<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NANOGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3826 33-0489621
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
10398 PACIFIC CENTER COURT
SAN DIEGO, CALIFORNIA 92121
(619) 546-7700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
HOWARD C. BIRNDORF
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
NANOGEN, INC.
10398 PACIFIC CENTER COURT
SAN DIEGO, CALIFORNIA 92121
(619) 546-7700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
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THOMAS E. SPARKS, JR. DAVID J. SEGRE
ALLISON LEOPOLD TILLEY ROBERT M. TARKOFF
GEORGE A. GUCKER AMY E. REES
WILLIAM A. HINES ELIZABETH C. HEWITT
Pillsbury Madison & Sutro LLP Wilson Sonsini Goodrich & Rosati
P.O. Box 7880 Professional Corporation
San Francisco, California 94120-7880 650 Page Mill Road
(415) 983-1000 Palo Alto, California 94304
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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========================================================================================================================
TITLE OF EACH CLASS OF SECURITIES TO BE PROPOSED MAXIMUM AGGREGATE
REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value................... $40,000,000 $11,800
========================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued , 1997 [NANOGEN LOGO]
Shares
Nanogen, Inc.
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK, $0.001 PAR VALUE OFFERED HEREBY ARE BEING
SOLD BY NANOGEN, INC. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET
FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE PER SHARE OF THE COMMON STOCK WILL BE BETWEEN $ AND
$ PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------
CONCURRENT WITH THIS OFFERING, SUBJECT TO CERTAIN CONDITIONS, BECTON, DICKINSON
AND COMPANY, HOECHST AG AND ELAN CORPORATION, PLC HAVE AGREED TO PURCHASE SHARES
OF COMMON STOCK FROM THE COMPANY IN A PRIVATE PLACEMENT AT A PRICE PER SHARE
EQUAL TO THE PRICE TO PUBLIC, FOR AN AGGREGATE PURCHASE PRICE OF $6.0 MILLION,
$10.0 MILLION AND $5.0 MILLION, RESPECTIVELY, PURSUANT TO EXISTING AGREEMENTS
WITH THE COMPANY. SEE "BUSINESS -- COLLABORATIVE ALLIANCES."
------------------------
APPLICATION HAS BEEN MADE TO HAVE THE COMMON STOCK APPROVED FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "NGEN."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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Per Share........................ $ $ $
Total(3)......................... $ $ $
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- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $900,000.
(3) The Company has granted the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of
additional shares of Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to company will be $ , $ and $ ,
respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to the approval of certain legal
matters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel
to the Underwriters. It is expected that the delivery of the Shares will be made
on or about , 1998, at the office of Morgan Stanley & Co.
Incorporated, New York, N.Y., against payment therefor in immediately available
funds.
------------------------
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
SBC WARBURG DILLON READ INC.
, 1998
<PAGE> 3
THE NANOGEN SYSTEM
[Photo depicting instrument, disposable cartridge, semiconductor microchip and
cross-section of microchip]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE> 4
ELECTRONIC ADDRESSING
Programming the Microchip
[Graphic depicting site by site electronic addressing]
An array of specifically bound DNA probes can be assembled or addressed site by
site, row by row on Nanogen's semiconductor microchip. A total of five sets of
different capture probes are electronically addressed to the microchip
illustrated above.
ELECTRONIC CONCENTRATION AND HYBRIDIZATION
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INTRODUCING THE TEST SAMPLE [Graphic depicting target DNA in solution
Add test sample containing target DNA to above test site on microchip]
microchip with DNA capture probes addressed
to test sites.
ELECTRONIC CONCENTRATION AND HYBRIDIZATION [Graphic depicting concentration of target
probes and hybridization to capture probes]
Apply positive electrical potential to
electrode at test site. The resulting
electric field in the solution concentrates
target DNA in the test sample at the test
site. Enhanced concentration of the target
DNA increases the rate of hybridization, or
binding, to the complementary DNA capture
probes.
FLUORESCENT DETECTION OF TEST RESULTS [Graphic depicting attachment of reporter
probes to captured target probe]
Apply negative electrical potential to
electrodes at test site. The resulting
electric field forces the sample DNA that is
not hybridized or incompletely hybridized
back into the test sample, leaving only
specifically hybridized target DNA at the
test site. Once hybridization is complete,
results are determined by scanning for
fluorescent dye-labeled reporter probes.
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ELECTRONIC STRINGENCY CONTROL
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Electronic stringency control is used to [Graphic depicting perfect match and single
ensure the accuracy of the hybridization base pair mismatch]
process. As part of this process, a positive
electrical potential is applied to the
electrode at each test site. A perfect match
for the target is shown on the left; a
single base pair mismatch G:A (see insert)
is present on the right.
To eliminate these mismatches, a precise [Graphic depicting mismatch being driven
negative potential is applied. The mismatch away while perfect match remains bound to
DNA is forced back into the solution away capture probe]
from the test site in a matter of minutes.
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<PAGE> 6
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 7
Use of Proceeds....................................................................... 17
Dividend Policy....................................................................... 17
Capitalization........................................................................ 18
Dilution.............................................................................. 19
Selected Financial Data............................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 21
Business.............................................................................. 25
Management............................................................................ 42
Certain Transactions.................................................................. 53
Principal Stockholders................................................................ 57
Description of Capital Stock.......................................................... 58
Shares Eligible for Future Sale....................................................... 61
Underwriters.......................................................................... 63
Legal Matters......................................................................... 64
Experts............................................................................... 64
Additional Information................................................................ 65
Index to Financial Statements......................................................... F-1
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- ---------------
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by an independent certified
public accounting firm and quarterly reports for the first three quarters of
each year containing unaudited consolidated financial information.
- ---------------
NANOGEN(TM) AND THE COMPANY'S LOGO ARE TRADEMARKS OF THE COMPANY. THIS
PROSPECTUS ALSO INCLUDES TRADE NAMES AND TRADEMARKS OF COMPANIES OTHER THAN
NANOGEN.
3
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. Except as set forth in the financial statements and notes
thereto or otherwise as specified herein, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) reflects
the reincorporation of the Company from California into Delaware in November
1997, and (iii) reflects the conversion of all of the Company's outstanding
shares of Preferred Stock into 13,683,865 shares of Common Stock upon the
closing of this offering. See "Description of Capital Stock" and "Underwriters."
This Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed under "Risk Factors" and
elsewhere in this Prospectus.
THE COMPANY
Nanogen, Inc. ("Nanogen" or the "Company") is the first company to
integrate advanced microelectronics and molecular biology into a platform
technology with broad commercial applications in the fields of medical
diagnostics, biomedical research, genomics, genetic testing and drug discovery.
Nanogen's fully automated system, which incorporates a proprietary semiconductor
microchip, provides a flexible tool for the rapid identification and analysis of
any test sample containing charged molecules. Through the use of
microelectronics, the Company's technology enables the active movement and
concentration of charged molecules to and from designated microlocations, or
test sites, on the semiconductor microchip. This electronic concentration of
molecules greatly accelerates molecular binding at each microlocation. In
addition, Nanogen's technology allows the simultaneous analysis of multiple test
results, or multiplexing, from a single sample. The open architecture design of
the Nanogen system enables the Company to offer microchips with arrays designed
and built by Nanogen for specific applications or with arrays that can be
customized by the end user. The Company believes its technology will accelerate
the development of products that capitalize on the increasing availability of
genetic information and its relationship to human disease. The Company further
believes its semiconductor based platform technology provides a low cost, highly
efficient, accurate and versatile integrated system that will shift the paradigm
from current manual and mechanical methods to microelectronic systems, thereby
significantly improving the quality of healthcare.
The Company has established corporate alliances in certain areas of
infectious disease diagnostics, drug discovery and genomics as part of its
strategy to expand the applications and accelerate the commercialization of
products derived from its technology. The Company is developing products to
expedite the diagnosis of infectious disease through its joint venture with
Becton, Dickinson and Company ("Becton Dickinson"). The Company has also entered
into agreements for the establishment of a collaboration and joint venture with
Hoechst AG ("Hoechst") to develop drug discovery tools, and a collaboration with
Elan Corporation, plc ("Elan") for genomic applications. In addition to their
commitments to provide research funding, these corporate partners have agreed to
purchase an aggregate of $21.0 million of Common Stock directly from the Company
in a private placement (the "Private Placement") to occur concurrent with this
offering. The Company's collaborations permit integration of the Company's
technology with the resources and technology of its partners, while allowing the
Company to independently pursue diagnostics, drug discovery and genomics
opportunities outside the scope of these collaborations.
The Company's commercialization strategy is to establish its platform
technology as the standard for molecular identification and analysis. Nanogen
will provide its products initially to leading research institutions and opinion
leaders to enable them to exploit the open architecture design in developing
additional novel applications. Concurrently, the Company is developing
commercial products in medical diagnostics, biomedical research, genomics,
genetic testing and drug discovery either by itself or with its corporate
partners. In addition, the Company believes its platform technology has the
potential to address a broad range of applications, including combinatorial
chemistry, industrial process control, forensics and environmental and food
pathogen testing. The Company also plans to develop fully integrated
"sample-to-answer" systems for
4
<PAGE> 8
both the clinical research and point-of-care settings using microelectronics to
process and analyze samples in a wide variety of applications.
The Company was incorporated in California in 1991 as Nanophore, Inc.
("Nanophore"), a wholly-owned subsidiary of Nanotronics, Inc. ("Nanotronics"),
and pursuant to a Plan of Corporate Separation and Reorganization, Nanophore
issued shares of its common stock to the Nanotronics shareholders and commenced
operations as Nanogen, Inc. in September 1993 (the "Spin-Off"). Nanogen
reincorporated in Delaware in November 1997. The terms "Nanogen" and the
"Company" refer to Nanogen, Inc., a Delaware corporation, and its predecessor.
The Company's executive offices are located at 10398 Pacific Center Court, San
Diego, California 92121 and its telephone number is (619) 546-7700.
5
<PAGE> 9
THE OFFERING
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Common Stock offered............................. shares
Common Stock to be outstanding after the shares(1)
offering.......................................
Use of proceeds.................................. To fund research and development,
expansion of manufacturing operations and
activities, expansion of sales and
marketing activities, working capital and
for general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol........... NGEN
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SUMMARY FINANCIAL DATA
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PERIOD FROM NINE MONTHS
INCEPTION ENDED SEPTEMBER
(SEPTEMBER 1, 1993) YEARS ENDED DECEMBER 31, 30,
TO DECEMBER 31, --------------------------- -----------------
1993 1994 1995 1996 1996 1997
-------------------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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STATEMENT OF OPERATIONS DATA:
Revenues:
Contract and grant revenue.... $ -- $ -- $ 318 $ 1,644 $ 1,161 $ 1,581
Sponsored research............ -- -- -- -- -- 786
----- ------- ------- ------- ------- -------
Total revenues............. -- -- 318 1,644 1,161 2,367
Operating expenses:
Research and development...... 183 1,345 3,356 6,931 5,188 7,365
General and administrative.... 225 1,065 1,646 2,427 1,688 2,930
----- ------- ------- ------- ------- -------
Total operating expenses... 408 2,410 5,002 9,358 6,876 10,295
Interest income (expense),
net........................... -- 34 96 (64) (19) 750
----- ------- ------- ------- ------- -------
Net loss........................ $ (408) $(2,376) $(4,588) $(7,778) $(5,734) $(7,178)
===== ======= ======= ======= ======= =======
Pro forma net loss per
share(2)...................... $ (.58) $ (.51)
======= =======
Number of shares used in
computing pro forma net loss
per share(2).................. 13,475 14,027
======= =======
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AS OF SEPTEMBER 30, 1997
---------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 21,988
Working capital.................................................... 20,615
Total assets....................................................... 25,476
Capital lease obligations, less current portion.................... 1,052
Accumulated deficit................................................ (22,328)
Total stockholders' equity......................................... 22,157
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(1) Based on the number of shares outstanding at September 30, 1997. Includes an
aggregate of shares of Common Stock (based on the assumed initial
public offering price of $ per share) to be issued in the Private
Placement. Excludes 3,322,096 shares of Common Stock reserved for issuance
and available for grant or sale under the Company's Stock Option Plans,
under which there were options outstanding to purchase an aggregate of
2,052,874 shares of Common Stock as of September 30, 1997. Also excludes
631,072 shares of Common Stock subject to outstanding warrants and 69,000
shares of Preferred Stock subject to outstanding warrants, which will
convert into warrants to purchase 69,000 shares of Common Stock upon the
closing of this offering. See "Capitalization," "Management -- Stock Option
Plans," "Description of Capital Stock -- Warrants," and Note 4 of Notes to
Financial Statements.
(2) Computed on the basis described in Note 1 of Notes to Financial Statements.
(3) Adjusted to reflect (i) the sale by the Company of shares of Common
Stock offered hereby at an assumed public offering price of $ per
share, and (ii) the Private Placement and the application of the estimated
net proceeds therefrom. See "Use of Proceeds" and "Capitalization."
6
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors in addition to the other information presented in this Prospectus,
before purchasing the shares of Common Stock offered hereby. This Prospectus
contains, in addition to historical information, forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include those discussed
below, as well as those discussed elsewhere in this Prospectus.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY WHETHER PRODUCTS CAN BE
SUCCESSFULLY DEVELOPED
Nanogen is at an early stage of development. The Company has completed the
initial development of its platform and is developing products in the fields of
medical diagnostics, biomedical research, genomics, genetic testing and drug
discovery. There can be no assurances that the Company will be able to
successfully complete the development of products in any or all of these fields.
All of the Company's products are currently under development, and there can be
no assurance that such products will be successfully developed or commercialized
on a timely basis, if at all. Since the Company's commencement of operations in
1993, substantially all of the Company's resources have been dedicated to the
research and development of potential products based on its proprietary
semiconductor microchip technology, and no revenues have been generated from
product sales. The Company believes that its revenue growth and profitability
will depend substantially upon its ability to overcome significant technological
challenges and successfully introduce these new products into the marketplace.
In addition, the successful development of some of these new products will
depend on the development and incorporation of new technologies developed
through the Company's current and future collaborations. A number of
applications envisioned by the Company will require significant enhancements in
the basic technology platform including complete sample-to-answer capabilities.
If the Company is unable, for technological or other reasons, to complete the
development, introduction or scale-up of manufacturing of any new product, or if
such product does not achieve a significant level of market acceptance, the
Company's business, financial condition and results of operations would be
materially and adversely affected. See "Business -- Nanogen's Platform
Technology," "-- Applications and Products Under Development" and
"-- Manufacturing."
LACK OF MARKET ACCEPTANCE
The Company's strategy of using its proprietary semiconductor microchip
technology for the purposes of developing products in the fields of medical
diagnostics, biomedical research, genomics, genetic testing and drug discovery
is unproven and there can be no assurance that the Company will be able to
develop commercially viable products in any or all of these fields or that any
such products will be accepted in the marketplace. Additionally, there can be no
assurance that the Company will be successful in achieving adoption of its
system. Market acceptance will depend on many factors, including demonstrating
to customers that the Company's technology platform is a viable alternative to
currently available technologies. In addition, the Company's technology platform
could be adversely affected by limited funding available for capital
acquisitions by the Company's customers, as well as internal obstacles to
customer approvals of purchases of the Company's products. If the Company is
unable to achieve market acceptance, the Company's business, financial condition
and results of operations would be materially and adversely affected. See
"-- Dependence on Collaborative Alliances; Reliance on Collaborators."
DEPENDENCE ON COLLABORATIVE ALLIANCES; RELIANCE ON COLLABORATORS
The Company's strategy for development and commercialization of its
proprietary semiconductor microchip technology and related products includes and
depends on the formation of various strategic alliances and licensing
arrangements with collaborative partners. The Company's strategy is to enter
into collaborative arrangements with select companies to partially fund
development of, assist in obtaining regulatory approval and clearances for, and
commercialize its products. As a result, the Company's strategy for development
and commercialization of such products depends on the feasibility and continuity
of
7
<PAGE> 11
arrangements with existing and future collaborative partners and licensees.
There can be no assurance that the Company will be successful in entering into
or maintaining such collaborations to develop commercial applications of its
semiconductor microchip products. Failure to do so would have a material adverse
impact on the Company. The Company may have limited or no control over the time,
effort or financial resources that any partner may devote to the development or
marketing of the Company's products. There can be no assurance that any of the
Company's collaborative partners will perform their obligations as expected or
will devote sufficient resources to the development, clinical testing or
marketing of the Company's potential products. Any concomitant development by a
partner of competitive technologies, preclusion from entering into competitive
arrangements with other potential partners, disputes over ownership rights to
any intellectual property, know-how or technologies developed with a partner,
failure to obtain timely regulatory approvals or clearances, premature
termination of an agreement, or failure by a partner to devote sufficient
resources to the development and commercialization of the Company's products
could have a material adverse effect on the Company's business, financial
condition and results of operations of the Company.
Under the terms of the Company's joint venture arrangement with Becton
Dickinson, if the Company fails to achieve certain milestones by December 31,
1997 and by June 30, 1998, the joint venture arrangement may be terminated,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company anticipates that the revenues
derived from such arrangement will be a significant source of funding for the
Company's research and development activities. In addition, certain milestones
will need to be agreed upon in the future. There can be no assurance that the
parties will agree to such milestones, and if agreed upon, there can be no
assurances that such milestones will be achieved. The Company will rely in part
on Becton Dickinson to manufacture certain components of its infectious disease
products. Any failure on the part of either the Company or Becton Dickinson to
meet the expected timelines could adversely affect the ability of the parties to
achieve timely submission of products for regulatory approval or to successfully
introduce the products in the commercial marketplace. Such delays in either the
regulatory process or the commercial introduction of such products would have a
material adverse effect on the Company's business, financial condition, and
results of operations. Additionally, the Company will rely on Becton Dickinson's
distribution capabilities to market the joint venture products. Any interruption
in this distribution channel or failure of Becton Dickinson to adequately fund
the marketing and sales commitments of the joint venture would have a material
adverse affect on the Company's business, financial condition and results of
operations. See "Business -- Collaborative Alliances--Becton, Dickinson and
Company."
The Company has recently signed agreements with Hoechst and Elan that
contemplate the commercialization of products resulting from research and
development collaboration agreements between the parties. There can be no
assurance that such agreements will result in commercially viable collaborations
between the parties, or that any resulting collaborations will be successful.
See "Business -- Collaborative Alliances -- Hoechst AG" and "-- Collaborative
Alliances -- Elan Corporation, plc."
HISTORY OF LOSSES AND ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY;
QUARTERLY FLUCTUATIONS
The Company has incurred net losses since its inception, and at September
30, 1997, had an accumulated deficit of approximately $22.3 million. For the
years ended December 31, 1994, 1995 and 1996, Nanogen had net losses of
approximately $2.4 million, $4.6 million and $7.8 million, respectively. For the
nine months ended September 30, 1996 and 1997, Nanogen incurred net losses of
approximately $5.7 million and $7.2 million, respectively. The Company
anticipates that it will continue to incur additional operating losses for at
least the next several years. The estimates above and elsewhere in this
Prospectus of the minimum period during which the Company expects to incur
losses are forward-looking statements that involve risks and uncertainties.
There can be no assurance that the Company will not incur losses for periods of
time in excess of those set forth herein and elsewhere in this Prospectus and
actual results may differ materially. At this time, the Company has no products
available for sale and no revenues have been generated from commercialization of
products arising out of its technology. There can be no assurance that the
Company will ever attain profitability or will remain profitable on a quarterly
or annual basis in the future. The Company expects that its revenues will be
generated principally from the sale of its instrument system and the recurring
sale of its disposable cartridges. There can be no assurance that the Company
will sell a sufficient number of instruments
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and disposable cartridges at a gross margin sufficient to achieve profitability.
The Company intends to significantly increase its investments in research and
development, sales and marketing, manufacturing, clinical trials, regulatory
approvals and related infrastructure. As a result of the anticipated increases
in the Company's operating expenses, the Company's financial prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by early stage development companies, particularly companies in new
and rapidly evolving markets. The Company believes that future operating results
will be subject to quarterly fluctuations due to a variety of factors, including
the timing of payments from collaborators, whether and when new products are
successfully developed and introduced by the Company or its competitors, market
acceptance of future products, regulatory delays, product recalls, manufacturing
delays, shipment problems, product seasonality and changes in the mix of
products sold. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
While the Company believes that its available cash, together with the
proceeds of this offering and the Private Placement, will be sufficient to
satisfy its funding needs for current operations for at least the next 24
months, the Company has incurred negative cash flow from operations since
inception and does not expect to generate positive cash flow to fund its
operations for at least the next several years. Thus, the Company may need to
raise additional capital to fund its research and development programs, to scale
up manufacturing activities and establish its sales and marketing capability.
The Company's current collaborations will, and future collaborations may,
require the Company to commit substantial amounts of capital. There can be no
assurance that the Company will be able to make such scheduled capital
contributions. The Company's future liquidity and capital funding requirements
will depend on numerous factors, including the extent to which the Company's
products under development are successfully developed and gain market
acceptance, the timing of regulatory actions regarding the Company's potential
products, the costs and timing of expansion of sales, marketing and
manufacturing activities, prosecution and enforcement of patents important to
the Company's business, the results of clinical trials, competitive
developments, and the Company's ability to enter into additional collaborative
arrangements. There can be no assurance that such additional capital will be
available on terms acceptable to the Company, if at all. Furthermore, any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may include restrictive covenants. If adequate funds are not
available, the Company may be required to curtail its operations significantly
or to obtain funds through entering into collaborative agreements or other
arrangements on less favorable terms. The failure by the Company to raise
capital on acceptable terms when needed could have a material adverse effect on
the Company's business, financial condition or results of operations. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
DEPENDENCE ON KEY PERSONNEL
The Company's future success is highly dependent on the efforts of its
senior management and scientific team, including its Chief Executive Officer,
President, Vice President -- Research and Product Development and Chief
Technical Officer. The loss of the services of any member of its senior
management or scientific staff may significantly delay or prevent the
achievement of product development and other business objectives. Because of the
specialized scientific nature of the Company's business, the Company is highly
dependent on its ability to attract and retain qualified scientific and
technical personnel. There is intense competition among major pharmaceutical and
chemical companies, semiconductor companies, specialized biotechnology firms and
universities and other research institutions for qualified personnel in the
areas of the Company's activities. Loss of the services of, or failure to
recruit, key scientific and technical personnel could adversely affect the
Company's business, financial condition or results of operations. In addition, a
substantial portion of the stock and stock options currently held by many of the
Company's key employees is vested and the remaining portion may become fully
vested over the next several years before the Company achieves significant
revenues or profitability. The Company may have to grant more stock or stock
options to give these employees additional incentives to remain with the
Company, resulting in dilution to stockholders. There can be no assurance that
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<PAGE> 13
granting additional stock or stock options will be sufficient to attract or
retain key employees. See "Business -- Employees" and "Management -- Directors,
Executive Officers and Key Scientific Personnel."
INTENSE COMPETITION; COMPETING TECHNOLOGIES
As the Company develops applications for its technology, it expects to
encounter intense competition from a number of companies that offer products in
its targeted application areas. The Company anticipates that its competitors in
these areas will include health care companies that manufacture laboratory-based
tests and analyzers, diagnostic and pharmaceutical companies, as well as
companies developing drug discovery technologies. To the extent the Company is
successful in developing products in these areas, the Company will face
competition from established companies and numerous development-stage companies
that continually enter these markets.
In many instances, the Company's competitors have substantially greater
financial, technical, research and other resources and larger, more established
marketing, sales, distribution and service organizations than the Company.
Moreover, such competitors may offer broader product lines and have greater name
recognition than the Company, and may offer discounts as a competitive tactic.
In addition, several development stage companies are currently making or
developing products that compete with or will compete with those of the Company.
There can be no assurance that the Company's competitors will not succeed in
developing or marketing technologies or products that are more effective or
commercially attractive than the Company's current or future products, or that
would render the Company's technologies and products obsolete. Also, there can
be no assurance that the Company will have the financial resources, technical
expertise or marketing, distribution or support capabilities to compete
successfully in the future. The Company's future success will depend in large
part on its ability to maintain a competitive position with respect to the
technologies in which it competes. Rapid technological development by the
Company or others may result in competing products or technology. See
"Business -- Nanogen's Platform Technology," "-- Applications and Products Under
Development" and "-- Competition."
UNCERTAINTY OF PATENT AND PROPRIETARY TECHNOLOGY PROTECTION; POTENTIAL INABILITY
TO LICENSE TECHNOLOGY FROM THIRD PARTIES
The Company's commercial success will depend in part on obtaining and
maintaining meaningful patent protection on its inventions, technologies and
discoveries. The Company's strategy is to actively pursue patent protection in
the U.S. and foreign jurisdictions for technology it believes to be proprietary
and that offers competitive advantages for its products. The Company's ability
to compete effectively will therefore depend in part on its ability to develop
and maintain proprietary aspects of its technology, and to operate without
infringing the proprietary rights of others, or to obtain rights to such
third-party proprietary rights, if necessary. While Nanogen has four U.S. and
one foreign issued patents and is currently prosecuting additional patent
applications in the U.S. and with certain foreign patent offices, there can be
no assurance that any of the Company's pending patent applications will result
in the issuance of any patents, that the Company's patent applications will have
priority over others' applications, or that, if issued, any of the Company's
patents will offer protection against competitors with similar technologies.
There can be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented in the future or that the rights created
thereunder will afford the Company a competitive advantage.
The commercial success of the Company also depends in part on the Company
neither infringing valid, enforceable patents or proprietary rights of third
parties, nor breaching any licenses that may relate to the Company's
technologies and products. The Company is aware of certain third-party patents
that may relate to the Company's technology. There can be no assurance that the
Company does not or will not infringe these patents or other patents or
proprietary rights of third parties. In addition, the Company has received and
may in the future receive notices claiming infringement from third parties as
well as invitations to take licenses under third-party patents. Any legal action
against the Company or its collaborative partners claiming damages and seeking
to enjoin commercial activities relating to the Company's products and processes
affected by third-party rights, in addition to subjecting the Company to
potential liability for damages, may require the Company or its collaborative
partners to obtain licenses in order to continue to manufacture or
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<PAGE> 14
market the affected products and processes. There can be no assurance that the
Company or its collaborative partners would prevail in any such action or that
any license (including licenses proposed by third parties) required under any
such patent would be made available on commercially acceptable terms, if at all.
There are a significant number of U.S. and foreign patents and patent
applications held by third parties in the Company's areas of interest, and the
Company believes that there may be significant litigation in the industry
regarding patent and other intellectual property rights. If the Company becomes
involved in such litigation, it could consume a substantial portion of the
Company's managerial and financial resources, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Additionally, the defense and prosecution of interference
proceedings before the U.S. Patent and Trademark Office ("USPTO") and related
administrative proceedings will result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. There can be no assurance that the Company will not in the future
become subject to USPTO interference proceedings to determine the priority of
inventions. In addition, laws of certain foreign countries do not protect
intellectual property to the same extent as do laws in the U.S., which may
subject the Company to additional difficulties in protecting its intellectual
property in those countries.
The Company also relies upon trade secrets, technical know-how and
continuing inventions to develop and maintain its competitive position. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology, that the Company can
meaningfully protect its trade secrets, or that the Company will be capable of
protecting its rights to its trade secrets. The Company seeks to protect its
proprietary technology and patents, in part, by confidentiality agreements with
its employees and certain contractors. There can be no assurance that the
Company's own employees will not breach their existing Proprietary Information,
Inventions, and Dispute Resolution Agreements or that such agreements will
otherwise protect the Company's intellectual property, each of which could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Proprietary Technology and Patents."
NO ASSURANCE OF OBTAINING REGULATORY APPROVALS; GOVERNMENT REGULATORY PROCESS
The Company anticipates that the manufacturing, labeling, distribution and
marketing of a number of its diagnostic products will be subject to regulation
in the U.S. and in certain other countries. In the U.S., the Federal Drug
Administration ("FDA") regulates, as medical devices, most diagnostic tests and
in vitro reagents that are marketed as finished test kits and equipment.
Pursuant to the Federal Food, Drug, and Cosmetic Act, and the regulations
promulgated thereunder, the FDA regulates the preclinical and clinical testing,
design, efficacy, safety, manufacture, labeling, distribution and promotion of
medical devices. The Company will not be able to commence marketing or
commercial sales in the U.S. of such products until it receives clearance or
approval from the FDA, which can be a lengthy, expensive and uncertain process.
There can be no assurance that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and marketing of
these new products, that regulatory clearance or approval or clearance of any
new products will be granted by the FDA or foreign regulatory authorities on a
timely basis, if at all, or that the new products will be successfully
commercialized. Noncompliance with applicable FDA requirements can result in,
among other things, administrative sanctions or judicially imposed sanctions
such as injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing clearances
or approvals, and criminal prosecution. The FDA also has the authority to
request recall, repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.
Any devices manufactured or distributed by the Company pursuant to FDA
clearance or approvals are subject to pervasive and continuing regulation by the
FDA and certain state agencies. Before a new device can be introduced in the
U.S. market, the manufacturer must generally obtain FDA clearance of a 510(k)
notification or FDA approval of a premarket approval ("PMA") application. A
510(k) clearance will generally only be granted if the information submitted to
the FDA establishes that the device is "substantially
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<PAGE> 15
equivalent" to a legally marketed Class I or Class II device or a preamendment
Class III device (i.e. a device that has been on the market since before May 28,
1976) for which the FDA has not called for PMAs. The PMA approval process is
more expensive, uncertain and lengthy than the 510(k) clearance process. To
obtain a PMA, the Company, either alone or with the assistance of its strategic
partners, must submit extensive data, including preclinical and clinical trial
data, to demonstrate the safety and efficacy of a product. There can be no
assurance that with respect to any of the Company's products in development, the
FDA will not determine that the Company must adhere to the more costly, lengthy
and uncertain PMA approval process. Significant modifications of the labeling,
manufacturing and design of a cleared or approved device will require clearance
or approval by the FDA. There can be no assurance that the Company will be able
to obtain necessary regulatory approvals or clearances for its products on a
timely basis, if at all, and delays in receipt of or failure to receive such
approvals or clearances, the loss of previously received approvals or
clearances, limitations on intended uses imposed as a condition of such
approvals or clearances, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.
If marketed outside the U.S., the Company's products will be subject to
foreign regulatory requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement, which vary from country to country
and are becoming more restrictive throughout the European Union. The process of
obtaining foreign regulatory approvals can be lengthy and require the
expenditure of substantial capital and resources, and there can be no assurance
that the Company or its collaboration partners will be successful in obtaining
the necessary approvals. Any delay or failure by the Company or its
collaboration partners to obtain regulatory approvals for its products would
adversely affect the Company's ability to generate product and royalty revenues,
which could have a material adverse effect on the Company's business, financial
condition and operating results.
The Company intends to conduct clinical investigations of its products
under development, which will entail distributing them in the U.S. on an
Investigational Use Only ("IUO") basis. Although clinical investigations of most
devices are subject to the investigational device exemption ("IDE")
requirements, clinical investigations of in vitro diagnostic ("IVD") tests, such
as a number of the Company's products, are exempt from IDE requirements
including the need to obtain the FDA's prior approval, provided the testing is
noninvasive, does not require an invasive sampling procedure that presents a
significant risk, does not intentionally introduce energy into a patient, and is
not used as a diagnostic procedure without confirmation by another medically
established test procedure. In addition, the IVD must be labeled for Research
Use Only ("RUO") or IUO, and distribution controls must be in place to limit the
use of the product to such use. There can be no assurance that the FDA would
agree that the Company's IUO distribution of its IVD products under development
will meet the requirements for IDE exemption. Furthermore, failure by the
Company or the recipients of its products under development to maintain
compliance with the IDE exemption requirements could result in enforcement
action by the FDA, including, among other things, the loss of the IDE exemption
or the imposition of other restrictions on the Company's distribution of its
products under development, which would adversely affect the Company's ability
to conduct the clinical investigations necessary to support marketing clearance
or approval.
Subsequent to the receipt of an FDA approval or clearance, the Company will
be required to adhere to the Quality System Regulation ("QSR") (formerly Good
Manufacturing Practices), which includes testing, control and documentation
requirements. Manufacturers must also comply with Medical Device Reporting
("MDR") requirements that a manufacturer report to the FDA any incident in which
its product may have caused or contributed to a death or serious injury, or in
which its product malfunctioned and would be likely to cause or contribute to a
death or serious injury upon recurrence. Labeling and promotional activities are
subject to scrutiny by the FDA and, in certain circumstances, by the Federal
Trade Commission. Current FDA enforcement policy prohibits the marketing of
approved medical devices for unapproved uses.
The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with QSR requirements, MDR requirements and other
applicable regulations. The recently finalized QSR requirements include design
controls that will likely increase the cost of compliance. There can be no
assurance that the Company will not incur significant costs to comply with laws
and regulations in the future
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or that such laws and regulations will not have a material adverse effect upon
the Company's business, financial condition and results of operation.
Any of the Company's customers using its diagnostic devices for clinical
use in the U.S. may be regulated under the Clinical Laboratory Improvement
Amendments of 1988 ("CLIA"). CLIA is intended to ensure the quality and
reliability of clinical laboratories in the U.S. by mandating specific standards
in the areas of personnel qualification, administration, participation in
proficiency testing, patient test management, quality control, quality assurance
and inspections. The regulations promulgated under CLIA establish three levels
of diagnostic tests ("waived," "moderately complex" and "highly complex") and
the standards applicable to a clinical laboratory depend on the level of the
tests it performs. CLIA requirements may prevent some clinical laboratories from
using certain of the Company's diagnostic products. Therefore, there can be no
assurance that the CLIA regulations and future administrative interpretations of
CLIA will not have a material adverse impact on the Company by limiting the
potential market for the Company's products. See "Business -- Government
Regulation."
DEPENDENCE ON SUPPLIERS
Certain key components and raw materials used in the manufacture of the
Company's products are currently provided from limited sources or in some cases
by single-source vendors. Although the Company believes that alternative sources
for such components and raw materials are available, any supply interruption in
a sole-sourced component of raw material would have a material adverse effect on
the Company's ability to manufacture its products until a new source of supply
is qualified and, as a result, could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
an uncorrected impurity or supplier's variation in a raw material, either
unknown to the Company or incompatible with the Company's manufacturing process,
could have a material adverse effect on the Company's ability to manufacture
products. The Company may be unable to find a sufficient alternative supply
channel in a reasonable time period, or on commercially reasonable terms, if at
all. Failure to obtain a supplier for the manufacture of components of its
future products, if any, could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Manufacturing."
LIMITED MANUFACTURING EXPERIENCE; POTENTIAL INABILITY TO SCALE UP MANUFACTURING
The Company has no experience manufacturing products for commercial
purposes. The Company presently relies on subcontractors to manufacture the
limited quantities of semiconductor microchips and other components it currently
requires for internal and collaborative purposes, as well as for use in clinical
trials and prototype products. The Company is currently qualifying new contract
manufacturers for large scale wafer fabrication, and there can be no assurance
that the Company will qualify and secure sufficient capacity on satisfactory
terms for commercial production. There can be no assurance that manufacturing,
supply and quality control problems will not arise as the Company either alone
or with subcontractors attempts to scale up manufacturing procedures or that
such scale-up can be achieved in a timely manner or at a commercially reasonable
cost. Any such failure to surmount such problems could lead to delays or pose a
threat to the ultimate commercialization of the Company's products and result in
a material adverse effect on the Company. If the Company or any of its contract
manufacturers encounter future manufacturing difficulties, including problems
involving the ability to scale up manufacturing capacity, production yields,
quality control and assurance, or shortages of components or qualified
personnel, it could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's manufacturing
facilities and those of its contract manufacturers are or will be subject to
periodic regulatory inspections by the FDA and other federal and state
regulatory agencies and such facilities are subject to QSR requirements of the
FDA. Furthermore, prior to approval of a PMA, the Company's and any third-party
manufacturer's facilities, procedures and practices will be subject to a
pre-approved inspection by the FDA. Failure by the Company or its third-party
manufacturer to maintain its facilities in accordance with QSR regulations,
other international quality standards or other regulatory requirements would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Manufacturing."
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LIMITED MARKETING AND SALES CAPABILITY
Nanogen intends to market and sell its products, if successfully developed,
directly and through strategic alliances and distribution arrangements with
third parties, including its collaborative partners. There can be no assurance
that any efforts to establish such strategic alliances or distribution
arrangements will be successful. The Company currently has limited product
marketing and sales capabilities, although it intends to recruit experienced
marketing and sales personnel as the Company grows closer to product
commercialization. In attracting, establishing and maintaining a marketing and
sales force, or entering into third-party marketing or distribution arrangements
with other companies, the Company expects to incur significant additional
expenses. No assurance can be given that the Company will be able to
successfully establish such a sales and marketing capability or enter into
third-party marketing or distribution arrangements or that it will be successful
in achieving marketplace acceptance for its products. See "Business -- Sales and
Marketing."
MANAGEMENT OF GROWTH
The Company has recently experienced, and expects to continue to experience
growth in the number of its employees and the scope of its operating and
financial systems. This growth has resulted in an increase in responsibilities
for both existing and new management personnel. The Company's ability to manage
growth effectively will require it to continue to implement and improve its
operational, financial and management information systems and to recruit, train,
motivate and manage its employees. There can be no assurance that the Company
will be able to manage its growth and expansion, and a failure to do so could
have a material adverse effect on the Company's business, financial condition
and results of operations.
PRODUCT LIABILITY EXPOSURE; INADEQUACY OR UNAVAILABILITY OF INSURANCE COVERAGE
The testing, manufacturing and marketing of the Company's products entails
an inherent risk of product liability claims. To date, the Company has not
experienced any product liability claims, but any such claims arising in the
future could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company intends to secure limited
product liability/clinical liability insurance coverage, but there can be no
assurance that the Company will be able to obtain such insurance on acceptable
terms with adequate coverage, or at reasonable costs. Potential product
liability claims may exceed the amount of the Company's insurance coverage or
may be excluded from coverage under the terms of the policy. There can be no
assurance that the Company's insurance once obtained can be renewed at a cost
and level of coverage comparable to that then in effect. Any claims against the
Company, regardless of their merit or eventual outcome, could have a material
adverse effect upon the Company's business, financial condition, and results of
operations.
ETHICAL AND PRIVACY CONSIDERATIONS
The Company's success in diagnostics and genetic testing applications will
depend in large part upon its ability to secure a market for certain of its
products under development. Genetic tests, including those performed using
Nanogen's technology platform, may be difficult to interpret and may lead to
misinformation or misdiagnosis. Even when a genetic test identifies the
existence of a mutation in an individual, the interpretation of the result is
often limited to the identification of a statistical probability that the tested
individual will develop the disease or condition for which the test is
performed. In addition, the inability to test for unknown genes which may cause
a particular genetic disorder may result in misdiagnosis. The prospect of
broadly available genetic testing has raised societal and governmental concerns
regarding the appropriate use and confidentiality of information provided by
such testing. Government authorities could, for social or other purposes, limit
the use of genetic testing or prohibit testing for genetic predisposition to
certain conditions, either of which could adversely affect the use of the
Company's products. In addition, there are additional issues regarding the
appropriate use of genetic testing information by entities such as insurance
companies and employers. It is possible that discrimination by insurance
companies could occur through the raising of premiums by insurers to prohibitive
levels, outright cancellation of insurance or unwillingness to provide coverage
to patients shown to have a genetic predisposition to a particular disease. In
addition, employers could discriminate against employees with a positive genetic
predisposition due to the increased risk for
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disease resulting in possible cost increases for health insurance and the
potential for lost employment time. Legislation has been proposed to govern the
confidentiality of genetic testing information, but there can be no assurance
that such legislation will be widely adopted, if at all, or if adopted that it
will adequately protect the privacy interests of genetic testing patients. There
can be no assurance that ethical concerns about genetic testing will not
materially adversely affect market acceptance of the Company's technology for
diagnostic applications, which could materially and adversely affect the
Company's business, financial condition and operating results. See
"Business -- Applications and Products Under Development -- Genetic Testing
Applications."
CONTINUED CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, PRINCIPAL STOCKHOLDERS AND
AFFILIATED ENTITIES
The Company's directors, executive officers, principal stockholders and
entities affiliated with them will, in the aggregate, beneficially own
approximately % of the Company's outstanding Common Stock following the
completion of this offering and the Private Placement. These stockholders, if
acting together, would be able to control substantially all matters requiring
approval by the stockholders of the Company, including the election of directors
and the approval of mergers or other business combination transactions. See
"Principal Stockholders."
LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this offering. The initial public
offering price will be determined through negotiations between the Company and
the Underwriters and may bear no relationship to the price at which the Common
Stock will trade after the closing of this offering. In addition, the securities
markets have from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. The market prices of the common stock of many publicly held medical
device companies have in the past been, and can in the future be, especially
volatile. Announcements of technological innovations or new products by the
Company or its competitors, clinical investigation results, release of reports
by securities analysts, developments or disputes concerning patents or
proprietary rights, regulatory developments, changes in regulatory or medical
reimbursement policies, economic and other external factors, as well as
period-to-period fluctuations in the Company's financial results, may have a
significant impact on the market price of the Common Stock. In the past,
securities class action litigation has often been instituted following periods
of volatility in the market price for a company's securities. Such litigation
could result in substantial costs and a diversion of management attention and
resources, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Underwriters."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 and
Rule 701 of the Securities Act of 1933, as amended (the "Securities Act"), or
through the exercise of outstanding registration rights or otherwise could have
an adverse effect on the price of the Company's Common Stock. The
shares of Common Stock being sold hereby, not including the Private Placement,
will be eligible for sale in the public market upon the effectiveness of this
offering. Excluding the shares of Common Stock being sold hereby and the Private
Placement, the remaining 16,614,598 shares of Common Stock (excluding shares
purchased pursuant to the exercise of unvested options and subject to repurchase
by the Company) may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act. As a result of lockups with the
Underwriters and the provisions of Rule 144 and 701, additional shares will be
available for sale in the public market as follows: (i) approximately 107,102
shares will be eligible for immediate sale on the date of this Prospectus, (ii)
16,453,697 shares of Common Stock will be eligible for sale 180 days after the
date of this Prospectus upon expiration of lockup agreements, and (iii) the
remainder of the shares of Common Stock will be eligible for sale from time to
time thereafter upon expiration of their respective holding periods. The holders
of the shares issued in the Private Placement will have the right to
register such shares for future sale and
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such shares will otherwise be eligible for sale one year from the closing date
of this offering, subject to the limitations of Rule 144. The Company intends to
register approximately 2,800,000 shares of Common Stock reserved for issuance
under its Stock Option Plans as soon as practicable following the date of this
Prospectus. Certain existing stockholders have rights under certain
circumstances to require the Company to register their shares for future sale.
See "Description of Capital Stock -- Registration Rights" and "Shares Eligible
for Future Sale."
POTENTIAL ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS AND
DELAWARE LAW
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. Certain of these
provisions allow the Company to issue Preferred Stock without any vote or
further action by the stockholders, provide for a classified board of directors,
eliminate the right of stockholders to call special meetings of stockholders or
to act by written consent without a meeting. These provisions may make it more
difficult for stockholders to take certain corporate actions and could have the
effect of delaying or preventing a change in control of the Company. See
"Management" and "Description of Capital Stock."
ABSENCE OF DIVIDENDS; IMMEDIATE AND SUBSTANTIAL DILUTION
The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. The initial
public offering price will be substantially higher than the net tangible book
value per share of Common Stock. Purchasers of shares of Common Stock in this
offering and the Private Placement will incur immediate and substantial dilution
of $ per share. Such purchasers will experience additional dilution
upon the exercise of outstanding stock options and warrants. Future capital
funding transactions may also result in dilution to purchasers in this offering.
See "Dividend Policy" and "Dilution."
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USE OF PROCEEDS
The proceeds to the Company from the sale of the shares of Common
Stock being offered by the Company are estimated to be approximately $
(approximately $ if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $ per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses. Additionally, pursuant to the Private Placement,
and assuming an initial public offering price of $ per share, the
Company plans to sell directly to Becton Dickinson, Hoechst and Elan an
aggregate of shares of its Common Stock for an aggregate purchase
price of $21.0 million.
Of the aggregate estimated net proceeds of $ , the Company
currently expects to use approximately $ million for research and
product development, including internal development, acquisitions, licenses or
as part of commitments for third-party collaborative arrangements; approximately
$ million for operational and capital expenditures, including facilities
expansion, manufacturing scale-up and manufacturing and laboratory equipment;
and approximately $ million for establishing regulatory and sales and
marketing capabilities. The Company will use the balance of approximately $
million of the net proceeds for working capital and other general corporate
purposes. The cost, timing and amount of funds required by the Company cannot be
precisely determined at this time and will be based upon numerous factors,
including the following: the Company's progress in research and development; the
results of clinical trials; the timing and costs of obtaining regulatory
approvals; the ability of the Company to establish and receive payments under
collaborative agreements; the costs involved in preparing, filing, prosecuting,
maintaining, defending and enforcing patent claims; competing technological and
market developments; changes in the Company's existing research relationships;
evaluation of the commercial viability of potential products; effective
commercialization activities and arrangements; and the cost and availability of
alternative methods of financing. The Board of Directors has broad discretion in
determining how the proceeds of this offering will be applied. Pending such
uses, the Company intends to invest the net proceeds in short-term,
interest-bearing obligations.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock and
does not anticipate paying any dividends in the foreseeable future. The Company
currently intends to retain its earnings, if any, for the development and
expansion of its business.
17
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on a pro forma basis to give effect to the conversion of
all outstanding shares of the Company's Preferred Stock into Common Stock and
the authorization of 5,000,000 shares of Preferred Stock and 50,000,000 shares
of Common Stock upon the closing of this offering, and (ii) as adjusted to give
effect to the Private Placement and the sale of the shares of Common
Stock being offered hereby at an assumed initial public offering price of
$ per share and after deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations, less current portion........................ $ 1,052 $ 1,052
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no
shares issued and outstanding, pro forma and as adjusted.......... -- --
Common stock, $0.001 par value; 50,000,000 shares authorized, pro
forma and as adjusted; 16,500,368 shares issued and outstanding,
pro forma; shares issued and outstanding, as
adjusted(1)....................................................... 17
Additional paid-in capital........................................... 45,203
Notes receivable from stockholders................................... (71) (71)
Deferred compensation................................................ (664) (664)
Accumulated deficit.................................................. (22,328) (22,328)
-------- --------
Total stockholders' equity........................................ 22,157
-------- --------
Total capitalization......................................... $ 23,209 $
======== ========
</TABLE>
- ---------------
(1) Based on the number of shares of Common Stock outstanding at September 30,
1997. Includes 650,372 shares of Common Stock purchased through early
exercise of incentive stock options which remain subject to repurchase by
the Company. Excludes (i) 3,322,096 shares of Common Stock reserved for
issuance and available for grant or sale under the Company's Stock Option
Plans, under which there were options outstanding to purchase an aggregate
of 2,052,874 shares of Common Stock as of September 30, 1997, (ii) warrants
to purchase 631,072 shares of Common Stock, and (iii) warrants to purchase
69,000 shares of Preferred Stock, which will convert into warrants for the
purchase of 69,000 shares of Common Stock upon the closing of this offering.
18
<PAGE> 22
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was approximately $22,157,000, or $1.34 per share. Pro forma net tangible
book value per share represents the amount of total tangible assets less total
liabilities of the Company, divided by the number of shares of Common Stock
outstanding. After giving effect to the Private Placement, the pro forma net
tangible book value per share at September 30, 1997 would have been or
approximately $ per share. After giving effect to the sale of the
shares of Common Stock offered by the Company hereby (at an assumed
initial public offering price of $ per share and after deduction of
estimated underwriting discounts and commissions and estimated offering
expenses), the pro forma net tangible book value of the Company at September 30,
1997 would have been $ , or $ per share. This represents an
immediate increase in such net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................ $
-----
Pro forma net tangible book value before offering.................. $1.34
Increase attributable to the Private Placement.....................
Pro forma net tangible book value per share after the Private
Placement.......................................................
Pro forma increase attributable to new investors...................
-----
Pro forma net tangible book value after offering.....................
-----
Dilution to new investors............................................ $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997 (after giving effect to the Private Placement and the conversion of all
outstanding shares of Preferred Stock into Common Stock upon completion of this
offering), the differences between existing stockholders (including, without
limitation, Becton Dickinson, Hoechst and Elan) and new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average consideration paid per share
(based upon an assumed initial public offering price of $ per share and
before deduction of estimated underwriting discounts and commissions and
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 16,500,368 % $45,220,338 % $ 2.74
New investors......................
---------- ----- ---------- -----
Total.................... 100.0% $ 100.0%
========== ===== ========== =====
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
option or of any outstanding stock options or warrants. As of September 30,
1997, there were (i) options to purchase an aggregate of 2,052,874 shares of
Common Stock at exercise prices ranging from $.01 to $.60 per share, (ii)
warrants to purchase 631,072 shares of Common Stock, and (iii) warrants to
purchase 69,000 shares of Preferred Stock, which will convert into warrants for
the purchase of 69,000 shares of Common Stock upon the closing of this offering.
To the extent these options and warrants are exercised, there will be further
dilution to new investors. See "Management -- Stock Option Plans" and Note 4 of
the Notes to Financial Statements.
19
<PAGE> 23
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operations for each of the three years in the period ended
December 31, 1996 and the nine months ended September 30, 1997 and with respect
to the Company's balance sheets at December 31, 1995 and 1996 and September 30,
1997, are derived from the financial statements of the Company that have been
audited by Ernst & Young LLP, which are included elsewhere herein and are
qualified by reference to such financial statements. The balance sheet data at
December 31, 1993 and 1994 and the statement of operations data for the period
from inception (September 1, 1993) to December 31, 1993 have been derived from
financial statements audited by Ernst & Young LLP which are not included herein.
The unaudited statement of operations data for the nine months ended September
30, 1996 have been derived from unaudited financial statements also appearing
herein which, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
financial position and results of such operations for the unaudited interim
period. The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements and notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(SEPTEMBER 1, 1993) NINE MONTHS
TO YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------- -------------------
1993 1994 1995 1996 1996 1997
--------------------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract and grant revenue.... $ -- $ -- $ 318 $ 1,644 $ 1,161 $ 1,581
Sponsored research............ -- -- -- -- -- 786
----- ------- ------- ------- ------- -------
Total revenues............. -- -- 318 1,644 1,161 2,367
Operating expenses:
Research and development...... 183 1,345 3,356 6,931 5,188 7,365
General and administrative.... 225 1,065 1,646 2,427 1,688 2,930
----- ------- ------- ------- ------- -------
Total operating expenses... 408 2,410 5,002 9,358 6,876 10,295
Interest income (expense),
net........................... -- 34 96 (64) (19) 750
----- ------- ------- ------- ------- -------
Net loss........................ $ (408) $(2,376) $(4,588) $(7,778) $(5,734) $(7,178)
===== ======= ======= ======= ======= =======
Pro forma net loss per
share(1)...................... $ (.58) $ (.51)
======= =======
Number of shares used in
computing
pro forma net loss per share
(1)........................ 13,475 14,027
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996 1997
----- ------- ------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 118 $ 206 $ 4,318 $ 16,775 $ 21,988
Working capital (deficit)............. (264) (22) 3,931 14,853 20,615
Total assets.......................... 118 1,622 6,339 19,090 25,476
Capital lease obligations, less
current portion..................... -- 347 631 935 1,052
Accumulated deficit................... (408) (2,784) (7,372) (15,151) (22,328)
Total stockholders' equity (net
capital deficit).................... (264) 865 4,950 15,680 22,157
</TABLE>
- ---------------
(1) Computed on the basis described in Note 1 of Notes to Financial Statements.
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed under
"Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Nanogen is the first company to integrate advanced microelectronics and
molecular biology into a platform technology with broad commercial applications
in the fields of medical diagnostics, biomedical research, genomics, genetic
testing and drug discovery. Nanogen's fully automated system, which incorporates
a proprietary semiconductor microchip, provides a flexible tool for the rapid
identification and analysis of any test sample containing charged molecules.
Through the use of microelectronics, the Company's technology enables the active
movement and concentration of charged molecules to and from designated
microlocations, or test sites, on the semiconductor microchip. This electronic
concentration of molecules greatly accelerates molecular binding at each
microlocation. In addition, Nanogen's technology allows the simultaneous
analysis of multiple test results, or multiplexing, from a single sample. The
open architecture design of the Nanogen system enables the Company to offer
microchips with arrays designed and built by Nanogen for specific applications
or with arrays that can be customized by the end user. The Company believes its
technology will accelerate the development of products that capitalize on the
increasing availability of genetic information and its relationship to human
disease. The Company further believes its semiconductor based platform
technology provides a low cost, highly efficient, accurate and versatile
integrated system that will shift the paradigm from current manual and
mechanical methods to microelectronic systems, thereby significantly improving
the quality of healthcare.
Since commencing operations in 1993, Nanogen has applied substantially all
of its resources to its research and development programs. The Company has
incurred losses since inception and, as of September 30, 1997, had an
accumulated deficit of approximately $22.3 million. The Company expects to incur
significant losses over at least the next several years as it expands its
research and product development efforts including clinical studies and
regulatory approvals, and expands its sales and marketing, manufacturing and
related infrastructure.
The Company does not anticipate revenues from product sales for the next
several years and anticipates its main sources of revenues during such period
will be payments from contracts, grants and sponsored research. At this time,
the Company has no products available for sale and no revenues have been
generated from the sale of products arising out of its technology. There can be
no assurance that the Company will ever attain profitability or will remain
profitable on a quarterly or annual basis in the future. The Company believes
that future operating results will be subject to quarterly fluctuations due to a
variety of factors, including the achievement of certain milestones under its
collaborative agreements, whether and when new products are successfully
developed and introduced by the Company or its competitors, market acceptance of
products under development or new products, regulatory and manufacturing delays.
Payments under sponsored research contracts will be subject to significant
fluctuations in both timing and amount and therefore the Company's results of
operations for any period may not be comparable to the results of operations for
any other period. See "Risk Factors -- Early Stage of Development; Technological
Uncertainty Whether Products Can Be Successfully Developed," "-- Lack of Market
Acceptance," "-- History of Losses and Accumulated Deficit; Uncertainty of
Future Profitability; Quarterly Fluctuations," "Business -- Collaborative
Alliances -- Becton, Dickinson and Company," "-- Collaborative
Alliances -- Hoechst AG" and "-- Collaborative Alliances -- Elan Corporation,
plc."
21
<PAGE> 25
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues. For the nine months ended September 30, 1997, revenue from
contracts, grants and sponsored research totaled approximately $2.4 million
compared to approximately $1.2 million for the nine months ended September 30,
1996. This increase was due to an increase in the number of active contracts to
six during the nine months ended September 30, 1997 from three during the nine
months ended September 30, 1996. Additionally, the Company entered into a
sponsored research agreement with Becton Dickinson pursuant to which the Company
began generating revenue in May 1997. In October 1997, such research agreement
was superseded by a series of agreements between the Company and Becton
Dickinson in connection with the establishment of a joint venture collaboration.
See "Business -- Collaborative Alliances -- Becton, Dickinson and Company."
Research and Development Expenses. Research and development expenses
increased to approximately $7.4 million during the nine months ended September
30, 1997 from approximately $5.2 million in the comparable period of 1996.
Research and development expenses include salaries, lab supplies, consulting,
travel, facilities and other expenditures relating to research and product
development. The increase from the nine months ended September 30, 1996 to the
nine months ended September 30, 1997 is attributable to the continued growth of
research activities, including hiring of scientific personnel and increased
purchases of laboratory supplies and services to support the increased number of
contracts and grants and the sponsored research program with Becton Dickinson.
The Company expects research and development spending to increase significantly
over the next several years as the Company expands research and product
development efforts, including initiation of clinical studies required to obtain
regulatory approvals.
General and Administrative Expenses. General and administrative expenses
increased to approximately $2.9 million during the nine months ended September
30, 1997 from approximately $1.7 million in the comparable period of 1996,
primarily due to the hiring of additional personnel, administrative support and
increased legal costs primarily relating to the Company's intellectual property.
General and administrative expenses are expected to continue to increase over
the next several years in support of the Company's expanding operations,
research and development efforts, commercialization of products as well as the
costs associated with operating as a public company.
Interest Income (Expense), Net. Net interest income increased to
approximately $750,000 in the nine months ended September 30, 1997 from net
interest expense of approximately $19,000 in the comparable period of 1996. The
increase was primarily attributable to increased cash balances as a result of
private placements of the Company's equity securities between December 1996 and
May 1997 totaling approximately $32.2 million.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Revenues. In 1996, contract and grant revenue totaled approximately $1.6
million compared to approximately $300,000 in 1995. In 1996, the Company
received funding from The National Institute of Standards and
Technology -- Advanced Technology Program ("ATP") under a $2.0 million two-year
award initiated in August 1995, as well as funding from the California Trade and
Commerce Agency Defense Conversion Program under a one-year grant in the amount
of approximately $250,000 initiated in June 1996, and a one-year renewable grant
of approximately $500,000 from the Bode Technology Group ("Bode") initiated in
March 1996. In 1995, revenue was only recognized under the ATP award. The
Company had no contract or grant revenue in 1994.
Research and Development Expenses. The Company's research and development
expenses increased to approximately $6.9 million in 1996 from approximately $3.4
million in 1995 and approximately $1.3 million in 1994. These increases from
year-to-year are attributable to continued growth of research activities,
including hiring of additional scientific personnel, increased purchases of
laboratory supplies and services, and expansion of research and development
facilities.
22
<PAGE> 26
General and Administrative Expenses. General and administrative expenses in
1996 were approximately $2.4 million compared to approximately $1.6 million in
1995 and approximately $1.1 million in 1994. The increase from year-to-year is
primarily due to hiring of additional personnel, administrative support and
costs associated with prosecution of patent applications.
Interest Income (Expense), Net. The Company had net interest expense of
approximately $64,000 in 1996 compared to net interest income of approximately
$96,000 in 1995 and $34,000 in 1994. The decrease in interest income was due
primarily to lower cash balances during 1996 compared to 1995 and 1994, and
increased equipment financing costs during 1996 which resulted in greater
interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
the net proceeds received from private placements of preferred equity securities
and with certain short term borrowings that were subsequently converted into
equity securities. As of September 30, 1997, the Company had received net
proceeds aggregating approximately $44.1 million from these transactions. In
addition, the Company has received proceeds from equipment financing totaling
approximately $3.0 million through September 30, 1997. The Company anticipates
that it will continue to use capital equipment leasing facilities to fund
certain of its equipment acquisitions and leasehold improvements.
Net cash used in operating activities was approximately $7.4 million and
$5.6 million for the nine months ended September 30, 1997 and 1996 respectively,
and approximately $6.1 million, $4.2 million and $2.4 million for 1996, 1995 and
1994, respectively. Cash used for operations was primarily related to the
funding of expanding research and development activities along with the
establishment of an administrative infrastructure. The Company will require
additional capital to expand research and product development efforts including
clinical trials and regulatory approvals, expand sales and marketing,
manufacturing and related infrastructure, to expand its leased research and
administrative facility and to construct a manufacturing facility.
At September 30, 1997, the Company's principal source of liquidity was
approximately $22.0 million in cash and cash equivalents. While the Company
believes that these sources of liquidity, together with the proceeds of this
offering and the Private Placement, will be sufficient to satisfy its funding
needs for current operations for at least the next 24 months, the Company has
incurred negative cash flow from operations since inception and does not expect
to generate positive cash flow to fund its operations for at least the next
several years. This estimate of the period for which the Company expects its
available sources of liquidity to be sufficient to meet its capital requirements
is a forward-looking statement that involves risks and uncertainties. There can
be no assurance that the Company will be able to meet its capital requirements
for this period as a result of certain factors set forth under "Risk
Factors -- Future Capital Requirements; Uncertainty of Additional Funding" and
elsewhere in this Prospectus. In the event the Company's capital requirements
are greater than estimated, the Company may need to raise additional capital to
fund its research and development programs, to scale up manufacturing activities
and expand its sales and marketing efforts to support the commercialization of
its products under development. The Company's future liquidity and capital
funding requirements will depend on numerous factors, including the extent to
which the Company's products under development are successfully developed and
gain market acceptance, the timing of regulatory actions regarding the Company's
potential products, the costs and timing of expansion of sales, marketing and
manufacturing activities, procurement and enforcement of patents important to
the Company's business, and results of clinical trials, regulatory approvals and
competition. There can be no assurance that such additional capital will be
available on terms acceptable to the Company, if at all. Furthermore, any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may include restrictive covenants. If adequate funds are not
available, the Company may be required to curtail its operations significantly
or to obtain funds through entering into collaborative agreements or other
arrangements on unfavorable terms. The failure by the Company to raise capital
on acceptable terms when needed could have a material adverse effect on the
Company's business, financial condition or results of operations.
23
<PAGE> 27
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1996, the Company had federal and California net
operating loss ("NOL") carryforwards of approximately $14.9 million and $4.5
million, respectively, and approximately $368,000 and $252,000 of research and
development ("R&D") tax credits available to offset future federal and state
income taxes, respectively. The NOL and R&D tax credit carryforwards, which are
subject to alternative minimum tax limitations and to examination by the tax
authorities, will begin expiring in 2006 unless utilized. The Company believes
that this offering combined with the Private Placement may constitute a "change
of ownership" under federal income tax regulations. As such, the Company may be
limited in the amount of NOLs incurred prior to this offering which may be
utilized to offset future taxable income. Similar limitations may also apply to
utilization of R&D tax credits to offset taxes payable. However, the Company
does not believe such limitations will have a material impact on its ability to
utilize such NOLs. See Note 5 of Notes to Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share, which supersedes
APB Opinion No. 15. SFAS No. 128 replaces the presentation of primary earnings
per share ("EPS") with "Basic EPS" which reflects only the weighted-average
common shares outstanding for the period. Companies with complex capital
structures, including the Company, will also be required to present "Diluted
EPS" that reflects the potential dilution, if any, of common stock equivalents
such as employee stock options and warrants to purchase common stock. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. This standard is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. The Company does not
believe that comprehensive income will be materially different than net income
or loss.
24
<PAGE> 28
BUSINESS
OVERVIEW
Nanogen is the first company to integrate advanced microelectronics and
molecular biology into a platform technology with broad commercial applications
in the fields of medical diagnostics, biomedical research, genomics, genetic
testing and drug discovery. Nanogen's fully automated system, which incorporates
a proprietary semiconductor microchip, provides a flexible tool for the rapid
identification and analysis of any test sample containing charged molecules.
