424B3 1 d424b3.htm ORCHID CELLMARK INC--FORM 424(B)(3) Orchid Cellmark Inc--Form 424(b)(3)
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Filed Pursuant to Rule 424(b)(3)

Registration File Number 333-139275

PROSPECTUS

ORCHID CELLMARK INC.

4,874,630 SHARES OF COMMON STOCK

 


This prospectus relates to the resale from time to time of a total of up to 4,874,630 shares of our common stock by the selling stockholders described in the section entitled “Selling Stockholders” beginning on page 12 of this prospectus.

The selling stockholders may offer and sell any of the shares of common stock from time to time at fixed prices, at market prices or at negotiated prices, and may engage a broker, dealer or underwriter to sell the shares. For additional information on the possible methods of sale that may be used by the selling stockholders, you should refer to the section entitled “Plan of Distribution” beginning on page 18 of this prospectus. We will not receive any proceeds from the sale of the shares of common stock by the selling stockholders. We will pay all expenses incurred in effecting the registration statement of which this prospectus constitutes a part.

Our common stock is listed on the Nasdaq Global Market under the symbol “ORCH.” On December 28, 2006, the last reported sale price for our common stock was $3.05 per share.

 


You should consider carefully the risks that we have described in “ Risk Factors” beginning on page 2 of this prospectus before deciding whether to invest in our common stock.

 


Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 


The date of this prospectus is December 29, 2006


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TABLE OF CONTENTS

 

     Page

Prospectus Summary

   1

Risk Factors

   2

Special Note Regarding Forward-Looking Statements

   10

Use of Proceeds

   11

Selling Stockholders

   12

Description of Capital Stock

   14

Plan of Distribution

   18

Legal Matters

   20

Experts

   20

Where You Can Find More Information

   20

Incorporation of Certain Information by Reference

   21

 


ABOUT THIS PROSPECTUS

We incorporate by reference important information into this prospectus. You may obtain the information incorporated by reference without charge by following the instructions under “Where You Can Find More Information” and “Incorporation of Certain Information by Reference.” You should carefully read this prospectus as well as additional information described under “Incorporation of Certain Information by Reference,” before deciding to invest in shares of our common stock.

You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The selling stockholders are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions in which offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or the time of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since such date.


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PROSPECTUS SUMMARY

The following is only a summary of some of the information contained or incorporated by reference in this prospectus which we believe to be important. We selected highlights of material aspects of our business to be included in this summary. We urge you to read this entire prospectus, including the information incorporated by reference in this prospectus. Investing in our common stock involves risks. Therefore, carefully consider the information provided under the heading “Risk Factors” beginning on page 2 of this prospectus.

BUSINESS OVERVIEW

We are engaged in the provision of DNA testing services that generate genetic profile information by analyzing an organism’s unique genetic identity.

Our business is focused on DNA testing for human identity as well as for animal and agricultural applications. In the human identity area, we provide DNA testing services for forensic, family relationship and security applications. Forensic DNA testing is primarily used in the following ways: to establish and maintain DNA profile databases of individuals arrested or convicted of crimes; to analyze and compare evidence from crime scenes with these databases to possibly identify a suspect; and to confirm that a suspect committed a particular crime or exonerate a falsely accused or convicted person. Forensic DNA testing can also be used to confirm a victim’s identity, particularly in mass disasters. Family relationship DNA testing is used to establish whether two or more people are genetically related. It is most often used to determine if a man has fathered a particular child in a paternity case. It can also be used to confirm a genetic relationship for purposes of immigration and adoption, estate settlement, genealogy and ancestry. Individuals can also seek DNA testing to establish their own personal genetic profile in the event it may be useful to confirm their identity in the future. Recently, DNA testing has been used by individuals and employers in security applications by seeking to establish a person’s genetic profile and store it for identification purposes in the event of an emergency or accident. In the animal and agriculture field, we provide DNA testing services for selective trait breeding and traceability applications. We provide animal susceptibility testing to enable farmers to breed sheep resistant to scrapie, a fatal, degenerative disease that affects the nervous systems of sheep and goats. We also provide animal identification testing that can be used to breed certain animals with particular commercially desirable qualities and to trace meat back to the farm of origin. Our services are used extensively in each of these applications, and we expect their uses to increase as these markets continue to grow and new commercial applications evolve.

We have operations in the United States and in the United Kingdom. We market our services in many countries primarily in North America and Europe; however, the majority of our current customers are based in the United States and in the United Kingdom. Our operations in the United Kingdom accounted for 47% and 42% of our total revenues for 2005 and 2004, respectively. We provide our DNA testing services to government agencies, private individuals and commercial companies.

CORPORATE INFORMATION

We were incorporated in Delaware in 1995. Our principal executive offices are located at 4390 US Route One, Princeton, New Jersey, 08540. Our telephone number is (609) 750-2200 and our web site address is www.orchid.com. We make available free of charge through the “Investors” section of our web site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission, or the SEC. We include our web site address in this prospectus as an inactive textual reference only.

The Orchid Cellmark logo, Genescreen, Lifecodes and Cellmark are trademarks, registered trademarks, service marks or registered service marks of Orchid Cellmark Inc. Unless the context otherwise requires, the terms “Orchid Cellmark,” “we,” “us” and “our” refer to Orchid Cellmark Inc. and its subsidiaries.

 

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RISK FACTORS

Investing in our common stock is very risky. Before making an investment decision, you should carefully consider the risks set forth below as well as other information we include in this prospectus. You should be able to bear a complete loss of your investment.

RISKS RELATED TO OUR BUSINESS

If we fail to maintain the service contracts we have with various state and governmental agencies or fail to enter into additional contracts, we would lose a significant source of revenues.

We currently derive approximately 98% of our revenues from the forensic, family relationship and animal and agricultural testing fields. These services are heavily dependent upon contracts with various governmental agencies, which are typically open to bid and usually have a term from one to three years. The process and criteria for these awards are typically complex and highly competitive, particularly with respect to the price of the services offered. Although we have not previously been debarred or disqualified for breach or non-performance of any contract, if such debarment or disqualification were to occur we may not be awarded future state or government contracts. We may not be able to maintain any of our existing governmental contracts or be the successful bidder on any additional governmental contracts which may become available in the future, or we may not be able to negotiate terms acceptable to us in connection with any governmental contract awarded to us, which could adversely affect our results of operations and financial condition.

We currently receive a significant percentage of our annual gross revenue through relationships with two customers.

In August of 2001, we entered into a three-year agreement with the Department for Environment, Food and Rural Affairs, or DEFRA, to provide genotyping on sheep in order to test the animals for their susceptibility or resistance to scrapie, which agreement was renewed in June of 2004 for two additional years. These services were provided under an initiative called the National Scrapie Plan to provide genotyping services in the hopes of aiding British farmers to breed sheep with reduced susceptibility to scrapie. Under the agreement, we received revenue during 2005 that was approximately 8% of our total annual revenues. In May 2006, the DEFRA contract for scrapie genotyping services was extended through December 2006, and on October 18, 2006, our contract with DEFRA was extended through December 2007 and 2008. If this agreement is terminated or if we cannot renew this agreement, we would lose our scrapie genotyping business, which would have a material impact on the financial condition of our business.

