Delivery and Installation set forth in attached Schedule 2.1.2. 2.1.3 If the premises of CUSTOMER are not prepared for assembly and installation of the SNPstream Instrument as required by Orchid's Standard Terms and Conditions of Delivery and Installation as of the scheduled assembly and installation date, CUSTOMER will reimburse all reasonable costs and expenses, including travel expenses, incurred by Orchid or its Authorized Representative, in any delay of the assembly or installation resulting therefrom. 2.2 Training and Support 2.2.1 Only employees of CUSTOMER who have been trained by Orchid in the proper operation of the SNP Instrument may operate it. Orchid will provide, at no cost to CUSTOMER, reasonable technical training to CUSTOMER's employees on the proper operation of the SNPstream Instrument at CUSTOMER's site or at Orchid's or another site in accordance with its Standard Terms and Conditions of Training set forth in attached Schedule 2.2.1. CUSTOMER is solely responsible for the expenses of its employees in connection with such training. 2.2.2 Orchid will provide, at no cost to CUSTOMER, reasonable technical support to CUSTOMER in its operation of the SNPstream Instrument in accordance with its Standard Terms and Conditions of Support set forth in attached Schedule 2.2.2. 2.2.3 If CUSTOMER desires training or support in addition to that provided by Orchid under paragraphs 2.2.1 and 2.2.2, CUSTOMER will reimburse Orchid at Orchid's then prevailing rate for such training and support, including the travel and per diem expenses of the employees of Orchid traveling to CUSTOMER's site at CUSTOMER's request, in accordance with CUSTOMER's non- employee travel policy. CUSTOMER is solely responsible for the expenses of its employees in connection with such training or support. 2.3 Service and Repair 2.3.1 CUSTOMER will permit Orchid or an Authorized Representative reasonable access during normal business hours to periodically service, repair and inspect the SNPstream Instrument. At CUSTOMER's request, 3 Orchid and/or any such Authorized Representative shall execute a non-disclosure agreement, in form and substance reasonably acceptable to CUSTOMER, prior to being granted such access. CUSTOMER is not authorized to, and agrees not to, service or repair, or to have a third party not authorized by Orchid, service or repair, the SNPstream Instrument. 2.3.2 Orchid will, at its option, repair or replace any SNPstream Instrument or any component thereof that does not meet Specifications or is otherwise materially defective in materials or workmanship, provided that CUSTOMER has at all times (1) operated and maintained the SNPstream Instrument in full accordance with the Operator's Manual, as same may be amended by Orchid from time to time, (2) used only those Consumables delivered to it by Orchid (or those supplied by CUSTOMER or an authorized third party pursuant to paragraph 4.5.3), and (3) has had all service, repair or replacement of a component of the SNPstream Instrument performed by Orchid. 2.3.3 CUSTOMER is solely responsible for any repair, replacement, loss or damage resulting from (1) any operation or maintenance of the SNPstream Instrument, or any component thereof, not in full accordance with the Operator's Manual, (2) use of any Consumable not delivered to it by Orchid (and not manufactured by CUSTOMER or an authorized third party pursuant to paragraph 4.5.3), or (3) service, repair or replacement of a component of the SNPstream Instrument other than by Orchid or an Authorized Representative. CUSTOMER must reimburse Orchid for all costs and expenses resulting from such repair, replacement, loss or damage to Orchid. 2.4 Records 2.4.1 CUSTOMER will use reasonable commercial efforts to keep accurate and complete records as to quantity of usage, performance, reliability, and operation of the SNPstream Instrument and other Technical Data, and will periodically make such records and Technical Data available to Orchid; provided, however, that CUSTOMER shall not be required to disclose any Assay Data. 2.4.2 Orchid is free to use and disclose any Technical Data and other information received from CUSTOMER under this Agreement without any obligation to CUSTOMER. 2.5 Return of SNPstream Instrument At the end of the term of this Agreement, Orchid will remove the SNPstream Instrument, without charge to CUSTOMER, in accordance with its Standard Terms and Conditions of Removal set forth in attached Schedule 2.5. 2.6 No License 4 2.6.1 Orchid retains all right, title, and interests to the SNPstream Instrument and related materials and information provided under this paragraph 2. Acquisition or operation of the SNPstream Instrument does NOT provide any right or license, express or implied, in or to any patent, copyright, trademark, trade secret, or other proprietary right, foreign or domestic, of Orchid or any third party, except to the limited extent necessary for CUSTOMER's operating the System and its components in accordance with the terms of this Agreement. 2.6.2 CUSTOMER will use the SNPstream Instrument, Software Package, Consumables, and Know How solely for internal research and development use and only for the detection of genetic polymorphisms by SNP-IT and NOT for diagnostic or therapeutic use, or for or on behalf of any third party, except its Affiliates and its bona fide research collaborators. 2.6.3 The rights provided herein are personal to CUSTOMER and may not be sublicensed or otherwise transferred without the prior express written approval of Orchid. 