-----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, SZ/ABuo1oCilE0EO8rl4aABXoSlgENXx1Svx+W9u++AbxGaI2+QbskKROhiqooBi PQZYRWnXTQXvPDY8Z1u7iA== 0001021408-02-010917.txt : 20020814 0001021408-02-010917.hdr.sgml : 20020814 20020814140850 ACCESSION NUMBER: 0001021408-02-010917 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORCHID BIOSCIENCES INC CENTRAL INDEX KEY: 0001107216 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 223392819 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30267 FILM NUMBER: 02734417 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 d10q.txt FORM 10-Q ORCHID BIOSCIENCES, INC. 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, 2002 [_] 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 of (I.R.S. Employer Identification No.) incorporation or organization) 4390 US ROUTE ONE, 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 [X] No [_] The number of shares outstanding of the registrant's Common Stock, $.001 par value, as of August 1, 2002, was 55,233,793. ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q
Page PART I FINANCIAL INFORMATION ............................................................ 3 Item 1. Financial Statements ............................................................ 3 Condensed Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001. ...................................................... 3 Condensed Consolidated Statements Of Operations for the three and six months ended June 30, 2002 and 2001 (unaudited). ........................................ 4 Condensed Consolidated Statements Of Cash Flows for the six months ended June 30, 2002 and 2001 (unaudited) ...................................................... 5 Notes To Condensed Consolidated Financial Statements (unaudited) ........................ 6 Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations. .............................................................. 14 Item 3. Quantitative And Qualitative Disclosures About Market Risk ...................... 25 PART II OTHER INFORMATION. .............................................................. 26 Item 1. Legal Proceedings. .............................................................. 26 Item 2. Changes In Securities And Use Of Proceeds. ...................................... 26 Item 3. Defaults Upon Senior Securities. ................................................ 26 Item 4. Submission Of Matters To A Vote Of Security Holders. ............................ 26 Item 5. Other Information ............................................................... 27 Item 6. Exhibits And Reports On Form 8-K ................................................ 28
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, Assets 2002 2001 --------------- ------------- (unaudited) Current assets: Cash and cash equivalents $ 15,885 $ 10,746 Short-term investments 4,903 17,196 Restricted cash 1,084 -- Accounts receivable, net 15,467 12,330 Inventory 6,533 5,354 Other current assets 2,076 1,855 -------------- -------------- Total current assets 45,948 47,481 Equipment and leasehold improvements, net 29,188 29,615 Goodwill, net 3,479 3,265 Other intangibles, net 34,999 36,772 Restricted cash 2,301 -- Other assets 2,968 3,783 -------------- -------------- Total assets $ 118,883 $ 120,916 ============== ============== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 3,529 $ 3,397 Accounts payable 5,384 6,161 Accrued expenses 9,803 9,180 Deferred revenue 1,976 1,221 -------------- -------------- Total current liabilities 20,692 19,959 Long-term debt, less current portion 4,516 6,327 Other liabilities 992 1,392 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value, authorized 5,000,000 shares, no shares issued or outstanding -- -- Series A junior participating stock, $.001 par value, 1,000,000 shares designated; no shares issued or outstanding -- -- Common stock, $.001 par value, authorized 150,000,000 shares, issued and outstanding 55,233,731 and 46,180,450 at June 30, 2002 and December 31, 2001, respectively 55 46 Additional paid-in capital 304,435 283,857 Deferred compensation (5,819) (7,543) Accumulated other comprehensive income 52 181 Accumulated deficit (206,040) (183,303) -------------- -------------- Total stockholders' equity 92,683 93,238 -------------- -------------- Total liabilities and stockholders' equity $ 118,883 $ 120,916 ============== ==============
See accompanying notes to condensed consolidated financial statements. 3 ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except share and per share data) (unaudited)
Three months ended Six months ended June 30, June 30, ------------------------------- ------------------------------ 2002 2001 2002 2001 ------------- -------------- -------------- ------------- Revenues: Products revenues $ 2,285 $ 1,211 $ 5,331 $ 2,219 Services revenues 13,521 4,424 25,116 8,321 Collaboration, license and other revenues 624 1,083 1,813 1,813 ------------- -------------- -------------- ------------- Total revenues 16,430 6,718 32,260 12,353 Operating expenses: Cost of products revenues 1,036 867 2,488 1,685 Cost of services revenues 7,791 2,859 15,399 5,731 Selling, general and administrative 11,689 8,930 23,526 16,122 Research and development 6,220 9,192 12,489 16,146 Restructuring 1,930 -- 1,930 -- ------------- -------------- -------------- ------------- Total operating expenses 28,666 21,848 55,832 39,684 ------------- -------------- -------------- ------------- Operating loss (12,236) (15,130) (23,572) (27,331) Other income (expense): Interest income 192 1,026 472 1,900 Interest expense (243) (203) (458) (367) Other expense 67 -- (73) -- ------------- -------------- -------------- ------------- Total other income (expense) 16 823 (59) 1,533 ------------- -------------- -------------- ------------- Loss before income taxes (12,220) (14,307) (23,631) (25,798) Income tax benefit -- -- 894 -- ------------- -------------- -------------- ------------- Net loss allocable to common stockholders $ (12,220) $ (14,307) $ (22,737) $ (25,798) ============= ============== ============== ============= Basic and diluted net loss per share allocable to common stockholders $ (0.22) $ (0.41) $ (0.43) $ 0.76) ============= ============== ============== ============= Shares used in computing basic and diluted net loss per share allocable to common stockholders 55,229,738 34,633,400 52,340,131 33,985,809 ============= ============== ============== =============
See accompanying notes to condensed consolidated financial statements. 4 ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
Six months ended June 30, ----------------------------------- 2002 2001 ---------------- --------------- Cash flows from operating activities: Net loss $ (22,737) $ (25,798) Adjustments to reconcile net loss to net cash used in operating activities: Noncash compensation expense 1,107 1,630 Depreciation and amortization 5,359 3,548 Impairment of fixed assets from restructuring 205 -- Changes in assets and liabilities: Accounts receivable (3,137) 1,086 Inventory (1,179) 745 Other current assets (221) 772 Other assets 583 (645) Accounts payable (777) (2,732) Accrued expenses 623 (57) Deferred revenue 755 (497) Other liabilities (112) -- ---------------- --------------- Net cash used in operating activities (19,531) (21,948) ---------------- --------------- Cash flows from investing activities: Cash paid to acquire Cellmark, including acquisition costs -- (2,909) Capital expenditures (3,176) (4,122) Increase in restricted cash (3,385) -- Cash paid for intangible assets (150) -- Maturities of short-term investments 22,201 67,291 Purchases of short-term investments (9,992) (65,765) ---------------- --------------- Net cash provided by (used in) investing activities 5,498 (5,505) ---------------- --------------- Cash flows from financing activities: Proceeds from issuance of debt from line of credit -- 862 Repayment of debt on lines of credit (1,679) (1,088) Net proceeds from issuance of common stock 21,204 33,372 Payments of patent obligation (288) -- ---------------- --------------- Net cash provided by financing activities 19,237 33,146 ---------------- --------------- Effect of foreign currency translation on cash and cash equivalents (65) (104) ---------------- --------------- Net increase in cash and cash equivalents 5,139 5,589 Cash and cash equivalents at beginning of period 10,746 14,558 ---------------- --------------- Cash and cash equivalents at end of period $ 15,885 $ 20,147 ================ =============== Supplemental disclosure of noncash financing and investing activities: Changes in deferred compensation from grant, forfeiture and remeasurement of common stock options $ 617 $ 1,637 Issuance of common stock in connection with the acquisition of Cellmark -- 2,019 Issuance of common stock for services -- 229 Supplemental disclosure of cash flow information: Cash paid during the period for interest 451 363
See accompanying notes to condensed consolidated financial statements. 5 ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002 and 2001 (Dollars in thousands except per share data) (Unaudited) (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Orchid BioSciences, Inc. and its subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("US") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the US 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 Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission. The Company has not yet achieved profitable operations or positive cash flow from operations. There is no assurance that profitable operations, if ever achieved, could be sustained on a continuing basis. In addition, development and commercialization activities will require significant additional financing. The Company's accumulated deficit aggregated $206,040 through June 30, 2002 and it expects to incur additional losses over at least the next year. Certain reclassifications were made to prior year amounts to conform to the current year presentation. (2) Acquisition of Cellmark Diagnostics On February 12, 2001, the Company completed its acquisition of certain assets of AstraZeneca's business division, Cellmark Diagnostics ("Cellmark"), a leading provider of genetic diversity testing services in the UK which also sells kits for and conducts tests for genetic diseases, including cystic fibrosis. The acquisition has been accounted for under the purchase method of accounting and accordingly, the assets and liabilities acquired have been recorded at their fair values. The results of operations of Cellmark have been included in the Company's consolidated results of operations since the date of acquisition by the Company on February 12, 2001. The pro forma results of operations of Cellmark have not been presented because they are immaterial to the Company's results of operations for 2001. (3) Acquisition of Lifecodes Corporation On December 5, 2001, the Company acquired all of the outstanding equity securities of Lifecodes Corporation ("Lifecodes"). The acquisition has been accounted for under the purchase method of accounting and accordingly, the assets and liabilities acquired have been recorded at their fair values. The results of operations of Lifecodes have been included in the consolidated results of operations since the date of acquisition by the Company on December 5, 2001. The following unaudited pro forma financial information presents the combined results of operations of the Company and Lifecodes as if the acquisition had occurred as of January 1, 2001, after giving effect to certain pro forma adjustments, including amortization of other intangibles and elimination of transaction related costs incurred by Lifecodes prior to the acquisition. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the 6 Company and Lifecodes constituted a single entity during this period or the results of operations which may occur in the future.