We also perform forensic testing services for several police forces throughout the United Kingdom through our agreement with the Forensic Alliance Ltd., or FAL. It is by virtue of our relationship with FAL that we have been able to increase our revenues based on forensic testing such that the revenue we received under this arrangement was approximately 29% of our gross revenues for the fiscal year ended December 31, 2005. In 2005, FAL was acquired by LGC Ltd., or LGC, a provider of analytical and diagnostic services, including DNA testing services, and to that extent is a possible competitor for the business we currently conduct for FAL. On July 7, 2006, we received from FAL notice of termination of this agreement, effective July 15, 2007. We have been and are implementing plans to enable us to directly provide our services to UK police forces and extend our offerings of forensic services. As a result of our receipt of the notice of termination, we are in discussions with LGC regarding the transitioning of services we provide to UK police forces, including addressing the provision of services to police forces whose contract with FAL extends beyond the termination of our contract with FAL. We continue to expect our UK operations to be a significant part of our business. If our discussions with LGC do not result in an acceptable transition of the services we perform on behalf of FAL or if we are unable to successfully implement plans to enable us to directly provide our services to UK police forces, including having in place in a timely manner the necessary personnel and infrastructure, or are unsuccessful in securing a sufficient number of agreements directly with UK police forces, our business would be materially adversely affected.

Together, these two agreements constituted 78% of international revenues and 37% of our total revenues for the fiscal year ended December 31, 2005.

 

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We cannot guarantee the receipt of revenue from our government contracts.

We regularly compete in an open bid forum in order to secure or renew contracts with various law enforcement and governmental agencies for the provision of DNA-based testing services. A contract award may have limits that may be paid out under the contract (as allowed by state or other approved funding), and we are not always able to rely on a fixed amount of revenue based on services provided under the contract. For example, there may be a regulatory or other administrative basis beyond our control for which we do not receive the anticipated number of samples to be tested under a contract, which may have an adverse outcome on services billed or revenue received during a given fiscal period. Also, many contracts with governmental agencies allow for the agency to terminate a contract at any time if funding is not available to pay for our services.

Our failure to comply with applicable government and industry regulations or to maintain accreditations may affect our ability to develop, produce or market our potential services and may adversely affect our results of operations.

All of our laboratories maintain applicable industry accreditations for paternity and forensic testing both in the United States and the United Kingdom, and voluntary accreditation by the New York State Department of Health and by the Standards Council of Canada. In addition, our UK laboratory must maintain ISO 17025 accreditation in order to continue to provide forensic testing services. We cannot assure you that we will be able to maintain our accreditations. The loss of our accreditations could adversely affect our existing contracts which, in many cases, require that we maintain these accreditations, and could adversely affect our ability to enter into new contracts. As a result, our revenues could be eliminated or significantly reduced.

Our development and testing activities also involve the controlled use of hazardous materials. We are subject to laws and regulations governing the use, storage, handling and disposal of such materials and certain waste products, as well as the conveyance, processing and storage of biological specimens. If we were in violation of any laws or regulations pertaining to the handling or use of hazardous materials, the remediation costs could be high and could have an adverse effect on our business and financial results.

We currently rely primarily on a single supplier for the majority of reagents and other components for the performance of our DNA testing services.

We currently have a purchase agreement with one supplier through which we purchase the majority of reagents and other components for use in our DNA testing services. We have negotiated favorable discounts for the purchase of these products based on the volume of what we purchase under this purchase agreement. In the event our current supplier was to experience a major supply problem, we do have the ability to purchase reagents and components from other suppliers. However, if we had to switch to a different supplier or multiple suppliers, we may be required to also change the instruments on which we perform DNA testing services, which could require significant capital investment.

International sales are subject to increased costs and other risks, which could affect our revenues.

Our business includes international sales which are subject to certain inherent risks, including difficulties in collecting accounts receivable, potentially longer payment cycles, increased costs associated with maintaining international marketing efforts, currency fluctuations that impact reported results, changes in regulatory requirements and difficulties in enforcement of contractual obligations and intellectual property rights. During 2005, we derived 47% of our revenues from international sales.

We had an accumulated deficit of $318 million as of September 30, 2006. If we fail to reach profitability and need to raise additional capital to fund our current and future operating plans or obtain it on unfavorable terms, then we may have to take further cost-cutting measures.

We have expended significant resources developing our facilities and funding commercialization activities. As a result, we have incurred significant losses to date. We had net losses of approximately $9.4 million, $8.8 million and $23.6 million for the years ended December 31, 2005, 2004 and 2003, respectively, and an accumulated deficit of $318 million as of September 30, 2006. We anticipate that our existing cash and cash equivalents will be sufficient to fund our operations at least through the next twelve months. If we fail to reach cash flow self sufficiency, we may need to raise additional funds through the sale of equity, convertible debt or equity-linked

 

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securities or we may have to further review our existing operations to determine new measures of cost reduction, such as further consolidation of operational facilities and/or reductions in staff.

As a result of our failure to file our Annual Report on Form 10-K for the year ended December 31, 2005 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 by their filing deadlines, we are not eligible to register our securities on a registration statement on Form S-3. Therefore, our ability to raise additional capital in the public markets may be adversely affected because registering our securities on other forms, including registration statements on Form S-1, is time consuming and costly. In addition, if our common stock were delisted from the Nasdaq Global Market, or Nasdaq, such delisting would impair the liquidity of our common stock and there is no assurance that a market would continue to exist for our common stock. Our ability to raise future capital through the sale of our equity securities would be limited, which could have a material adverse effect on our future business prospects.

We have determined that we have material weaknesses in our internal control over financial reporting. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading of our stock.

Under Section 302 of the Sarbanes-Oxley Act of 2002, we are required to evaluate and determine the effectiveness of our internal control over financial reporting. As of December 31, 2005, we determined that we had control deficiencies, one of which resulted in an adjustment being required to restate our consolidated financial statements to bring them into compliance with generally accepted accounting principles. Accordingly, management has determined that some of these control deficiencies constitute material weaknesses. Because of these material weaknesses, our management concluded that, as of December 31, 2005, we did not maintain effective internal control over financial reporting. If we are not successful in remediating the material weaknesses, or if we determine in future fiscal periods that we have additional material weaknesses in our internal control over financial reporting, the reliability of our financial reports may be impacted.

Future acquisitions or mergers could disrupt our ongoing operations, increase our expenses and adversely affect our revenues.

Although we have no commitments or agreements with respect to any acquisitions or mergers at present, we anticipate that a portion of our future growth may be accomplished either by acquiring or merging with existing businesses. Factors that will affect the success of any potential acquisition or merger to be made by us include our ability to integrate acquired personnel, operations, products and technologies into our organization effectively, to motivate personnel and to retain customers of acquired or merged businesses. We may not be able to identify suitable acquisition or merger opportunities, obtain necessary financing for an acquisition on acceptable terms or successfully integrate acquired personnel and operations. While we have not experienced material disruption to our ongoing business or distraction to our management and employees as a result of past acquisitions, we may experience such disruptions or distractions in the future.