2.7 Further Restrictions 2.7.1 CUSTOMER will not sell or offer for sale, assign, mortgage, pledge, or allow any lien to be created upon the SNPstream Instrument; and will duly and punctually pay all rents, rates, taxes, charges and impositions payable in respect of the premises of CUSTOMER wherein the SNPstream Instrument is situated, subject to CUSTOMER's legal rights to offset, contest and protect same. 2.7.2 CUSTOMER will not remove, alter, deface or cover any labels, markings, warnings, instructions, icons, serial numbers, model numbers, trademarks, trade names, or logos affixed or applied by Orchid to the SNPstream Instrument. 3. Software 3.1 Supply of Software 3.1.1 Orchid will provide to CUSTOMER, at no cost and on the terms and conditions of this Agreement, one (1) copy of the Software Package for use with and as part of each SNPstream Instrument. 3.2 Limited License 3.2.1 Orchid and/or its licensor(s) retains all right, title, and interests to the SNPstream Software Package. 5 3.2.2 CUSTOMER agrees to use the Software Package only with and as part of the SNPstream Instrument; such use being limited to the storing, loading, installing, executing or displaying of the Operation Software on a single computer, processor or controller; the storing, loading, installing, executing or displaying of the Analytic Software on the dedicated computer(s) provided by Orchid; and the making of one (1) copy of the Software Package for archival or backup purposes only. 3.2.3 Additional site licenses for the Analytic Software are available to CUSTOMER and its Affiliates from Orchid on payment of a license fee. 3.2.4 CUSTOMER will not modify or make derivative works of the Software Package or reverse engineer, disassemble, or decompile any of the Software Package. 3.2.5 Upon expiration or termination of this Agreement, CUSTOMER must cease use of the Analytic Software and promptly return it and all copies, including any and all copies acquired under paragraph 3.2.3, to Orchid. 3.2.6 Upon expiration or termination of this Agreement, CUSTOMER must cease use of the Operation Software and promptly return it and all copies to Orchid. 3.2.7 This paragraph 3 survives any termination or expiration of this Agreement. 4. Consumables 4.1 Supply Of Consumables 4.1.1 During the term of this Agreement, Orchid will sell to CUSTOMER, and CUSTOMER will purchase from Orchid, all of CUSTOMER's requirements of Consumables, except as provided in paragraphs 4.1.3 and 4.5.3. 4.1.2 CUSTOMER will issue written purchase orders to Orchid for Consumables. The purchase orders are subject to 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 Orchid. 4.1.3 Orchid will use all commercially reasonable efforts to supply CUSTOMER's reasonable requirements of Consumables. All purchase orders will be accepted unless Orchid notifies CUSTOMER within ten (10) business days of receipt of the purchase order that Orchid cannot fill the purchase order. Unless Orchid notifies CUSTOMER within ten (10) business days after the delivery of any such notice that Orchid is, in fact, able to fill such purchase order, the Minimum Throughput/yr. described 6 in Schedule 2.1.1 shall be reduced in the amount of Consumables Orchid is unable to supply. 4.1.4 CUSTOMER may defer or cancel delivery of Consumables specified in a purchase order by notifying Orchid at least twenty (20) business days prior to the requested delivery date. 4.1.5 All permitted cancellations are subject to cancellation charges of ten percent (10%) of the purchase price. A request by CUSTOMER to defer delivery of Consumables for more than sixty (60) days after the date provided on the original invoice will be considered a cancellation for purposes of this paragraph 4.1.5. 4.2 Delivery 4.2.1 Orchid will use reasonable efforts to deliver to CUSTOMER Consumables on or before the date requested in CUSTOMER's purchase order (but will have no obligation to deliver Consumables in less than thirty (30) business days from receipt of the purchase order). A purchase order can be placed only after conversion of a marker site into a validated genotyping assay, as described in the attached Schedule 1.15. 4.2.2 Orchid will ship Consumables F.O.B. Orchid's manufacturing plant, or its supplier's plant, freight prepaid, to the address specified in CUSTOMER's purchase order. CUSTOMER will be invoiced for all shipping charges, freight, insurance, special handling (where required) and similar costs, import permits and duties (if applicable) and all taxes assessed. Title and the risk of loss with respect to Consumables will transfer to CUSTOMER at this time. Unless otherwise agreed or specified by CUSTOMER in the applicable purchase order, Orchid may select the carrier or freight forwarder; however, the carrier or freight forwarder must be at all times an agent of CUSTOMER. Orchid will not be liable for any damages, loss or penalty for delay in delivery caused by the carrier or freight forwarder or for failure of the carrier or freight forwarder to give CUSTOMER notice of any delay. 4.3 Price 4.3.1 CUSTOMER has selected the price schedule for Consumables indicated on attached Schedule 2.1.1. Therefore, the prices for Consumables to be delivered by Orchid under this Agreement are as CUSTOMER selected on Schedule 2.1.1. 4.3.2 Subject to the provisions of paragraphs 4.1.3 and 4.5.3, in the event that the quantity of Consumables actually purchased by CUSTOMER in any period is less than the committed quantity, CUSTOMER will pay to Orchid the shortfall fee set forth in CUSTOMER's selected price schedule 7 within thirty (30) days of receipt of Orchid's invoice therefor. Orchid shall be permitted to deliver such invoices only once per year. 4.3.3 Notwithstanding the provisions of paragraph 4.3.1, Orchid may at any time after one (1) year from the Effective Date of this Agreement, further increase its prices (and amend Schedule 2.1.1 accordingly) if [*] 4.4 Payment 4.4.1 Payment of the Access Fee set forth in Schedule 2.2.1 will be made upon the sooner of (i) the tenth (10th) business day after the commissioning and validation of the SNPstream Instrument and completion of the initial training to be provided by Orchid hereunder, or (ii) September 29, 2000; provided, however, that if such commissioning, validation and training are not complete by September 29, 2000 for reasons that are within Orchid's ability to control, then such payment shall be delayed until such commissioning, validation and training are complete. Such payment will be made in United States Dollars, by wire transfer of funds to an account designated by Orchid or by delivery of an irrevocable cashier's check to Orchid. The following is wire transfer information for Orchid's bank: [*] All other payments will be made in United States Dollars and within forty-five (45) days of receipt of Orchid's invoice. 