Through the use of microelectronics, the Company's technology enables the active
movement and concentration of charged molecules to and from designated
microlocations, or test sites, on the semiconductor microchip. This electronic
concentration of molecules greatly accelerates molecular binding at each
microlocation. In addition, Nanogen's technology allows the simultaneous
analysis of multiple test results, or multiplexing, from a single sample. The
open architecture design of the Nanogen system enables the Company to offer
microchips with arrays designed and built by Nanogen for specific applications
or with arrays that can be customized by the end user. The Company believes its
technology will accelerate the development of products that capitalize on the
increasing availability of genetic information and its relationship to human
disease. The Company further believes its semiconductor based platform
technology provides a low cost, highly efficient, accurate and versatile
integrated system that will shift the paradigm from current manual and
mechanical methods to microelectronic systems, thereby significantly improving
the quality of healthcare.
The Company has established corporate alliances in certain areas of
infectious disease diagnostics, drug discovery and genomics as part of its
strategy to expand the applications and accelerate the commercialization of
products derived from its technology. The Company is developing products to
expedite the diagnosis of infectious disease through its joint venture with
Becton Dickinson. The Company has also entered into agreements for the
establishment of a collaboration and joint venture with Hoechst to develop drug
discovery tools, and a collaboration with Elan for genomic applications. In
addition to their commitments to provide research funding, these corporate
partners have agreed to purchase an aggregate of $21.0 million of Common Stock
directly from the Company in the Private Placement to occur concurrent with this
offering. The Company's collaborations permit integration of the Company's
technology with the resources and technology of its partners, while allowing the
Company to independently pursue diagnostics, drug discovery and genomics
opportunities outside the scope of these collaborations.
The Company's commercialization strategy is to establish its platform
technology as the standard for molecular identification and analysis. Nanogen
will provide its products initially to leading research institutions and opinion
leaders to enable them to exploit the open architecture design in developing
additional novel applications. Concurrently, the Company is developing
commercial products in medical diagnostics, biomedical research, genomics,
genetic testing and drug discovery either by itself or with its corporate
partners. In addition, the Company believes its platform technology has the
potential to address a broad range of applications, including combinatorial
chemistry, industrial process control, forensics and environmental and food
pathogen testing. The Company also plans to develop fully integrated
sample-to-answer systems for both the clinical research and point-of-care
settings using microelectronics to process and analyze samples in a wide variety
of applications.
NANOGEN'S PLATFORM TECHNOLOGY
Nanogen's proprietary platform technology takes advantage of the fact that
most biological molecules are either positively or negatively charged and is
ideally suited to unravelling complex genetic information. Through the use of
microelectronics, Nanogen's technology enables the active movement and
concentration of electronically charged molecules to and from designated test
sites on its semiconductor microchip. These test sites are arranged in an array
on the Company's microchip. In addition, Nanogen's technology allows for the
simultaneous analysis of multiple test results, or "multiplexing," from a single
sample.
25
<PAGE> 29
Nanogen's proprietary technology has broad applications for the analysis of
any unknown charged biological molecule which is capable of binding specifically
to a known capture molecule on a microchip. The Company has initially focused on
DNA-based sample analysis in developing applications utilizing its platform.
The Company's technology allows small sequences of DNA capture probes to be
electronically placed at, or "addressed" to, specific sites on the microchip. A
test sample can then be analyzed for the presence of target DNA molecules by
determining which of the DNA capture probes on the array bind, or hybridize,
with complementary DNA in the test sample. In contrast to nonelectronic or
passive hybridization with conventional arrays on paper or glass "chips," the
use of electronically mediated active hybridization to move and concentrate
target DNA molecules accelerates hybridization so that hybridization occurs in
minutes rather than the hours required for passive hybridization techniques. In
addition to DNA applications, the Company believes its technology can be applied
to a number of other analyses, including antigen-antibody, enzyme-substrate,
cell-receptor and cell separation techniques.
The Nanogen system can integrate in a single platform the following
electronic operational features which are illustrated on the inside front cover:
Electronic Addressing. Electronic addressing is the placement of charged
molecules at specific test sites. Since DNA has a strong negative charge, it can
be electronically moved to an area of positive charge. A test site or a row of
test sites on the microchip is electronically activated with a positive charge.
A solution of DNA probes is introduced onto the microchip. The negatively
charged probes rapidly move to the positively charged sites, where they
concentrate and are chemically bound to that site. The microchip is then washed
and another solution of distinct DNA probes can be added. Site by site, row by
row, an array of specifically bound DNA probes can be assembled or addressed on
the microchip. In the electronic addressing illustration on the inside front
cover, a total of five sets of different capture probes have been electronically
addressed to the microchip. With the ability to electronically address capture
probes to specific sites, the Nanogen system allows end users to build custom
arrays through the placement of specific capture probes on a microchip. In
contrast to current technologies, these microchip arrays can be built in a
matter of minutes at a minimal cost, providing research professionals with a
powerful and versatile tool to process and analyze molecular information.
Electronic Concentration and Hybridization. Following electronic
addressing, Nanogen uses electronics to move and concentrate target molecules to
one or more test sites on the microchip. The electronic concentration of sample
DNA at each test site promotes rapid hybridization of sample DNA with
complementary capture probes. In contrast to the passive hybridization process,
the electronic concentration process has the distinct advantage of significantly
accelerating the rate of hybridization. To remove any unbound or nonspecifically
bound DNA from each site, the polarity or charge of the site is reversed to
negative, thereby forcing any unbound or nonspecifically bound DNA back into
solution away from the capture probes. In addition, since the test molecules are
electronically concentrated over the test site, a lower concentration of target
DNA molecules is required, thus reducing the time and labor otherwise required
for pre-test sample preparation.
Electronic Stringency Control. Electronic stringency control is the
reversal of electrical potential to quickly and easily remove unbound and
nonspecifically bound DNA as part of the hybridization process. Electronic
stringency provides quality control for the hybridization process and ensures
that any bound pairs of DNA are truly complementary. The precision, control, and
accuracy of Nanogen's platform technology, through the use of the controlled
delivery of current in the electronic stringency process, permits the detection
of single point mutations, single base pair mismatches, or other genetic
mutations, which have significant implications in a number of diagnostic and
research areas. Electronic stringency is achieved without the cumbersome
processing and handling otherwise required to achieve the same results through
conventional methods. In contrast to passive arrays, Nanogen's technology can
accommodate both short and long single-stranded fragments of DNA. The use of
longer probes increases the certainty that the DNA which hybridizes with the
capture probe is the correct target. Nanogen's electronic stringency control
reduces the required number of probes and therefore test sites on the microchip,
relative to conventional DNA arrays. In contrast, traditional passive
hybridization processes are difficult to control and require more replicants of
every possible base pair match so that correct matches can be positively
identified.
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<PAGE> 30
Electronic Multiplexing. Nanogen's electronic multiplexing feature allows
the simultaneous analysis of multiple tests from a single sample. Electronic
multiplexing is facilitated by the ability to independently control individual
test sites (for addressing of capture probes and concentration of test sample
molecules) which allows for the simultaneous use of biochemically unrelated
molecules on the same microchip. Sites on a conventional DNA array cannot be
individually controlled, and therefore the same process steps must be performed
on the entire array. The use of electronics in the Company's technology provides
increased versatility and flexibility over such conventional methods.
Strand Displacement Amplification. Strand Displacement Amplification
("SDA") is a proprietary target amplification process whereby very low numbers
of diagnostic targets in a test sample are enzymatically amplified to much
higher levels, greatly simplifying accurate detection of these targets. In
connection with forming its relationship with Becton Dickinson, the joint
venture was granted certain exclusive rights to Becton Dickinson's patents
relating to SDA in infectious disease diagnostics. In addition, the Company was
also granted certain nonexclusive rights to use SDA in the fields of in vitro
human genetic testing and cancer diagnostics. The Company believes that SDA will
be an important element in the development of sample-to-answer applications.
NANOGEN SYSTEM COMPONENTS
The Nanogen system, illustrated on the inside front cover, consists of both
a disposable cartridge containing a proprietary semiconductor microchip and a
fully automated instrument that controls all aspects of microchip operations,
processing, detection and reporting. The system has been designed so that the
operator simply inserts a disposable cartridge containing a test sample into the
instrument. All subsequent steps are handled automatically within minutes.
DISPOSABLE CARTRIDGE
The disposable cartridge consists of a proprietary semiconductor microchip
with electrical and fluidic connections to the instrument. Several prototypes of
the disposable cartridges have been completed, and the Company is finalizing
designs for manufacturing. The Company expects that the disposable cartridge and
microchip can be manufactured in high volumes at a low cost.
Semiconductor Microchip. Nanogen's proprietary microchip capitalizes on
advances in the semiconductor industry and is designed and constructed using
state-of-the-art microlithography and fabrication techniques. Nanogen's
microchip is coated with a permeation layer to which capture probes are attached
and is mounted on the disposable cartridge. The original microchip design
measures one square centimeter with an active area of one square millimeter
containing a five-by-five array of 25 electrodes, or independent test sites, per
microchip. Nanogen is currently testing additional microchip designs containing
100 electrodes fabricated with wire bonding techniques. In addition, the Company
has developed microchips containing 400 electrodes based on CMOS process
integrated circuit designs and is developing high density arrays of 10,000 or
more sites. Recent microchip configurations are less than half of the original
size, but contain all of the functionality of the original microchip. These new
configurations significantly reduce manufacturing costs and further size
reductions are contemplated as development continues. The microchip can be
designed and built by Nanogen for specific applications or can be individually
customized by the end user.
Permeation Layer. The Company's proprietary permeation layer, which is
critical to the proper functioning of the Nanogen system, is the interface
between the surface of the microchip and the biological test environment. The
permeation layer isolates the biological materials from the harsh
electrochemical environment near the electrode surface and provides the
chemistry necessary for attachment of capture probes.
Capture Probes. Capture probes or other capture molecules are
electronically addressed to the desired microlocations and chemically attached
to the permeation layer. Because independent control can be applied at any test
site on Nanogen's microchip, different capture probes can be addressed on the
same microchip, allowing multiple tests to be processed simultaneously.
Nanogen's cartridges can be sold with preloaded sets of
27
<PAGE> 31
capture probes or can be customized by the end user in build-your-own-chip
applications which will allow the customer to assemble specific probes onto a
microchip to perform individualized analyses.
NANOGEN INSTRUMENT
Nanogen's fully integrated instrument consists of three major subsystems:
(i) a highly sensitive, laser-based fluorescence scanner that detects molecular
binding, (ii) a fluid handling subsystem that controls test sample application
and washing steps, and (iii) computer hardware and software that allow the
operator to select assays from a simple, graphical user menu which controls all
microchip operations, tabulates test results, and prints test reports.
Fluorescent Array Scanner. The fluorescent scanner uses pattern recognition
software and optoelectronic technology to reduce instrument cost and size and
eliminate the need for complicated array positioning mechanics. In its present
configuration, the scanner is able to perform high sensitivity scans of 100 test
site arrays in less than two minutes. With this scanner, fluorescence is
detectable at levels of fewer than 500 molecules at each test site.
Fluidics Station. The instrument fully automates the movement of the
reagents and test sample onto the disposable cartridge. The fluidic subassembly
of the instrument includes a panel of precision syringe pumps, a
cartridge-mounted sample assembly and appropriate fluidic connections between
the instrument and the disposable cartridge.
Computer Hardware and Software System. An advanced multi-tasking operating
system and Pentium-based microprocessor control all aspects of machine
operation, including bar-coded assay selection, assay operation, fluorescent
signal detection and signal processing, calculation of assay results, and report
generation. Each of the individual array locations is separately controlled by
the microprocessor. Fluorescent signals emanating from positive test sites are
scanned, monitored and quantitated.
NANOGEN STRATEGY
Nanogen's objective is to develop commercial applications for its
proprietary platform technology and to promote its technology as the standard
for molecular identification and analysis. Key elements of the Company's
strategy to achieve this objective include the following:
Develop Research and Genomics Applications. The Company intends to pursue
the research and genomics markets by taking advantage of the open architecture
design of its technology that allows end users to customize microchips to meet
their individual research needs. The Company believes that this build-your-
own-chip capability will fulfill an unmet need for a powerful, versatile and
relatively inexpensive analytical tool. In addition, the Company believes that
acceptance of its technology by leading academic research centers will promote
more rapid commercial acceptance. The Company further believes that it has
developed a powerful tool which will enable users to develop unforeseen and
commercially attractive applications.
Develop Commercial Applications. The Company intends initially to develop
commercial applications for its platform technology in the infectious disease
diagnostic market through its joint venture with Becton Dickinson by exploiting
the increasing availability of genetic information and its relationship to human
disease. The Company also intends to leverage its technology in the rapidly
developing genetic testing, drug discovery, and pharmacogenetics markets. The
Company intends to build a recurring stream of revenue from the sale of low
cost, disposable cartridges. The Company believes that widespread market
penetration of its instruments and the open architecture of its systems will
promote sustained demand for its disposable cartridges. In addition, the
Company's semiconductor microchip manufacturing is scalable, allowing the
Company to produce substantial volumes of disposable cartridges at a low cost.
Other areas such as forensics and prenatal genetics also offer opportunities for
Nanogen's technology.
Establish Strategic Collaborations. The Company intends to continue to
enter into collaborations to expand applications of its technology platform and
to accelerate the commercialization of the Company's products. The Company is
developing products for the diagnosis of infectious disease through its joint
venture with Becton Dickinson. The Company has entered into a collaborative
research and development agreement
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<PAGE> 32
with Hoechst to develop drug discovery tools. The Company has also entered into
a collaboration agreement with Elan for genomics applications. By partnering
with these multinational healthcare companies, Nanogen believes that it can gain
broader access to global markets, without shifting its resources from the
further development of its platform technology. In addition, as part of these
arrangements, Nanogen believes it can better focus on introducing its technology
into expanding markets while its collaborative partners contribute their
technology and expertise in areas such as sales, marketing and regulatory
approvals. The Company will pursue additional collaborations in various forms,
including research and development agreements, licensing agreements and joint
ventures. The Company's collaborations permit integration of the technology and
resources of its partners with the Company's technology, while allowing the
Company, independently or with other collaborators to pursue diagnostics, drug
discovery and genomics opportunities outside the scope of these collaborations.
Develop Advanced Technologies and Point-of-Care Applications. The Company's
long term strategy is to develop sample-to-answer systems which integrate
otherwise time-consuming and labor-intensive sample preparation procedures on
the disposable cartridge through the use of active microelectronics. The Company
believes that the availability of this lab-on-a-chip technology would fulfill a
substantial unmet need in both academic research and commercial sectors.
Miniaturization of the Company's instrumentation together with this
lab-on-a-chip capability offers the potential to address the point-of-care
market.
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<PAGE> 33
APPLICATIONS AND PRODUCTS UNDER DEVELOPMENT
The Company is currently developing a broad range of applications and
products based upon the Company's platform technology, as summarized in the
following table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
U.S.
REGULATORY
REQUIRE- CURRENT
APPLICATIONS AND PRODUCTS DESCRIPTION MENTS(1) PARTNER(2)
- --------------------------------------- ------------------------------ ---------- --------------
<S> <C> <C> <C>
INFECTIOUS DISEASE DIAGNOSTICS PANELS
Diarrheal Culture Detection of enteric bacteria 510(k)/ Becton
from stool culture PMA Dickinson
Food Pathogen Detection of enteric bacteria USDA Becton
from food culture Dickinson
Molecular Respiratory Detection of organisms PMA Becton
associated with respiratory Dickinson
infections
Antibiotic Resistance Detection of antibiotic PMA Becton
resistance Dickinson
Diarrheal Direct Direct detection of enteric PMA Becton
bacteria from stool sample Dickinson
Food Pathogen Direct Direct detection of enteric USDA Becton
bacteria from food culture Dickinson
BIOMEDICAL RESEARCH, INDUSTRIAL AND Build-your-own-chip None Elan;
GENOMICS applications University
of Texas
Southwestern
GENETIC TESTING
Hemochromatosis Detection of hereditary PMA --
hemochromatosis
Molecular Oncology Detection of cancer-related PMA --
sequences
Pharmacogenetics Prediction of drug PMA --
performance in individuals
DRUG DISCOVERY Combinatorial chemical None Hoechst
synthesis for screening
LAB-ON-A-CHIP Automated sample preparation PMA --
</TABLE>
- ---------------
(1) The FDA regulatory approval and clearance process requires many steps
before a product can be approved or cleared for marketing. Certain
products will be subject to the USDA regulatory process in order to be
marketed. The terms "510(k)" and "PMA" indicate the regulatory pathway
the Company believes will be applicable to a product, although there can
be no assurance that the FDA will agree that the pathway noted is the
appropriate pathway for the specific product. See "Risk Factors--No
Assurance of Obtaining Regulatory Approvals; Government Regulatory
Process." For a description of the terms 510(k) and PMA and the USDA
requirements, see "-- Government Regulation."
(2) For a description of the Company's collaborative arrangements, see
"--Collaborative Alliances."
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 34
INFECTIOUS DISEASE DIAGNOSTICS APPLICATIONS
The Company is applying its technology in the area of infectious disease to
develop automated tests to replace the manual and time-intensive procedures
currently used in hospitals and reference laboratories. The role of the clinical
microbiology laboratory is to detect, identify and determine antibiotic
sensitivity of disease causing microorganisms. To accomplish this task, colonies
of microorganisms from patient specimens are grown, or cultured, in various
growth media. Following colony growth, various direct and indirect techniques
are utilized to determine the identity and, as required, the sensitivity of the
microorganism to specific antibiotics. The entire process may take days or weeks
to complete while the patient, requiring immediate therapy, must be treated by
the clinician based upon the best clinical facts available at that time. Upon
receipt of the diagnostic analysis from the laboratory, the initial patient
treatment protocol may need to be modified in order to treat the patient
effectively.
Current culture-based methods detect a single microorganism at one time.
Because a particular infectious episode may be caused by one of many
microorganisms or several microorganisms together, multiple tests may be
required to determine the correct diagnosis. "Single tube" (one at a time) DNA
probe diagnostics, which were first introduced to the marketplace in the
mid-1980's, have been unsuccessful in displacing culture based diagnostic tests
due to their inability to identify several organisms simultaneously. Nanogen's
technology addresses shortcomings of current methods by allowing the
simultaneous analysis of multiple microorganisms from a single patient sample.
The Company believes its technology and integrated system will speed the time-
to-result for diagnostic tests and patient treatment and offer its customers the
opportunity to lower their costs and improve productivity by automating all or a
significant portion of their labor-intensive testing.
The Company, through its joint venture with Becton Dickinson, is developing
a broad range of products relating to the detection of infectious disease, each
of which may incorporate Becton Dickinson's proprietary SDA technology. The
joint venture contemplates that Nanogen will manufacture and supply the
disposable cartridge and related reagents while Becton Dickinson will
manufacture the system instrumentation and market the several infectious disease
products described below.
Diarrheal Culture Panel/Food Pathogen Panel. These panels will identify
four microorganisms commonly associated with food poisoning, or gastroenteritis:
Salmonella, Shigella, Campylobacter species and E. coli strains. The products
under development are being designed to provide test results to a physician in
approximately six hours, rather than the 24 to 72 hours required under currently
available immunoassay tests. Clinical trials are expected to commence no earlier
than 1999.
Molecular Respiratory Panel. Respiratory infections, particularly in the
very young, the critically ill and the aged, are often life-threatening. Nanogen
intends to develop a respiratory microchip to rapidly identify cause of
infection and allow the physician to provide the correct therapy in hours rather
than days, as is currently required. The Company believes that its technology
will be able to identify specific bacteria, including Group A Streptococcus, S.
aureus and E. coli, or viral pathogens from complex samples such as respiratory
tract fluids.
Antibiotic Resistance Panel. The increasing incidence of strains of
bacteria, viruses and other microorganisms resistant to antibiotic drug
therapies is a growing health care concern. The Company intends to develop a
panel to detect three principal antibiotic-resistant targets: (i)
methacillin-resistant S. aureus, a major cause of hospital acquired infections,
often adding days or weeks onto hospital stays, (ii) various microorganisms
resistant to vancomycin, an expensive antibiotic frequently used to treat
serious infections, and (iii) various microorganisms resistant to penicillin and
other B-lactam antibiotics. The Company believes that a resistance test capable
of rapid, accurate identification of both infectious bacteria and antibiotic
resistance will provide physicians with valuable information that will improve
patient care and shorten hospital stays.
Diarrheal Direct Panel/Food Pathogen Direct Panel. The Company believes
that significant time and cost savings can be achieved by replacing the
traditional sequential sample preparation and testing processes with a single
integrated diagnostic instrument. The Company believes that use of such an
integrated instrument will increase the demand for infectious disease diagnostic
testing in clinical and point-of-care settings. These products are in the early
stages of development.
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<PAGE> 35
BIOMEDICAL RESEARCH, INDUSTRIAL AND GENOMICS APPLICATIONS
Worldwide efforts, including the Human Genome Project and other public and
private genetic sequencing efforts, are identifying and sequencing genes of many
organisms. As these genes and their nucleotide sequences are identified,
additional research will focus on how the genetic content of the cell, its
genome, controls and influences biological function. Gene expression studies are
often used to elucidate which of the genes contained within the genome are
regulated during disease or in response to a variety of stimuli and how specific
mutations in a gene affect the normal expression and operation of that gene.
This basic understanding will allow the development of new diagnostic and
therapeutic approaches to cancer, inborn errors of metabolism, and other genetic
disease, according to their genetic profile.
The Company intends to pursue the research and genomics markets by taking
advantage of the open architecture design of its technology that allows end
users to customize microchips to meet their individual research needs. The
Company believes that this build-your-own-chip capability will fulfill an unmet
need for a powerful, versatile and relatively inexpensive analytical tool. The
Company has recently placed a prototype system at the University of Texas
Southwestern Medical Center ("UT Southwestern") for research studies.
Genetics research utilizing Nanogen's technology may be conducted by
genomics companies, industrial research labs and research institutions. The
Company's build-your-own-chip systems are intended to simplify genomics research
by allowing users to configure their own semiconductor microchips. These arrays
would then be used by the investigator to study gene expression in test samples,
to map or discover important genes, or for a variety of other research
applications. The Company believes that its research instrument system fulfills
a significant unmet need in the area of user definable arrays.
GENETIC TESTING APPLICATIONS
As the Human Genome Project and other public and private genetic sequencing
efforts yield increasing genetic information, the demand for genetic
predisposition testing will continue to grow. The combination of novel
therapeutic approaches, such as gene therapy, and the discovery of new genes
could lead to earlier and more precise diagnosis and more refined therapeutic
interventions which may further enhance this area as a commercial market
opportunity. Because a number of important genetic diseases are ideally suited
to diagnosis in multiplexed arrays, the Company believes that its technology
platform could contribute significantly to the expansion of testing in this
area.
The Company believes that the ability of its technology to screen
simultaneously for various DNA sequences and the ability to differentiate
between single base pair mismatches has potentially wide applicability to the
field of genetic testing. The ability to test simultaneously for many specific
mutations can be used for detecting patients predisposed to certain diseases and
for early detection of the disease itself, thereby permitting early preventive
and therapeutic intervention. For example, in cancer diagnostics, certain
mutations are indicative of a predisposition to certain types of cancer. Because
many diseases involve multiple mutations, the ability to analyze all possible
mutations has previously been expensive and impracticable. Nanogen's electronic
stringency control feature permits rapid and accurate testing for single point
mutations. The Company is currently developing products in the field of genetic
testing for hemochromatosis and molecular oncology.
Hemochromatosis. In December 1997, the Company exercised an option with
Billups-Rothenberg, Inc, ("BRI") to exclusively license certain patented
technology and has begun developing a test for hereditary hemochromatosis. This
disease is an iron metabolism disorder and represents one of the most common
inherited disorders in individuals of Northern European descent. If left
untreated, gradual accumulation of iron in the body often leads to serious
health problems such as cirrhosis, diabetes and heart failure. Many experts
believe there is a need for widespread hemochromatosis screening since simple,
periodic phlebotomies allow patients to easily manage this disease. Genetic
testing for hemochromatosis to date has been limited. The Company believes that
the demand for this testing will increase as the long term consequences of the
disease are more fully understood. The product is in the early stages of
development.
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<PAGE> 36
Molecular Oncology. Many clinically important mutations in cancerous tumors
involve discrete, single point mutations that may be predictive of certain types
of cancer and may correlate with known drug resistance patterns in specific
tumors. Nanogen's technology has the ability to rapidly detect single point
mutations in long DNA sequences. The Company's system can also analyze RNA,
another nucleic acid of diagnostic importance.
Pharmacogenetics. Pharmacogenetics refers to the way an individual person
may or may not respond to specific drugs. The Company intends to develop
pharmacogenetic products incorporating its proprietary array technology for use
in both hospital and reference laboratories, with anticipated applications in
multiple fields such as thiopurine toxicity relating to leukemia treatment, drug
metabolism, and toxicity/carcinogenicity associated with cigarette smoking.
DRUG DISCOVERY APPLICATIONS
The Company believes it has a powerful tool which will elucidate
appropriate pathways for therapeutic intervention, identify and evaluate lead
compounds and simultaneously assess the efficacy and toxicology of these
compounds in model systems. It is estimated that the preclinical drug discovery
process currently takes an average of six and one-half years. Consequently, the
Company believes there is a significant demand for improved tools which
accelerate the drug discovery process.
The Company believes the microelectronic array format and independent test
site control of the Nanogen system are ideally suited for applications in drug
discovery. The benefits of the Company's electronic technology will enable the
rapid manipulation of potential drug molecules against targets such as bacteria,
virus, tumor, or immune response cells addressed to the microchip to determine
drug efficacy, thus simplifying the drug discovery process. The combination of
electronic addressing and the electronic protection of specific areas of the
microchip allows the targeting of chemical building blocks to unique locations
on the array. The Company believes its system provides an efficient automated
method for drug lead optimization. Nanogen intends to develop a novel drug
discovery platform which can be used internally for drug screening or can be
licensed to other pharmaceutical companies. The Company has recently entered
into a collaborative research and development agreement with Hoechst to develop
applications utilizing the Company's technology in combination with Hoechst's
ELIAS and/or pRNA technology. See "-- Collaborative Alliances."
LAB-ON-A-CHIP
Patient samples are complex and comprised of a number of substances such as
proteins and carbohydrates. As a result, purification of DNA to release the
target DNA in a useable form is required prior to use in any DNA diagnostic
product. The Company's long term strategy is to develop sample-to-answer systems
which integrate otherwise time-consuming and labor-intensive sample preparation
procedures on the disposable cartridge through the use of active
microelectronics. The Company believes its proprietary microelectronic
technology can simplify the complex sample preparation process and could
potentially lead to the development of an integrated platform for point-of-care
testing.
COLLABORATIVE ALLIANCES
The Company has established collaborative alliances in certain areas of
infectious disease diagnostics, drug discovery and genomics as part of its
strategy to expand the applications and accelerate the commercialization of
products derived from its technology. The Company is developing products to
expedite the diagnosis of infectious disease through its joint venture with
Becton Dickinson. The Company has also entered into an agreement for a research
and development collaboration and the establishment of a joint venture with
Hoechst to develop drug discovery tools. Additionally, the Company has entered
into a research and development agreement with Elan for genomics applications.
BECTON, DICKINSON AND COMPANY
In May 1997, Becton Dickinson and Nanogen entered into a Collaborative
Research and Development Agreement (the "Prior R&D Agreement") to develop
products utilizing Nanogen's technology to detect
33
<PAGE> 37
microbial agents causing infectious disease and to determine their antibiotic
susceptibility or resistance. In connection with the Prior R & D Agreement,
Nanogen entered into a Series D Preferred Stock Purchase Agreement (the "Stock
Purchase Agreement") with Becton Dickinson pursuant to which Becton Dickinson
purchased 1,000,000 shares of Nanogen's Series D Preferred Stock. In addition,
Becton Dickinson agreed pursuant to the Stock Purchase Agreement to purchase
Common Stock worth an aggregate of $6.0 million directly from the Company in the
Private Placement.
As of October 1, 1997, Becton Dickinson and Nanogen entered into new
agreements which superseded the Prior R&D Agreement. Pursuant to a Master
Agreement entered into between the parties (the "Master Agreement"), Becton
Dickinson and Nanogen agreed to form The Nanogen/Becton Dickinson Partnership, a
Delaware general partnership (the "Partnership"), to develop and commercialize
products in the field of in vitro nucleic acid-based diagnostic and monitoring
technologies. The products will be based on Nanogen's proprietary semiconductor
technology and Becton Dickinson's proprietary SDA technology. NanoVenture LLC, a
Delaware limited liability company wholly-owned by Nanogen ("NanoVenture"), and
Becton Dickinson Venture LLC, a Delaware limited liability company wholly-owned
by Becton Dickinson ("Becton Dickinson Venture"), are the general partners of
the Partnership with (i) losses allocated in proportion to cash funding, (ii)
profits shared equally, and (iii) distributions allocated 60% to Becton
Dickinson Venture and 40% to NanoVenture until partner contributions are
equalized and thereafter distributions shared equally. The Master Agreement
contemplates that each of the parties will negotiate in good faith additional
agreements with the Partnership in furtherance of the Partnership's business,
including license agreements, manufacturing agreements and marketing agreements.
Pursuant to the Master Agreement, Nanogen has also granted to Becton Dickinson
Venture, acting on behalf of the Partnership, a right of first offer, under
certain circumstances, to negotiate licenses in certain limited additional
fields.
Cash and certain intellectual property rights were contributed by Nanogen
and Becton Dickinson in connection with the formation of the Partnership. Upon
the successful completion of certain defined milestones by December 31, 1997 and
June 30, 1998, minimum contributions for use in the research programs
aggregating approximately $6.7 million will be contributed to the Partnership
from July 1, 1998 through April 1, 1999, of which $5.0 million is to be paid by
Becton Dickinson and $1.7 million is to be paid by Nanogen. There can be no
assurance that any such milestones will be achieved in a timely fashion, if at
all. The General Partnership Agreement also contemplates additional research
funding aggregating approximately $14.3 million during the period from July 1,
1999 through April 1, 2001 conditioned upon the achievement of certain
milestones to be mutually agreed upon by the partners. Of such amount, $10.0
million is to be paid by Becton Dickinson and $4.3 million is to be paid by the
Company. There can be no assurances that the parties will agree to such
milestones, and if agreed upon, there can be no assurances that such milestones
will be achieved in a timely fashion, if at all.
In addition to the above described payments, Becton Dickinson and Nanogen
have agreed to contribute certain additional amounts to fund marketing and
manufacturing of products commercialized by the Partnership. The success of the
Partnership will be dependent to a significant degree upon a mutuality of
interest between Nanogen and Becton Dickinson. Becton Dickinson is a large
company with alternate opportunities competing for its resources. There can be
no assurance that Becton Dickinson will make further capital contributions or
allocate sufficient management or other resources to the Partnership to complete
the development, manufacturing and marketing of Partnership products.
The Partnership has entered into a Collaborative Research and Development
and License Agreement with Nanogen and Becton Dickinson (the "Collaborative
Agreement"), pursuant to which each of Nanogen and Becton Dickinson has granted
to the Partnership, during the life of the Partnership, certain intellectual
property and patent rights and shall conduct research and development activities
with respect to the products on behalf of the Partnership.
Concurrently with the execution of the Master Agreement, Nanogen entered
into a worldwide, royalty-bearing, nonexclusive License Agreement with Becton
Dickinson relating to Becton Dickinson's proprietary SDA technology for use by
Nanogen outside the Partnership in the fields of in vitro human genetic testing
and in vitro cancer diagnostics.
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<PAGE> 38
Certain events, including a failure by the Partnership to achieve certain
milestones set forth in the Collaborative Agreement by December 31, 1997 and by
June 30, 1998, could result in termination of the Collaborative Agreement and
the Master Agreement and a concurrent dissolution of the Partnership. There can
be no assurance that such milestones will be achieved in a timely fashion, if at
all. The failure to achieve such milestones could have a material adverse effect
on the Company's business, financial condition and results of operations.
HOECHST AG
In December 1997, the Company entered into an agreement with Hoechst
Corporate Research and Technology ("CR&T"), an affiliate of Hoechst, for an
exclusive research and development collaboration relating to new drug discovery
tools and immunodiagnostics research and the establishment of a joint venture.
The objectives of the collaboration and joint venture are to develop and
commercialize microarray platforms and related devices and applications
utilizing the Company's technology in combination with CR&T's Exponential
Library by Association of Sublibraries ("ELIAS") technology and/or pRNA
technology. CR&T's ELIAS technology is its novel combinatorial approach for drug
screening and development and its pRNA technology is a novel DNA-like molecular
recognition polymer for drug screening. The arrangements for the
commercialization of products, if any, developed as a result of the
collaboration will be negotiated by the parties prior to completion of the
research and development phase.
It is expected that the initial term of the research phase of the
collaboration will be two years. After the first year, funding for the research
phase may be terminated upon the mutual consent of the parties. Each party will
perform certain aspects of the research, with funding provided primarily by
CR&T. The agreement contemplates the formation of a joint venture to facilitate
the commercialization of products resulting from the collaboration.
Pursuant to the agreement, CR&T has agreed to purchase Common Stock worth
an aggregate of $10.0 million directly from the Company in the Private
Placement. The Company has agreed to issue to CR&T, upon the achievement of
certain milestones, warrants to purchase up to four percent of the Common Stock
based upon the number of shares of Common Stock outstanding on December 5, 1997.
Exercise prices will be set at fixed premiums to the market price on the date
such warrants are issued. The warrants will have five-year maximum terms,
subject to early expiration in the event the market price exceeds the exercise
price by a fixed percentage.
ELAN CORPORATION, PLC
In December 1997, the Company entered into a nonexclusive research and
development agreement with Elan for the development of genomics and gene
expression research tools. The agreement contemplates that Nanogen will develop
products for discrimination of sequence variations such as single nucleotide
polymorphisms, allelic variations, genotyping and mutation detection. Nanogen
will also develop products for use in expression monitoring of RNA levels for
use in gene discovery, drug discovery, target validation, animal studies and
toxicity studies. The agreement contemplates that Elan will provide Nanogen with
an aggregate of $11.0 million over the five-year term of the research program,
subject to the achievement of certain milestones. There can be no assurance that
such milestones will be achieved in a timely fashion, if at all. Nanogen will
pay Elan a royalty on net sales to third parties of any products developed
pursuant to the collaboration and shall make its instrument platform available
to Elan for beta testing. In addition, Elan has agreed pursuant to the agreement
to purchase Common Stock worth an aggregate of $5.0 million directly from the
Company in the Private Placement.
THE UNIVERSITY OF TEXAS SOUTHWESTERN MEDICAL CENTER
In July 1995, the Company entered into a collaborative research agreement
with UT Southwestern, pursuant to which the parties agreed to collaborate on the
analysis of polymorphisms and human genetic linkage studies using Nanogen's
technology. Under the terms of the agreement, Nanogen is to provide its
microchips, controller hardware and software in support of research to be
conducted by UT Southwestern.
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<PAGE> 39
Additionally, the agreement specifies that UT Southwestern is to have title to
all inventions and discoveries arising solely as a result of its research
conducted thereunder, although (i) Nanogen has the option to negotiate a license
for any patented technology, and (ii) if the parties are unable to negotiate a
license on mutually agreeable terms within a specified time period, Nanogen
retains a right of first refusal with respect to such patented technology for a
period of two years. The agreement further specifies that the parties are to
have joint rights to patents and patented technology invented jointly by Nanogen
and UT Southwestern.
RESEARCH GRANTS
The Company currently has six active research grants administered by
various governmental agencies. Two of the grants, which aggregate approximately
$4.0 million, have been entered into with ATP for the development of a fully
integrated DNA testing system and the development of automated DNA sample
processing technology. In connection with the ATP awards, the Company was
awarded grants aggregating approximately $375,000 from the California Trade and
Commerce Agency Defense Conversion Program for developing polymer based
permeation systems for use in integrated microelectronic DNA diagnostic systems.
The Company has also received two grants, one from the National Institute of
Justice ("NIJ") and one from the Bode, to evaluate the feasibility of using
Nanogen's technology to perform rapid forensic DNA tests and the development of
microelectronic systems for analysis of fingerprints. The cumulative funding of
the NIJ and Bode grants is approximately $2.1 million. Additionally, Nanogen
received a small subcontracting agreement from the Potomac Institute of Policy
Studies to develop electronic microchip based immunoassays.
RESEARCH AND PRODUCT DEVELOPMENT
As of December 18, 1997, the Company had 74 employees in research and
development, of which 36 hold Ph.D. or M.D. degrees. The Company's research and
product development organization is dedicated to developing the DNA analysis
platform, leveraging basic technology across a number of different product
areas, planning system modifications for specific applications using a common
platform and enhancing chip design and capabilities to simplify instrument
design.
The Company's research and product development efforts are focused on the
further development of the Company's proprietary technology platform as well as
specific applications of the platform. The microelectronics, systems development
and chemistry groups are focusing on moving current designs into production and
on furthering developments and enhancements of the technology platform,
including developing more sophisticated microchip designs, next generation
instrumentation and enhanced operating software. The infectious disease products
group supports the research and development efforts of the joint venture with
Becton Dickinson. The genomics group is developing programs to exploit Nanogen
technology in genomics applications, both independently and through the Elan
collaboration. The molecular biology group is developing genetic analysis and
forensic applications and integrating the Becton Dickinson SDA technology with
the Company's platform. The advanced technology group is developing an advanced
sample-to-answer system. The Company will form a group to support its drug
discovery efforts, initially including the Hoechst collaboration. The Company
also has research groups to support its research grants.
In addition to its internal research and development efforts the Company
has entered into agreements with third parties to further develop certain
aspects of its technology platform. In July 1996, the Company entered into a
letter of intent with Prolinx, Inc. ("Prolinx") for the development of an
enhanced sensitivity detection system for use with Nanogen's electronic
microchips. In December 1996, the Company and Prolinx entered into a sponsored
research agreement pursuant to which Nanogen is to fund research conducted by
Prolinx in three principal areas: (i) identification and development of
chromophore/fluorophore/luminescent detection reagents, (ii) refinement and
development of an amplification polymer, and (iii) application of Prolinx
proprietary chemical linkage system for immobilization and capture of probes
within the field of electronically addressable microarrays. Pursuant to the
sponsored research agreement, the Company is committed to spend $500,000
annually in research funding for the three year term of the agreement. The
letter of intent also contemplates a license agreement regarding the results of
the sponsored research program
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pursuant to which Nanogen will have certain exclusive and nonexclusive rights to
Prolinx technology and program inventions in certain specified fields of use.
Additionally, in February 1996, the Company entered into a design and
development agreement with RELA, Inc. ("RELA") pursuant to which RELA assisted
Nanogen in the design and development of a prototype optical detection platform
which has been integrated into the Company's instrument. The Company continues
to work with RELA on an as-needed basis.
PROPRIETARY TECHNOLOGY AND PATENTS
The Company has four issued U.S. patents, one foreign issued patent, three
indications of allowability and 14 additional patent applications pending in the
U.S. Corresponding foreign patent applications have been filed in a number of
foreign countries. Additionally, in November 1997, the Company entered into a
licensing agreement with Syntro Corporation, pursuant to which the Company
obtained an exclusive license to a patent relating to methods and means of
annealing complementary nucleic molecules. The Company's current policy is to
file patent applications on what it deems to be important technological
developments which might relate to products of the Company or methods relating
to such products. In addition to pursuing patents and patent applications
relating to its platform technology, the Company may enter into certain other
license arrangements to obtain rights to third-party intellectual property where
appropriate.
There can be no assurance that any of the Company's or its licensors'
patent applications will issue or whether any issued patents will be found valid
if challenged. In addition, there can be no assurance that the intellectual
property rights licensed by the Company will be successfully integrated into
commercial products or that others will not independently develop similar
technologies or duplicate any technology developed by the Company. Because of
the extensive time required for development, testing and regulatory review of a
potential product, it is possible that, before any of the Company's products can
be commercialized, any related patent may expire or remain in existence for only
a short period following commercialization, thus reducing any advantage of the
patent, which could adversely affect the Company's ability to protect future
product development and, consequently, its business, financial condition and
results of operations.
To date all of the Company's inventions have originated in the U.S. and all
patent applications were originally filed in the U.S. The Company also seeks to
protect these inventions through foreign counterpart applications filed in
selected other countries. Because patent applications in the U.S. are maintained
in secrecy until patents issue and since publication of discoveries in the
scientific or patent literature often lag behind actual discoveries, the Company
cannot be certain that it was the first to make the inventions covered by each
of its issued or pending patent applications or that it was the first to file
for protection of inventions set forth in such patent applications. There can be
no assurance that the Company's planned or potential products will not be
covered by third-party patents or other intellectual property rights, in which
case continued development and marketing of such products would require a
license under such patents or other intellectual property rights. There can be
no assurance that such required licenses will be available to the Company on
acceptable terms, if at all. If the Company does not obtain such licenses, it
could encounter delays in product introductions while it attempts to design
around such patents, or could find that the development, manufacture or sale of
products requiring such licenses is foreclosed. Litigation may be necessary to
defend against or assert such claims of infringement, to enforce patents issued
to the Company, to protect trade secrets or know-how owned by the Company or to
determine the scope and validity of the proprietary rights of others. In
addition, interference proceedings declared by the USPTO may be necessary to
determine the priority of inventions with respect to patent applications of the
Company. Litigation or interference proceedings could result in substantial
costs to and diversion of effort by the Company, and could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that these efforts by the Company would be
successful.
The Company may rely, in certain circumstances, on trade secrets to protect
its technology. However, trade secrets are difficult to protect. The Company
seeks to protect its proprietary technology and processes, in part, by
confidentiality agreements with its employees and certain contractors. There can
be no assurance that these agreements will not be breached, that the Company
will have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by competitors.
To the extent that the Company's employees or its consultants or contractors use
intellectual property owned
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by others in their work for the Company, disputes may also arise as to the
rights in related or resulting know-how and inventions.
MANUFACTURING
The Company's strategy is to source semiconductor microchip fabrication and
disposable cartridge components from third-party contract manufacturers and
provide in-house deposition of the permeation layer, placement of DNA capture
probes and final electronic assembly and testing. The instrument will be
primarily sourced from third-party contract manufacturers, after which Nanogen
will provide final assembly and testing. The Company currently fabricates
microchips in limited quantities using a number of outside contract
manufacturers and is currently qualifying new contract manufacturers for large
scale wafer fabrication. The Company believes its technology allows for large
scale microchip production at a relatively low cost. The Company believes this
scalability and low cost will be one of its principal competitive advantages and
will promote the rapid acceptance of its proprietary semiconductor-based
platform technology as an industry standard. However, there can be no assurance
the Company will be successful in achieving the ability to scale up
manufacturing capacity. Under the terms of the Company's joint venture, Becton
Dickinson is expected to manufacture the instrument for infectious disease
diagnostics.
The Company has limited experience in manufacturing as well as limited
manufacturing capacity for its products and will be required to increase its
in-house manufacturing capability to manufacture additional products. The
Company intends to commence construction of a manufacturing facility during 1998
which is expected to be completed in 1999. The Company is currently recruiting
manufacturing management personnel. If the Company is unable to increase its
in-house manufacturing capability, the Company will need to obtain alternative
manufacturing facilities or establish additional contract manufacturing for its
products.
The Company will be required to comply with QSR requirements in order to
produce products for sale in the United States and with applicable quality
system standards and directives in order to produce products for sale in the
European union. Any failure of the Company to comply with the QSR requirements
or applicable standards and directives may result in the Company being required
to take corrective actions, such as modification of its policies and procedures.
Pending such corrective actions, the Company could be unable to manufacture or
ship any products, which could have a material adverse effect on the Company's
business, financial condition and results of operation. Furthermore, the
Company's manufacturing facilities, and those of its third-party manufacturers,
are subject to periodic inspection by regulatory authorities, and its operations
must undergo QSR compliance inspections conducted by the FDA and corresponding
state agencies. Additionally, prior to approval of a PMA, the Company's and its
third-party manufacturers' facilities, procedures and practices will be subject
to preapproval QSR inspection. Failure to pass such inspections may have a
material adverse effect on the Company's business, financial condition and
results of operations.
If the Company or any of its contract manufacturers encounter future
manufacturing difficulties, including problems involving the ability to scale up
manufacturing capacity, production yields, quality control and quality
assurance, or shortages of components or qualified personnel, it could have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
The Company believes that there are no other currently available
technologies that offer a range of capabilities comparable to those offered by
the Company's technology. However, as it develops applications of its
technology, the Company expects to encounter intense competition from a number
of companies that offer products competing in its targeted applications. The
Company anticipates that its competitors in these areas will include health care
companies that manufacture laboratory-based tests and analyzers, diagnostic and
pharmaceutical companies, as well as companies developing drug discovery
technologies. To the extent the Company is successful in developing products in
these areas, the Company will face competition from established and numerous
development-stage companies that continually enter these markets.
In many instances, the Company's competitors have substantially greater
financial, technical, research and other resources and larger, more established
marketing, sales, distribution and service organizations than
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the Company. Moreover, such competitors may offer broader product lines and have
greater name recognition than the Company, and may offer discounts as a
competitive tactic. In addition, several development stage companies are
currently making or developing products that compete with or will compete with
those of the Company. There can be no assurance that the Company's competitors
will not succeed in developing or marketing technologies or products that are
more effective or commercially attractive than the Company's current or future
products, or that would render the Company's technologies and products obsolete.
Also, there can be no assurance that the Company will have the financial
resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. The Company's future success
will depend in large part on its ability to maintain a competitive position with
respect to its technologies in which it competes. Rapid technological
development by the Company or others may result in competing products or
technology. See "Risk Factors -- Intense Competition; Competing Technologies."
GOVERNMENT REGULATION
The Company anticipates the manufacturing, labeling, distribution and
marketing of some or all of the Company's diagnostics products will be subject
to regulation in the U.S. and in certain other countries. In addition to
clinical diagnostic markets, Nanogen also intends to pursue research,
environmental, laboratory and industrial applications for certain of its
products which may be subject to different government regulation. Aspects of the
Company's manufacturing and marketing activities may also be subject to federal,
state and local regulation by various governmental authorities.
In the U.S., the FDA regulates, as medical devices, most diagnostic tests
and in vitro reagents that are marketed as finished test kits and equipment.
Pursuant to the Federal Food, Drug, and Cosmetic Act, and the regulations
promulgated thereunder, the FDA regulates the preclinical and clinical testing,
design manufacture, labeling, distribution and promotion of medical devices. The
Company will not be able to commence marketing or commercial sales in the U.S.
of new medical devices under development until it receives clearance or approval
from the FDA, which can be a lengthy, expensive and uncertain process.
Noncompliance with applicable requirements can result in, among other things,
administrative or judicially imposed sanctions such as injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing clearances or approvals, or
criminal prosecution.
In the U.S., medical devices are classified into one of three classes
(i.e., Class I, II or III) on the basis of the controls deemed necessary by the
FDA to reasonably ensure their safety and effectiveness. Class I devices are
subject to general controls (e.g., labeling, premarket notification and
adherence to QSR). Class II devices are subject to general and special controls
(e.g., performance standards, postmarket surveillance, patient registries and
FDA guidelines). Generally, Class III devices are those which must receive
premarket approval by the FDA to ensure their safety and effectiveness (e.g.,
life-sustaining, life-supporting and implantable devices or new devices which
have been found not to be substantially equivalent to a legally marketed
devices). Before a new device can be introduced in the market, the manufacturer
must generally obtain FDA clearance of a 510(k) notification or approval of a
PMA application. The Company's products will vary significantly in the degree of
regulatory approvals required. The Company believes that certain of its products
for research, industrial, genomics and drug discovery applications will not
require regulatory approvals or clearance. Certain diagnostic products will
require 510(k) approvals while other diagnostic and genetic testing products
will require PMA approvals.
A 510(k) clearance will generally only be granted if the information
submitted to the FDA establishes that the device is "substantially equivalent"
to a legally marketed predicate device. For any devices that are cleared through
the 510(k) process, significant modifications or enhancements in the design or
intended use that could significantly affect safety or effectiveness will
require new 510(k) submissions. It generally takes from four to twelve months
from submission to obtain 510(k) premarket clearance but may take longer.
The PMA approval process is more expensive, uncertain and lengthy than the
510(k) clearance process. A PMA must prove the safety and effectiveness of the
device to the FDA's satisfaction, which typically requires extensive data,
including but not limited to, technical, preclinical, clinical trials,
manufacturing, and
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labeling to demonstrate the safety and effectiveness of the device. Although
clinical investigations of most devices are subject to the investigational
device exemption ("IDE") requirements, clinical investigations of vitro
diagnostic ("IVD") tests, such as the Company's products and products under
development, are exempt from the IDE requirements, including the need to obtain
the FDA's prior approval, provided the testing is noninvasive, does not require
an invasive sampling procedure that presents a significant risk, does not
intentionally introduce energy into the subject, and is not used as a diagnostic
procedure without confirmation by another medically established test or
procedure. In addition, the IVD must be labeled for research use only ("RUO") or
investigational use only ("IUO"), and distribution controls must be established
to assure that IVDs distributed for research or clinical investigation are used
only for those purposes.
There can be no assurance that with respect to any of the Company's
products in development, the FDA will not determine that the Company must adhere
to the more costly, lengthy and uncertain PMA approval process. Significant
modifications to the design, labeling or manufacturing process of an approved
device may require approval by the FDA of a PMA supplement or a new PMA
application.
After a PMA is accepted for filing, the FDA begins its review of the
submitted information, which generally takes between one and two years, but may
take significantly longer. During this review period, the FDA may request
additional information or clarification of information already provided. Also
during the review period, an advisory panel of experts from outside the FDA will
be convened to review and evaluate the application and provide recommendations
to the FDA as to the approvability of the device. There can be no assurance that
the Company will be able to obtain necessary approvals on a timely basis, if at
all, and delays in obtaining or failure to obtain such approvals, the loss of
previously obtained approvals, or failure to comply with existing or future
regulatory requirements could have an adverse effect on the Company's business,
financial condition and results of operations.
Manufacturers of medical devices for marketing in the U.S. are required to
adhere to the QSR requirements (formerly Good Manufacturing Practices), which
include testing, control and documentation requirements. Manufacturers must also
comply with Medical Device Reporting ("MDR") requirements that a manufacturer
report to the FDA any incident in which its product may have caused or
contributed to a death or serious injury, or in which its product malfunctioned
and would be likely to cause or contribute to a death or serious injury upon
recurrence. Labeling and promotional activities are subject to scrutiny by the
FDA and, in certain circumstances, by the Federal Trade Commission. Current FDA
enforcement policy prohibits the marketing of approved medical devices for
unapproved uses.
The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with QSR requirements, MDR requirements and other
applicable regulations. The recently finalized QSR requirements include design
controls that will likely increase the cost of compliance. There can be no
assurance that the Company will not incur significant costs to comply with laws
and regulations in the future or that such laws and regulations will not have a
material adverse effect upon the Company's business, financial condition and
results of operation.
Any of the Company's customers using its diagnostic devices for clinical
use in the U.S. may be regulated under the Clinical Laboratory Improvement
Amendments of 1988 ("CLIA"). CLIA is intended to ensure the quality and
reliability of clinical laboratories in the U.S. by mandating specific standards
in the areas of personnel qualification, administration, participation in
proficiency testing, patient test management, quality control, quality assurance
and inspections. The regulations promulgated under CLIA establish three levels
of diagnostic tests ("waived," "moderately complex" and "highly complex"), and
the standards applicable to a clinical laboratory depend on the level of the
tests it performs. CLIA requirements may prevent some clinical laboratories from
using certain of the Company's diagnostic products. Therefore, there can be no
assurance that the CLIA regulations and future administrative interpretations of
CLIA will not have a material adverse impact on the Company by limiting the
potential market for the Company's products.
The President recently signed into law the Food and Drug Administration
Modernization Act of 1997. This legislation makes changes to the device
provisions of the FDC Act and other provisions in the Act affecting the
regulation of devices. Among other things, the changes will affect the IDE,
510(k) and PMA processes, and also will affect device standards and data
requirements, procedures relating to humanitarian
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and breakthrough devices, tracking and postmarket surveillance, accredited
third-party review, and the dissemination of off-label information. The Company
cannot predict how or when these changes will be implemented or what effect the
changes will have on the regulation of the Company's products. There can be no
assurance that the new legislation will not impose additional costs or lengthen
review times for the Company's products.
The Company's food pathogen products will be subject to the regulations of
various domestic and foreign government agencies which regulate food safety and
food adulteration, including the U.S. Department of Agriculture ("USDA").
Nanogen intends to consult with and, when appropriate, to hire personnel
with expertise in regulatory affairs to assist the Company in obtaining
appropriate regulatory approvals as required. Nanogen also intends to work with
its corporate partners that have experience in regulatory affairs to assist in
obtaining regulatory approvals for collaborative products.
SALES AND MARKETING
Pursuant to the terms of its joint venture with Becton Dickinson, the
Company's potential products relating to infectious disease will be marketed by
Becton Dickinson. Nanogen intends to market and sell other potential products
directly or indirectly through strategic alliances and distribution arrangements
with third parties, including its collaborative partners. There can be no
assurance that any efforts to establish such strategic alliances or distribution
arrangements will be successful. The Company is currently recruiting senior
marketing management personnel to formulate and implement the Company's sales
and marketing strategies.
FACILITIES
Nanogen currently leases approximately 45,000 square feet of commercial
real estate in San Diego, California, under a lease expiring in 2005. The
Company has an option to renew the lease on this facility for two additional
five-year terms. Currently, Nanogen occupies 27,000 square feet of the facility
which accommodates Nanogen's administrative offices and research and development
laboratories. The remainder of the leased premises are under construction in
anticipation of the Company's expanded research and development activities, with
occupancy expected in April 1998. The Company intends to commence construction
of a manufacturing facility in close proximity to its existing facility during
1998 which is expected to be completed in 1999. As currently planned, this new
facility will accommodate the Company's final electronic assembly, permeation
layer deposition, DNA probe placement, quality control and instrument final
assembly and testing.
EMPLOYEES
As of December 18, 1997, the Company had 89 full-time employees, of whom 37
hold Ph.D. or M.D. degrees and six hold other advanced degrees. None of the
Company's employees is covered by a collective bargaining agreement, and
management considers relations with its employees to be good.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY SCIENTIFIC PERSONNEL
The directors, executive officers and key scientific personnel of the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Directors and Executive Officers
Howard C. Birndorf.............. 47 Chairman of the Board and Chief Executive Officer
Tina S. Nova, Ph.D.(1).......... 44 President, Chief Operating Officer and Director
W. J. Kitchen, Sc.D............. 55 Senior Vice President, Operations
Vice President, Finance and Chief Financial
Steven J. Naber................. 45 Officer
Harry J. Leonhardt, Esq......... 41 Vice President, General Counsel and Secretary
James P. O'Connell, Ph.D........ 51 Vice President, Research and Product Development
Brook H. Byers.................. 52 Director
Robert E. Curry, Ph.D.(2)....... 51 Director
Cam L. Garner(2)................ 49 Director
David G. Ludvigson.............. 47 Director
Thomas G. Lynch(1)(2)........... 41 Director
Andrew E. Senyei, M.D.(1)....... 47 Director
Key Scientific Personnel
Michael J. Heller, Ph.D......... 53 Chief Technical Officer
Donald E. Ackley, Ph.D.......... 44 Senior Director, Microelectronics
Mark L. Collins, Ph.D........... 43 Senior Director, Advanced Technology
Patrick J. Dillon, Ph.D......... 36 Senior Director, Genomics
John J. Carrino, Ph.D........... 39 Director, Assay Development
John R. Havens, Ph.D............ 40 Director, Chemistry
Michael I. Nerenberg, M.D....... 42 Director, Molecular Biology
</TABLE>
- ---------------
(1) Member of Audit Committee of the Board of Directors.
(2) Member of Compensation Committee of the Board of Directors.
Howard C. Birndorf, a founder of the Company, has served as Chairman of the
Board and Chief Executive Officer since October 1993, and from September 1993 to
October 1997 served as Chief Financial Officer. Mr. Birndorf was a co-founder
and Chairman Emeritus of Ligand Pharmaceuticals, Incorporated ("Ligand") where
from January 1988 to November 1991 he was President and Chief Executive Officer.
He was also a co-founder, director and Executive Vice President of Gen-Probe
Incorporated ("Gen-Probe"), co-founder and Vice President of Corporate
Development at Hybritech, Incorporated ("Hybritech"), co-founder and director of
IDEC Pharmaceuticals Corporation ("IDEC Pharmaceuticals") and was involved in
the formation of Gensia Pharmaceuticals, Inc. (currently known as Gensia Sicor
Inc.) where he was a director. From November 1991 to January 1994, Mr. Birndorf
was President of Birndorf Technology Development, an investment and consulting
company. He was a director of Neurocrine Biosciences, Inc., from 1992 to
December 1997 and is currently a director of the Cancer Center of the University
of California, San Diego. He is also a Presidential appointee to the U.S.
Department of Commerce Biotechnology Technical Advisory Committee, and was named
San Diego's Entrepreneur of the Year in 1989. Mr. Birndorf received an M.S. in
Biochemistry from Wayne State University.
Tina S. Nova, Ph.D. has been a director of the Company since April 1994 and
has served as President and Chief Operating Officer since February 1994. Dr.
Nova began her scientific career at Hybritech, where she was responsible for the
development of several diagnostic products commonly used in clinical
laboratories today. She joined Ligand as Executive Director of Development where
she developed the automated high-throughput screening assay utilized today in
their drug discovery efforts. She then joined PRIZM
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Pharmaceuticals ("PRIZM") from 1992 to February 1994 where she was Vice
President and Chief Operating Officer. Dr. Nova has published in numerous
scientific journals, and is an inventor on several patents and patent
applications in the area of assay development. Dr. Nova is a director of The
Solaris Group, a division of Monsanto, and currently serves on the Board of
Directors of BIOCOM in San Diego, the Cancer Center of the University of
California, San Diego and the Doris Howell Foundation for Women's Healthcare.
Dr. Nova received a Ph.D. in Biochemistry from the University of California,
Riverside followed by a postdoctoral fellowship in Dermatology and Pharmacology
at New York University Medical School.
W.J. Kitchen, Sc.D. joined the Company in December 1997 as Senior Vice
President, Operations. From May 1993 to December 1997, Dr. Kitchen served as
Corporate Vice President, Director of Technology and Quality of the Automotive,
Energy and Components Sector of Motorola, Inc. ("Motorola"). He joined
Motorola's Semiconductor Products Sector in 1982 where his various positions
included Vice President, Director Strategic R&D, Vice President Technology, Vice
President, Director, Advanced Technology Center, and Director, Semiconductor R&D
Laboratories. Prior to joining Motorola, Dr. Kitchen was a Senior Executive with
the National Security Agency where he was responsible for the development and
manufacturing of secure communications equipment. He received a B.S. in
Electrical Engineering with distinction from Virginia Military Institute, an
M.S. and Doctor of Science degrees in Electrical Engineering from the University
of Virginia and an M.B.A. from the Industrial College of the Armed Forces.
Steven J. Naber has served as Vice President, Finance and Chief Financial
Officer since October 1997. From July 1995 to September 1997, Mr. Naber was Vice
President, Finance and Chief Financial Officer of Biopsys Medical, Inc., a
publicly-held medical device company which was acquired by Johnson & Johnson in
July 1997. From July 1991 to June 1995, Mr. Naber served as Vice President,
Finance and Chief Financial Officer of Ioptex Research, Inc., an ophthalmic
device company and a subsidiary of Smith & Nephew plc. From May 1984 until
November 1990, Mr. Naber served as Vice President, Finance and Chief Financial
Officer of Gradco Systems, Inc., a publicly-held office technology company.
Prior to May 1984, Mr. Naber held senior financial positions with Mattel
Electronics, Inc. and Kraft, Inc. Mr. Naber is a certified public accountant and
received a B.B.A. in Accounting from the University of Iowa.
Harry J. Leonhardt, Esq. has served as Vice President, General Counsel and
Secretary since July 1996. From 1990 to 1996, Mr. Leonhardt served in various
capacities at Allergan, Inc., as Senior Attorney and Head of Intellectual
Property Litigation, Assistant General Counsel and Head of Worldwide Litigation,
and during a two-year expatriate assignment at its European headquarters in
England, served as General Counsel for Allergan's European Operations. From 1983
to 1990, Mr. Leonhardt was an associate attorney with the patent firm of Lyon &
Lyon LLP in Los Angeles, where he represented a number of high technology
clients in the fields of biotechnology, pharmaceuticals, diagnostic devices,
genetic probes and genetic engineering. Mr. Leonhardt received a B.Sc. in
Pharmacy from the Philadelphia College of Pharmacy and Science and a J.D. from
the University of Southern California Law Center.
James P. O'Connell, Ph.D. has served as Vice President, Research and
Product Development since December 1994. From August 1988 to December 1994, he
was Vice President, Research and Development and Central Operations for Ortho
Diagnostic Systems, a Johnson & Johnson Company, where he was responsible for
general management of research and development, manufacturing and industrial
engineering, purchasing and procurement. Dr. O'Connell was also responsible for
the research activities of the Johnson & Johnson Biotechnology Center in La
Jolla, California. Prior to October 1988, Dr. O'Connell was Director of
Immunodiagnostics Research and Development at Becton Dickinson. He received a
M.S. and Ph.D. in Microbiology and Public Health from the University of North
Carolina.
Brook H. Byers has been a director of the Company since 1994. Mr. Byers is
a general partner of Kleiner Perkins Caufield & Byers ("KPCB"), a venture
capital firm which he joined in 1977. He has been the founding president and
chairman of four life sciences companies: Hybritech, IDEC Pharmaceuticals,
InSite Vision Inc. and Ligand. Mr. Byers currently serves as a director of Arris
Pharmaceutical Corporation and a number of privately-held technology companies.
Mr. Byers serves on the Board of Directors of the University of California, San
Francisco Foundation.
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Robert E. Curry, Ph.D. has been a director of the Company since 1995. Dr.
Curry joined the Sprout Group ("Sprout"), a submanager of various venture
capital funds within the Donaldson, Lufkin & Jenrette organization, as a general
partner of several of the partnerships comprising Sprout in May 1991 and is
currently a divisional Vice President of DLJ Capital Corporation ("DLJ"), a
wholly-owned subsidiary of Donaldson, Lufkin & Jenrette, Inc. Prior to joining
Sprout, Dr. Curry served in various capacities with Merrill Lynch R&D Management
and Merrill Lynch Venture Capital from 1984, including as President of both
organizations from January 1990 to May 1991. Previously, Dr. Curry was a Vice
President of Becton Dickinson from May 1980 to July 1984, and General Manager of
BioRad Laboratory Inc.'s Diagnostics Systems Division from August 1976 to May
1980. He currently is a director of AutoCyte, Inc., Biocircuits Corporation,
Diatide, Inc. and Photon Technology International, Inc. Dr. Curry received a
B.S. from the University of Illinois and an M.S. and Ph.D. in Chemistry from
Purdue University.