Our improvement of existing technologies and our ability to capture and develop future technologies to be utilized in our service offerings may not be commercially successful, which could adversely affect our revenues.

We are currently developing and commercializing a limited number of services based on our technologies in DNA testing of humans and animals. These services involve uses of products, software and technologies that require validation for commercial application, and we cannot assure you that we or our customers will be able to recognize a cost-effective, commercial benefit in using our technology. In addition, any assays we develop utilizing single nucleotide polymorphisms, or SNP, analysis technology may not be useful in assisting in food safety testing. Only a limited number of companies have developed or commercialized products or services based on SNP technology to date. Accordingly, even if we or our customers are successful in developing effective assays utilizing SNP technology, we cannot assure you that these discoveries will lead to commercially successful service offerings. If we fail to successfully develop our SNP scoring technologies or any products and services based on such technologies, we may not achieve a competitive position in the market.

 

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We may be unable to hire an adequate number of DNA analysts or successfully apply new technology.

Our growth and future operating results will depend, in part, upon our ability to recruit an adequate number of trained DNA analysts. Our growth and future operating results will also depend, in part, upon our ability to automate and improve our DNA testing services to take advantage of new technologies. There can be no assurance that our development efforts will result in any additional commercially viable or successful improvements or efficiencies to our testing processes. Any potential improvements to the testing process may require substantial additional investment and possibly regulatory approvals, prior to implementation. Our inability to recruit trained DNA analysts, to develop improvements to our testing processes, to increase efficiencies, or to achieve market acceptance of such improvements could have a material adverse effect on our business, financial condition and results of operations.

Our future sales and marketing efforts may not be successful in achieving our expected revenue growth.

We plan to continue to market our services to governments, commercial companies and private individuals. Our ability to successfully obtain new business, and where appropriate, enter into and maintain agreements with our customers, depends in part on the quality and pricing of our services. If we are unable to successfully implement our marketing plans, fail to maintain or enhance the quality of our services, or fail to offer attractive pricing for our services, our expected revenue growth and financial condition could be adversely affected.

We have limited sales and marketing resources, and as a result, we may not achieve our expected revenue growth.

We currently have limited sales and marketing resources and we are subject to the possibility that our competitors may recruit our employees. As of December 1, 2006, none of our key sales and marketing employees had employment contracts with us. We also do not maintain key man life insurance policies for any of these individuals. Our sales and marketing resources are used to market our services to governments, commercial companies and private individuals. If our limited sales and marketing resources become inadequate, our expected revenue growth and financial condition could be adversely affected.

We may be held liable for any inaccuracies associated with our services, which may require us to defend ourselves in costly litigation.

We provide forensic, family relationship and animal and agriculture testing services. Claims may be brought against us for incorrect identification of family relationships or other inaccuracies. Litigation of these claims in most cases is covered by our existing insurance policies. However, we could expend significant funds during any litigation proceeding brought against us and litigation can be a distraction to management. If a court were to require us to pay damages that are not covered by our existing insurance policies, the amount of such damages could significantly harm our financial condition, and even if covered, damages could exceed our insurance policy coverage limits. We currently maintain product liability insurance with a maximum coverage limitation of $5 million and general laboratory professional liability insurance with a maximum coverage limitation of $10 million. We have been named a defendant in a number of minor suits relating to our DNA testing services, including claims of incorrect results. None of the outcomes of these suits have had a material adverse effect on our business.

Our ability to provide services may be seriously impaired by the occurrence of a natural disaster affecting one or more of our laboratories.

Should we experience the occurrence of a natural disaster affecting one or more of our laboratories such that we would be unable to continue to provide services out of a particular facility for an extended period of time, and we were not able to scale up operations at our other facilities in order to continue to provide such services, we would be at risk of losing significant contractual revenue from governmental agencies since many of our governmental agency contracts allow for the agency to terminate the contract early if we became unable to continue to render such services for an extended period of time, usually 90 days or more. However, we have multiple facilities, and may be able to shift operations from one facility to another in the event of a natural disaster, thereby mitigating the effects thereof.

 

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Although we carry insurance for recovery in case of a natural disaster, the limits of this insurance are approximately $32 million, and it is possible that our coverage will not be the same in all locations or that a loss in such an instance could exceed our ability to recover such costs.

Our success will depend partly on our ability to operate without misappropriating the intellectual property rights of others.

We may be sued for infringing, or may initiate litigation to determine that we are not infringing, on the intellectual property rights of others. Intellectual property litigation is costly, and could adversely affect our results of operations. If we do not prevail in any intellectual property litigation, we might have to pay damages, and we could be required to stop the infringing activity, or required to obtain a license to or design around the intellectual property in question. If we are unable to obtain a required license on acceptable terms, or are unable to practice non-infringing technologies or processes, we may be unable to sell some of our services, which would result in reduced revenues. We are named a defendant in a patent litigation matter. However, we believe we have the right to practice such technology by virtue of a third-party agreement, and we are actively engaged in defending this litigation. Other than the foregoing, we are not aware of any assertions that we are misappropriating the intellectual property rights of others.

If we cannot enter into new development or licensing agreements, we may be unable to further enhance our service offerings.

Our strategy for developing and commercializing technologies and services based on our discoveries depends upon our ability to enter into development and licensing arrangements. Our ability to enter into advantageous licensing or development agreements will depend upon whether or not companies that have technology complimentary to ours are willing or able to enter into an agreement with us, and on our ability to allocate financial resources to such investment. We also may have to rely on our collaborators and licensees or licensors for marketing of services, or distribution of services. If we are unable to enter into such development and licensing arrangements or implement our strategy to develop and commercialize additional services, it would have a material adverse effect on our results of operation and financial condition. If we enter into collaborations or licensing arrangements, we may be forced to relinquish rights to certain of our technologies, or grant licenses to third parties on terms that are unfavorable to us.

If our patent applications do not result in issued patents, our competitors may obtain rights to commercialize our discoveries, which would harm our competitive position.

Our success will depend, in part, on our ability to obtain patent protection on our proprietary technologies and services and to enforce such protection. We may not be able to obtain new patents for these technologies and services. We also may not have the resources to aggressively protect and enforce existing patent protection. We may need to obtain a license from certain third parties with respect to any patent covering technologies or methodologies which we wish to incorporate into our service offerings, but we may not be able to acquire such licenses on terms acceptable to us, if at all.

The scope of our issued patents may not provide us with adequate protection of our intellectual property, which would harm our competitive position.