Three months Six months ended June 30, ended June 30, 2001 2001 ------------------ ------------------ (unaudited) (unaudited) Revenues $ 14,499 $ 28,554 Net loss allocable to common stockholders (14,636) (26,119) Basic and diluted net loss per share allocable to common stockholders $ (0.35) $ (0.64)
(4) Inventory Inventory is comprised of the following at June 30, 2002 and December 31, 2001, respectively:
December 31, June 30, 2002 2001 --------------- --------------- Raw materials $ 2,854 $ 3,087 Work in progress 2,413 1,208 Finished goods 1,266 1,059 ---------------- -------------- $ 6,533 $ 5,354 ================= ==============
Raw materials consist mainly of reagents, enzymes, chemicals and plates used in SNP scoring, genotyping and to manufacture SNPware consumables. Work in progress consists mainly of case work not yet completed and kits that are in the production process. Finished goods consist mainly of kits that have been produced, but have not been shipped. (5) Segment Information The Company has historically operated in two segments, the Products segment and the Services segment, each of which was considered a strategic business that was historically managed separately because each business develops, manufactures and sells distinct products and services. The Products segment marketed and sold equipment and consumables for SNP scoring and other genetic analyses, whereas, the Service segment included the Company's business which performed genotyping services including DNA laboratory analysis for paternity, forensic and transplantation testing and SNP scoring services. The Company continues to market and sell these products and provide these services to its customers, however, during the second quarter of 2002, the Company completed an internal process of realigning its business into four business units. These business units consist of Orchid Life Sciences, Orchid Identity Genomics, Orchid Diagnostics and Orchid GeneShield. A brief description of all of the business units which have been determined to be reportable segments is as follows: . Orchid Life Sciences develops and markets products, services and technologies for SNP genotyping, or scoring, and genetic diversity analyses to life sciences and biomedical researchers as well as pharmaceutical, agricultural, diagnostic and biotechnology companies; . Orchid Identity Genomics provides DNA testing for paternity and forensics determinations to state and local governmental authorities as well as to individuals and organizations, through Orchid GeneScreen and Orchid Cellmark; . Orchid Diagnostics provides products and services for genetic testing, including HLA genotyping, disease susceptibility testing and immunogenetics, or the study of the relationship between an individual's immune response and their genetic makeup, to individuals; and . Orchid GeneShield is developing programs designed to accelerate the adoption and use of personalized medicine by patients and physicians. The Chief Operating Decision Maker of the Company measures segment profit/(loss) using operating income/(loss), which excludes other income (expense) and allocation of corporate expenditures. These corporate costs, which include treasury, human resources, finance, restructuring costs and certain other corporate functions, are included in corporate and all other. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, as discussed in Note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K filed for the year ended December 31, 2001. Goodwill has been allocated to each reportable segment as shown below. Prior period information presented below has been restated to the current segment presentation. 7
Corporate- Total Life Sciences Identify Genomics Diagnostics and all other ------------- ----------------- ----------- ------------- -------- Three months ended June 30, 2002: Revenues 2,325 10,058 4,047 - 16,430 Segment operating income/(loss) (3,557) 891 603 (10,173) (12,236) As of and for the six months ended June 30, 2002: Revenues 4,842 19,243 8,175 - 32,260 Segment operating income/(loss) (7,758) 675 1,427 (17,916) (23,572) Goodwill - 2,091 1,388 - 3,479 Total assets 17,567 44,185 14,863 42,268 118,883 Three months ended June 30, 2001: Revenues 1,959 4,759 - - 6,718 Segment operating income/(loss) (8,293) (1,603) - (5,234) (15,130) As of and for the six months ended June 30, 2001: Revenues 3,638 8,715 - - 12,353 Segment operating income/(loss) (14,188) (4,010) - (9,133) (27,331) Total assets 16,603 53,533 79,321 149,457
(6) Issuance of Common Stock On March 5, 2002, the Company completed an offering through which an aggregate of 9.0 million shares were sold, including an overallotment, to a group of new and existing shareholders. The shares of common stock were offered through a prospectus supplement pursuant to the Company's effective shelf registration statement. The Company generated net proceeds as a result of this offering of approximately $21,200. (7) Restructuring During the second quarter of 2002, the Company formalized and announced a plan to restructure certain operations of the Company in order to cut costs. As a result, over 80 positions which cover all areas of the Company's operations were eliminated. Most of these terminations were from the Company's Princeton, New Jersey facility. As a result of this plan, the Company recorded approximately $1,930 as a restructuring charge which consisted of employee related charges such as severance, benefits and outplacement services of approximately $1,030, facility charges related to lease exit costs of approximately $695 and leasehold improvements impairment charges of approximately $205. As of June 30, 2002, the remaining accrual as it relates to this restructuring is approximately $1,232. The Company expects to fully pay the existing liability as it relates to severance during the fourth quarter of 2002. 8 (8) Contingencies 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 executives' salary and benefits for up to eighteen months after leaving the Company. On or about November 21, 2001, the Company was made aware of a complaint filed in the United States District Court for the Southern District of New York naming the Company as defendants, along with certain of its officers and underwriters. An amended complaint was filed on April 19, 2002. The complaint, as amended, purportedly is filed on behalf of persons purchasing the Company's stock between May 4, 2000 and December 6, 2000, and alleges violations of Sections 11 and 15 of the Securities Act of 1933, as amended, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The amended complaint alleges that, in connection with the Company's May 5, 2000 initial public offering, the defendants failed to disclose additional and excessive commissions purportedly solicited by and paid to the underwriter defendants in exchange for allocating shares of the Company's stock to preferred customers and alleged agreements among the underwriter defendants and preferred customers tying the allocation of IPO shares to agreements to make additional aftermarket purchases at pre-determined prices. Plaintiffs claim that the failure to disclose these alleged arrangements made the Company's registration statement on Form S-1 filed with the SEC in May 2000 and the prospectus, a part of the registration statement, materially false and misleading. Plaintiffs seek unspecified damages. The Company has not reserved any amount related to this case as the Company believes that the allegations are without merit and intends to vigorously defend against the plaintiffs' claims. In this regard, on or about July 15, 2002, the Company filed a motion to dismiss all of the claims against it and its officers. The Company had been in a litigation with St. Louis University of St. Louis, Missouri regarding its belief that the Company's SNP scoring technology infringes certain claims under U.S. patent 5,846,710, which was controlled by the University. On August 7, 2002, the parties dismissed the litigation and the Company acquired the subject patent. St. Louis University has assigned both the patent and all license agreements related thereto to the Company. Additionally, the Company has other certain claims against it arising from the normal course of its business. The ultimate resolution of such matters, in the opinion of management, will not have a material effect on the Company's financial position or results of operations. In connection with the Company's acquisition of certain patents in 2001, the Company assumed an obligation to pay future amounts over the next three years. The obligation has been recorded in the accompanying condensed consolidated balance sheet as of June 30, 2002, at the net present value of the future obligations. The payments which are to be made to the original patent holder are as follows: 2002 $ 1,204 2003 1,178 2004 310 ---------- Total 2,692 Less amount that represents interest (255) ----------- Net present value of future obligations $ 2,437 ========== The Company is also obligated to pay minimum royalties related to these patents of $1.2 million in 2005, $1.6 million in 2006, and $1.9 million in 2007 and each year thereafter until the expiration of the agreement. 9 (9) Comprehensive Loss SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130") requires reporting and displaying comprehensive income (loss) and its components which, for the Company, includes net loss and unrealized gains and losses on available-for-sale securities and foreign currency translation gains and losses. In accordance with SFAS 130, the accumulated balance of other comprehensive income (loss) is displayed as a separate component of stockholders' equity. The following table reconciles net loss to comprehensive loss for the three and six months ended June 30, 2002 and 2001:
Three months ended June 30, Six months ended June 30, ------------------------------ ------------------------------ 2002 2001 2002 2001 ------------ ------------ ------------ ------------- Net loss $ (12,220) $ (14,307) $ (22,737) $ (25,798) Other comprehensive income (loss): Unrealized holding gain (loss) arising during the period -- (481) (253) (376) Less reclassification adjustment for gains included in net loss 90 -- 195 -- ------------ ------------ ------------ ------------- Unrealized holding gain (loss) on available-for-sale securities (90) (481) (448) (376) Foreign currency translation adjustments 571 (51) 319 (160) ------------ ------------ ------------ ------------- Other comprehensive income/(loss) 481 (532) (129) (536) ------------ ------------ ------------ ------------- Comprehensive loss $ (11,739) $ (14,839) $ (22,866) $ (26,334) ============ ============ ============ =============
(10) Debt Covenants Pursuant to the Company's line of credit which was amended in December 2000, the Company is required to provide a cash security deposit or letter of credit equal to an amount defined in the agreement, if the Company does not maintain minimum unrestricted cash, as defined in the agreement, equal to the greater of $35,000 or twelve month's cash needs (calculated by taking the trailing three months' net cash used in operations multiplied by four) not to exceed 50% of outstanding amounts on draws made on or subsequent to December 30, 2000. As of December 31, 2001 and just prior to the follow-on offering (See Note 6), the Company did not maintain the minimum unrestricted cash defined in the agreement. The Company received a waiver from its lender regarding its non-compliance with this covenant for this period. Subsequent to March 31, 2002, the Company was not in compliance with this financial covenant. On June 19, 2002, the Company obtained a letter of credit in the amount of approximately $2,682 as required by the amended line of credit, which was supported by a cash restriction on certain securities held by the Company. As such, this cash restriction, in addition to cash restricted under two of the Company's operating leases is reflected as restricted cash in the condensed consolidated balance sheet as of June 30, 2002 of $3,385, of which $2,301 is classified as a long term asset. The Company has also received written notice from the lender stating that the lender waived the financial covenant violation as a result of not maintaining a pledge of cash security deposit or letter of credit under this agreement for the period of non-compliance through June 19, 2002. (11) Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" ("SFAS 141"), and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. 10 SFAS 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121. The Company adopted certain provisions of SFAS 141 during 2001 for the Lifecodes acquisition and fully adopted SFAS 141 on January 1, 2002. The Company has adopted SFAS 142 effective January 1, 2002 as well. As such, goodwill acquired in a purchase business combination completed after June 30, 2001, but before SFAS 142 was adopted in full was not amortized, but continued to be evaluated for impairment in accordance with the appropriate pre-SFAS 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001, continued to be amortized and tested for impairment in accordance with the appropriate pre-SFAS 142 accounting requirements prior to the adoption of SFAS 142. SFAS 141 requires, upon adoption of SFAS 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in SFAS 141 for recognition apart from goodwill. In connection with its evaluation of intangible assets arising from business combinations prior to the adoption of SFAS 141, the Company has reclassified its workforce intangible asset with a net book value as of December 31, 2001 of approximately $1,073 to goodwill. Upon adoption of SFAS 142, the Company was required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company was required to test the intangible asset for impairment in accordance with the provisions of SFAS 142. Any impairment loss would be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. The Company has reassessed the useful lives and residual values of all of its intangible assets in accordance with its adoption of SFAS 142 and determined that the existing useful lives for its intangible assets are appropriate. No identifiable intangible assets, were determined to have indefinite lives. In connection with SFAS 142's transitional goodwill impairment evaluation, the statement required the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this, the Company had to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company then had to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. Upon the completion of this step, to the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired, then the Company would have to perform the second step of the transitional impairment test, in which the Company must compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with SFAS 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss would be recognized as the cumulative effect of a change in accounting principle in the Company's statement of operations. During the second quarter of 2002, the Company identified its reporting units and performed the transitional impairment test. Based on a discounted cash flow model to determine reporting unit fair value, the Company determined that the fair values of its reporting units exceeded the respective carrying values and therefore goodwill was in fact not impaired and performance of the second step noted above is not required. The Company has unamortized goodwill as of June 30, 2002 of $3,479, which is allocated to its reportable segments (see Note 5). 11 SFAS 142 requires disclosure of what reported net loss and net loss per share allocable to common stockholders would have been in all periods presented exclusive of amortization expense recognized in those periods related to goodwill and intangible assets that will no longer be amortized and changes in amortization periods for intangible assets that will continue to be amortized. This disclosure is reflected in the table below.