Cam L. Garner has been a director of the Company since September 1997.
Since May 1990, Mr. Garner has been President and Chief Executive Officer of
Dura Pharmaceuticals, Inc. ("Dura") and since 1995 has served as Dura's Chairman
of the Board of Directors. Mr. Garner also currently serves as a director of
Spiros Development Corp. II, Inc., a special purpose corporation developing a
pulmonary drug delivery system. Prior to joining Dura, Mr. Garner served as
President of Syntro Corporation, a biotechnology company, from November 1987 to
June 1989. Mr. Garner is currently a director of Safeskin Corporation, a
manufacturer of medical supplies, CardioDynamics International and Trega
Biosciences, Inc. Mr. Garner received a B.S. in Biology from Virginia Wesleyan
College and an M.B.A. from Baldwin-Wallace College.
David G. Ludvigson has been a director of the Company since 1996. Since
February 1996, Mr. Ludvigson has been President and Chief Operating Officer of
NeTpower. From 1992 to 1995, Mr. Ludvigson was Senior Vice President and Chief
Financial Officer of IDEC Pharmaceuticals. Prior to that time, he served as
Senior Vice President of Sales and Marketing for Conner Peripherals and as
Executive Vice President, Chief Financial Officer and a director of MIPS
Computer Systems, Inc., a RISC microprocessor developer and systems
manufacturer. Mr. Ludvigson received a B.S. and an M.A.S. from the University of
Illinois.
Thomas G. Lynch has been a director of the Company since February 1997. Mr.
Lynch is Executive Vice President and Chief Financial Officer of Elan, a leading
drug delivery and biopharmaceutical company headquartered in Athlone, Ireland,
where he is responsible for finance, treasury, strategic planning and corporate
and investor relations. He is also a member of the executive committee of Elan's
board of directors. Prior to his appointment at Elan in 1993, Mr. Lynch was a
partner with KPMG Peat Marwick where he specialized in securities matters and
business advisory and accounting services. Mr. Lynch is also a director of
Pembroke Capital Limited, Icon Limited, Axogen Limited and Warner Chilcott, plc.
Andrew E. Senyei, M.D., a founder of the Company, has been a director of
the Company since September 1993. He has been a general partner of Enterprise
Management Partners, a venture capital firm, since 1988. Prior to joining
Enterprise Management Partners, Dr. Senyei was co-founder and the first
President of Molecular Biosystems, Inc. Dr. Senyei then served as Assistant
Professor in the Departments of Obstetrics, Gynecology and Pediatrics at the
University of California, Irvine. Dr. Senyei received a B.A. in Biology from
Occidental College and a M.D. from Northwestern University.
Michael J. Heller, Ph.D. is a founder of the Company and has served as its
Chief Technical Officer since September 1993. In November 1991, Dr. Heller
co-founded Nanogen's former parent company, Nanotronics, and since that time has
served as Nanotronics' Vice President for Research. Dr. Heller co-founded and
served as President and Chief Operating Officer of Integrated DNA Technologies
from 1987 to 1989, and from 1984 to 1987 served as Director of Molecular Biology
for Molecular Biosystems, Inc. Prior to 1984, he served as Supervisor of DNA
Technology and Molecular Biology for Standard Oil Company. Dr. Heller received a
Ph.D. in Biochemistry from Colorado State University.
Donald E. Ackley, Ph.D. joined the Company in June 1996 as Senior Director
of Microelectronics. Dr. Ackley served as Chief Scientist for Motorola's
Photonics Technology Center from March 1993 to May 1996 where he was responsible
for projects that included bioelectronics, chemical sensors, virtual displays,
packaging, and optoelectronic devices for data communications. From November
1990 to March 1993, Dr. Ackley served as Manager of Motorola's Optoelectronics
Device Research Group. Prior to
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<PAGE> 48
joining Motorola, Dr. Ackley worked in a wide variety of semiconductor
technologies including molecular beam epitaxy, optoelectronics devices, and
optical sensors at companies such as RCA's David Sarnoff Research Center,
Siemens Corporation and the Hewlett-Packard Company. He has also participated in
two successful start-ups in the field of semiconductor-based devices. Dr. Ackley
received a B.Sc., M.Sc. and Ph.D. from Brown University.
Mark L. Collins, Ph.D. joined the Company in July 1997 as Senior Director
of Advanced Technology. From June 1994 to July 1997, Dr. Collins was Associate
Director of Research in the Hybridization Technology Group at Chiron
Corporation, and was a Senior Scientist in the Probe Design Group from September
1991 to June 1994. Prior to that, he was Director of the Sample Processing Group
and Manager, Basic Research Group, at Gene-Trak Systems. Dr. Collins received a
Ph.D. in Biochemistry from Ohio State University.
Patrick J. Dillon, Ph.D. joined the Company in August 1997 as Senior
Director of Genomics. From March 1993 to August 1997, Dr. Dillon was employed by
Human Genome Sciences, Inc. ("HGS"), where he was Associate Director of Gene
Discovery and Exploratory Research from July 1995 to August 1997. Prior to his
four years at HGS, he was a Senior Scientist in the Molecular Biology Group at
R.W. Johnson Pharmaceutical Research Institute from 1992 to 1993. Dr. Dillon
received a Ph.D. in Immunology from Rush University, and from 1988 to 1992
completed Postdoctoral Fellowships in the Department of Molecular Oncology &
Virology and in the Department of Gene Regulation at the Roche Institute of
Molecular Biology.
John J. Carrino, Ph.D. joined the Company in July 1997 as Director of Assay
Development. From March 1994 to June 1997, Dr. Carrino was Section Manager,
LCR/PCR Core Technology and New Assay Development for Abbott Laboratories, where
he was responsible for the development of diagnostic assays utilizing nucleic
acid amplification methodology. Before joining Abbott in 1988 as a Senior
Molecular Biologist, Dr. Carrino was a postdoctoral fellow at the University of
Chicago in the Department of Medicine. He received a Ph.D. in
Microbiology/Immunology from Northwestern University.
John R. Havens, Ph.D. joined the Company in February 1997 as Director of
Chemistry. From September 1984 to February 1997, Dr. Havens held technical and
managerial positions at Raychem Corporation. During his tenure at Raychem, Dr.
Havens served as Principal Scientist of the Display Products Group where he led
the development of a polymerdispersed liquid crystal material designed for
compact, bright video projectors. Other assignments included the development of
a plastic display based on the laser processing of thin-film transistors, with
Lawrence Livermore National Laboratory; and the position of Quality
Assurance/Quality Control Manager of the U.S. Materials Division. Dr. Havens
received a Ph.D. in Macromolecular Science from Case Western Reserve University,
and from 1982 to 1984 served as National Research Council Postdoctoral Fellow,
Polymers Division, for the National Bureau of Standards.
Michael I. Nerenberg, M.D. joined the Company in July 1996 as Director of
Molecular Biology. From July 1989 to July 1996, Dr. Nerenberg served at the
Scripps Research Institute ("Scripps") in the Department of Neuropharmacology
and Molecular and Experimental Medicine, where he directed a research laboratory
in retroviral oncogenesis. Dr. Nerenberg was a medical staff fellow in the
laboratory of molecular virology at the National Institutes of Health until 1987
and a postdoctoral fellow at Scripps. Dr. Nerenberg received a B.A. in Chemistry
from the University of Chicago, and a M.D. from Yale University School of
Medicine. Dr. Nerenberg completed his residency in Internal Medicine at the
University of Pennsylvania in 1984.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, which consists of Mr. Lynch, Dr.
Senyei and Dr. Nova, reviews the results and scope of the annual audit and the
services provided by the Company's independent auditors. The Compensation
Committee, which consists of Dr. Curry, Mr. Garner and Mr. Lynch, makes
recommendations to the Board of Directors with respect to general and specific
compensation policies and practices of the Company and administers the Company's
1997 Stock Incentive Plan (the "1997 Stock Plan") and the Employee Stock
Purchase Plan (the "ESPP").
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee during 1996 were Dr.
Curry, Dr. Senyei and Dr. Adams, a former director of the Company. There were no
interlocks or other relationships among the Company's executive officers and
directors that are required to be disclosed under applicable executive
compensations disclosure applications.
The Company currently has authorized eight directors. Upon the closing of
this offering, the Company will have three classes of directors serving
staggered three-year terms. All directors are elected to hold office until the
next annual meeting of stockholders of the Company in which their three-year
term expires and until their successors have been elected. Officers are elected
at the first board of directors meeting following the stockholders' meeting at
which the directors are elected and serve at the discretion of the Board of
Directors. There are no family relationships among any of the directors or
executive officers of the Company.
COMPENSATION OF DIRECTORS
Directors do not receive any fees for service on the Board of Directors,
although they are reimbursed for certain expenses incurred in connection with
attendance at Board and Committee meetings. At the time Messrs. Ludvigson, Lynch
and Garner became members of the Board of Directors, the Company granted to each
of them an option to purchase 25,000 shares of Common Stock under the Company's
1995 Stock Option/Stock Issuance Plan or the 1997 Stock Plan. All of these
options were exercisable immediately, although unvested shares issued upon
exercise are subject to repurchase by the Company. The Company's right of
repurchase lapses as to 25% of the shares covered by the respective options on
the first anniversary of the date of grant, and lapses ratably on a monthly
basis thereafter, with the repurchase right terminating in full on the fourth
anniversary of the date of grant. Directors are eligible to participate in the
Company's 1997 Stock Plan described below.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to the Company's three other most highly compensated
executive officers other than the Chief Executive Officer whose total annual
salary and bonus exceeded $100,000, for services rendered in all capacities to
the Company during the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
- ----------------------------------- ----- --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Howard C. Birndorf
Chief Executive Officer.......... 1996 $ 270,005 $60,000 $ -- 275,000
Tina S. Nova, Ph.D.
President and Chief Operating
Officer.......................... 1996 198,004 39,600 -- 75,000
James P. O'Connell, Ph.D.
Vice President, Research and
Product Development.............. 1996 206,004 68,600 19,428(1) 50,000
Harry J. Leonhardt, Esq.
Vice President, General Counsel
and Secretary.................... 1996 92,503(2) 20,000 20,860(1) 100,000
</TABLE>
- ---------------
(1) Amount represents reimbursement of expenses and related income taxes
incurred in relocating to San Diego.
(2) Mr. Leonhardt joined the Company in July 1996.
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<PAGE> 50
The following tables set forth certain information as of December 31, 1996
and for the fiscal year then ended with respect to stock options granted to and
exercised by the individuals named in the Summary Compensation Table above.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(6)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE(2) 5%($) 10%($)
- ---------------------------- ----------- -------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Howard C. Birndorf.......... 100,000(3) 10.0226% $ .10 4/25/06 $ 6,289 $15,937
175,000(4) 17.5396 .10 4/25/06 11,006 27,890
Tina S. Nova, Ph.D.......... 25,000(3) 2.5057 .10 4/25/06 1,572 3,984
50,000(4) 5.0113 .10 4/25/06 3,144 7,969
James P. O'Connell, Ph.D.... 20,000(3) 2.0045 .10 8/22/06 1,258 3,187
30,000(5) 3.0068 .10 8/22/06 1,887 4,781
Harry J. Leonhardt, Esq..... 100,000(3) 10.0226 .10 8/22/06 6,289 15,937
</TABLE>
- ---------------
(1) The exercise price on the date of grant was equal to 100% of the fair market
value on the date of grant.
(2) All options granted in 1996 held by Dr. Nova and by Messrs. Birndorf and
Leonhardt have been exercised in full.
(3) These incentive stock options are exercisable in full immediately, but the
shares issued upon exercise are subject to repurchase by the Company. The
Company's right of repurchase lapses as to 25% of the shares covered by the
respective options on the first anniversary of the date of grant, and lapses
ratably on a monthly basis thereafter, with the repurchase right terminating
in full on the fourth anniversary of the date of grant. Under the terms of
the Stock Option Plans, the committee designated by the Board of Directors
to administer the Stock Option Plans retains the discretion, subject to
certain limitations within the Stock Option Plans, to modify, extend or
renew outstanding options and to reprice outstanding options. Options may be
repriced by canceling outstanding options and reissuing new options with an
exercise price equal to the fair market value on the date of reissue, which
may be lower than the original exercise price of such canceled options.
(4) These performance-based stock options are exercisable in full immediately,
but the shares issued upon exercise are subject to repurchase by the
Company. The Company's right of repurchase lapses as to purchased shares in
which the optionee vests in accordance with a vesting schedule which
provides for vesting of all shares on January 1, 2002 and allows for
accelerated vesting upon the attainment of certain prescribed milestones.
(5) These performance-based stock options are exercisable in full immediately,
but the shares issued upon exercise are subject to repurchase by the
Company. The Company's right of repurchase lapses as to purchased shares in
which the optionee vests in accordance with a vesting schedule which
provides for vesting of all shares on August 22, 2002 and allows for
accelerated vesting upon the attainment of certain prescribed milestones.
(6) The 5% and 10% assumed rates of appreciation are suggested by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. There can be no
assurance that any of the values reflected in the table will be achieved.
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<PAGE> 51
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 1996 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996(#) DECEMBER 31, 1996($)
------------------------ -------------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
- -------------------------- ----------------- -------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
Howard C. Birndorf........ 275,000(2) -- --/-- --/--
Tina S. Nova, Ph.D........ 75,000(2) -- --/-- --/--
James P. O'Connell,
Ph.D.................... -- -- 50,000/-- --/--
Harry J. Leonhardt,
Esq..................... 100,000 -- --/-- --/--
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
(2) In connection with the acquisition of shares, the officer received a loan
from the Company pursuant to a five-year full recourse promissory note,
which note is secured by the shares acquired.
STOCK OPTION PLANS
1993 STOCK OPTION PLAN AND 1995 STOCK OPTION/ISSUANCE PLAN
In 1993, the Company's Board of Directors adopted the Company's 1993 Stock
Plan, and in April 1995, the Board of Directors adopted the 1995 Stock
Option/Stock Issuance Plan (the "Prior Stock Plans"). The Prior Stock Plans were
amended at various times from their adoptions to the date of this Prospectus to
increase the number of shares available under the Prior Stock Plans.
Under the Prior Stock Plans, all employees (including officers) and
directors of the Company or any subsidiary and any independent contractor or
advisor who performs services for the Company or a subsidiary were eligible to
purchase shares of Common Stock and to receive awards of shares or grants of
nonstatutory stock options ("NSOs"). Employees were also eligible to receive
grants of incentive stock options ("ISOs") intended to qualify under Section
422A of the Internal Revenue Code of 1986, as amended ("Code"). The Prior Stock
Plans are administered by a committee of the Board of Directors of the Company,
which selects the persons to whom shares will be sold or awarded or options will
be granted, determines the number of shares to be made subject to each sale,
award or grant, and prescribes other terms and conditions, including the type of
consideration to be paid to the Company upon sale or exercise and vesting
schedules, in connection with each sale, award or grant.
The exercise price under the NSOs generally must be at least 85% of the
fair market value of the Common Stock on the date of grant. The exercise price
under ISOs cannot be lower than 100% of the fair market value of the Common
Stock on the date of grant and, in the case of ISOs granted to holders of more
than 10% of the voting power of the Company, not less than 110% of such fair
market value. The term of an option cannot exceed ten years, and the term of an
ISO granted to a holder of more than 10% of the voting power of the Company
cannot exceed five years. Options generally expire not later than 90 days
following a termination of employment, six months following the optionee's
disability unless extended to not later than twelve months if permitted by the
Board of Directors in accordance with the terms of the Plan, or not later than
twelve months following the optionee's death. The purchase price of shares sold
under the Prior Stock Plans generally must be at least 85% of the fair market
value of the Common Stock and, in the case of a holder of more than 10% of the
voting power of the Company, not less than 110% of such fair market value. Under
the Prior Stock Plans, options granted pursuant to the Prior Stock Plans
generally vest ratably over a period of four years.
As of October 31, 1997, the Company had outstanding options to purchase an
aggregate of 356,741 shares of Common Stock at exercise prices ranging from $.01
to $.60 per share, or a weighted average exercise price per share of $.19 under
the Prior Stock Plans. At the date of adoption of the 1997 Stock Plan of the
Company
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<PAGE> 52
a total of 503,343 shares of Common Stock were available for future issuance
under the Prior Stock Plans, which shares are available for grants under the
1997 Stock Plan. If any option granted under the Prior Stock Plans expires or
terminates for any reason without having been exercised in full, then the
unpurchased shares subject to that option will become available for additional
option grants under the 1997 Stock Plan, as described below.
1997 STOCK INCENTIVE PLAN
The 1997 Stock Plan was adopted by the Board of Directors and was approved
by the stockholders as of August 1, 1997 and replaces the Prior Stock Plans.
Although all future awards will be made under the 1997 Stock Plan, awards made
under the Prior Stock Plans will continue to be administered in accordance with
the 1993 Stock Plan or the 1995 Stock Option/Issuance Plan, as applicable (the
1997 Plan together with the Prior Stock Plans are referred to as the "Stock
Option Plans").
The 1997 Stock Plan authorizes a total of 3,362,012 shares of Company
Common Stock for grant. This amount will be increased by any forfeited or
unexercised shares under the Prior Stock Plans. Also, forfeited or unexercised
shares under the 1997 Stock Plan generally become available for new grants under
the 1997 Stock Plan. The 1997 Stock Plan is administered by the Board of
Directors or its delegate, currently the Compensation Committee. The Board of
Directors, or its delegate, selects the employees of the Company who will
receive awards, determines the size of any award and establishes any vesting or
other conditions. Employees, directors, consultants and advisors of the Company
(or any subsidiary of the Company) are eligible to participate in the 1997 Stock
Plan, although incentive stock options may be granted only to employees. No
individual may receive options or stock appreciation rights ("SARs") covering
more than 750,000 shares in any calendar year. The participation of the outside
directors of the Company is limited to 25% of shares available under the 1997
Stock Plan.
The 1997 Stock Plan provides for awards in the form of restricted shares,
stock units, options or SARs, or any combination thereof. No payment is required
upon receipt of an award, except that a recipient of newly issued restricted
shares must pay the par value of such restricted shares to the Company.
Restricted shares are shares of Common Stock that are subject to repurchase
by the Company at the employee's purchase price in the event that the applicable
vesting conditions are not satisfied, and they are nontransferable prior to
vesting (except for certain transfers to a trustee). Restricted shares have the
same voting and dividend rights as other shares of Common Stock.
The recipient of restricted shares or stock units may pay all projected
withholding taxes relating to the award with Common Stock rather than cash if
permitted by the Stock Option Committee.
Options may include NSOs as well as ISOs intended to qualify for special
tax treatment. The term of an ISO cannot exceed ten years (five years for 10%
stockholders), and the exercise price of an ISO must be equal to or greater than
the fair market value of the Common Stock on the date of grant (or 110% of fair
market value at the date of grant for 10% stockholders). The exercise price of
an NSO must be equal to or greater than the par value of the Common Stock on the
date of grant.
The exercise price of an option may be paid in any lawful form permitted by
the Board of Directors or its delegate, including (without limitation) the
surrender of shares of Common Stock or restricted shares already owned for at
least six months by the optionee. The Board of Directors or its delegate may
likewise permit optionees to satisfy their withholding tax obligation upon
exercise of an NSO by surrendering a portion of their option shares to the
Company. The 1997 Stock Plan also allows the optionee to pay the exercise price
of an option by giving "exercise/sale" or "exercise/pledge" directions. If
exercise/sale directions are given, a number of option shares sufficient to pay
the exercise price and any withholding taxes are issued directly to a securities
broker selected by the Company who, in turn, sells these shares in the open
market. The broker remits to the Company the proceeds from the sale of these
shares, and the optionee receives the remaining option shares. If
exercise/pledge directions are given, the option shares are issued directly to a
securities broker or other lender selected by the Company. The broker or other
lender will hold the shares as security and will extend credit for up to 50% of
their market value. The loan proceeds will be paid to the Company to
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<PAGE> 53
the extent necessary to pay the exercise price and any withholding taxes. Any
excess loan proceeds may be paid to the optionee. If the loan proceeds are
insufficient to cover the exercise price and withholding taxes, the optionee
will be required to pay the deficiency to the Company at the time of exercise.
An SAR permits the participant to elect to receive any appreciation in the
value of the underlying stock from the Company, either in shares of Common Stock
or in cash or a combination of the two, with the Board of Directors or its
delegate having the discretion to determine the form in which such payment will
be made. The amount payable on exercise of an SAR is measured by the difference
between the market value of the underlying stock at exercise and the exercise
price. SARs may, but need not, be granted in conjunction with options. Upon
exercise of an SAR granted in tandem with an option, the corresponding portion
of the related option must be surrendered and cannot thereafter be exercised.
Conversely, upon exercise of an option to which an SAR is attached, the SAR may
no longer be exercised to the extent that the corresponding option has been
exercised. A participant may receive not more than 300,000 SARs within one
calendar year. Unless otherwise permitted by the Board of Directors or its
delegate, all options and SARs are nontransferable prior to the optionee's
death.
As noted above, the Board of Directors or its delegate determines the
number of restricted shares, stock units, options or SARs to be included in the
award as well as the vesting and other conditions. The vesting conditions may be
based on the employee's service, his or her individual performance, the
Company's performance or other appropriate criteria. In general, the vesting
conditions will be based on the employee's service after the date of grant.
Vesting may be accelerated as determined by the Board of Directors or its
delegate in the event of the employee's death, disability or retirement or in
the event of a change in control with respect to the Company. The Board of
Directors has in the past granted and may in the future grant options which
provide for mandatory acceleration of vesting in the event of a change in
control.
For purposes of the 1997 Stock Plan, the term "change in control" does not
include this offering or the consequences of this offering but thereafter occurs
(i) if any person is or becomes the beneficial owner, directly or indirectly, of
at least 50% of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of directors, (ii)
upon a merger or consolidation of the Company with or into another corporation
or entity or any other corporate reorganization in which over 50% of the
combined voting power of the continuing or surviving entity immediately after
the merger, consolidation or reorganization is owned by persons who were not
stockholders of the Company immediately prior to the merger, consolidation or
reorganization, or (iii) upon a change in the composition of the Board of
Directors in which fewer than half of the incumbent directors had been directors
24 months prior to the change or were elected or nominated with the affirmative
votes of directors 24 months prior to the change.
The 1997 Stock Plan provides that if any payment (or transfer) by the
Company causes the employee to recognize a "golden parachute" excise tax under
Section 4999 of the Internal Revenue Code, then the Company shall make such cash
payments as are necessary to reimburse the employee for all additional taxes
caused thereby.
The Board of Directors is authorized, within the provisions of the 1997
Stock Plan, to amend the terms of outstanding restricted shares or stock units,
to modify or extend outstanding options or SARs or to exchange new options for
outstanding options, including outstanding options with a higher exercise price
than the new options.
Members of the Company's Board of Directors who are not employees of the
Company are eligible for awards under the 1997 Stock Plan. However, such outside
directors are not eligible for ISO grants. Total shares available to outside
directors is limited to 25% of total shares available under the 1997 Stock Plan.
As of October 31, 1997, under the 1997 Stock Plan the Company had
outstanding options to purchase an aggregate of 2,159,825 shares of Common Stock
at an exercise price of $.60 per share. The total number of restricted shares,
stock units, options and SARs available for grant under the 1997 Stock Plan is
3,362,012 (subject to anti-dilution provisions), increased by the amount of all
remaining shares available for grant under the Prior Stock Plans as of August 1,
1997. If any restricted shares, stock units, options or SARs are forfeited, or
if options or SARs terminate for any other reason prior to exercise (other than
the exercise of
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<PAGE> 54
a related SAR or option, and including any forfeiture or termination under the
Prior Stock Plans), then they again become available for awards under the 1997
Stock Plan.
EMPLOYEE STOCK PURCHASE PLAN
The ESPP was adopted by the Board of Directors on November 21, 1997,
effective upon the completion of this offering. The ESPP provides employees of
the Company with an opportunity to purchase Common Stock at a discount and pay
for their purchases through payroll deductions. All expenses incurred in
connection with the implementation and administration of the ESPP will be paid
by the Company. A pool of 150,000 shares of Common Stock has been reserved for
issuance under the ESPP (subject to anti-dilution provisions). Each regular
full-time and part-time employee who works an average of over 20 hours per week
will be eligible to participate in the ESPP at the beginning of the first
participation period after the employee completes one month of service.
Eligible employees may elect to contribute up to 15% of their cash
compensation under the ESPP. Each calendar year is divided into two six-month
"accumulation periods," except that the entire period from the date of this
offering to June 30, 1998, will be a single accumulation period. At the end of
each accumulation period, the Company will apply the amount contributed by the
participant during that period to purchase shares of Common Stock for him or
her. The purchase price will be equal to 85% of the lower of (a) the market
price of Common Stock immediately before the beginning of the applicable
"offering period" or (b) the market price of Common Stock on the last business
day of the accumulation period. In general each offering period is 24 months
long, but a new offering period begins every six months. Thus up to four
overlapping periods may be in effect at the same time. If the market price of
Common Stock is lower when a subsequent offering period begins, the subsequent
offering period automatically becomes the applicable offering period. No
participant may purchase more than 2,500 shares per accumulation period, and the
value of the Common Stock purchased each calendar year (measured at the
beginning of the offering periods) may not exceed $25,000 per participant. In no
event may a participant be granted a right to purchase Common Stock under the
ESPP if such purchase would increase participant's ownership to greater than 5%.
Participants may withdraw their contributions at any time before the close of
the accumulation period. If a participant terminates employment during an
accumulation period all previous contributions made during the period will be
returned to the participant.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Restated Certificate of
Incorporation that limit the liability of its directors for monetary damages for
breach of their fiduciary duty as directors, except for liability that cannot be
eliminated under the Delaware General Corporation Law ("Delaware Law"). The
Delaware Law provides that directors of a company will not be personally liable
to the Company or its stockholders for monetary damages for breach of their
fiduciary duty as directors, except for liability (i) for any breach of their
duty of loyalty to the company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) for unlawful payment of dividend or unlawful stock repurchase or
redemption, as provided Section 174 of the Delaware Law, or (iv) for any
transaction from which the director derived an improper benefit. If the Delaware
Law is amended to authorize corporate action further eliminating or limiting the
personal liability of a director, then the liability of a Company director shall
be so amended by the approval of the holders of shares representing at least
66 2/3% of the shares of the Company entitled to vote in the election of
directors, voting as one class. The provision in the Restated Certificate of
Incorporation does not eliminate a director's duty of care, and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware Law. This provision
does not affect a director's responsibilities under any other law, such as the
federal securities laws or state or federal environmental laws.
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The Company's Certificate of Incorporation and Bylaws also provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the Delaware Law. The Company has entered into separate
indemnification agreements with its directors and executive officers that could
require the Company, among other things, to indemnify them against certain
liabilities that may arise by reason of their status or service as directors and
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified. The Company believes that the limitation of
liability provision in its Restated Certificate of Incorporation and the
indemnification agreements will facilitate the Company's ability to continue to
attract and retain qualified individuals to serve as directors and officers of
the Company.
52
<PAGE> 56
CERTAIN TRANSACTIONS
PREFERRED STOCK AND WARRANT FINANCINGS
The Company issued shares of Preferred Stock and warrants between February
10, 1994 and September 23, 1997 in the following private placement transactions:
(i) an aggregate of 2,339,667 shares of Series A Preferred Stock at $1.50 per
share, (ii) an aggregate of 3,740,600 shares of Series B Preferred Stock at
$2.50 per share, (iii) an aggregate of 6,553,598 shares of Series C Preferred
Stock at $4.00 per share, and (iv) an aggregate of 1,050,000 shares of Series D
Preferred Stock at $6.00 per share. The Company also issued to purchasers of
Series B Preferred Stock warrants exercisable for an aggregate of 623,435 shares
of Common Stock at an exercise price of $.25 per share (collectively, "Common
Stock Warrants"). Certain purchasers of Series B Preferred Stock also received
warrants exercisable for an aggregate of 60,000 shares of Series B Preferred
Stock at an exercise price of $1.50 per share ("Series B Warrants") in
consideration of loans made to the Company. Each share of Preferred Stock will
convert into one share of Common Stock and each Series B Warrant will convert
into a warrant for the purchase of an equivalent number of shares of Common
Stock upon the consummation of this offering. The purchasers of Series A, Series
B, Series C and Series D Preferred Stock, the Common Stock Warrants and the
Series B Warrants include, among others, the following officers and directors of
the Company and entities who beneficially own 5% or more of the Company's Common
Stock.
<TABLE>
<CAPTION>
TOTAL
SERIES A SERIES B SERIES C SERIES D COMMON TOTAL
PREFERRED PREFERRED PREFERRED PREFERRED STOCK SERIES B
INVESTORS STOCK STOCK STOCK STOCK WARRANTS WARRANTS
- ----------------------------------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Enterprise Management Partners II,
L.P.(1).......................... 1,000,000 600,000 138,415 -- 100,000 30,000
Kleiner Perkins Caufield &
Byers VI (2)..................... 1,000,000 600,000 138,416 -- 100,000 30,000
Sprout Capital VII, L.P.(3)........ -- 1,192,000 103,061 -- 198,667 --
Interwest Partners(4).............. -- 1,000,000 86,516 -- 166,667 --
Howard C. Birndorf................. 200,000 240,000 38,064 -- 40,000 --
Harry J. Leonhardt, Esq............ -- 25,000 -- -- 4,167 --
Elan Corporation, plc(5)........... -- -- 1,250,000 -- --
Oracle Strategic Partners, LP...... -- -- 1,250,000 -- --
Becton, Dickinson and Company...... -- -- -- 1,000,000 -- --
Thomas G. Lynch(5)................. -- -- -- 33,333 -- --
Cam L. Garner...................... 16,667
</TABLE>
- ---------------
(1) Represents (i) 909,091 shares of Series A Preferred Stock, 545,455 shares of
Series B Preferred Stock, 125,832 shares of Series C Preferred Stock, 90,909
Common Stock Warrants and 27,273 Series B Warrants purchased by Enterprise
Partners II, L.P. ("Enterprise Partners"), and (ii) 90,909 shares of Series
A Preferred Stock, 54,545 shares of Series B Preferred Stock, 12,583 shares
of Series C Preferred Stock, 9,091 Common Stock Warrants and 2,727 Series B
Warrants purchased by Enterprise Associates II, L.P. ("Enterprise
Associates"). Andrew E. Senyei, a director of the Company, is a general
partner of Enterprise Management Partners II, L.P., and the general partner
of each of Enterprise Partners and Enterprise Associates.
(2) Represents (i) 867,000 shares of Series A Preferred Stock, 520,200 shares of
Series B Preferred Stock, 138,416 shares of Series C Preferred Stock, 86,700
Common Stock Warrants and 26,010 Series B Warrants purchased by Kleiner
Perkins Caufield & Byers VI ("KPCB VI"), and (ii) 133,000 shares of Series A
Preferred Stock, 79,800 shares of Series B Preferred Stock, 13,300 Common
Stock Warrants and 3,990 Series B Warrants purchased by KPCB Founders Fund
VI, L.P., which merged with and into KPCB VI in 1997. Brook H. Byers, a
director of the Company, is a General Partner of KPCB VI.
(3) Represents (i) 91,593 shares of Series B Preferred Stock, 7,919 shares of
Series C Preferred Stock and 15,266 Common Stock Warrants purchased by DLJ,
(ii) 1,100,407 shares of Series B Preferred Stock, 95,142 shares of Series C
Preferred Stock and 183,401 Common Stock Warrants purchased by Sprout
53
<PAGE> 57
Capital VII, L.P. Robert E. Curry, a director of the Company, is an officer
of DLJ, which is the Managing General Partner of Sprout Capital VII, L.P.
(4) Represents (i) 993,750 shares of Series B Preferred Stock, 85,976 shares of
Series C Preferred Stock and 165,625 Common Stock Warrant Shares purchased
by Interwest Partners V, L.P., and (ii) 6,250 shares of Series B Preferred
Stock, 540 shares of Series C Preferred Stock and 1,042 Common Stock
Warrants purchased by Interwest Investors V.
(5) Includes 1,250,000 shares of Series C Preferred Stock purchased by Elan
International Services Limited, a wholly-owned subsidiary of Elan
Corporation, plc. Thomas G. Lynch, a director of the Company, is Executive
Vice President and Chief Financial Officer of Elan Corporation, plc.
TRANSACTIONS WITH DIRECTORS, OFFICERS AND RELATED PARTIES
In September 1993, in connection with the Spin-Off, certain affiliates of
the Company received from Nanotronics an aggregate of 768,336 shares of Common
Stock, including Enterprise Partners, 434,271 shares; Enterprise Associates,
39,479 shares (both Enterprise Partners and Enterprise Associates are entities
affiliated with director Andrew Senyei); and Howard C. Birndorf, a founder of
and Chairman of the Board and Chief Executive Officer of the Company, 62,527
shares.
During the period May 1993 through January 1994 salary and administrative
of $115,000 expenses were incurred by Birndorf Biotechnology Development, an
entity affiliated with Mr. Birndorf, on behalf of the Company. These expenses
were repaid to Birndorf Biotechnology Development in the form of partial
consideration for the issuance to Mr. Birndorf of 200,000 shares of the
Company's Series A Preferred Stock.
In June 1993, Enterprise Partners loaned $200,000 to the Company at an
interest rate of 5.0% per annum pursuant to a promissory note payable on demand,
which note was canceled as partial consideration for the issuance to Enterprise
of 1,000,000 shares of the Company's Series A Preferred Stock.
In January 1994, November 1994, May 1996 and September 1997, the Company
entered into agreements with Tina S. Nova, Ph.D., President and Chief Operating
Officer of the Company, Harry J. Leonhardt, Esq., Vice President, General
Counsel and Secretary of the Company, James P. O'Connell, Ph.D., Vice President,
Research and Product Development of the Company and Steven J. Naber, Vice
President Finance and Chief Financial Officer of the Company, respectively,
pursuant to which, in the event of termination without cause (or if Dr.
O'Connell or Mr. Leonhardt terminates his employment for good reason), such
employee will be paid an amount equal to six months of such employee's
respective base salary. Mr. Naber's right to such payment expires one year from
the commencement of his employment. In addition, 50% of the remaining unvested
shares purchased by Dr. O'Connell and Mr. Leonhardt pursuant to their respective
agreements will vest in the event such employee is terminated without cause or
if such employee terminates his employment for good reason. In December 1997,
the Company entered into an agreement with W.J. Kitchen, Sc.D., Senior Vice
President, Operations of the Company pursuant to which, in the event of
termination without cause within two years of the commencement of his
employment, he will be paid an amount equal to two years of his base salary.
In February 1994, Mr. Birndorf purchased 150,107 shares of Common Stock for
$751 ($.005 per share), and in June 1995, purchased another 150,000 shares of
Common Stock for $15,000 ($.10 per share) pursuant to the Company's 1995 Stock
Option/Stock Issuance Plan. In connection with the purchase of these 150,000
shares, the Company loaned $15,000 to Mr. Birndorf at an interest rate of 6.7%
per annum pursuant to a five-year promissory note, which note is secured by the
150,000 shares of Common Stock. As of September 30, 1997, 90,625 of these shares
are vested. In August 1996, Mr. Birndorf purchased an additional 275,000 shares
of Common Stock at $.10 per share. In connection with such purchase, the Company
loaned Mr. Birndorf $27,500 at an interest rate of 6.3% per annum pursuant to a
five-year promissory note, which note is secured by the 275,000 shares of Common
Stock. Of the 275,000 shares purchased by Mr. Birndorf, 100,000 shares were
issued pursuant to the Company's 1995 Stock Option/Stock Issuance Plan. The
remaining 175,000 shares are performance-based options which vest based on the
attainment of specified milestones. As of September 30, 1997, 216,666 of these
shares are vested. In May 1997, Mr. Birndorf was granted an option to purchase
656,245 shares of Common Stock pursuant to the Company's 1997 Stock Incentive
Plan. As of September 30, 1997, 54,686 of these shares are vested.
54
<PAGE> 58
In February 1994, Dr. Nova purchased 150,107 shares of Common Stock for
$7,505 ($.05 per share). As of September 30, 1997, 134,471 of these shares are
vested. In June 1995, Dr. Nova purchased another 150,000 shares of Common Stock
for $15,000.00 ($.10 per share) pursuant to the 1995 Stock Option/Stock Issuance
Plan. In connection with the purchase of these 150,000 shares, the Company
loaned $15,000.00 to Dr. Nova at an interest rate of 6.7% per annum pursuant to
a five-year promissory note, which note is secured by the 150,000 shares of
Common Stock. As of September 30, 1997, 90,625 of these shares are vested. In
August 1996, Dr. Nova purchased an additional 75,000 shares of Common Stock at
the price of $.10 per share. In connection with such purchase, the Company
loaned Dr. Nova $7,500 at an interest rate of 6.3% per annum pursuant to a
five-year promissory note, which note is secured by the 75,000 shares of Common
Stock. Of the 75,000 shares purchased by Dr. Nova, 25,000 shares were issued
pursuant to the Company's 1995 Stock Option/Stock Issuance Plan. The remaining
50,000 shares are performance-based options which have vested based on the
attainment of certain prescribed milestones. As of September 30, 1997, 60,416 of
these shares are vested. In May 1997, Dr. Nova was granted an option to purchase
240,569 shares of Common Stock pursuant to the Company's 1997 Stock Incentive
Plan. As of September 30, 1997, 20,046 of these shares are vested.
On January 23, 1995, in connection with a bridge financing, Enterprise
Partners and KPCB VI, an entity affiliated with director Brook H. Byers, each
loaned $300,000 to the Company pursuant to a promissory note payable thirty days
after the issue date or on demand thereafter, which notes were canceled as
partial consideration for the issuance of 600,000 shares of the Company's Series
B Preferred Stock to each investor. Additionally, in connection with the
issuance of the promissory notes, the Company issued warrants to purchase 30,000
shares of Series B Preferred Stock to each investor exercisable from April 1995
to April 2000 at an exercise price of $1.50 per share.
In connection with their respective purchases of Series B Preferred Stock,
Mr. Birndorf and the entities associated with KPCB, Enterprise Partners, and
Sprout entered into a Shareholders' Agreement to vote their respective shares as
necessary to obtain or maintain a seat on the Board of Directors for the Chief
Executive Officer of the Company and at least one representative designated by
each of Enterprise Partners, KPCB and Sprout. The Agreement will terminate upon
the consummation of this offering.
In September 1996 and November 1996, entities associated with Enterprise
Partners, KPCB, Sprout, InterWest Partners, DLJ and an affiliate of DLJ and Mr.
Birndorf agreed to loan the Company an aggregate of $2.0 million to fund ongoing
operations of the Company, pursuant to demand promissory notes bearing interest
at 6% per annum, which notes and accrued interest thereon were canceled in
exchange for an aggregate of 505,161 shares of Series C Preferred Stock in
December 1996.
In May 1997, the Company entered into a series of agreements with Becton
Dickinson pursuant to which Becton Dickinson agreed to purchase 1,000,000 shares
of the Company's Series D Preferred Stock and to fund certain product
development costs. See "Business -- Collaborative Alliances -- Becton, Dickinson
and Company." Becton Dickinson has also committed to purchase shares of Common
Stock directly from the Company at a price per share equal to the price to
public for an aggregate purchase price of $6.0 million, subject to the
completion of this offering.
In November 1997 and December 1997, certain officers and directors of the
Company exercised options to purchase an aggregate of 1,683,758 shares of the
Company's Common Stock. As consideration for such shares the Company received
full recourse promissory notes, bearing interest at 6.01%, from directors and
officers Birndorf (an aggregate of 656,245 shares for $393,747) and Nova (an
aggregate of 240,569 shares for $144,341) and officers Leonhardt (127,800 shares
for $76,680), Naber (150,000 shares for $90,000), O'Connell (159,144 shares for
$95,486), and Kitchen (350,000 shares for $210,000). The principal and accrued
interest on such promissory notes will be payable in November 2002 or December
2002. The payment of each promissory note is secured by a pledge of the shares
purchased by such director and/or officer.
On December 18, 1997, the Company entered into an Agreement and Plan of
Merger with its former parent corporation, Nanotronics, Inc., a California
corporation ("Nanotronics"), pursuant to which a wholly-owned California
subsidiary of the Company will merge with and into Nanotronics, which will be
the surviving corporation. Nanotronics' assets are primarily intellectual
property and certain government grants. Andrew Senyei, a director of Nanogen, is
a director of Nanotronics and an affiliate of the principal Nanotronics
shareholders. Mr. Birndorf is a shareholder of Nanotronics. Under the Agreement
and Plan of Merger,
55
<PAGE> 59
Nanogen will issue, upon the effective date of the merger an aggregate of
200,000 shares of its Series D Preferred Stock.
In December 1997, the Company entered into a collaborative research and
development agreement with Elan. Thomas G. Lynch, a director of the Company, is
Executive Vice President and Chief Financial Officer of Elan.
The Company believes that the foregoing transactions were in its best
interests. As a matter of policy these transactions were, and all future
transactions between the Company and its officers, directors or principal
stockholders will be, approved by a majority of the independent and
disinterested members of the Board of Directors, on terms no less favorable to
the Company than could be obtained from unaffiliated third parties and in
connection with bona fide business purposes of the Company.
56
<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 30, 1997 and as adjusted
to reflect the sale by the Company of the shares offered hereby and the Private
Placement by: (i) each person who is known by the Company to beneficially own
more than 5% of the Company's Common Stock, (ii) each of the Company's
directors, (iii) each of the Company's officers named under
"Management -- Summary Compensation Table," and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
SHARES ----------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- -------------------------------------------------------------- ------------ -------- ---------
<S> <C> <C> <C>
Entities Affiliated with Enterprise........................... 2,342,165 12.9%
Management Partners II, L.P.(1)
7979 Ivanhoe, Suite 550
La Jolla, CA 92037
Kleiner Perkins Caufield & Byers VI(2)........................ 1,868,416 10.3%
2750 Sand Hill Road
Menlo Park, CA 94025
Howard C. Birndorf(3)(13)..................................... 1,811,943 10.0%
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Entities Affiliated with Sprout Group(4)...................... 1,503,750 8.2%
3000 Sand Hill Road, Bldg. 4, Suite 270
Menlo Park, CA 94025
Elan Corporation, plc(5)...................................... 1,250,000 6.9%
Lincoln House
Dublin 2
Ireland
Oracle Strategic Partners, L.P................................ 1,250,000 6.9%
712 Fifth Ave., 45th Floor
New York, NY 10019
Entities Affiliated with Interwest Partners(6)................ 1,253,183 6.9%
3000 Sand Hill Road, Bldg. 4, Suite 255
Menlo Park, CA 94025
Becton, Dickinson and Company(7).............................. 1,000,000 5.5%
7 Loveton Circle
P.O. Box 999
Sparks, MD 21152-0999
Hoechst AG(8)................................................. --
D-65926 Frankfurt am Main
Germany
Brook H. Byers(2)............................................. 1,868,416 10.3%
Robert E. Curry, Ph.D.(4)..................................... 1,503,750 8.2%
Cam L. Garner(9).............................................. 41,667 *
David Ludvigson............................................... 25,000 *
Thomas G. Lynch(5)(9)......................................... 1,308,333 7.2%
Tina S. Nova, Ph.D.(13)....................................... 615,676 3.4%
Andrew E. Senyei, M.D.(1)..................................... 2,342,165 12.9%
James P. O'Connell, Ph.D.(10)(13)............................. 363,811 2.0%
Harry J. Leonhardt, Esq.(11)(13).............................. 256,967 1.4%
All Directors and Executive Officers as a group (11
persons)(12)(13)............................................ 10,287,394 54.7%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Includes 2,014,649 shares held by Enterprise Partners II and 158,037 shares
held by Enterprise Partners II Associates, L.P. ("Enterprise Associates").
Also includes 118,182 shares issuable to Enterprise Partners and 11,818
shares issuable to Enterprise Associates upon the exercise of outstanding
warrants exercisable within 60 days of November 30, 1997. Andrew E. Senyei,
a director of the
57
<PAGE> 61
Company, is a general partner of Enterprise Management Partners II, L.P.,
the general partner of each of Enterprise Partners and Enterprise
Associates, and as such, may be deemed to share voting and investment power
with respect to the shares held by such entities. Dr. Senyei disclaims
beneficial ownership of all such shares except to the extent of his
pecuniary interest therein.
(2) Includes 130,000 shares issuable to KPCB VI upon the exercise of
outstanding warrants exercisable within 60 days of November 30, 1997. Mr.
Byers is a general partner of KPCB VI, and as such, may be deemed to share
voting and investment power with respect to the shares held by such entity.
Mr. Byers disclaims beneficial ownership of all such shares except to the
extent of his pecuniary interest therein.
(3) Includes 40,000 shares issuable upon the exercise outstanding warrants
exercisable within 60 days of November 30, 1997.
(4) Includes 99,512 shares held by DLJ, 1,195,549 shares held by Sprout Capital
VII, L.P. ("Sprout Capital") and 8,689 shares held by an affiliate of DLJ.
Also includes 183,401 shares issuable to Sprout Capital and 15,266 shares
issuable to DLJ upon the exercise of outstanding warrants exercisable
within 60 days of November 30, 1997. Dr. Curry, a director of the Company,
is an officer of DLJ, the Managing General Partner of Sprout Capital, and
as such, may be deemed to share voting and investment power with respect to
the shares held by such entities. Dr. Curry disclaims beneficial ownership
of all such shares except to the extent of his pecuniary interest therein.
(5) Includes 1,250,000 shares held by Elan International Services Limited
("Elan International"). Mr. Lynch, a director of the Company, is Executive
Vice President and Chief Financial Officer of Elan, the parent company of
Elan International, and as such, may be deemed to share voting and
investment power with respect to the shares held by Elan International.
Includes shares that Elan has agreed to purchase directly from
the Company in the Private Placement. Mr. Lynch disclaims beneficial
ownership of all such shares except to the extent of his pecuniary interest
therein.
(6) Includes 1,079,726 shares held by Interwest Partners V, L.P. ("Interwest
Partners") and 6,790 shares held by its investment affiliate Interwest
Investors V ("Interwest Investors"). Also includes 165,625 shares issuable
to Interwest Partners and 1,042 shares issuable to Interwest Investors upon
the exercise of outstanding warrants exercisable within 60 days of November
30, 1997.
(7) Includes shares that Becton Dickinson has agreed to purchase
directly from the Company in the Private Placement.
(8) Includes shares that Hoechst has agreed to purchase directly from
the Company in the Private Placement.
(9) Includes 25,000 shares issuable to each of Mr. Lynch and Mr. Garner upon
the exercise of options exercisable within 60 days of November 30, 1997,
subject to repurchase of unvested shares.
(10) Includes 667 shares issuable upon the exercise of outstanding warrants
exercisable within 60 days of November 30, 1997.
(11) Includes 4,167 shares issuable upon the exercise of outstanding warrants
exercisable within 60 days of November 30, 1997.
(12) Includes an aggregate of 100,000 shares issuable upon the exercise of
options exercisable within 60 days of November 30, 1997, subject to
repurchase of unvested shares, and an aggregate of 671,501 shares issuable
upon the exercise of outstanding warrants exercisable within 60 days of
November 30, 1997.
(13) Includes unvested shares subject to repurchase by the Company at November
30, 1997, as follows: Mr. Birndorf, 681,507 shares; Dr. Nova, 286,548
shares; Dr. O'Connell, 229,877 shares; and Mr. Leonhardt, 178,492 shares.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company, after giving effect to the conversion of all outstanding Preferred
Stock into Common Stock, and the amendment of the Company's
58
<PAGE> 62
Certificate of Incorporation, will consist of 50,000,000 shares of Common Stock,
$.001 par value, and 5,000,000 shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of November 30, 1997 there were 18,035,781 shares of Common Stock
outstanding held by approximately 90 stockholders of record. Such amounts assume
the conversion of each outstanding share of Preferred Stock upon the closing of
this offering.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of the Common Stock and the Preferred Stock
are entitled to share ratably on an as-converted basis in all assets remaining
after payment of liabilities and the liquidation preference of any then
outstanding Preferred Stock. The Common Stock has no preemptive or conversion
rights or other subscription rights and there are no redemptive or sinking funds
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and the Common Stock to be outstanding upon completion of this
offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into Common Stock. See Note 4 of Notes to Financial
Statements for a description of the currently outstanding Preferred Stock.
Following the conversion, the Company's Certificate of Incorporation will be
restated to delete all references to the prior series of Preferred Stock, and
5,000,000 shares of undesignated Preferred Stock will be authorized. The Board
of Directors has the authority, without further action by the stockholders, to
issue from time to time the Preferred Stock in one or more series and to fix the
number of shares, designations, preferences, powers, and relative,
participating, optional or other special rights and the qualifications or
restrictions thereof. The preferences, powers, rights and restrictions of
different series of Preferred Stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and purchase funds and other matters. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or affect adversely the
rights and powers, including voting rights, of the holders of Common Stock, and
may have the effect of delaying, deferring or preventing a change in control of
the Company. The Company has no present plan to issue any shares of Preferred
Stock.
WARRANTS
As of November 30, 1997 the Company had outstanding (i) Common Stock
Warrants exercisable for an aggregate of 631,072 shares of Common Stock at
prices ranging from $.01 to $.25 per share (ii) Series B Warrants exercisable
for an aggregate of 60,000 shares of Series B Preferred Stock (which
automatically convert into warrants for the purchase of 60,000 shares of Common
Stock upon the consummation of this offering) exercisable at $1.50 per share,
and (iii) Series C Warrants exercisable for an aggregate of 9,000 shares of
Series C Preferred Stock exercisable at $4.00 per share. It is anticipated that
Common Stock Warrants and the Series C Warrants will be exercised upon the
effective date of this offering. The Series B Warrants expire in April 2000.
Pursuant to the Amended and Restated Investors' Rights Agreement, dated as of
May 5, 1997, among the Company and certain of its securityholders set forth
therein, holders of shares issuable upon exercise of certain of the Warrants are
entitled to certain demand and piggyback registration rights. See
"-- Registration Rights."
REGISTRATION RIGHTS
Pursuant to the Investors' Rights Agreement, the holders of approximately
13,751,502 shares of Common Stock, including (i) shares issued upon conversion
of the Company's Series A Preferred Stock, Series B
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<PAGE> 63
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and (ii)
67,637 shares issuable pursuant to exercise of the Series B Warrants and certain
Common Stock Warrants (collectively, "Registrable Shares"), or their permitted
transferees, are entitled to certain rights with respect to the registration of
such shares under the Securities Act of 1933, as amended (the "Securities Act").
The holders of the shares issued in the Private Placement will also be
entitled to similar rights with respect to the registration of such shares under
the Securities Act. If the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of other
security holders, holders of Registrable Shares are entitled to notice of such
registration and are entitled to include, at the Company's expense, such
Registrable Shares therein, provided, among other conditions, that the
underwriters of any such offering have the right to limit the number of shares
included in such registration. In addition, commencing 180 days after the
effective date of this offering, holders of at least 20% of the Registrable
Shares then outstanding (or a lesser percent, if the anticipated aggregate
offering price of such shares, net of underwriting discounts and commissions,
would exceed $7,500,000), may require the Company to prepare and file a
registration statement under the Securities Act, at the Company's expense,
covering such Registrable Shares, and the Company is required to use its best
efforts to effect such registration, subject to certain conditions and
limitations. The Company is not obligated to effect more than two of these
stockholder-initiated registrations. Further, holders of Registrable Shares may
require the Company to file additional registration statements on Form S-3,
subject to certain conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
Law, an anti-takeover law. In general, the statute 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 approved in a prescribed manner. A "business combination"
includes a merger, asset sale or other transaction resulting in financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock.
Upon the closing of this offering, the Company's Certification of
Incorporation will be amended to require that any action permitted to be taken
by stockholders of the Company must be effected at a duly-called annual or
special meeting of stockholders and will not be able to be effected by a consent
in writing. The Board of Directors will be composed of a classified board where
only one-third of the directors are eligible for election in any given year. The
Company's Certificate of Incorporation will also be amended to require the
approval of at least two-thirds of the total number of authorized directors in
order to adopt, amend or repeal the Company's Bylaws. In addition, the Company's
Certificate of Incorporation will similarly be amended to permit the
stockholders to adopt, amend or repeal the Company's Bylaws only upon the
affirmative vote of the holders of at least two-thirds of the voting power of
all then outstanding shares of stock entitled to vote. Lastly, the foregoing
provisions of the Certificate of Incorporation and certain other provisions
pertaining to the limitation of liability and indemnification of directors will
be able to be amended or repealed only with the affirmative vote of the holders
of at least two-thirds of the voting power of all then outstanding shares of
stock entitled to vote. These provisions may have the effect of deterring
hostile takeovers or delaying changes in control or management of the Company.
Upon the closing of this offering, the Company's Bylaws will also be
amended to contain certain of the above provisions found in the Company's
Certificate of Incorporation. The Company's Bylaws, as amended (the "Restated
Bylaws"), will not permit stockholders to call a special meeting. In addition,
the Company's Restated Bylaws will establish an advance notice procedure with
regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors and with regard to certain
matters to be brought before an annual meeting of stockholders of the Company.
Also, a director will be removable only for cause. In addition, the Restated
Bylaws will provide that the business permitted to be conducted in any annual
meeting or special meeting of stockholders will be limited to business properly
brought before the meeting.
60
<PAGE> 64
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Norwest Bank
Minnesota, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for the Common Stock
of the Company, and no predictions can be made regarding the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. As described below, only a
limited number of shares will be available for sale shortly after this offering
due to certain contractual and legal restrictions on resale. Nevertheless, sales
of substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price.
Upon closing of this offering and the Private Placement, the Company will
have outstanding shares of Common Stock based on the number of shares
of Preferred Stock and Common Stock outstanding as of November 30, 1997, and
assuming no exercise of the Underwriters over-allotment option. Of these shares,
the shares of Common Stock being sold hereby, not including the
Private Placement, will be freely tradable (other than by an "affiliate" of the
Company as such term is defined in the Securities Act) without restriction or
registration under the Securities Act. All remaining shares were issued and sold
by the Company in private transactions ("Restricted Shares") and are eligible
for public sale if registered under the Securities Act or sold in accordance
with Rule 144 or Rule 701 thereunder.
The Company's directors, executive officers and certain stockholders, who
collectively hold an aggregate of shares of Common Stock, have agreed
pursuant to certain agreements that they will not sell any Common Stock owned by
them without the prior written consent of Morgan Stanley & Co. Incorporated for
a period of 180 days from the date of this Prospectus (the "Lockup Period").
Excluding the shares of Common Stock being sold hereby and the Private
Placement, the remaining 16,614,598 shares of Common Stock (excluding shares
purchased pursuant to the exercise of unvested options and subject to repurchase
by the Company) may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act. As a result of lockups with the
Underwriters and the provisions of Rule 144 and 701, additional shares will be
available for sale in the public market as follows: (i) approximately 107,102
shares will be eligible for immediate sale on the date of this Prospectus, (ii)
16,453,697 shares of Common Stock will be eligible for sale upon expiration of
the Lockup Period, and (iii) the remainder of the shares of Common Stock will be
eligible for sale from time to time thereafter upon expiration of their
respective holding periods. The holders of the shares issued in the
Private Placement will have the right to register such shares for future sale
and such shares will otherwise be eligible for sale one year from the closing
date of this offering, subject to the limitations of Rule 144. See "Description
of Capital Stock -- Registration Rights."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or a holder of
Restricted Shares who beneficially owns shares that were not acquired from the
Company or an affiliate of the Company within the previous year, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately shares immediately after this offering, assuming no
exercise of the Underwriters' over-allotment option) or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. However, a person (or persons whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who owns
beneficially Restricted Shares is entitled to sell such shares under Rule 144(k)
without regard to the limitations described above; provided that at least two
years have elapsed since the later of the date the shares were acquired from the
Company or from an affiliate of the Company. The foregoing is a summary of Rule
144 and is not intended to be a complete description of it.
61
<PAGE> 65
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the closing of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the date of this Prospectus (unless subject
to the contractual restrictions described above), may be sold by persons other
than affiliates subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its one-year minimum holding
period requirements.
The Company intends to file a registration statement under the Securities
Act covering approximately 2,800,000 shares of Common Stock reserved for
issuance under its Stock Option Plans. Such registration statement is expected
to be filed soon after the date of this Prospectus and will automatically become
effective upon filing. Accordingly, shares registered under such registration
statement will be available for sale in the open market, unless such shares are
subject to vesting restrictions with the Company or the contractual restrictions
described above.
In addition, after this offering, the holders of approximately 13,751,502
shares of Common Stock (including 67,637 shares issuable upon the exercise of
the Series B Warrants and certain Common Stock Warrants) and the holders of the
shares issued in the Private Placement will be entitled to certain rights
to cause the Company to register the sale of such shares under the Securities
Act. Registration of such shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act
(except for shares purchased by affiliates of the Company) immediately upon the
effectiveness of such registration. See "Description of Capital
Stock -- Registration Rights."
62
<PAGE> 66
UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated as of the date hereof, the Underwriters named below, for whom
Morgan Stanley & Co. Incorporated, Lehman Brothers Inc. and SBC Warburg Dillon
Read Inc. are serving as Representatives (the "Representatives"), have severally
agreed to purchase, and the Company has agreed to sell to them severally, the
respective numbers of shares of Common Stock set forth opposite their names
below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
-------------------------------------------------------------------- -----------
<S> <C>
Morgan Stanley & Co. Incorporated...................................
Lehman Brothers Inc.................................................
SBC Warburg Dillon Read Inc.........................................
-------
Total.....................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all the shares of Common Stock offered hereby (other than the shares
covered by the overallotment option described below) if any such shares are
taken.
The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $ per share under the initial public offering price. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to other Underwriters or to certain other
dealers. After the initial offering of the Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to additional shares of Common Stock at the
initial public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The Underwriters may exercise such
option solely for the purpose of covering overallotments, if any, incurred in
the sale of the shares of Common Stock offered hereby. To the extent such option
is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the preceding
table bears to the total number of shares of Common Stock offered hereby to the
Underwriters.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales in excess of five percent of the number of shares of
Common Stock offered hereby to accounts over which they exercise discretionary
authority.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
63
<PAGE> 67
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers, directors, stockholders and option holders
of the Company have agreed not to sell or otherwise dispose of Common Stock or
convertible securities of the Company for up to 180 days after the date of this
Prospectus without the prior consent of Morgan Stanley & Co. Incorporated. The
Company has agreed in the Underwriting Agreement that it will not, directly or
indirectly, without the prior written consent of Morgan Stanley & Co.
Incorporated, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock, for a period of
180 days after the date of this Prospectus, except under certain circumstances.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities and may
end any of these activities at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to five percent of the Common Stock offered hereby for employees and
directors of the Company and certain others who have expressed an interest in
purchasing such shares of Common Stock in this offering. The Company has
exercised an option with BRI to exclusively license certain patented technology
for the identification of hereditary hemochromatosis. Pursuant to the terms of
the option, BRI has the right to purchase up to $490,000 of the Common Stock in
this offering. The number of shares available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered by the Underwriters to the
general public on the same basis as other shares offered hereby.
Prior to this offering, there has been no public market for the Common
Stock of the Company. The initial public offering price for the Common Stock
will be determined by negotiations among the Company and the Representatives.
Among the factors to be considered in determining the initial public offering
price will be the future prospects of the Company and its industry in general,
sales, earnings and certain other financial and operating information of the
Company in recent periods, and the price-earnings ratios, price-sales ratios,
market prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. The estimated
initial public offering price range set forth on the cover page of this
Preliminary Prospectus is subject to change as a result of market conditions and
other factors.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Pillsbury Madison & Sutro
LLP, San Francisco, California. A member of Pillsbury Madison & Sutro LLP owns
5,000 shares of Common Stock. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements of Nanogen, Inc. at December 31, 1995 and 1996 and
September 30, 1997, and for each of the three years in the period ended December
31, 1996 and the nine months ended September 30, 1997, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
64
<PAGE> 68
The statements in this Prospectus as set forth under the captions "Risk
Factors -- Uncertainty of Patent and Proprietary Technology Protection;
Potential Inability to License Technology from Third Parties" and in
"Business -- Proprietary Technology and Patents" have been passed upon by Lyon &
Lyon LLP, Costa Mesa, California, patent counsel to the Company, and experts on
such matters, and are included herein in reliance upon its review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is hereby
made to such Registration Statement, exhibits and schedules. Statements
contained in this Prospectus regarding the contents of any contract or other
document are not necessarily complete; with respect to each such contract or
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. A
copy of the Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such
material may be obtained from such office upon payment of the fees prescribed by
the Commission. In addition, the Commission maintains a World Wide Web site on
the Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
65
<PAGE> 69
NANOGEN, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors....................................... F-2
Balance Sheets at December 31, 1995 and 1996 and September 30, 1997..................... F-3
Statements of Operations for each of the three years in the period ended December 31,
1996 and the nine months ended September 30, 1996 (unaudited) and 1997................ F-4
Statements of Stockholders' Equity for each of the three years in the period ended
December 31, 1996 and the nine months ended September 30, 1997........................ F-5
Statements of Cash Flows for each of the three years in the period ended December 31,
1996 and the nine months ended September 30, 1996 (unaudited) and 1997................ F-6
Notes to Financial Statements........................................................... F-7
</TABLE>
F-1
<PAGE> 70
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Nanogen, Inc.
We have audited the accompanying balance sheets of Nanogen, Inc. as of December
31, 1995 and 1996 and September 30, 1997, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996 and the nine months ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nanogen, Inc. at December 31,
1995 and 1996 and September 30, 1997 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 and
the nine months ended September 30, 1997, in conformity with generally accepted
accounting principles.