Any issued patents that cover our proprietary technologies may not provide us with substantial protection or be commercially beneficial to us. The issuance of a patent may be challenged with respect to its validity or its enforceability. The US Patent and Trademark Office (or a court of appropriate jurisdiction), or any one of a number of foreign patent offices where we have pursued patent protection, may invalidate one or more of our patents. In addition, third parties may have patents of their own which could, if asserted, prevent us from practicing our proprietary technologies, including the methods we use to conduct genotyping. If we are otherwise unable to practice our patented technologies, we may not be able to commercialize our technologies or services and our competitors could commercialize our technologies. We currently believe that there may be at least one company actively infringing our proprietary single base primer extension technology. However, we have not completed an analysis of this third party’s practices or of the practices of any other third parties and cannot form a conclusion at this time as to infringement.

 

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We may need to initiate lawsuits to protect or enforce our patents and other intellectual property rights, which could result in the forfeiture of these rights.

In order to protect or enforce our patent rights, we may need to initiate patent litigation against third parties. These lawsuits could be expensive, take significant time and divert management’s attention from other business concerns. These lawsuits could result in the invalidation or a limitation in the scope of our patents or forfeiture of the rights associated with our patents. We cannot assure you that we will prevail in any future litigation or that a court will not find damages or award other remedies in favor of the opposing party in any of these suits. During the course of these suits, there may be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. Securities analysts or investors may perceive these announcements to be negative, which would likely cause the market price of our stock to decline.

Other rights and measures that we rely upon to protect our intellectual property may not be adequate to protect our services and could reduce our ability to compete in the market.

In addition to patents, we rely on a combination of trade secrets, copyright and trademark laws, non-disclosure agreements and other contractual provisions and technical measures to protect our intellectual property rights. While we require employees, collaborators, consultants and other third parties to enter into confidentiality and/or non-disclosure agreements where appropriate, any of the following could still occur:

 

    the agreements may be breached;

 

    we may have inadequate remedies for any breach;

 

    proprietary information could be disclosed to our competitors; or

 

    others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technologies.

To our knowledge, we have never been materially harmed by a breach under any of the circumstances listed above. However, if for any of the above reasons our intellectual property is disclosed or misappropriated, it would harm both our ability to protect our rights and our competitive position. The pursuit of a remedy for such an alleged breach may require a substantial amount of our resources, time, effort and expense.

Our ability to utilize our net operating loss carryforwards may be limited.

As of December 31, 2005, our net operating loss, or NOL, carryforwards were approximately $234 million and approximately $194 million for Federal and state income tax purposes, respectively. Our Federal and state NOL carryforwards begin to expire in 2006. Utilization of our NOLs to offset future taxable income, if any, may be substantially limited due to “change of ownership” provisions in the Tax Reform Act of 1986, or the Act. The Act provides for a limitation on the annual use of NOL carryforwards and research and development credits following certain ownership changes, as defined by the Act, which could significantly limit our ability to utilize or sell these carryforwards and research and development credits. We have determined that an ownership change, as defined by the Act, occurred in 1999. Approximately $36 million of NOL carryforwards is limited due to this ownership change. Additionally, because US tax laws limit the time during which these carryforwards may be applied against future taxes, we may not be able to take full advantage of these attributes for Federal income tax purposes. The NOL carryforwards subject to expiration through the year 2019 are approximately $32 million. We may have experienced other ownership changes, as defined by the Act, as a result of past financings and may experience others in connection with future financings. Accordingly, our ability to utilize or sell the aforementioned Federal NOL carryforwards may be further limited in the future.

RISKS ASSOCIATED WITH OUR COMMON STOCK

Future issuance of our securities may dilute the rights of our stockholders.

Our Board of Directors has the authority to issue shares of preferred stock and to determine the price, preferences, privileges and other terms of those shares. Our Board of Directors may exercise this authority without any further approval of our stockholders. Additionally, if we need to raise additional funds through the sale of equity, convertible debt or equity-linked securities, your percentage ownership in us on a diluted basis will be reduced. These transactions may dilute the value of our outstanding common stock. We may also issue securities that have rights, preferences and privileges senior to our common stock.

 

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We have various mechanisms in place that stockholders may not consider favorable, which may discourage takeover attempts and may prevent or frustrate attempts by stockholders to change our direction or management.

Certain provisions of our restated certificate of incorporation, as amended, and our second amended and restated bylaws, as well as Section 203 of the Delaware General Corporation Law and our adoption of a shareholder rights plan, may discourage, delay or prevent a change in control or the ability of stockholders to change our direction or management, even if the changes would be beneficial to stockholders. These provisions include:

 

    authorizing the issuance of “blank check” preferred stock that could be designated and issued by our Board of Directors to increase the number of outstanding shares and thwart a takeover attempt;

 

    creating a classified board of directors with staggered, three-year terms, which may lengthen the time required to gain control of our Board of Directors;

 

    prohibiting cumulative voting in the election of directors, which will allow a majority of stockholders to control the election of all directors;

 

    requiring super-majority voting to effect certain amendments to our certificate of incorporation and bylaws;

 

    limiting who may call special meetings of stockholders;

 

    prohibiting stockholder action by written consent, which requires all actions to be taken at a meeting of stockholders; and

 

    establishing advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, pursuant to our stockholder rights plan, each share of our common stock has an associated preferred share purchase right. The rights will not trade separately from the common stock until, and are exercisable only upon, the acquisition or the potential acquisition through tender offer by a person or group of 15% or more of our outstanding common stock.

Our stock price has been, and likely will continue to be, volatile and your investment may suffer a decline in value.

The market prices for securities of companies quoted on the Nasdaq, including our common stock, have in the past been, and are likely to continue in the future to be, very volatile. Between January 1, 2005 and December 1, 2006, the closing price of our common stock ranged from a low of $2.05 to a high of $13.91. The Nasdaq Composite Index has significantly declined since our initial public offering in May 2000 and remains very volatile. The market price of our common stock has been, and likely will continue to be, subject to substantial volatility depending upon many factors, many of which are beyond our control, including:

 

    announcements regarding the results of development efforts by us or our competitors;

 

    announcements regarding the acquisition of technologies or companies by us or our competitors;

 

    changes in our existing development or licensing arrangements or formation of new development or licensing arrangements;

 

    the loss of existing business;

 

    our inability to secure new contractual relationships for our genotyping services or new volume of testing samples at acceptable prices;

 

    technological innovations or new service offerings developed by us or our competitors;

 

    changes in our intellectual property portfolio;

 

    developments or disputes concerning our proprietary rights;

 

    issuance of new or changed securities analysts’ reports and/or recommendations applicable to us;

 

    additions or departures of our key personnel;

 

    our operating losses; and

 

    continued economic uncertainty with respect to the valuation of certain technology companies and other market conditions.

 

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Fluctuations in our quarterly revenues and operating results may negatively impact our stock price.

Our revenues and results of operations have fluctuated significantly in the past and these fluctuations are likely to continue in the future due to a variety of factors, many of which are outside of our control. These factors include:

 

    the timing of US Federal funding for forensic DNA testing through the National Institute of Justice;

 

    our ability to secure new contractual relationships for forensic, family relationship and animal and agricultural testing or retain existing relationships upon contract expirations;

 

    the volume and timing of testing samples received in our laboratories for testing services;

 

    the number of trained DNA analysts which are available to process the samples for testing services;

 

    the number, timing and significance of new services introduced by our competitors;

 

    our ability to develop, market and introduce new services on a timely basis;

 

    our ability to maintain and grow the volume of forensic testing services in the United Kingdom, through directly providing our services to UK police forces;

 

    changes in the cost, quality and availability of intellectual property and components required to perform our services;

 

    availability of commercial and government funding to researchers who use our services; and

 

    the inherent seasonality in our animal testing business.