For the three months ended For the six months ended June 30, June 30, ------------------------------ ------------------------------- 2002 2001 2002 2001 ------------ ------------ ------------- ------------- Net loss: Net loss as reported $ (12,220) $ (14,307) $ (22,737) $ (25,798) Add back: Goodwill amortization -- 578 -- 1,096 ------------ ------------ ------------- ------------- Net loss, as adjusted (12,220) (13,729) (22,737) (24,702) ============ ============ ============= ============= Basic and diluted net loss per share allocable to common stockholders as reported: $ (0.22) $ (0.41) $ (0.43) $ (0.76) Add back: Goodwill amortization per share -- 0.01 -- 0.03 ------------ ------------ ------------- ------------- Net loss per share, as adjusted $ (0.22) $ (0.40) $ (0.43) $ (0.73) ============ ============ ============= =============
Goodwill amortization in the table above includes amortization of the workforce intangible asset which was reclassified to goodwill upon the adoption of SFAS 142. (12) Goodwill and Other Intangible Assets The following table sets forth the Company's other intangible assets at June 30, 2002: Base technology $ 9,615 Customer list 5,040 Trademark/tradename 3,998 Patents and know-how 16,793 Developed technology 4,080 Other 1,254 ------------ Total 40,780 Less accumulated amortization (5,781) ------------- Other intangible assets, net $ 34,999 ============= Aggregate amortization expense: For the three months ended June 30, 2002 $ 1,018 For the six months ended June 30, 2002 $ 1,961 Estimated amortization expense: For the six months ending December 31, 2002 $ 2,166 For the year ending December 31, 2003 4,332 For the year ending December 31, 2004 4,285 For the year ending December 31, 2005 4,244 For the year ending December 31, 2006 4,044
As of June 30, 2002, the Company does not have any intangible assets other than goodwill which are not subject to amortization. In addition, the change in goodwill from $3,265 as of December 31, 2001 to 12 $3,479 as of June 30, 2002 was primarily the result of foreign currency translation adjustments during the quarter ended June 30, 2002. (13) Increase in Authorized Shares of Common Stock In March 2002, the Board of Directors of the Company approved, subject to stockholder approval, an increase of the Company's authorized shares of common stock to 150,000,000 shares. The stockholders approved this increase in authorized shares at its annual meeting in June of 2002, and the Company filed an Amendment to its Certificate of Incorporation on June 17, 2002 effectuating the increase in authorized shares. (14) Income Tax Benefit The Company participates in the State of New Jersey's corporation business tax benefit certificate transfer program (the "Program"), which allows certain high technology and biotechnology companies to sell unused net operating loss carryovers to other New Jersey corporation business taxpayers. During 2000, the Company submitted an application to the New Jersey Economic Development Authority (the "EDA") to participate in the Program, and the application was approved. The EDA then issued a certificate certifying the Company's ability to participate in the Program and the amount of New Jersey net operating loss carryovers the Company has available to transfer. Since New Jersey law provides that net operating losses can be carried over for up to seven years, the Company may be able to transfer its New Jersey net operating losses from the last seven years. The Program requires that the purchaser pay at least 75% of the amount of the surrendered tax benefit. During January 2002, the Company completed the sale of approximately $11,000 of its New Jersey tax loss carryforwards and received $894, which was recorded as an income tax benefit. 13 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 as of June 30, 2002 and the Results of Operations for the three and six months ended June 30, 2002 and 2001 should be read in conjunction with our Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on 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. For a more detailed discussion of such forward-looking statements and the potential risks and uncertainties that may impact upon the accuracy of such statements in this section, see the "Forward-Looking Statements" section of this Quarterly Report on Form 10-Q and also the potential risks and uncertainties set forth in the "Overview" section hereof and in the "Risk Factors" section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2001. Except as required by law, we undertake no obligation 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 single nucleotide polymorphisms, or SNPs, as well as microfluidics technologies for applications, principally in the field of high volume SNP scoring and pharmacogenetics analysis. In 2001, our business focused on our SNP scoring products and services that apply our proprietary SNP-IT primer extension technology, and on our identity genomics services in paternity and forensics. During 2001, we entered into various agreements. These agreements had varying terms and included but were not limited to: (i) services agreements whereby we agreed to provide genetic analysis services; (ii) services agreements under which we would provide SNP genotyping services; (iii) license agreements pursuant to which we granted third parties royalty bearing, non-exclusive and exclusive licenses to use our SNP-IT single base primer extension technology to produce and sell reagent kits and software incorporating our technology; and (iv) agreements under which we agreed to provide SNPstream instruments, SNPware and ELUCIGENE consumables. Since late 1999, following our acquisition of GeneScreen, Inc. ("GeneScreen") and, our subsequent acquisitions of Cellmark and Lifecodes, both in 2001, we also have been a leading provider of DNA testing services in the paternity, forensics and human leukocyte antigen, or HLA, transplantation typing fields. Our ability to achieve profitability will depend, in part, on our ability to continue to develop and commercialize our proprietary SNP scoring technologies in the form of products and services for pharmaceutical, biotechnology and diagnostic companies and research institutions, as well as our ability to competitively bid on, and receive contracts, for identity genomics testing services. We introduced our SNPstream 25K SNP scoring system, SNPware consumables and related services in late 1999. In September 2001, we introduced the SNPstream MT solution with medium throughput capabilities and based on the Luminex xMap platform. In April 2002 we launched our ultra high-throughput SNPstream UHT System, capable of genotyping from 5,000 to over 800,000 SNPs in a 24-hour period. Because our proprietary SNP-IT primer extension technology is very adaptable to other hardware platforms, we intend to expand our offerings of SNPware consumables for use on instruments made or sold by other companies and to obtain license fees and royalties by licensing our SNP-IT technology for incorporation in the consumable kits of others. Our 14 collaborations with Affymetrix, Amersham Biosciences, Applied Biosystems and PerkinElmer are examples of this Platform Propagation strategy. We also provide SNP-IT-based high quality SNP scoring to a variety of customers on a fee-for-service basis. Our MegaSNPatron facilities currently offer high throughput SNP genotyping services to such customers as AstraZeneca, Ellipsis Biotherapeutics, GlaxoSmithKline, Lilly, and Sygen. And, in April of this year, we added our SNPstream UHT system to our MegaSNPatron facilities, giving us the broadest range of SNP scoring options available to service customers in the industry. We believe fee-for-service SNP scoring will be an attractive option for many customers. Acquisitions On December 30, 1999, we acquired GeneScreen, Inc. as a wholly owned subsidiary, which operates genetic diversity testing laboratories in Dallas, Texas and Dayton, Ohio. GeneScreen performs DNA laboratory analyses for paternity, transplantation and forensic testing. GeneScreen's primary source of revenue is paternity testing under contracts with various state and county government agencies. On February 12, 2001, we acquired Cellmark Diagnostics, a division of AstraZeneca, in an asset acquisition, for a combination of cash and 222,980 shares of our common stock. Cellmark is a leading provider of genetic testing services in the UK and sells kits and conducts testing for genetic diseases, including cystic fibrosis. On December 5, 2001, we acquired all of the outstanding equity securities of Lifecodes Corporation, in a tax-free transaction. Lifecodes, now a wholly owned subsidiary of Orchid, is a leading provider of genomics testing for forensics and paternity in the US. We acquired Lifecodes in order to strengthen our position in the clinical testing market. Lifecodes also maintains a diagnostic kit business which adds to our current products. We view this acquisition, in addition to the two previous acquisitions of GeneScreen and Cellmark, as a significant step in providing a cost efficient, high throughput clinical testing business. In exchange for Lifecodes shares we agreed to issue 6,622,951 shares of our common stock to former stockholders of Lifecodes, of which 1,414,754 shares were deposited in an escrow account and may be used to compensate us in the event that we are entitled to indemnification under the Amended and Restated Agreement and Plan of Merger. We also issued 313,978 and 472,313 fully vested options and warrants, respectively, which are exercisable for our common stock in exchange for existing Lifecodes options and warrants. The acquisition has been accounted for by the purchase method, and accordingly, the assets and liabilities acquired have been recorded at their fair values. The total consideration as a result of this acquisition is approximately $23.7 million. GeneScreen's, Cellmark's, and Lifecodes' businesses in paternity and forensics testing support our goal of extending our business in genetic diversity. We intend to apply our ultra-high throughput SNP scoring technology to the paternity and forensics businesses of GeneScreen, Cellmark, and Lifecodes in order to significantly reduce the cost of providing these identity genomics services. We also plan to use the accredited laboratories at GeneScreen, Cellmark, and Lifecodes to offer clinical quality pharmacogenetic SNP scoring of patient samples for clinical association studies and pharmaceutical clinical trials. We also plan to use these laboratories to conduct pharmacogenetic SNP scoring services that we plan to offer to physicians and patients in the future through a number of distribution channels. Our DNA testing business is dependent upon our ability to successfully and competitively bid and qualify for contracts with various governmental entities to provide paternity and forensics testing services. We expect revenues from the respective forensics businesses of GeneScreen, Cellmark, and Lifecodes to increase as DNA analyses are increasingly being used by the authorities within the criminal justice system to identify perpetrators and exonerate the innocent. 15 Our GeneShield business, established in 2001, is working to implement a strategy based on the creation of proprietary rights covering the identification of SNPs and their associations to medically important attributes of patients. GeneShield is also developing a number of innovative programs designed to accelerate the adoption of pharmacogenetics into routine health care. These programs are focused on health outcomes and may include a number of health system participants, including providers, patients and payers. Orchid GeneShield expects to announce its first beta test program in the last quarter of 2002. We intend to develop intellectual property rights to medical and diagnostic uses of SNPs through our collaborations with pharmaceutical and biotechnology companies. We expect Orchid GeneShield to commence generating revenues in 2003. Compensation Charges In prior years, we recorded deferred compensation resulting from the granting of stock options to employees, directors or consultants with exercise prices below the fair market value of the underlying common stock at the date of their grant. During 2001 and through June 30, 2002, all stock options were granted with grant prices equal to the fair value of our common stock at the grant date. Net of prior amortization, and remeasurement related to options previously granted to consultants, deferred compensation of approximately $5.8 million at June 30, 2002 will be amortized over the vesting periods of the respective options, typically four years. We anticipate recording total compensation charges resulting from the amortization in future periods of the deferred compensation as of June 30, 2002 as follows (in millions):
Six months ended Year ended December 31, December 31, ------------------------------------ 2002 2003 ---------------- ---------------- $ 1.9 $ 3.9