4.4.2 If payment is not received by the due date, a service charge will be added at the rate of 10% per year or the maximum legal rate, whichever is less, to unpaid invoices from the due date thereof. [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 8 4.5 Forecasts and Allocation 4.5.1 Within thirty (30) days after the Effective Date of this Agreement and at the beginning of each calendar quarter thereafter, CUSTOMER will provide Orchid with a written forecast of its requirements for Consumables for a minimum of the next four (4) calendar quarters. The first calendar quarter of such forecast represents a firm commitment to purchase such Consumables in that quarter (subject to the cancellation and deferral provisions of paragraphs 4.1.4 and 4.1.5). The remaining portion of each forecast represents a non-binding projection on which Orchid will base its material procurement and manufacturing plans. 4.5.2 In the event that demand for any Consumable should at any time exceed Orchid's capacity to fill and deliver all of its CUSTOMER's orders (and its own need for Consumables), Orchid will notify CUSTOMER of the excess demand. Until such time as the excess demand abates or Orchid's capacity becomes sufficient to meet such demand Orchid will have the right, subject to paragraphs 4.1.3 and 4.5.3, to equitably allocate, in any reasonable manner, its available supplies, manufacturing capacity, inventory and other resources, among CUSTOMER, itself and its other customers, including those not then under contract. 4.5.3 Further to paragraph 4.5.2, in the event Orchid is unable, or expects to be unable, to reasonably supply CUSTOMER 's total requirements of Consumables for [*] consecutive business days, CUSTOMER may self-supply or obtain from any other source, reasonably acceptable to Orchid, that portion of its requirements for Consumables which Orchid is unable to reasonably supply for so long as Orchid is unable or expects to be unable to supply such portion of CUSTOMER's requirements. Any such third party alternate source will supply only Consumables that conform to Specifications and are of the same or better quality as those supplied by Orchid. Orchid will provide CUSTOMER with Know How and technical assistance and information as may be reasonably required by CUSTOMER to establish an alternate source of Consumables, including a license under any patent which Orchid has rights to license on the method of manufacture of the Consumables or on the method of use of the Consumables authorized in this Agreement. Any Consumable that, when ordered by CUSTOMER in accordance with the terms of this Agreement, Orchid is unable to supply shall count toward satisfaction of CUSTOMER's Minimum Through- put/year obligation under Schedule 2.1.1. 4.6 Inspection and Acceptance 4.6.1 CUSTOMER may conduct acceptance testing upon receipt of Consumables to verify conformance with Specifications. In the absence of written notice to Orchid of nonconformance and nonacceptance within [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 9 thirty (30) business days of delivery, the Consumables will be deemed accepted. 4.6.2 If Orchid disputes CUSTOMER's notice that a Consumable fails to conform to Specifications, such dispute will be resolved by an independent laboratory, selected by Orchid and reasonably acceptable to CUSTOMER, whose determination will be final and binding, absent manifest error. All fees and disbursements incurred in connection with the independent determination will be borne by the party which incorrectly determined that the Consumable did or did not conform to the Specifications and shall be shared equally by the parties if it is determined that the Consumables conformed in part and failed to conform in part. 4.6.3 Orchid promptly will replace any Consumable not conforming to the Specifications, at its expense; or, if unable to make prompt replacement, refund any payment made on the nonconforming Consumable. The amount of any nonconforming Consumables that are not replaced within thirty (30) days after final determination of nonconformity shall be deducted from the Minimum Throughput/yr. described in Schedule 2.1.1. CUSTOMER shall not be required to pay for any non-conforming Consumables. 4.7 Limited License 4.7.1 Orchid grants to CUSTOMER, for the term of this Agreement, a non-exclusive license to use the Consumables (both those provided under Section 4 and those provided under section 4.5.3 hereof) in connection with CUSTOMER's use of the System as provided herein. CUSTOMER acknowledges that Consumables delivered and sold to CUSTOMER are under license from Orchid solely for the uses specified in paragraph 2.6.2. Orchid acknowledges that it has no right to limit, and that no such limitation of use shall apply to, CUSTOMER Assay Data. No other license is intended or granted through sale of Consumables to CUSTOMER. 4.7.2 Purchase by CUSTOMER of Consumables does not include or carry any right to resell or transfer Consumables, either as a stand alone product or as a component of another product, or to disassemble and use any component or part of any Consumable separate from its other components and parts, or to otherwise commercially exploit the Consumables. Any use of Consumables other than the licensed use without the prior, express written authorization of Orchid is strictly prohibited. 