San Diego, California
December 19, 1997
F-2
<PAGE> 71
NANOGEN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31, SEPTEMBER SEPTEMBER
------------------------ 30, 30,
1995 1996 1997 1997
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $4,317,686 $16,775,228 $21,988,118
Grant receivables and other current
assets.................................. 372,058 554,018 893,533
---------- ----------- -----------
Total current assets......................... 4,689,744 17,329,246 22,881,651
Property and equipment, net.................. 1,148,312 1,315,540 2,204,539
Restricted cash.............................. 465,183 409,267 353,951
Other assets................................. 36,225 36,225 36,225
---------- ----------- -----------
$6,339,464 $19,090,278 $25,476,366
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 203,638 $ 479,967 $ 526,388
Accrued liabilities........................ 247,231 1,422,533 1,024,446
Current portion of capital lease
obligations............................. 307,617 573,641 716,046
---------- ----------- -----------
Total current liabilities.................... 758,486 2,476,141 2,266,880
Capital lease obligations, less current
portion.................................... 630,654 934,544 1,052,313
Commitments
Stockholders' equity:
Convertible preferred stock, $.001 par
value, 15,500,000 shares authorized;
5,814,467, 10,785,428 and 13,683,865
shares issued and outstanding at
December 31, 1995 and 1996 and September
30, 1997, respectively (5,000,000 shares
authorized, no shares issued and
outstanding pro forma); liquidation
preference $45,375,393 at September 30,
1997.................................... 5,814 10,785 13,684 $ --
Common stock, $.001 par value, 40,000,000
shares authorized; 1,997,251, 2,748,615
and 2,816,503 shares issued and
outstanding at December 31, 1995 and
1996 and September 30, 1997,
respectively (50,000,000 shares
authorized, 16,500,368 shares issued and
outstanding pro forma).................. 1,997 2,749 2,816 16,500
Additional paid-in capital................. 12,345,749 30,884,751 45,203,838 45,203,838
Deferred compensation...................... -- -- (663,554) (663,554)
Notes receivable from officers............. (31,008) (68,127) (71,501) (71,501)
Accumulated deficit........................ (7,372,228) (15,150,565) (22,328,110) (22,328,110)
---------- ----------- ----------- -----------
Total stockholders' equity................... 4,950,324 15,679,593 22,157,173 $22,157,173
---------- ----------- ----------- ===========
$6,339,464 $19,090,278 $25,476,366
========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 72
NANOGEN, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract and grant revenue...... $ -- $ 317,628 $ 1,644,078 $ 1,160,712 $ 1,580,996
Sponsored research.............. -- -- -- -- 785,715
----------- ----------- ----------- ----------- -----------
Total revenues.................... -- 317,628 1,644,078 1,160,712 2,366,711
Operating expenses:
Research and development........ 1,344,694 3,356,167 6,931,535 5,187,676 7,364,625
General and administrative...... 1,065,737 1,645,526 2,426,923 1,688,601 2,929,843
----------- ----------- ----------- ----------- -----------
Total operating expenses.......... 2,410,431 5,001,693 9,358,458 6,876,277 10,294,468
----------- ----------- ----------- ----------- -----------
Loss from operations.............. (2,410,431) (4,684,065) (7,714,380) (5,715,565) (7,927,757)
Interest income (expense), net.... 34,198 96,256 (63,957) (18,799) 750,212
----------- ----------- ----------- ----------- -----------
Net loss.......................... $(2,376,233) $(4,587,809) $(7,778,337) $(5,734,364) $(7,177,545)
=========== =========== =========== =========== ===========
Pro forma net loss per share...... $ (.58) $ (.51)
=========== ===========
Number of shares used in computing
pro forma net loss per share.... 13,475,425 14,026,700
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 73
NANOGEN, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE NOTES TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE STOCKHOLDERS'
-------------------- ------------------- PAID-IN DEFERRED FROM ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION OFFICERS DEFICIT (DEFICIT)
---------- ------- --------- ------- ----------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December
31,
1993...... -- $ -- 919,366 $ 919 $ 143,006 $ -- $ -- $ (408,186) $ (264,261)
Issuance
of
common
stock... -- -- 463,014 463 15,933 -- -- -- 16,396
Repurchase
of
common
stock... -- -- (4,900) (5) (240) -- -- -- (245)
Issuance
of
Series A
convertible
preferred
stock... 2,129,667 2,129 -- -- 3,171,893 -- -- -- 3,174,022
Issuance
of
Series A
convertible
preferred
stock in
connection
with
conversion
of
debt.... 210,000 210 -- -- 314,790 -- -- -- 315,000
Net
loss.... -- -- -- -- -- -- -- (2,376,233) (2,376,233)
---------- ------- ---------- ------ ---------- --------- -------- ------------ ----------
Balance at
December
31,
1994...... 2,339,667 2,339 1,377,480 1,377 3,645,382 -- -- (2,784,419) 864,679
Issuance
of
common
stock... -- -- 326,500 326 23,924 -- -- -- 24,250
Repurchase
of
common
stock... -- -- (6,729) (6) (330) -- -- -- (336)
Issuance
of
Series B
convertible
preferred
stock... 3,234,800 3,235 -- -- 8,047,313 -- -- -- 8,050,548
Issuance
of
Series B
convertible
preferred
stock in
connection
with
conversion
of
debt.... 240,000 240 -- -- 599,760 -- -- -- 600,000
Exercise
of stock
options
in
exchange
for
notes
receivable
and
accrued
interest... -- -- 300,000 300 29,700 -- (31,008) -- (1,008)
Net
loss.... -- -- -- -- -- -- -- (4,587,809) (4,587,809)
---------- ------- ---------- ------ ---------- --------- -------- ------------ ----------
Balance at
December
31,
1995...... 5,814,467 5,814 1,997,251 1,997 12,345,749 -- (31,008) (7,372,228) 4,950,324
Issuance
of
common
stock... -- -- 425,260 425 42,101 -- -- -- 42,526
Repurchase
of
common
stock... -- -- (23,896) (23) (1,560) -- -- -- (1,583)
Issuance
of
Series B
convertible
preferred
stock... 240,800 241 -- -- 601,609 -- -- -- 601,850
Issuance
of
Series C
convertible
preferred
stock... 4,225,000 4,225 -- -- 15,842,063 -- -- -- 15,846,288
Issuance
of
Series C
convertible
preferred
stock in
connection
with
conversion
of
debt.... 505,161 505 -- -- 2,020,139 -- -- -- 2,020,644
Exercise
of stock
options
in
exchange
for
notes
receivable
and
accrued
interest... -- -- 350,000 350 34,650 -- (37,119) -- (2,119)
Net
loss.... -- -- -- -- -- -- -- (7,778,337) (7,778,337)
---------- ------- ---------- ------ ---------- --------- -------- ------------ ----------
Balance at
December
31,
1996...... 10,785,428 10,785 2,748,615 2,749 30,884,751 -- (68,127) (15,150,565) 15,679,593
Issuance
of
common
stock... -- -- 108,510 108 31,498 -- -- -- 31,606
Issuance
of
Series C
preferred
stock
at...... 1,823,437 1,824 -- -- 7,173,892 -- -- -- 7,175,716
Repurchase
of
stock... -- -- (40,622) (41) (3,880) -- -- -- (3,921)
Issuance
of
Series B
preferred
stock... 25,000 25 -- -- 62,475 -- -- -- 62,500
Issuance
of
Series D
preferred
stock... 1,050,000 1,050 -- -- 6,286,544 -- -- -- 6,287,594
Deferred
compensation
related
to stock
options... -- -- -- -- 768,558 (768,558) -- -- --
Amortization
of
deferred
compensation... -- -- -- -- -- 105,004 -- -- 105,004
Accrued
interest
on notes
receivable
from
officers... -- -- -- -- -- -- (3,374) -- (3,374)
Net
loss.... -- -- -- -- -- -- -- (7,177,545) (7,177,545)
---------- ------- ---------- ------ ---------- --------- -------- ------------ ----------
Balance at
September
30,
1997...... 13,683,865 $13,684 2,816,503 $ 2,816 $45,203,838 $ (663,554) $(71,501) $(22,328,110) $ 22,157,173
========== ======= ========== ====== ========== ========= ======== ============ ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 74
NANOGEN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................... $(2,376,233) $(4,587,809) $ (7,778,337) $(5,734,364) $ (7,177,545)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.... 117,111 289,572 351,003 256,623 366,973
Interest expense converted into
convertible preferred stock.... -- -- 20,644 -- --
Amortization of deferred
compensation................... -- -- -- -- 105,004
Changes in operating assets and
liabilities:
Accounts payable............... 125,897 10,521 276,329 75,193 46,421
Accrued liabilities............ -- 247,231 1,175,302 -- (398,087)
Grant receivables and other
current assets............... (182,677) (189,381) (181,960) (228,823) (339,515)
Other assets................... (40,815) 4,590 -- -- --
----------- ----------- ------------ ----------- ------------
Net cash used in operating
activities....................... (2,356,717) (4,225,276) (6,137,019) (5,631,371) (7,396,749)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment.............. (133,539) (35,797) (114,106) (46,363) (523,931)
----------- ----------- ------------ ----------- ------------
Net cash used in investing
activities....................... (133,539) (35,797) (114,106) (46,363) (523,931)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Restricted cash.................... (520,411) 55,228 55,916 61,797 55,316
Principal payments on capital lease
obligations...................... (91,395) (355,993) (427,270) (295,040) (471,867)
Proceeds from capital lease
financing........................ -- -- 593,059 615,416 --
Issuance of notes payable to
stockholders..................... -- 600,000 2,000,000 794,520 --
Issuance of common stock, net of
repurchases...................... 16,151 22,906 38,824 9,419 24,311
Issuance of convertible preferred
stock, net of issuance costs..... 3,174,022 8,050,548 16,448,138 601,850 13,525,810
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities....................... 2,578,367 8,372,689 18,708,667 1,787,962 13,133,570
----------- ----------- ------------ ----------- ------------
Increase (decrease) in cash and
cash equivalents................. 88,111 4,111,616 12,457,542 (3,889,772) 5,212,890
Cash and cash equivalents at
beginning of period.............. 117,959 206,070 4,317,686 4,317,686 16,775,228
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents at end of
period........................... $ 206,070 $ 4,317,686 $ 16,775,228 $ 427,914 $ 21,988,118
=========== =========== ============ =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid...................... $ 34,236 $ 125,208 $ 188,273 $ 112,428 $ 164,241
=========== =========== ============ =========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Equipment acquired under capital
leases........................... $ 655,559 $ 730,100 $ 404,125 $ 320,924 $ 732,041
=========== =========== ============ =========== ============
Issuance of convertible preferred
stock in exchange for
cancellation of debt and related
accrued interest................. $ 315,000 $ 600,000 $ 2,020,644 $ -- $ --
=========== =========== ============ =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 75
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
Nanogen, Inc. ("Nanogen" or the "Company") was incorporated in California
on November 6, 1991 as Nanophore, Inc. ("Nanophore"), a wholly-owned subsidiary
of Nanotronics, Inc. ("Nanotronics"), and pursuant to a Plan of Corporate
Separation and Reorganization, Nanophore issued shares of its common stock to
the Nanotronics shareholders and commenced operations as Nanogen, Inc. on
September 1, 1993. The Company was established to develop products in the area
of medical diagnostics, biomedical research, genomics, genetic testing and drug
discovery using advanced microelectronics and molecular biology. Through
December 31, 1996, the Company was considered to be in the development stage.
The Company commenced planned commercial operations upon consummation of the
collaborative agreement with Becton Dickinson in May 1997, (see Note 6), and is
no longer considered to be in the development stage.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments
which include debt securities with remaining maturities of three months or less
when acquired.
Concentration of Credit Risk
Cash and cash equivalents are financial instruments which potentially
subject the Company to concentration of credit risk. The Company invests its
excess cash primarily in U.S. government securities and marketable debt
securities of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification and
maturities to maintain safety and liquidity. These guidelines are reviewed
periodically and modified to take advantage of trends in yields and interest
rates. The Company has not experienced any material losses on its investments.
Restricted Cash
During 1994, the Company obtained an irrevocable standby letter of credit
in the amount of $463,775 to secure its building lease. The letter of credit is
secured by a certificate of deposit which is shown as restricted cash in the
accompanying balance sheet. The letter of credit expires by approximately
$50,000 annually.
Property and Equipment
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets (2 to 5 years) using the straight-line method.
Leasehold improvements are stated at cost and amortized on a straight-line basis
over the shorter of the estimated useful life of the assets or the lease term.
Revenue Recognition
Contract and grant revenue and sponsored research revenue are recorded as
earned as defined within the specific agreements. Payments received in advance
under these arrangements are recorded as deferred revenue until earned.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
common stock equivalents will be
F-7
<PAGE> 76
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
excluded during profitable reporting periods. Under the statement, the Company's
basic net loss per share would have been $2.55 for the nine months ended
September 30, 1997.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Segment Information. Both of
these standards are effective for fiscal years beginning after December 15,
1997. SFAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-owner sources. Net income and other comprehensive income, including foreign
currency translation adjustments, and unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company does not believe that comprehensive income or
loss will be materially different than net income or loss. SFAS No. 131 amends
the requirements for public enterprises to report financial and descriptive
information about its reportable operating segments. Operating segments, as
defined in SFAS No. 131, are components of an enterprise for which separate
financial information is available and is evaluated regularly by the Company in
deciding how to allocate resources and in assessing performance. The financial
information is required to be reported on the basis that is used internally for
evaluating the segment performance. The Company believes it operates in one
business and operating segment and does not believe adoption of this standard
will have a material impact on the Company's financial statements.
Net Loss Per Share
Historical net loss per share is computed using the weighted average number
of common shares outstanding during the periods presented. Common equivalent
shares resulting from stock options, warrants to purchase convertible preferred
stock and convertible preferred stock are excluded from the computation as their
effect would be antidilutive, except that the Securities and Exchange Commission
requires common and common share equivalents issued during the twelve-month
period prior to the initial filing of a proposed public offering to be included
in the calculation as if they were outstanding for all periods presented (using
the treasury stock method and the assumed initial public offering price).
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- -----------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss per share....................... $(.37) $(.66) $(1.04) $(.77) $(.90)
========= ========= ========= ========= =========
Shares used in computing net loss per
share.................................. 6,492,547 6,975,348 7,476,489 7,408,108 7,971,433
========= ========= ========= ========= =========
</TABLE>
Pro Forma Net Loss Per Share
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of the convertible preferred stock, which will
convert to common stock upon completion of the Company's initial public
offering, using the as if-converted method from the original date of issuance.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations ("APB
25"), in accounting for its employee stock options. Under APB 25, when the
exercise
F-8
<PAGE> 77
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
price of the Company's employee stock options is not less than the fair value of
the underlying stock on the date of grant, no compensation expense is
recognized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
related disclosures at the date of the financial statements, and the amounts of
revenues and expenses reported during the period. Actual results could differ
from those estimates.
Interim Financial Information
The accompanying financial statements for the nine months ended September
30, 1996 are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
statement of the operating results and cash flows for such period.
The accompanying financial statements for the nine months ended September
30, 1997 are not necessarily indicative of the expected results for the year
ending December 31, 1997.
Pro Forma Stockholders' Equity
In November 1997, the Company reincorporated in Delaware and established
$.001 par value common and preferred stock. The accompanying financial
statements have been retroactively reclassified to reflect the effects of the
reincorporation.
In September 1997, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission for the Company to sell shares of its common stock in an initial
public offering. If the initial public offering contemplated by this Prospectus
is consummated under the terms presently anticipated, all outstanding shares of
convertible preferred stock at September 30, 1997 will automatically convert
into 13,683,865 common shares.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
------------------------- 30,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Scientific equipment.................. $1,081,469 $1,242,172 $ 1,817,368
Office furniture and equipment........ 410,675 706,944 921,800
Leasehold improvements................ 25,256 49,823 515,743
---------- ---------- -----------
1,517,400 1,998,939 3,254,911
Less accumulated depreciation and
amortization........................ (369,088) (683,399) (1,050,372)
---------- ---------- -----------
$1,148,312 $1,315,540 $ 2,204,539
========== ========== ===========
</TABLE>
3. COMMITMENTS
Licensing and Research Agreement
The Company is a party to a licensing agreement under which it has obtained
exclusive licenses to technology, or technology claimed, in certain patents and
pending patent applications. Under the terms of the agreement, the Company
issued 40,923 shares of its common stock in 1993 as a nonrefundable license fee.
At
F-9
<PAGE> 78
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS (CONTINUED)
September 30, 1997, the Company is committed to expend $6.5 million over the
next six years for the further development of products utilizing the licensed
technology. The Company is also required to pay additional amounts if certain
milestones are achieved and to pay royalties on future sales, if any, on
licensed products covered by the agreement.
The Company has entered into a sponsored research agreement to develop
certain technologies. The agreement is for three years effective December 18,
1996. Under the terms of the agreement, the Company is committed to expend
$500,000 annually, payable in monthly installments of $41,667, for the term of
the agreement. The Company, at its sole discretion, may terminate the agreement
without cause at any time after the first year, with no further financial
obligations.
Leases
The Company leases its facilities and certain equipment under operating
lease agreements that expire at various dates through 2004. The minimum annual
rents are subject to specified annual rental increases. Rent expense was
$106,358, $378,440, $442,560, $331,266 and $341,740 for the years ended 1994,
1995 and 1996 and the nine months ended September 30, 1996 and 1997,
respectively.
The Company leases certain equipment under capital lease obligations. Cost
and accumulation amortization of equipment under capital lease were $1,408,045
and $342,092 at December 31, 1995, $1,881,974 and $636,082 at December 31, 1996
and $3,083,386 and $987,328 at September 30, 1997, respectively.
Annual future minimum obligations for operating and capital leases as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
OPERATING LEASE
LEASES OBLIGATIONS
---------- -----------
<S> <C> <C>
THREE MONTHS ENDING DECEMBER 31:
1997.............................................. $ 118,876 $ 255,005
YEAR ENDING DECEMBER 31:
1998.............................................. 561,434 867,645
1999.............................................. 604,881 586,118
2000.............................................. 624,694 361,794
2001.............................................. 639,094 47,179
2002.............................................. 664,495 --
Thereafter........................................ 1,591,253 --
---------- ----------
Total minimum lease payments...................... $4,804,727 2,117,741
==========
Less amount representing interest................. 349,382
----------
Present value of future minimum capital lease
obligations.................................... 1,768,359
Less amounts due in one year...................... 716,046
----------
Long term portion of capital lease obligations.... $ 1,052,313
==========
</TABLE>
As of September 30, 1997, the Company has approximately $3.5 million of
available unused funding under equipment lease lines.
F-10
<PAGE> 79
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY
Common Stock
The Company has entered into stock purchase agreements with certain
directors, employees and consultants. Under the terms of the stock purchase
agreements, the Company has the option to repurchase, at the original issue
price, the unvested shares in the event of termination of employment or
engagement. Shares issued under these agreements vest over periods up to four
years. At September 30, 1997, 15,636 shares were subject to repurchase by the
Company.
Convertible Preferred Stock
A summary of Convertible Preferred Stock issued and outstanding as of
September 30, 1997 is as follows:
<TABLE>
<CAPTION>
LIQUIDATION
SHARES PREFERENCE
----------- -----------
<S> <C> <C>
Series A......................................... 2,339,667 $ 3,509,501
Series B......................................... 3,740,600 9,351,500
Series C......................................... 6,553,598 26,214,392
Series D......................................... 1,050,000 6,300,000
---------- -----------
13,683,865 $45,375,393
========== ===========
</TABLE>
In 1995, in connection with the sale of Series B Convertible Preferred
Stock, the Company issued warrants to purchase 579,135 shares of common stock
exercisable from February 1997 to September 2000 at an exercise price of $.25
per share. Additionally, in connection with the issuance of notes payable which
were converted to Series B Convertible Preferred Stock, the Company issued
warrants to purchase 60,000 shares of Series B Convertible Preferred Stock
exercisable from April 1995 to April 2000 at an exercise price of $1.50 per
share.
In 1996, in connection with the sale of Series B Convertible Preferred
Stock, the Company issued warrants to purchase 40,133 shares of common stock
exercisable from February 1997 to September 2001 at an exercise price of $.25
per share.
In 1997, in connection with the sale of Series B Convertible Preferred
Stock, the Company issued warrants to purchase 4,167 shares of common stock
exercisable from August 1997 to August 2002 at an exercise price of $.25 per
share.
The Series A, B, C and D Convertible Preferred Stock are convertible, at
the option of the holder, into 2,339,667, 3,740,600, 6,553,598 and 1,050,000
shares, respectively, of common stock, subject to certain anti-dilution
adjustments. The Series A, B, C and D Convertible Preferred Stock are
automatically convertible into common stock, at the then applicable conversion
rate, upon the closing of an underwritten public offering of shares of common
stock of the Company for total gross offering proceeds of not less than
$7,500,000, but only if the public offering price of the Company's common stock
in such offering is not less than $7.50 per share.
Noncumulative annual dividends of $.12, $.20, $.32 and $.48 per share are
payable on the Series A, B, C and D Convertible Preferred Stock, respectively,
whenever funds are legally available, when and if declared by the Board of
Directors.
Warrants
In addition to the warrants issued in connection with the sale of
Convertible Preferred Stock, the Company issued warrants in connection with
certain financing arrangements. In 1991, a warrant was issued to purchase 7,637
shares of common stock exercisable through September 1999 at an exercise price
of $.01. In 1996, a warrant was issued to purchase 9,600 shares of Series C
Convertible Preferred Stock exercisable
F-11
<PAGE> 80
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
through the earlier of August 2002 or upon completion of an initial public
offering at an exercise price of not less than $4.00.
Stock Option Plans
The Board of Directors adopted the 1993 Stock Option Plan (the "1993
Plan"), as amended in April 1995, under which 982,007 shares of common stock
were reserved for issuance upon exercise of stock options granted by the
Company. In April 1995, the Board of Directors adopted the 1995 Stock
Option/Stock Issuance Plan (the "1995 Plan") under which 500,000 shares of
common stock were reserved for issuance under the 1995 Plan. In April 1996, an
additional 975,000 shares of common stock were reserved for issuance under the
1995 Plan. The plans provide for the grant of stock options to officers,
directors, and employees of, and consultants and advisors to, the Company. In
August 1997, the Board of Directors adopted the 1997 Stock Incentive Plan (the
"1997 Plan" and together with the 1993 Plan and 1995 Plan, the "Stock Option
Plans"), under which 2,462,012 shares of common stock were reserved for issuance
upon exercise of stock options granted by the Company.
The exercise price of incentive stock options to be granted under the plans
shall not be less than 100% of the fair value of such shares on the date of
grant. The exercise price of nonqualified stock options to be granted under the
plans shall not be less than 85% of the fair value of such shares on the date of
grant. The options are generally exercisable immediately; however, the shares
generally vest at the rate of one fourth after one year and the remainder
ratably over the remaining three years. Options granted have a term of up to ten
years.
As of September 30, 1997, 1,269,222 shares are available for future grant
under the Stock Option Plans. The following table summarizes stock option
activity through September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER OF PRICE PER
SHARES SHARE
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1993..................... 6,000 $ .01
Granted............................................ 294,800 $ .05
Exercised.......................................... (162,800) $ .05
---------
Outstanding at December 31, 1994..................... 138,000 $ .05
Granted............................................ 695,300 $ .10
Exercised.......................................... (626,500) $ .09
Cancelled.......................................... (35,000) $ .10
---------
Outstanding at December 31, 1995..................... 171,800 $ .10
Granted............................................ 997,745 $ .10
Exercised.......................................... (775,260) $ .10
Cancelled.......................................... (43,460) $ .10
---------
Outstanding at December 31, 1996..................... 350,825 $ .10
Granted............................................ 1,816,150 $ .59
Exercised.......................................... (108,510) $ .29
Cancelled.......................................... (5,591) $ .47
---------
Outstanding at September 30, 1997.................... 2,052,874 $ .52
=========
</TABLE>
As of September 30, 1997, options to purchase 1,147,456 shares of common
stock were vested. Under the terms of the option agreements, the Company has the
option to repurchase, at the original issue price, the
F-12
<PAGE> 81
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
unvested shares in the event of termination of employment or engagement. At
September 30, 1997, 650,372 shares issued under the Stock Option Plans were
subject to repurchase by the Company.
The Company recognized an aggregate of $768,558 through September 30, 1997
as deferred compensation for the excess of the deemed fair value for financial
statement presentation purposes of the common stock issuable on exercise of such
options over the exercise price. Compensation expense related to options granted
during the nine months ended September 30, 1997 was $105,004. The deferred
compensation expense is being recognized over the vesting period of the options.
Following is a further breakdown of the options outstanding as of September
30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE WEIGHTED EXERCISE
RANGE OF REMAINING AVERAGE PRICE OF
EXERCISE OPTIONS LIFE IN EXERCISE OPTIONS OPTIONS
PRICES OUTSTANDING YEARS PRICE EXERCISABLE EXERCISABLE
- ---------- ----------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ .01 6,000 5.92 $.01 6,000 $ .01
$ .10 276,325 6.90 $.10 276,325 $ .10
$ .25 38,500 9.35 $.25 38,500 $ .25
$ .60 1,732,049 9.70 $.60 1,732,049 $ .60
--------- ---------
$.01-.60 2,052,874 9.31 $.52 2,052,874 $ .52
========= =========
</TABLE>
Adjusted pro forma information regarding net loss is required by SFAS 123
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS 123. The fair value for these
options was estimated at the date of grant using the Minimum Value method for
option pricing with the following assumptions for 1995, 1996 and 1997: a
risk-free interest rate of 6.5%, a dividend yield of 0% and a weighted average
expected life of the option of five years.
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options are amortized to expense over the vesting period. The Company's
adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER
-------------------------- 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Adjusted pro forma net loss........... $(4,588,195) $(7,780,757) $(7,201,230)
Adjusted pro forma net loss per
share............................... $(.66) $(.58) $(.51)
</TABLE>
The weighted average fair value of options granted during 1995, 1996 and
1997 was $.01, $.01 and $.16, respectively.
The pro forma effect on net loss for 1995, 1996 and 1997 is not likely to
be representative of the pro forma effects on reported net income or loss in
future years because these amounts reflect less than 3 years of vesting.
Shares Reserved for Future Issuance
The following shares of common stock are reserved for future issuance at
September 30, 1997:
<TABLE>
<S> <C>
Preferred stock.................................. 13,683,865
Stock options.................................... 3,322,096
Warrants......................................... 700,072
----------
17,706,033
==========
</TABLE>
F-13
<PAGE> 82
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Nanotronics
In December 1997, the Company entered into an Agreement and Plan of Merger
(the "Agreement") with Nanotronics, pursuant to which a wholly-owned California
subsidiary of the Company will merge with and into Nanotronics. Upon the
effective date of the merger, the Company will issue 200,000 shares of its
Series D Convertible Preferred Stock valued at $1.2 million in exchange for all
of the outstanding shares of Nanotronics. The transaction will be accounted for
using the purchase method. The operations and net assets of Nanotronics are not
material to the Company's financial position or results of operations. The
purchase price of $1.2 million will be allocated to acquired in-process
technology and will be reflected as a charge in the Company's statement of
operations in the fourth quarter of 1997.
5. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1995 and 1996 are shown below. A valuation allowance of
$6,496,000, of which $3,311,000 relates to 1996, as of December 31, 1996 has
been recognized to offset the deferred tax assets as realization of such assets
is uncertain.
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 2,699,000 $ 5,477,000
Research and development credits................ 269,000 533,000
Capitalized research expenses................... 246,000 540,000
Other........................................... 19,000 61,000
----------- -----------
Total deferred tax assets......................... 3,233,000 6,611,000
Valuation allowance for deferred tax assets....... (3,185,000) (6,496,000)
----------- -----------
Net deferred tax assets........................... 48,000 115,000
Deferred tax liabilities:
Depreciation.................................... (48,000) (115,000)
----------- -----------
Net deferred tax assets........................... $ -- $ --
=========== ===========
</TABLE>
At December 31, 1996, the Company has federal and California net operating
loss carryforwards of approximately $14,885,000 and $4,458,000, respectively.
The difference between the federal and California tax loss carryforwards is
primarily attributable to the capitalization of research and development
expenses for California tax purposes and the fifty percent limitation on
California loss carryforwards. The federal and California tax loss carryforwards
will begin expiring in 2006 and 1997, respectively, unless previously utilized.
The Company also has federal and California research and development tax credit
carryforwards of approximately $368,000 and $252,000, respectively, which will
begin expiring in 2007 unless previously utilized.
Under Sections 382 and 383 of the Internal Revenue Code, the annual use of
the Company's net operating loss and credit carryforwards may be limited because
of a cumulative change in ownership of more than 50% which occurred during 1995.
However, the Company does not believe such limitation will have a material
impact upon the ultimate utilization of these carryforwards.
6. SPONSORED RESEARCH AGREEMENTS
Becton, Dickinson and Company
In May 1997, Becton, Dickinson and Company ("Becton Dickinson") and Nanogen
entered into a Collaborative Research and Development Agreement to develop
products utilizing Nanogen's technology to
F-14
<PAGE> 83
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SPONSORED RESEARCH AGREEMENTS (CONTINUED)
detect microbial agents causing infectious disease to determine their antibiotic
susceptibility or resistance (the "Prior R&D Agreement"). In connection with the
Prior R&D Agreement, Nanogen entered into a Series D Preferred Stock Purchase
Agreement (the "Stock Purchase Agreement") with Becton Dickinson pursuant to
which Becton Dickinson purchased 1,000,000 shares of Nanogen's Series D
Preferred Stock for $6.0 million. In addition, Becton Dickinson agreed, pursuant
to the Stock Purchase Agreement, to purchase common stock worth an aggregate of
$6.0 million at the initial public offering price, subject to the completion of
this offering. This purchase will be made as part of a private placement (the
"Private Placement") concurrent with this offering.
As of October 1, 1997, Becton Dickinson and Nanogen entered into new
agreements which superseded the Prior R&D Agreement. Pursuant to a Master
Agreement entered into between the parties (the "Master Agreement"), Becton
Dickinson and Nanogen agreed to form The Nanogen/Becton Dickinson Partnership, a
Delaware general partnership (the "Partnership") to develop and commercialize
products in the field of in vitro nucleic acid-based diagnostic and monitoring
technologies. NanoVenture LLC, a Delaware limited liability company wholly-owned
by Nanogen ("NanoVenture") and Becton Dickinson Venture LLC, a Delaware limited
liability company wholly-owned by Becton Dickinson ("Becton Dickinson Venture"),
are the general partners of the Partnership with (i) losses allocated in
proportion to cash funding, (ii) profits shared equally, and (iii) distributions
allocated 60% to Becton Dickinson and 40% to NanoVenture until partner
contributions are equalized and thereafter distributions shared equally.
Pursuant to a General Partnership Agreement between NanoVenture and Becton
Dickinson Venture, Becton Dickinson and Nanogen have contributed to the
Partnership their respective rights under the Prior R&D Agreement, certain
Intellectual Property Licenses and, as of December 1, 1997, cash in the
aggregate of $1,275,000. Upon the successful completion of certain defined
milestones by December 31, 1997 and June 30, 1998, contributions for use in the
research programs aggregating approximately $6.7 million will be made to the
Partnership from July 1, 1998 through April 1, 1999 of which $5.0 million is to
be paid by Becton Dickinson and $1.7 million is to be paid by Nanogen. There can
be no assurance that any such milestones will be achieved in a timely fashion,
if at all. The General Partnership Agreement also contemplates additional
research funding aggregating approximately $14.3 million during the period from
July 1, 1999 through April 1, 2001 conditioned upon the achievement of certain
milestones to be mutually agreed upon by the partners. There can be no
assurances that the parties will agree to such milestones and if agreed upon,
there can be no assurances that such milestones will be achieved in a timely
fashion, if at all. In addition to the above described payments, Becton
Dickinson and Nanogen have agreed to contribute certain additional amounts to
fund marketing and manufacturing startup.
Hoechst AG
In December 1997, the Company entered into an agreement with Hoechst
Corporate Research and Technology, an affiliate of Hoechst AG ("Hoechst"), for
an exclusive research and development collaboration and the establishment of a
joint venture relating to new tools in molecular recognition and Nanogen's
technology. Pursuant to the agreement, the Company has agreed to issue to
Hoechst, upon the achievement of certain milestones, warrants to purchase up to
4% of the Company's common stock based on the number of shares outstanding on
December 5, 1997. Additionally, Hoechst has agreed to purchase Company common
stock worth an aggregate of $10.0 million at the public offering price, subject
to the completion of this offering. This purchase will be made as part of the
Private Placement.
Elan Corporation, plc
In December 1997, the Company entered into an agreement with Elan
Corporation, plc ("Elan") for a non-exclusive research and development agreement
for the development of genomics and gene expression
F-15
<PAGE> 84
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SPONSORED RESEARCH AGREEMENTS (CONTINUED)
research tools. Pursuant to the agreement, Elan has agreed to purchase Company
common stock worth an aggregate of $5.0 million at the public offering price,
subject to the completion of this offering. This purchase will be made as part
of the Private Placement.
F-16
<PAGE> 85
[Photo of Nanogen Microchips]
<PAGE> 86
Nanogen logo
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee, the National Association of Securities Dealers, Inc. filing fee and the
Nasdaq listing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
----------
<S> <C>
SEC registration fee.............................................. $ 11,800
National Association of Securities Dealers, Inc. filing fee....... 4,500
Nasdaq listing fee................................................ 50,000
Blue Sky fees and expenses........................................ 10,000
Accounting fees and expenses...................................... 200,000
Legal fees and expenses........................................... 300,000
Printing and engraving expenses................................... 175,000
Registrar and Transfer Agent's fees............................... 5,000
Miscellaneous fees and expenses................................... 143,700
--------
Total................................................... $ 900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article XI of the Registrant's
Restated Certificate of Incorporation (Exhibit 3.(i)(2) hereto) and Article 6 of
the Registrant's Bylaws (Exhibit 3.(ii)(2) hereto) provide for indemnification
of the Registrant's directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General Corporation
Law. The Registrant has also entered into agreements with its directors and
officers that will require the Registrant, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors or executive officers to the fullest extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since February 1, 1994, the Registrant has sold and issued the following
unregistered securities:
(a) In February, March and June, 1995 the Registrant issued (i)
2,129,667 shares of Series A Convertible Preferred Stock to a total of 28
accredited investors at a price per share of $1.50, for an aggregate
consideration of $3,194,501 and (ii) 210,000 shares of Series B Convertible
Preferred Stock in exchange for cancellation of indebtedness in the amount
of $315,000. The Registrant relied on the exemption provided by Rule 506
under Regulation D and Section 4(2) of the Act.
(b) Between April 1995 and August 1997, the Registrant issued to a
total of 33 accredited investors (i) 3,740,600 shares of Series B
Convertible Preferred Stock and warrants for the purchase of 60,000 shares
of Series B Convertible Preferred Stock, at an exercise price of $1.50 per
share, in exchange for cancellation of indebtedness in the amount of
$600,000. The Registrant relied on the exemption provided by Rule 506 under
Regulation D and Section 4(2) of the Act.
II-1
<PAGE> 88
(c) In December 1996, the Registrant issued to accredited investors
(i) 4,225,000 shares of Series C Convertible Preferred Stock at a price per
share of $4.00, for an aggregate consideration of $26,214,392 and (ii)
505,161 shares of Series C Convertible Preferred Stock in exchange for
cancellation of indebtedness in the amount of $2,020,644. In January 1997,
the Registrant issued to accredited investors 1,823,437 shares of Series C
Convertible Preferred Stock a price per share of $4.00, for an aggregate
consideration of $7,293,748. The Registrant relied on the exemption
provided by Rule 506 under Regulation D and Section 4(2) of the Act.
(d) In May and August 1997, the Registrant issued 1,050,000 shares of
Series D Convertible Preferred Stock to a total of three accredited
investors at a price per share of $6.00, for an aggregate consideration of
$6,300,000. The Registrant relied on the exemption provided by Rule 506
under Regulation D and Section 4(2) of the Act.
(e) In December 1997, the Registrant issued an aggregate of 200,000
shares of Series D Preferred Stock to the shareholders of Nanotronics, Inc.
("Nanotronics") in exchange for all of the outstanding shares of
Nanotronics. The Registrant relied on the exemption provided by Rule 506
under Regulation D and Section 4(2) of the Act.
(f) On various dates between December 1994 and December 1997, the
Registrant issued 2,854,003 shares of its Common Stock to 90 employees and
directors pursuant to the exercise of options granted under the 1993 Stock
Plan, the 1995 Stock Option/Issuance Plan and the 1997 Stock Incentive
Plan. The exercise prices per share ranged from $.005 to $.60, for an
aggregate consideration of $340,118. The Registrant relied on the exemption
provided by Rule 701 under the Act.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
and warrants issued in such transactions. All recipients had adequate access,
through employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(b) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger among the Registrant, Nanotronics, Inc.
("Nanotronics") and the shareholders of Nanotronics, dated as of December 18,
1997.
3.(i)1 Restated Certificate of Incorporation.
3.(i)2 Form of Restated Certificate of Incorporation, to be filed upon the closing of
the offering to which this Registration Statement relates.
3.(ii)1 Bylaws of the Registrant.
3.(ii)2 Form of Amended and Restated Bylaws of the Registrant, to be effective upon the
closing of the offering to which this Registration Statement relates.
4.1* Form of Common Stock Certificate.
5.1* Legal opinion of Pillsbury Madison & Sutro LLP.
10.1 Nanophore, Inc. 1993 Stock Option Plan.
10.2 Nanogen, Inc. 1995 Stock Option/Stock Issuance Plan.
10.3 1997 Stock Incentive Plan of Nanogen, Inc. ("1997 Plan").
10.4 Form of Incentive Stock Option Agreement under the 1997 Plan.
10.5 Form of Nonqualified Stock Option Agreement under the 1997 Plan.
10.6 Nanogen, Inc. Employee Stock Purchase Plan.
</TABLE>
II-2
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------
<C> <S>
10.7 Form of Indemnification Agreement between the Registrant and its directors and
executive officers.
10.8(+) Agreement between the Registrant and E( 1/8)lan Corporation, plc dated December
19, 1997.
10.9(+) Agreement between the Registrant and Hoechst AG, dated December 4, 1997.
10.10(+) Agreement between the Registrant and Syntro Corporation, dated of November 24,
1997.
10.11(+) Master Agreement between the Registrant and Becton, Dickinson and Company, dated
as of October 1, 1997, with related attachments.
10.12(+) Exclusive Option Agreement between the Registrant and Billups-Rothenberg, Inc.,
dated as of September 12, 1997.
10.13(+) Sponsored Research Agreement between the Registrant and Prolinx, Inc, dated as
of December 18, 1996.
10.14(+) Collaborative Research Agreement between the Registrant and The University of
Texas Southwestern Medical Center at Dallas, dated as of August 1, 1995.
10.15(+) License Agreement between the Registrant and The Salk Institute for Biological
Studies, dated as of April 1, 1993.
10.16 Series D Preferred Stock Purchase Agreement between the Registrant and Becton,
Dickinson and Company, dated as of May 5, 1997.
10.17 Form of Series B Preferred Stock Purchase Warrant, between the Registrant and
certain purchasers of its Series B Preferred Stock, dated April 11, 1995.
10.18 Amended and Restated Investors' Rights Agreement between the Registrant and
certain securityholders set forth therein, dated as of May 5, 1997.
10.19 Master Lease Agreement between the Registrant and Mellon US Leasing, dated
September 11, 1997.
10.20 Lease Agreement between the Registrant and LMP Properties, Ltd., dated June 29,
1994.
10.21 Lease Agreement between the Registrant and Lease Management Services, Inc.,
dated April 26, 1994, as amended on December 13, 1994 and June 13, 1996.
10.22 Form of Nanogen, Inc. Restricted Stock Issuance Agreement between the Registrant
and certain of its directors and executive officers, dated as of November 7,
1997.
10.23 Form of Promissory Note between the Registrant and certain of its executive
officers, dated August 22, 1996.
10.24 Form of Promissory Note between the Registrant and certain of its executive
officers, dated June 30, 1995.
10.25 Form of Common Stock Purchase Agreement.
10.26 Forms of Performance Stock Option Agreement.
10.27 Agreement between the Registrant and Tina S. Nova, Ph.D., dated January 5, 1994.
10.28 Agreement between the Registrant and W. J. Kitchen, dated October 28, 1997.
10.29 Agreement between the Registrant and James P. O'Connell, Ph.D., dated November
15, 1994.
10.30 Agreement between the Registrant and Harry J. Leonhardt, dated May 24, 1996.
10.31 Agreement between the Registrant and Steven J. Naber, dated September 24, 1997.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
23.3 Consent of Lyon & Lyon LLP.
</TABLE>
II-3
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------
<C> <S>
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable or not
required or because the information is included elsewhere in the Financial
Statements or the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) It will provide to the underwriters at the closing(s) specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-4
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on the 18th day of December, 1997.
NANOGEN, INC.
By: /s/ HOWARD C. BIRNDORF
------------------------------------
Howard C. Birndorf
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Howard C. Birndorf, Tina S. Nova and Harry J.
Leonhardt, and each of them, his or her true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration Statement,
and any registration statement relating to the offering covered by this
Registration Statement and filed pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ HOWARD C. BIRNDORF Chairman of the Board and Chief December 18, 1997
- ----------------------------------- Executive Officer (Principal
Howard C. Birndorf Executive Officer)
/s/ STEVEN J. NABER Vice President, Finance and Chief December 18, 1997
- ----------------------------------- Financial Officer (Principal
Steven J. Naber Financial Officer and Accounting
Officer)
/s/ TINA S. NOVA, PH.D. President and Chief Operating December 18, 1997
- ----------------------------------- Officer, Director
Tina S. Nova, Ph.D.
/s/ BROOK H. BYERS Director December 18, 1997
- -----------------------------------
Brook H. Byers
/s/ ROBERT E. CURRY, PH.D. Director December 18, 1997
- -----------------------------------
Robert E. Curry, Ph.D.
/s/ CAM L. GARNER Director December 18, 1997
- -----------------------------------
Cam L. Garner
</TABLE>
II-5
<PAGE> 92
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ DAVID LUDVIGSON Director December 18, 1997
- -----------------------------------
David Ludvigson
/s/ THOMAS G. LYNCH Director December 18, 1997
- -----------------------------------
Thomas G. Lynch
/s/ ANDREW E. SENYEI, M.D. Director December 18, 1997
- -----------------------------------
Andrew E. Senyei, M.D.
</TABLE>
II-6
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger among the Registrant, Nanotronics, Inc.
("Nanotronics") and the shareholders of Nanotronics, dated as of December 18,
1997.
3.(i)1 Restated Certificate of Incorporation.
3.(i)2 Form of Restated Certificate of Incorporation, to be filed upon the closing of
the offering to which this Registration Statement relates.
3.(ii)1 Bylaws of the Registrant.
3.(ii)2 Form of Amended and Restated Bylaws of the Registrant, to be effective upon the
closing of the offering to which this Registration Statement relates.
4.1* Form of Common Stock Certificate.
5.1* Legal opinion of Pillsbury Madison & Sutro LLP.
10.1 Nanophore, Inc. 1993 Stock Option Plan.
10.2 Nanogen, Inc. 1995 Stock Option/Stock Issuance Plan.
10.3 1997 Stock Incentive Plan of Nanogen, Inc. ("1997 Plan").
10.4 Form of Incentive Stock Option Agreement under the 1997 Plan.
10.5 Form of Nonqualified Stock Option Agreement under the 1997 Plan.
10.6 Nanogen, Inc. Employee Stock Purchase Plan.
10.7 Form of Indemnification Agreement between the Registrant and its directors and
executive officers.
10.8(+) Agreement between the Registrant and E( 1/8)lan Corporation, plc dated December
19, 1997.
10.9(+) Agreement between the Registrant and Hoechst AG, dated December 4, 1997.
10.10(+) Agreement between the Registrant and Syntro Corporation, dated of November 24,
1997.
10.11(+) Master Agreement between the Registrant and Becton, Dickinson and Company, dated
as of October 1, 1997, with related attachments.
10.12(+) Exclusive Option Agreement between the Registrant and Billups-Rothenberg, Inc.,
dated as of September 12, 1997.
10.13(+) Sponsored Research Agreement between the Registrant and Prolinx, Inc, dated as
of December 18, 1996.
10.14(+) Collaborative Research Agreement between the Registrant and The University of
Texas Southwestern Medical Center at Dallas, dated as of August 1, 1995.
10.15(+) License Agreement between the Registrant and The Salk Institute for Biological
Studies, dated as of April 1, 1993.
10.16 Series D Preferred Stock Purchase Agreement between the Registrant and Becton,
Dickinson and Company, dated as of May 5, 1997.
10.17 Form of Series B Preferred Stock Purchase Warrant, between the Registrant and
certain purchasers of its Series B Preferred Stock, dated April 11, 1995.
10.18 Amended and Restated Investors' Rights Agreement between the Registrant and
certain securityholders set forth therein, dated as of May 5, 1997.
10.19 Master Lease Agreement between the Registrant and Mellon US Leasing, dated
September 11, 1997.
10.20 Lease Agreement between the Registrant and LMP Properties, Ltd., dated June 29,
1994.
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------
<C> <S>
10.21 Lease Agreement between the Registrant and Lease Management Services, Inc.,
dated May 10, 1994, with related attachments.
10.22 Form of Nanogen, Inc. Restricted Stock Issuance Agreement between the Registrant
and certain of its directors and executive officers, dated as of November 7,
1997.
10.23 Form of Promissory Note secured by Stock Pledge Agreement between the Registrant
and certain of its executive officers, dated August 22, 1996.
10.24 Form of Promissory Note secured by Stock Pledge Agreement between the Registrant
and certain of its executive officers, dated June 30, 1995.
10.25 Form of Common Stock Purchase Agreement.
10.26 Forms of Performance Stock Option Agreement.
10.27 Agreement between the Registrant and Tina S. Nova, Ph.D., dated January 5, 1994.
10.28 Agreement between the Registrant and W. J. Kitchen, dated October 28, 1997.
10.29 Agreement between the Registrant and James P. O'Connell, Ph.D., dated November
15, 1994.
10.30 Agreement between the Registrant and Harry J. Leonhardt, dated May 24, 1996.
10.31 Agreement between the Registrant and Steven J. Naber, dated September 24, 1997.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
23.3 Consent of Lyon & Lyon LLP.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
<PAGE> 1
EXHIBIT 1.1
Draft of December __, 1997
NANOGEN, INC.
Common Stock
UNDERWRITING AGREEMENT
<PAGE> 2
__________ __, 1997
Morgan Stanley & Co., Incorporated
Lehman Brothers, Incorporated
SBC Warburg Dillon Read, Incorporated
as Representatives of the several Underwriters
named in Schedule I hereto
c/o Morgan Stanley & Co., Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Nanogen, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), an aggregate of __________ shares of its common stock ($0.001
per share par value) (the "Firm Shares"),
The Company also proposes to issue and sell to the several Underwriters
not more than an additional __________ shares of its common stock ($___ per
share par value) (the "Additional Shares"), if and to the extent that you, as
managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Article II hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of common
stock, ($___ per share par value), of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement;" the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company files a registration statement to register a portion of the
Shares and relies on Rule 462(b) under the Securities Act for such registration
statement to become effective upon filing with the Commission (the "Rule 462
Registration Statement"), then any reference to the "Registration Statement"
shall be deemed to refer to both the registration statement referred to above
(Commission File No. 333-_______) and the Rule 462 Registration Statement, in
each case as amended from time to time.
As part of the offering contemplated by this Agreement, Morgan Stanley &
Co. Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares set
forth opposite its name on Schedule I to this Agreement, up to __________
shares, for sale to the Company's employees, officers, and directors and other
parties associated with the Company (collectively, "Participants"), as set forth
in the Prospectus under the heading "Underwriting" (the "Directed Share
Program"). The Shares to be sold by Morgan Stanley pursuant to the Directed
Share Program (the "Directed Shares") will be sold by Morgan Stanley pursuant to
this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the first business day
after the date on which this Agreement is executed will be offered to the public
by Morgan Stanley as set forth in the Prospectus.
-1-
<PAGE> 3
I.
The Company represents and warrants to each of the Underwriters that:
(a) The Registration Statement has become effective, no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable rules
and regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that the representations and
warranties set forth in this paragraph (b) do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company.
(d) The Company does not own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity.
(e) The Company has good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned by it
which is material to the business of the Company in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by the Company are
held by it under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company except as described in or
contemplated by the Prospectus.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are validly
issued, fully paid and non-assessable. Except as set forth in the Prospectus,
the Company does not have outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible securities
or obligations. All outstanding shares of capital stock and options and other
rights to acquire capital stock have been issued in compliance with the
registration and qualification provisions of all applicable securities laws and
were not issued in violation of any preemptive rights, rights of first refusal
or other similar rights.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive rights, rights of first refusal or similar rights.
-2-
<PAGE> 4
(i) This Agreement has been duly authorized, executed and delivered
by the Company.
(j) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or bylaws of the Company, or any agreement or other instrument binding upon the
Company that is material to the Company, taken as a whole, or any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over the Company, and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company from that set forth in the Prospectus.
(l) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company has not
incurred any material liability or obligation, direct or contingent, nor entered
into any material transaction not in the ordinary course of business; (ii) the
Company has not purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its capital
stock other than ordinary and customary dividends; and (iii) there has not been
any material change in the capital stock, short-term debt or long-term debt of
the Company, except in each case as described in or contemplated by the
Prospectus.
(m) There are no legal or governmental proceedings pending or, to
the Company's knowledge, threatened to which the Company is a party or to which
any of the properties of the Company is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not described or
filed as required.
(n) The Company has all necessary consents, authorizations,
approvals, orders, certificates and permits of and from, and has made all
declarations and filings with, all federal, state, local and other governmental
authorities, all self-regulatory organizations and all courts and other
tribunals, to own, lease, license and use its properties and assets and to
conduct its business in the manner described in the Prospectus, except to the
extent that the failure to obtain or file would not have a material adverse
effect on the Company.
(o) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 or Rule 462 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder.
(p) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" or an entity "controlled" by
an "investment company" as such terms are defined in the Investment Company Act
of 1940, as amended.
(q) There is no owner of any securities of the Company who has any
rights, not effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the filing of the
Registration Statement or the sale of any shares thereunder.
(r) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition, financial or otherwise,
or the earnings, business or operations of the Company, except as described in
or contemplated by the Prospectus.
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<PAGE> 5
(s) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (collectively, "Environmental
Laws"), (ii) has received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse effect on the
Company.
(t) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business, operations
and properties of the Company, in the course of which it identifies and
evaluates associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of properties
or compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or in the
aggregate, have a material adverse effect on the Company.
(u) The Company owns or possesses adequate licenses or other rights
to use all patents, copyrights, trademarks, service marks, trade names,
technology and know-how necessary (in any material respect) to conduct its
business in the manner described in the Prospectus, the Company is not obligated
to pay a royalty, grant a license, or provide other consideration to any third
party in connection with its patents, copyrights, trademarks, service marks,
trade names, or technology other than as disclosed in the Prospectus, and,
except as disclosed in the Prospectus, the Company has not received any notice
of infringement or conflict with (and the Company knows of any infringement or
conflict with) asserted rights of others with respect to any patents,
copyrights, trademarks, service marks, trade names, technology or know-how which
could result in any material adverse effect upon the Company and, except as
disclosed in the Prospectus, the discoveries, inventions, products or processes
of the Company referred to in the Prospectus do not, to the best knowledge of
the Company, infringe or conflict with any right or patent of any third party,
or any discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company which could have a
material adverse effect on the Company. No third party, including any academic
or governmental organization, possesses rights to the Company's patents,
copyrights, trademarks, service marks, trade names, or technology which, if
exercised, could enable such third party to develop products competitive to
those of the Company or could have a material adverse effect on the ability of
the Company to conduct its business in the manner described in the Prospectus.
(v) The Company possesses all consents, approvals, orders,
certificates, authorizations and permits issued by and has made all declarations
and filings with, all appropriate federal, state or foreign governmental or
self-regulatory authorities and all courts and other tribunals necessary to
conduct its business and to own, lease, license and use its properties in the
manner described in the Prospectus, and the Company has not received any notice
of proceedings related to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of any unfavorable decision, ruling or finding, or failure to obtain or
file would result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company, except as
described in or contemplated by the Prospectus.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) No material labor dispute with the employees of the Company
exists, except as described in or contemplated by the Prospectus, or, to the
best knowledge of the Company, is imminent; and the Company is not aware of any
existing, threatened or imminent labor disturbance by the employees of any of
its principal suppliers,
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<PAGE> 6
manufacturers or contractors that could result in any material adverse change in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company.
(y) All outstanding shares of Common Stock, and all securities
convertible into or exercisable or exchangeable for Common Stock, are subject to
valid, binding and enforceable agreements (collectively, the "Lock-up
Agreements") that restrict the holders thereof from (1) offering, pledging,
selling, contracting to sell, selling any option or contract to purchase,
purchasing any option or contract to sell, granting any option, right, or
warrant for the purchase of, or otherwise transferring or disposing of, directly
or indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or (2) entering into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of Common Stock, whether any such transaction described in clause (1)
or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, otherwise than (i) as a bona fide gift or
gifts, (ii) by will or intestacy to the holder's immediate family or to a trust
the beneficiaries of which are exclusively the holder and/or a member or members
of the holder's immediate family, (iii) as a distribution to limited partners or
shareholders of the holder, or (iv) with the prior written consent of Morgan
Stanley Dean Witter Incorporated; proved that a gift, transfer or distribution
pursuant to clause (i), (ii) or (iii) above shall be conditioned upon such
donee, transferee or distributee executing and delivering a copy of a Lock-up
Agreement to Morgan Stanley Dean Witter Incorporated and further that such
holders will not make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock prior to the expiration of 180 days
after the date of the Prospectus.
(z) The Company (i) has entered into enforceable agreements
(collectively, the "Option Agreements") with each holder of a currently
outstanding option issued under the Company's 199_ Stock Plan and 199_ Stock
Option/Stock Issuance Plan (the "Option Plans") and each person who has acquired
shares of Common Stock pursuant to the exercise of any option granted under the
Option Plans that pursuant to the terms of the Option Agreements and the Option
Plans, none of such options or shares may be sold or otherwise transferred or
disposed of for a period of 180 days after the date of the initial public
offering of the Shares, and (ii) has imposed or will impose prior to the
effective date of the Registration Statement a stop-transfer instruction with
the Company's transfer agent in order to enforce the foregoing lock-up
provisions imposed pursuant to the Option Agreements and the Option Plans to the
same extent as is required in the Lock-up Agreements.
(aa) As of the date the Registration Statement becomes effective, the
Common Stock will be authorized for quotation on the Nasdaq National Market upon
official notice of issuance.
(bb) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida), relating to issuers doing
business with Cuba.
(cc) The execution and delivery of the Agreement and Plan of Merger
dated as of __________, 1997 (the "Merger Agreement") between Nanogen, Inc., a
California corporation (the "California Corporation"), and the Company,
effecting the reincorporation of the California Corporation under the laws of
the State of Delaware, was duly authorized by all necessary corporate action on
the part of each of the California Corporation and the Company. Each of the
California Corporation and the Company had all corporate power and authority to
execute and deliver the Merger Agreement, to file the Merger Agreement with the
Secretary of State of California and the Secretary of State of Delaware and to
consummate the reincorporation contemplated by the Merger Agreement, and the
Merger Agreement at the time of execution and filing constituted a valid and
binding obligation of each of the California Corporation and the Company.
(dd) The Company has not offered, or caused the Underwriters to
offer, Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company, or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
(ee) The Agreement and Plan of Merger among the Company, Nanotronics,
Inc. ("Nanotronics") and the shareholders of Nanotronics, dated as of November
__, 1997, was duly authorized by all necessary corporate
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<PAGE> 7
action on the part of each of the Company and Nanotronics, Inc. Each of the
Company and Nanotronics has the has the corporate power and authority to execute
and deliver the Agreement and Plan of Merger, and to consummate the
transactions contemplated by the Agreement, and the Plan of Merger Agreement at
the time of filing constituted a valid and binding obligation on each of the
Company, Nanotronics, and Acquisition Subsidiary.
Furthermore, the Company represents and warrants to Morgan Stanley that
(I) the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (ii) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered
outside the United States.
II.
The Company hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from the Company the respective number of Firm
Shares (subject to such adjustments to eliminate fractional shares as you may
determine) set forth in Schedule I hereto opposite the name of such Underwriter
at $_____ a share (the purchase price).
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company hereby agrees to
issue and sell to the Underwriters the Additional Shares, and the Underwriters
shall have a one-time right to purchase, severally and not jointly, up to
__________ Additional Shares at the purchase price. Additional Shares may be
purchased as provided in Article IV hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley Dean Witter Incorporated on behalf of the Underwriters, it will
not, during the period ending 180 days after the date of the Prospectus, (1)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or (2) enter into any swap or similar arrangement
that transfers, in whole or in part, the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise, other than (i) the Shares to be sold hereunder, (ii) any
shares of Common Stock sold by the Company upon the exercise of an option or
warrant or other right to acquire shares of the Company or the conversion of a
security outstanding on the date hereof described in the Prospectus, (iii) any
options or other rights to purchase or acquire any shares of Common Stock or any
shares of Common Stock issuable upon exercise of such options or other rights
granted in connection with any compensatory arrangement with a director,
officer, employee, consultant or advisor, so long as such person is otherwise
subject to a Lock-Up Agreement, or (iv) any shares of Common Stock or other
right to acquire shares of the Company issued pursuant to equipment or lease
financing activities entered into in the ordinary course of the Company's
business, so long as each person or entity acquiring shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
is otherwise subject to a Lock-Up Agreement.
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<PAGE> 8
III.
The Company is advised by you that the Underwriters propose to make a
public offering of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Company is
further advised by you that the Shares are to be offered to the public initially
at $_____ a share (the public offering price) and to certain dealers selected by
you at a price that represents a concession not in excess of $_____ a share
under the public offering price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
IV.
Payment for the Firm Shares shall be made in Federal or other funds
immediately available in New York City against delivery of such Firm Shares for
the respective accounts of the several Underwriters, at 7:00 a.m., California
time, on __________ __, 1997, or at such other time on the same or such other
date, not later than __________ __, 1997, as shall be designated in writing by
you. The time and date of each such payment are hereinafter referred to as the
Closing Date.
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters, at 7:00 a.m., California time, on such date (which may be the same
as the Closing Date but shall in no event be earlier than the Closing Date nor
later than ten business days after the giving of the notice hereinafter referred
to) as shall be designated in a written notice from you to the Company of your
determination, on behalf of the Underwriters, to purchase a number, specified in
said notice, of Additional Shares, or on such other date, in any event not later
than __________ __, 1997 as shall be designated in writing by you. The time and
date of such payment are hereinafter referred to as the "Option Closing Date".
The notice of the determination to exercise the option to purchase Additional
Shares and of the Option Closing Date may be given at any time within 30 days
after the date of this Agreement.
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the purchase price therefor.
V.
The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.
The several obligations of the Underwriters hereunder are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act, and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations, of the Company and its
subsidiaries, taken as a whole, from that set forth in the Registration
Statement that, in your
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<PAGE> 9
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company, to the effect set forth in
clause (a)(i) above, and to the effect that the representations and warranties
of the Company contained in this Agreement are true and correct as of the
Closing Date and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
The officers signing and delivering such certificate may rely upon the
best of their knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of
Pillsbury Madison & Sutro LLP, counsel for the Company, dated the Closing Date,
to the effect that
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company;
(ii) the Company does not own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity;
(iii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares to be sold by the Company have been duly authorized and
are validly issued, non-assessable and fully paid;
(v) the Shares to be sold by the Company have been duly
authorized, and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued and non-assessable, and to such counsel's
knowledge, fully paid, and the issuance of such Shares will not be subject to
any preemptive rights, rights of first refusal or similar rights;
(vi) the Company has corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by the Company. This Agreement has been duly
authorized, executed and delivered by the Company;
(vii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or bylaws of the Company or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon the Company that is material to the
Company, taken as a whole, or, to such counsel's knowledge, any judgment, order
or decree of any governmental body, agency or court having jurisdiction over the
Company, and no consent, approval, authorization or order of or qualification
with any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be required
by the securities or Blue Sky laws of the various states and jurisdictions in
connection with the offer and sale of the Shares;
(viii) the statements (1) in the Prospectus under the captions
"Risk Factors -- Shares Eligible for Future Sale," "Risk Factors -- Dependence
on Collaborative Alliances; Reliance on Collaborators," "Business --
Collaborative Alliances "Business - Government Regulation," "Management,"
"Certain Transactions," "Description of Capital Stock" and "Shares Eligible for
Future Sale" and (2) in the Registration Statement in Items
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<PAGE> 10
14 and 15, in each case insofar as such statements constitute summaries of the
legal matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(ix) after due inquiry, such counsel does not know of any
legal, regulatory or governmental proceeding pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of the properties
of the Company is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or of any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(x) the Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended;
(xi) to the knowledge of such counsel, there is no legal or
beneficial owner of any securities of the Company who has any rights, not
effectively satisfied or waived, to require registration of any shares of
capital stock of the Company in connection with the filing of the Registration
Statement;
(xii) such counsel is of the opinion that the Company is (1)
in compliance with any and all applicable Environmental Laws, (2) has received
all permits, licenses or other approvals required of it under applicable
Environmental Laws to conduct its business and (3) is in compliance with all
terms and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company;
(xiii) the execution and delivery of the Merger Agreement,
effecting the reincorporation of the California Corporation under the laws of
the State of Delaware, was duly authorized by all necessary corporate action on
the part of each of the California Corporation and the Company; and
(xiv) each of the California Corporation and the Company had
all corporate power and authority to execute and deliver the Merger Agreement,
to file the Merger Agreement with the Secretary of State of California and the
Secretary of State of Delaware and to consummate the reincorporation
contemplated by the Merger Agreement, and the Merger Agreement at the time of
execution and filing constituted a valid and binding obligation of each of the
California Corporation and the Company.
(xv) each of the Company and Acquisition Subsidiary had all
corporate power and authority to execute and deliver the Agreement and Plan of
Merger, and to consummate the transactions contemplated by the Agreement and
Plan of Merger, and the Agreement and Plan of Merger at the time of execution
constituted a valid and binding obligation of each of the Company and
Nanotronics.
(xvi) to the knowledge of such counsel: (1) the Registration
Statement has become effective under the Securities Act, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Securities Act and nothing has come to such counsel's
attention to lead it to believe that such proceedings are contemplated; and (2)
any required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) under the Securities Act has been made in the manner and within the
time period required by such Rule 424(b);
(xvii) the Shares to be sold under this Agreement to the
Underwriters are duly authorized for quotation on the Nasdaq National Market;
and
(xviii)such counsel shall also state that (i) they believe that
the Registration Statement and the Prospectus (except for financial statements
and schedules and other financial data therein, as to which they need express no
belief) complied as to form in all material respects with the requirements of
the Act and the rules and regulations of the Commission thereunder and (ii) they
confirm that they have no reason to believe that (except for
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<PAGE> 11
financial statements and schedules and other financial data therein, as to which
they need express no belief) the Registration Statement (and the prospectus
included therein) as of its effective date, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that (except for
financial statements and schedules and other financial data therein, as to which
they need express no belief) the Prospectus, as of the date of the Prospectus
and such date or dates as such opinion is delivered, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(d) You shall have received on the Closing Date an opinion of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters, dated the Closing Date, covering the matters referred to in
subparagraphs (v), the last sentence of subparagraph (vi), (viii) (but only as
to the statements in the Prospectus under "Description of Capital Stock"),
stating that such counsel has read the first [_______] paragraphs of the portion
of the Registration Statement and the Prospectus entitled "Underwriters" (the
"Underwriter Portion"), and (xviii) of paragraph (c) above and to the effect
that the statements in the Underwriter Portion, insofar as such statements
constitute a summary of this Agreement, fairly present the information called
for with respect to such Agreement.