Fixed operating costs associated with our technologies and services, as well as personnel costs, marketing and sales programs and overhead costs, account for a substantial portion of our operating expenses. We cannot adjust these expenses quickly in the short term. If our testing volumes and/or related pricing decline due to market pressure, our revenues may decline and we may not be able to reduce our operating expenses accordingly. A decline in revenues and/or a failure to reduce operating expenses could harm our operating results for a particular fiscal period. In addition, market and other conditions may require restructuring charges or certain non-cash charges such as impairment charges related to long-lived assets to be recorded by us in future periods. If our operating results in any quarter or quarters or other fiscal periods fail to meet the expectations of public market analysts or investors, the market price of our common stock is likely to fall.

We cannot assure you that your investment in our common stock will not fluctuate significantly. One or more of these factors could significantly harm our business and cause a decline in the price of our common stock in the public market.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under “Risk Factors” and elsewhere in this prospectus constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. Such statements are based on our 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 expectations with respect to the increase in uses of our services as our markets continue to grow and new commercial applications evolve;

 

    our continued expectation that our UK operations will be a significant part of our business;

 

    our anticipation that our existing cash and cash equivalents will be sufficient to fund our operations at least through the next twelve months;

 

    our anticipation that a portion of our future growth may be accomplished either by acquiring or merging with existing businesses; and

 

    our plan to continue to market our services to governments, commercial companies and private individuals.

These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. Any forward-looking statement in this prospectus reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry and future growth. Neither we nor any other person assumes responsibility for the accuracy or completeness of these statements and, except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

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USE OF PROCEEDS

The net proceeds from the disposition of the shares of common stock covered by this prospectus will be received by the selling stockholders or their transferees. We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholders or their transferees.

 

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SELLING STOCKHOLDERS

On November 21, 2006, we sold 4,874,630 shares of our common stock in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. This prospectus relates to the resale from time to time of these shares of our common stock by the selling stockholders named below.

Pursuant to the terms of the private placement, we filed a registration statement, of which this prospectus constitutes a part, in order to permit the purchasers to resell to the public the shares of our common stock issued in connection with the transaction. The selling stockholders have each represented to us that they have obtained the shares for their own account for investment only and not with a view to, or resale in connection with, a distribution of the shares, except through sales registered under the Securities Act of 1933, as amended, or exemptions thereto. Except for the ownership of the shares of common stock set forth below, the selling stockholders have not had any material relationship with us within the past three years. In accordance with the terms of the private placement, this prospectus generally covers the resale of all of the shares of common stock we issued in the private placement.

The following table, to our knowledge, sets forth information regarding the beneficial ownership of our common stock by the selling stockholders as of December 1, 2006 and the number of shares being offered hereby by each selling stockholder. For purposes of the following description, the term “selling stockholder” includes pledgees, donees, permitted transferees or other permitted successors-in-interest selling shares received after the date of this prospectus from the selling stockholders. The information is based on information provided by or on behalf of the selling stockholders. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to shares, as well as any shares as to which the selling stockholder has the right to acquire beneficial ownership within sixty (60) days after December 1, 2006 through the exercise or conversion of any stock options, warrants, convertible debt or otherwise. Unless otherwise indicated below, each selling stockholder has sole voting and investment power with respect to its shares of common stock. The inclusion of any shares in this table does not constitute an admission of beneficial ownership for the selling stockholder. We will not receive any of the proceeds from the sale of our common stock by the selling stockholders.

 

     Shares
Beneficially
Owned Prior to
Offering (1)
    Shares
Being
Offered
   Shares
Beneficially
Owned After
Offering (1)(2)
 

Selling Stockholder (3)

   Number    Percent        Number    Percent  

Accipiter Life Sciences Fund, LP (4)

   1,022,047    3.5 %   69,514    952,533    3.3 %

Accipiter Life Sciences Fund (Offshore), Ltd. (4)

   582,560    2.0 %   19,703    562,857    1.9 %

Accipiter Life Sciences Fund II, LP (4)

   614,300    2.1 %   51,443    562,857    1.9 %

Accipiter Life Sciences Fund II (Offshore), Ltd. (4)

   1,119,611    3.8 %   505,281    614,330    2.1 %

Accipiter Life Sciences Fund II (QP), LP (4)

   617,994    2.1 %   314,059    303,935    1.0 %

Aries Domestic Fund I, LP (5)

   21,771    *     19,971    1,800    *  

Aries Domestic Fund II, LP (5)

   17,930    *     15,630    2,300    *  

Aries Master Fund II (5)

   58,030    *     51,230    6,800    *  

Capital Ventures International (6)

   300,000    1.0 %   300,000    —      —    

Cranshire Capital, L.P. (7)

   270,000    *     250,000    20,000    *  

Hudson Bay Fund LP (8)

   96,000    *     96,000    —      —    

Hudson Bay Overseas Fund Ltd. (8)

   104,000    *     104,000    —      —    

Iroquois Master Fund Ltd. (9)

   500,000    1.7 %   250,000    250,000    *  

LB I Group Inc. (10)

   1,041,566    3.6 %   1,041,566    —      —    

Otago Partners, LLC (11)

   66,338    *     66,338    —      —    

Pleiades Investment Partners-R LP (12)

   392,800    1.3 %   260,500    132,300    *  

Potomac Capital International Ltd (12)

   355,430    1.2 %   239,630    115,800    *  

Potomac Capital Partners LP (12)

   554,312    1.9 %   367,925    186,387    *  

Truk International Fund, LP (13)

   18,150    *     18,150    —      —    

Truk Opportunity Fund, LLC (14)

   146,859    *     146,859    —      —    

UBS O’Connor LLC FBO O’Connor Global Convertible Arbitrage Master Ltd. (15)

   361,600    1.2 %   361,600    —      —    

UBS O’Connor LLC FBO O’Connor Global Convertible Arbitrage II Master Ltd. (15)

   38,400    *     38,400    —      —    

UBS O’Connor LLC FBO O’Connor PIPES Corporate Strategies Master Ltd. (16)

   220,000    *     200,000    20,000    *  

Valesco Healthcare Master Fund, L.P. (17)

   86,831    *     86,831       —    

* Less than 1%.

 

(1) Percentages are based on 29,249,773 shares of common stock that were outstanding as of December 1, 2006.

 

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(2) We do not know when or in what amounts the selling stockholders may offer for sale the shares of common stock pursuant to this offering. The selling stockholders may choose not to sell any of the shares offered by this prospectus. Because the selling stockholders may offer all or some of the shares of common stock pursuant to this offering, and because there are currently no agreements, arrangements or undertakings with respect to the sale of any of the shares of common stock, we cannot estimate the number of shares of common stock that the selling stockholders will hold after completion of the offering. For purposes of this table, we have assumed that the selling stockholder will have sold all of the shares covered by this prospectus upon the completion of the offering.