5. Warranties 5.1 Generally 10 5.1.1 Orchid warrants that for a period of [*] after commissioning and validation hereunder (i) all SNPstream Instruments and all Analytic Software delivered to CUSTOMER shall conform to their respective Specifications, and (ii) all SNPstream Instruments delivered to CUSTOMER shall be free from defects in materials and workmanship. In addition, Orchid warrants that, to the best of its knowledge, the Analytic Software and any media used to distribute same shall contain no computer instructions, circuitry or other technological means the purpose of which is to disrupt, damage or interfere with Customer's use of its computer and telecommunications facilities for Customer's business purposes. 5.1.2 Orchid warrants that all Consumables, when delivered to CUSTOMER, shall conform to their Specifications and shall be free from defects in materials and workmanship. 5.1.3 Orchid makes no warranties concerning the Operation Software, which Orchid has licensed and/or otherwise acquired from a third party(ies), but Orchid shall assign to CUSTOMER, and reasonably assist CUSTOMER in recovering under, any manufacturer or vendor warranties that Orchid receives in connection with the Operation Software. 5.2 THERE ARE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND NONE IS CREATED, WHETHER UNDER THE UNIFORM COMMERCIAL CODE, CUSTOM OR USAGE IN THE INDUSTRY OR THE COURSE OF DEALINGS BETWEEN THE PARTIES. 5.3 ORCHID MAKES NO WARRANTY OR REPRESENTATION TO CUSTOMER THAT USE OF ANY SNPSTREAM INSTRUMENT, SOFTWARE PACKAGE, CONSUMABLE, OR KNOW HOW, OR ANY PRODUCT PRODUCED BY SUCH USE, WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADE SECRET, OR OTHER PROPRIETARY RIGHT, FOREIGN OR DOMESTIC, OF ANY THIRD PARTY TO WHICH ORCHID HAS NOT OBTAINED RIGHTS. NOTWITHSTANDING THE FOREGOING, HOWEVER, ORCHID WARRANTS THAT IT IS NOT AWARE OF ANY SUCH INFRINGEMENT AND HAS NOT RECEIVED ANY NOTICE OF POSSIBLE INFRINGEMENT. 5.4 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE SCHEDULES HERETO, ORCHID DOES NOT WARRANT, GUARANTEE OR MAKE ANY REPRESENTATION REGARDING THE USE, OR THE RESULTS OF THE USE, OR THE PERFORMANCE OF THE SNPSTREAM INSTRUMENT, SOFTWARE PACKAGE, CONSUMABLE, OR KNOW HOW. CUSTOMER REPRESENTS AND WARRANTS THAT ANY STATEMENTS HERETOFORE OR HEREAFTER MADE BY ORCHID OR ANY AUTHORIZED REPRESENTATIVE RELATIVE TO THE USE, RESULTS OF THE [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 11 USE OR PERFORMANCE OF THE SNPSTREAM INSTRUMENT, SOFTWARE PACKAGE, CONSUMABLE, OR KNOW HOW WERE AND WILL ALWAYS BE INDEPENDENTLY VERIFIED BY CUSTOMER AND CUSTOMER AGREES THAT ITS ACCEPTANCE AND/OR USE OF SUCH STATEMENTS IS ENTIRELY AT ITS OWN RISK. 5.5 EXCEPT AS EXPRESSLY PROVIDED IN PARAGRAPHS 5.1, 5.3 AND 6.1, ORCHID WILL NOT BE LIABLE TO CUSTOMER, CUSTOMER'S AFFILIATES, CUSTOMER'S SUCCESSORS OR ASSIGNS OR ANY THIRD PARTY WITH RESPECT TO ANY USE OF THE SNPSTREAM INSTRUMENT, SOFTWARE PACKAGE, CONSUMABLE, OR KNOW HOW BY CUSTOMER OR ANY AGENT OR EMPLOYEE OF CUSTOMER, OR ANY LOSS, CLAIM, DAMAGE OR LIABILITY OF ANY KIND OR NATURE WHICH MAY ARISE FROM OR IN CONNECTION WITH THE USE, HANDLING, STORAGE, OR DISPOSAL OF THE SNPSTREAM INSTRUMENT, SOFTWARE PACKAGE, CONSUMABLE, OR KNOW HOW, OR ANY PRODUCTS RESULTING FROM SUCH USE; OR ANY CLAIM FOR LOSS OF PROFITS, LOSS OR INTERRUPTION OF BUSINESS, OR FOR INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND. 6. Indemnification 6.1 Orchid agrees to indemnify, defend, and hold harmless CUSTOMER, its Affiliates and their respective directors, officers, agents, employees, representatives 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 or willful misconduct of Orchid, its employees or any third party acting on behalf or under authority of Orchid in the performance of this Agreement (including, without limitation, any Authorized Representative) and (ii) any actual or alleged act of patent infringement, contributory patent infringement, inducing patent infringement, copyright infringement, or trade secret misappropriation resulting from CUSTOMER's use of the SNPstream Instruments, Software Package, Consumables, Know How or any information and materials received hereunder, in a manner permitted under this Agreement. At any time during the course of any action involving a SNPstream Instrument, Software Package or Consumable, or if in Orchid's opinion a SNPstream Instrument, Software Package or Consumable is likely to become the subject of a patent infringement claim, Orchid may at its option and expense, (i) procure for CUSTOMER the right to continue using the SNPstream Instrument, Software Package or Consumable, (ii) replace or modify the SNPstream Instrument, Software Package or Consumable so that it becomes noninfringing or (iii) accept return of the SNPstream Instrument, Software Package or Consumable, refund the purchase price for same and the Access Fee, pro rata from the date CUSTOMER was prohibited from using the SNPstream Instrument, Software Package and/or Consumables due to such action, and terminate this Agreement. In the event Orchid is not successful in its efforts under clause (i) and/or (ii) of the preceding 12 sentence within three (3) months after any such claim arises, Orchid shall, at CUSTOMER's request undertake an action set forth in clause (iii). 6.2 Orchid will not be liable to CUSTOMER under paragraph 6.1 if the patent or copyright infringement claim is based on an alteration or modification of the SNPstream Instrument, Software Package or Consumable or a use of the SNPstream Instrument, Software Package or Consumable not authorized by Orchid. 