The portion of these amounts which results from grants to consultants is subject to remeasurement at the end of each reporting period based upon the changes in the fair value of our common stock until the consultant completes performance under his or her respective option agreement. A reduction of deferred compensation of approximately $0.6 million was recorded for the six months ended June 30, 2002 related to such remeasurements. 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 as the difference between the fair value of the common stock and the exercise price and will be immediately recorded as compensation expense. We have incurred losses since inception, and, as of June 30, 2002, we had total stockholders' equity of approximately $92.7 million, including an accumulated deficit of approximately $206.0 million. We anticipate incurring additional losses over at least the next year. We expect these losses to continue in the near future as we expand the commercialization of our products and services and we fully implement our proprietary Orchid GeneShield business. We expect this expansion to result in some increases in research and development, marketing and sales, and general and administrative expenses. However, we expect that these anticipated increases will be offset by our restructuring efforts. 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. Critical Accounting Policies Our critical accounting policies are as follows: . revenue recognition . valuation of long-lived and intangible assets and goodwill. 16 Revenue Recognition. We have had, and expect in the future to have, several sources of revenues. Prior to our acquisitions of GeneScreen, Cellmark, and Lifecodes, we derived substantially all of our revenues from research and development collaborations, technology grants and awards from several governmental agencies. In 2001, we derived our first revenues from the sale of testing kits and laboratory DNA testing services from our Cellmark division in the UK. In 2000, we derived our first revenues from the performance of laboratory DNA testing services by GeneScreen, our wholly owned subsidiary in the US. In 1999, we derived our first revenues from the placement of our first commercial SNPstream hardware system, and throughout 2000, 2001 and through June 30, 2002, we derived increased amounts of revenues from the sale of SNP-IT-based consumables. We also derived significant license revenues beginning in 2000. In connection with the research and development collaborations that provided the majority of our revenues in the early years of our corporate history, we recognize revenues when related research expenses are incurred and when we satisfy specific performance obligations under the terms of the respective research contracts. We defer up-front licensing fees obtained in connection with such agreements and amortize them over the estimated performance period of the respective research contract. We recognize milestone payments as revenues upon the completion of the milestone event or requirement, if it represents the achievement of a significant step in research and development or performance process. We recognize DNA laboratory and SNP scoring services revenues on a completed contract basis at the time test results are completed and reported. Deferred revenues represent the unearned portion of payments received in advance of tests being completed and reported. To date, we have offered our SNPstream system hardware in two basic types of transactions, either a purchase and sale transaction or an arrangement in which the customer takes possession of the system and pays an access fee for its use. We record revenues on the sale of the hardware upon transfer of title and after we have met all of our significant performance obligations. We defer access fee payments that we receive when a system is initially placed with a customer, and recognize revenues on a straight-line basis over the term of the agreement. Revenues from the sale of consumables are recognized upon the transfer of title, generally when our products are shipped to our customers from our facilities. Revenues from license arrangements, including license fees creditable against potential future royalty obligations of the licensee, are recognized when an arrangement is entered into if we have no significant continuing involvement under the terms of the arrangement. If we have significant continuing involvement under such an arrangement, license fees are deferred and recognized over the estimated performance period. Management has made estimates and assumptions relating to the performance period which are subject to change. Changes in these estimates and assumptions could affect the amount of revenues from licenses reported in any given period. Valuation of long-lived and intangible assets and goodwill. We assess the impairment of amortizable identifiable intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following: . significant underperformance relative to expected historical or projected future operating results; . significant changes in the manner of our use of the acquired assets or the strategy for our overall business; . significant negative industry or economic trends; and . significant decrease in market value of assets. 17 When we determine that the carrying value of amortizable intangibles and other long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business. Net amortizable intangible assets and long-lived assets, excluding goodwill, amounted to $64.2 million as of June 30, 2002. On January 1, 2002, Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets, became effective and, as a result, we ceased to amortize approximately $3.3 million of net goodwill recorded as of December 31, 2001. We had recorded approximately $1.9 million of amortization during 2001. In connection with our adoption of SFAS 141 which became effective on January 1, 2002, and our evaluation of intangible assets arising from business combinations prior to the adoption of SFAS 141, we have reclassified our work force intangible asset with a net book value as of December 31, 2001 of approximately $1.1 million to goodwill. In connection with SFAS 142's transitional goodwill impairment evaluation, the statement required us to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this, we had to identify our reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. We then had up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. Upon the completion of this step, to the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired, then we would have to perform the second step of the transitional impairment test. In the second step, we must compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with SFAS 141, to its carrying amount, both of which would measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss would be recognized as the cumulative effect of a change in accounting principle in our statement of operations. During the second quarter of 2002, we identified our reporting units and performed the transitional impairment test. Based on a discounted model to determine reporting unit fair value, we determined that the fair values of our reporting units exceed the respective carrying value. Therefore, goodwill was in fact not impaired and performance of the second step above is not required. Certain events or market and business conditions in the future could cause us to revise our estimates and judgments, and could result in a material impairment of equipment, leasehold improvements and other intangible assets. RESULTS OF OPERATIONS Three Months Ended June 30, 2002 and 2001 Revenues. Revenues for the three months ended June 30, 2002 of approximately $16.4 million represents an increase of approximately $9.7 million as compared to revenues of approximately $6.7 million for the corresponding period of 2001. This increase is primarily attributable to an increase of approximately $9.1 million in services revenues, which primarily relates to our two acquisitions in 2001, Cellmark and Lifecodes. Lifecodes, which we acquired in December of 2001, had services revenues during the three months ended June 30, 2002 of approximately $6.4 million. The increase was also attributable to an increase in SNP genotyping services performed in the second quarter of 2002 under genotyping service arrangements. Products revenues also increased by approximately $1.1 million, which relates primarily to our two acquisitions in 2001, Cellmark and Lifecodes, as well as an increase in SNPstream consumable sales. We also recognized approximately $0.6 million in license, grant, and collaboration revenues during the three months ended June 30, 2002. Cost of products revenues. Cost of products revenues for the three months ended June 30, 2002 was approximately $1.0 million, or 45% of products revenues, compared to approximately $0.9 million, or 72% of products revenues for the corresponding period of 2001. The decrease in cost of products revenues as a percent 18 of products revenues is attributable to an increased number of SNPstream consumables which had a higher gross margin than SNPstream systems for the three months ended June 30, 2002 versus the corresponding period in 2001. In addition, during the second quarter of 2002 we incurred costs of products revenues for our Lifecodes business which has gross margins that are consistent with the overall historical gross margins of our consumables products business. The increase in the amount of cost of products revenues was attributable to the costs associated with the various consumables sold in the three months ended June 30, 2002 compared to the corresponding period of 2001 which included the cost of SNPStream placements. Included in the total costs of products revenues for the three months ended June 30, 2002 is approximately $0.8 million related to Lifecodes which was not included in our results of operations in the corresponding period of 2001. Cost of services revenues. Cost of services revenues was approximately $7.8 million, or 58% of services revenues for the three months ended June 30, 2002 compared to approximately $2.9 million, or 65% of services revenues in the corresponding period of 2001. The increase in costs of services revenues was primarily attributable to increased costs associated with Lifecodes of approximately $3.7 million, which we acquired in December 2001. The decrease in cost of services revenues as a percent of services revenues is attributed to the inclusion of both our Cellmark and Lifecodes businesses in the quarterly results for a full three month period, which generates a higher gross margin on services revenues than the previous services business. Even though our Cellmark business was included in our results of operations during the previous year's quarterly results, there was an increase in the gross margins for that business as compared to the previous year because Cellmark has experienced significant growth in higher margin services. Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, professional fees, legal expenses resulting from intellectual property prosecution and protection, and other corporate expenses including business development and general legal activities. Selling, general and administrative expenses for the three months ended June 30, 2002 were approximately $11.7 million, an increase of approximately $2.8 million, as compared to approximately $8.9 million for the corresponding period of 2001. We attribute this increase in overall selling, general and administrative expenses to Lifecodes which was not included in the previous years quarterly results of operations. Without giving effect to the total selling, general and administrative expenses of Lifecodes of approximately $2.7 million, the selling, general and administrative expenses for three months ended June 30, 2002 would be relatively consistent with the three months ended June 30, 2001. Our Cellmark business had selling, general and administrative expenses of approximately $1.3 million during the three months ended June 30, 2002 as compared to approximately $1.0 million during the corresponding period of 2001 which was caused by the growth of that business. This increase was offset by lower corporate selling, general and administrative expenses as a result of our restructuring efforts. 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 development, laboratory supplies 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, 2002 were approximately $6.2 million, a decrease of approximately $3 million, as compared to approximately $9.2 million for the corresponding period of 2001. Without giving effect to the research and development expenses attributed to Lifecodes of approximately $0.6 million, the decrease in research and development expenses would have been approximately $3.6 million. The decrease in research and development expense was primarily attributable to a decrease in purchases of laboratory supplies of approximately $2.6 million. There was also a reduction in research and development personnel which contributed to this overall decrease during the three months ended June 30, 2002, as compared to the prior period. During the three months ended June 30, 2001, we incurred a significant amount of research and development costs in connection with the expansion of our internal and collaborative efforts, including our collaboration with the SNP Consortium. We expect future research and development expenses to decrease as our products shift from the research and development stage to commercialization as evidenced by our commercialization of several products during the first six months of 2002. 