With respect to subparagraph (xviii) of paragraph (c) above, Pillsbury
Madison & Sutro LLP and Wilson Sonsini Goodrich & Rosati, Professional
Corporation, may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
(e) You shall have received on the Closing Date an opinion of
intellectual property counsel for the Company, dated the Closing Date, to the
effect that:
(i) such counsel represents the Company in certain matters
relating to intellectual property, including patents, trade secrets and certain
trademark matters;
(ii) such counsel is familiar with the technology used by the
Company in its business and the manner of its use and has read the portions of
the Registration Statement and the Prospectus entitled "Risk Factors --
Uncertainty of Patent and Proprietary Technology Protection; Potential Inability
to License Technology from Third Parties," "Risk Factors -- Product Liability
Exposure; Inadequacy or Unavailability of Insurance Coverage," and "Business --
Proprietary Technology and Patents" (collectively, the "Intellectual Property
Portion");
(iii) the Intellectual Property Portion contains accurate
descriptions of the Company's patent applications, issued and allowed patents,
and patents licensed to the Company and fairly summarizes the legal matters,
documents and proceedings relating thereto;
(iv) based upon a review of the third party rights made known
to counsel and discussions with Company scientific personnel, such counsel is
not aware of any valid United States or foreign patent that is or would be
infringed by the activities of the Company in the manufacture, use or sale of
any presently proposed product, the technologies employed by the Company or the
method of their use in any presently proposed product, each as described in the
Prospectus;
(v) such counsel has reviewed the Company's patent
applications filed in the United States and outside the United States (the
"Applications") and in the opinion of such counsel the Applications have been
properly prepared and filed on behalf of the Company, and are being diligently
pursued by the Company; the inventions described in the Applications are
assigned or licensed to the Company; to such counsel's knowledge, no other
entity or individual has any right or claim in any of the inventions,
Applications, or any patent to be issued therefrom, and in such counsel's
opinion each of the Applications discloses patentable subject matter;
(vi) such counsel is aware of no pending or threatened
judicial or governmental proceedings relating to patents or proprietary
information to which the Company is a party or of which any property of the
Company is subject and such counsel is not aware of any pending or threatened
action, suit or claim by others
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<PAGE> 12
that the Company is infringing or otherwise violating any patent rights of
others, based upon review of the Applications such counsel is not aware of any
rights of third parties to any of the Company's inventions described in the
Applications, issued, approved or licensed patents which could reasonably be
expected to materially affect the ability of the Company to conduct its business
as described in the Prospectus, including the commercialization of its products
currently under development; and
(vii) such counsel has no reason to believe that the
information contained in the Intellectual Property Portion of the Registration
Statement or the Prospectus at the time it became effective contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that, at the Closing Date, the information contained in the Intellectual
Property Portion of the Prospectus or any amendment or supplement to the
Intellectual Property Portion of the Prospectus contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
The opinion of Pillsbury Madison & Sutro LLP described in paragraph (c),
the opinion of [patent counsel] described in paragraph (e) and the opinion of
[regulatory counsel] described in paragraph (f) above shall each be rendered to
you at the request of the Company, and shall so state therein.
(f) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Ernst & Young LLP, independent
public accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(g) The Lock-up Agreements, as well as all other "lock-up" agreements
imposed by the Option Agreements between you and certain stockholders, officers
and directors of the Company relating to sales of shares of Common Stock of the
Company or any securities convertible into or exercisable or exchangeable for
such Common Stock, delivered to you on or before the date hereof, shall be in
full force and effect on the Closing Date.
(h) The shares of Common Stock of the Company shall have received
approval for listing, upon official notice of issuance, on the Nasdaq National
Market.
(i) The Company shall have complied with the provisions of paragraph (a)
of Section VI hereof with respect to the furnishing of Prospectuses on the
business day next succeeding the date of this Agreement in such quantities as
you may reasonably request.
(j) The Company shall have delivered all other certificates as may be
reasonably requested by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Underwriters.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed in compliance with the provisions
hereof only if Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Underwriters, shall be reasonably satisfied that they comply in
form and scope.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares, other matters related to the issuance of the Additional Shares and an
opinion or opinions of Pillsbury Madison & Sutro LLP, [patent counsel] and
[regulatory counsel] in form and substance satisfactory to Wilson Sonsini
Goodrich & Rosati, Professional Corporation, counsel for the Underwriters.
-11-
<PAGE> 13
VI
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
(a) To furnish to you, without charge, five (5) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and, during the period mentioned in paragraph (c) below, as
many copies of the Prospectus and any supplements and amendments thereto or to
the Registration Statement as you may reasonably request. In the case of the
Prospectus, to furnish copies of the Prospectus in New York City, prior to 3:00
p.m., on the business following the date of this Agreement, in such quantities
as you reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and to file no such proposed amendment or supplement to which you
reasonably object.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for the Underwriters, the Prospectus is
required by law to be delivered in connection with sales by an Underwriter or
dealer, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of your counsel, it is
necessary to amend or supplement the Prospectus to comply with law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish to
the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the Prospectus,
as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all expenses (including fees and disbursements of counsel) in
connection with such qualification and in connection with any review of the
offering of the Shares by the National Association of Securities Dealers, Inc.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earnings statement covering the
twelve-month period ending ________________, 1999 that satisfies the provisions
of Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders and (ii) all reports, financial statements and proxy
or information statements filed by the Company with the Commission or any
national securities exchange.
(g) The Company will apply the proceeds from the sale of the Shares
as set forth under in "Use of Proceeds" in the Prospectus.
(h) The Company will use its best efforts to obtain and maintain in
effect the quotation of the Shares on the Nasdaq National Market and will take
all necessary steps to cause the Shares to be included on the Nasdaq National
Market as promptly as practicable and to maintain such inclusion for a period of
three years after the date hereof or until such earlier date as the Shares shall
be listed for regular trading privileges on the Nasdaq National Market or
another national securities exchange approved by you.
(i) The Company will comply with all registration, filing and
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which may from time to time be applicable to the Company.
-12-
<PAGE> 14
(j) The Company will comply with all provisions of all undertakings
contained in the Registration Statement.
(k) Prior to the Closing Date or the Option Closing Date, as the
case may be, the Company will not, directly or indirectly, issue any press
release or other communication directly or indirectly and will not hold any
press conference with respect to the Company, or its financial condition,
results of operations, business, properties, assets or prospects, or this
offering, without your prior written consent.
(l) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(m) The Company agrees: (i) to enforce the terms of the lock-up
agreements contained in the Option Agreements to the same extent as required in
the Lock-up Agreements, (ii) issue stop-transfer instructions to the transfer
agent for the Common Stock with respect to any transaction or contemplated
transaction that would constitute a breach of or default under the applicable
Lock-up Agreement, or any agreement executed pursuant to either Option Plan, to
the same extent as required in the Lock-up Agreements, and (iii) upon written
request of Morgan Stanley Dean Witter Incorporated, to release from the Lock-up
Agreements, or any agreement executed pursuant to either Option Plan those
shares of Common Stock held by those holders set forth in such request. In
addition, except with the prior written consent of Morgan Stanley Dean Witter
Incorporated, the Company agrees (i) not to amend or terminate, or waive any
right under, any Lock-up Agreement, or any agreement executed pursuant to either
Option Plan or take any other action that would directly or indirectly have the
same effect as an amendment or termination, or waiver of any right under, any
Lock-up Agreement, or any agreement executed pursuant to either Option Plan that
would permit any holder of shares of Common Stock, or securities convertible
into or exercisable or exchangeable for Common Stock, to offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, make any short sale of, grant any option, right, or warrant
for the purchase of, enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of Common Stock, or otherwise
transfer or dispose of, directly or indirectly, any of such shares of Common
Stock or other securities prior to the expiration of 180 days after the date of
the Prospectus, (ii) not to release any such stop-transfer instruction as
described in (ii) above prior to the expiration of 180 days after the date of
the Prospectus, and (iii) not to consent to any sale, short sale, grant of an
option for the purchase of, or other disposition or transfer of shares of Common
Stock, or securities convertible into or exercisable or exchangeable for Common
Stock, subject to a Lock-up Agreement, or any agreement executed pursuant to
either Option Plan.
(n) The Company will place a restrictive legend on any shares of
Common Stock acquired pursuant to the exercise, after the date hereof and prior
to the expiration of the 180-day period after the date of the initial public
offering of the Shares, of any option granted under either of the Option Plans
or pursuant to the exercise of any warrant, which legend shall restrict the
transfer of such shares prior to the expiration of such 180-day period. In
addition, the Company agrees that, without the prior written consent of Morgan
Stanley Dean Witter Incorporated, it will not release any stockholder, option
holder or warrant holder from the market standoff provision imposed by the
Company pursuant to the terms of either Option Plan, or earlier than 180 days
after the date of the initial public offering of the Shares.
(o) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required by the
National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules
from sale, transfer, assignment, pledge or hypothecation for a period of three
months following the date of the effectiveness of the Registration Statement.
Morgan Stanley will notify the Company as to which Participants will need to be
so restricted. At the request of Morgan Stanley, the Company will direct the
transfer agent to place stop transfer restrictions upon such securities for such
period of time.
-13-
<PAGE> 15
(p) That is connection with the Direct Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent required
by the National Association of Securities Dealers, Inc. (The "NASD") or the NASD
rules from sale, transfer, assignment, pledge of hypothecation for a period of
three months following the date of the effectiveness of the Registration
Statement. Morgan Stanley will notify the Company as to which Participants will
need to be so restricted. The Company will direct the transfer agent to place
stop transfer restrictions upon such securities for such period of time.
(q) To pay fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp duties,
similar taxes or duties or other taxes, if any, incurred by the Underwriters in
connection with the Directed Share Program.
Furthermore, the Company covenants with Morgan Stanley that the Company
will comply with all applicable securities and other applicable laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.
VII
The Company agrees to pay all costs and expenses incident to the
performance of the obligations of the Company under this Agreement, including,
but not limited to, all expenses incident to (i) the preparation and filing of
the Registration Statement (including all exhibits thereto) and the Prospectus
and all amendments and supplements thereto, (ii) the preparation, issuance and
delivery of the Shares, including any transfer taxes payable in connection with
the transfer and sale of the Shares to the Underwriters, (iii) the fees and
disbursements of the Company's counsel and accountants, (iv) the qualification
of the Shares under state securities or Blue Sky laws in accordance with the
provisions of paragraph (d)of Article VI hereof, including filing fees and the
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the preparation of any Blue Sky or Legal Investment
Memoranda, (v) the printing and delivery to the Underwriters, in quantities as
hereinabove stated, of copies of the Registration Statement (including all
exhibits thereto) and all amendments thereto and of each preliminary prospectus
and the Prospectus and any amendments or supplements thereto, (vi) the printing
and delivery to the Underwriters of copies of any Blue Sky or Legal Investment
Memoranda, (vii) the filing fees and expenses, if any, incurred with respect to
any filing with the National Association of Securities Dealers, Inc., made in
connection with the offering of the Shares, (viii) any expenses incurred by the
Company in connection with a "road show" presentation to potential investors,
(ix) the listing of the Common Stock on the Nasdaq National Market and (x) all
document production charges and expenses of counsel to the Underwriters (but not
including their fees for professional services) in connection with the
preparation of this Agreement.
VIII
The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under
common control with, or is controlled by, any Underwriter, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter or any person controlling such Underwriter, from whom
the person asserting any such losses, claims, damages or liabilities purchased
Shares, if a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not
-14-
<PAGE> 16
sent or given by or on behalf of such Underwriter to such person, if required by
law so to have been delivered, at or prior to the written confirmation of the
sale of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability.
The Company agrees to indemnify and hold harmless Morgan Stanley and
each person, if any, who controls Morgan Stanley within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act ('Morgan
Stanley Entities"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonable incurred in connection with defending or investigating any such
action or claim) (I) caused by any untrue statement or alleged untree statement
of a material fact contained in the prospectus wrapper material prepared by or
with the consent of the Company for distribution in foreign jurisdictions in
connection with the Directed Share Program attached to the Prospectus or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement therein, when considered in conjunction with the Prospectus or any
applicable preliminary prospectus, not misleading; (ii) caused by the failure of
any Participant to pay for and accept delivery of the shares which, immediately
following the effectiveness of the Registration Statement, were subject to a
properly confirmed agreement to purchase; or (iii) related to, arising out of,
or in connection with the Directed Share Program, provided that, the Company
shall not be responsible under this subparagraph (iii) for any losses, claim,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
Morgan Stanley Entities.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the directors of the Company, the officers of the
Company who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to any of the two preceding paragraphs, such person (the "Indemnified
Party") shall promptly notify the person against whom such indemnity may be
sought (the "Indemnifying Party") in writing and the Indemnifying Party, upon
request of the Indemnified Party, shall retain counsel reasonably satisfactory
to the Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in respect of the legal expenses of any Indemnified Party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, and (b) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of Underwriters, such firm shall be designated in writing by
Morgan Stanley Dean Witter Incorporated. In the case of any such separate firm
for the Company, and such directors, officers and control persons of the
Company, such
-15-
<PAGE> 17
firm shall be designated in writing by the Company. The Indemnifying Party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified Party
shall have requested an Indemnifying Party to reimburse the Indemnified Party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the Indemnifying Party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
Indemnifying Party of the aforesaid request and (ii) such Indemnifying Party
shall not have reimbursed the Indemnified Party in accordance with such request
prior to the date of such settlement. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability on claims that are the subject matter
of such proceeding.
Notwithstanding anything contained herein to the contrary, if indemnity
may be sought pursuant to Section [section and paragraph indemnifying Morgan
Stanley for damages arising out of the Directed Share Program] hereof in respect
of such action or proceeding, then in addition to such separate firm for the
indemnified parties, the indemnifying party shall be liable for the reasonable
fees and expenses of not more than one separate firm (in addition to any local
counsel) for Morgan Stanley for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control Morgan Stanley within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act.
If the indemnification provided for in the first or second paragraph of
this Article VIII is unavailable to an Indemnified Party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each Indemnifying Party under such paragraph, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Indemnifying Party or parties on the one hand and the
Indemnified Party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Indemnifying Party or parties on the one hand and of the Indemnified Party
or parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective proportions
as the net proceeds from the offering of the Shares (before deducting expenses)
received by the Company and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate public offering price of the
Shares. The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Article VIII are several in proportion to the respective number
of Shares they have purchased hereunder, and not joint.
The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Article VIII were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VIII, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any
-16-
<PAGE> 18
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Article VIII are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any Indemnified Party at law or in
equity.
The indemnity and contribution provisions contained in this Article VIII
and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter, or the Company,
its officers or directors or any person controlling the Company and (iii)
acceptance of and payment for any of the Shares.
IX
This Agreement shall be subject to termination by notice given by you to
the Company, if (a) after the execution and delivery of this Agreement and prior
to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities, or
(iv) there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your sole
judgment, is material and adverse and (b) in the case of any of the events
specified in clauses (a)(i) through (iv), such event singly or together with any
other such event makes it, in your sole judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus.
X
This Agreement shall become effective upon execution and delivery hereof
by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided, however, that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to Article
II be increased pursuant to this Article X by an amount in excess of one-ninth
of such number of Shares without the written consent of such Underwriter. If, on
the Closing Date or the Option Closing Date, as the case may be, any Underwriter
or Underwriters shall fail or refuse to purchase Shares and the aggregate number
of Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to you and the Company for the purchase of such Shares are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to postpone the Closing
Date or the Option Closing Date, as the case may be, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
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<PAGE> 19
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
-18-
<PAGE> 20
This Agreement may be signed in two or more counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York.
Very truly yours,
Nanogen, Inc.
By________________________________________
Howard C. Birndorf,
Chairman and Chief Executive Officer
Accepted, __________ __, 1998
Morgan Stanley & Co., Incorporated
Lehman Brothers Inc.
SBC Warburg Dillon Read, Inc.
Acting severally on behalf of themselves
and the several Underwriters named herein.
By: Morgan Stanley Dean Witter Incorporated
By_____________________________________
Catherine J. Friedman,
Managing Director
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<PAGE> 21
SCHEDULE I
<TABLE>
<CAPTION>
UNDERWRITER Number of Firm Shares
To Be Purchased
<S> <C>
Morgan Stanley & Co., Incorporated..................................
Lehman Brothers, Inc................................................
SBC Warburg Dillon Read, Inc........................................
Total................................................
</TABLE>
-20-
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
by and among
NANOGEN, INC.,
A DELAWARE CORPORATION,
NANOGEN MERGER SUBSIDIARY, INC.,
A CALIFORNIA CORPORATION,
and
NANOTRONICS, INC.,
A CALIFORNIA CORPORATION
December 18, 1997
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TABLE OF CONTENTS
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ARTICLE I THE MERGER...................................................1
1.1 The Merger...................................................1
1.2 Closing......................................................1
1.3 Effective Time...............................................1
1.4 Corporate Organization.......................................2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS.....................................2
2.1 Conversion of Shares of Capital Stock of Nanotronics and
Merger Sub...................................................2
2.2 Conversion of Nanotronics Options............................3
2.3 Conversion of Nanotronics Warrants...........................4
2.4 Conversion of Nanotronics Debt...............................5
2.5 Dissenting Shares............................................5
2.6 Fractional Shares............................................5
ARTICLE III THE SURVIVING CORPORATION....................................6
3.1 Certificate of Incorporation.................................6
3.2 Bylaws.......................................................6
3.3 Directors and Officers.......................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NANOTRONICS................6
4.1 Organization.................................................6
4.2 Subsidiaries.................................................6
4.3 Capital Structure............................................6
4.4 Obligations With Respect to Capital Stock....................7
4.5 Authority; No Conflicts; Consents............................7
4.6 Financial Statements.........................................8
4.7 Brokers or Finders...........................................8
4.8 Full Disclosure..............................................8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF NANOGEN AND
MERGER SUB...................................................8
5.1 Organization.................................................8
5.2 Capitalization and Voting Rights.............................8
(a) Nanogen.................................................8
(b) Merger Sub............................................ 10
5.3 Subsidiaries............................................... 10
5.4 Authorization.............................................. 10
(a) Nanogen............................................... 10
(b) Merger Sub............................................ 11
5.5 Valid Issuance of Preferred and Common Stock............... 11
5.6 Governmental Consents...................................... 12
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5.7 Litigation................................................. 12
5.8 No Conflict................................................ 12
5.9 Fees and Commissions....................................... 13
5.10 Full Disclosure............................................ 13
ARTICLE VI CONDUCT PRIOR TO THE EFFECTIVE TIME........................ 13
6.1 Ordinary Course............................................ 13
6.2 No Other Bids.............................................. 13
6.3 No Acquisitions............................................ 13
6.4 No Dispositions............................................ 14
6.5 Indebtedness............................................... 14
6.6 Benefit Plans, Etc......................................... 14
6.7 Other Actions.............................................. 14
6.8 Advice of Changes; Government Filings...................... 14
6.9 Accounting Methods......................................... 14
ARTICLE VII ADDITIONAL AGREEMENTS...................................... 15
7.1 Shareholder Approval....................................... 15
7.2 Access and Information..................................... 15
7.3 Notice of Changes.......................................... 15
7.4 Certain Defaults........................................... 16
7.5 Consents................................................... 16
7.6 Notice of Breach........................................... 16
7.7 Expenses................................................... 16
7.8 Public Disclosure.......................................... 16
7.9 Tax-Free Reorganization.................................... 16
7.10 Blue Sky Laws.............................................. 16
7.11 Waiver of Past Rent........................................ 17
7.12 Expiration of Representations and Warranties............... 17
7.13 Expiration of Representations and Warranties............... 17
ARTICLE VIII CONDITIONS TO THE MERGER................................... 17
8.1 Conditions to Each Party's Obligation to Effect the Merger. 17
(a) Government Approvals.................................. 17
(b) Legal Action.......................................... 17
(c) Statutes.............................................. 18
8.2 Conditions to Obligations of Nanotronics................... 18
(a) Representations and Warranties........................ 18
(b) Performance of Obligations of Nanogen and Merger Sub.. 18
(c) Opinion of Counsel to Nanogen and Merger Sub.......... 18
(d) Investors' Rights Agreement........................... 18
(e) Change in Laws or Regulations......................... 18
(f) Licenses; Filings..................................... 19
8.3 Conditions to Obligations of Nanogen and Merger Sub........ 19
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(a) Representations and Warranties........................ 19
(b) Performance of Obligations of Nanotronics............. 19
(c) Opinion of Counsel to Nanotronics..................... 19
(d) Dissenters' Rights.................................... 19
(e) Investor Representation............................... 19
(f) Change in Laws or Regulations......................... 20
(g) Licenses; Filings..................................... 20
ARTICLE IX CLOSING.................................................... 20
9.1 Closing Date............................................... 20
9.2 Deliveries at Closing...................................... 20
ARTICLE X TERMINATION; AMENDMENT; WAIVER............................. 23
10.1 Termination................................................ 23
10.2 Effect of Termination...................................... 23
10.3 Amendment.................................................. 23
10.4 Extension; Waiver.......................................... 23
ARTICLE XI MISCELLANEOUS PROVISIONS................................... 24
11.1 Schedule Updates........................................... 24
11.2 Governing Law.............................................. 24
11.3 Successors and Assigns..................................... 24
11.4 Entire Agreement........................................... 24
11.5 Arbitration................................................ 24
11.6 Notices.................................................... 25
11.7 Cooperation................................................ 25
11.8 Interpretation............................................. 25
11.9 Delays or Omissions........................................ 25
11.10 Counterparts............................................... 26
11.11 Severability............................................... 26
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Schedule of Exhibits
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Exhibit 1.1(a) Form of Agreement of Merger
Exhibit 1.3(a) Form of Nanotronics Officers' Certificate to be filed in
California
Exhibit 1.3(b) Form of Merger Sub Officers' Certificate to be filed in
California
Exhibit 8.2(a) Form of Certificate of Nanogen and Merger Sub
Exhibit 8.2(c) Matters to be covered in opinion of counsel to Nanogen and
Merger Sub
Exhibit 8.3(a) Form of Certificate of Nanotronics
Exhibit 8.3(c) Matters to be covered in opinion of counsel to Nanotronics
Exhibit 8.3(e) Form of Investor Representation Statement
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List of Schedules
2.1-1 Schedule of Holders of Nanotronics Capital Stock
2.1-2 Schedule of certificates for Nanogen Series D Preferred Stock and
Options and Warrants to purchase Nanogen Series D
Preferred Stock to be issued by Nanogen in connection
with the Merger
2.2(a) Schedule of Holders of Nanotronics Options and Warrants
2.4 Schedule of Nanotronics Creditors exchanging Nanotronics debt for
Nanogen Series D Preferred Stock
4. Nanotronics Disclosure Schedule
5. Nanogen and Merger Sub Disclosure Schedule
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of the
18th day of December, 1997, by and among NANOGEN, INC., a Delaware corporation
("Nanogen"), NANOGEN MERGER SUBSIDIARY, INC., a California corporation and
wholly owned subsidiary of Nanogen ("Merger Sub"), and NANOTRONICS, INC., a
California corporation ("Nanotronics"). Nanogen, Merger Sub and Nanotronics are
sometimes referred to herein individually as a "Party" or collectively as the
"Parties."
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Nanogen, Merger Sub and Nanotronics
deem it advisable and in the best interests of their respective shareholders to
effect the merger hereafter provided for, in which Merger Sub would merge with
and into Nanotronics and Nanotronics would become a wholly owned subsidiary of
Nanogen (the "Merger"); and
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"):
N o w, T h e r e f o r e, in consideration of the premises and of the
mutual agreements, provisions and covenants herein contained, the parties hereby
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3), upon
the terms and subject to the conditions of this Agreement and the Agreement of
Merger between Merger Sub and Nanotronics substantially in the form attached
hereto as Exhibit 1.1(a) (the "Agreement of Merger"), Merger Sub shall be merged
with and into Nanotronics in accordance with the California Corporations Code of
the State of California ("California Law"), whereupon the separate existence of
Merger Sub shall cease, and Nanotronics shall be the surviving corporation (the
"Surviving Corporation").
1.2 Closing. The closing of the transactions contemplated by this
Agreement and the Agreement of Merger shall be held in accordance with Article
IX herein.
1.3 Effective Time. As soon as practicable after satisfaction or, to the
extent permitted hereunder, waiver of all conditions to the Merger, Nanogen
shall file an executed copy of the Agreement of Merger, accompanied by an
officers' certificate of each of Nanotronics and Merger Sub, substantially in
the form of Exhibits 1.3(a) and 1.3(b), with the Secretary of State of the State
of California, and make all other filings or recordings required by the laws of
California in connection with the Merger. The Merger shall become effective at
such time as the certified copy of the Agreement of Merger is duly filed with
the Secretary of State of the State of California (the "Effective Time").
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1.4 Corporate Organization. At and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises, and be subject to all of the restrictions, disabilities and duties
of Nanotronics and Merger Sub, all as provided under California Law.
ARTICLE II
EFFECT OF THE MERGER ON THE
CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Conversion of Shares of Capital Stock of Nanotronics and Merger Sub.
At the Effective Time, by virtue of the Merger and without any action on the
part of any holder thereof (subject to the deliveries required to be made by
Nanotronics at the Closing as set forth in Section 9.2(a)), the following shall
occur:
(a) Each share of common stock of Merger Sub, no par value (the "Merger
Sub Common Stock"), issued and outstanding immediately prior to the Effective
Time, shall be converted into and become one (1) validly issued, fully paid and
nonassessable share of Common Stock, no par value, of the Surviving Corporation.
(b) Each share of the common stock of Nanotronics, no par value (the
"Nanotronics Common Stock"), and each share of the Nanotronics Series A
Preferred Stock, no par value (the "Nanotronics Preferred Stock" and,
collectively with the Nanotronics Common Stock, the "Nanotronics Capital
Stock"), held by Nanotronics as treasury stock immediately prior to the
Effective Time shall be canceled, and no payment shall be made with respect
thereto.
(c) Each share of Nanotronics Preferred Stock outstanding immediately
prior to the Effective Time (including any shares of Nanotronics Preferred Stock
issued or issuable as a result of the exercise of any Nanotronics Warrant or
Nanotronics Option, provided such Nanotronics Warrant or Nanotronics Option, as
the case may be, is exercised on or before 5 p.m. California time on the
business day immediately preceding the Closing Date, but not including any
shares of Nanotronics Preferred Stock outstanding immediately prior to the
Effective Time as to which dissenters' rights have been properly asserted under
California Law and which are provided for in Section 2.5 hereof) shall be
converted into the right to receive .195135267 shares (the "Nanotronics
Preferred Exchange Ratio") of the Series D preferred stock, $.001 par value per
share (the "Nanogen Series D Preferred Stock") of Nanogen.
(d) Each share of Nanotronics Common Stock outstanding immediately prior
to the Effective Time (including any shares of Nanotronics Common Stock issued
or issuable as a result of the exercise of any Nanotronics Warrant or
Nanotronics Option, provided such Nanotronics Warrant or Nanotronics Option, as
the case may be, is exercised on or before 5 p.m. California time on the
business day immediately preceding the Closing Date, but not including any
shares of Nanotronics Common Stock outstanding immediately prior to the
Effective Time as to which dissenters' rights have been properly asserted under
California Law and which are provided for in Section 2.5 hereof) shall be
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converted into the right to receive .165296688 shares (the "Nanotronics Common
Exchange Ratio") of Nanogen Series D Preferred Stock.
The holders of Nanotronics Common Stock and Nanotronics Preferred Stock
are hereinafter referred to singularly as a "Nanotronics Shareholder" and
collectively as the "Nanotronics Shareholders," and are as set forth on Schedule
2.1-1 attached hereto. The number of shares of Nanogen Series D Preferred Stock
to be received by each Nanotronics Shareholder upon consummation of the Merger
is set forth next to such Nanotronics Shareholder's name on Schedule 2.1-2
attached hereto.
2.2 Conversion of Nanotronics Options.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof (subject to the deliveries required to
be made by Nanotronics at Closing as set forth in Section 9.2(a)), each
unexpired and unexercised option to purchase shares of Nanotronics Capital Stock
(individually, a "Nanotronics Option" and collectively the "Nanotronics
Options"), as set forth on Schedule 2.2(a) attached hereto, outstanding
immediately prior to the Effective Time shall be converted into an option to
purchase shares of Nanogen Series D Preferred Stock (a "Converted Nanotronics
Option"). Each Nanotronics Option so converted will continue to have, and be
subject to, substantially the same terms and conditions as set forth in the
documents governing such Nanotronics Option immediately prior to the Effective
Time, except that (a) such Converted Nanotronics Option will be exercisable for
that number of shares of Nanogen Series D Preferred Stock as is equal to the
product of the number of shares of Nanotronics Common Stock or Nanotronics
Preferred Stock, as the case may be, that were purchasable under the Nanotronics
Option immediately prior to the Effective Time, multiplied by the Nanotronics
Preferred Exchange Ratio or the Nanotronics Common Exchange Ratio, as the case
may be, in all cases rounded (up if any fraction computed is .50 or greater and
down if any fraction computed is less than .50) to the nearest whole number of
shares of Nanogen Series D Preferred Stock and (b) the per share exercise price
for the Nanogen Series D Preferred Stock issuable upon exercise of such
Converted Nanotronics Option will be equal to the quotient obtained by dividing
the exercise price per share of the shares of Nanotronics Preferred Stock or
Nanotronics Common Stock, as the case may be, at which such Nanotronics Option
was exercisable immediately prior to the Effective Time by the Nanotronics
Preferred Exchange Ratio or the Nanotronics Common Exchange Ratio, as the case
may be, in all cases rounded (up if any fraction computed is .50 of a cent or
greater and down if any fraction computed is less than .50 of a cent) to the
nearest whole cent. The parties intend that the conversion of the Nanotronics
Options hereunder will meet the requirements of Section 424(a) of the Code and
this Section 2.2(a) shall be interpreted consistent with such intention. Holders
of Nanotronics Options shall not be entitled to acquire shares of Nanotronics
Capital Stock after the Merger.
(b) The number of shares of Nanogen Series D Preferred Stock to be
issued upon the exercise of options to purchase shares of Nanogen Series D
Preferred Stock which are the result of the conversions referenced in Section
2.2(a) is set forth next to such holder's name on Schedule 2.1-2 attached
hereto.
(c) Notwithstanding subsections (a) and (b) of this Section 2.2, the
parties hereto expressly acknowledge and agree that the terms of such
subsections shall not apply to any holder of any
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Nanotronics Option which is exercised on or before 5 p.m. on the business day
immediately preceding the Closing Date. In such case, such holder shall be
treated for all purposes as a holder of Nanotronics Preferred Stock or
Nanotronics Common Stock, as the case may be, rather than as a holder of
Nanotronics Options.
2.3 Conversion of Nanotronics Warrants.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof (subject to the deliveries required to
be made by Nanotronics at Closing as set forth in Section 9.2(a)), each
unexpired and unexercised warrant to purchase shares of Nanotronics Capital
Stock (individually, a "Nanotronics Warrant" and collectively the "Nanotronics
Warrants"), as set forth on Schedule 2.2(a) attached hereto, outstanding
immediately prior to the Effective Time shall be converted into a warrant to
purchase shares of Nanogen Series D Preferred Stock (a "Converted Nanotronics
Warrant"). Each Nanotronics Warrant so converted will continue to have, and be
subject to, substantially the same terms and conditions as set forth in the
documents governing such Nanotronics Warrant immediately prior to the Effective
Time, except that (a) such Converted Nanotronics Warrant will be exercisable for
that number of shares of Nanogen Series D Preferred Stock as is equal to the
product of the number of shares of Nanotronics Preferred Stock or Nanotronics
Common Stock, as the case may be, that were purchasable under the Nanotronics
Warrant immediately prior to the Effective Time, multiplied by the Nanotronics
Preferred Exchange Ratio or the Nanotronics Common Exchange Ratio, as the case
may be, in all cases rounded (up if any fraction computed is .50 or greater and
down if any fraction computed is less than .50) to the nearest whole number of
shares of Nanogen Series D Preferred Stock and (b) the per share exercise price
for the Nanogen Series D Preferred Stock issuable upon exercise of such
Converted Nanotronics Warrant shall be equal to the quotient obtained by
dividing the exercise price per share of the shares of Nanotronics Preferred
Stock or the Nanotronics Common Stock, as the case may be, at which such
Nanotronics Warrant was exercisable immediately prior to the Effective Time by
the Nanotronics Preferred Exchange Ratio or the Nanotronics Common Exchange
Ratio, as the case may be, in all cases rounded (up if any fraction computed is
.50 cents or greater and down if any fraction computed is less than .50 cents)
to the nearest whole cent. Holders of Nanotronics Warrants shall not be entitled
to acquire shares of Nanotronics Capital Stock after the Merger.
(b) The number of shares of Nanogen Series D Preferred Stock to be
issued upon the exercise of warrants to purchase shares of Nanogen Series D
Preferred Stock which are the result of the conversions referenced in Section
2.3(a) is set forth next to such holder's name on Schedule 2.1-2 attached
hereto.
(c) Notwithstanding subsections (a) and (b) of this Section 2.3, the
parties hereto expressly acknowledge and agree that the terms of such
subsections shall not apply to any holder of any Nanotronics Warrant which is
exercised on or before 5 p.m. on the business day immediately preceding the
Closing Date. In such case, such holder shall be treated for all purposes as a
holder of Nanotronics Preferred Stock or Nanotronics Common Stock, as the case
may be, rather than as a holder of Nanotronics Options.
2.4 Conversion of Nanotronics Debt. At the Effective Time, by virtue of
the Merger and without any further action on the part of the creditors thereof
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(subject to the deliveries required to be made by Nanotronics at Closing as set
forth in Section 9.2(a)), each creditor of Nanotronics as set forth on Schedule
2.4 attached hereto (the "Exchanging Nanotronics Creditors") shall receive such
number of shares of Nanogen Series D Preferred Stock as is set forth on Schedule
2.1-2 as full consideration for cancellation of the debt of Nanotronics held by
such Exchanging Nanotronics Creditor (such amount as is set forth next to such
Exchanging Nanotronics Creditor's name on Schedule 2.4 attached hereto).
2.5 Dissenting Shares.
(a) Notwithstanding Section 2.1, shares of Nanotronics Capital Stock
outstanding immediately prior to the Effective Time and held by a holder who has
taken all actions as required pursuant to Section 1300 et. seq. of California
Law shall not be converted into a right to receive shares of Nanogen Series D
Preferred Stock, unless and until such holder withdraws such demand for payment
or loses his or her dissenters' rights pursuant to California Law.
(b) Nanotronics shall give Nanogen prompt notice of any demands received
by Nanotronics for payment for any of its shares, and Nanogen shall have the
right to participate in all negotiations and proceedings with respect to such
demands. Nanotronics shall not, except with the prior written consent of
Nanogen, make any payment with respect to, or settle or offer to settle, any
such demands.
(c) Each holder of Nanotronics Capital Stock who has complied with the
requirements of California Law to properly assert dissenters' rights (and who
has not withdrawn his or her demand for payment for his or her shares) shall be
paid for his or her shares of Nanotronics Capital Stock in accordance with the
procedures set forth under California Law. With respect to any holder of
Nanotronics Capital Stock who has properly asserted dissenters' rights at or
prior to the Effective Time, but who withdraws his or her request for payment
after the Effective Time, each of his or her shares shall, upon the withdrawal
of such request, be converted into the right to receive shares of Nanogen Series
D Preferred Stock as set forth in Section 2.1 above. Neither of the Nanotronics
Common Exchange Ratio nor the Nanotronics Preferred Exchange Ratio shall be
adjusted as a result of any assertion of dissenters' rights under this Section.
2.6 Fractional Shares. No fractional shares of Nanogen Series D
Preferred Stock shall be issued in the Merger. Any fractional number of shares
of Nanogen Series D Preferred Stock to be received by any Nanotronics
Shareholder upon computation of the Nanotronics Preferred Exchange Ratio or the
Nanotronics Common Exchange Ratio, as the case may be, as applied to such
holder's shares of Nanotronics Capital Stock shall be rounded (up if the
fraction computed is .50 or greater and down if the fraction computed is less
than .50) to the nearest whole number of shares. The number of shares of Nanogen
Series D Preferred Stock to be received by each holder of Nanotronics Capital
Stock upon consummation of the Merger is set forth in Schedule 2.1-2 attached
hereto.
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ARTICLE III
THE SURVIVING CORPORATION
3.1 Certificate of Incorporation. The Articles of Incorporation, as
amended and restated to date, of Nanotronics in effect at the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation until
amended or replaced in accordance with applicable law.
3.2 Bylaws. The Bylaws, as amended and restated to date, of Nanotronics
in effect at the Effective Time shall be the Bylaws of the Surviving Corporation
until amended or replaced in accordance with applicable law.
3.3 Directors and Officers. From and after the Effective Time, and
without further action on the part of any party hereto, or any director or any
officer of any party hereto, and until successors are duly elected or appointed
and qualified in accordance with applicable law, the directors of Merger Sub at
the Effective Time shall be the directors of the Surviving Corporation and the
officers of Nanotronics at the Effective Time shall be the officers of the
Surviving Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NANOTRONICS
Except as disclosed or excepted in the Nanotronics Disclosure Schedule
attached hereto as Schedule 4 (the "Nanotronics Disclosure Schedule"),
Nanotronics represents and warrants to each of Nanogen and Merger Sub as of the
date hereof as follows:
4.1 Organization. Nanotronics is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted. Nanotronics has delivered to
Nanogen (on behalf of itself and Merger Sub) complete and correct copies of the
Articles of Incorporation and Bylaws of Nanotronics and will deliver to Nanogen,
on or prior to the Closing Date, complete and correct copies of the minutes of
all meetings and other corporate actions of the directors and of the
shareholders of Nanotronics since inception.
4.2 Subsidiaries. Nanotronics has no subsidiaries.
4.3 Capital Structure. The authorized capital stock of Nanotronics
consists of 10,000,000 shares of common stock, no par value, of which 344,639
shares are issued and outstanding, and 5,000,000 shares of preferred stock, no
par value, of which 750,000 have been designated Series A Preferred Stock, and
550,923 of which are issued and outstanding. Schedule 2.1-1 attached hereto
contains a true and complete list of all holders of Nanotronics Common Stock and
Nanotronics Preferred Stock, showing the number of shares of Common Stock and
Preferred Stock held by each such holder. The rights, preferences and privileges
of the Nanotronics Common Stock
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and the Nanotronics Preferred Stock are as set forth in the Nanotronics'
Articles of Incorporation, as amended to date and which will be provided to
Nanogen (on behalf of itself and Merger Sub) at or prior to the Closing Date.
All of the outstanding shares of Nanotronics Common Stock and
Nanotronics Preferred Stock were issued in compliance with applicable federal
and state securities laws. All of the outstanding shares of Nanotronics Common
Stock and Nanotronics Preferred Stock are duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights created by statute,
the Articles of Incorporation or Bylaws of Nanotronics or any agreement to which
Nanotronics is a party or is bound.
4.4 Obligations With Respect to Capital Stock. Schedule 2.2(a) attached
hereto contains a true and complete list of all holders of options and warrants
to purchase Nanotronics capital stock, showing the number of shares of capital
stock covered by such option or warrant, any vesting conditions, the term of the
option or warrant and the per share exercise price. Other than as set forth in
Schedule 2.2(a), there are no options, warrants, calls, rights, commitments or
agreements of any character to which Nanotronics is a party or by which it is
bound obligating Nanotronics to issue any shares of capital stock of Nanotronics
or securities convertible into or exchangeable for capital stock of Nanotronics
or obligating Nanotronics to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. Nanotronics has provided Nanogen
(on behalf of itself and Merger Sub) with full and complete copies of each
outstanding warrant and option to purchase shares of the capital stock of
Nanotronics. Such options or warrants have not been amended since the date
provided to Nanogen (on behalf of itself and Merger Sub).
4.5 Authority; No Conflicts; Consents. Except as set forth in the
Disclosure Schedule, (i) Nanotronics has all requisite corporate power and
authority to execute and deliver this Agreement and to carry out and perform its
obligations under the terms of this Agreement; and (ii) this Agreement, when
executed and delivered by Nanotronics, will constitute a valid and binding
obligation, enforceable against it in accordance with its terms. Without
limiting the generality of the foregoing, the Nanotronics Board of Directors and
shareholders have taken all corporate action necessary to authorize, and have
duly authorized, the execution, delivery and performance of this Agreement by
Nanotronics. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any
violation of, conflict with, or constitute a default or give rise to a right of
termination, cancellation or acceleration under any provision of (1) the
Articles of Incorporation or Bylaws of Nanotronics; (2) any judgment, decree or
order or any agreement, contract, understanding, indenture or other instrument
to which Nanotronics is a party or by which it is bound; or (3) to Nanotronics'
knowledge, any statute, rule or governmental regulation applicable to
Nanotronics.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality (a "Governmental Entity"), is
required by or with respect to Nanotronics in connection with the execution and
delivery of this Agreement by Nanotronics or the consummation by Nanotronics of
the transactions contemplated hereby.
4.6 Financial Statements. The unaudited balance sheet of
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Nanotronics as of September 30, 1996 and the unaudited balance sheet of
Nanotronics as of September 30, 1997 (the "Nanotronics Balance Sheet") have been
provided to Nanogen.
4.7 Brokers or Finders. Nanotronics has not dealt with any broker or
finder in connection with the transactions contemplated by this Agreement.
Nanotronics has not incurred, and it shall not incur, directly or indirectly,
any liability for any brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
4.8 Full Disclosure. No warranty or representation or other statement of
Nanotronics contained in this Agreement or in any schedule or exhibit attached
hereto, or in any other certificate, document, or instrument furnished by
Nanotronics either pursuant to the terms of this Agreement or in connection with
the transactions contemplated hereunder, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statement contained therein or herein not misleading
either individually or as a whole.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NANOGEN AND MERGER SUB
Except as contemplated by this Agreement and as disclosed or excepted in
that section of the Nanogen and Merger Sub Disclosure Schedule attached hereto
as Schedule 5 corresponding to a particular representation and warranty, each of
Nanogen and Merger Sub represents and warrants to each of the other parties
hereto as follows as of the date hereof as follows:
5.1 Organization. Nanogen and Merger Sub are corporations duly
organized, validly existing, and in good standing under the laws of the States
of Delaware and California, respectively. Each of Nanogen and Merger Sub has all
requisite power and authority to own, lease and operate its properties and to
carry its business as presently conducted. Each of Nanogen and Merger Sub is
duly qualified to transact business and in good standing in each jurisdiction in
which the nature of the business conducted by it or its ownership or leasing of
property makes such qualification necessary, except where the failure to be so
qualified will not have a material adverse effect on Nanogen or Merger Sub, as
the case may be.
5.2 Capitalization and Voting Rights.
(a) Nanogen. The authorized capital of Nanogen consists, or will
consist prior to the Closing, of:
(i) Preferred Stock. 15,500,000 shares of Preferred Stock,
$.001 par value per share ("Nanogen Preferred Stock"), of which
2,339,667 shares have been designated Series A Preferred Stock
and all of which have been issued and are outstanding, 3,800,600
shares have been designated Series B Preferred Stock, of which
3,740,600 are currently issued and outstanding, 6,700,000 shares
have been
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designated Series C Preferred Stock, of which 6,553,598 are
currently issued and outstanding, 2,050,000 shares have been
designated Series D Preferred Stock, of which 1,050,000 are
currently issued and outstanding. The rights, privileges and
preferences of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock are as stated in Nanogen's Restated Certificate
of Incorporation.
(ii) Common Stock. 40,000,000 shares of common stock,
$.001 par value per share ("Nanogen Common Stock"), of which as
of October 31, 1997, 2,854,003 shares are issued and outstanding.
(iii) Rights to Purchase Shares; Stockholder Agreements. Except
for (a) the conversion privileges of the Series A, Series B,
Series C and Series D Preferred Stock, (b) the rights set forth
in Section 2.4 of the Amended and Restated Investors' Rights
Agreement dated as of May 5, 1997 by and among Nanogen and the
investors listed in Schedule A thereto (the "Investors' Rights
Agreement"), (c) as of October 31, 1997, options to purchase an
aggregate 2,543,400 shares of Common Stock granted pursuant to
Nanogen's 1993 Stock Option/Stock Issuance Plan, as amended,
Nanogen's 1995 Amended and Restated Stock Option/Stock Issuance
Plan and Nanogen's 1997 Stock Incentive Plan, (d) warrants to
purchase an aggregate of 631,072 shares of Common Stock issued to
purchasers of Series B Preferred Stock, (e) warrants to purchase
an aggregate of 60,000 shares of Series B Preferred Stock, (f) a
warrant to purchase 9,000 shares of Series C Preferred Stock
issued to Lease Management Services, Inc. and (g) the rights set
forth in Section 1.3(b) of the Series D Preferred Stock Purchase
Agreement, dated as of May 5, 1997, by and between Nanogen and
Becton Dickinson and Company, there are no outstanding options,
warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from Nanogen of any
shares of its capital stock. Nanogen is not a party to or subject
to any agreement or understanding, and, to Nanogen's knowledge,
there is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of
Nanogen.
(b) Merger Sub. The authorized capital of Merger Sub consists, or
will consist prior to the Closing, of:
(i) Preferred Stock. 1,000 shares of undesignated
Preferred Stock, $.001 par value per share ("Merger Sub Preferred
Stock"), none of which are issued and outstanding. The rights,
privileges and preferences of the Merger Sub Preferred Stock are
as stated in Merger
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Sub's Certificate of Incorporation.
(ii) Common Stock. 1,000 shares of common stock, $.001 par
value per share ("Merger Sub Common Stock"), of which as of the
date hereof 100 shares are issued and outstanding, all of which
are owned by Nanogen.
(iii) Rights to Purchase Shares; Shareholder Agreements.
There are not outstanding any options, warrants, rights
(including conversion or preemptive rights) or agreements for the
purchase or acquisition from Merger Sub of any shares of its
capital stock. Merger Sub is not a party to or subject to any
agreement or understanding, and, to Merger Sub's knowledge, there
is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of
Merger Sub.
5.3 Subsidiaries. Other than NanoVenture LLC (and, through it, The
Nanogen/Becton Dickinson Partnership) and Merger Sub, Nanogen does not presently
own or control, directly or indirectly, any interest in any other corporation,
association or other business entity. Other than Merger Sub, Nanogen has no
subsidiaries.
5.4 Authorization.
(a) Nanogen. All corporate action on the part of Nanogen and its
officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all
obligations of Nanogen hereunder and thereunder and the authorization,
issuance (or reservation for issuance) and delivery of the Nanogen
Series D Preferred Stock being issued hereunder and the Common Stock
issuable upon conversion of the Nanogen Series D Preferred Stock has
been taken or will be taken prior to the Closing, and this Agreement and
the Investors' Rights Agreement constitute valid and binding obligations
of Nanogen, enforceable in accordance with their respective terms,
except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) to the extent the
indemnification provisions contained in the Investors' Rights Agreement
may be limited by applicable federal or state securities laws.
(b) Merger Sub. All corporate action on the part of Merger Sub
and its officers, directors and sole shareholder necessary for the
authorization, execution and delivery of this Agreement, the performance
of all obligations of Merger Sub hereunder and thereunder has been taken
or will be taken prior to the Closing, and this Agreement constitutes a
valid and binding obligation of Merger Sub, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement
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of creditors' rights generally and (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other
equitable remedies.
5.5 Valid Issuance of Preferred and Common Stock.
(a) The outstanding shares of the Common Stock, the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock and the Series D Preferred Stock of Nanogen are all duly and
validly authorized and issued, fully paid and nonassessable, and were
issued in compliance with all applicable federal and state securities
laws. The outstanding shares of the Merger Sub Common Stock are all duly
and validly authorized and issued, fully paid and nonassessable, and
were issued in compliance with all applicable federal and state
securities laws.
(b) The Nanogen Series D Preferred Stock which is being issued to
each of the Nanotronics Shareholders and the Exchanging Nanotronics
Creditors under the Agreement and the Agreement of Merger, when issued,
sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable, free of any restrictions on transfer other than
pursuant to this Agreement and the Investors' Rights Agreement, and,
based in part upon the representations of Nanotronics in this Agreement
and the representations of each individual or entity executing an
Investor Representation Statement to be delivered by Nanotronics at the
Closing pursuant to Section 8.3(e), will be issued in compliance with
all applicable federal and state securities laws. The Common Stock
issuable upon conversion of the Nanogen Series D Preferred Stock issued
under this Agreement and the Agreement of Merger has been duly and
validly reserved for issuance and, upon issuance in accordance with the
terms of the Restated Certificate of Incorporation of Nanogen, shall be
duly and validly issued, fully paid and nonassessable, free of any
restrictions on transfer other than pursuant to this Agreement and the
Investors' Rights Agreement, and issued in compliance with all
applicable securities laws, as presently in effect, of the United States
and each of the states whose securities laws govern the issuance of any
of the Nanogen Series D Preferred Stock hereunder. The Nanogen Series D
Preferred Stock issued hereunder will be free and clear from any liens
or encumbrances.
5.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to Nanogen or Merger Sub, as the case may be, in
connection with the execution and delivery of this Agreement by Nanogen or
Merger Sub or the consummation of the transactions contemplated by this
Agreement, except for (i) such consents and filings as have been or will be
obtained or made prior to the Closing, (ii) pre-sale filings as may be required
under applicable state or foreign securities laws which have been or will be
timely filed and (iii) any notices of sale required to be filed with the
Securities and Exchange Commission pursuant to Regulation D under the Securities
Act of 1933, as amended (the "Securities Act") or such post-closing filings as
may be required under applicable state or foreign securities laws, which will be
timely filed within the applicable periods therefor.
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5.7 Litigation.
(a) There is no action, suit, proceeding or investigation pending
or, to Nanogen's knowledge, currently threatened against Nanogen which
questions the validity of this Agreement or the Investors' Rights
Agreement, or the right of Nanogen to enter into either of them, or to
consummate the transactions contemplated hereby or thereby. The
foregoing includes, without limitation, actions pending or threatened
involving the prior employment of any of the Nanogen's employees, their
use in connection with the Nanogen's business of any information or
techniques allegedly proprietary to any of their former employers, or
their obligations under any agreements with prior employers. Nanogen is
not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
There is no action, suit, proceeding or investigation by Nanogen
currently pending or which Nanogen intends to initiate.
(b) There is no action, suit, proceeding or investigation pending
or, to Nanogen's or Merger Sub's knowledge, currently threatened against
Merger Sub which questions the validity of this Agreement or the right
of Merger Sub to enter into it or to consummate the transactions
contemplated hereby. Merger Sub is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by Merger Sub currently pending or which
Nanogen or Merger Sub intends to initiate.
5.8 No Conflict. Provided the conditions set forth in Article VIII are
satisfied, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any
violation of, be in conflict with, or constitute a default or give rise to a
right of termination, cancellation or acceleration under any provision of (a)
the Restated Certificate of Incorporation or Bylaws of Nanogen; (b) the
Certificate of Incorporation or Bylaws of Merger Sub; (c) any judgment, decree
or order or any material agreement, contract, understanding, indenture or other
instrument to which Nanogen or Merger Sub is a party; or (d) to the best
knowledge of Nanogen after a reasonable inquiry, any statute, rule or
governmental regulation applicable to Nanogen or Merger Sub.
5.9 Fees and Commissions. Neither Nanogen nor Merger Sub nor any of
their officers, directors or shareholders have dealt with any broker or finder
in connection with the transactions contemplated by this Agreement. Neither of
Nanogen nor Merger Sub has incurred, and will not incur, directly or indirectly,
any liability for any brokerage or finders' fees or agents commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
5.10 Full Disclosure. No warranty or representation or other statement
of Nanogen or Merger Sub contained in this Agreement or in any schedule or
exhibit attached hereto, or in any other certificate, document, or instrument
furnished by Nanogen or Merger Sub to any other party either pursuant to the
terms of this Agreement or in connection with the transactions
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contemplatedhereunder, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statement contained therein or herein not misleading either individually or
as a whole.
ARTICLE VI
CONDUCT PRIOR TO THE EFFECTIVE TIME
During the period from the date of this Agreement and continuing until
the Closing, Nanotronics agrees to act as follows (except as expressly
contemplated by this Agreement or to the extent that both Nanogen (acting on
behalf of itself and Merger Sub) shall otherwise consent in writing):
6.1 Ordinary Course. Nanotronics shall carry on its business in the
usual, regular and ordinary course, including the payment of all state and
federal taxes, in substantially the same manner as heretofore conducted and, to
the extent consistent with such business, use all commercially reasonable
efforts consistent with past practice and policies to preserve intact its
present business organizations, use its best efforts to keep available the
services of its present key employees and preserve its relationships with
present and potential customers, providers and others having business dealings
with it to the end that its goodwill and ongoing business shall be unimpaired at
the Closing Date.
6.2 No Other Bids. Nanotronics will not, and will use its best efforts
to ensure that its directors, officers or employees do not, directly or
indirectly, solicit or initiate or encourage any discussions or negotiations
with, or participate in any negotiations with or provide any information to or
otherwise cooperate in any other way with any corporation, partnership, person
or other entity or group (other than Nanogen or Merger Sub) concerning any sale
of substantial assets or control thereof. Nanogen (on behalf of itself and
Merger Sub) shall be promptly notified in writing by Nanotronics, as applicable,
of any of the events referred to in this Section including a summary of the
material terms of any other bid.
6.3 No Acquisitions. Nanotronics shall not (a) acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
(b) otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to Nanotronics except in the ordinary course
of business consistent with prior practice.
6.4 No Dispositions. Other than the payments in the aggregate amount of
$40,000 made on the date hereof to the creditors listed on Schedule 2.4,
Nanotronics shall not lease or otherwise dispose of any of the assets of
Nanotronics, individually or in the aggregate, except in the ordinary course of
business consistent with prior practice and in any event not in excess of $5,000
in the aggregate.
6.5 Indebtedness. Nanotronics shall not incur any indebtedness for
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borrowed money or guarantee any indebtedness or guarantee any debt securities of
others.
6.6 Benefit Plans, Etc. Nanotronics shall not adopt or amend in any
material respect any employee plan, benefit arrangement or any other agreement
with employees, and Nanotronics shall not increase compensation for its
employees.
6.7 Other Actions. Nanotronics shall not, and shall use its best efforts
to ensure that its directors, officers, employees and other agents do not, take
any action that would, or reasonably would be expected to, result in any of the
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect, or in any of the conditions set forth in Article
VIII not being satisfied.
6.8 Advice of Changes; Government Filings. Nanotronics and its officers
and directors shall confer on a regular and frequent basis with Nanogen (on
behalf of itself and Merger Sub), report on operational matters and promptly
advise Nanogen (on behalf of itself and Merger Sub) orally and in writing of any
change or event having, or which, insofar as can reasonably be foreseen, could
have, a material adverse effect on Nanotronics or which would cause or
constitute a material breach of any of the representations, warranties or
covenants of Nanotronics contained herein. Nanotronics shall promptly provide
Nanogen (on behalf of itself and Merger Sub) or its counsel with copies of any
filings made by Nanotronics with any state or federal governmental entity in
connection with this Agreement or the transactions contemplated hereby.
6.9 Accounting Methods. Nanotronics shall not change the methods of
accounting for the business of Nanotronics in effect at the Nanotronics Balance
Sheet Date, except as required by changes in generally accepted accounting
principles ("GAAP") and as concurred in by Nanotronics's independent auditors.
Nanogen (on behalf of itself and Merger Sub) shall be notified immediately as to
any such change.
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ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Shareholder Approval.
(a) Nanotronics shall use its reasonable best efforts to obtain
the written consent of Nanotronics Shareholders holding such number of
shares of Nanotronics Capital Stock as is required to approve the Merger
under California Law and its Articles of Incorporation and Bylaws, and
take all further action necessary in accordance with California Law and
its Articles of Incorporation and Bylaws in connection therewith, for
the purpose of obtaining shareholder approval of the Merger, the
consummation of the transactions contemplated by this Agreement and the
Agreement of Merger and the performance by Nanotronics of its
obligations under this Agreement and the Agreement of Merger.
Nanotronics shall, in such written consent solicitation, include the
recommendation of the Nanotronics Board that it is in the best interest
of the Nanotronics Shareholders that they approve and adopt this
Agreement and the Agreement of Merger.
(b) Merger Sub shall obtain the written consent of its sole
shareholder and take all further action necessary in accordance with
California Law and its Articles of Incorporation and Bylaws in
connection therewith, for the purpose of obtaining shareholder approval
of the Merger, the consummation of the transactions contemplated by this
Agreement and the Agreement of Merger and the performance by Merger Sub
of its obligations under this Agreement and the Agreement of Merger.
Merger Sub shall, in such written consent solicitation, include the
recommendation of the Merger Sub Board that it is in the best interest
of the sole shareholder of Merger Sub that such shareholder approve and
adopt this Agreement and the Agreement of Merger.
7.2 Access and Information. Nanotronics shall afford Nanogen (on behalf
of itself and Merger Sub) and its accountants, counsel, investment bankers and
other representatives full and complete access during normal business hours
throughout the period prior to the Closing Date to all of the properties, books,
contracts, commitments, records, facilities and personnel of Nanotronics and,
during such period, shall furnish to Nanogen (on behalf of itself and Merger
Sub) all information concerning the business, properties and personnel of
Nanotronics as either of Nanogen or Merger Sub may reasonably request. Nanogen
shall provide Nanotronics with information sufficient to enable the Nanotronics
Shareholders to determine whether to acquire the Nanogen Series D Preferred
Stock.
7.3 Notice of Changes. If, between the date hereof and the Closing Date,
any federal, state or local governmental authority shall commence any
examination, review, investigation, action, suit or proceeding against any party
with respect to this Agreement, each party shall give prompt notice thereof to
the others, shall keep the other parties informed as to the status thereof and
shall permit the other parties to observe and be present at each meeting,
conference or other proceeding and to have access to and be consulted in
connection with any document filed or
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provided to such governmental authority in connection with such examination,
review, investigation, action, suit or proceeding.
7.4 Certain Defaults. Nanotronics shall give prompt written notice to
Nanogen (on behalf of itself and Merger Sub) of any notice of default received
by it subsequent to the date of this Agreement and prior to the Closing Date
under any instrument or agreement to which it is a party or by which it is
bound. Nanogen shall give similar notice to Nanotronics with respect to any and
all defaults on the part of Nanogen or Merger Sub which may affect adversely the
interests of Nanotronics in this Agreement or any transaction contemplated
hereby.
7.5 Consents. Each of the parties shall use its reasonable best efforts
to obtain all authorizations, consents or other approvals required,
respectively, to be obtained by such party from any governmental authority or
other person in connection with consummation of the transactions contemplated by
this Agreement.
7.6 Notice of Breach. Each of the parties shall immediately give notice
to the others of the occurrence of any event, or the failure of any event to
occur, that results in a breach of any representation or warranty contained
herein by such party or a failure by said party to comply with any covenant,
condition or agreement contained herein.
7.7 Expenses. Each of Nanogen and Nanotronics shall pay its own fees and
expenses incurred incident to the preparation and carrying out of the
transactions herein contemplated (including legal, investment bankers,
accounting and travel fees and expenses). Nanogen shall also pay any such fees
and expenses incurred by Merger Sub.
7.8 Public Disclosure. Except as required by law or regulation, prior to
the Closing, none of the parties hereto shall make any public release of
information concerning the terms and conditions of this Agreement or the
transactions contemplated hereby without the prior joint review and approval of
Nanogen (on behalf of itself and Merger Sub) and Nanotronics, which approval
shall not be unreasonably withheld; provided, however, that the parties may each
continue such communications with employees, customers, suppliers, lenders,
lessors, shareholders and other particular groups as may be legally required or
necessary and not inconsistent with the best interests of the other parties
hereto.
7.9 Tax-Free Reorganization. Nanogen (on behalf of itself and Merger
Sub) and Nanotronics shall each use all commercially reasonable efforts to cause
the Merger to be treated as a reorganization within the meaning of Section 368
of the Code and to make and file such reports and other documents as are
necessary to ensure such treatment. Neither Nanogen nor Merger Sub shall take
any actions inconsistent with causing the Merger to be treated as a
reorganization within the meaning of such Section.
7.10 Blue Sky Laws. Nanogen shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the shares of Nanogen Series D Preferred Stock
pursuant hereto. Nanotronics shall use all reasonable efforts to assist Nanogen
as may be reasonably necessary to comply with the securities and blue
sky laws of all jurisdictions which are applicable in connection with the
issuance of the shares of
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Nanogen Series D Preferred Stock pursuant hereto.
7.11 Waiver of Past Rent. Nanogen hereby agrees to waive all accrued but
unpaid rent owed by Nanotronics to Nanogen prior to the date of this Agreement
and all future rent owed by Nanotronics through the Closing Date.
7.12 Expiration of Representations and Warranties. The representations
and warranties of Nanotronics expire on the Closing Date and no shareholder of
Nanotronics shall have liability to Nanogen after such date based on any breach
of such representations and warranties.
7.13 Expiration of Representations and Warranties. The representations
and warranties of Nanogen and Merger Sub expire on the Closing Date and neither
Nanogen nor Merger Sub shall have liability after such date based on any breach
of these representations and warranties.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each of the parties to effect the Merger and the
transactions contemplated by this Agreement shall be subject to the fulfillment
at or prior to the Closing of the following conditions unless waived by each of
Nanogen (on behalf of itself and Merger Sub) and Nanotronics:
(a) Government Approvals. All authorizations, consents, orders or
approvals of, or declarations or filings with, any Governmental Entity
deemed necessary or appropriate by Nanogen, Merger Sub, or Nanotronics
for the consummation of the transactions contemplated by this Agreement
including, but not limited to, the Federal Trade Commission, the
Department of Justice, applicable federal or state securities law
regulatory bodies, shall have been filed, occurred or been obtained, in
each case subject to no term, condition or restriction unacceptable to
Nanogen, Merger Sub, or Nanotronics. Nanogen, Merger Sub and Nanotronics
each agree to cooperate with each other to the fullest extent
practicable in satisfying all applicable federal and state filing
requirements, and in obtaining all applicable federal and state
regulatory approvals.
(b) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the
consummation of the Merger shall have been issued by any federal or
state court and remain in effect, and no litigation seeking the issuance
of such an order or injunction, shall be pending which, in the good
faith judgment of Nanogen, Merger Sub or Nanotronics, has a reasonable
probability of resulting in such order, injunction or damages. In the
event any such order or injunction shall have been issued, each party
agrees to use its
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reasonable efforts to have any such injunction lifted.
(c) Statutes. No statute, rule or regulation shall have been
enacted by the government of the United States or any state or agency
thereof which would make the consummation of the Merger illegal.