6.3 CUSTOMER agrees to indemnify, defend and hold harmless Orchid, its Affiliates, Authorized Representatives and their respective 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) CUSTOMER's use, handling, storage and disposal of each SNPstream Instrument, Software, Consumables, Know How and any information and materials received from Orchid other than in accordance with Orchid's or its Authorized Representative's instructions, except with respect to those resulting from Orchid's (or its employees' or agents') negligence or willful misconduct, (ii) any products developed or made by CUSTOMER as a result of the use of the SNPstream Instrument, Software Package, Consumables, Know How and any information and materials received from Orchid and (iii) any actual or alleged act of patent infringement, contributory patent infringement, inducing patent infringement, copyright infringement or trade secret misappropriation resulting from CUSTOMER's use of the SNPstream Instruments, Software Package, Consumables, Know How and any information and materials received, in any manner not permitted under this Agreement or in CUSTOMER's manufacture, use or sale of any product resulting from such use; provided, however, that CUSTOMER shall not have any obligation under this paragraph 6.3 with respect to any such liabilities, demands, damages, expenses or losses to the comparative extent that Orchid has an obligation to indemnify CUSTOMER under paragraph 6.1 with respect thereto. 6.4 Any person entitled to and 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 such person seeks indemnification. An indemnifying party will have no liability or responsibility of any kind to the person seeking indemnification if it is not promptly notified and does not have adequate opportunity to defend. The indemnifying party will have sole control of the defense of the action and of all negotiations for its settlement or compromise, except that the indemnifying party shall not agree to any settlement or compromise that adversely affects the person being indemnified and/or the other party without the prior written consent of such person or other party. Each indemnified party shall cooperate with the indemnifying party under this section 6. 6.5 This section 6 survives any termination or expiration of this Agreement. 13 7. Improvements 7.1 Upon, or before, delivery of CUSTOMER's initial order of Consumables, and subject to paragraph 8, Orchid will disclose in confidence to CUSTOMER its Know How regarding the ordered Consumables. 7.2 CUSTOMER hereby assigns to Orchid all CUSTOMER's rights to, and will cause its employees, consultants and contractors to assign to Orchid all their rights to, any direct Improvements to any of the hardware or software comprising, or any biochemical assays used in, the SNPstream Instrument, Software Package and Consumables. Orchid's rights under this paragraph 7.2 shall not extend to (i) inventions, discoveries and improvements in the field of genetic marker identification generally or SNP analysis that are made by CUSTOMER's employees, consultants and contractors, or (ii) any Assay Data, all of which shall be owned by CUSTOMER exclusively. This paragraph survives any termination or expiration of this Agreement. 7.3 At any time, whether during the term of this Agreement or after termination of this Agreement, Orchid may request CUSTOMER to (and to cause its employees, consultants and contractors to) execute, acknowledge and deliver all papers, including applications for patents, and to perform such other acts as, in the reasonable opinion of Orchid, may be necessary or desirable to obtain or maintain patents or copyrights or other proprietary rights for the Technical Data and Improvements to which Orchid has rights under paragraph 7.2 in any and all countries and to vest title thereto in Orchid, its successors, assigns or nominees. CUSTOMER agrees to perform these acts without charge to Orchid, but at Orchid's expense. This paragraph survives any termination or expiration of this Agreement. 8. Confidentiality 8.1 CUSTOMER agrees not to disclose publicly or to any third party, and to keep in strictest confidence, all (i) prices and price schedules, (ii) Technical Data, (iii) Know How, (iv) Improvements, and (v) all information identified by Orchid as being secret or confidential. If any information under clause (v) is disclosed in written or electronic format, it must be prominently labeled "Confidential," "Proprietary," etc. If any information under clause (v) is disclosed in visual and/or oral format, it must be stated to be confidential at the time of disclosure and summarized in a writing sent to CUSTOMER within thirty (30) days thereafter. 8.2 The obligation of confidentiality under this paragraph 8 does not apply to information which CUSTOMER can demonstrate is known publicly, is in the public domain or enters into the public domain without the fault of CUSTOMER, was known to CUSTOMER prior to the Effective Date of this Agreement, is disclosed to CUSTOMER by a third party not under obligation of confidence, is independently developed by employees or agents of CUSTOMER without access 14 to, or use of, Orchid's confidential information, or which CUSTOMER is required to disclose in order to comply with any applicable law, regulation or governmental order. 8.3 The obligations of this paragraph 8 survive and continue for a period of five (5) years after any termination or expiration of this Agreement. 