 

(3) Selling stockholders who are registered broker-dealers are deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended. In addition, selling stockholders who are affiliates of registered broker-dealers may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, if such selling stockholder (a) did not acquire its shares being offered in the ordinary course of business or (b) had any agreement or understanding, directly or indirectly, with any person to distribute the securities. To our knowledge, no selling stockholder who is a registered broker-dealer or an affiliate of a registered broker-dealer received any securities as underwriting compensation. Each selling stockholder purchased the shares of common stock in the private placement in the ordinary course of such stockholder’s business and, at the time of the purchase of such shares did not have any agreements or understandings, directly or indirectly, with any person to distribute such shares.

 

(4) Gabe Hoffman is the managing member of Candens Capital, LLC, which is the general partner of Accipiter Life Sciences Fund, LP, Accipiter Life Sciences Fund II, LP and Accipiter Life Sciences Fund II (QP), LP. Mr. Hoffman is also the managing member of Accipiter Capital Management, LLC, which is the investment manager of Accipiter Life Sciences Fund (Offshore), Ltd. and Accipiter Life Sciences Fund II (Offshore), Ltd. Mr. Hoffman may be deemed the beneficial owner of all shares of common stock held by Accipiter Life Sciences Fund, LP, Accipiter Life Sciences Fund (Offshore), Ltd., Accipiter Life Sciences Fund II, LP, Accipiter Life Sciences Fund II (Offshore), Ltd. and Accipiter Life Sciences Fund II (QP), LP. Candens Capital, LLC may be deemed the beneficial owner of all shares of common stock held by Accipiter Life Sciences Fund, LP, Accipiter Life Sciences Fund II, LP and Accipiter Life Sciences Fund II (QP), LP. Accipiter Capital Management, LLC may be deemed to be the beneficial owner of all shares of common stock held by Accipiter Life Sciences Fund (Offshore), Ltd. and Accipiter Life Sciences Fund II (Offshore), Ltd.

 

(5) Lindsay A. Rosenwald, M.D. is the sole stockholder, chairman and chief executive officer of Paramount BioCapital Asset Management, Inc., or PBCAM, an investment adviser registered with the SEC. PBCAM is the investment manager of the Aries Master Fund II and is the general partner to each of Aries Domestic Fund I, LP and Aries Domestic Fund II, LP. Dr. Rosenwald has voting and investment control over the securities held by Aries Domestic Fund I, LP, Aries Domestic Fund II, LP and Aries Master Fund II. Dr. Rosenwald is also chairman, chief executive officer and sole stockholder of Paramount BioCapital, Inc., a registered broker-dealer. See footnotes 3, 11 and 17.

 

(6) Heights Capital Management, Inc., the authorized agent of Capital Ventures International, or CVI, has discretionary authority to vote and dispose of the shares held by CVI and may be deemed to be the beneficial owner of these shares. Martin Kobinger, in his capacity as investment manager of Heights Capital Management, Inc., may also be deemed to have investment discretion and voting power over the shares held by CVI. Mr. Kobinger disclaims any beneficial ownership of the shares. CVI is affiliated with one or more registered broker-dealers. See footnote 3.

 

(7) Includes 20,000 shares of common stock issuable upon exercise of warrants. Mitchell P. Kopin, the president of Downview Capital, Inc., the general partner of Cranshire Capital, L.P., has the sole voting control and investment discretion over securities held by Cranshire Capital, L.P. Each of Mitchell P. Kopin and Downview Capital, Inc. disclaims beneficial ownership of the shares of common stock held by Cranshire Capital, L.P.

 

(8) John Doscas, and Yoav Roth share authority to vote and dispose of the securities held by Hudson Bay Fund LP and Hudson Bay Overseas Fund Ltd. Messrs. Doscas and Roth disclaim beneficial ownership of the securities held by both funds. These selling stockholders are affiliated with XTF Market Making LLC and XTF Capital LLC, both of which are registered broker-dealers. See footnote 3.

 

(9) Joshua Silverman has voting and investment control of the securities held by Iroquois Master Fund Ltd., which wholly owns Iroquois Capital, L.P. Mr. Silverman disclaims beneficial ownership of the shares held by Iroquois Master Fund Ltd.

 

(10) LB I Group Inc. is a wholly-owned subsidiary of Lehman Brothers Inc., a registered broker-dealer. Lehman Brothers Inc. is a wholly-owned subsidiary of Lehman Brothers Holdings Inc., a public reporting company. See footnote 3.

 

(11) Lindsay A. Rosenwald, M.D. is the managing member of Otago Partners, LLC. Dr. Rosenwald has voting and investment control over the shares of common stock held by Otago Partners, LLC. Dr. Rosenwald is the sole shareholder, chairman and chief executive officer of Paramount BioCapital, Inc., a registered broker-dealer, and Paramount BioCapital Asset Management, Inc., an investment adviser registered with the SEC. See footnotes 3, 5 and 17.

 

(12) Paul J. Solit exercises the sole voting and dispositive power with respect to the shares of common stock held by Pleiades Investment Partners-R LP, Potomac Capital International Ltd and Potomac Capital Partners LP. Pleiades Investment Partners-R LP, Potomac Capital International Ltd and Potomac Capital Partners LP may be deemed to be affiliates and therefore deemed to beneficially own shares held by one another.

 

(13) Michael E. Fein and Stephen Saltzstein, as principals of Atoll Asset Management, LLC, the managing member of Truk International Fund, LP, exercise investment and voting control over the securities owned by Truk International Fund, LP. Each of Michael E. Fein and Stephen Saltzstein disclaims beneficial ownership of the shares of common stock held by Truk International Fund, LP.

 

(14) Michael E. Fein and Stephen Saltzstein, as principals of Atoll Asset Management, LLC, the managing member of Truk Opportunity Fund, LLC, exercise investment and voting control over the securities owned by Truk Opportunity Fund, LLC. Each of Michael E. Fein and Stephen Saltzstein disclaims beneficial ownership of the shares of common stock held by Truk Opportunity Fund, LLC.

 

(15) This selling stockholder is a fund which cedes investment control to its investment manager, UBS O’Connor LLC. The investment manager makes all investment and voting decisions. UBS O’Connor LLC is a wholly-owned subsidiary of UBS AG, which is listed and traded on the New York Stock Exchange, or NYSE. See footnote 3.

 

(16) Includes 20,000 shares of common stock issuable upon exercise of warrants. This selling stockholder is a fund which cedes investment control to its investment manager, UBS O’Connor LLC. The investment manager makes all investment and voting decisions. UBS O’Connor LLC is a wholly-owned subsidiary of UBS AG, which is listed and traded on the NYSE. See footnote 3.