19 Restructuring. During the second quarter of 2002, we formalized and announced a plan to restructure certain operations in order to cut costs. As a result, over 80 positions which cover all areas of our operations were eliminated. Most of these terminations were from our Princeton, New Jersey facility. As a result of this plan, we recorded approximately $1.9 million as a restructuring charge which consisted of employee related charges such as severance, benefits and outplacement services of approximately $1.0 million, facility charges related to lease exit costs of approximately $0.7 million and leasehold improvements impairment charges of approximately $0.2 million. We expect to fully pay the existing liability as it relates to severance during the fourth quarter of 2002. We also expect to incur additional restructuring charges in 2002 as we make a concerted effort to cut costs and achieve profitability. Interest income. Interest income for the three months ended June 30, 2002 was approximately $0.2 million, compared to approximately $1.0 million for the corresponding period of 2001. This decrease was primarily due to interest received on larger cash, cash equivalent and short-term investment balances which we held during 2001. This decrease is also attributable to lower interest rates during 2002 compared to 2001. Interest expense. Interest expense for the three months ended June 30, 2002 was approximately $0.2 million, which was comparable to the approximately $0.2 million in the corresponding period in 2001. Interest expense during these periods was consistent because of the comparable levels of long term debt. Net loss allocable to common stockholders. Due to the factors discussed above, for the three months ended June 30, 2002, we reported a net loss allocable to common stockholders of approximately $12.2 million as compared to approximately $14.3 million in the corresponding period in 2001. Six Months Ended June 30, 2002 and 2001 Revenues. Revenues for the six months ended June 30, 2002 of approximately $32.3 million represents an increase of approximately $19.9 million as compared to revenues of approximately $12.4 million for the corresponding period of 2001. This increase is primarily attributable to an increase of approximately $16.8 million in services revenues, which primarily relates to our two acquisitions in 2001, Cellmark and Lifecodes. Lifecodes, which we acquired in December 2001, had services revenues during the six months ended June 30, 2002 of approximately $12.0 million. The increase was also attributable to an increase in SNP genotyping services performed in 2002 under genotyping service arrangements. Products revenues also increased by approximately $3.1 million, which relates primarily to our two acquisitions in 2001 of Cellmark and Lifecodes. We also recognized approximately $1.8 million in license, grant and collaboration revenues during the six months ended June 30, 2002 which is consistent with the comparable period of 2001. Cost of products revenues. Cost of products revenues for the six months ended June 30, 2002 was approximately $2.5 million, or 47% of products revenues, compared to approximately $1.7 million, or 76% of products revenues for the corresponding period of 2001. The decrease in cost of products revenues as a percent of products revenues is attributable to an increased proportion of total products revenues from SNPstream consumables, which had a higher gross margin, than SNPstream systems for the period ended June 30, 2002 versus the corresponding period in 2001. In addition, during the six months ended June 30, 2002 we incurred costs of products revenues for our Lifecodes business which has gross margins consistent which are consistent with the overall historical gross margins of our consumables products business. The increase in the amount of cost of products revenues was attributable to the costs associated with the consumables sold in the six months ended June 30, 2002 compared to the corresponding period of 2001 which included the cost of SNPstream placements. Included in the total costs of products revenues for the six months ended June 30, 2002 is approximately $1.7 million related to Lifecodes which was not included in our results of operations in the corresponding period of 2001. Cost of services revenues. Cost of services revenues was approximately $15.4 million, or 61% of services revenues for the six months ended June 30, 2002 compared to approximately $5.7 million, or 69% of services revenues in the corresponding period of 2001. The increase in cost of services revenues was primarily attributable to increased costs associated with Lifecodes of approximately $7.3 million, which we acquired in December 2001. The decrease in cost of services revenues as a percent of services revenues is attributed to the 20 inclusion of both our Cellmark and Lifecodes businesses in the results of operations for a full six-month period, which generates a higher gross margin on services revenues than the previous services business. Even though our Cellmark business was included in our results of operations during most of the six months ended June 30, 2001, there was an increase in the gross margins and in total cost of services revenues for that business in 2002 as compared to the previous year because Cellmark has experienced significant growth in higher margin services. Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, professional fees, legal expenses resulting from intellectual property prosecution and protection, and other corporate expenses including business development and general legal activities. Selling, general and administrative expenses for the six months ended June 30, 2002 were approximately $23.5 million, an increase of approximately $7.4 million, as compared to approximately $16.1 million for the corresponding period of 2001. We attribute this increase in overall selling, general and administrative expenses to Lifecodes which was not included in the previous periods results of operations. Without giving effect to the total selling, general and administrative expenses of Lifecodes of approximately $5.5 million for the six months ended June 30, 2002, the selling general and administrative expenses for the six months ended June 30, 2002 would have increased by only approximately $1.9 million as compared with the six months ended June 30, 2001. Our Cellmark business had selling, general and administrative expenses of approximately $2.5 million during the six months ended June 30, 2002 as compared to approximately $1.3 million during the corresponding period of 2001 which was caused by the growth of that business and the inclusion of the results of operations for a full six-month period. This accounts for the most significant reason for the increase in selling, general and administrative expenses as compared to the prior year, without given giving effect to the results of operations of Lifecodes. 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 development, laboratory supplies 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, 2002 were approximately $12.5 million, a decrease of approximately $3.6 million, as compared to approximately $16.1 million for the corresponding period of 2001. Without giving effect to the research and development expenses attributed to Lifecodes of approximately $1.0 million, the decrease in research and development expenses would have been approximately $4.6 million. The decrease in research and development expense for the six months ended June 30, 2002 as compared to the comparable previous period was primarily attributable to a decrease in purchases of laboratory supplies of approximately $2.1 million. There was also a reduction in research and development personnel which contributed to the overall decrease during the six months ended June 30, 2002 as compared to the prior period. During the six months ended June 30, 2001, we incurred a significant amount of research and development costs in connection with the expansion of our internal and collaborative efforts, including our collaboration with the SNP Consortium. We expect future research and development expenses to decrease as our products shift from the research and development stage to commercialization as evidenced by our commercialization of several products during the first six months of 2002. Restructuring. During the six months ended June 30, 2002, we formalized and announced a plan to restructure certain operations in order to cut costs. As a result, over 80 positions which cover all areas of our operations were eliminated. Most of these terminations were from our Princeton, New Jersey facility. As a result of this plan, we recorded approximately $1.9 million as a restructuring charge which consisted of employee related charges such as severance, benefits and outplacement services of approximately $1.0 million, facility charges related to lease exit costs of approximately $0.7 million and leasehold improvements impairment charges of approximately $0.2 million. We expect to fully pay the existing liability as it relates to severance during the fourth quarter of 2002. We also expect to incur additional restructuring charges in 2002 as we make a concerted effort to cut costs and achieve profitability. Interest income. Interest income for the six months ended June 30, 2002 was approximately $0.5 million, compared to approximately $1.9 for the corresponding period of 2001. This decrease was primarily due to interest received on larger cash, cash equivalent and short-term investment balances which we held during 2001. This decrease is also attributable to lower interest rates during 2002 compared to 2001. 21 Interest expense. Interest expense for the six months ended June 30, 2002 was approximately $0.5 million compared to approximately $0.4 million in the corresponding period in 2001. Interest expense during these periods was comparable because of the comparable level of long term debt. Income tax benefit. During the six months ended June 30, 2002, we recorded an income tax benefit of approximately $0.9 million. This was related to the sale of some of our state net operating loss carryforwards to another company, which is authorized by the New Jersey Economic Development Authority. Net loss allocable to common stockholders. Due to the factors discussed above, for the six months ended June 30, 2002, we reported a net loss allocable to common stockholders of approximately $22.7 million as compared to approximately $25.8 million in the corresponding period in 2001. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have financed our operations primarily through research and development funding from collaborative partners, from our two private placements of equity securities with aggregate net proceeds of approximately $102.0 million that closed in March 1998 and in December 1999 and January 2000, approximately $48.4 million from our initial public offering which closed in May 2000, approximately $33.2 million from our follow-on offering of common stock in June 2001, and approximately $21.2 million from our follow-on offering of common stock in February and March 2002. Our sale of series E mandatorily redeemable convertible preferred stock in December 1999 resulted in an approximate $44.6 million beneficial conversion feature which was included in net loss allocable to common stockholders in 1999. The closing of our sale of series E mandatorily redeemable convertible preferred stock in January 2000 resulted in an approximate additional $29.6 million beneficial conversion feature which was included in net loss allocable to common stockholders in 2000. In December 1998, we obtained a secured $6.0 million equipment loan line, for the purchase of leasehold improvements and equipment at our corporate headquarters and research and development laboratories whose availability expired in 1999. In December 2000, this agreement was amended to establish a new borrowing base of an additional $8.0 million. At June 30, 2002, we had borrowings of approximately $7.5 million outstanding, and approximately $0.9 million available to be borrowed under this facility through 2002. We lease our corporate and primary research facility under operating leases, which expire in 2006 and 2008, respectively. If we do not maintain minimum unrestricted cash, as defined in the agreement, equal to the greater of $35 million or twelve months' cash needs (calculated by taking the trailing three months net cash used in operations multiplied by four), we are required to provide a cash security deposit or letter of credit equal to an amount defined in the agreement, not to exceed 50% of outstanding amounts on draws made in or subsequent to December 2000. As of December 31, 2001, and just prior to the follow-on offering (See Note 6 to the condensed consolidated financial statements), we did not maintain the minimum unrestricted cash defined in the agreement. We have received a waiver from our lender regarding our non-compliance with this covenant for this period. Subsequent to March 31, 2002, we did not maintain the minimum cash defined in the agreement. On June 19, 2002, we obtained a letter of credit in the amount of approximately $2.7 million as required by the amended line of credit, which was supported by a cash restriction on certain securities held by us. As such, this cash restriction, in addition to cash restricted under two of our operating leases is reflected as restricted cash in the condensed consolidated balance sheet as of June 30, 2002 of $3.4 million, of which approximately $2.3 million is classified as a long term asset. We have also received written notice from the lender stating that the lender waived the financial covenant violation as a result of not maintaining a pledge of cash security deposit or letter or credit under this agreement for the period of non-compliance though June 19, 2002. On May 10, 2001, we filed a Registration Statement on Form S-3 with the Securities and Exchange Commission. Subject to our ongoing obligations under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, the Registration Statement permits us to offer and sell various types of securities, up to 22 an aggregate value of approximately $75.0 million, of which approximately $16.8 million remains available for future use. The sale of common stock in June 2001 for gross proceeds of approximately $35.7 million was registered under this Registration Statement. The subsequent sale of common stock in February and March 2002 for gross proceeds of approximately $22.5 million was also registered under a Prospectus Supplement to this Registration Statement. As of June 30, 2002, we had approximately $20.8 million in cash and cash equivalents and short-term investments, compared to approximately $27.9 million as of December 31, 2001. This decrease is due to our follow-on offering of common stock in February and March 2002 which generated net proceeds of approximately $21.2 million offset by cash used to fund operations through June 30, 2002. Net cash used in operations for the six months ended June 30, 2002 was approximately $19.5 million compared with approximately $21.9 million for the comparable period in 2001. Non-cash charges for the first six months of 2002 included compensation expense of approximately $1.1 million, depreciation and amortization expense of approximately $5.4 million and impairment of certain fixed assets from the restructuring of approximately $0.2 million. Investing activities included capital expenditures of approximately $3.2 million, and approximately $12.2 million of proceeds from maturities, net of purchases, of short term investments. Financing activities primarily consisted of approximately $21.2 million of net proceeds from our offering of common stock in February and March 2002 and repayment of debt of $1.7 million. Working capital decreased to approximately $25.3 million at June 30, 2002 from approximately $27.5 million at December 31, 2001. The decrease in working capital resulted from an increase as it related to our offering of common stock in February and March 2002, offset by cash used in operations, cash paid to acquire fixed assets and repay debt obligations during the six months ended June 30, 2002 and the long term restriction on the use of our cash of approximately $2.3 million. We expect our restructuring efforts in the second quarter of 2002 and anticipated incremental restructuring efforts during the third quarter to reduce future spending. We believe that the result of these efforts, coupled with expected increases in both revenues and gross margins in all of our business units, will enable us to use our existing cash reserves to operate our ongoing business activities over at least the next 12 months. However, we may need to access the capital markets for additional funding for strategic business activities currently under development. 