9. Term and Termination 9.1 This Agreement will expire and terminate at the end of the price schedule selected by CUSTOMER on attached Schedule 2.1.1; provided, however, that CUSTOMER shall have the right to extend the term of this Agreement, for a like period, up to three (3) times, upon notice and payment to Orchid at least ninety (90) days in advance of the then current expiration date. CUSTOMER shall pay Orchid an annual renewal fee in connection with each such extension. The amount of such renewal fee shall be determined by the parties, in good faith, after delivery of CUSTOMER's renewal notice and shall be (i) based CUSTOMER's past level of usage of Orchid's support and maintenance services, and (ii) competitive with renewal fees Orchid is then charging other similarly situated customers. The price of Consumables during each successive extension period shall, notwithstanding paragraph 4.3.3, decrease by at least [*]. 9.2 Orchid and CUSTOMER have the right to terminate this Agreement if the other fails to make any payment due and owing, or commits a breach of any material provision of this Agreement and fails to make such payment within thirty (30) days or remedy such breach within sixty (60) days after receiving written notice of such default or breach. This right of termination, however, cannot be exercised if at any time during said time period, the party accused of default or breach cures such default or breach or provides proof that such party is not in default or has not committed such breach. In such event Orchid and CUSTOMER will negotiate in good faith to resolve the disputed payment or breach before taking any other action to resolve same. 9.3 Subject to applicable law (including the U.S. Bankruptcy Code), Orchid and CUSTOMER each have the right to terminate this Agreement if any proceeding is instituted by or against the other party 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. No assignee for the benefit of creditors, receiver, liquidator, sequestrator, trustee in bankruptcy, sheriff or any other officer of the court or official charged with taking over custody of CUSTOMER's assets or business will have any right to continue the performance of this Agreement. Notwithstanding any other provision of this Agreement, Orchid acknowledges and agrees that this Agreement constitutes a [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 15 license with respect to the SNPstream Instrument, Software Package, Consumables and Know How for the purposes of this paragraph 9.3. 9.4 In the event this Agreement is terminated by CUSTOMER pursuant to the provisions of paragraph 9.2 or 9.3, upon written notice from CUSTOMER, Orchid will remove the SNPstream Instrument(s), at no cost to CUSTOMER, in accordance with its Standard Terms and Conditions of Removal set forth in attached Schedule 2.5. In addition Orchid shall refund to CUSTOMER that portion of the then current Access Fee or renewal fee, as the case may be, applicable, on a pro rata basis, to the portion of the initial term or any renewal term of this Agreement, as the case may be, from and after the effective date of any such termination. This paragraph survives any termination or expiration of this Agreement. 9.5 In the event this Agreement is terminated by Orchid pursuant to the provisions of paragraph 9.2 or 9.3, upon written notice to CUSTOMER, Orchid may remove the SNPstream Instrument, at CUSTOMER's expense, in accordance with its Standard Terms and Conditions of Removal set forth in attached Schedule 2.5; and, CUSTOMER will pay to Orchid, within thirty (30) days of such termination, the early termination fee set forth in the price schedule of attached Schedule 2.1.1. This paragraph survives any termination or expiration of this Agreement. 9.6 Upon expiration or termination of this Agreement for any cause or reason neither CUSTOMER nor Orchid will be released from any obligation theretofore accrued. The parties' respective rights and obligations under the following provisions shall survive pay termination or expiration of this Agreement: Paragraphs 2.4.2, 2.6.1, 3.2.1, 3.2.5, 3.2.6, 4.3.3, 4.6, 5, 6, 8, 9.5, 9.6, 9.7, 10.2, 10.3 and 10.9. 10. Miscellaneous 10.1 The relationship of Orchid and CUSTOMER under this Agreement is that of both licensor and licensee and seller and buyer. The provisions of this Agreement may not be construed to create between Orchid and CUSTOMER 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 CUSTOMER. Neither party hereto is 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 CUSTOMER and CUSTOMER is not an agent for Orchid for any purpose whatsoever 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. 10.2 Orchid, in its performance of this Agreement, may delegate its obligations or duties to one or more Authorized Representatives as agent(s) for Orchid under this Agreement. However, no Authorized Representative has the right or authority to make any representation or warranty to CUSTOMER, or to assume or 16 create any obligations with or for CUSTOMER, whether express or implied, on behalf or in the name of Orchid except as expressly set forth in this Agreement. Notwithstanding any such delegation, Orchid shall remain liable for the performance of such obligations and duties and for the performance of any Authorized Representatives to which Orchid may delegate performance of same. 10.3 During the term of this Agreement and for a period of one year thereafter, neither Orchid nor CUSTOMER will actively solicit for employment any of the other's technical personnel. 10.4 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. 10.5 Any notice required or permitted under this Agreement will be deemed to have been sufficiently provided and effectively made if sent by facsimile and either hand-delivered or sent by overnight express courier (e.g., Federal Express), signature required, and addressed to the receiving party at its respective address as follows: Orchid Biosciences, Inc. Bristol-Myers Squibb Company P.O. Box 4000 303 College Road East Route 206 & Province Line Road Princeton, NJ 08540 Princeton, NJ 08543-4000 Facsimile: (609) 750-2250 Facsimile: (609) 452-4232 Attn: Kevin Nash Attn: Vice-President & Senior Counsel Pharmaceutical Research Institute and Worldwide Business Development With a courtesy copy to: Kalow Springut & Bressler LLP 488 Madison Avenue New York, NY 10016 Facsimile: (212) 813-9600 Attn: David A. Kalow or such other address of which the receiving party has given notice pursuant to this paragraph 10.5. The effective date of the notice is the date of receipt of the hand or courier delivery. 