 

(17) Valesco Healthcare GP, LLC is the general partner to Valesco Healthcare Master Fund, L.P. Keith Maher, M.D., is a member and the portfolio manager of Valesco Healthcare GP, LLC, and as such has authority to vote and dispose of the securities held by Valesco Healthcare Master Fund, L.P. Lindsay A. Rosenwald, M.D. is the managing member of Valesco Healthcare GP, LLC. Dr. Rosenwald is the sole shareholder, chairman and chief executive officer of Paramount BioCapital, Inc., a registered broker-dealer, and Paramount BioCapital Asset Management, Inc., or PBCAM, an investment adviser registered with the SEC. Dr. Maher is a managing director of PBCAM. See footnotes 3, 5 and 11.

 

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DESCRIPTION OF CAPITAL STOCK

The following description of our capital stock and certain provisions of our restated certificate of incorporation, as amended, and our second amended and restated bylaws is a summary and is qualified in its entirety by the provisions of these documents.

Our authorized capital stock currently consists of 150,000,000 shares of common stock, par value of $.001 per share, and 5,000,000 shares of preferred stock, par value of $.001 per share, of which 1,000,000 shares are designated Series A Junior Participating Preferred Stock and 5 shares are designated Series A Convertible Preferred Stock. As of December 1, 2006, 29,413,032 and 29,249,773 shares of common stock were issued and outstanding, respectively, and no shares of preferred stock were issued and outstanding.

COMMON STOCK

Each stockholder of record is entitled to one vote for each outstanding share of our common stock owned by that stockholder on every matter properly submitted to the stockholders for their vote. After satisfaction of the dividend rights of holders of any preferred stock, holders of common stock are entitled to any dividend declared by our Board of Directors out of funds legally available for that purpose. After the payment of liquidation preferences to holders of any preferred stock, holders of common stock are entitled to receive, on a pro rata basis, all our remaining assets available for distribution to stockholders in the event of our liquidation, dissolution or winding up. Holders of common stock do not have any preemptive right to become subscribers or purchasers of additional shares of any class of our capital stock. The rights, preferences and privileges of holders of common stock are subject to, and may be injured by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

PREFERRED STOCK

Our Board of Directors is authorized to issue, without stockholder approval, up to 4,000,000 shares of preferred stock having rights senior to those of our common stock. Our Board of Directors has the authority, without further stockholder authorization, to issue from time to time shares of preferred stock in one or more series and to fix the terms, limitations, relative rights and preferences and variations of each series. Any preferred stock, if issued, would have priority over the common stock with respect to dividends and other distributions, including the distribution of assets upon liquidation. Although we have no present plans to issue any shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of common stock, could adversely affect the rights and powers, including voting rights, of the common stock, and could have the effect of delaying, deterring or preventing a change in control of us or an unsolicited acquisition proposal. In connection with the creation of the Rights Plan described under “Shareholder Rights Plan” below, our Board of Directors designated 1,000,000 shares of our preferred stock as Series A Junior Participating Preferred Stock for issuance under the Rights Plan. In addition, our Board of Directors designated 1,680 and issued 1,675 shares of our Series A Convertible Preferred Stock in connection with a March 2003 private placement. All shares of Series A Convertible Preferred Stock issued in that private placement have been converted into common stock and the shares of Series A Convertible Preferred Stock so converted have been cancelled and are now authorized and unissued shares of preferred stock of no designated series and can not be reissued as Series A Convertible Preferred Stock. We currently have 5 shares designated as Series A Convertible Preferred Stock.

WARRANTS

As of December 1, 2006, there were outstanding warrants to purchase 631,561 shares of common stock held by 34 investors. Such warrants expire in February 2009 and have an adjusted exercise price of $11.48 per share. The number of shares for which the warrants are exercisable is subject to adjustment for stock splits, combinations or dividends and reclassifications, exchanges or substitutions. In addition, the exercise price of the warrants may be subject to adjustment in the event that we issue any shares of common stock, or securities convertible into or exercisable for shares of common stock, at a purchase price that is less than such exercise price.

 

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SHAREHOLDER RIGHTS PLAN

On May 16, 2001, our Board of Directors declared a dividend of one preferred stock purchase right, hereafter referred to as a right, for each outstanding share of common stock held by stockholders of record at the close of business on May 31, 2001. Each right entitles the registered holder to purchase one one-hundredth of a share of our Series A Junior Participating Preferred Stock at a purchase price of $40.00, subject to adjustment. A complete description and terms of the rights are set forth in a Rights Agreement, hereafter referred to as the Rights Agreement, between us and American Stock Transfer & Trust Company, as Rights Agent, dated July 27, 2001, as amended March 31, 2003.

The rights are attached to all certificates for outstanding shares of our common stock and are not presently exercisable. The rights will separate from the common stock and become exercisable upon a Distribution Date, which is the earlier to occur of (a) ten days following a public announcement or disclosure that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of our common stock, (b) ten business days following the commencement of a tender offer or exchange offer that may result in a person, entity or group owning more than 15% of the outstanding shares of our common stock or (c) ten business days after our Board of Directors declares someone to be an Adverse Person, as defined in the Rights Agreement.

After a Distribution Date, if the rights have not been redeemed by us, each holder of a right will receive upon exercise that number of shares of common stock having a market value of two times the exercise price of the right. Additionally, if, after any person, entity or group obtains ownership of more than 15% of the outstanding shares of our common stock, we are acquired in a merger or other business combination transaction or 50% or more of our consolidated assets or earning power are sold, each holder of a right will receive upon exercise of a right the number of shares of common stock of the acquiring company having a market value equal to two times the exercise price of the right. Following the occurrence of the events described above, rights beneficially owned by any person triggering the Distribution Date will be void and may not be exercised.

At any time prior to a Distribution Date, our Board of Directors may redeem the rights in whole, but not in part, at a price of $0.01 per right. The terms of the rights may generally be amended by our Board of Directors without the consent of the holders of the rights. Until a right is exercised, the holder will have no rights as a stockholder.

The rights should not interfere with any merger or other business combination approved by our Board of Directors. The rights are not intended to prevent a takeover of Orchid Cellmark. However, the rights may have the effect of rendering more difficult or discouraging an acquisition of Orchid Cellmark deemed undesirable by our Board of Directors. The rights will cause substantial dilution to a person or group that attempts to acquire us on terms or in a manner not approved by our Board of Directors.

DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

The provisions of Delaware law and of our restated certificate of incorporation, as amended, and second amended and restated bylaws discussed below could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or the best interests of Orchid Cellmark.

Delaware Statutory Business Combinations Provision

In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. For purposes of Section 203, a “business combination” is defined broadly to include a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and, subject to certain exceptions, an

 

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“interested stockholder” is a person who, together with his or her affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation’s voting stock.

Classified Board of Directors

Our Board of Directors is divided into three classes. Each year our stockholders elect the members of one of the three classes to a three-year term of office. All directors elected to our classified Board of Directors serve until the election and qualification of their respective successors or their earlier resignation or removal. Only our Board of Directors is authorized to create new directorships and to fill such positions so created and is permitted to specify the class to which any such new position is assigned. The person filling such position would serve for the term applicable to that class. Only our Board of Directors (or its remaining members, even if less than a quorum) is empowered to fill vacancies on our Board of Directors occurring for any reason for the remainder of the term of the class of directors in which the vacancy occurred. Members of our Board of Directors may only be removed for cause. These provisions are likely to increase the time required for stockholders to change the composition of our Board of Directors. For example, in general, at least two annual meetings would be necessary for stockholders to effect a change in a majority of the members of our Board of Directors.

Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations of Directors

Our second amended and restated bylaws provide that, for nominations to our Board of Directors or for other business to be properly brought by a stockholder before a meeting of stockholders, the stockholder must first have given timely notice of the proposal in writing to our Secretary. For an annual meeting, a stockholder’s notice generally must be delivered not less than 60 days nor more than 90 days prior to the anniversary of the previous year’s annual meeting. For a special meeting, the notice must generally be delivered by not less than 60 days nor more than 90 days prior to the special meeting or ten days following the day on which public announcement of the meeting is first made. Detailed requirements as to the form of the notice and information required in the notice are specified in our second amended and restated bylaws. If it is determined that business was not properly brought before a meeting in accordance with our bylaw provisions, such business will not be conducted at the meeting.

Special Meetings of Stockholders

Special meetings of the stockholders may be called only by our entire Board of Directors pursuant to a resolution adopted by a majority of the total number of directors.

No Stockholder Action by Written Consent

Our restated certificate of incorporation, as amended, does not permit our stockholders to act by written consent. As a result, any action to be effected by our stockholders must be effected at a duly called annual or special meeting of the stockholders.

Shareholder Rights Plan

We have adopted a shareholder rights plan, which is more commonly known as a poison pill, as discussed above under the caption “Shareholder Rights Plan.”

Super-Majority Stockholder Vote Required for Certain Actions

The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws, unless the corporation’s certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Our restated certificate of incorporation, as amended, requires the affirmative vote of the holders of at least 70% of our outstanding voting stock to amend or repeal any of the provisions discussed in the section entitled “Delaware Law and Certain Charter and Bylaw Provisions” in this prospectus. This 70% stockholder vote would be in addition to any separate class vote that might in the future be required pursuant to the terms of any preferred stock that might then be outstanding. A 70% vote will also be required for any amendment to, or repeal of, our second amended and

 

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restated bylaws by the stockholders. Our second amended and restated bylaws may be amended or repealed by a simple majority vote of our Board of Directors.

LISTING

Our common stock is listed on the Nasdaq Global Market under the symbol “ORCH.”

TRANSFER AGENT AND REGISTRAR

American Stock Transfer & Trust Company is the transfer agent and registrar for our common stock.

 

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PLAN OF DISTRIBUTION

The selling stockholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

 

    ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

    block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

    purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

    an exchange distribution in accordance with the rules of the applicable exchange;

 

    privately negotiated transactions;

 

    short sales;

 

    broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

 

    a combination of any such methods of sale; and

 

    any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act of 1933, as amended. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act of 1933, as amended.

The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, supplementing or amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, supplementing or amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

The selling stockholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended.

We are required to pay all fees and expenses incident to the registration of the shares of common stock. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended.

 

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The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus. If the selling stockholders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act of 1933, as amended.

The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934, as amended, may apply to sales of our common stock and activities of the selling stockholders.

 

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LEGAL MATTERS

The validity of the common stock offered in this prospectus has been passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts. Members of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. and certain members of their families and trusts for their benefit own an aggregate of 11,473 shares of our common stock and options to purchase 784 shares of our common stock.

EXPERTS

The consolidated financial statements and schedule of Orchid Cellmark Inc. and subsidiaries as of December 31, 2005 and 2004, and for each of the years in the three-year period ended December 31, 2005 and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 have been incorporated by reference herein and in the registration statement in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.

The audit report on management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting as of December 31, 2005, incorporated by reference herein, expresses KPMG LLP’s opinion that we and our subsidiaries did not maintain effective internal control over financial reporting as of December 31, 2005 because of the effect of material weaknesses on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states that material weaknesses were identified in the following areas: inadequate information and communication and inadequate policies and procedures to ensure that accurate and reliable interim and annual consolidated financial statements were prepared and reviewed on a timely basis.

WHERE YOU CAN FIND MORE INFORMATION

We are a public company and file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SEC’s Public Reference Room. Our SEC filings are also available to the public at the SEC’s web site at http://www.sec.gov.

This prospectus is only part of a registration statement on Form S-1 that we have filed with the SEC under the Securities Act of 1933, as amended, and therefore omits certain information contained in the registration statement. We have also filed exhibits and schedules with the registration statement that are excluded from this prospectus, and you should refer to the applicable exhibit or schedule for a complete description of any statement referring to any contract or other document. You may:

 

    inspect a copy of the registration statement, including the exhibits and schedules, without charge at the SEC’s Public Reference Room;

 

    obtain a copy from the SEC upon payment of the fees prescribed by the SEC; or

 

    obtain a copy from the SEC web site.

 

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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

This prospectus is part of a registration statement on Form S-1 filed by us with the SEC. This prospectus does not contain all of the information set forth in the registration statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of that contract or other document filed as an exhibit to the registration statement. For further information about us and the common stock offered by this prospectus we refer you to the registration statement and its exhibits and schedules which may be obtained as described above.

The SEC allows us to “incorporate by reference” the information contained in documents that we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus. Information in this prospectus supersedes information incorporated by reference that we filed with the SEC before the date of this prospectus. We incorporate by reference the documents listed below (File No. 000-30267):

 

    our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 as filed on May 24, 2006;

 

    our Definitive Proxy Statement on Schedule 14A as filed on June 5, 2006;

 

    our Quarterly Reports on Form 10-Q for the fiscal quarters ended (a) March 31, 2006 as filed on June 22, 2006, (b) June 30, 2006 as filed on August 9, 2006 and (c) September 30, 2006 as filed on November 3, 2006;

 

    our Current Reports on Form 8-K as filed on March 9, 2006, March 31, 2006, April 7, 2006, April 19, 2006, April 27, 2006, May 22, 2006, June 22, 2006 (except for the information set forth in such Current Report on Form 8-K which was furnished to the SEC), July 5, 2006, July 10, 2006, August 23, 2006, November 21, 2006 and November 21, 2006;

 

    the description of our common stock contained in our registration statement on Form 8-A as filed on April 10, 2000, as amended by the registration statement on Form 8-A/A as filed on May 1, 2000; and

 

    the description of our preferred share purchase rights contained in our registration statement on Form 8-A as filed on August 3, 2001.

You may obtain copies of these filings, at no cost, through the “Investors” section of our website (www.orchid.com), and we will provide a copy of any and all of the information that is incorporated by reference in this prospectus to any person, including a beneficial owner, to whom a prospectus is delivered, without charge, upon written or oral request, by writing or telephoning us at:

Orchid Cellmark Inc.

Attention: Secretary

4390 US Route One

Princeton, New Jersey 08540

Telephone: (609) 750-2200

The information contained on our website is not a part of this prospectus.

 

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