8.2 Conditions to Obligations of Nanotronics. The obligations of
Nanotronics to effect the Merger and the other transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Closing of the
following conditions, unless waived by Nanotronics:
(a) Representations and Warranties. The representations and
warranties of Nanogen and Merger Sub, each as set forth in this
Agreement shall be true and correct in all material respects as of the
date of this Agreement and as if made at and as of the Closing Date,
except as otherwise contemplated by this Agreement, and Nanotronics
shall have received a certificate or certificates, substantially in the
form of Exhibit 8.2(a), to such effect.
(b) Performance of Obligations of Nanogen and Merger Sub. Nanogen
and Merger Sub shall each have performed in all material respects all
obligations required to be performed by it under this Agreement prior to
the Closing Date, and Nanotronics shall have received a certificate,
substantially in the form of Exhibit 8.2(a), to such effect.
(c) Opinion of Counsel to Nanogen and Merger Sub. Nanotronics
shall have received an opinion dated as of the Closing Date of Pillsbury
Madison & Sutro LLP, outside counsel to Nanogen and Merger Sub, covering
the items substantially as set forth in Exhibit 8.2(c).
(d) Investors' Rights Agreement. The Investors' Rights Agreement
shall have been amended to add, effective on the Closing Date, as
parties to such agreement, each individual or entity set forth on
Schedule 2.1-2 as receiving Nanogen Series D Preferred Stock in
connection with the Merger and the transaction contemplated by this
Agreement (but not including any individual or entity listed on Schedule
2.1-2 who does not receive shares of Nanogen Series D Preferred Stock in
connection with the Merger because of such Nanotronics Shareholder's
exercise of dissenters' rights under California Law or otherwise; and
not including the individuals or entities listed on Schedule 2.1-2 as
receiving options or warrants to purchase Nanogen Series D Preferred
Stock in exchange for his/hers/its Nanotronics Options or Nanotronics
Warrants, as the case may be).
(e) Change in Laws or Regulations. Since the date of this
Agreement, no statute shall have been enacted and no rule or regulation
shall have been adopted by the State of California or any federal agency
or authority which (i) has had or may reasonably be expected to have a
material adverse effect on the condition (financial or otherwise),
business, net worth, assets, prospects, properties,
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employees, operations, obligations or liabilities of Nanogen, or (ii)
would prohibit Merger Sub's ownership or operation of all or a material
portion of the business or assets of Nanotronics, or compel Merger Sub
to dispose of or hold separate all or a material portion of the business
or assets of Nanotronics, as a result of the Merger, or (iii) render any
party unable to consummate the Merger, except for any waiting period
provisions.
(f) Licenses; Filings. All applicable federal and state filing
and licensing requirements relating to or in connection with the Merger
have been satisfied and all applicable federal and state regulatory
approvals have been received, in each case subject to no term, condition
or restriction unacceptable to Nanotronics in its sole judgment.
8.3 Conditions to Obligations of Nanogen and Merger Sub. The obligations
of Nanogen and Merger Sub to effect the Merger and the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing of the following conditions, unless waived by Nanogen and Merger
Sub:
(a) Representations and Warranties. The representations and
warranties of Nanotronics set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as
if made at and as of the Closing Date, except as otherwise contemplated
by this Agreement, and Nanogen, on behalf of itself and Merger Sub,
shall have received a certificate or certificates, substantially in the
form of Exhibit 8.3(a), to such effect.
(b) Performance of Obligations of Nanotronics. Nanotronics shall
have performed in all material respects all obligations required to be
performed by each under this Agreement prior to the Closing Date, and
Nanogen, on behalf of itself and Merger Sub, shall have received a
certificate, substantially in the form of Exhibit 8.3(a), to such
effect.
(c) Opinion of Counsel to Nanotronics. Nanogen, on behalf of
itself and Merger Sub, shall have received an opinion dated as of the
Closing Date of Brobeck, Phleger & Harrison LLP, outside counsel to
Nanotronics, covering the items substantially as set forth in Exhibit
8.3(c).
(d) Dissenters' Rights. Holders of no more than five percent (5%)
of the outstanding shares of Nanotronics Capital Stock shall have
asserted dissenters' rights pursuant to Section 1300 et. seq. of
California Law.
(e) Investor Representation. Nanogen shall have received from
Nanotronics an Investor Representation Statement, substantially in the
form attached hereto as Exhibit 8.3(e), executed by each individual or
entity who will receive Nanogen Series D Preferred Stock or the right to
receive Nanogen Series D Preferred Stock upon consummation of the Merger
(including each Nanotronics Shareholder, each holder of Nanotronics
Options and Nanotronics Warrants and each
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<PAGE> 25
Exchanging Nanotronics Creditor), whereby such individual or entity
makes certain representations and warranties with respect to such
Nanogen Series D Preferred Stock.
(f) Change in Laws or Regulations. Since the date of this
Agreement, no statute shall have been enacted and no rule or regulation
shall have been adopted by the State of California or any federal agency
or authority which (i) has had or may reasonably be expected to have a
material adverse effect on the condition (financial or otherwise),
business, net worth, assets, prospects, properties, employees,
operations, obligations or liabilities of Nanotronics, or (ii) would
prohibit Merger Sub's ownership or operation of all or a material
portion of the business or assets of Nanotronics, or compel Merger Sub
to dispose of or hold separate all or a material portion of the business
or assets of Nanotronics, as a result of the Merger, or (iii) render any
party unable to consummate the Merger, except for any waiting period
provisions.
(g) Licenses; Filings. All applicable federal and state filing
and licensing requirements relating to or in connection with the Merger
have been satisfied and all applicable federal and state regulatory
approvals have been received, in each case subject to no term, condition
or restriction unacceptable to Nanogen in its sole judgment on behalf of
itself and Merger Sub.
ARTICLE IX
CLOSING
9.1 Closing Date. The closing of the Merger (the "Closing") shall be
held at the offices of Pillsbury Madison & Sutro LLP, 235 Montgomery Street, San
Francisco, California, at 10:00 A.M. on January 30, 1998 (the "Closing Date"),
or at such other time and place as Nanogen (on behalf of itself and Merger Sub)
and Nanotronics may agree upon in writing. All parties hereto shall use their or
its respective best efforts to cause the Closing Date to be not later than
January 30, 1998.
9.2 Deliveries at Closing. At the Closing, the following documents shall
be delivered:
(a) By Nanotronics.
(i) Certificates representing ownership of 100% of the
capital stock of Nanotronics, duly endorsed by the holder thereof
in favor of Nanogen or, for any Nanotronics share certificate
that cannot be provided, a written representation from the holder
thereof that it cannot be produced and the reason for such
nonproduction, along with a statement from such holder confirming
his or her understanding that such lost certificate has been
cancelled.
(ii) All documents evidencing ownership of Nanotronics
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<PAGE> 26
Options and Nanotronics Warrants, each marked "Canceled."
(iii) All documents evidencing the liabilities or
obligations owed by Nanotronics to the Exchanging Nanotronics
Creditors, each marked "Canceled."
(iv) A certificate of the Secretary of Nanotronics
certifying (A) true, correct and complete copies of the Articles
of Incorporation and Bylaws, each as amended to date, of
Nanotronics, (B) all minutes of meetings of the Board of
Directors of Nanotronics (or written consents in lieu thereof)
relating to the Merger, this Agreement or the transactions
contemplated by this Agreement and (C) all minutes of meetings of
the holders of the capital stock of Nanotronics (or written
consents in lieu thereof) relating to the Merger, this Agreement
or the transactions contemplated by this Agreement.
(v) A certificate of the Secretary of State of the State
of California certifying, as of a recent date prior to Closing,
the good standing of Nanotronics in the State of California.
(vi) A certificate of the Secretary of State of each
jurisdiction in which Nanotronics is qualified to do business
certifying, as of a recent date prior to Closing, the good
standing of Nanotronics in such jurisdiction.
(vii) A cross-receipt evidencing receipt by Nanotronics
(on behalf of itself and the Nanotronics Shareholders, the
holders of Nanotronics Options and Nanotronics Warrants and the
Exchanging Nanotronics Creditors) of (A) certificates
representing ownership of an aggregate 193,385 shares of the
Nanogen Series D Preferred Stock, duly made out as set forth on
Schedule 2.1-2; (B) a warrant representing the right to purchase
1,490 shares of Nanogen Series D Preferred Stock and (c) options
representing the right to purchase an aggregate of 5,124 shares
of Nanogen Series D Preferred Stock.
(viii) All other certificates, opinions and other
documents required by or in connection with this Agreement,
including, but not limited to: (A) an executed counterpart
signature page to the Agreement and Plan of Merger in
substantially the form attached hereto as Exhibit 1.1(a); (B) an
executed Officers' Certificate in substantially the form attached
hereto as Exhibit 1.3(a); (C) an executed Officer's Certificate
in substantially the form attached hereto as Exhibit 8.3(a); (D)
a signed opinion of counsel to Nanotronics in substantially the
form attached hereto as Exhibit 8.3(c); and (E) one or more
Investor Representation Statements, in substantially the form
attached hereto as Exhibit 8.3(e), and executed by each
Nanotronics
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<PAGE> 27
Shareholder, each holder of Nanotronics Options and Nanotronics
Warrants and each Exchanging Nanotronics Creditor.
(b) By Nanogen (on behalf of itself and Merger Sub).
(i) (A) certificates representing ownership of an
aggregate 193,385 shares of Nanogen Series D Preferred Stock, (B)
a warrant representing the right to purchase 1,490 shares of
Nanogen Series D Preferred Stock, and (C) options representing
the right to purchase an aggregate of 5,124 shares of Nanogen
Series D Preferred Stock, each made out as set forth on Schedule
2.1-2.
(ii) All consents, permits or other documents required to
be obtained by Nanotronics in connection with this Agreement.
(iii) A certificate of the Secretary of Nanogen certifying
(A) true, correct and complete copies of the Restated Certificate
of Incorporation and Bylaws, each as amended to date, of each of
Nanogen and Merger Sub, (B) all minutes of meetings of the Boards
of Directors of each of Nanotronics and Merger Sub (or written
consents in lieu thereof) relating to the Merger, this Agreement
or the transactions contemplated by this Agreement and (C) all
minutes of meetings of the holders of the capital stock of each
of Nanogen and Merger Sub (or written consents in lieu thereof)
relating to the Merger, this Agreement or the transactions
contemplated by this Agreement.
(iv) A certificate of the Secretary of State of the State
of California certifying, as of a recent date prior to Closing,
the good standing of each of Nanogen and Merger Sub in the State
of California.
(v) A certificate of the Secretary of State of each
jurisdiction in which either Nanogen or Merger Sub is qualified
to do business certifying, as of a recent date prior to Closing,
the good standing of either Nanogen or Merger Sub, as the case
may be, in such jurisdiction.
(vi) A cross-receipt evidencing receipt by Nanogen (on
behalf of itself and Merger Sub) of (a) certificates representing
ownership of 100% of the capital stock of Nanotronics, duly
endorsed by the holder thereof in favor of Nanogen, (b) all
documents evidencing ownership of Nanotronics Options and
Nanotronics Warrants, each marked "Canceled," and (c) all
documents evidencing the liabilities or obligations owed by
Nanotronics to the Exchanging Nanotronics Creditors, each marked
"Canceled."
(vii) All other certificates, opinions and other documents
required by or in connection with this Agreement, including, but
not
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<PAGE> 28
limited to: (A) an executed counterpart signature page to the
Agreement and Plan of Merger in substantially the form attached
hereto as Exhibit 1.1(a); (B) an executed Officers' Certificate
in substantially the form attached hereto as Exhibit 1.3(b); (C)
an executed Officer's Certificate in substantially the form
attached hereto as Exhibit 8.2(a); and (D) a signed opinion of
counsel to Nanogen and Merger Sub in substantially the form
attached hereto as Exhibit 8.2(c).
ARTICLE X
TERMINATION; AMENDMENT; WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to
or on the Closing Date:
(a) By mutual agreement of Nanogen (on behalf of itself and
Merger Sub) and Nanotronics;
(b) By Nanotronics if on or before January 30, 1998, any of the
conditions specified in Sections 8.1 and 8.2 has not been met or waived
by Nanotronics; or
(c) By Nanogen (acting on behalf of itself and Merger Sub) if on
or before January 30, 1998, any of the conditions specified in Sections
8.1 and 8.3 has not been met or waived by Nanogen.
10.2 Effect of Termination. In the event of termination of this
Agreement by Nanotronics, on the one hand, or Nanogen (acting on behalf of
itself and Merger Sub), on the other, as provided above, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto, except for the willful breaches of this Agreement prior to the time of
such termination.
10.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the parties hereto.
10.4 Extension; Waiver. At any time prior to the Closing Date, any party
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto (provided that the term of this Agreement shall
not be extended without the consent of all parties), (b) waive any inaccuracies
in the representations and warranties contained herein for its benefit or in any
document delivered to it pursuant hereto and (c) waive compliance with any of
the agreements or conditions contained herein for its benefit. Any agreement on
the part of a party hereto to any such extension or waiver shall not be valid
unless set forth in any instrument in writing signed on behalf of such party.
<PAGE> 29
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Schedule Updates. Nanotronics and Nanogen (on behalf of itself and
Merger Sub) shall each promptly disclose to the other party if any material
information contained in its respective representations and warranties is
incomplete or is no longer correct as of all times after the date hereof until
the Closing.
11.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
11.3 Successors and Assigns. No part of this Agreement or any rights,
duties or obligations described herein shall be assigned or delegated without
the express written consent of the parties hereto, except that Nanogen (on
behalf of itself and Merger Sub) may assign its and/or Merger Sub's rights,
obligations and responsibilities to an affiliate of Nanogen. Except as otherwise
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto.
11.4 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subject hereof
and supersedes all prior agreements and understandings, both written and oral.
11.5 Arbitration. Any controversy arising out of, or relating to this
Agreement or any document or other agreement referenced in this Agreement, or
any modification or extension hereof or thereof, including any claim for damages
or rescission, shall be submitted to arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, San
Francisco, California ("AAA"). In all cases submitted to AAA for arbitration,
the parties agree to advance their respective administrative fees and to advance
in equal shares the arbitrator(s)' fee(s). Notwithstanding any rules or
procedures of the AAA to the contrary, the arbitrator(s) shall be bound to
render a decision in accordance with applicable state and federal laws and shall
issue a written opinion setting forth findings of fact and conclusions of laws
which shall be subject to judicial review. The parties agree that the decision
of the arbitrator(s) shall be final and binding upon each of them. Any
arbitration award shall include the cost of arbitration and reasonable
attorneys' fees to the prevailing party. Any arbitration shall be conducted and
determined in San Diego, California.
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<PAGE> 30
11.6 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy, or by
courier service, as follows:
(a) If to Nanogen to: with copies to:
Nanogen Inc. Pillsbury Madison & Sutro LLP
10398 Pacific Center Court 235 Montgomery Street
San Diego, CA 92121 San Francisco, CA 94104
Attn: General Counsel Attn: Thomas E. Sparks, Jr.
Tel: (619) 546-7700 Tel: (415) 983-1000
Fax: (619) 546-7717 Fax: (415) 983-1200
(a) If to Merger Sub to: with copies to:
Nanogen Merger Subsidiary, Inc. Pillsbury Madison & Sutro LLP
10398 Pacific Center Court 235 Montgomery Street
San Diego, CA 92121 San Francisco, CA 94104
Attn: General Counsel Attn: Thomas E. Sparks, Jr.
Tel: (619) 546-7700 Tel: (415) 983-1000
Fax: (619) 546-7717 Fax: (415) 983-1200
(c) If to Nanotronics to: with copies to:
Nanotronics, Inc. Brobeck, Phleger & Harrison LLP
c/o Enterprise Partners 550 West C Street, Ste. 1300
1205 Prospect Street, Ste. 550 San Diego, CA 92101
La Jolla, CA 92037 Attn: Craig S. Andrews
Attn: James Bergland
Tel: (619) 454-8833 Tel: (619) 234-1966
Fax: (619) 454-2489 Fax: (619) 236-1403
11.7 Cooperation. All parties agree to execute and deliver such other
documents, certificates, agreements and other writings and to take such other
actions as may be necessary or desirable in order to expeditiously consummate or
implement the transactions contemplated by this Agreement.
11.8 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.9 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of another party under this Agreement, shall impair any such right,
power or remedy of such party nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in any
<PAGE> 31
similar breach or default thereunder occurring; nor shall any waiver of any
single breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any party of
any breach or default under this Agreement, or any waiver on the part of any
party of any provisions or conditions of this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, or by law or otherwise afforded to
any party, shall be cumulative and not alternative.
11.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the parties,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
11.11 Severability. In the case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
[The remainder of this page intentionally left blank]
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<PAGE> 32
IN WITNESS WHEREOF, each of the undersigned parties have caused this
Agreement to be executed, all as of the date first above written.
NANOGEN, INC.
By: /s/ Tina S. Nova, Ph.D.
-----------------------------------------
Tina S. Nova, Ph.D.
President and Chief Operating Officer
NANOGEN MERGER SUBSIDIARY, INC.
By: /s/ Tina S. Nova, Ph.D.
-----------------------------------------
Tina S. Nova, Ph.D.
President and Chief Operating Officer
NANOTRONICS, INC.
By: /s/ Andrew E. Senyei, M.D.
----------------------------------------
Andrew E. Senyei, M.D.
President
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<PAGE> 33
EXHIBIT 1.1(a)
FORM OF AGREEMENT OF MERGER TO BE FILED
IN CALIFORNIA TO EFFECTUATE THE MERGER
AGREEMENT OF MERGER
This AGREEMENT OF MERGER, dated as of ________ ___, 1997, among NANOGEN,
INC., a Delaware corporation ("Buyer"), NANOGEN MERGER SUBSIDIARY, INC., a
California corporation ("Merger Sub"), and NANOTRONICS, INC., a California
corporation (the "Company");
W I T N E S S E T H:
Whereas the Board of Directors of Buyer, Merger Sub and the Company have
determined that it is advisable to merge Merger Sub with and into the Company
pursuant to this Agreement of Merger with the result that the Company shall
become a wholly-owned subsidiary of the Buyer; and
Whereas the parties to this Agreement have entered into that certain
Agreement and Plan of Merger dated December 18, 1997 (the "Plan of Merger");
N o w, T h e r e f o r e, in consideration of the premises and the
mutual covenants herein contained, Buyer, Merger Sub and the Company hereby
agree as follows:
1. Merger. As of the Effective Time (as defined in Section 6 herein),
Merger Sub shall merge with and into the Company; the corporate existence of the
Company shall continue; and the separate corporate existence of Merger Sub shall
cease. The corporate identity, existence, name, purposes, franchises, powers,
rights and immunities of the Company shall continue unaffected and unimpaired by
the merger; and the corporate identity, existence, purposes, franchises, powers,
rights and immunities of Merger Sub shall be merged into the Company which shall
be fully vested therewith. The Company shall be subject to all of the debts and
liabilities of Merger Sub as if the Company had itself incurred them and all
rights of creditors and all liens upon the property of each of the Company and
Merger Sub shall be preserved unimpaired, provided that such liens, if any, upon
the property of Merger Sub shall be limited to the property affected thereby
immediately prior to the Effective Date.
2. Articles of Incorporation and Bylaws. The Articles of Incorporation
of the Company, as amended and restated to date and as in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation, until amended or replaced in accordance with applicable
law. The Bylaws of the Company, as amended and restated to date and as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation, until amended or replaced in accordance with applicable law.
3. Directors and Officers. The directors and officers of the Company
from and after the Effective Time (until changed in accordance with applicable
law and the articles of incorporation and bylaws of the Company) shall be:
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<PAGE> 34
Directors: Howard C. Birndorf
Brook H. Byers
Robert E. Curry, Ph.D.
Cam Garner
David Ludvigson
Thomas G. Lynch
Tina S. Nova, Ph.D.
Andrew E. Senyei, M.D.
Officers: Tina S. Nova, Ph.D., President
Harry J. Leonhardt, Secretary
Steven P. Naber, Chief Financial Officer
4. Effect of Merger on Outstanding Shares.
4.1 Conversion of Company Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of the Merger Sub, the Company or
the holder of any of the following securities, the following securities shall be
converted as provided below:
(a) each share of common stock, no par value, of the Company (the
"Company Common Stock"), issued and outstanding immediately prior to the
Effective Time shall be canceled and extinguished and be converted into
and become a right to receive .165296688 shares of Series D Preferred
Stock of the Buyer, par value $.001 per share ("Buyer's Preferred
Stock");
(b) each share of preferred stock, no par value, of the Company
(the "Company Preferred Stock"), issued and outstanding immediately
prior to the Effective Time shall be canceled and extinguished and be
converted into and become a right to receive .195135267 shares of
Buyer's Preferred Stock;
(c) each share of common stock, no par value, of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into one (1) validly issued, fully paid and nonassessable
share of the common stock, no par value, of the Surviving Corporation;
(d) each option to purchase shares of the capital stock of the
Company outstanding immediately prior to the Effective Time shall be
converted into an option to purchase that number of shares of Buyer's
Preferred Stock as are obtained by multiplying the number of shares of
the capital stock of the Company for which such option was exercisable
by the applicable exchange ratio at an exercise price obtained by
dividing the exercise price at which such option was exercisable by the
applicable exchange ratio; and
(e) each warrant to purchase shares of the capital stock of the
Company outstanding immediately prior to the Effective Time shall be
converted into a warrant to purchase that number of shares of Buyer's
Preferred Stock as are obtained by
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<PAGE> 35
multiplying the number of shares of the capital stock of the Company for
which such warrant was exercisable by the applicable exchange ratio at
an exercise price obtained by dividing the exercise price at which such
warrant was exercisable by the applicable exchange ratio.
4.2 Fractional Shares. No fractional shares shall be issued by Buyer in
the merger. The number of shares of Buyer's Preferred Stock into which each
Company shareholder's shares shall be converted shall be rounded (up if the
fraction is .50 or greater and down if the fraction is less than .50) into the
closest whole number of shares of Buyer's Preferred Stock.
5. Surrender of Share Certificates. After the Effective Time, each
holder of an outstanding certificate evidencing capital stock of the Company
shall surrender the same to the Buyer or its agent for cancellation and be
entitled to receive a certificate or certificates representing the number of
shares of Buyer's Preferred Stock into which the shares represented by the
certificate so surrendered shall have been converted as provided in Section 4.
From and after the Effective Time, until so surrendered, each certificate
representing shares converted as provided in Section 4 shall be deemed for all
corporate purposes to evidence the number of shares of Buyer's Preferred Stock
into which such shares shall have been converted.
6. Effective Time. The Company and Merger Sub shall each take or cause
to be taken all such actions, or do or cause to be done all such things, as are
necessary, proper or advisable under the laws of the State of California to make
effective the merger herein provided, subject, however, to receipt of any
required approval by outstanding shares of either in accordance with California
law and subject also to completion of any necessary qualification of securities
under the Corporate Securities Law of California and to compliance with all
other applicable laws. Unless this Agreement shall be terminated as herein
provided, the Company and Merger Sub each agrees to use its best efforts,
subject to the foregoing conditions, to take or cause to be taken all actions as
aforesaid. Upon compliance with applicable laws and upon receipt of any required
approval of the outstanding shares of either party, a copy of this Agreement of
Merger with an officer's certificate of each of the Company and Merger Sub as
required by Section 1103 of the California Corporations Code shall be filed in
the office of the California Secretary of State. The merger shall become
effective upon such filing. The time at, and the date on, which the merger so
becomes effective are herein called the "Effective Time" and "Effective Date,"
respectively.
7. Operation of Businesses Pending Consummation of Merger. Prior to the
Effective Date, neither the Company nor Merger Sub shall, without the prior
written approval of the other, (a) engage in any activity or transaction other
than in the ordinary course of business, except as contemplated by this
Agreement and the Plan of Merger, or (b) issue, sell or subdivide any of its
shares, or (c) issue any shares, any options, warrants, or rights to purchase
any shares or any securities convertible into or exchangeable for any shares, or
(d) declare or pay any dividend or make any distribution on any of its shares,
or (e) purchase or redeem any of its outstanding shares.
8. Termination or Abandonment. This Agreement of Merger may be
terminated and the Merger hereby provided for abandoned at any time prior to the
Effective Time by the mutual consent of the respective boards of directors of
Buyer, Merger Sub and the Company. In the event of termination of this Agreement
as herein provided, neither Buyer, Merger Sub nor the Company or their
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<PAGE> 36
respective boards of directors or shareholders shall be liable to the other or
its directors or shareholders.
9. Other Provisions.
9.1 Governing law. This Agreement of Merger shall be construed in
accordance with the laws of the State of California as applied to contracts
between California residents entered into in and to be performed wholly within
California, without regard to California choice of law provisions.
9.2 Entire agreement. This Agreement and the Plan of Merger, including
all exhibits, schedules and annexes thereto, contain the entire agreement of the
parties hereto, and supersede any prior written or oral agreements between them
concerning the subject matter contained herein.
9.3 Counterparts. This Agreement of Merger may be executed in any number
of counterparts and each such counterpart shall be deemed to be an original
instrument, but all of such counterparts together shall constitute but one
agreement.
9.4 Further Assurances. Merger Sub shall from time to time upon request
by the Company execute and deliver all such documents and instruments and take
all such action as the Company may request in order to vest or evidence the
vesting in the Company of title to and possession of all rights, properties,
assets and business of Merger Sub, or otherwise to carry out the full intent and
purpose of this Agreement of Merger.
- 4 -
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Merger as of the date set forth above.
NANOGEN, INC.
By:
------------------------------------------------
Tina S. Nova, Ph.S.
President and Chief Operating Officer
By:
------------------------------------------------
Harry J. Leonhardt
Vice President, General Counsel and Secretary
NANOGEN MERGER SUBSIDIARY, INC.
By:
------------------------------------------------
Tina S. Nova, Ph.D.
President and Chief Operating Officer
By:
------------------------------------------------
Harry J. Leonhardt
Vice President, General Counsel and Secretary
NANOTRONICS, INC.
By: ------------------------------------------------
Name:
Title: President
By: ------------------------------------------------
Name:
Title: Secretary
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<PAGE> 38
EXHIBIT 1.3(a)
FORM OF NANOTRONICS OFFICERS' CERTIFICATE
TO ACCOMPANY THE FILING OF THE EXECUTED
MERGER AGREEMENT IN CALIFORNIA
(PURSUANT TO SECTION 1.3 OF THE AGREEMENT AND PLAN OF MERGER)
NANOTRONICS, INC.,
A CALIFORNIA CORPORATION
CERTIFICATE OF APPROVAL
OF AGREEMENT OF MERGER
OFFICERS' CERTIFICATE
PURSUANT TO SECTION 1103 OF THE
CALIFORNIA CORPORATIONS CODE
Each of the undersigned hereby states and certifies, in accordance with
Section 1103 of the California Corporations Code, that
i. He or she is an officer of Nanotronics, Inc., a California
corporation ("Nanotronics"), duly authorized to execute this
certificate.
ii. The Agreement of Merger, dated as of December __, 1997 (the
"Merger Agreement"), entered into between Nanotronics and Nanogen
Merger Subsidiary, Inc., a California corporation ("Merger Sub"),
to which this Certificate is attached, was duly approved by the
Board of Directors and shareholders of Nanotronics.
iii. Nanotronics has two classes of shares, common stock, no par
value, and preferred stock, no par value. As of November 24,
1997, the total number of outstanding shares of common stock of
Nanotronics was 344,639, and the total number of outstanding
shares of preferred stock was 550,923. All such shares were
entitled to vote upon approval of the Merger Agreement.
iv. The affirmative vote of the holders of not less than a majority
of the outstanding shares of common stock, voting as a separate
class, and the holders of not less than a majority of the
outstanding shares of preferred stock, voting together as a
separate class, was required for the approval of the Merger
Agreement.
v. The principal terms of the Merger Agreement, in the form to which
this Certificate is attached, were approved by Nanotronics by
written consent of shareholders holding the number of shares
which equal or exceeded the vote required.
<PAGE> 39
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Signed on _____________ __, 199[ ]
NANOTRONICS, INC.
By:
-----------------------------------------
Name:
Title: President
By:
-----------------------------------------
Name:
Title: Secretary
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<PAGE> 40
EXHIBIT 1.3(b)
FORM OF MERGER SUB OFFICERS' CERTIFICATE
TO ACCOMPANY THE FILING OF THE EXECUTED
MERGER AGREEMENT IN CALIFORNIA
(PURSUANT TO SECTION 1.3 OF THE AGREEMENT AND PLAN OF MERGER)
NANOGEN MERGER SUBSIDIARY, INC.,
A CALIFORNIA CORPORATION
CERTIFICATE OF APPROVAL
OF AGREEMENT OF MERGER
OFFICER'S CERTIFICATE
PURSUANT TO SECTION 1103 OF THE
CALIFORNIA CORPORATIONS CODE
Tina S. Nova, Ph.D. and Harry J. Leonhardt each hereby state and
certify, in accordance with Section 1103 of the California Corporations Code,
that:
i. They are the President and Chief Operating Officer and Vice
President, General Counsel and Secretary, respectively, of
Nanogen Merger Subsidiary, Inc., a California corporation
("Merger Sub"), and both are duly authorized to execute this
Certificate.
ii. The Agreement of Merger, dated as of December __, 1997 (the
"Merger Agreement"), entered into between Merger Sub and
Nanotronics, Inc., a California corporation ("Nanotronics"), to
which this Certificate is attached, was duly approved by the
Board of Directors and sole shareholder of Merger Sub.
iii. Merger Sub has two classes of shares, common stock, no par value,
and preferred stock, no par value. As of November 24, 1997, the
total number of outstanding shares of common stock of Merger Sub
was 100, all of which were owned by Nanogen, Inc., a Delaware
corporation (the "Parent"), and the total number of outstanding
shares of preferred stock was zero (0). All such shares were
entitled to vote upon approval of the Merger Agreement.
iv. The affirmative vote of the holders of not less than a majority
of the outstanding shares of common stock, voting as a separate
class, and the holders of not less than a majority of the
outstanding shares of preferred stock, voting together as a
separate class, was required for the approval of the Merger
Agreement.
v. The principal terms of the Merger Agreement in the form attached
were approved by written consent of the sole shareholder.
<PAGE> 41
vi. No vote of the stockholders of the Parent was required under any
of the General Corporation Law of the State of Delaware, the
California Corporations Code or the Restated Certificate of
Incorporation or Bylaws of the Parent in connection with the
Merger and the issuance of the Parent's Series D Preferred Stock
in connection with the Merger.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Signed on _____________ __, 199[ ]
NANOGEN MERGER SUBSIDIARY, INC.
By:
-------------------------------------
Tina S. Nova, Ph.D.
President and Chief Operating Officer
By:
-------------------------------------
Harry J. Leonhardt
Vice President, General Counsel and
Secretary
- 2 -
<PAGE> 42
EXHIBIT 8.2(a)
FORM OF CERTIFICATE OF NANOGEN, INC.
AND NANOGEN MERGER SUBSIDIARY, INC.
(PURSUANT TO SECTIONS 8.2(A) AND 8.2(B) OF THE AGREEMENT AND PLAN OF MERGER)
The undersigned, the President and Chief Operating Officer of each of
Nanogen, Inc., a Delaware corporation (the "Company"), and Nanogen Merger
Subsidiary, Inc., a California corporation ("Merger Sub"), does hereby certify,
that to the best of her knowledge after reasonable investigation, pursuant to
Sections 8.2(a) and 8.2(b) of that certain Agreement and Plan of Merger (the
"Agreement"), dated December 18, 1997, by and among the Company, Merger Sub and
Nanotronics, Inc., a California corporation ("Nanotronics"), as follows
(capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Agreement):
1. The representations and warranties of each of the Company and
Merger Sub contained in Article V of the Agreement are true and
correct in all material respects as of the date hereof as if made
on the date hereof (except as otherwise contemplated by the
Agreement).
2. Each of the Company and Merger Sub has performed in all material
respects all obligations required to be performed by it pursuant
to the Agreement at or prior to the date hereof.
IN WITNESS WHEREOF, I have hereunto signed my name as of this ___ day of
_____________, 199[ ].
---------------------------------------------
Name: Tina S. Nova, Ph.D.
Title: President and Chief Operating Officer
<PAGE> 43
EXHIBIT 8.2(c)
MATTERS TO BE COVERED IN
OPINION OF COUNSEL TO NANOGEN, INC. ("NANOGEN")
AND NANOGEN MERGER SUBSIDIARY, INC. ("MERGER SUB")
CAPITALIZED TERMS NOT OTHERWISE DEFINED IN THE OPINION OF COUNSEL TO NANOGEN AND
MERGER SUB SHALL HAVE THE MEANING ASCRIBED TO THEM IN THE AGREEMENT AND PLAN OF
MERGER.
1. Nanogen and Merger Sub are corporations duly organized, validly
existing and in good standing under the laws of the States of Delaware and
California, respectively. Each of Nanogen and Merger Sub has all requisite
corporate power to own its properties and to conduct its business as it is
currently being conducted.
2. Each of Nanogen and Merger Sub has all requisite corporate power and
authority to execute and deliver the Agreement and perform its obligations under
the Agreement.
3. The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated thereby have been duly authorized
by each of Nanogen and Merger Sub.
4. The Agreement is the valid and legally binding obligation of each of
Nanogen and Merger Sub, enforceable against each in accordance with its terms,
subject as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and other similar laws relating to or
affecting the enforcement of creditors' rights generally and subject to the
availability of equitable remedies.
5. The execution, delivery and performance of the Agreement do not
violate any provision of Merger Sub's Certificate of Incorporation or Bylaws,
and, to such counsel's knowledge, do not constitute a material default under the
provisions of any material agreement to which Merger Sub is a party or by which
it is bound, and do not violate or contravene (i) any governmental statute, rule
or regulation applicable to Merger Sub or (ii) any order, writ, judgment,
injunction, decree, determination or award which has been entered against Merger
Sub and of which such counsel is aware, the violation or contravention of which
would materially and adversely affect Merger Sub, its assets, financial
condition or operations.
6. The execution, delivery and performance of the Agreement and the
issuance of shares of Nanogen Series D Preferred Stock pursuant thereto do not
violate any provision of Nanogen's Restated Certificate of Incorporation or
Bylaws, and, to such counsel's knowledge, do not constitute a material default
under the provisions of any material agreement to which Nanogen is a party or by
which it is bound, and do not violate or contravene (i) any governmental
statute, rule or regulation applicable to Nanogen or (ii) any order, writ,
judgment, injunction, decree, determination or award which has been entered
against Nanogen and of which such counsel is aware, the violation or
contravention of which would materially and adversely affect Nanogen, its
assets, financial condition or operations.
<PAGE> 44
7. The shares of Nanogen Series D Preferred Stock to be delivered in
exchange for the Assets will, when issued as contemplated by the Agreement, be
duly issued, fully paid and nonassessable.
8. Based in part upon the representations and warranties of each
Nanotronics Shareholder, each holder of Nanotronics Options and Nanotronics
Warrants and each Exchanging Nanotronics Creditor contained in the executed
Investor Representation Statements delivered by Nanotronics pursuant to the
Agreement, the offer and sale of the Nanogen Series D Preferred Stock pursuant
to the terms of the Agreement are exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended, and from the qualification
requirements of the California Corporate Securities Law of 1968, as amended,
and, under such securities laws as they presently exist, the issuance of the
common stock, $.001 par value per share, upon the conversion of the Nanogen
Series D Preferred Stock would also be exempt from such registration and
qualification requirements. We express no opinion as to compliance with
applicable anti-fraud statutes, rules or regulations of any applicable law
governing the issue of securities.
Such counsel may explain knowledge qualifiers in his or her opinion as
follows:
The opinions set forth above may be made subject to
qualifications set forth in a separate paragraph. Whenever a statement
herein is qualified by "known to such counsel," "to such counsel's
knowledge," "to our knowledge," or similar phrase, it indicates that in
the course of such counsel's representation of Nanogen no information
that would give such counsel current actual knowledge of the inaccuracy
of such statement has come to the attention of such counsel or any
attorneys in his or her firm who have rendered legal services in
connection with this transaction. Such counsel need not make any
independent investigation to determine the accuracy of such statement,
except as expressly described in such opinion. No inference as to such
counsel's knowledge of any matters bearing on the accuracy of such
statement should be drawn from the fact of such counsel's representation
of Nanogen or Merger Sub in other matters in which such attorneys are
not involved.
- 2 -
<PAGE> 45
EXHIBIT 8.3(a)
FORM OF CERTIFICATE OF NANOTRONICS, INC.
(PURSUANT TO SECTIONS 8.3(a) AND 8.3(b) OF THE AGREEMENT AND PLAN OF MERGER)
The undersigned, the principal executive officer of Nanotronics, Inc., a
California corporation ("Nanotronics"), does hereby certify, that to the best of
his knowledge after reasonable investigation, pursuant to Sections 8.3(a) and
8.3(b) of that certain Agreement and Plan of Merger (the "Agreement"), dated
December 18, 1997, by and among Nanogen, Inc., a Delaware corporation, Nanogen
Merger Subsidiary, Inc., a California corporation, and Nanotronics, as follows
(capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Agreement):
1. The representations and warranties of Nanotronics contained in
Article IV of the Agreement are true and correct in all material
respects as of the date hereof as if made on the date hereof
(except as otherwise contemplated by the Agreement).
2. Nanotronics has performed in all material respects all
obligations required to be performed by it pursuant to the
Agreement at or prior to the date hereof.
IN WITNESS WHEREOF, I have hereunto signed my name as of this ___ day of
_____________, 199[ ].
------------------------------------------
Name:
Title:
<PAGE> 46
EXHIBIT 8.3(c)
MATTERS TO BE COVERED IN OPINION
OF COUNSEL TO NANOTRONICS, INC. ("NANOTRONICS")
[To Come]
<PAGE> 47
EXHIBIT 8.3(e)
FORM OF INVESTOR REPRESENTATION STATEMENT
The undersigned, in connection with the undersigned's receipt of shares
of the Series D Preferred Stock, $.001 par value per share (the "Nanogen Series
D Preferred Stock"), of Nanogen, Inc., a Delaware corporation ("Nanogen"),
pursuant to the transactions contemplated by that certain Agreement and Plan of
Merger (the "Agreement and Plan of Merger"), dated as of December 18, 1997, by
and among Nanogen, Nanogen Merger Subsidiary, Inc., a California corporation and
wholly owned subsidiary of Nanogen ("Merger Sub"), and Nanotronics, Inc., a
California corporation ("Nanotronics"), whereby Merger Sub will be merged with
and into Nanotronics in accordance with the terms and conditions of the
Agreement and Plan of Merger (the "Merger"), under penalty of perjury, hereby
represents and warrants to Nanogen as follows:
a. Purchase Entirely for Own Account. The Nanogen Series D
Preferred Stock to be received by the undersigned in connection with the
Merger is being acquired for investment and not with a view to the
resale or distribution of any part thereof, and the undersigned has no
present intention of selling, granting any participation in, or
otherwise distributing the same. By his/her/its execution of this
Statement, the undersigned further represents that the undersigned does
not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the shares of Nanogen Series D
Preferred Stock.
b. Disclosure of Information. The undersigned believes he/she/it
has received all the information he/she/it considers necessary or
appropriate to decide whether to acquire the Nanogen Series D Preferred
Stock. The undersigned further represents that he/she/it has had an
opportunity to ask questions and receive answers from Nanogen regarding
Nanogen, its business, and the terms and conditions of the offering of
the Nanogen Series D Preferred Stock in connection with the Merger. With
respect to tax and other economic considerations involved in this
investment, the undersigned is expressly not relying on either Nanogen
or Merger Sub.
c. Restricted Securities. The undersigned understands that the
Nanogen Series D Preferred Stock he/she/it is acquiring are
characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from Nanogen on behalf of
Merger Sub in a transaction not involving a public offering and that
under such laws and applicable regulations such securities may be resold
without registration under the Securities Act of 1933, as amended (the
"Securities Act") only in certain limited circumstances. In this
connection the undersigned represents that he/she/it is familiar with
Rule 144 as promulgated under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and by
the Securities Act.
d. Further Limitations on Disposition. Without in any way
limiting the representations set forth above, the undersigned further
agrees not to make any
<PAGE> 48
disposition of all or any portion of the Nanogen Series D Preferred
Stock unless and until:
i. There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration
statement; or
ii. The undersigned shall have notified Nanogen of the
proposed disposition and shall have furnished Nanogen with a
detailed statement of the circumstances surrounding the proposed
disposition and, if reasonably requested by Nanogen, the
undersigned shall have furnished Nanogen with an opinion of
counsel, reasonably satisfactory to Nanogen that such disposition
will not require registration of such shares under the Securities
Act.
e. Legends. The undersigned understands that the certificates
evidencing the Nanogen Series D Preferred Stock may bear one or all of
the following legends:
i. "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered
for sale, pledged or hypothecated in the absence of a
registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to Nanogen,
Inc. that such registration is not required or unless sold
pursuant to Rule 144 of such Act."
ii. Any legend required by the laws of the State of
California or other jurisdiction.
In witness whereof, the undersigned has executed this Investor
Representation Statement this _____ day of ____________, 1997.
-----------------------------------------
[Name]
- 2 -
<PAGE> 49
SCHEDULE 2.1-1
SCHEDULE OF HOLDERS OF NANOTRONICS CAPITAL STOCK
COMMON STOCK PREFERRED STOCK
HOLDERS SHARES SHARES
- ------- ------ ------
Enterprise Partners II, L.P. 688 433,583
Enterprise Partners II Associates, L.P. 62 39,417
Enterprise Partners III, L.P. -- 10,000
Howard C. Birndorf 37,527 25,000
Craig S. Andrews 2,000
The Salk Institute for Biological Studies 40,923
Edward Wang 44,150
Michael Heller 150,107
Glen Evans 40,000
John Hopfield 5,000
Jeff Cable 25,000
Denis McGreivy 42,105
------- -------
TOTALS 344,639 550,923
======= =======
<PAGE> 50
SCHEDULE 2.1-2
SCHEDULE OF CERTIFICATES FOR NANOGEN SERIES D PREFERRED STOCK
AND OPTIONS AND WARRANTS TO PURCHASE NANOGEN SERIES D
PREFERRED STOCK TO BE ISSUED BY NANOGEN
<TABLE>
<CAPTION>
TOTAL NUMBER
OPTIONS TO WARRANTS TO OF SHARES OF OR
NUMBER OF PURCHASE PURCHASE OPTIONS OR
SHARES OF NUMBER OF NUMBER OF WARRANTS
NANOGEN SHARES OF SHARES OF EXCHANGEABLE
SERIES D NANOGEN SERIES NANOGEN SERIES FOR NANOGEN
PREFERRED D PREFERRED D PREFERRED SERIES D
STOCK TO BE STOCK TO BE STOCK TO BE PREFERRED
REGISTERED OWNER ISSUED ISSUED ISSUED STOCK
- ----------------------------------------- -------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Enterprise Partners II, L.P.
(9,931 shares to be issued in exchange
for Nanotronics debt held by this entity
and 84,721 shares to be issued in exchange
for shares of Nanotronics capital stock
held by this entity) 94,652 94,652
Brobeck, Phleger & Harrison LLP (9,167
shares to be issued in exchange for
Nanotronics debt held by this entity) 9,167 9,167
Enterprise Partners II, L.P. (816
shares to be issued in exchange for
Nanotronics debt held by this entity
and 7,702 shares to be issued in exchange
for shares of Nanotronics capital stock
held by this entity) 8,518 8,518
Enterprise Partners III, L.P. (8,280
shares to be issued in exchange for
Nanotronics debt held by this entity
and 1,951 shares to be issued in exchange
for shares of Nanotronics capital stock
held by this entity) 10,231 10,231
Enterprise Partners III, L.P. (720 shares
to be issued in exchange for Nanotronics
debt held by this entity) 720 720
Michael Heller 24,812 24,812
Howard C. Birndorf 11,081 11,081
Craig Andrews 390 390
The Salk Institute for Biological
Studies 7,986 7,986
Edward Wang 7,298 7,298
John Hopfield 826 826
Jeff Cable 4,132 4,132
Glen Evans 6,612 6,612
Denis McGreivy 6,960 6,960
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
TOTAL NUMBER
OPTIONS TO WARRANTS TO OF SHARES OF OR
NUMBER OF PURCHASE PURCHASE OPTIONS OR
SHARES OF NUMBER OF NUMBER OF WARRANTS
NANOGEN SHARES OF SHARES OF EXCHANGEABLE
SERIES D NANOGEN SERIES NANOGEN SERIES FOR NANOGEN
PREFERRED D PREFERRED D PREFERRED SERIES D
STOCK TO STOCK TO BE STOCK TO BE PREFERRED
REGISTERED OWNER ISSUED ISSUED ISSUED STOCK
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gene Tu 992 992
Dominion Ventures, Inc. 1,490 1,490
Sadik Esener 4,132 4,132
------- ----- ----- -------
Totals 193,385 5,124 1,490 199,999
======= ===== ===== =======
</TABLE>
-2-
<PAGE> 52
SCHEDULE 2.2(a)
SCHEDULE OF HOLDERS OF NANOTRONICS OPTIONS AND WARRANTS
<TABLE>
<CAPTION>
DATE OF EXERCISE
SECURITY REGISTERED HOLDER ISSUANCE TERM PRICE NUMBER OF SHARES
- -------- -------------------- ----------- ------ -------- ----------------
<S> <C> <C> <C> <C> <C>
Option Gene Tu 9/1/93 10 yr. $ .20 6,000 shares
(Common Stock)
Option Sadik Esener 9/18/97 10 yr. $ .20 25,000 shares
(Common Stock)
Warrant Dominion Ventures, Inc. 9/11/92 7 yr. $1.00 7,638 shares
(Series A Preferred
Stock)
</TABLE>
<PAGE> 53
SCHEDULE 2.4
CREDITORS OF NANOTRONICS TO RECEIVE NANOGEN
SERIES D PREFERRED STOCK IN SATISFACTION
OF NANOTRONICS DEBT OWED TO THEM
AS OF JANUARY 30, 1998
<TABLE>
<CAPTION>
TOTAL AMOUNT OF
CREDITOR PRINCIPAL INTEREST DEBT
- --------------------------------------- --------------- -------------- --------------
<S> <C> <C> <C>
Enterprise Partners II, L.P. $ 50,833.00 $ 8,750.00 $ 59,583.00
Enterprise Partners II Associates, L.P. 4,167.00 729.00 4,896.00
Enterprise Partners III, L.P. 46,000.00 3,680.00 49,680.00
Enterprise Partners III Associates, L.P. 4,000.00 320.00 4,320.00
$ 105,000.00 $ 13,479.00 $ 118,479.00
Brobeck Phleger & Harrison LLP $ 55,000.00 -- $ 55,000.00
$ 160,000.00 $ 13,479.00 $ 173,479.00
</TABLE>
<PAGE> 54
SCHEDULE 4
NANOTRONICS DISCLOSURE SCHEDULE
1
<PAGE> 55
SCHEDULE 5
NANOGEN AND MERGER SUB DISCLOSURE SCHEDULE
<PAGE> 1
EXHIBIT 3.(i)1
RESTATED
CERTIFICATE OF INCORPORATION
OF NANOGEN (DELAWARE), INC.
Nanogen (Delaware), Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
ONE: The name of the corporation is Nanogen (Delaware), Inc.
TWO: The original Certificate of Incorporation of the corporation was
filed with the Secretary of State of Delaware on September 10, 1997.
THREE: The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is NANOGEN (DELAWARE), INC.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
The total number of shares of stock and the classes of stock which the
corporation shall have authority to issue is as follows:
A. Classes of Stock. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock"
The total number of shares which this corporation is authorized to issue is
Fifty-Five Million Five Hundred Thousand
<PAGE> 2
(55,500,000) shares, of which Forty Million (40,000,000) shares of the par value
of One-Tenth of One Cent ($.001) shall be Common Stock and Fifteen Million Five
Hundred Thousand (15,500,000) shares of the par value of One-Tenth of One Cent
($.001) shall be Preferred Stock. The Preferred Stock authorized by this
Certificate of Incorporation shall be issued by series as set forth herein. The
first series of Preferred Stock shall be designated "Series A Preferred Stock"
and shall consist of Two Million Three Hundred Thirty-Nine Thousand Six Hundred
Sixty-Seven (2,339,667) shares. The second series of Preferred Stock shall be
designated "Series B Preferred Stock" and shall consist of Three Million Eight
Hundred Thousand Six Hundred (3,800,600) shares. The third series of Preferred
Stock shall be designated "Series C Preferred Stock" and shall consist of Six
Million Seven Hundred Thousand (6,700,000) shares. The fourth series of
Preferred Stock shall be designated "Series D Preferred Stock" and shall consist
of Two Million Fifty Thousand (2,050,000) shares.
B. Powers, Preferences and Rights and Qualifications, Limitations and
Restrictions of Preferred Stock. The Preferred Stock authorized by this
Certificate of Incorporation may be issued from time to time in series. The
powers, preferences and rights, and the qualifications, limitations and
restrictions granted to and imposed on the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are as
set forth below in this Division B of Article IV. The Board of Directors is
hereby authorized to fix or alter the powers, preferences and rights, and the
qualifications, limitations and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or of any of them. Subject to
compliance with applicable protective voting rights which have been or may be
granted to the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or other series of Preferred Stock in
Certificates of Determination or the corporation's Certificate of Incorporation
as amended from time to time ("Protective Provisions"), but notwithstanding any
other rights of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or any other series of Preferred
Stock, the powers, preferences and rights of, and the qualifications,
limitations and restrictions on, any such additional series may be subordinated
to, pari passu with (including, without limitation, inclusion in provisions with
respect to liquidation and acquisition preferences and/or approval of matters by
vote or written consent), or senior to any of those of any present or future
class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series (other than the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock), prior or subsequent to the issue of any shares of that series,
but not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
1. Dividend Provisions. Subject to the rights of any additional
series of Preferred Stock which may from time to time come into
existence, the holders of shares of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock
-2-
<PAGE> 3
or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common
Stock of this corporation) on the Common Stock of this corporation, at
the rate of $0.12 per share of Series A Preferred Stock, $0.20 per share
of Series B Preferred Stock, $0.32 per share of Series C Preferred Stock
and $.48 per share of Series D Preferred Stock (each subject to
appropriate adjustments for stock splits, stock dividends, combinations
or other recapitalizations) per annum, payable quarterly when, as and if
declared by the Board of Directors. Such dividends shall not be
cumulative. No cash dividends shall be declared or paid with respect to
the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock unless at the same time a
like proportionate cash dividend for the same dividend period, ratably
in proportion to the respective annual dividend rates set forth in
above, is declared and paid with respect to the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights
of any additional series of Preferred Stock which may from time to time
come into existence, the holders of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of
Common Stock by reason of their ownership thereof, an amount per share
equal to the sum of (A) $1.50 for each outstanding share of Series A
Preferred Stock (subject to appropriate adjustments for stock splits,
stock dividends, combinations or other recapitalizations and hereafter
referred to as the "Original Series A Issue Price"), (B) $2.50 for each
outstanding share of Series B Preferred Stock (subject to appropriate
adjustments for stock splits, stock dividends, combinations or other
recapitalizations and hereafter referred to as the "Original Series B
Issue Price"), (C) $4.00 for each outstanding share of Series C
Preferred Stock (subject to appropriate adjustments for stock splits,
stock dividends, combinations or other recapitalizations and hereafter
referred to as the "Original Series C Issue Price"), (D) $6.00 for each
outstanding share of Series D Preferred Stock (subject to appropriate
adjustments for stock splits, stock dividends, combinations or other
recapitalizations and hereafter referred to as the "Original Series D
Issue Price"), and (E) an amount equal to declared but unpaid dividends
on such share of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock, as the case may
be. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then, subject to the rights of any
additional series of Preferred Stock which may from time to time come
into existence, the entire assets and funds of the corporation legally
available
-3-
<PAGE> 4
for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock in proportion to the aggregate
liquidation preferences of the respective series, and ratably among the
holders of that series in proportion to the amount of such stock owned
by each such holder.
(b) After the distributions described in subsection (a) above
have been paid and subject to the rights of any additional series of
Preferred Stock which may from time to time come into existence, the
remaining assets of the corporation available for distribution to
stockholders shall be distributed among the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Common Stock pro rata based on the number
of shares of Common Stock held by each (assuming conversion of all such
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock).
(c) A consolidation or merger of this corporation with or into
any other corporation or corporations, or a sale, conveyance or
disposition of all or substantially all of the assets of this
corporation or the effectuation by the corporation of a transaction or
series of related transactions in which more than fifty percent (50%) of
the voting power of the corporation is disposed of, shall be deemed to
be a liquidation, dissolution or winding up within the meaning of this
Section 2.
3. Conversion. The holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert.
(i) Subject to subsection (c) below, each share of the
Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall be
convertible, at the option of the holder thereof, at any time
after the date of issuance of such share at the office of this
corporation or any transfer agent for the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing
(i) the Original Series A Issue Price for each share of Series A
Preferred Stock, (ii) the Original Series B Issue Price for each
share of Series B Preferred Stock, (iii) the Original Series C
Issue Price for each share of Series C Preferred Stock and (iv)
the Original Series D Issue Price for each share of Series D
Preferred Stock, in each case by the applicable Conversion Price
at the time in effect for such share. The initial Conversion
Price per share for shares of Series A Preferred Stock
-4-
<PAGE> 5
shall be the Original Series A Issue Price, for shares of Series
B Preferred Stock shall be the Original Series B Issue Price,
for shares of Series C Preferred Stock shall be the Original
Series C Issue Price, and for shares of Series D Preferred Stock
shall be the Original Series D Issue Price; provided, however,
that the Conversion Price for the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall each be subject to adjustment as set forth
in subsection 3(c).
(ii) Each share of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock shall automatically be converted into shares of Common
Stock at the Conversion Price for such Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock immediately upon the earlier of (a) the
consummation of the corporation's sale of its Common Stock in a
bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Securities Act of
1933, as amended, the public offering price of which was not less
than $7.50 per share (adjusted to reflect subsequent stock
dividends, stock splits, stock combinations or recapitalizations)
and $7,500,000 in the aggregate or (b) the receipt of the
approval or consent to such conversion by at least seventy-five
percent (75%) of the then-outstanding shares of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock voting together as a class.
(b) Mechanics of Conversion. Before any holder of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock shall be entitled to convert the same into
shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of this corporation
or of any transfer agent for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
and shall give written notice by mail, postage prepaid, to this
corporation at its principal corporate office, of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued.
This corporation shall as soon as practicable thereafter, issue and
deliver at such office to such holder of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled as aforesaid. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date
of such surrender of the shares of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
to be converted, and the person or persons entitled to
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receive the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such
shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offer of securities registered pursuant
to the Securities Act of 1933, as amended, the conversion may, at the
option of any holder tendering the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
for conversion, be conditioned upon the closing with the underwriter of
the sale of securities pursuant to such offering, in which event the
person(s) entitled to receive the Common Stock issuable upon such
conversion of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock shall not be deemed
to have converted such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock until
immediately prior to the closing of such sale of securities.
(c) Conversion Price Adjustments of Preferred Stock. The
Conversion Price of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock shall be
subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue any Additional
Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for the
Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock, as the case may be,
in effect immediately prior to the issuance of such Additional
Stock the new Conversion Price for such Series of Preferred Stock
shall be determined by multiplying the Conversion Price for such
series of Preferred Stock in effect immediately prior to the
issuance of Additional Stock by a fraction:
(x) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to
such issuance (for purposes of this calculation only,
including the number of shares of Common Stock then
issuable upon the conversion of all outstanding shares of
Preferred Stock at the Conversion Price for such shares in
effect immediately prior to such issuance of Additional
Stock) plus the number of shares of Common Stock
equivalents which the aggregate consideration received by
this corporation for the shares of such Additional Stock
so issued would purchase at the Conversion Price for the
shares of the series of Preferred Stock with respect to
which the adjustment is being made; and
(y) the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior
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to such issuance (for purposes of this calculation only,
including the number of shares of Common Stock then
issuable upon the conversion of all outstanding shares of
Preferred Stock at the Conversion Prices for such shares
in effect immediately prior to such issuance of Additional
Stock) plus the number of such shares of Additional Stock
so issued.
Any series of issuances of Additional Stock consisting of Common
Stock or the same series of Preferred Stock, issued at the same price
and occurring within a three-month period, shall be treated as one
issuance of Additional Stock for the purposes of this calculation.
(B) No adjustment of the Conversion Price for such series
of Preferred Stock shall be made in an amount less than one cent
per share, provided that any adjustments which are not required
to be made by reason of this sentence shall be carried forward
and shall be either taken into account in any subsequent
adjustment made prior to three years from the date of the event
giving rise to the adjustment being carried forward, or shall be
made at the end of three years from the date of the event giving
rise to the adjustment being carried forward. Except to the
limited extent provided for in subsections (E)(3) and (E)(4), no
adjustment of such Conversion Price for such series of Preferred
Stock pursuant to this subsection 3(c)(i) shall have the effect
of increasing the Conversion Price for such series of Preferred
Stock above the Conversion Price for such series in effect
immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions
or other expenses allowed, paid or incurred by this corporation
for any underwriting or otherwise in connection with the issuance
and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or
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exchangeable securities (which are not excluded from the
definition of Additional Stock), the following provisions shall
apply:
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock shall be
deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the
consideration (determined in the manner provided in
subsections 3(c)(i)(C) and (c)(i)(D)), if any, received by
the corporation upon the issuance of such options or
rights plus the minimum purchase price provided in such
options or rights for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange
for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities
were issued or such options or rights were issued and for
a consideration equal to the consideration, if any,
received by this corporation for any such securities and
related options or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus
the additional consideration, if any, to be received by
this corporation upon the conversion or exchange of such
securities or the exercise of any related options or
rights (the consideration in each case to be determined in
the manner provided in subsections 3(c)(i)(C) and
(c)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or any increase in the
consideration payable to this corporation upon exercise of
such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price of
the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock, as
the case may be, obtained with respect to the adjustment
which was made upon the issuance of such options, rights
or securities, and any subsequent adjustments based
thereon, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual
issuance of
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<PAGE> 9
Common Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion
or exchange of such securities; provided, however, that
this section shall not have any effect on any conversion
of such series of Preferred Stock prior to such change or
increase.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights
related to such convertible or exchangeable securities,
the Conversion Price of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock, as the case may be, obtained
with respect to the adjustment which was made upon the
issuance of such options, rights or securities or options
or rights related to such securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect
the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or
rights upon the conversion or exchange of such securities
or upon the exercise of the options or rights related to
such securities; provided, however, that this section
shall not have any effect on any conversion of such series
of Preferred Stock prior to such expiration or
termination.
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(c)(i)(E))
by this corporation after the date of the issuance of the Series A
Preferred Stock, other than
(A) Common Stock issued pursuant to a transaction
described in subsection 3(c)(iii) hereof,
(B) Common Stock issued or issuable to employees,
directors, consultants or advisors under stock option and
restricted stock purchase agreements approved by the Board of
Directors of this corporation, or
(C) Common Stock issued or issuable upon conversion of the
Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock, or
(D) Common Stock issued, or issued or issuable upon
conversion or exercise of securities issued, in connection with
research and development partnerships, licensing or collaborative
arrangements, leasing arrangements and other similar transactions
between this corporation and other institutions or entities,
which issuance has been approved by the Board of Directors of the
corporation, or
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<PAGE> 10
(E) 631,072 shares of Common Stock issued or issuable upon
the exercise of Stock Purchase Warrants dated April 11, 1995,
June 30, 1995, September 22, 1995, February 21, 1995, April 30,
1996 and August 29, 1997, issued in connection with the sale of
Series B Preferred Stock, or
(F) 7,637 shares of Common Stock issued or issuable upon
the exercise of the Stock Purchase Warrant dated September 1,
1993 issued to Dominion Ventures, Inc., or
(G) 60,000 Shares of Series B Preferred Stock issued or
issuable upon exercise of Warrants issued to Enterprise Partners
and Kleiner, Perkins, Caufield & Byers.
(H) 9,000 Shares of Series C Preferred Stock issued or
issuable upon exercise of that certain Warrant issued to Lease
Management Services, Inc.
(iii) In the event the corporation should at any time or from
time to time after the date upon which any shares of Series D Preferred
Stock were first issued (the "Purchase Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common
Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable
upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no
record date is fixed), the Conversion Price of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of such
series shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Price for the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of such
series shall be decreased in proportion to such decrease in outstanding
shares.
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<PAGE> 11
(d) Other Distributions. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights, then, in each such case for the purpose of this subsection
3(d), the holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the corporation into which their shares
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock of the corporation entitled
to receive such distribution.
(e) Recapitalizations. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section 3
or in Section 2) provision shall be made so that the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 3 with respect to the rights of the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock after the recapitalization to the end that the
provisions of this Section 3 (including adjustment of the Conversion Price then
in effect and the number of shares deliverable upon conversion of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(f) No Impairment. This corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock against impairment.
(g) No Fractional Shares. No fractional shares shall be issued upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock the holder
is at the time converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
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<PAGE> 12
(h) Notices of Record Date; Certificates of Adjustment.
(i) In the event of any taking by this corporation of a record of
the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than
a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, this
corporation shall mail to each holder of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, at least 20 days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for
the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock, pursuant to
this Section 3, this corporation, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of such series of Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
This corporation shall, upon the written request at any time of any
holder of such series of Preferred Stock furnish or cause to be
furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price at the time in
effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the
conversion of a share of such series of Preferred Stock.
(i) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock in addition to such other remedies as shall be available to the
holder of such Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, this corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this Section 3 to
be given to the holders of shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
deemed given if deposited in the United
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States mail, first class postage prepaid, and addressed to each holder of record
at his address appearing on the books of this corporation.
4. Voting Rights. The holder of each share of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock could then be converted (with any fractional
share determined on an aggregate conversion basis being rounded to the nearest
whole share), and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock, and shall be entitled, notwithstanding any provision hereof, to notice of
any stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any matter upon which holders of Common Stock have the right to vote.
5. Protective Provisions. So long as at least an aggregate of 100,000
shares of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock are outstanding, this corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the voting power of
the then outstanding shares of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, voting together as
a single class:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly owned
subsidiary corporation) or effect any transaction or series of related
transactions in which more than 50% of the voting power of the
corporation is disposed of; or
(b) alter or change the powers, preferences and rights of, and
the qualifications, limitations and restrictions on, the shares of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock so as to affect adversely the shares;
or
(c) increase the authorized number of shares of Preferred Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock; or
(d) create any new class or series of stock or any other
securities convertible into equity securities of the corporation having
a preference over, or being on a parity with, the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock with respect to voting, redemption, dividends or upon
liquidation or having rights equal or superior to the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock under this Section 5.