10.6 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, is excused from such performance to the extent and for the duration of such prevention, restriction or interference, provided that 17 the party so affected uses its reasonable efforts to avoid or remove such cause of non-performance and continues performance under this Agreement whenever and to the extent such cause or causes are removed. For the purpose of this paragraph 10.6, but without limiting the generality hereof, the following will be considered as not being 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; quarantine restrictions; strike; labor lockout; differences with workmen; embargoes; delays or failures in transportation; and acts of a similar nature. 10.7 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. 10.8 The paragraph headings are for convenience only and cannot have any effect on the interpretation or construction of this Agreement. 10.9 The laws of the State of New Jersey, excluding the principles of conflicts of laws, govern this Agreement. 10.10 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 Orchid may assign this Agreement to an Affiliate of Orchid without any such consent. As a condition precedent to any such permitted assignment, the assignee shall agree, in writing, to be bound by the provisions of this Agreement applicable to its assignor. Any effort to assign in violation hereof is considered void. In the event of any assignment, the assigning party must provide the other party with appropriate documentation of the assignment. 10.11 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 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; and no party has relied on any representation not expressly set forth or referred to in this Agreement. 10.12 No amendment, variation, waiver or modification of any of the terms or provisions of this Agreement will be effected unless set forth in writing, 18 specifically referencing this Agreement, and duly signed by an authorized officer of the party to be bound thereby. 10.13 Except as expressly provided herein, nothing in this Agreement shall create or imply any license or grant of rights to either party under, or act as a waiver as of, any rights that the other party may have to prevent infringement or misappropriation of any patents, patent applications, trademarks, copyrights, trade secrets, know how or other intellectual property rights owned or controlled by such other party or any of its Affiliates. 10.14 Except with the express written consent of a party in each instance, neither party nor its Affiliates, officers or employees will at anytime include such party's name (or that of any of its Affiliates, shareholders, officers, directors, employees or personnel) in any written material, marketing or advertising brochures, bids, contracts, proposals, applications or otherwise, except as may be required by law, or in any way represent or imply that such party or its Affiliates, shareholders, officers, directors, employees or personnel have endorsed the other party or its business. 10.15 This Agreement may be executed in two or more counterparts, all of which constitute one and the same legal instrument. 10.16 CUSTOMER and Orchid agree to execute, acknowledge, and deliver such further instruments and to do all such other acts as may be necessary or appropriate to effect the purpose and intent of this Agreement. 10.17 Each party hereby represents and warrants to the other that: (i) such party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof; (ii) such party has the requisite power and authority and the legal right, and has taken all necessary actions on its part, to enter into this Agreement and to perform its obligations and grant the rights extended by it hereunder; (iii) this Agreement has been duly executed and delivered on such party's behalf, is a legal and valid obligation binding upon it and is enforceable in accordance with its terms; (iv) the execution, delivery and performance of this Agreement by such party do not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over it; and (v) all necessary consents, approvals and authorizations of all governmental authorities and other persons required to be obtained by such party in connection with the execution and performance of this Agreement have been obtained. 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. BRISTOL-MYERS SQUIBB COMPANY ORCHID BIOSCIENCES, INC. By: /s/ Marilyn Hartig By: /s/ Donald R. Marvin ------------------ -------------------- Title: VP, External Title: SVP, COO and CFO Science & Tech. ---------------- - - ------------------- 20 Schedules To Be Attached ------------------------ 1.5 Consumables List 1.15 Specifications for SNPstream Instrument, Software Package and Consumables 2.1.1 Terms for providing SNPstream Instrument including delivery and installation date, price schedule, termination date, short fall fee and termination fee 2.1.2 Standard Terms and Conditions of Delivery and Installation 2.2.1 Standard Terms and Conditions of Training 2.2.2 Standard Terms and Conditions of Support 2.5 Standard Terms and Conditions of Removal 21 SNPSTREAM CONTRACT SCHEDULES: 1.5 [*] 1.15 Specifications for SNPstream Instrument, Software Package and Consumables: [*] [*] [*] SNPstream Consumables Specifications: - - ------------------------------------- Reagent Kit Specifications: See schedule 1.5. [*] [*] [*] [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 