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 development of our SNPware consumables, SNPstream systems and related software, and associated reagent consumables; . the application of our SNP scoring technologies to our other business areas, including paternity testing; . our ability to successfully secure contracts for high volume genotyping services from pharmaceutical, biotechnology and agricultural companies; . the success rate of establishing new contracts, and renewal rate of existing contracts, for identity 23 genomics 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 at favorable terms, if necessary. As of December 31, 2001, our net operating loss carryforwards were approximately $134.2 million and $123.5 million for Federal and state income tax purposes, respectively, as adjusted for the sale of our state tax loss carryforwards in January 2002. If not utilized, our Federal and state tax loss carryforwards will begin to expire in 2003 and 2002, respectively. Utilization of our net operating losses to offset future taxable income, if any, may be substantially limited due to "change of ownership" provisions in the Internal Revenue Code of 1986. We have not yet determined the extent to which limitations were triggered as a result of past financings or may be triggered as a result of future financings. This annual limitation is likely to result in the expiration of certain net operating losses prior to their use. Contractual Commitments. We maintain multiple contractual commitments as of June 30, 2002, which will support our future business operations. Such commitments relate to non-cancelable operating lease arrangements, long term debt, minimum supply purchases, and future patent and minimum royalty obligations. We have identified and quantified the significant commitments in the following table. Payments Due by Period (in $000's)
Six months ending Years ending December 31, December 31, ------------------------- There- Contractual Obligations 2002 2003 2004 2005 2006 after Total - ----------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------- Noncancelable operating lease arrangements (1) $ 1,492 $ 3,653 $ 3,272 $ 2,909 $ 2,264 $ 4,652 $ 18,242 Long-term debt (2) 1,718 3,498 2,170 659 -- -- 8,045 Future patent obligations (3) 1,204 1,178 310 -- -- -- 2,692 Minimum purchase commitments (4) 700 990 1,320 -- -- -- 3,010 Future minimum royalties (5) -- -- -- 1,240 1,550 -- 2,790 ---------- ---------- ---------- ---------- ---------- ---------- --------- Total contractual obligations $ 5,114 $ 9,319 $ 7,072 $ 4,808 $ 3,814 $ 4,652 $ 34,779 ========== ========== ========== ========== ========== ========== =========
(1) Such amounts represent future minimum rental commitments for office space leased under non-cancelable operating lease arrangements. We lease approximately 208,000 square feet for operations in the US and approximately 75,000 square feet in Abingdon, UK to support foreign operations. (2) Such amounts primarily consist of amounts payable pursuant to our equipment loan line. Also included in such amounts are notes payable to former employees (net of unamortized discount) and capital lease obligations for certain machinery and equipment (including interest). (3) Such amounts represent obligations to pay future amounts over the next three years in conjunction with our acquisition of US Patent No. 5,856,092 and its foreign counterparts from Affymetrix in July 2001. 24 (4) Such amounts represent minimum purchase commitments of terminators from PerkinElmer (formerly known as NEN Life Science Products, Inc.) pursuant to the License and Supply Agreement for Terminators, effective February 21, 2000. (5) In connection with our acquisition of US Patent No. 5,856,092, we are also obligated to pay future minimum royalties commencing in 2005 which increases up to $1.9 million in 2007 and continues through the expiration of the agreement. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk is principally confined to our cash equivalents, short-term investments, and restricted cash which are conservative in nature, with a focus on preservation of capital and all of which have maturities of less than one year which limit their exposure to market fluctuations. We maintain a non-trading investment portfolio of investment grade, liquid debt securities that limit the amount of credit exposure to any one issue, issuer or type of instrument. Market risk refers to the risk of loss arising from adverse changes in foreign currency exchange rates. As a result of our acquisition of Cellmark in February 2001, the acquisition of Lifecodes in December 2001 and a limited number of agreements with foreign companies we may be affected by fluctuations in currency exchange rates. We have a minimal amount of long-term debt recorded on our books. The interest rates applicable to such debt are not variable with respect to market conditions. 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: our expectation of incurring additional losses in the next year; our expectation that losses will continue in the near future as we expand the commercialization of our products and services and we fully implement our proprietary Orchid GeneShield business; our expectation that our continued expansion will result in some increases in research and development, marketing and sales, and general and administrative expenses; our expectation that these anticipated increased expenses will be offset by our restructuring efforts; our intention of vigorously defending lawsuits; our belief that fee-for-service SNP scoring will be an attractive option for many customers; our intention to apply our ultra-high throughput SNP scoring technology to the paternity and forensics business of GeneScreen, Cellmark and Lifecodes in order to significantly reduce the cost of providing these identity genomics services; our plan to use the accredited laboratories at GeneScreen, Cellmark and Lifecodes to offer clinical quality pharmacogenetic SNP scoring of patient samples for clinical association studies and pharmaceutical clinical trials and to conduct pharmacogenetic SNP scoring services that we plan to offer to physicians and patients in the future through a number of distribution channels; our intention to expand our offerings of products for instruments made or sold by others and to obtain license fees and royalties by licensing our technology for incorporation in products of others; our expectation that revenues from the respective forensics businesses of GeneScreen, Cellmark and Lifecodes will increase as DNA analyses are increasingly being used by authorities within the criminal justice system; Orchid GeneShield's expectation of announcing its first beta test program in the last quarter of 2002; our intention of developing intellectual property rights to medical and diagnostic uses of SNPs through our collaborations with pharmaceutical and biotechnology companies; our expectation that Orchid GeneShield will commence generating revenues in 2003; our expectation of having several sources of revenue in the future; our expectation that our restructuring efforts in the second quarter of 2002 and anticipated incremental restructuring efforts in the third quarter will reduce future spending; our belief that the result of our restructuring efforts coupled with expected increases in both revenues and gross margins in all our business units will enable us to use our existing cash reserves to operate our ongoing business activities over at least the next 12 months; and our belief we may need to access the capital markets for additional funding for strategic business activities currently under development. For further information, refer to the more specific factors and uncertainties discussed throughout this report and in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2001. 25 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On or about November 21, 2001, we were made aware of a complaint filed in the United States District Court for the Southern District of New York naming us as defendants, along with certain of our officers and underwriters. An amended complaint was filed on April 19, 2002. The complaint, as amended, purportedly is filed on behalf of persons purchasing our stock between May 4, 2000 and December 6, 2000, and alleges violations of Sections 11 and 15 of the Securities Act of 1933, as amended, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The amended complaint alleges that, in connection with our May 5, 2000 initial public offering, the defendants failed to disclose additional and excessive commissions purportedly solicited by and paid to the underwriter defendants in exchange for allocating shares of our stock to preferred customers and alleged agreements among the underwriter defendants and preferred customers tying the allocation of IPO shares to agreements to make additional aftermarket purchases at pre-determined prices. Plaintiffs claim that the failure to disclose these alleged arrangements made our registration statement on Form S-1 filed with the SEC in May 2000 and the prospectus, a part of the registration statement, materially false and misleading. Plaintiffs seek unspecified damages. We have not reserved any amount related to this case as we believe that the allegations are without merit and intend to vigorously defend against the plaintiffs' claims. In this regard, on or about July 15, 2002, we have filed a motion to dismiss all of the claims against us and our officers. We had been in a litigation with St. Louis University of St. Louis, Missouri regarding its belief that our SNP scoring technology infringes certain claims under U.S. patent 5,846,710, which was controlled by the University. On August 7, 2002, the parties dismissed the litigation and we acquired the subject patent. St. Louis University has assigned both the patent and all license agreements related thereto to us. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The following matters were put to a vote of security holders at our Annual Meeting of Stockholders held on June 14, 2002: (i) the election of Kenneth D. Noonan, PhD., as a Class I Director, to serve until 2004, and to elect Robert M. Tien, MD, MPH, Jeremy M. Levin, D.Phil., MB, BChir, and Ernest Mario, PhD., as Class II directors to serve until 2005; (ii) the amendment of our Restated Certificate of Incorporation to increase the aggregate number of shares of common stock authorized to be issued from 100,000,000 to 150,000,000 shares; and (iii) the ratification of the appointment of KPMG LLP as our independent public accounts for the current fiscal year. The following tables set forth information regarding the number of votes cast for, against or withheld, abstentions and broker non-votes, with respect to each matter presented at the meeting. Under the rules of the Nasdaq Stock Market, brokers who hold shares in street name for customers who are beneficial owners of those shares may be prohibited from giving a proxy to vote shares held for such customers on certain matters without specific instructions from such customers (broker non-votes). Under Delaware law, abstentions and broker non-votes are 26 counted as shares represented at the meeting for purposes of determining the presence or absence of a quorum at a stockholders meeting. The election of directors is decided by plurality of the votes cast; withholding authority to vote for a nominee for director had no effect on the outcome of the vote. For the proposal to ratify the appointment of KPMG LLP as our independent public accountants for the fiscal year ending December 31, 2002, the affirmative vote of a majority of shares of Common Stock voted affirmatively or negatively at the Meeting on the matter was necessary for approval. Abstentions with respect to each of these two proposals had no effect on the outcome of the vote. For the proposal to amend our Restated Certificate of Incorporation to increase the aggregate number of shares of common stock authorized for issuance from 100,000,000 shares to 150,000,000 shares, the affirmative vote of the holders of at least the majority of the outstanding common stock entitled to vote on this matter was required for approval under Delaware law. Because abstentions are treated as shares present or represented and entitled to vote, abstentions with respect to this proposal had the same effect as a vote against the proposal.