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6. Status of Converted or Redeemed Stock. In the event any shares of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock shall be converted pursuant to Section 3 hereof, the
shares so converted shall be canceled and shall not be issuable by the
corporation, and the Certificate of Incorporation of this corporation shall be
appropriately amended to effect the corresponding reduction in the corporation's
authorized capital stock.
7. No Preemptive Rights. The holders of the Preferred Stock shall not by
virtue of this Certificate of Incorporation have any preemptive rights.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division B of this Article IV.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
5. No Preemptive Rights. The holders of the Common Stock shall not by
virtue of this Certificate of Incorporation have any preemptive rights.
ARTICLE V
The corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware:
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A. The board of directors of the corporation is expressly authorized to
adopt, amend or repeal the bylaws of the Corporation; provided, however, that
the bylaws may only be amended in accordance with the provisions thereof.
B. Elections of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
C. The books of the corporation may be kept at such place within or
without the State of Delaware as the bylaws of the corporation may provide or as
may be designated from time to time by the board of directors of the
corporation.
ARTICLE VII
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the 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 the
Corporation or of any creditor or stockholder thereof or on the application of
any receivers appointed for the Corporation under the provisions of section 291
of Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for the Corporation under the
provisions of section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or the stockholders or class of
stockholders of the 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 in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the 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 the Corporation, as the case may be, and also on the
Corporation.
ARTICLE VIII
A. No Personal Liability. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the Corporation and its
stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (3) under section 174 of
the Delaware General Corporation law; or (4) for any transaction from which the
director derived an improper personal benefit.
B. Indemnification. Each person who is or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the
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corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than said law permitted the corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in the second paragraph hereof, the corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the corporation. The right to
indemnification conferred in this section shall be a contract right and shall
include the right to be paid by the corporation for any expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this section or otherwise. The
corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
If a claim under the first paragraph of this section is not paid in full
by the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the corporation. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a
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<PAGE> 17
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Restated Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
C. Insurance. The corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
D. Repeal and Modification. Any repeal or modification of the foregoing
provisions of this Article VIII shall not adversely affect any right or
protection of an director, officer, employee or agent of the corporation
existing at the time of such repeal or modification.
E. Vote Required to Amend or Repeal. The amendment or repeal of this
Article VIII shall require the approval of the holders of shares representing at
least sixty six and two-thirds percent (66-2/3%) of the shares of the
corporation entitled to vote in the election of directors, voting as one class.
ARTICLE IX
This corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon a stockholder herein are
granted subject to this reservation.
* * * * *
FOURTH: This Restated Certificate of Incorporation was duly adopted by
the Board of Directors of the corporation.
FIFTH: This Restated Certificate of Incorporation was duly adopted by
the written consent of the sole stockholder of the corporation in accordance
with Sections 242 and 245 of the General Corporation Law of the State of
Delaware and written notice of such action has been given as provided in Section
228.
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<PAGE> 18
IN WITNESS WHEREOF, Nanogen (Delaware), Inc. has caused this certificate
to be signed by the undersigned officer, thereunto duly authorized, this 7th day
of November 1997.
By: /s/ TINA S. NOVA, PH.D.
------------------------------------
Tina S. Nova, Ph.D.
President and Chief Operating Officer
-18-
<PAGE> 1
EXHIBIT 3.(i)2
RESTATED CERTIFICATE OF INCORPORATION
OF
NANOGEN, INC.
NANOGEN, INC., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
FIRST: The name of this corporation is Nanogen, Inc.
SECOND: The original Certificate of Incorporation of the
corporation was filed with the Secretary of State of the State of
Delaware on September 10, 1997 and the original name of the corporation
was Nanogen (Delaware), Inc. A Restated Certificate of Incorporation of
the corporation was filed with the Secretary of State of the State of
Delaware on November 7, 1997. A Certificate of Merger whereby Nanogen,
Inc., a California corporation, was merged with and into this
corporation and this corporation's name was changed to Nanogen, Inc. was
filed with the Secretary of State of the State of Delaware on November
10, 1997.
THIRD: The Restated Certificate of Incorporation of said
corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is NANOGEN, INC.
ARTICLE II
The registered office of the corporation within the State of Delaware is
located at 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
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<PAGE> 2
ARTICLE IV
A. Authorized Stock. The total number of shares of all classes of
capital stock which the corporation shall have authority to issue is fifty-five
million (55,000,000), of which fifty million (50,000,000) shares of the par
value of one tenth of one cent ($.001) each shall be Common Stock (the "Common
Stock") and five million (5,000,000) shares of the par value of one tenth of one
cent ($.001) each shall be Preferred Stock (the "Preferred Stock"). The number
of authorized shares of Common Stock or Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the then outstanding shares of
Common Stock, without a vote of the holders of the Preferred Stock, or of any
series thereof, unless a vote of any such Preferred Stock holders is required
pursuant to the provisions established by the Board of Directors of this
corporation (the "Board of Directors") in the resolution or resolutions
providing for the issue of such Preferred Stock, and if such holders of such
Preferred Stock are so entitled to vote thereon, then, except as may otherwise
be set forth in this Restated Certificate of Incorporation, the only stockholder
approval required shall be the affirmative vote of a majority of the combined
voting power of the Common Stock and the Preferred Stock so entitled to vote.
B. Preferred Stock. The Preferred Stock may be issued in any number
of series, as determined by the Board of Directors. The Board of Directors may
by resolution fix the designation and number of shares of any such series, and
may determine, alter, or revoke the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series. The Board of
Directors may thereafter in the same manner, within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series, increase or decrease the
number of shares of any such series (but not below the number of shares of that
series then outstanding). In case the number of shares of any series shall be
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
C. Common Stock.
1. Relative Rights of Preferred Stock and Common Stock. All
preferences, voting powers, relative, participating, optional or other
special rights and privileges, and qualifications, limitations or
restrictions of the Common Stock are expressly made subject and
subordinate to those that may be fixed with respect to any shares of the
Preferred Stock.
2. Voting Rights. Except as otherwise required by law or this
Restated Certificate of Incorporation, each holder of Common Stock shall
have one vote in respect of each share of stock held by such holder of
record on the books of the corporation for the election of directors and
on all matters submitted to a vote of stockholders of the corporation.
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<PAGE> 3
3. Dividends. Subject to the preferential rights of the
Preferred Stock, if any, 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 capital
stock.
4. Liquidation, Dissolution or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the
corporation, after distribution in full of the preferential amounts, if
any, to be distributed to the holders of shares of the Preferred Stock,
holders of Common Stock shall be entitled, unless otherwise provided by
law or this Restated Certificate of Incorporation, to receive all of the
remaining assets of the corporation of whatever kind available for
distribution to stockholders ratably in proportion to the number of
shares of Common Stock held by them respectively.
ARTICLE V
The corporation is to have perpetual existence.
ARTICLE VI
A. Classified Board. The Board of Directors shall be divided into
three classes, designated Class I, Class II and Class III, as nearly equal in
number as possible, and the term of office of directors of one class shall
expire at each annual meeting of stockholders, and in all cases as to each
director when such director's successor shall be elected and shall qualify or
upon such director's earlier resignation, removal from office, death or
incapacity. Additional directorships resulting from an increase in number of
directors shall be apportioned among the classes as equally as possible. At each
annual meeting of stockholders the number of directors equal to the number of
directors of the class whose term expires at the time of such meeting (or, if
less, the number of directors properly nominated and qualified for election)
shall be elected to hold office until the third succeeding annual meeting of
stockholders after their election.
B. Changes. The Board of Directors of this corporation, by
amendment to the corporation's bylaws, is expressly authorized to change the
number of directors in any or all of the classes of directors without the
consent of the stockholders.
C. Elections. Elections of directors need not be by written ballot
unless the Bylaws of the corporation shall so provide.
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<PAGE> 4
ARTICLE VII
A. Power of Stockholder to Act by Written Consent. No action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting and the power of stockholders to
consent in writing, without a meeting, to the taking of any action is
specifically denied.
B. Special Meetings of Stockholders. Special meetings of the
stockholders of the corporation may be called for any purpose or purposes,
unless otherwise prescribed by statute or by this Restated Certificate of
Incorporation, only at the request of the Chairman of the Board of Directors,
the Chief Executive Officer or President of the corporation or by a resolution
duly adopted by the affirmative vote of a majority of the Board of Directors.
ARTICLE VIII
The Board of Directors is expressly empowered to adopt, amend or repeal
the Bylaws of the corporation; provided, however, that any adoption, amendment
or repeal of the Bylaws of the corporation by the Board of Directors shall
require the approval of at least sixty-six and two-thirds percent (66 2/3%) of
the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any resolution
providing for adoption, amendment or repeal is presented to the Board of
Directors). The stockholders shall also have the power to adopt, amend or repeal
the Bylaws of the corporation, provided, however, 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 sixty-six and two-thirds percent (66 2/3%) of the voting
power of all of the then outstanding shares of the stock of the corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required for such adoption, amendment or repeal by the
stockholders of any provisions of the Bylaws of the corporation.
ARTICLE IX
The books of the corporation may be kept at such place within or without
the State of Delaware as the bylaws of the corporation may provide or as may be
designated from time to time by the board of directors of the corporation.
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<PAGE> 5
ARTICLE X
Whenever a compromise or arrangement is proposed between the corporation
and its creditors or any class of them and/or between the 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 the
corporation or of any creditor or stockholder thereof or on the application of
any receivers appointed for the corporation under the provisions of section 291
of Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for the corporation under the
provisions of section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or the stockholders or class of
stockholders of the 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 in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the 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 the corporation, as the case may be, and also on the
corporation.
ARTICLE XI
A. Limitation on Liability. A director of the corporation shall not
be personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the corporation or its stockholders;
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (3) under Section 174 of the Delaware
General Corporation Law; or (4) for any transaction from which the director
derived an improper personal benefit.
If the Delaware General Corporation Law hereafter is amended to further
eliminate or limit the liability of directors, then the liability of a director
of the corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended Delaware
General Corporation Law.
B. Indemnification. Each person who is or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held
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<PAGE> 6
harmless by the corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in the
second paragraph hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this section shall be a contract right and shall include the right to be paid by
the corporation for any expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this section or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
If a claim under the first paragraph of this section is not paid in full
by the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the corporation. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
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<PAGE> 7
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Restated Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
C. Insurance. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
D. Repeal and Modification. Any repeal or modification of the
foregoing provisions of this Article XI shall not adversely affect any right or
protection of any director, officer, employee or agent of the corporation
existing at the time of such repeal or modification.
ARTICLE XII
The corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
ARTICLE XIII
Notwithstanding any other provision of this Restated Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then outstanding
shares of the stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
amend in any respect or repeal this Article XIII, or Articles VI, VII, VIII and
XI.
* * * * *
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<PAGE> 8
Four: This Restated Certificate of Incorporation was duly
adopted by the Board of Directors of this corporation.
Five: This Restated Certificate of Incorporation was duly adopted
by written consent of the stockholders of the corporation in accordance
with Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware and written notice of such action has been given as
provided in Section 228.
IN WITNESS WHEREOF, Nanogen, Inc. has caused this certificate to be
signed by the undersigned officer, thereunto duly authorized, this ____ day of
___________, 1998.
By:
--------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 3.(ii)1
B Y L A W S
OF
NANOGEN (DELAWARE), INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1: Offices.................................................................. 1
1.1 Principal Office............................................................. 1
1.2 Additional Offices........................................................... 1
ARTICLE 2: Meeting of Stockholders.................................................. 1
2.1 Place of Meeting............................................................. 1
2.2 Annual Meeting............................................................... 1
2.3 Special Meetings............................................................. 1
2.4 Action Without a Meeting..................................................... 1
2.5 Notice of Meetings........................................................... 2
2.6 Business Matter of a Special Meeting......................................... 2
2.7 List of Stockholders......................................................... 2
2.8 Organization and Conduct of Business......................................... 2
2.9 Quorum and Adjournments...................................................... 3
2.10 Voting Rights............................................................... 3
2.11 Majority Vote............................................................... 3
2.12 Record Date for Stockholder Notice and Voting............................... 3
2.13 Proxies..................................................................... 4
2.14 Inspectors of Election...................................................... 4
ARTICLE 3: Directors................................................................ 4
3.1 Number; Qualifications....................................................... 4
3.2 Vacancies.................................................................... 5
3.3 Resignation and Removal...................................................... 5
3.4 Powers....................................................................... 5
3.6 Place of Meetings............................................................ 5
3.7 Annual Meetings.............................................................. 5
3.8 Regular Meetings............................................................. 5
3.9 Special Meetings............................................................. 6
3.10 Quorum, Action at Meeting, Adjournments..................................... 6
3.11 Action Without Meeting...................................................... 6
3.12 Telephone Meetings.......................................................... 6
3.13 Committees.................................................................. 6
3.14 Fees and Compensation of Directors.......................................... 7
3.15 Rights of Inspection........................................................ 7
ARTICLE 4: Officers................................................................. 7
4.1 Officers Designated.......................................................... 7
4.2 Election..................................................................... 7
4.3 Tenure....................................................................... 8
4.4 Compensation................................................................. 8
4.5 The Chairman of the Board.................................................... 8
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
4.7 The President................................................................ 8
4.8 The Vice President........................................................... 8
4.9 The Secretary................................................................ 9
4.10 The Assistant Secretary..................................................... 9
4.11 The Chief Financial Officer................................................. 9
4.12 Bond........................................................................ 9
4.13 Delegation of Authority..................................................... 10
ARTICLE 5: Notices.................................................................. 10
ARTICLE 6: Indemnification.......................................................... 10
6.1 Actions Other Than By or in the Right of the Corporation..................... 10
6.2 Actions By or in the Right of the Corporation................................ 11
6.3 Success on the Merits........................................................ 11
6.4 Specific Authorization....................................................... 11
6.5 Advance Payment.............................................................. 12
6.6 Non-Exclusivity.............................................................. 12
6.7 Insurance.................................................................... 12
6.8 Severability................................................................. 12
6.9 Intent of Article............................................................ 12
ARTICLE 7: Capital Stock
7.1 Certificates for Shares...................................................... 12
7.2 Signatures on Certificates................................................... 13
7.3 Transfer of Stock............................................................ 13
7.4 Registered Stockholders...................................................... 13
7.5 Lost, Stolen or Destroyed Certificates....................................... 13
ARTICLE 8: Certain Transactions..................................................... 14
8.1 Transactions with Interested Parties......................................... 14
8.2 Quorum....................................................................... 14
ARTICLE 9: General Provisions....................................................... 14
9.1 Dividends.................................................................... 14
9.2 Dividend Reserve............................................................. 15
9.3 Checks....................................................................... 15
9.4 Corporate Seal............................................................... 15
9.5 Fiscal Year.................................................................. 15
9.6 Execution of Corporate Contracts and Instruments............................. 15
9.7 Representation of Shares of Other Corporations............................... 15
ARTICLE 10: Amendments.............................................................. 15
</TABLE>
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<PAGE> 4
B Y L A W S
OF
NANOGEN (DELAWARE), INC.
(A DELAWARE CORPORATION)
ARTICLE 1
Offices
1.1 Principal Office. The initial registered office of the corporation
shall be 1209 Orange Street, Wilmington, Delaware, and the name of the initial
registered agent in charge thereof is The Corporation Trust Company.
1.2 Additional Offices. The corporation may also have offices at such
other places, either within or without the State of Delaware, as the Board of
Directors (the "Board") may from time to time designate or the business of the
corporation may require.
ARTICLE 2
Meeting of Stockholders
2.1 Place of Meeting. Meetings of stockholders may be held at such
place, either within or without of the State of Delaware, as may be designated
by or in the manner provided in these Bylaws, or, if not so designated, at the
registered office of the corporation or the principal executive offices of the
corporation.
2.2 Annual Meeting. Annual meetings of stockholders shall be held each
year at such date and time as shall be designated from time to time by the Board
and stated in the notice of the meeting. At such annual meeting, the
stockholders shall elect a Board and transact such other business as may
properly be brought before the meetings.
2.3 Special Meetings. Special meetings of the stockholders may be called
for any purpose or purposes, unless otherwise prescribed by the statute or by
the Certificate of Incorporation, at the request of the Chairman of the Board of
Directors, the Chief Executive Officer, the President, the holders of shares
entitled to cast not less than 15% of the votes at such meeting or by a
resolution duly adopted by the affirmative vote of a majority of the Board of
Directors. Such request shall state the purpose or purposes of the proposed
meeting.
2.4 Action Without a Meeting. Any action which may be taken at any
annual or special meeting of the stockholders of this corporation may be taken
without a meeting, without prior notice, and without a vote, if a consent or
consents in writing, setting forth the action or actions so taken, shall be
signed by the holders of outstanding stock having not less than the
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<PAGE> 5
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Such consent or consents shall be delivered to the corporation by hand or
certified mail, return receipt requested, to its principal executive office, or
to an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded.
2.5 Notice of Meetings. Written notice of stockholders' meetings,
stating the place, date and time of the meeting and, in the case of a special
meeting, the purpose or purposes for which such special meeting is called, shall
be given to each stockholder entitled to vote at such meeting not less than ten
(10) nor more than sixty (60) days prior to the meeting.
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
2.6 Business Matter of a Special Meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice, except to the extent such notice is waived or is not required.
2.7 List of Stockholders. The officer in charge of the stock ledger of
the corporation or the transfer agent shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, at a place within the
city where the meeting is to be held, which place, if other than the place of
the meeting, shall be specified in the notice of the meeting. The list shall
also be produced and kept at the place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present in person
thereat.
2.8 Organization and Conduct of Business. The Chairman of the Board or,
in his or her absence, the Chief Executive Officer of the corporation or, in
their absence, such person as the Board may have designated or, in the absence
of such a person, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as Chairman of the meeting. In
the absence of the Secretary of the corporation, the Secretary of the meeting
shall be such person as the Chairman appoints.
The Chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seems to him or her in order.
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<PAGE> 6
2.9 Quorum and Adjournments. Except where otherwise provided by law or
the Certificate of Incorporation or these Bylaws, the holders of a majority of
the stock issued and outstanding and entitled to vote, present in person or
represented in proxy, shall constitute a quorum at all meetings of the
stockholders. The stockholders present at a duly called or held meeting at which
a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to have less than a quorum
if any action taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If, however, a
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat who are present in person or
represented by proxy shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented.
2.10 Voting Rights. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
2.11 Majority Vote. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation or of these Bylaws, a different vote is
required in which case such express provision shall govern and control the
decision of such question.
2.12 Record Date for Stockholder Notice and Voting.
(i) For purposes of determining the stockholders entitled to notice of
any meeting or to vote, or entitled to receive payment of any dividend
or other distribution, or entitled to exercise any right in respect of
any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix, in advance, a record date, which
shall not be more than sixty (60) days nor less than ten (10) days
before the date of any such meeting nor more than sixty (60) days before
any other action. If the Board does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(ii) For purposes of determining the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten (10) days after the
date upon which the resolution fixing such record date is adopted by the
board of directors. If no
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record date has been fixed by the board of directors, the record date
for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the board of
directors is required under Delaware law, shall be the first date on
which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by hand or
certified mail, return receipt requested, to its principal executive
office, or to an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
If no record date has been fixed by the board of directors and prior
action by the board of directors is required under Delaware law, the
record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be the close of
business on the day on which the board of directors adopts the
resolution taking such prior action.
2.13 Proxies. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature, type-
writing, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of three years from the date of the proxy, unless
otherwise provided in the proxy.
2.14 Inspectors of Election. The corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors of election to act at
the meeting and make a written report thereof. The corporation may designate one
or more persons to act as alternate inspectors to replace any inspector who
fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.
ARTICLE 3
Directors
3.1 Number; Qualifications. The Board of Directors of the corporation
shall consist of not less than five (5) members nor more than nine (9) members,
the exact number thereof to be determined from time to time by resolution of the
Board. At each annual meeting of the stockholders, directors shall be elected to
replace those directors whose terms are then expiring,
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except as otherwise provided in this Section and each director so elected shall
hold office until such director's successor is elected and qualified, unless
sooner displaced.
Directors shall serve as provided in the Certificate of Incorporation of
the corporation. Directors need not be stockholders.
3.2 Vacancies. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election at which the term of the class to which they have been elected
expires and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. In the event of a
vacancy in the Board of Directors, the remaining directors, except as otherwise
provided by law or these Bylaws, may exercise the powers of the full Board until
the vacancy is filled.
3.3 Resignation and Removal. Any director may resign at any time upon
written notice to the corporation at its principal place of business or to the
Chief Executive Officer or the Secretary. Such resignation shall be effective
upon receipt of such notice unless the notice specifies such resignation to be
effective at some other time or upon the happening of some other event. Any
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors, unless otherwise specified by law or the Certificate of
Incorporation.
3.4 Powers. The business of the corporation shall be managed by or under
the direction of the Board which may exercise all such powers of the corporation
and do all such lawful acts and things which are not by statute or by the
Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
3.5 Chairman of the Board. If the Board of Directors appoints a Chairman
of the Board, such Chairman shall, when present, preside at all meetings of the
stockholders and the Board. The Chairman shall perform such duties and possess
such powers as are customarily vested in the office of the Chairman of the Board
or as may be vested in the Chairman by the Board of Directors.
3.6 Place of Meetings. The Board may hold meetings, both regular and
special, either within or without the State of Delaware.
3.7 Annual Meetings. The annual meetings of the Board shall be held
immediately following the annual meeting of stockholders, and no notice of such
meeting shall be necessary to the Board, provided a quorum shall be present. The
annual meetings shall be for the purposes of organization, and an election of
officers and the transaction of other business.
3.8 Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined from time to time by
the Board; provided that any
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director who is absent when such a determination is made shall be given prompt
notice of such determination.
3.9 Special Meetings. Special meetings of the Board may be called by the
Chairman of the Board, the Chief Executive Officer, the President, the Secretary
or on the written request of two or more directors, or by one director in the
event that there is only one director in office. Four hours' notice to each
director, either personally or by telegram, cable, telecopy, commercial delivery
service, telex or similar means sent to such director's business or home
address, or two days' notice by written notice deposited in the mail or
delivered by a nationally recognized courier service, shall be given to each
director by the secretary or by the officer or one of the directors calling the
meeting.
3.10 Quorum, Action at Meeting, Adjournments. At all meetings of the
Board, a majority of directors then in office, but in no event less than one
third (1/3) of the entire Board, shall constitute a quorum for the transaction
of business, and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board, except as may be
otherwise specifically provided by law or by the Certificate of Incorporation.
For purposes of this section, the term "entire Board" shall mean the number of
directors last fixed by the stockholders or directors, as the case may be, in
accordance with law and these Bylaws; provided, however, that if less than all
the number so fixed of directors were elected, the "entire Board" shall mean the
greatest number of directors so elected to hold office at any one time pursuant
to such authorization. If a quorum shall not be present at any meeting of the
Board, a majority of the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting until a
quorum shall be present.
3.11 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
3.12 Telephone Meetings. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, any member of the Board or any committee
thereof may participate in a meeting of the Board or of any committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.13 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or
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authority in reference to amending the Restated Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation; and, unless the resolution designating such committee
or the Restated Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board. Each committee shall keep regular minutes of its meetings and make
such reports to the Board as the Board may request. Except as the Board may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these Bylaws for the conduct of its business by the Board.
3.14 Fees and Compensation of Directors. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, the Board shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board and may be paid a
fixed sum for attendance at each meeting of the Board or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.15 Rights of Inspection. Any director shall have the right to examine
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director.
ARTICLE 4
Officers
4.1 Officers Designated. The officers of the corporation shall be chosen
by the Board of Directors and shall be a Chief Executive Officer, a President, a
Secretary and a Chief Financial Officer. The Board may also choose a Chairman of
the Board, a Chief Operating Officer, one or more Vice Presidents, and one or
more assistant Secretaries. Any number of offices may be held by the same
person, unless the Certificate of Incorporation or these Bylaws otherwise
provide.
4.2 Election. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a Chief Executive Officer, a
President, a Secretary and a Chief Financial Officer. Other officers may be
appointed by the Board of Directors at such meeting, at any other meeting, or by
written consent or may be appointed by the Chief Executive Officer pursuant to a
delegation of authority from the Board of Directors.
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4.3 Tenure. The officers of the corporation shall hold office until
their successors are chosen and qualify, unless a different term is specified in
the vote choosing or appointing such officer, or until such officer's earlier
death, resignation or removal. Any officer elected or appointed by the Board of
Directors or by the Chief Executive Officer may be removed with or without cause
at any time by the affirmative vote of a majority of the Board of Directors or a
committee duly authorized to do so, except that any officer appointed by the
Chief Executive Officer may also be removed at any time by the Chief Executive
Officer. Any vacancy occurring in any office of the corporation may be filled by
the Board of Directors, at its discretion. Any officer may resign by delivering
such officer's written resignation to the corporation at its principal place of
business or to the Chief Executive Officer or the Secretary. Such resignation
shall be effective upon receipt unless it is specified to be effective at some
other time or upon the happening of some other event.
4.4 Compensation. The salaries of all officers of the corporation shall
be fixed from time to time by the Board and no officer shall be prevented from
receiving a salary because such officer is also a director of the corporation.
4.5 The Chairman of the Board. The Chairman of the Board, if such an
officer be elected, shall, if present, perform such other powers and duties as
may be assigned to such officer from time to time by the Board. If there is no
Chief Executive Officer of the corporation, the Chairman of the Board shall also
be the Chief Executive Officer of the corporation and shall have the powers and
duties prescribed in Section 4.6 of this Article 4.
4.6 The Chief Executive Officer. Subject to such supervisory powers, if
any, as may be given by the Board to the Chairman of the Board, if there be such
an officer, the Chief Executive Officer shall preside at all meetings of the
stockholders and in the absence of the Chairman of the Board, or if there be
none, at all meetings of the Board, shall have general and active management of
the business of the corporation and shall see that all orders and resolutions of
the Board are carried into effect. He or she shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board to some other officer or agent of the corporation.
4.7 The President. The President shall, in the event there be no Chief
Executive Officer or in the absence of the Chief Executive Officer or in the
event of his or her disability or refusal to act, perform the duties of the
Chief Executive Officer, and when so acting, shall have the powers of and
subject to all the restrictions upon the Chief Executive Officer. The President
shall perform such other duties and have such other powers as may from time to
time be prescribed for them by the Board, the Chairman of the Board, the Chief
Executive Officer or these Bylaws.
4.8 The Vice President. The Vice President (or in the event there be
more than one, the Vice Presidents in the order designated by the directors, or
in the absence of any designation, in the order of their election), shall, in
the absence of the President or in the event of his or her disability or refusal
to act, perform the duties of the President, and when so acting,
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shall have the powers of and subject to all the restrictions upon the President.
The Vice President(s) shall perform such other duties and have such other powers
as may from time to time be prescribed for them by the Board, the President, the
Chairman of the Board or these Bylaws.
4.9 The Secretary. The Secretary shall attend all meetings of the Board
and the stockholders and record all votes and the proceedings of the meetings in
a book to be kept for that purpose and shall perform like duties for the
standing committees, when required. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and special meetings of the Board,
and shall perform such other duties as may from time to time be prescribed by
the Board, the Chairman of the Board or the Chief Executive Officer, under whose
supervision he or she shall act. The Secretary shall have custody of the seal of
the corporation, and the Secretary, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his or her signature or by the signature of
such Assistant Secretary. The Board may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing thereof
by his or her signature. The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the Board, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
4.10 The Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order designated by the Board
(or in the absence of any designation, in the order of their election) shall, in
the absence of the Secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as may from time to time be
prescribed by the Board.
4.11 The Chief Financial Officer. The Chief Financial Officer shall have
the custody of the Corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board. The Chief Financial Officer shall disburse the funds of the
corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board, at
its regular meetings, or when the Board so requires, an account of all his or
her transactions as Chief Financial Officer and of the financial condition of
the corporation.
4.12 Bond. If required by the Board of Directors, any officer shall give
the corporation a bond in such sum and with such surety or sureties and upon
such terms and conditions as shall be satisfactory to the Board of Directors,
including without limitation a bond for the faithful performance of the duties
of such officer's office and for the restoration to the corporation of all
books, papers, vouchers, money and other property of whatever kind in such
officer's possession or under such officer's control and belonging to the
corporation.
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4.13 Delegation of Authority. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
ARTICLE 5
Notices
5.1 Deliver. Whenever, under the provisions of law, or of the Restated
Certificate of Incorporation or these Bylaws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at such person's address as it
appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail or delivered to a nationally recognized
courier service. Unless written notice by mail is required by law, written
notice may also be given by telegram, cable, telecopy, commercial delivery
services, telex or similar means, addressed to such director or stockholder at
such person's address as it appears on the records of the corporation, in which
case such notice shall be deemed to be given when delivered into the control of
the persons charged with effecting such transmission, the transmission charge to
be paid by the corporation or the person sending such notice and not by the
addressee. Oral notice or other in-hand delivery, in person or by telephone,
shall be deemed given at the time it is actually given.
5.2 Waiver of Notice. Whenever any notice is required to be given under
the provisions of law or of the Restated Certificate of Incorporation or of
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. In addition to the foregoing, notice of a meeting
need not be given to any director who signs a waiver of notice or a consent to
holding the meeting or an approval of the minutes thereof, whether before or
after the meeting, or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to such director. All such waivers,
consents and approvals executed under this Section 5.2 shall be filed with the
corporate records or made a part of the minutes of the meeting.
ARTICLE 6
Indemnification
6.1 Actions Other Than By or in the Right of the Corporation. The
corporation shall indemnify any 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 such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including
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attorneys fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe such person's 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 such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
6.2 Actions By or in the Right of the Corporation. The corporation shall
indemnify any person 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 such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and 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 for negligence or misconduct in the performance of such person's duty to
the corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the State
of Delaware or such other court shall deem proper.
6.3 Success on the Merits. To the extent that any person described in
Sections 6.1 or 6.2 of this Article 6 has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
6.4 Specific Authorization. Any indemnification under Sections 6.1 or
6.2 of this Article 6 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in said Sections. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders of the corporation.
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6.5 Advance Payment. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the manner provided for in Section 6.4 of this Article 6 upon
receipt of an undertaking by or on behalf of any person described in said
Section to repay such amount unless it shall ultimately be determined that such
person is entitled to indemnification by the corporation as authorized in this
Article 6.
6.6 Non-Exclusivity. The indemnification provided by this Article 6
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be director, officer, employee or agent of the
corporation and shall inure to the benefit of the heirs, executors and
administrators of such a person.
6.7 Insurance. The Board of Directors may authorize, by a vote of the
majority of the full board, the corporation to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article 6.
6.8 Severability. If any word, clause or provision of this Article 6 or
any award made hereunder shall for any reason be determined to be invalid, the
provisions hereof shall not otherwise be affected thereby but shall remain in
full force and effect.
6.9 Intent of Article. The intent of this Article 6 is to provide for
indemnification to the fullest extent permitted by Section 145 of the General
Corporation Law of the State of Delaware. To the extent that such Section or any
successor Section may be amended or supplemented from time to time, this Article
6 shall be amended automatically and construed so as to permit indemnification
to the fullest extent from time to time permitted by law.
ARTICLE 7
Capital Stock
7.1 Certificates for Shares. The shares of the corporation shall be
represented by certificates or shall be uncertificated. Certificates shall be
signed by, or in the name of the corporation by, the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Chief
Financial Officer, the Secretary or an Assistant Secretary of the corporation.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such
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certificate is issued, it may be issued by the corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue. Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner thereof
a written notice containing the information required by the General Corporation
Law of the State of Delaware or a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
7.2 Signatures on Certificates. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
7.3 Transfer of Stock. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate of shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated share, such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
7.4 Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a percent registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
7.5 Lost, Stolen or Destroyed Certificates. The Board may direct that a
new certificate or certificates be issued to replace any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing the issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of the lost, stolen or destroyed certificate or certificates, or his or
her legal representative, to advertise the same in such manner as it shall
require, and/or to give the corporation a bond in such sum as it may direct as
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indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
ARTICLE 8
Certain Transactions
8.1 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board or committee thereof which authorizes the contract or
transaction or solely because the vote or votes of such director or officer are
counted for such purpose, if:
(a) the material facts as to such person's relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(b) the material facts as to such person's relationship or
interest and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
(c) the contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
8.2 Quorum. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE 9
General Provisions
9.1 Dividends. Dividends upon the capital stock of the corporation,
subject to any restrictions contained in the General Corporation Law of the
State of Delaware or the provisions of the Certificate of Incorporation, if any,
may be declared by the Board at any regular or special meeting. Dividends may be
paid in cash, in property or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
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<PAGE> 18
9.2 Dividend Reserve. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
9.3 Checks. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board may from time to time designate.
9.4 Corporate Seal. The Board of Directors may, by resolution, adopt a
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced. The seal may be altered from time to time by the Board of
Directors.
9.5 Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
9.6 Execution of Corporate Contracts and Instruments. The Board, except
as otherwise provided in these Bylaws, may authorize any officer or officers, or
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board or
within the agency power of an officer, no officer, agent or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
9.7 Representation of Shares of Other Corporations. The Chief Executive
Officer, the President or any Vice President or the Secretary or any Assistant
Secretary of this corporation is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of any
corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.
ARTICLE 10
Amendments
These Bylaws may be altered, amended or repealed, or new Bylaws may be
adopted, by the Board of Directors, or by the affirmative vote of the holders of
a majority of the outstanding shares entitled to vote on such matters.
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<PAGE> 1
EXHIBIT 3.(ii)2
AMENDED AND RESTATED
B Y L A W S
OF
NANOGEN, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE 1: Offices....................................................................... 1
1.1 Principal Office............................................................. 1
1.2 Additional Offices........................................................... 1
ARTICLE 2: Meeting of Stockholders....................................................... 1
2.1 Place of Meeting............................................................. 1
2.2 Annual Meeting............................................................... 1
2.3 Special Meetings............................................................. 2
2.4 Notice of Meetings........................................................... 2
2.5 Business Matter of a Special Meeting......................................... 3
2.6 List of Stockholders......................................................... 3
2.7 Organization and Conduct of Business......................................... 3
2.8 Quorum and Adjournments...................................................... 3
2.9 Voting Rights................................................................ 4
2.10 Majority Vote............................................................... 4
2.11 Record Date for Stockholder Notice and Voting............................... 4
2.12 Proxies..................................................................... 4
2.13 Inspectors of Election...................................................... 4
2.14 Action Without a Meeting.................................................... 5
ARTICLE 3: Directors..................................................................... 5
3.1 Number, Election, Tenure and Qualifications.................................. 5
3.2 Vacancies.................................................................... 6
3.3 Resignation and Removal...................................................... 6
3.4 Powers....................................................................... 7
3.5 Chairman of the Board........................................................ 7
3.6 Place of Meetings............................................................ 7
3.7 Annual Meetings.............................................................. 7
3.8 Regular Meetings............................................................. 7
3.9 Special Meetings............................................................. 7
3.10 Quorum, Action at Meeting, Adjournments..................................... 7
3.11 Action Without Meeting...................................................... 8
3.12 Telephone Meetings.......................................................... 8
3.13 Committees.................................................................. 8
3.14 Fees and Compensation of Directors.......................................... 8
3.15 Rights of Inspection........................................................ 9
ARTICLE 4: Officers...................................................................... 9
4.1 Officers Designated.......................................................... 9
4.2 Election..................................................................... 9
4.3 Tenure....................................................................... 9
4.4 Compensation................................................................. 9
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
4.5 The Chairman of the Board.................................................... 9
4.6 The Chief Executive Officer.................................................. 10
4.7 The President................................................................ 10
4.8 The Vice President........................................................... 10
4.9 The Secretary................................................................ 10
4.10 The Assistant Secretary..................................................... 11
4.11 The Chief Financial Officer................................................. 11
4.12 Bond........................................................................ 11
4.13 Delegation of Authority..................................................... 11
ARTICLE 5: Notices....................................................................... 11
ARTICLE 6: Indemnification............................................................... 12
6.1 Actions Other Than By or in the Right of the Corporation..................... 12
6.2 Actions By or in the Right of the Corporation................................ 12
6.3 Success on the Merits........................................................ 13
6.4 Specific Authorization....................................................... 13
6.5 Advance Payment.............................................................. 13
6.6 Non-Exclusivity.............................................................. 13
6.7 Insurance.................................................................... 13
6.8 Severability................................................................. 14
6.9 Intent of Article............................................................ 14
ARTICLE 7: Capital Stock................................................................. 14
7.1 Certificates for Shares...................................................... 14
7.2 Signatures on Certificates................................................... 14
7.3 Transfer of Stock............................................................ 14
7.4 Registered Stockholders...................................................... 15
7.5 Lost, Stolen or Destroyed Certificates....................................... 15
ARTICLE 8: Certain Transactions.......................................................... 15
8.1 Transactions with Interested Parties......................................... 15
8.2 Quorum....................................................................... 16
ARTICLE 9: General Provisions............................................................ 16
9.1 Dividends.................................................................... 16
9.2 Dividend Reserve............................................................. 16
9.3 Checks....................................................................... 16
9.4 Corporate Seal............................................................... 16
9.5 Fiscal Year.................................................................. 16
9.6 Execution of Corporate Contracts and Instruments............................. 16
9.7 Representation of Shares of Other Corporations............................... 17
ARTICLE 10: Amendments................................................................... 17
</TABLE>
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<PAGE> 4
AMENDED AND RESTATED
B Y L A W S
OF
NANOGEN, INC.
(A DELAWARE CORPORATION)
ARTICLE 1
Offices
1.1 Principal Office. The registered office of the corporation shall be
1209 Orange Street, Wilmington, Delaware, and the name of the registered agent
in charge thereof is The Corporation Trust Company.
1.2 Additional Offices. The corporation may also have offices at such
other places, either within or without the State of Delaware, as the Board of
Directors (the "Board") may from time to time designate or the business of the
corporation may require.
ARTICLE 2
Meeting of Stockholders
2.1 Place of Meeting. Meetings of stockholders may be held at such
place, either within or without of the State of Delaware, as may be designated
by or in the manner provided in these Bylaws, or, if not so designated, at the
registered office of the corporation or the principal executive offices of the
corporation.
2.2 Annual Meeting. Annual meetings of stockholders shall be held each
year at such date and time as shall be designated from time to time by the Board
and stated in the notice of the meeting. At such annual meeting, the
stockholders shall elect by a plurality vote the number of directors equal to
the number of directors of the class whose term expires at such meetings (or, if
fewer, the number of directors properly nominated and qualified for election) to
hold office until the third succeeding annual meeting of stockholders after
their election. The stockholders shall also transact such other business as may
properly be brought before the meetings.
To be properly brought before the annual meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors or the Chief Executive Officer, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or the Chief Executive Officer, or (c) otherwise properly
brought before the meeting by a stockholder of record. In addition to any other
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applicable requirements, for business to be properly brought before the annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered personally or deposited in the United States mail, or
delivered to a common carrier for transmission to the recipient or actually
transmitted by the person giving the notice by electronic means to the recipient
or sent by other means of written communication, postage or delivery charges
prepaid in all such cases, and received at the principal executive offices of
the corporation, addressed to the attention of the Secretary of the corporation,
not less than fifty (50) days nor more than seventy-five (75) days prior to the
scheduled date of the meeting (regardless of any postponements, deferrals or
adjournments of that meeting to a later date); provided, however, that in the
event that less than sixty-five (65) days' notice or prior public disclosure of
the date of the scheduled meeting is given or made to stockholders, notice by
the stockholder to be timely must be so received not later than the earlier of
(a) the close of business on the 15th day following the day on which such notice
of the date of the scheduled annual meeting was mailed or such public disclosure
was made, whichever first occurs, and (b) two days prior to the date of the
scheduled meeting. A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the stockholder proposing such business, (iii)
the class, series and number of shares of the corporation that are owned
beneficially by the stockholder, and (iv) any material interest of the
stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section; provided, however, that nothing in this
Section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting.
The Chairman of the Board of the corporation (or such other person
presiding at the meeting in accordance with these Bylaws) shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
2.3 Special Meetings. Special meetings of the stockholders may be called
for any purpose or purposes, unless otherwise prescribed by statute or by the
Restated Certificate of Incorporation, by the Chief Executive Officer or
Secretary only at the request of the Chairman of the Board of Directors, the
Chief Executive Officer or President of the corporation or by a resolution duly
adopted by the affirmative vote of a majority of the Board of Directors. Such
request shall state the purpose or purposes of the proposed meeting. Business
transacted at any special meeting shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
2.4 Notice of Meetings. Written notice of stockholders' meetings,
stating the place, date and time of the meeting and, in the case of a special
meeting, the purpose or purposes for
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<PAGE> 6
which such special meeting is called, shall be given to each stockholder
entitled to vote at such meeting not less than ten (10) nor more than sixty (60)
days prior to the meeting.
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
2.5 Business Matter of a Special Meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice, except to the extent such notice is waived or is not required.
2.6 List of Stockholders. The officer in charge of the stock ledger of
the corporation or the transfer agent shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, at a place within the
city where the meeting is to be held, which place, if other than the place of
the meeting, shall be specified in the notice of the meeting. The list shall
also be produced and kept at the place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present in person
thereat.
2.7 Organization and Conduct of Business. The Chairman of the Board or,
in his or her absence, the Chief Executive Officer or President of the
corporation or, in their absence, such person as the Board may have designated
or, in the absence of such a person, such person as may be chosen by the holders
of a majority of the shares entitled to vote who are present, in person or by
proxy, shall call to order any meeting of the stockholders and act as Chairman
of the meeting. In the absence of the Secretary of the corporation, the
Secretary of the meeting shall be such person as the Chairman appoints.
The Chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seems to him or her in order.
2.8 Quorum and Adjournments. Except where otherwise provided by law or
the Restated Certificate of Incorporation or these Bylaws, the holders of a
majority of the stock issued and outstanding and entitled to vote, present in
person or represented in proxy, shall constitute a quorum at all meetings of the
stockholders. The stockholders present at a duly called or held meeting at which
a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to have less than a quorum
if any action taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum. At such adjourned meeting at
which a quorum is present or
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<PAGE> 7
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If, however, a quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled to
vote thereat who are present in person or represented by proxy shall have the
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
2.9 Voting Rights. Unless otherwise provided in the Restated Certificate
of Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
2.10 Majority Vote. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Restated Certificate of Incorporation or of these Bylaws, a different vote
is required in which case such express provision shall govern and control the
decision of such question.
2.11 Record Date for Stockholder Notice and Voting. For purposes of
determining the stockholders entitled to notice of any meeting or to vote, or
entitled to receive payment of any dividend or other distribution, or entitled
to exercise any right in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less than ten (10)
days before the date of any such meeting nor more than sixty (60) days before
any other action. If the Board does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
2.12 Proxies. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature, type-
writing, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of three years from the date of the proxy, unless
otherwise provided in the proxy.
2.13 Inspectors of Election. The corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors of election to act at
the meeting and make a written report thereof. The corporation may designate one
or more persons to act as alternate
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<PAGE> 8
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability.
2.14 Action Without a Meeting. No action required or permitted to be
taken at any annual or special meeting of the stockholders of the corporation
may be taken without a meeting and the power of the stockholders to consent in
writing, without a meeting, to the taking of any action is specifically denied.
ARTICLE 3
Directors
3.1 Number, Election, Tenure and Qualifications. The Board of Directors
of the corporation shall consist of not less than five (5) members nor more than
nine (9) members and shall be divided into three classes, designated as Class I,
Class II and Class III, as nearly equal in number as possible. The initial Board
of Directors shall consist of eight (8) members, with Class I consisting of two
(2) directors, Class II consisting of three (3) directors and Class III
consisting of three (3) directors, and the exact number of members of any future
Board of Directors, and the exact number of directors in each Class, shall be
determined from time to time by resolution of the Board of Directors.
Notwithstanding the foregoing, additional directorships resulting from an
increase in the number of directors shall be apportioned among the classes as
equally as possible.
The directors shall be elected at the annual meeting or at any special
meeting of the stockholders, except as otherwise provided in this Section, and
each director elected shall hold office until such director's successor is
elected and qualified, unless sooner displaced.
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nominations of persons
for election to the Board of Directors at the annual meeting, by or at the
direction of the Board of Directors, may be made by any nominating committee or
person appointed by the Board of Directors; nominations may also be made by any
stockholder of record of the corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section. Such nominations, other than those made by or at the direction of
the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation. To be timely, a stockholder's notice shall be
delivered personally or deposited in the United States mail, or delivered to a
common carrier for transmission to the recipient or actually transmitted by the
person giving the notice by electronic means to the recipient or sent by other
means of written communication, postage or delivery charges prepaid in all such
cases, and received at the principal executive offices of the corporation
addressed to the attention of the Secretary of the corporation not less than one
hundred twenty (120) days prior to the scheduled date of the meeting (regardless
of any postponements, deferrals or adjournments of that meeting to a later
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<PAGE> 9
date); provided, however, that, in the case of an annual meeting and in the
event that less than one hundred (100) days' notice or prior public disclosure
of the date of the scheduled meeting is given or made to stockholders, notice by
the stockholder to be timely must be so received not later than the close of
business on the 7th day following the day on which such notice of the date of
the scheduled meeting was mailed or such public disclosure was made, whichever
first occurs. Such stockholder's notice to the Secretary shall set forth (a) as
to each person whom the stockholder proposes to nominate for election or
reelection as a director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class, series and number of shares of capital stock of the
corporation that are owned beneficially by the person, (iv) a statement as to
the person's citizenship, and (v) any other information relating to the person
that is required to be disclosed in solicitations for proxies for election of
directors pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder; and (b) as to the
stockholder giving the notice, (i) the name and record address of the
stockholder and (ii) the class, series and number of shares of capital stock of
the corporation that are owned beneficially by the stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as director of the corporation. No person shall be
eligible for election as a director of the corporation unless nominated in
accordance with the procedures set forth herein.
In connection with any annual meeting, the Chairman of the Board of
Directors (or such other person presiding at such meeting in accordance with
these Bylaws) shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the foregoing procedure, and
if he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Directors shall serve as provided in the Restated Certificate of
Incorporation of the corporation. Directors need not be stockholders.
3.2 Vacancies. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election at which the term of the class to which they have been elected
expires and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. In the event of a
vacancy in the Board of Directors, the remaining directors, except as otherwise
provided by law or these bylaws, may exercise the powers of the full board until
the vacancy is filled.
3.3 Resignation and Removal. Any director may resign at any time upon
written notice to the corporation at its principal place of business or to the
Chief Executive Officer or the Secretary. Such resignation shall be effective
upon receipt of such notice unless the notice specifies such resignation to be
effective at some other time or upon the happening of some other event. Any
director or the entire Board of Directors may be removed, but only for cause,
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by the holders of a majority of the shares then entitled to vote at an election
of directors, unless otherwise specified by law or the Restated Certificate of
Incorporation.
3.4 Powers. The business of the corporation shall be managed by or under
the direction of the Board which may exercise all such powers of the corporation
and do all such lawful acts and things which are not by statute or by the
Restated Certificate of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
3.5 Chairman of the Board. If the Board of Directors appoints a Chairman
of the Board, such Chairman shall, when present, preside at all meetings of the
stockholders and the Board. The Chairman shall perform such duties and possess
such powers as are customarily vested in the office of the Chairman of the Board
or as may be vested in the Chairman by the Board of Directors.
3.6 Place of Meetings. The Board may hold meetings, both regular and
special, either within or without the State of Delaware.
3.7 Annual Meetings. The annual meetings of the Board shall be held
immediately following the annual meeting of stockholders, and no notice of such
meeting shall be necessary to the Board, provided a quorum shall be present. The
annual meetings shall be for the purposes of organization, and an election of
officers and the transaction of other business.
3.8 Regular Meetings. Regular meetings of the Board may be held without
notice at such time and place as may be determined from time to time by the
Board; provided that any director who is absent when such a determination is
made shall be given prompt notice of such determination.
3.9 Special Meetings. Special meetings of the Board may be called by the
Chairman of the Board, the Chief Executive Officer, the President, the
Secretary, or on the written request of two or more directors, or by one
director in the event that there is only one director in office. Four hours'
notice to each director, either personally or by telegram, cable, telecopy,
commercial delivery service, telex or similar means sent to such director's
business or home address, or two days' notice by written notice deposited in the
mail or delivered by a nationally recognized courier service, shall be given to
each director by the secretary or by the officer or one of the directors calling
the meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
3.10 Quorum, Action at Meeting, Adjournments. At all meetings of the
Board, a majority of directors then in office, but in no event less than one
third (1/3) of the entire Board, shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board, except as may be
otherwise specifically provided by law or by the Restated Certificate of
Incorporation. For purposes of this section, the term "entire Board" shall mean
the number of directors last fixed by the stockholders or directors, as the case
may be, in accordance with law and these Bylaws; provided, however, that if less
than all the number so fixed of directors were elected, the "entire Board" shall
mean the greatest number of directors so elected to hold office
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<PAGE> 11
at any one time pursuant to such authorization. If a quorum shall not be present
at any meeting of the Board, a majority of the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
3.11 Action Without Meeting. Unless otherwise restricted by the Restated
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
3.12 Telephone Meetings. Unless otherwise restricted by the Restated
Certificate of Incorporation or these Bylaws, any member of the Board or any
committee thereof may participate in a meeting of the Board or of any committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.13 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Restated Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the bylaws of the corporation; and, unless the
resolution designating such committee or the Restated Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board. Each committee shall keep
regular minutes of its meetings and make such reports to the Board as the Board
may request. Except as the Board may otherwise determine, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the conduct of
its business by the Board.
3.14 Fees and Compensation of Directors. Unless otherwise restricted by
the Restated Certificate of Incorporation or these Bylaws, the Board shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board and may be
paid a fixed sum for attendance at each meeting of the Board or a stated salary
as director. No such payment shall preclude any director from serving
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the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
3.15 Rights of Inspection. Any director shall have the right to examine
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director.
ARTICLE 4
Officers
4.1 Officers Designated. The officers of the corporation shall be chosen
by the Board of Directors and shall be a Chief Executive Officer, a President, a
Secretary and a Chief Financial Officer. The Board may also choose a Chief
Operating Officer, one or more Vice Presidents, and one or more assistant
Secretaries. Any number of offices may be held by the same person, unless the
Restated Certificate of Incorporation or these Bylaws otherwise provide.
4.2 Election. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a Chief Executive Officer, a
President, a Secretary and a Chief Financial Officer. Other officers may be
appointed by the Board of Directors at such meeting, at any other meeting, or by
written consent or may be appointed by the Chief Executive Officer pursuant to a
delegation of authority from the Board of Directors.
4.3 Tenure. The officers of the corporation shall hold office until
their successors are chosen and qualify, unless a different term is specified in
the vote choosing or appointing such officer, or until such officer's earlier
death, resignation or removal. Any officer elected or appointed by the Board of
Directors or by the Chief Executive Officer may be removed with or without cause
at any time by the affirmative vote of a majority of the Board of Directors or a
committee duly authorized to do so, except that any officer appointed by the
Chief Executive Officer may also be removed at any time by the Chief Executive
Officer. Any vacancy occurring in any office of the corporation may be filled by
the Board of Directors, at its discretion. Any officer may resign by delivering
such officer's written resignation to the corporation at its principal place of
business or to the Chief Executive Officer or the Secretary. Such resignation
shall be effective upon receipt unless it is specified to be effective at some
other time or upon the happening of some other event.
4.4 Compensation. The salaries of all officers of the corporation shall
be fixed from time to time by the Board and no officer shall be prevented from
receiving a salary because he is also a director of the corporation.
4.5 The Chief Executive Officer. Subject to such supervisory powers, if
any, as may be given by the Board to the Chairman of the Board, the Chief
Executive Officer shall preside at all meetings of the stockholders and in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board are
carried into
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effect. He or she shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board to some other
officer or agent of the corporation.
4.6 The President. The President shall, in the event there be no Chief
Executive Officer or in the absence of the Chief Executive Officer or in the
event of his or her disability or refusal to act, perform the duties of the
Chief Executive Officer, and when so acting, shall have the powers of and
subject to all the restrictions upon the Chief Executive Officer. The President
shall perform such other duties and have such other powers as may from time to
time be prescribed for them by the Board, the Chairman of the Board, the Chief
Executive Officer or these Bylaws.
4.7 The Vice President. The Vice President (or in the event there be
more than one, the Vice Presidents in the order designated by the directors, or
in the absence of any designation, in the order of their election), shall, in
the absence of the President or in the event of his or her disability or refusal
to act, perform the duties of the President, and when so acting, shall have the
powers of and subject to all the restrictions upon the President. The Vice
President(s) shall perform such other duties and have such other powers as may
from time to time be prescribed for them by the Board, the President, the
Chairman of the Board or these Bylaws.
4.8 The Secretary. The Secretary shall attend all meetings of the Board
and the stockholders and record all votes and the proceedings of the meetings in
a book to be kept for that purpose and shall perform like duties for the
standing committees, when required. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and special meetings of the Board,
and shall perform such other duties as may from time to time be prescribed by
the Board, the Chairman of the Board or the Chief Executive Officer, under whose
supervision he or she shall act. The Secretary shall have custody of the seal of
the corporation, and the Secretary, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his or her signature or by the signature of
such Assistant Secretary. The Board may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing thereof
by his or her signature. The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the Board, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
4.9 The Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order designated by the Board
(or in the absence of any designation, in the order of their election) shall, in
the absence of the Secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as may from time to time be
prescribed by the Board.
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4.10 The Chief Financial Officer. The Chief Financial Officer shall have
the custody of the Corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board. The Chief Financial Officer shall disburse the funds of the
corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board, at
its regular meetings, or when the Board so requires, an account of all his or
her transactions as Chief Financial Officer and of the financial condition of
the corporation.
4.11 Bond. If required by the Board of Directors, any officer shall give
the corporation a bond in such sum and with such surety or sureties and upon
such terms and conditions as shall be satisfactory to the Board of Directors,
including without limitation a bond for the faithful performance of the duties
of such officer's office and for the restoration to the corporation of all
books, papers, vouchers, money and other property of whatever kind in such
officer's possession or under such officer's control and belonging to the
corporation.
4.12 Delegation of Authority. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
ARTICLE 5
Notices
5.1 Deliver. Whenever, under the provisions of law, or of the Restated
Certificate of Incorporation or these Bylaws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at such person's address as it
appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail or delivered to a nationally recognized
courier service. Unless written notice by mail is required by law, written
notice may also be given by telegram, cable, telecopy, commercial delivery
services, telex or similar means, addressed to such director or stockholder at
such person's address as it appears on the records of the corporation, in which
case such notice shall be deemed to be given when delivered into the control of
the persons charged with effecting such transmission, the transmission charge to
be paid by the corporation or the person sending such notice and not by the
addressee. Oral notice or other in-hand delivery, in person or by telephone,
shall be deemed given at the time it is actually given.
5.2 Waiver of Notice. Whenever any notice is required to be given under
the provisions of law or of the Restated Certificate of Incorporation or of
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. In addition to the foregoing, notice of a meeting
need not be given to any director who signs a waiver of notice or a consent to
holding the meeting or an approval of the minutes thereof, whether before or
after the
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meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. All such waivers, consents
and approvals executed under this Section 5.2 shall be filed with the corporate
records or made a part of the minutes of the meeting.
ARTICLE 6
Indemnification
6.1 Actions Other Than By or in the Right of the Corporation. The
corporation shall indemnify any 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 such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceedings, had no reasonable cause to believe such person's 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 such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
6.2 Actions By or in the Right of the Corporation. The corporation shall
indemnify any person 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 such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and 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 for negligence or misconduct in the performance of such person's duty to
the corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the State
of Delaware or such other court shall deem proper.
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6.3 Success on the Merits. To the extent that any person described in
Sections 6.1 or 6.2 of this Article 6 has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
6.4 Specific Authorization. Any indemnification under Sections 6.1 or
6.2 of this Article 6 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in said Sections. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders of the corporation.
6.5 Advance Payment. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the manner provided for in Section 6.4 of this Article 6 upon
receipt of an undertaking by or on behalf of any person described in said
Section to repay such amount unless it shall ultimately be determined that such
person is entitled to indemnification by the corporation as authorized in this
Article 6.
6.6 Non-Exclusivity. The indemnification provided by this Article 6
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be director, officer, employee or agent of the
corporation and shall inure to the benefit of the heirs, executors and
administrators of such a person.
6.7 Insurance. The Board of Directors may authorize, by a vote of the
majority of the full board, the corporation to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article 6.
6.8 Severability. If any word, clause or provision of this Article 6 or
any award made hereunder shall for any reason be determined to be invalid, the
provisions hereof shall not otherwise be affected thereby but shall remain in
full force and effect.
6.9 Intent of Article. The intent of this Article 6 is to provide for
indemnification to the fullest extent permitted by Section 145 of the General
Corporation Law of the State of
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Delaware. To the extent that such Section or any successor Section may be
amended or supplemented from time to time, this Article 6 shall be amended
automatically and construed so as to permit indemnification to the fullest
extent from time to time permitted by law.
ARTICLE 7
Capital Stock
7.1 Certificates for Shares. The shares of the corporation shall be
represented by certificates or shall be uncertificated. Certificates shall be
signed by, or in the name of the corporation by, the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Chief
Financial Officer, the Secretary or an Assistant Secretary of the corporation.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue. Certificates may be issued for
partly paid shares and in such case upon the face or back of the certificates
issued to represent any such partly paid shares, the total amount of the
consideration to be paid therefor, and the amount paid thereon shall be
specified.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner thereof
a written notice containing the information required by the General Corporation
Law of the State of Delaware or a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
7.2 Signatures on Certificates. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
7.3 Transfer of Stock. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate of shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated share, such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
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7.4 Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a percent registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
7.5 Lost, Stolen or Destroyed Certificates. The Board may direct that a
new certificate or certificates be issued to replace any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing the issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of the lost, stolen or destroyed certificate or certificates, or his or
her legal representative, to advertise the same in such manner as it shall
require, and/or to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
ARTICLE 8
Certain Transactions
8.1 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board or committee thereof which authorizes the contract or
transaction or solely because the vote or votes of such director or officer are
counted for such purpose, if:
(a) the material facts as to such person's relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(b) the material facts as to such person's relationship or
interest and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
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(c) the contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
8.2 Quorum. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE 9
General Provisions
9.1 Dividends. Dividends upon the capital stock of the corporation,
subject to any restrictions contained in the General Corporation Law of the
State of Delaware or the provisions of the Restated Certificate of
Incorporation, if any, may be declared by the Board at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of the capital
stock, subject to the provisions of the Restated Certificate of Incorporation.
9.2 Dividend Reserve. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
9.3 Checks. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board may from time to time designate.
9.4 Corporate Seal. The Board of Directors may, by resolution, adopt a
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced. The seal may be altered from time to time by the Board of
Directors.
9.5 Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
9.6 Execution of Corporate Contracts and Instruments. The Board, except
as otherwise provided in these Bylaws, may authorize any officer or officers, or
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board or
within the agency power of an officer, no officer, agent or employee shall have
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any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
9.7 Representation of Shares of Other Corporations. The Chief Executive
Officer, the President or any Vice President or the Secretary or any Assistant
Secretary of this corporation is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of any
corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.
ARTICLE 10
Amendments
The Board of Directors is expressly empowered to adopt, amend or repeal
these Bylaws, provided, however, that any adoption, amendment or repeal of these
Bylaws by the Board of Directors shall require the approval of at least
sixty-six and two-thirds percent (66-2/3%) of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption, amendment or
repeal is presented to the board). The stockholders shall also have power to
adopt, amend or repeal these Bylaws, provided, however, that in addition to any
vote of the holders of any class or series of stock of this corporation required
by law or by the Restated Certificate of Incorporation of this corporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then outstanding shares of the stock
of the corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required for such adoption,
amendment or repeal by the stockholders of any provisions of these Bylaws.
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EXHIBIT 10.1
NANOPHORE, INC.
1993 STOCK OPTION PLAN
1. Purpose of the Plan. The purposes of this 1993 Stock Option Plan (the
"Plan") are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentives to the Employees
and Consultants (as each such term is defined below) of Nanophore, Inc. (the
"Company") and to promote the success of the Company's business. Options granted
under the Plan may be either "incentive stock options" as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
"nonstatutory stock options," at the discretion of the Board (as defined below)
and as reflected in the terms of the written option agreement.
2. Certain Definitions. As used in the Plan, the following definitions
shall apply:
"Board" means the Board of Directors of the Company.
"Committee" means a committee of the Board consisting of not less than
two directors, all of whom shall be appointed by the Board in accordance with
Section 4.
"Common Stock" means the Common Stock of the Company.
"Consultant" means any person or entity who is engaged by the Company or
any Parent or Subsidiary to render valuable services or any director of the
Company whether compensated for such services or not.
"Continuous Status as an Employee or Consultant" means, for the purposes
of the Plan and the Options granted and shares issued under the Plan only, the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave (including leave on account of
disability or military leave, provided-that such sick leave or military leave is
for a period of not more than 90 days, except as may otherwise be approved by
the Board or the Committee and specified in writing by the Company, or any other
leave of absence approved by the Board or the Committee and specified in writing
by the Company, subject to any conditions of such approval). In the event that
at the end of such leave the Employee or Consultant does not return to work for
the Company, his or her employment or relationship with the Company (and his or
her Continuous Status as an Employee or Consultant) shall be deemed to have
terminated as of the end of the leave period.
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"Corporate Transaction" means (a) a merger or acquisition involving the
Company in which the Company is not the surviving entity, except for a
transaction the principal purpose of which is to change the state of the
Company's incorporation, (b) a sale, transfer or other disposition of all or
substantially all of the assets of the Company or (c) any other corporate
reorganization or business combination in which 50% or more of the Company's
outstanding voting stock is transferred to different holders in a single
transaction or a series of related transactions.
"Director" means a member of the Board.
"Employee" means any person, including officers and Directors, employed
by the Company or any Parent or Subsidiary of the Company. The payment of a
director's fee by the Company shall not be sufficient to constitute "employment"
by the Company.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" means, as of any date, the fair market value of a
share, as determined in any manner adopted in good faith with by the Board or
the Committee.
"Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
"Nonstatutory Stock Option" means any Option that is not an
Incentive Stock Option.
"Option" means a stock option granted pursuant to this
Plan.
"Optioned Shares" means the shares of Common Stock subject
to an Option.
"Optionee" means an Employee, Consultant or Outside
Director who receives an Option.
"Outside Director" means a Director who is not an employee
of the Company.
"Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
"Regulation G" means Part 207 of title 12 of the Code of Federal
Regulations, as promulgated by the Federal Reserve Board and as such rule is
amended from time to time.
"SEC" means the United States Securities and Exchange
Commission.