2.1.1 Terms for providing SNPstream Instrument including delivery and installation timelines, purchase option, price schedule, termination date, short fall fee and terminations fee. A SNPstream System will be provided to customer for the purpose of automated SNP analysis under the following terms: Delivery and Installation: - - -------------------------- [*] [*] [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 2.1.2 Standard Terms and Conditions of Delivery and Installation: Orchid or its Authorized Representative will install the SNPstream instrument at a site designated by the client. The client must have the designated location for installation prequalified by Orchid or an Authorized Representative to meet certain criteria defined as such: . Space Requirements The 3m ORCA will require a working surface space of 180" (457cm) x 90" (229cm). It is also recommended to include a 36" (91cm) access space around the entire system. The entire floor spacing surrounding the system should be completely unobstructed from any plumbing, electrical, conduits, chases, other mechanical features, etc. . Air Requirements The Multimek system requires clean, filtered air regulated to 85 psi to the system for use. The air supply should terminate at the system with a 1/4" NPT FEMALE fitting. If house air is not available, a compressor will be provided with the SNPstream Instrument. . Electrical Requirements The minimum requirement for this system is four 15Amp circuits, or three 20Amp circuits for power. The optimal case is four 20 amp circuits. For each of the 6 optical tables required there should be a 6-outlet power strip. Each of these outlet strips is then connected to the provided circuits.
- - ---------------------------------------------------------------------------------------------------------------------- DEVICE ELEC. CUR. @ 120V AIR VAC COMMENTS (amps) - - ---------------------------------------------------------------------------------------------------------------------- Host Computers 3 - - ---------------------------------------------------------------------------------------------------------------------- Host Monitors 1.5 - - ---------------------------------------------------------------------------------------------------------------------- ORCA Robot 6 - - ---------------------------------------------------------------------------------------------------------------------- 96-Channel Pipettor 3.5 Y - - ---------------------------------------------------------------------------------------------------------------------- Deck Controller 1.5 Y Y - - ---------------------------------------------------------------------------------------------------------------------- Ambient Carousel 1.5 - - ---------------------------------------------------------------------------------------------------------------------- Master Flex Console Drive 3.0 - - ---------------------------------------------------------------------------------------------------------------------- LabLine Shaker 1 - - ---------------------------------------------------------------------------------------------------------------------- EL405 Microplate Washer 6.3 Y* Y* * Unless provided by P/V pump. - - ---------------------------------------------------------------------------------------------------------------------- EL405 Microplate Washer 5 Pressure/Vacuum - - ---------------------------------------------------------------------------------------------------------------------- Bar Code Reader 0.5 - - ---------------------------------------------------------------------------------------------------------------------- BMG FLUOstar 97 2 - - ---------------------------------------------------------------------------------------------------------------------- Best UPS 12 Provides 1.4 kVA of battery backup - - ---------------------------------------------------------------------------------------------------------------------- Multidrop 384 .6 - - ----------------------------------------------------------------------------------------------------------------------
. Plumbing Requirements This system includes a tip-wash station, refillable reservoirs, waste reservoirs, and plate washers. Use of any of these components will require tubing routing and some regard to placement of the system, as these require regular maintenance in the form of filling and/or emptying. Orchid or an Authorized Representative will perform installation of the SNPstream Instrument after delivery. Installation will require approximately 10 days to complete. Commissioning, verification of the SNPstream functionality for GBA-based SNP genotyping, will occur within the installation time frame and the installation shall not be considered complete until such functionality is verified to CUSTOMER's reasonable satisfaction. 2.2.1 Standard Terms and Conditions of Training: [*] [*] [*] [*] CONFIDENTIAL MATERIAL OMITTED AND FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ORCA and Multimek are trademarks of Beckman Coulter Inc. EL405 Microplate Washer is a trademark of Bio-Tek Instruments FLUOstar 97 is a trademark of BMG Lab Technologies, Inc. Windows is a registered trademark of Microsoft Corp EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000, AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999, AND THE NOTES THERETO FROM ITEM 1 OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES. 6-MOS 6-MOS DEC-31-2000 DEC-31-1999 JAN-01-2000 JAN-01-1999 JUN-30-2000 JUN-30-1999 49,675 0 38,176 0 4,655 0 136 0 1,968 0 96,172 0 14,553 0 (2,056) 0 155,904 0 8,834 0 0 0 0 0 0 0 33 0 143,439 0 155,904 0 7,090 0 8,060 807 5,445 0 35,363 10,157 76 0 0 0 258 0 (25,547) (9,748) 0 0 (25,547) (9,748) 0 0 0 0 0 0 (25,547) (9,748) (5.52) (13.39) (5.52) (13.39)
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