Against Broker Proposals: For or Withheld Abstentions Non-votes --- ----------- ----------- --------- (i) election of directors 36,924,437 870,064 -- -- (ii) proposal to amend our Restated Certificate of Incorporation to increase the aggregate number of shares of common stock authorized to be issued from 100,000,000 to 150,000,000 shares 36,166,733 1,534,811 92,957 -- (iii) proposal to ratify the appointment of KPMG LLP as our independent public accounts for the current fiscal year 36,987,985 756,087 50,429 --
At the meeting the following directors were approved by the shareholders to serve on the board of directors: Kenneth D. Noonan, PhD., as a Class I director, to serve until 2004, and Robert M. Tien, MD, MPH, Jeremy M. Levin, D.Phil., MB, BChir, and Ernest Mario, PhD., as Class II directors to serve until 2005. In addition to these directors, the following directors continue to serve on the board of directors: Sidney M. Hecht, PhD, Samuel D. Isaly, and George Poste, DVM, PhD. ITEM 5. OTHER INFORMATION. Not applicable. 27 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 3.1 Restated Certificate of Incorporation of the Registrant dated May 10, 2000. 3.2 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated June 12, 2001 3.3 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated June 17, 2002 3.4 Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of the Registrant, dated August 1, 2001 3.5 Second Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference) 4.1 Specimen certificate for shares of common stock (filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 and incorporated herein by reference) 4.2 Rights Agreement, dated as of July 27, 2001, by and between the Registrant and American Stock Transfer & Trust Company, which includes the form of Certificate of Designations setting forth the terms of the Series A Junior Participating Preferred Stock, $0.001 par value, as Exhibit A, the form of rights certificate as Exhibit B and the summary of rights to purchase Series A Junior Participating Preferred Stock as Exhibit C. Pursuant to the Rights Agreement, printed rights certificates will not be mailed until after the Distribution Date (as defined in the Rights Agreement) (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A) 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K None. 28 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, 2002 By: /s/ Donald R. Marvin DONALD R. MARVIN Senior Vice President, Chief Operating Officer, Chief Financial Officer (principal financial and accounting officer) 29 Exhibit Index Exhibit Number Description 3.1 Restated Certificate of Incorporation of the Registrant dated May 10, 2000 3.2 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated June 12, 2001 3.3 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant dated June 17, 2002 3.4 Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of the Registrant, dated August 1, 2001 3.5 Second Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference) 4.1 Specimen certificate for shares of common stock (filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 and incorporated herein by reference) 4.2 Rights Agreement, dated as of July 27, 2001, by and between the Registrant and American Stock Transfer & Trust Company, which includes the form of Certificate of Designations setting forth the terms of the Series A Junior Participating Preferred Stock, $0.001 par value, as Exhibit A, the form of rights certificate as Exhibit B and the summary of rights to purchase Series A Junior Participating Preferred Stock as Exhibit C. Pursuant to the Rights Agreement, printed rights certificates will not be mailed until after the Distribution Date (as defined in the Rights Agreement) (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A) 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 EX-3.1 3 dex31.txt RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF ORCHID BIOSCIENCES, INC. Orchid BioSciences, Inc., a Delaware corporation, hereby certifies as follows: 1. The present name of the corporation (hereinafter called the "Corporation') is Orchid BioSciences, Inc. The date of the tiling of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was March 8, 1995. The original name of the Corporation is Sarnoff Sub Eight, Inc. 2. The certificate of incorporation is hereby amended by deleting Articles FIRST, through NINTH in their entirety and replacing in lieu thereof the Restated Certificate of Incorporation hereinafter provided. 3. The provisions of the certificate of incorporation of the Corporation as heretofore amended and/or supplemented, and as herein amended, are hereby restated and integrated into the single instrument which is hereinafter set forth, and which is entitled Restated Certificate of Incorporation of Orchid BioSciences, Inc. without any further amendments other than the amendments herein certified and without any discrepancy between the provisions of the certificate of incorporation as heretofore amended and supplemented and the provisions of the said single instrument hereinafter set forth. 4. The amendments and the restatement of the certificate or incorporation herein certified have been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware. 5. The effective time of the restated certificate of incorporation and of the amendments heroin certified shall be upon filing with the Secretary of State. The certificate of incorporation of the Corporation, as amended and restated hereunder shall at the effective time of this Restated Certificate of Incorporation, read as follows: RESTATED CERTIFICATE OF INCORPORATION OF ORCHID BIOSCIENCES, INC. The text of the Certificate of Incorporation is hereby amended and restated in its entirety as follows: FIRST: The name of the corporation is Orchid BioSciences, Inc. (the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle; and the name of the registered agent of the Corporation in the State of Delaware is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity or carry on any business for which corporations may be organized under the Delaware General Corporation Law or any successor statue. FOURTH: A. Designation and Number of Shares. The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 55,000,000 shares, consisting of 50,000000 shares of common stock, $.00l par value per share (the "Common Stock") and 5,000,000 shares of Preferred Stock, $.001 par value per share (the "Preferred Stock"). A statement of the designations of the different classes of stock of the Corporation and of the powers, preferences and rights, and the qualifications, limitations or restrictions thereof; and of the authority conferred upon the Board of Directors to fix by resolution or resolutions any of the foregoing in connection with the creation of one or more series of Preferred Stock and the limitation of variations between or among such series, is set forth below in this Article FOURTH. B. Common Stock. The relative powers, preferences, rights, qualifications, limitations and restrictions of the shares of the Common Stock are as follows: 1. Dividends. Subject to the preferential rights, if any, of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property, or in shares of Common Stock. 2. Liquidation. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Corporation and the amounts to which the holders of any Preferred Stock shall be entitled, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation. 3. Voting. The holders of the Common Stock are entitled to one vote for each share held. There shall be no cumulative voting. C. Preferred Stock. 1. Shares of Preferred Stock may be issued in one or more series at such time or times and for such consideration as the Board of Directors may determine. 2. Authority is hereby expressly granted to the Board of Directors to fix from time to time, by resolution or resolutions providing for the establishment and/or issuance of any series of Preferred Stock, the designation of such series and the powers, preferences and rights of the shares of such series, and the qualifications, limitations or restrictions thereof; to the fullest extent such authority may be conferred upon the Board of Directors under the Delaware General Corporation Law, including, without limitation, the authority to fix the following: (a) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the Board of Directors; (b) The rate of dividends, if any, on the shares of that series, whether dividends shall be (i) non-cumulative, (ii) cumulative to the extent earned or (iii) cumulative (and, if cumulative, from which date or dates), whether dividends shall be payable in cash, property or rights, or in shares of the Corporation's capital stock, and the relative rights of priority, if any, of payment of dividends on shares of that series over shares of any other series or class; (c) Whether the shares of that series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption (which amount may vary under different conditions and at different redemption dates) or the property or rights, including securities of any other corporation, payable in case of redemption; (d) Whether the series shall have a sinking fluid for the redemption or purchase of shares of that series and, if so, the terms and amounts payable into such sinking fund; (e) The rights to which the holders of the shares of that series shall be entitled in the event of the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, and the relative rights of priority, if any, of payment of shares of that sales in any such event; (f) Whether the shares of that series shall be convertible into or exchangeable for shares of stock of any other class or any other series and, if so, the terms and conditions of such conversion or exchange, including the rate or rates of conversion or exchange, the date or dates upon or after which they shall be convertible or exchangeable, the period or periods during which they shall be convertible or exchangeable, the event or events upon or after which they shall be convertible or exchangeable or at whose option they shall be convertible or exchangeable, and the method (if any) of adjusting the rates of conversion or exchange in the event of a stock split, stock dividend, combination of shares or similar event; (g) Whether the issuance of any additional shares of such series, or of any shares of any other series, shall be subject to restrictions as to issuance, or as to the powers, preferences or tights of any such additional shares of such series or shares of such other series; (h) Whether or not the shares of that series shall have voting rights, the extent of such voting rights on specified matters or on all matters, the number of votes to which the holder of a share of such series shall be entitled in respect of such share, whether such series shall vote generally with the Common Stock on all matters or (either generally or upon the occurrence of specified circumstances) shall vote separately as a class or with other series of Preferred Stock; and (i) Any other preferences, privileges and powers and relative, participating, optional or other special rights and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Restated Certificate of Incorporation and to the lull extent now or hereafter permitted by the Delaware General Corporation Law. FIFTH: The Corporation is to have perpetual existence. SIXTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon there by statute or by this Restated Certificate of Incorporation or the Bylaws of the Corporation as in effect from time to time, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. B. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. C. Any action required or permitted to be taken by the stockholders of the Corporation may be effected only at a duly called annual or special meeting of stockholders of the Corporation and not by written consent. D. Special meetings of the stockholders may only be called by the Board of Directors. SEVENTH: A. Subject to the rights of the holders of shares of any series of Preferred Stock then outstanding to elect additional directors under specified circumstances the number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Board of Directors. B. The Board of Directors of the Corporation shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 2001 annual meeting of stockholders or any special meeting in lieu thereof, the term of office of the second class to expire at the 2002 annual meeting of stockholders or any special meeting in lieu thereof, and the term of office of the third class to expire at the 2003 annual meeting of stockholders or any special meeting in lieu thereof At each annual meeting of stockholders or special meeting in lieu thereof following such initial classification, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders or special meeting in lieu thereof after their election and until their successors are duly elected and qualified. C. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office even though less than a quorum, or by a sole remaining director. In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term or his prior death, retirement, removal or resignation and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall if reasonably possible be apportioned by the Board of Directors among the three classes of directors so as to ensure that no one class has mare than one director more than any other class. To the extent reasonably possible, consistent with the foregoing rule, any newly created directorships shall be adde4 to those classes whose terms of office are to expire at the latest dates following such allocation and newly eliminated directorships shall be subtracted from those classes whose terms of office are to expire at the earliest dates following such allocation, unless otherwise provided for from time to time by resolution adopted by a majority of the directors then in office, although less than a quorum. D. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. E. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time only for cause by the affirmative vote of the holders of a majority of the outstanding shares of capital stock then entitled to vote at au election of the directors. A director may be removed for cause only after a reasonable notice and opportunity to be heard by the stockholders. EIGHTH: The Board of Directors is expressly empowered to adopt; amend or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the Board of Directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided, that in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Restated Certificate of Incorporation, the affirmative vote of the holders of at least seventy percent (70%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders to adopt, emend or repeal any provision of the Bylaws of the Corporation. NINTH. 1. Actions, Suits and Proceedings Other than by or in the Right of the Corporation. The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust, or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, tines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the beat interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 7 below, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. Notwithstanding anything to the contrary in this Article, the Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is reimbursed from the proceeds of insurance, and in the event the Corporation makes any indemnification payments to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund such indemnification payments to the Corporation to the extent of such insurance reimbursement. 2. Actions or Suits by or in the Right of the Corporation. The Corporation shall indemnify any Indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses (including attorneys' fees) which the Court of Chancery of Delaware shall deem proper. 3. Indemnification for Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Without limiting the foregoing, if any action, suitor proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. 4. Notification and Defense of Claim. As a condition precedent to his right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought, with respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 4. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position of any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to Indemnitee counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 5. Advance of Expenses. Subject to the provisions of Section 6 below, in the event that the Corporation does not assume the defense pursuant to Section 4 of this Article of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter; provided, however, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately he determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. Such undertaking shall be accepted without reference to the financial ability of the Indemnitee to make such repayment. 6. Procedure for Indemnification. In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification or advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the Corporation determines within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or 2, as the case may be. Such determination shall be made in each instance by (a) a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), whether or not a quorum, (b) a majority vote of a committee of disinterested directors designated by majority vote of disinterested directors, whether or not a quorum, (c) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question. (d) independent legal counsel (who may, to the extent permitted by law, be regular legal counsel to the Corporation), or (e) a court of competent jurisdiction. 7. Remedies. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 6. Unless otherwise required by law, the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct nor an actual determination by the Corporation pursuant to Section 6 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 8. Subsequent Amendment. No amendment termination or repeal of this Article or of the relevant provisions of the General Corporation Law of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment termination or repeal. 9. Other Rights. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article, in addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. 10. Ppartial Indemnification. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled- 11. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by hint in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of Delaware. 12. Merger or Consolidation. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation. 13. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any action, suit proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the Fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Definitions. Terms used herein and defined in Section 145(h) and Section 145(i) of die General Corporation Law of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). 15. Subsequent Legislation. If the General Corporation Law of Delaware is amended after adoption of this Article to expand further the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. TENTH: The Corporation reserves the right to amend or repeal any provision contained in this Restated Certificate of Incorporation in the manner prescribed by the Delaware General Corporation Law mid all rights conferred upon stockholders saw granted subject to this reservation; provided that in addition to the vote of the holders of any class or series of stock of the Corporation required by law or by this Restated Certificate of incorporation, the affirmative vote of the holders of shares of voting stock of the Corporation representing at least seventy percent (70%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together us a single class, shall be required to (i) reduce the number of authorized shares of Common Stock or the number of authorized shares of Preferred Stock set forth in Article FOURTH or (ii) amend, alter or repeal, or adopt any provision inconsistent with Articles SIXTH, SEVENTH, EIGHTH, NINTH and this Article TENTH of this Restated Certificate of Incorporation. ELEVENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of the Delaware General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of the Delaware General Corporation Law, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths (3/4) in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. [Remainder of page intentionally let blank.] IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed this 10th day of May, 2000. ORCHID BIOSCIENCES, INC. By: /s/ Donald R. Marvin ---------------------------- Donald R. Marvin Senior Vice President, COO & CFO EX-3.2 4 dex32.txt CERTIFICATE OF AMENDMENT DATED 6/12/2001 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT of the RESTATED CERTIFICATE OF INCORPORATION of ORCHID BIOSCIENCES, INC. It is hereby certified that: FIRST: The name of the corporation is Orchid BioSciences, Inc. (the "Corporation"). SECOND: The Restated Certificate of Incorporation of the Corporation is hereby amended by striking out the first paragraph of Article Fourth in its entirety and by substituting in lieu of the following: "FOURTH: A. Designation and Number of Shares. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 105,000,000 shares, consisting of 100,000,000 shares of Common Stock, $.001 par value per share (the "Common Stock") and 5,000,000 shares of Preferred Stock, $.001 par value per share (the "Preferred Stock")." THIRD: The amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 228 and Section 242 of the General Corporation Law of the State of Delaware. EXECUTED, effective as of this 12 day of June, 2001. ORCHID BIOSCIENCES, INC. By: /s/ Donald R. Marvin --------------------------------- Donald R. Marvin Senior Vice President, Chief Operating Officer & Chief Financial Officer EX-3.3 5 dex33.txt CERTIFICATE OF AMENDMENT DATED 6/14/2002 EXHIBIT 3.3 CERTIFICATE OF AMENDMENT of the RESTATED CERTIFICATE OF INCORPORATION of ORCHID BIOSCIENCES, INC. It is hereby certified that: FIRST: The name of the corporation is Orchid BioSciences, Inc. (the "Corporation"). SECOND: The Restated Certificate of Incorporation of the Corporation is hereby amended by striking out the first paragraph of Article Fourth in its entirety and by substituting in lieu of the following: "FOURTH: A. Designation and Number of Shares. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 155,000,000 shares, consisting of 150,000,000 shares of Common Stock, $.001 par value per share (the "Common Stock") and 5,000,000 shares of Preferred Stock, $.001 par value per share (the "Preferred Stock")." THIRD: The amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 228 and Section 242 of the General Corporation Law of the State of Delaware. EXECUTED, effective as of this 14th day of June, 2002. ORCHID BIOSCIENCES, INC. By: /s/ Donald R. Marvin --------------------------- NAME: DONALD R. MARVIN TITLE: SENIOR VP, CFO & COO EX-3.4 6 dex34.txt CERTIFICATE OF DESIGNATION EXHIBIT 3.4 CERTIFICATE OF DESIGNATION, PREFERENCES, AND RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF ORCHID BIOSCIENCES, INC. ORCHID BIOSCIENCES, INC., a Delaware corporation (the "Corporation"), does hereby certify that, pursuant to authority conferred on the Board of Directors of the Corporation by the Restated Certificate of Incorporation of the Corporation, and pursuant to the provisions of Section 151 of Title 8 of the Delaware Code, the Board of Directors, at a meeting of its members held May 16, 2001, adopted a resolution providing for the designation, preferences and relative, participating, optional or other rights, and qualifications, limitations or restrictions thereof, of one million (1,000,000) shares of the Corporation's Preferred Stock, $.001 par value per share, which resolution is as follows: RESOLVED: That pursuant to the authority expressly vested in the Board of Directors of the Corporation by Article Fourth of the Restated Certificate of Incorporation of the Corporation, the Board of Directors does hereby adopt a resolution, providing for the issuance of a new series of Preferred Stock, $.001 par value per share, of the Corporation, to be designated "Series A Junior Participating Preferred Stock" (the "Series A Junior Participating Preferred Stock") consisting of one million (1,000,000) shares, which number of shares may be decreased (but not below the number of shares then outstanding) from time to time by the Board of Directors of the Corporation; and herein states and expresses that the designation, preferences and other special or relative rights of the shares of Series A Junior Participating Preferred Stock shall be as set forth in the Certificate of Designation, Preferences, and Rights of Series A Convertible Preferred Stock (the "Certificate of Designation"), a copy of which has been presented to, reviewed and adopted by this Board of Directors. Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" and the number of shares constituting such series shall be 1,000,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Junior Participating Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Junior Participating Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock, in preference to the holders of Common Stock, $.001 par value per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds of the Corporation legally available for the payment of dividends, quarterly dividends payable in cash on March 31, June 30, September 30 and December 31 in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision, combination or consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock) and the Corporation shall pay such dividend or distribution on the Series A Junior Participating Preferred Stock before the dividend or distribution declared on the Common Stock is paid or set apart; provided, however, that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. 2 (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision, combination of consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, by law, or in any other Certificate of Designation creating a series of Preferred Stock or any similar stock, the holders of shares of Series A Junior Participating Preferred Stock, the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including 3 holders of the Series A Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman of the Board or the President of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include 4 Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the certificate of incorporation or bylaws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or bylaws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) Except as set forth herein, or as otherwise provided by law, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends on distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on or make any other distributions on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation/dissolution or winding up) to the Series A Junior Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such 5 shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution on Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. 6 (C) In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (D) Neither the consolidation, merger or other business combination of the Corporation with or into any other corporation the sale, lease, exchange or conveyance of all or any part of the property, assets or business of the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 6. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denomination of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Junior Participating Preferred Stock shall not be redeemable. Section 9. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least seventy-five percent of the outstanding shares of Series A Junior Participating Preferred Stock, voting together as a single class. 7 Section 11. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by its duly authorized officer this 1st day of August, 2001. [Remainder of page intentionally left blank.] 8 ORCHID BIOSCIENCES, INC. By: /s/ Donald R. Marvin -------------------------------- Donald R. Marvin Senior Vice President, COO & CFO 9 EX-99.1 7 dex991.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, Unites States Code) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, Unites States Code), each of the undersigned officers of Orchid BioSciences, Inc., (the "Company"), does hereby certify, to such officer's knowledge, that: The Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (the "Form 10-Q") of the Company fully complies with the requirements of Sectin 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 14, 2002 /s/ Dale R. Pfost --------------------------------------- Dale R. Pfost, PhD., President and Chief Executive Officer Dated: August 14, 2002 /s/ Donald R. Marvin ---------------------------------------- Donald R. Marvin, Senior Vice President, Chief Operating Officer and Chief Financial Officer The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Codes) and is not being filed as part of a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----