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"Securities Act" means the Securities Act of 1933, as
amended.
"Share" means a share of the Common Stock, as adjusted in accordance
with Section 13.
"Subsidiary)" means a "subsidiary corporation", whether not or hereafter
existing, as defined in Section 424(f) of the Code.
Other terms used in the Plan have the meanings specified for such terms
in the Plan.
3. Stock Subject to the Plan. Subject to the provisions of Section 13,
the maximum aggregate number of Shares which may be optioned and/or sold under
the Plan is 132,447 Shares. If an Option should expire or become unexercisable
for any reason without having been exercised in full, the unpurchased Shares
which were subject to such Option shall, unless the Plan shall have been
terminated, become available for future grant under the Plan. However, any
Shares sold under the Plan and subsequently repurchased by the Company shall not
be available for new issuance pursuant to the Plan.
4. Administration.
(a) Committee. The Plan shall be administered by the Board, or, if one
is established by the Board, the Committee. Committee members shall serve for
such term as the Board may in each case determine, and shall be subject to
removal at any time by the Board. Vacancies on the Committee, however caused,
shall be filled by the Board. The Committee shall select one of its members as
chairman, and shall hold meetings at such times and places as it may determine.
A majority of the Committee shall constitute a quorum, and acts of the Committee
approved at a meeting at which a quorum is present, or acts approved in writing
by all of the members of the Committee, shall be valid acts of the Committee.
Awards to officers of the Company shall be made upon approval by the Board or,
if the Committee is given general authority to do so by the Board, upon approval
by the committee without review by the Board. The Board or the Committee may
delegate to the president of the Company or to the president's delegates the
authority to grant awards other than awards to officers. Awards to any Director
must be recommended or approved by the Board.
(b) Authority. Subject to the general purposes, terms, and conditions of
the Plan, and to the direction of the Board, the Committee, if there is one,
shall have full power to implement and carry out the Plan including, but not
limited to, the following:
(i) to select the Outside Directors, Consultants
and Employees of the Company and its Subsidiaries to
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<PAGE> 4
whom Options may from time to time be granted under
the Plan;
(ii) to determine whether and to what extent Options or any
combination of them are granted under the Plan;
(iii) to determine the number of Shares to be covered by each
such award granted under this Plan;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted under the Plan (including,
but not limited to, the share price and any restriction or limitation,
or any vesting acceleration or waiver of forfeiture restrictions
regarding any Option or other award and/or the Shares relating to any
such Option, based in each case on such factors as the Committee shall
determine, in its sole discretion):
(vi) to effect, with the consent of the affected optionees, the
cancellation of any or all outstanding options under the Plan and to
grant in substitution therefor new Options under the Plan covering the
same or different numbers of shares of Common Stock subject to the
limitation on the option price set forth in Section 8;
(vii) the Committee may at any time accelerate the earliest date
on which outstanding Options (or any installments) are exercisable and,
may, in its discretion, provide that otherwise Invested Options shall
vest automatically upon termination of an Optionee's employment with the
Company;
(viii) to reduce the exercise price of any option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such option shall have declined since the date the Option was
granted;
(ix) to extend (either at the time the option is granted or at
any time while the Option remains outstanding) the period of time for
which the Option is to remain exercisable following the cessation of
Optionee's Continuous Status as an Employee or Consultant, from the
limited periods otherwise applicable under Section 11(b) and section
11(c), to such greater period of time as the Committee may deem
appropriate under the circumstances; provided that
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<PAGE> 5
such Option shall not become exercisable after the specified expiration
date of the option term; and
(x) to construe and interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, and to make all
other determinations necessary or advisable for the administration of
the Plan.
5. Eligibility.
(a) Eligible Optionees. options may be granted only to Employees,
Consultants and Outside Directors. Incentive Stock Options may be granted only
to Employees. An Employee, Consultant or Outside Director who has been granted
an Option may, if he or she is otherwise eligible, be granted an additional
Option(s).
(b) Dollar Limitation. The aggregate Fair Market Value (determined as of
the respective date or dates of grant) of a Share for which one or more Options
granted to any Employee under this Plan (or any other option plan of the Company
or any Parent or Subsidiary) may for the first time become exercisable as
incentive stock options under the federal tax laws during any one calendar year
shall not exceed the sum of $100,000. To the extent an Employee holds two or
more such Options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
incentive stock options under the federal tax laws shall be applied on the basis
of the order in which such options are granted.
6. No Other Rights. The Plan shall not confer upon any Optionee any
right with respect to continuation of employment, consulting relationship or
directorship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate such optionee's employment,
consulting relationship or directorship at any time.
7. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 19. It shall continue in effect for a term of
ten years unless sooner terminated under Section 15, and all Options must be
granted within such time.
8. Exercise Price. With respect to Options granted to Employees and
Consultants, the per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board or
the committee, but shall be subject to the following:
(a) In the case of any Nonstatutory Stock Option, the per
Share exercise price shall be no less than 85% of the Fair
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<PAGE> 6
Market Value per Share on the date of grant, and in the case of any Incentive
Stock option the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.
(b) In the case of any Incentive Stock option granted to any person who,
at the time of the grant of such Option, owns shares of capital stock
representing more than 10% of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant.
(c) The effective date of registration of any class of equity securities
of the Company, the per Share exercise price shall be no less than 100% of the
Fair Market Value per Share on the date of grant.
9. Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option including the method of payment, shall be
determined by the Board or the Committee and may consist entirely of cash,
check, promissory note, other shares of Common Stock having a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, or any combination of such methods of
payment, or such other consideration and method of payment for the issuance of
Shares to the extent permitted under the California Corporations Code and
permitted by the permit, if any, issued by the California Commissioner of
corporations with respect to shares issuable under the Plan.---In making its
determination as to the type of consideration to accept, the Board or the
Committee shall consider if acceptance of such consideration may be reasonably
expected to benefit the Company, in accordance with the California Corporations
Code.
10. Term of Option. The term of each Incentive Stock Option shall be ten
years from the date of initial grant or such shorter term as may be provided in
the Incentive Stock option Agreement. The term of each Option that is not an
Incentive Stock option shall be ten years and one day from the date of such
grant or such shorter term as may be provided in the Non-Statutory Stock Option
Agreement. However, in the case of an Option granted to an Optionee who, at the
time the option is granted, owns shares of capital stock representing more than
10% of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, (a) if the Option is an Incentive Stock Option, the term of the
Option shall be five years from the date of such grant or such shorter time as
may be provided in the Incentive stock Option Agreement, or (b) if the option is
not an Incentive Stock Option, the term of the Option shall be ten years and one
day from the date of such grant or such shorter term as may be provided in the
Non-Statutory Stock Option Agreement.
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<PAGE> 7
11. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder.
(i) Any Option granted under the Plan shall be exercisable and
shall vest at such times and under such conditions as determined by the
Board or the committee, including performance criteria with respect to
the Company Indoor the Optionee, and as shall be permissible under the
terms of the Plan.
(ii) An Option may not be exercised for a fraction of a Share.
(iii) An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with
the terms of the Option by the Optionee and full payment for the Shares
with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board or the Committee,
consist of any consideration and method of payment allowable under
Section 9. Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to
vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Shares, notwithstanding the exercise
of the Option. No adjustment shall be made for a dividend or other right
for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 13.
(iv) Exercise of an Option in any manner shall result in a
decrease in the number of Shares that thereafter shall be available,
both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised. Any Shares issued
and sold pursuant to the Plan and repurchased by the Company shall not
be available for reissuance under the Plan.
(b) Exercise after Termination of Status as an Employee or Consultant.
If an Optionee's Continuous Status as an Employee or Consultant terminates or an
Optionee is an Outside Director and he or she ceases to serve on the Board,
other than by reason of death or disability, the optionee may, but only within
30 days (or such other period of time not exceeding three calendar months, in
the case of Incentive stock options, as is determined by the Board or the
Committee and is specified in writing by the Company) after the date such
optionee ceases to be an Employee, Consultant or Outside Director (as the case
may be) of the company (but in no event later than ten years from the date of
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<PAGE> 8
grant of the Option), exercise his or her Option to the extent that (i) the
Option was vested and (ii) such Optionee was entitled to exercise it at the date
of such termination in accordance with the terms and conditions of the Plan. To
the extent that the Option was not vested or such optionee was not entitled to
exercise the Option, at the date of such termination, or if he or she does not
exercise such Option within the time specified in the Plan, the Option shall
terminate.
(c) Exercise after Disability. Notwithstanding the provisions of Section
11(b), in the event of termination of Continuous Status as an Employee or
Consultant or an Outside Director ceases to serve on the Board, as a result of
an Optionee's disability (as defined in Section 22(e)(3) of the Code), the
Optionee may, but only within six months for such other period of time not less
than six months nor more than 12 months, as determined by the Board or the
Committee and specified in writing by the Company) from the date of termination
(but in no event later than ten years from the date of grant of the Option),
exercise his or her Option to the extent that (i) the option was vested and (ii)
the Optionee was entitled to exercise it at the date of such termination in
accordance with the terms and conditions of the Plan. To the extent that the
Option was not vested or the optionee was not entitled to exercise the Option,
at the date of such termination, or if the Optionee does not exercise such
Option within the time specified in the Plan, the Option shall terminate.
(d) Exercise after Death.
(i) Notwithstanding the provisions of Section 11(b), in the event
of the death of an Optionee while an Option is outstanding, then the
personal representative of the Optionee's estate or the person or
persons to whom the Option is transferred pursuant to the Optionee's
will or in accordance with the law of descent and distribution shall
have the right to exercise the Option, but only to the extent such
Option was vested at the time of the Optionee's death and such optionee
was otherwise entitled to exercise such Option in accordance with the
terms and conditions of the Plan. Such right shall lapse and the Option
shall cease to be exercisable upon the earlier of (x) the expiration of
a 12-month period measured from the date of Optionee's death or (y) the
expiration of the term of such Option in accordance with Section 10, at
such time such Option shall terminate and cease to be outstanding.
(ii) If an Optionee dies within three months (or such other
shorter period specified by the Board or the Committee pursuant to
Section 11(b)) after the
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<PAGE> 9
termination of such optionee's Continuous Status as an Employee or
Consultant or within three months after he or she ceases to serve as an
Outside Director, then the option may be exercised at any time within
six months (or such other period of time not less than six months nor
more than 12 months as determined by the Board or the Committee and
specified in writing by the Company) following the date of death (but in
no event later than ten years from the date of grant of the Option), by
the Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent that the
Option was vested as of the date of termination.
12. Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by such Optionee.
13. Adjustments Upon Certain Events.
(a) Splits, Dividends, Combinations or Reclassifications. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock affected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board or
the Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided in the Plan, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
on any class, shall affect, and no adjustment by reason of such issuance shall
be made with respect to, the number or price of shares of common Stock subject
to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, any Outstanding Options shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board or the Committee. The Board or the Committee may, in the
exercise of its sole discretion in such instances,
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<PAGE> 10
declare that any Option shall terminate as of a date fixed by the Board or the
Committee, and may give each Optionee the right to exercise his or her Option as
to all or any part of the Optioned Shares, including Shares as to which the
Option would not otherwise be exercisable.
(c) Corporate Transactions. In the event of a Corporate Transaction,
Options shall be assumed or an equivalent option or right shall be substituted
by such successor corporation or a Parent or Subsidiary of such successor
corporation. Subject to the provisions of the agreement evidencing the grant of
an option under this Plan if such successor corporation does not agree to assume
the option, the Board or the Committee may in lieu of such assumption or
substitution, provide that the Optionee shall have the right to exercise the
Option as to all of the Optioned Shares including Shares as to which the Option
would not otherwise be exercisable. Notwithstanding the foregoing, the Board or
the Committee may, in its sole discretion, grant an Option which, pursuant to
the terms and provisions of the applicable Stock Option Agreement, is fully
exercisable in the event of a Corporate Transaction and/or an underwritten,
initial public offering of the Company's equity securities.
14. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Board or the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Employee, Outside Director or Consultant to whom an option is so granted
within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board or the Committee may at any
time amend, alter, suspend, or discontinue the Plan, but no amendment,
alteration, suspension, or discontinuation shall be made that would impair the
rights of any Optionee under any grant previously made, without his or her
consent. In addition, to the extent necessary and-desirable to comply with
Section 422 of the Code (or any other applicable law or regulation), the Company
shall obtain shareholder approval of the Plan amendment in such a manner and to
such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
options shall remain in full force and effect as if the Plan had not been
amended or terminated, unless mutually agreed otherwise between the Board or the
Committee and the Optionee, which agreement must be in writing and signed by the
Company and the Optionee.
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<PAGE> 11
16. Conditions Upon Issuance of Shares.
(a) Compliance with Laws. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares pursuant to any such option shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
and the rules and regulations promulgated under it and any rule under Regulation
G and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) Representations. As a condition to the exercise of an Option the
Company may require the person exercising such Option to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the previously described relevant provisions of law.
17. Reservation of Shares; Compliance with Law.
(a) The Company, during the term of the Plan, shall at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
(b) Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares under the Plan, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
18. Option Agreements. Options shall be evidenced by written option
agreements in such form as the Board or the Committee shall approve.
19. Shareholder Approval. Continuance of the plan shall, if required by
applicable law, be subject to approval by the shareholders of the Company within
12 months before or after the date of the Plan is adopted.
20. Information to Optionees. The Company shall provide to each Optionee
during the period for which such person has one or more Options outstanding,
copies of all annual reports and other information provided to all Shareholders
of the Company. The Company shall not be required to provide such information if
the issuance of Options under the Plan is limited to key Employees whose duties
to the Company assure their access to equivalent information.
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EXHIBIT 10.2
NANOGEN, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan is intended to
promote the interests of Nanogen, Inc., a California corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or
all administrative functions otherwise exercisable by the Board may be delegated
to the Committee. Members of the Committee shall serve for such period of time
as the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under the Plan
are as follows:
(i) Employees,
(ii) non-employee members of the Board
or the non-employee members of the board of directors of
any Parent or Subsidiary, and
<PAGE> 2
(iii) consultants who provide services to
the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants under the Plan, the time or
times when such option grants are to be made, the number of shares to be covered
by each such grant, the status of the granted option as either an Incentive
Option or a Non-Statutory Option, the time or times at which each option is to
become exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
500,000 shares.
B. Shares of Common Stock subject to outstanding options shall
be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan.
C. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan and (ii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive. In
no event shall any such adjustments be made in connection with the conversion of
one or more outstanding shares of the Corporation's preferred stock into shares
of Common Stock.
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ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by
the Plan Administrator in accordance with the following
provisions:
(i) The exercise price per share shall
not be less than eighty-five percent (85%) of the Fair Market Value per
share of Common Stock on the option grant date.
(ii) If the person to whom the option is
granted is a 10% shareholder, then the exercise price per share shall not
be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Section I of
Article Three and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12(g) of the 1934 Act at the time the option is exercised, then
the exercise price may also be paid as follows:
(i) in shares of Common Stock held for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market Value
on the Exercise Date, or
(ii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable written instructions (a) to a Corporation-designated brokerage
firm to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the
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<PAGE> 4
Corporation by reason of such exercise and (b) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option grant. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE. The following provisions
shall govern the exercise of any options held by the Optionee at the time of
cessation of Service or death:
(i) Should the Optionee cease to remain
in Service for any reason other than Disability or death, then the
Optionee shall have a period of three (3) months following the date of
such cessation of Service during which to exercise each outstanding option
held by such Optionee.
(ii) Should such Service terminate by
reason of Disability, then the Optionee shall have a period of six (6)
months following the date of such cessation of Service during which to
exercise each outstanding option held by such Optionee. However, should
such Disability be deemed to constitute Permanent Disability, then the
period during which each outstanding option held by the Optionee is to
remain exercisable shall be extended by an additional six (6) months so
that the exercise period shall be the twelve (12)-month period following
the date of the Optionee's cessation of Service by reason of such
Permanent Disability.
(iii) Should the Optionee die while
holding one or more outstanding options, then the personal representative
of the Optionee's estate or the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the laws
of descent and distribution shall have a period of twelve (12) months
following the date of the Optionee's death during which to exercise each
such option.
(iv) Under no circumstances, however,
shall any such option be exercisable after the specified
expiration of the option term.
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<PAGE> 5
(v) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for more
than the number of vested shares for which the option is exercisable on
the date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent it is not exercisable
for vested shares on the date of such cessation of Service.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock under the Plan. Should the Optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase, at the
exercise price paid per share, all or (at the discretion of the Corporation and
with the consent of the Optionee) any of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right. The Plan Administrator may not impose
a vesting schedule upon any option grant or any shares of Common Stock subject
to the option which is more restrictive than twenty percent (20%) per year
vesting.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
first registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, the option shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in accordance with the terms of a Qualified Domestic Relations
Order. The assigned option may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to such Qualified Domestic
Relations Order. The terms
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applicable to the assigned option (or portion thereof) shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
H. WITHHOLDING. The Corporation's obligation to deliver shares
of Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to the
terms specified in this Section II.
A. ELIGIBILITY. Incentive Options may only be granted
to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding
option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with such
Corporate Transaction. In addition, all outstanding repurchase rights under the
Plan shall
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terminate automatically in the event of any Corporate Transaction, except to the
extent the repurchase rights are assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction.
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in the consummation of such Corporate Transaction,
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
C. The grant of options under the Plan shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Plan and to grant
in substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. However, any promissory notes delivered by a consultant must be
secured by property other than the purchased shares of Common Stock. In all
events, the maximum credit available to each Optionee may not exceed the sum of
(i) the aggregate option exercise price payable for the purchased shares plus
(ii) any Federal, state and local income and
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employment tax liability incurred by the Optionee in connection with the option
exercise.
II. ADDITIONAL AUTHORITY
A. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding:
(i) to extend the period of time for
which the option is to remain exercisable following the Optionee's
cessation of Service or death from the limited period otherwise in effect
for that option to such greater period of time as the Plan Administrator
shall deem appropriate; provided, that in no event shall such option be
exercisable after the specified expiration of the option term, and/or
(ii) to permit the option to be exercised,
during the applicable post-Service exercise period, not only with respect
to the number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service or death
but also with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued in
Service.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective when adopted by the Board,
but no option granted under the Plan may be exercised until the Plan is approved
by the Corporation's shareholders. If such shareholder approval is not obtained
within twelve (12) months after the date of the Board's adoption of the Plan,
then all options previously granted under the Plan shall terminate and cease to
be outstanding, and no further options shall be granted. Subject to such
limitation, the Plan Administrator may grant options under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such Plan
termination, all options and unvested stock issuances outstanding under the Plan
shall continue to have full force and effect in accordance with the provisions
of the documents evidencing such options or issuances.
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IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall, without the consent of the Optionees, adversely
affect their rights and obligations under their outstanding options. In
addition, the Board shall not, without the approval of the Corporation's
shareholders, (i) increase the maximum number of shares issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) materially modify the eligibility
requirements for Plan participation or (iii) materially increase the benefits
accruing to Plan participants.
B. Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided any such options actually granted may not be exercised until
there is obtained shareholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such shareholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
hereunder and the issuance of any shares of Common Stock upon the exercise of
any option shall be subject to the Corporation's procurement of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the options granted under it and the shares of Common Stock issued
pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining Optionee) or of the Optionee, which rights are hereby
expressly reserved by each, to terminate the Optionee's Service at any time for
any reason, with or without cause.
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<PAGE> 10
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following shareholder
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Nanogen, Inc., a California corporation.
G. DISABILITY shall mean the inability of an individual to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute Permanent Disability in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the
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<PAGE> 12
control and direction of the employer entity as to both the work to be performed
and the manner and method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question then the Fair
Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator in accordance
with Section 260.140.50 of Title 10 of the California Code of
Regulations.
L. HIGHLY-COMPENSATED EMPLOYEE shall mean an Employee whose earnings per
calendar year from the Corporation (or any Parent or Subsidiary) exceed Sixty
Thousand Dollars ($60,000) in the aggregate.
M. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
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P. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
Q. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set
forth in this document.
S. PLAN ADMINISTRATOR shall mean either the Board or the Committee, to
the extent the Committee is at the time responsible for the administration of
the Plan.
T. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
U. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant.
V. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
W. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
X. 10% SHAREHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing ten percent (10%) or more of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
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<PAGE> 1
EXHIBIT 10.3
1997 STOCK INCENTIVE PLAN OF
NANOGEN, INC.
(Adopted Effective as of August 1, 1997)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Committee Composition . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Committee Responsibilities . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3. SHARES AVAILABLE FOR GRANTS. . . . . . . . . . . . . . . . . . . . . . 2
3.1 Basic Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Additional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.3 Dividend Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 4. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 General Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Outside Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.3 Incentive Stock Options . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 5. OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.1 Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . 3
5.2 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.3 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.4 Exercisability and Term . . . . . . . . . . . . . . . . . . . . . . . . 4
5.5 Effect of Change in Control . . . . . . . . . . . . . . . . . . . . . . 4
5.6 Modification or Assumption of Options. . . . . . . . . . . . . . . . . 4
5.7 Other Requirements Prior to Company's Initial Public Offering . . . . . 4
ARTICLE 6. PAYMENT FOR OPTION SHARES . . . . . . . . . . . . . . . . . . . . . . . 4
6.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.2 Surrender of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.3 Exercise/Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.4 Exercise/Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.5 Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.6 Other Forms of Payment . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 7. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 5
7.1 SAR Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.2 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.3 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.4 Exercisability and Term . . . . . . . . . . . . . . . . . . . . . . . . 6
7.5 Effect of Change in Control . . . . . . . . . . . . . . . . . . . . . . 6
7.6 Exercise of SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.7 Modification or Assumption of SARs. . . . . . . . . . . . . . . . . . . 6
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS . . . . . . . . . . . . . . . . . . . 7
8.1 Time, Amount and Form of Awards . . . . . . . . . . . . . . . . . . . . 7
8.2 Payment for Awards . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.3 Vesting Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.4 Form and Time of Settlement of Stock Units . . . . . . . . . . . . . . 7
8.5 Death of Recipient . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.6 Creditors' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 9. VOTING AND DIVIDEND RIGHTS . . . . . . . . . . . . . . . . . . . . . . 8
9.1 Restricted Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.2 Stock Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 10. PROTECTION AGAINST DILUTION . . . . . . . . . . . . . . . . . . . . . . 8
10.1 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10.2 Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 11. AWARDS UNDER OTHER PLANS . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES . . . . . . . . . . . . . . . 9
12.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
12.2 Elections to Receive NSOs, Restricted Shares or Stock Units . . . . . . 9
12.3 Number and Terms of NSOs, Restricted Shares or Stock Units . . . . . . 9
ARTICLE 13. LIMITATION ON RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 10
13.1 Retention Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13.2 Stockholders' Rights . . . . . . . . . . . . . . . . . . . . . . . . . 10
13.3 Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 14. LIMITATION ON PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . 10
14.1 Gross-Up Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14.2 Determination by Accountant . . . . . . . . . . . . . . . . . . . . . . 10
14.3 Underpayments and Overpayments . . . . . . . . . . . . . . . . . . . . 11
14.4 Related Corporations . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 15. WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
15.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
15.2 Share Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS . . . . . . . . . . . . . . . . . . . 12
16.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
16.2 Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 17. FUTURE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . 13
17.1 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
17.2 Amendment or Termination . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 18. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 19. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<PAGE> 4
1997 STOCK INCENTIVE PLAN OF
NANOGEN, INC.
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board effective as of August 1, 1997, and
was approved by the Company's stockholders as of August 1, 1997. The Plan is
effective as of August 1, 1997. However, Articles 7, 8 and 9 shall not apply
prior to the Company's initial public offering.
The purpose of the Plan is to promote the long-term success of the
Company and the creation of stockholder value by (a) encouraging Key Employees
to focus on critical long-range objectives, (b) encouraging the attraction and
retention of Key Employees with exceptional qualifications and (c) linking Key
Employees directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares, Stock Units, Options (which may constitute incentive stock
options or nonstatutory stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of California.
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by
the Committee. Except as provided below, the Committee shall consist
exclusively of directors of the Company, who shall be appointed by the Board.
In addition, the composition of the Committee shall satisfy:
(a) Such requirements, if any, as the Securities and
Exchange Commission may establish for administrators acting under
plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify
for exemption under section 162(m)(4)(C) of the Code.
The Board may act on its own behalf with respect to Outside Directors and may
also appoint one or more separate committees composed of one or more officers
of the Company who need not be directors of the Company and who need not
satisfy the foregoing requirements, who may administer the Plan with respect to
Key Employees who are not "covered employees" under section 162(m)(3) of the
Code and who are not required to report pursuant to Section 16(a) of the
Exchange Act.
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2.2 Committee Responsibilities. The Committee shall (a) select
the Key Employees who are to receive Awards under the Plan, (b) determine the
type, number, vesting requirements and other features and conditions of such
Awards, (c) interpret the Plan and (d) make all other decisions relating to the
operation of the Plan. The Committee may adopt such rules or guidelines as it
deems appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan
may be authorized but unissued shares or treasury shares. The aggregate number
of Common Shares available for Restricted Shares, Stock Units, Options and SARs
awarded under the Plan shall not exceed 2,462,012. Of the Common Shares
available hereunder, no more than 25% in aggregate shall be available with
respect to Outside Directors. The limitation of this Section 3.1 shall be
subject to adjustment pursuant to Article 10. The number of Common Shares
available under this Plan shall be increased by unexercised or forfeited Common
Shares under the Company's 1993 and 1995 Stock Plans.
3.2 Additional Shares. If Stock Units, Options or SARs are
forfeited or if Options or SARs terminate for any other reason before being
exercised, then the corresponding Common Shares shall again become available
for Awards under the Plan. If Restricted Shares are forfeited before any
dividends have been paid with respect to such Shares, then such Shares shall
again become available for Awards under the Plan. If Stock Units are settled,
then only the number of Common Shares (if any) actually issued in settlement of
such Stock Units shall reduce the number available under Section 3.1 and the
balance shall again become available for Awards under the Plan. If SARs are
exercised, then only the number of Common Shares (if any) actually issued in
settlement of such SARs shall reduce the number available under Section 3.1 and
the balance shall again become available for Awards under the Plan.
3.3 Dividend Equivalents. Any dividend equivalents distributed
under the Plan shall not be applied against the number of Restricted Shares,
Stock Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Key Employees (including, without
limitation, independent contractors who are not members of the Board) shall be
eligible for designation as Participants by the Committee.
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<PAGE> 6
4.2 Outside Directors. The Committee may provide that the NSOs
that otherwise would be granted to an Outside Director under this Plan shall
instead be granted to an affiliate of such Outside Director. Such affiliate
shall then be deemed to be an Outside Director for purposes of the Plan,
provided that the service-related vesting and termination provisions pertaining
to the NSOs shall be applied with regard to the service of the Outside
Director.
4.3 Incentive Stock Options. Only Key Employees who are
common-law employees of the Company, a Parent or a Subsidiary shall be eligible
for the grant of ISOs. In addition, a Key Employee who owns more than 10% of
the total combined voting power of all classes of outstanding stock of the
Company or any of its Parents or Subsidiaries shall not be eligible for the
grant of an ISO unless the requirements set forth in section 422(c)(6) of the
Code are satisfied.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between the Optionee and
the Company. Such Option shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The Stock Option Agreement shall specify whether the Option is an ISO or an
NSO. The provisions of the various Stock Option Agreements entered into under
the Plan need not be identical. Options shall be granted in consideration of
services rendered to the Company or a Subsidiary. A Stock Option Agreement may
provide that a new Option will be granted automatically to the Optionee when he
or she exercises a prior Option and pays the Exercise Price in the form
described in Section 6.2.
5.2 Number of Shares. Each Stock Option Agreement shall specify
the number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. Options granted to
any Optionee in a single calendar year shall in no event cover more than
750,000 Common Shares, subject to adjustment in accordance with Article 10.
5.3 Exercise Price. Each Stock Option Agreement shall specify
the Exercise Price; provided that the Exercise Price under an ISO shall in no
event be less than 100% of the Fair Market Value of a Common Share on the date
of grant and the Exercise Price under an NSO shall in no event be less than the
par value of the Common Shares subject to such NSO. In the case of an NSO, a
Stock Option Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the NSO is outstanding, provided that prior
to the Company's initial public offering, the NSO Exercise Price shall be at
least 85% (110% for 10% shareholders) of the Fair Market Value of a Common
Share of Stock on the date of grant.
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5.4 Exercisability and Term. Each Stock Option Agreement shall
specify the date when all or any installment of the Option is to become
exercisable, provided that prior to the Company's initial public offering,
Options shall become exercisable pursuant to a schedule providing for at least
20% vesting per year over a five-year period (or, in the case of performance
options, to the extent permitted under applicable regulations of the California
Department of Corporations). The Stock Option Agreement shall also specify the
term of the Option; provided that the term of an ISO shall in no event exceed
10 years from the date of grant. A Stock Option Agreement may provide for
accelerated exercisability in the event of the Optionee's death, disability or
retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service.
Options may be awarded in combination with SARs, and such an Award may
provide that the Options will not be exercisable unless the related SARs are
forfeited. NSOs may also be awarded in combination with Restricted Shares or
Stock Units, and such an Award may provide that the NSOs will not be
exercisable unless the related Restricted Shares or Stock Units are forfeited.
Options must be exercised within 90 days of the termination of
employment (six months for termination on account of death or disability).
5.5 Effect of Change in Control. The Committee may determine,
at the time of granting an Option or thereafter, that such Option shall become
fully exercisable as to all Common Shares subject to such Option in the event
that a Change in Control occurs with respect to the Company.
5.6 Modification or Assumption of Options. Within the
limitations of the Plan, the Committee may modify, extend or assume outstanding
options or may accept the cancellation of outstanding options (whether granted
by the Company or by another issuer) in return for the grant of new options for
the same or a different number of shares and at the same or a different
exercise price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, alter or impair his or her rights
or obligations under such Option.
5.7 Other Requirements Prior to Company's Initial Public
Offering. Prior to the Company's initial public offering, Optionees shall
receive Company financial statements at least annually.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares
issued upon exercise of Options shall be payable in cash at the time when such
Common Shares are purchased, except as follows:
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(a) In the case of an ISO granted under the Plan, payment
shall be made only pursuant to the express provisions of the
applicable Stock Option Agreement. The Stock Option Agreement may
specify that payment may be made in any form(s) described in this
Article 6.
(b) In the case of an NSO, the Committee may at any time
accept payment in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which have already been owned by the Optionee for more than six
months. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to a securities broker approved by the
Company to sell Common Shares and to deliver all or part of the sales proceeds
to the Company in payment of all or part of the Exercise Price and any
withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Common Shares to a securities
broker or lender approved by the Company, as security for a loan, and to
deliver all or part of the loan proceeds to the Company in payment of all or
part of the Exercise Price and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is
applicable, payment may be made with a full-recourse promissory note; provided
that the par value of the Common Shares shall be paid in cash.
6.6 Other Forms of Payment. To the extent that this Section 6.6
is applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR Agreement. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.
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7.2 Number of Shares. Each SAR Agreement shall specify the
number of Common Shares to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 10. SARs granted to any
Optionee in a single calendar year shall in no event pertain to more than
300,000 Common Shares, subject to adjustment in accordance with Article 10.
7.3 Exercise Price. Each SAR Agreement shall specify the
Exercise Price. An SAR Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the SAR is outstanding.
7.4 Exercisability and Term. Each SAR Agreement shall specify
the date when all or any installment of the SAR is to become exercisable. The
SAR Agreement shall also specify the term of the SAR. An SAR Agreement may
provide for accelerated exercisability in the event of the Optionee's death,
disability or retirement or other events and may provide for expiration prior
to the end of its term in the event of the termination of the Optionee's
service. SARs may also be awarded in combination with Options, Restricted
Shares or Stock Units, and such an Award may provide that the SARs will not be
exercisable unless the related Options, Restricted Shares or Stock Units are
forfeited. An SAR may be included in an ISO only at the time of grant but may
be included in an NSO at the time of grant or thereafter. An SAR granted under
the Plan may provide that it will be exercisable only in the event of a Change
in Control.
7.5 Effect of Change in Control. The Committee may determine,
at the time of granting an SAR or thereafter, that such SAR shall become fully
exercisable as to all Common Shares subject to such SAR in the event that a
Change in Control occurs with respect to the Company.
7.6 Exercise of SARs. The exercise of an SAR shall be subject
to the restrictions imposed by Rule 16b-3 (or its successor) under the Exchange
Act, if applicable. If, on the date when an SAR expires, the Exercise Price
under such SAR is less than the Fair Market Value on such date but any portion
of such SAR has not been exercised or surrendered, then such SAR shall
automatically be deemed to be exercised as of such date with respect to such
portion. Upon exercise of an SAR, the Optionee (or any person having the right
to exercise the SAR after his or her death) shall receive from the Company (a)
Common Shares, (b) cash or (c) a combination of Common Shares and cash, as the
Committee shall determine. The amount of cash and/or the Fair Market Value of
Common Shares received upon exercise of SARs shall, in the aggregate, be equal
to the amount by which the Fair Market Value (on the date of surrender) of the
Common Shares subject to the SARs exceeds the Exercise Price.
7.7 Modification or Assumption of SARs. Within the limitations
of the Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding
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SARs (whether granted by the Company or by another issuer) in return for the
grant of new SARs for the same or a different number of shares and at the same
or a different exercise price. The foregoing notwithstanding, no modification
of an SAR shall, without the consent of the Optionee, alter or impair his or
her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.
8.1 Time, Amount and Form of Awards. Awards under the Plan may
be granted in the form of Restricted Shares, in the form of Stock Units, or in
any combination of both. Restricted Shares or Stock Units may also be awarded
in combination with NSOs or SARs, and such an Award may provide that the
Restricted Shares or Stock Units will be forfeited in the event that the
related NSOs or SARs are exercised.
8.2 Payment for Awards. To the extent that an Award is granted
in the form of newly issued Restricted Shares, the Award recipient, as a
condition to the grant of such Award, shall be required to pay the Company in
cash an amount equal to the par value of such Restricted Shares. To the extent
that an Award is granted in the form of Restricted Shares from the Company's
treasury or in the form of Stock Units, no cash consideration shall be required
of the Award recipients.
8.3 Vesting Conditions. Each Award of Restricted Shares or
Stock Units shall become vested, in full or in installments, upon satisfaction
of the conditions specified in the Stock Award Agreement. A Stock Award
Agreement may provide for accelerated vesting in the event of the Participant's
death, disability or retirement or other events. The Committee may determine,
at the time of making an Award or thereafter, that such Award shall become
fully vested in the event that a Change in Control occurs with respect to the
Company.
8.4 Form and Time of Settlement of Stock Units. Settlement of
vested Stock Units may be made in the form of (a) cash, (b) Common Shares or
(c) any combination of both, as determined by the Committee. The actual number
of Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of Common Shares over a series of
trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have lapsed, or
it may be deferred to any later date. The amount of a deferred distribution
may be increased by an interest factor or by dividend equivalents. Until an
Award of Stock Units is settled, the number of such Stock Units shall be
subject to adjustment pursuant to Article 10.
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8.5 Death of Recipient. Any Stock Units Award that becomes
payable after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under the
Plan shall designate one or more beneficiaries for this purpose by filing the
prescribed form with the Company. A beneficiary designation may be changed by
filing the prescribed form with the Company at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Units Award that
becomes payable after the recipient's death shall be distributed to the
recipient's estate.
8.6 Creditors' Rights. A holder of Stock Units shall have no
rights other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to the
terms and conditions of the applicable Stock Award Agreement.
ARTICLE 9. VOTING AND DIVIDEND RIGHTS.
9.1 Restricted Shares. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Stock Award Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid. Such additional Restricted Shares shall not
reduce the number of Common Shares available under Article 3.
9.2 Stock Units. The holders of Stock Units shall have no
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount
equal to all cash dividends paid on one Common Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock
Units. Settlement of dividend equivalents may be made in the form of cash, in
the form of Common Shares, or in a combination of both. Prior to distribution,
any dividend equivalents which are not paid shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.
ARTICLE 10. PROTECTION AGAINST DILUTION.
10.1 Adjustments. In the event of a subdivision of the
outstanding Common Shares, a declaration of a dividend payable in Common
Shares, a declaration of a dividend payable in a form other than Common Shares
in an amount that has a material effect on the price of Common Shares, a
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee shall make
such adjustments as
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it, in its sole discretion, deems appropriate in one or more of (a) the number
of Options, SARs, Restricted Shares and Stock Units available for future Awards
under Article 3, (b) the limitations set forth in Sections 5.2 and 7.2, (c) the
number of NSOs to be granted to Outside Directors under Section 4.2, (d) the
number of Stock Units included in any prior Award which has not yet been
settled, (e) the number of Common Shares covered by each outstanding Option and
SAR or (f) the Exercise Price under each outstanding Option and SAR. Except as
provided in this Article 10, a Participant shall have no rights by reason of
any issue by the Company of stock of any class or securities convertible into
stock of any class, any subdivision or consolidation of shares of stock of any
class, the payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class.
10.2 Reorganizations. In the event that the Company is a party
to a merger or other reorganization, outstanding Options, SARs, Restricted
Shares and Stock Units shall be subject to the agreement of merger or
reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding Awards by the surviving corporation or its parent,
for their continuation by the Company (if the Company is a surviving
corporation), for accelerated vesting and accelerated expiration (provided the
Company has previously had its initial public offering), or for settlement in
cash.
ARTICLE 11. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such
awards may be settled in the form of Common Shares issued under this Plan.
Such Common Shares shall be treated for all purposes under the Plan like Common
Shares issued in settlement of Stock Units and shall, when issued, reduce the
number of Common Shares available under Article 3.
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
12.1 Effective Date. No provision of this Article 12 shall be
effective unless and until the Board has determined to implement such
provision.
12.2 Elections to Receive NSOs, Restricted Shares or Stock Units.
An Outside Director may elect to receive his or her annual retainer payments
and meeting fees from the Company in the form of cash, NSOs, Restricted Shares,
Stock Units, or a combination thereof, as determined by the Board. Such NSOs,
Restricted Shares and Stock Units shall be issued under the Plan. An election
under this Article 12 shall be filed with the Company on the prescribed form.
12.3 Number and Terms of NSOs, Restricted Shares or Stock Units.
The number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated
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in a manner determined by the Board. The terms of such NSOs, Restricted Shares
or Stock Units shall also be determined by the Board.
ARTICLE 13. LIMITATION ON RIGHTS.
13.1 Retention Rights. Neither the Plan nor any Award granted
under the Plan shall be deemed to give any individual a right to remain an
employee, consultant or director of the Company, a Parent or a Subsidiary. The
Company and its Parents and Subsidiaries reserve the right to terminate the
service of any employee, consultant or director at any time, with or without
cause, subject to applicable laws, the Company's certificate of incorporation
and by-laws and a written employment agreement (if any).
13.2 Stockholders' Rights. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any
Common Shares covered by his or her Award prior to the issuance of a stock
certificate for such Common Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date when
such certificate is issued, except as expressly provided in Articles 8, 9 and
10.
13.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to
the issuance of such Common Shares, to their registration, qualification or
listing or to an exemption from registration, qualification or listing.
ARTICLE 14. LIMITATION ON PAYMENTS.
14.1 Gross-Up Payment. In the event that it is determined that
any payment or transfer by the Company under the Plan to or for the benefit of
(the "Payment") would be subject to the excise tax imposed by section 4999 of
the Code or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest or penalties, are collectively
referred to as the "Excise Tax"), then the Participant shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount that shall
fund the payment by the Participant of any Excise Tax on the Payment as well as
all income taxes imposed on the Gross-Up Payment, any Excise Tax imposed on the
Gross- Up Payment and any interest or penalties imposed with respect to taxes
on the Gross-Up Payment or any Excise Tax.
14.2 Determination by Accountant. All mathematical
determinations and all determinations of whether any of the Payments
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are "parachute payments" (within the meaning of section 280G of the Code)
including all determinations of whether a Gross-Up Payment is required, of the
amount of such Gross-Up Payment and of amounts determined under Section 14.3
shall be made by the independent auditors most recently selected by the Board
(the "Auditors"), which shall provide its determination (the "Determination"),
together with detailed supporting calculations regarding the amount of any
Gross-Up Payment and any other relevant matters, both to the Company and to the
Participant within seven business days of the Participant's termination date,
if applicable, or such earlier time as is requested by the Company or by the
Participant (if the Participant reasonably believes that any of the Total
Payments may be subject to the Excise Tax). If the Accounting Firm determines
that no Excise Tax is payable by the Participant, it shall furnish the
Participant with a written statement that the Auditors have concluded that no
Excise Tax is payable (including the reasons therefor) and that the Participant
has substantial authority not to report any Excise Tax on the Participant's
federal income tax return. If a Gross-Up Payment is determined to be payable,
it shall be paid to the Participant within five business days after the
Determination is delivered to the Company or the Participant. Any
determination by the Auditors shall be binding upon the Company and the
Participant, absent manifest error.
14.3 Underpayments and Overpayments. As a result of uncertainty
in the application of section 4999 of the Code at the time of the initial
determination by the Auditors hereunder, it is possible that Gross-Up Payments
not made by the Company should have been made ("Underpayments") or that
Gross-Up Payments will have been made by the Company which should not have been
made ("Overpayments"). In either event, the Auditors shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment shall promptly be paid by the
Company to or for the benefit of the Employee. In the case of an Overpayment,
the Employee shall, at the direction and expense of the Company, take such
steps as are reasonably necessary (including the filing of returns and claims
for refund), follow reasonable instructions from, and procedures established
by, the Company and otherwise reasonably cooperate with the Company to correct
such Overpayment; provided, however, that (i) the Employee shall in no event be
obligated to return to the Company an amount greater than the net after-tax
portion of the Overpayment that the Employee has retained or has recovered as a
refund from the applicable taxing authorities and (ii) this provision shall be
interpreted in a manner consistent with the intent of this Article 14, which is
to make the Employee whole, on an after-tax basis, for the application of the
Excise Tax, it being understood that the correction of an Overpayment may
result in the Employee's repaying to the Company an amount which is less than
the Overpayment.
14.4 Related Corporations. For purposes of this Article 14, the
term "Company" shall include affiliated corporations to the
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extent determined by the Auditors in accordance with section 280G(d)(5) of the
Code.
ARTICLE 15. WITHHOLDING TAXES.
15.1 General. To the extent required by applicable federal,
state, local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The
Company shall not be required to issue any Common Shares or make any cash
payment under the Plan until such obligations are satisfied.
15.2 Share Withholding. The Committee may permit a Participant
to satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that
otherwise would be issued to him or her or by surrendering all or a portion of
any Common Shares that he or she previously acquired. Such Common Shares shall
be valued at their Fair Market Value on the date when taxes otherwise would be
withheld in cash. Any payment of taxes by assigning Common Shares to the
Company may be subject to restrictions, including any restrictions required by
rules of the Securities and Exchange Commission.
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS.
16.1 General. An Award granted under the Plan shall not be
anticipated, assigned, attached, garnished, optioned, transferred or made
subject to any creditor's process, whether voluntarily, involuntarily or by
operation of law, except as approved by the Committee. Notwithstanding the
foregoing, ISOs and, prior to the Company's initial public offering, NSOs may
not be transferable. However, this Article 16 shall not preclude a Participant
from designating a beneficiary who will receive any outstanding Awards in the
event of the Participant's death, nor shall it preclude a transfer of Awards by
will or by the laws of descent and distribution.
16.2 Trusts. Neither this Article 16 nor any other provision of
the Plan shall preclude a Participant from transferring or assigning Restricted
Shares to (a) the trustee of a trust that is revocable by such Participant
alone, both at the time of the transfer or assignment and at all times
thereafter prior to such Participant's death, or (b) the trustee of any other
trust to the extent approved in advance by the Committee in writing. A
transfer or assignment of Restricted Shares from such trustee to any person
other than such Participant shall be permitted only to the extent approved in
advance by the Committee in writing, and Restricted Shares held by such trustee
shall be subject to all of the conditions and restrictions set forth in the
Plan and in the applicable Stock Award Agreement, as if such trustee were a
party to such Agreement.
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ARTICLE 17. FUTURE OF THE PLAN.
17.1 Term of the Plan. The Plan, as set forth herein, was
adopted on _____________, 1997, and became effective August 1, 1997, except
that Articles 7, 8 and 9 shall not be effective prior to the date of the
Company's initial public offering. The Plan shall remain in effect until it is
terminated under Section 17.2, except that no ISOs shall be granted after July
31, 2007.
17.2 Amendment or Termination. The Board may, at any time and
for any reason, amend or terminate the Plan. An amendment of the Plan shall be
subject to the approval of the Company's stockholders only to the extent
required by applicable laws, regulations or rules. No Awards shall be granted
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Award previously granted under the
Plan.
ARTICLE 18. DEFINITIONS.
18.1 "Award" means any award of an Option, an SAR, a Restricted
Share or a Stock Unit under the Plan.
18.2 "Board" means the Company's Board of Directors, as
constituted from time to time.
18.3 "Change in Control" shall mean the occurrence of any of the
following events:
(a) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately
after such merger, consolidation or other reorganization is owned by
persons who were not stockholders of the Company immediately prior to
such merger, consolidation or other reorganization;
(b) A change in the composition of the Board, as a result
of which fewer than one-half of the incumbent directors are directors
who either:
(A) Had been directors of the Company 24 months
prior to such change; or
(B) Were elected, or nominated for election, to
the Board with the affirmative votes of at least a majority
of the directors who had been directors of the Company 24
months prior to such change and who were
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still in office at the time of the election or nomination;
or
(c) Any "person" (as such term is used in sections 13(d)
and 14(d) of the Exchange Act) by the acquisition or aggregation of
securities is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing 50% or more of the combined
voting power of the Company's then outstanding securities ordinarily
(and apart from rights accruing under special circumstances) having
the right to vote at elections of directors (the "Base Capital
Stock"); except that any change in the relative beneficial ownership
of the Company's securities by any person resulting solely from a
reduction in the aggregate number of outstanding shares of Base
Capital Stock, and any decrease thereafter in such person's ownership
of securities, shall be disregarded until such person increases in any
manner, directly or indirectly, such person's beneficial ownership of
any securities of the Company. Thus, for example, any person who owns
less than 50% of the Company's outstanding shares, shall cause a
Change in Control to occur as of any subsequent date if such person
then acquires an additional interest in the Company which, when added
to the person's previous holdings, causes the person to hold more than
50% of the Company's outstanding shares.
The term "Change in Control" shall not include the Company's initial public
offering or a transaction, the sole purpose of which is to change the state of
the Company's incorporation.
18.4 "Code" means the Internal Revenue Code of 1986, as amended.
18.5 "Committee" means a committee of the Board, as described in
Article 2.
18.6 "Common Share" means one share of the common stock of the
Company.
18.7 "Company" means Nanogen, Inc., a Delaware corporation.
18.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
18.9 "Exercise Price," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
18.10 "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows:
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(a) If the Common Shares were traded over-the-counter on
the date in question but was not traded on the Nasdaq Stock Market or
the Nasdaq National Market, then the Fair Market Value shall be equal
to the mean between the last reported representative bid and asked
prices quoted for such date by the principal automated inter-dealer
quotation system on which the Common Shares are quoted or, if the
Common Shares are not quoted on any such system, by the "Pink Sheets"
published by the National Quotation Bureau, Inc.;
(b) If the Common Shares were traded over-the-counter on
the date in question and were traded on the Nasdaq Stock Market or the
Nasdaq National Market, then the Fair Market Value shall be equal to
the last-transaction price quoted for such date by the Nasdaq Stock
Market or the Nasdaq National Market;
(c) If the Common Shares were traded on a stock exchange on
the date in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions report
for such date; and
(d) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.
18.11 "ISO" means an incentive stock option described in section
422(b) of the Code.
18.12 "Key Employee" means (a) a common-law employee of the Company,
a Parent or a Subsidiary, (b) an Outside Director and (c) a consultant or
adviser who provides services to the Company, a Parent or a Subsidiary as an
independent contractor. Service as an Outside Director or as an independent
contractor shall be considered employment for all purposes of the Plan, except
as provided in Sections 4.2 and 4.3.
18.13 "NSO" means a stock option not described in sections 422 or 423
of the Code.
18.14 "Option" means an ISO or NSO granted under the Plan and
entitling the holder to purchase one Common Share.
18.15 "Optionee" means an individual or estate who holds an Option or
SAR.
18.16 "Outside Director" shall mean a member of the Board who is not
a common-law employee of the Company, a Parent or a Subsidiary.
-15-
<PAGE> 19
18.17 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
18.18 "Participant" means an individual or estate who holds an Award.
18.19 "Plan" means this 1997 Stock Incentive Plan of Nanogen, Inc.,
as amended from time to time.
18.20 "Restricted Share" means a Common Share awarded under the Plan.
18.21 "SAR" means a stock appreciation right granted under the Plan.
18.22 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to
his or her SAR.
18.23 "Stock Award Agreement" means the agreement between the Company
and the recipient of a Restricted Share or Stock Unit which contains the terms,
conditions and restrictions pertaining to such Restricted Share or Stock Unit.
18.24 "Stock Option Agreement" means the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.
18.25 "Stock Unit" means a bookkeeping entry representing the
equivalent of one Common Share, as awarded under the Plan.
18.26 "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
-16-
<PAGE> 20
ARTICLE 19. EXECUTION.
To record the adoption of the Plan by the Board, the Company has
caused its duly authorized officer to affix the corporate name and seal hereto.
NANOGEN, INC.
By /s/ Harry J. Leonhardt
-----------------------------------
Harry J. Leonhardt, Esq.
Vice President, General
Counsel and Secretary
-17-
<PAGE> 1
One-Year Cliff
EXHIBIT 10.4
NANOGEN, INC.
1997 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
Nanogen, Inc., a Delaware corporation (the "Company"), hereby grants an
Option to purchase shares of its common stock ("Shares") to the Optionee named
below. The terms and conditions of the Option are set forth in this cover sheet,
in the attachment and in the Company's 1997 Stock Incentive Plan (the "Plan").
Date of Grant:__________________________________________________________________
Name of Optionee:_______________________________________________________________
Optionee's Social Security Number:______________________________________________
Number of Shares Covered by Option:_____________________________________________
Exercise Price per Share: $____________________________________________________
[must be at least 100% fair market value on Date of Grant]
Vesting Start Date:_____________________________________________________________
Check here if Optionee is a 10% owner (so that exercise price
must be 110% of fair market value and term will not exceed 5
years).
BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY
OF WHICH IS ALSO ATTACHED.
Optionee:_______________________________________________________________________
(Signature)
Company:________________________________________________________________________
(Signature)
Title:___________________________________________________________
<PAGE> 2
NANOGEN, INC.
1997 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION This Option is intended to be an incentive stock
option under section 422 of the Internal Revenue
Code and will be interpreted accordingly .
VESTING Your Option vests monthly over a four year period
beginning on the Vesting Start Date as shown on
the cover sheet. The number of Shares which vest
under this Option at the Exercise Price shall be
equal to the product of the number of months of
your continuous service with the Company
("Service") (including any approved leaves of
absence) from the Vesting Start Date times the
number of Shares covered by this Option times
1/48. The resulting number of Shares will be
rounded to the nearest whole number.
Notwithstanding the above, no shares will vest
until you have performed twelve months of Service
from the Vesting Start Date. This Option shall be
fully vested upon a Change in Control as defined
in the Plan. Change in Control does not include
any public offering of Shares. No additional
Shares will vest after your Service has terminated
for any reason.
TERM Your Option will expire in any event at the close
of business at Company headquarters on the day
before the tenth anniversary (fifth anniversary
for a 10% owner) of the Date of Grant, as shown on
the cover sheet. (It will expire earlier if your
Service terminates, as described below.)
REGULAR TERMINATION If your Service terminates for any reason except
death or Disability, your Option will expire at
the close of business at Company headquarters on
the 90th day after your termination date. During
that 90-day period, you may exercise that portion
of your Option that was vested on your
termination date.
DEATH If you die while in Service with the Company, your
Option will expire at the close of business at
Company headquarters on the date twelve (12)
months after the date of death. During that
twelve-month period, your estate or heirs may
exercise that portion of your Option that was
vested on the date of death.
-2-
<PAGE> 3
DISABILITY If your Service terminates because of your
Disability, your Option will expire at the close
of business at Company headquarters on the date
twelve (12) months after your termination date.
(However, if your Disability is not expected to
result in death or to last for a continuous period
of at least 12 months, your Option will be
eligible for ISO tax treatment only if it is
exercised within three months following the
termination of your Service.) During that
twelve-month period, you may exercise that portion
of your Option that was vested on the date of your
Disability.
"Disability" means that you are unable to engage
in any substantial gainful activity by reason of
any medically determinable physical or mental
impairment.
LEAVES OF ABSENCE For purposes of this Option, your Service does not
terminate when you go on a bona fide leave of
absence that was approved by the Company in
writing, if the terms of the leave provide for
continued service crediting, or when continued
service crediting is required by applicable law.
However, your Service will be treated as
terminating 90 days after you went on leave,
unless your right to return to active work is
guaranteed by law or by a contract. Your Service
terminates in any event when the approved leave
ends unless you immediately return to active work.
The Company determines which leaves count for this
purpose, and when your Service terminates for all
purposes under the Plan. The Company also
determines the extent to which you may exercise
the vested portion of your Option during a leave
of absence.
NOTICE OF EXERCISE When you wish to exercise this Option, you must
execute complete and file a Notice of Exercise
with the Company. Your exercise will be effective
when it is received by the Company. If someone
else wants to exercise this Option after your
death, that person must prove to the Company's
satisfaction that he or she is entitled to do so.
FORM OF PAYMENT When you submit submit your Notice of Exercise
with the Company, you must include payment of the
Exercise Price for the Shares you are purchasing.
Payment may be made in one (or a combination) of
the following forms:
- Your personal check, a cashier's check or a
money order.
- Shares which you have owned for six months and
which are surrendered to the Company. The value of
the Shares, determined as of the effective date of
the Option exercise, will be applied to the
Exercise Price.
-3-
<PAGE> 4
- To the extent that a public market for the
Shares exists as determined by the Company, by
delivery (on a form prescribed by the Committee)
of an irrevocable direction to a securities broker
to sell Shares and to deliver all or part of the
sale proceeds to the Company in payment of the
aggregate Exercise Price.
- Any other form of legal consideration approved
by the Committee.
WITHHOLDING TAXES You will not be allowed to exercise this
Option unless you make acceptable arrangements to
pay any withholding or other taxes that may be due
as a result of the Option exercise or the sale of
Shares acquired upon exercise of this Option.
RESTRICTIONS ON
EXERCISE AND RESALE By signing this Agreement, you agree not to sell
any option shares at a time when applicable laws
or Company policies prohibit a sale. This
restriction will apply as long as you are in the
Service of the Company (or a subsidiary).
TRANSFER OF OPTION Prior to your death, only you may exercise this
Option. You cannot transfer or assign this Option
except as expressly permitted in the Plan for
revocable trusts or as approved by the Committee.
For instance, you may not sell this Option or use
it as security for a loan. If you attempt to do
any of these things, this Option will immediately
become invalid. You may, however, dispose of this
Option in your will.
Regardless of any marital property settlement
agreement, the Company is not obligated to honor a
Notice of Exercise from your spouse or former
spouse, nor is the Company obligated to recognize
such individual's interest in your Option in any
other way.
RETENTION RIGHTS This Agreement does not give you the right
to be retained by the Company in any capacity. The
Company reserves the right to terminate your
Service at any time and for any reason.
SHAREHOLDER RIGHTS Neither you, nor your estate or heirs, have any
rights as a shareholder of the Company until a
certificate for the Shares acquired upon exercise
of this Option has been issued. No adjustments are
made for dividends or other rights if the
applicable record date occurs before your stock
certificate is issued, except as described in the
Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend
or a similar change in the Company's Stock, the
number of Shares covered by this Option
-4
<PAGE> 5
and the Exercise Price per share may be adjusted
pursuant to the Plan. Your Option shall be subject
to the terms of the agreement of merger,
liquidation or reorganization in the event the
Company is subject to such corporate activity.
APPLICABLE LAW This Agreement will be interpreted and
enforced under the laws of the State of California
(without regard to their choice of law
provisions).
THE PLAN AND OTHER The text of the Plan is incorporated in this
AGREEMENTS Agreement by reference. Certain capitalized terms
used in this Agreement are defined in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and the Company
regarding this Option. Any prior agreements,
commitments or negotiations concerning this Option
are superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE
TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
-5-
<PAGE> 1
EXHIBIT 10.5
NANOGEN, INC.
1997 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
Nanogen, Inc., a Delaware corporation (the "Company"), hereby grants an
Option to purchase shares of its common stock ("Shares") to the Optionee named
below. The terms and conditions of the Option are set forth in this cover sheet,
in the attachment and in the Company's 1997 Stock Incentive Plan (the "Plan").
Date of Grant:
-----------------------------------------------------------------
Name of Optionee:
--------------------------------------------------------------
Optionee's Social Security Number:
---------------------------------------------
Number of Shares Covered by Option:
--------------------------------------------
Exercise Price per Share: $
---------------------------------------------------
Vesting Start Date:
------------------------------------------------------------
BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY
OF WHICH IS ALSO ATTACHED.
Optionee:
----------------------------------------------------------------------
(Signature)
Company:
-----------------------------------------------------------------------
(Signature)
Title:
----------------------------------------------------------
<PAGE> 2
NANOGEN, INC.
1997 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
NONQUALIFIED STOCK This Option is not intended to be an incentive stock
OPTION option under section 422 of the Internal Revenue Code
and will be interpreted accordingly.
VESTING Your Option vests monthly over a four year period
beginning on the Vesting Start Date as shown on the
cover sheet. The number of Shares which vest under this
Option at the Exercise Price shall be equal to the
product of the number of months of your continuous
service with the Company ("Service") (including any
approved leaves of absence) from the Vesting Start Date
times the number of Shares covered by this Option times
1/48. The resulting number of Shares will be rounded to
the nearest whole number. Notwithstanding the above, no
shares will vest until you have performed twelve months
of Service from the Vesting Start Date. This Option
shall be fully vested upon a Change in Control as
defined in the Plan. Change in Control does not include
any public offering of Shares. No additional Shares will
vest after your Service has terminated for any reason.
TERM Your Option will expire in any event at the close of
business at Company headquarters on the day before the
tenth anniversary of the Date of Grant, as shown on the
cover sheet. (It will expire earlier if your Service
terminates, as described below.)
REGULAR TERMINATION If your Service terminates for any reason except death
or Disability, your Option will expire at the close of
business at Company headquarters on the 90th day after
your termination date. During that 90-day period, you
may exercise that portion of your Option that was vested
on your termination date.
DEATH If you die while in Service with the Company, your
Option will expire at the close of business at Company
headquarters on the date twelve (12) months after the
date of death. During that twelve-month period, your
estate or heirs may exercise that portion of your Option
that was vested on the date of death.
-2-
<PAGE> 3
DISABILITY If your Service terminates because of your Disability,
your Option will expire at the close of business at
Company headquarters on the date twelve (12) months
after your termination date. During that twelve-month
period, you may exercise that portion of your Option
that was vested on the date of your Disability.
"Disability" means that you are unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment.
LEAVES OF ABSENCE For purposes of this Option, your Service does not
terminate when you go on a bona fide leave of absence
that was approved by the Company in writing, if the
terms of the leave provide for continued service
crediting, or when continued service crediting is
required by applicable law. However, your Service will
be treated as terminating 90 days after you went on
leave, unless your right to return to active work is
guaranteed by law or by a contract. Your Service
terminates in any event when the approved leave ends
unless you immediately return to active work. The
Company determines which leaves count for this purpose,
and when your Service terminates for all purposes under
the Plan. The Company also determines the extent to
which you may exercise the vested portion of your Option
during a leave of absence.
NOTICE OF EXERCISE When you wish to exercise this Option, you must execute
complete and file a Notice of Exercise with the Company.
Your exercise will be effective when it is received by
the Company. If someone else wants to exercise this
Option after your death, that person must prove to the
Company's satisfaction that he or she is entitled to do
so.
FORM OF PAYMENT When you submit submit your Notice of Exercise with the
Company, you must include payment of the Exercise Price
for the Shares you are purchasing. Payment may be made
in one (or a combination) of the following forms:
o Your personal check, a cashier's check or a money
order.
o Shares which you have owned for six months and
which are surrendered to the Company. The value
of the Shares, determined as of the effective
date of the Option exercise, will be applied to
the Exercise Price.
o To the extent that a public market for the Shares
exists as determined by the Company, by delivery
(on a form prescribed by the Committee) of an
irrevocable direction to a securities broker to
sell Shares and to deliver all or part of the
sale
-3-
<PAGE> 4
proceeds to the Company in payment of the
aggregate Exercise Price.
o Any other form of legal consideration approved by
the Committee.
WITHHOLDING TAXES You will not be allowed to exercise this Option unless
you make acceptable arrangements to pay any withholding
or other taxes that may be due as a result of the Option
exercise or the sale of Shares acquired upon exercise of
this Option.
RESTRICTIONS ON By signing this Agreement, you agree not to sell any
EXERCISE AND RESALE option shares at a time when applicable laws or Company
policies prohibit a sale. This restriction will apply as
long as you are in the Service of the Company (or a
subsidiary).
TRANSFER OF OPTION Prior to your death, only you may exercise this Option.
You cannot transfer or assign this Option except as
expressly permitted in the Plan for revocable trusts or
as approved by the Committee. For instance, you may not
sell this Option or use it as security for a loan. If
you attempt to do any of these things, this Option will
immediately become invalid. You may, however, dispose of
this Option in your will.
Regardless of any marital property settlement agreement,
the Company is not obligated to honor a Notice of
Exercise from your spouse or former spouse, nor is the
Company obligated to recognize such individual's
interest in your Option in any other way.
RETENTION RIGHTS This Agreement does not give you the right to be
retained by the Company in any capacity. The Company
reserves the right to terminate your Service at any time
and for any reason.
SHAREHOLDER RIGHTS Neither you, nor your estate or heirs, have any rights
as a shareholder of the Company until a certificate for
the Shares acquired upon exercise of this Option has
been issued. No adjustments are made for dividends or
other rights if the applicable record date occurs before
your stock certificate is issued, except as described in
the Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or a
similar change in the Company's Stock, the number of
Shares covered by this Option and the Exercise Price per
share may be adjusted pursuant to the Plan. Your Option
shall be subject to the terms of the agreement of
merger, liquidation or reorganization in the event the
Company is subject to such corporate activity.
-4-
<PAGE> 5
APPLICABLE LAW This Agreement will be interpreted and enforced under
the laws of the State of California (without regard to
their choice of law provisions).
THE PLAN AND OTHER The text of the Plan is incorporated in this Agreement
AGREEMENTS by reference. Certain capitalized terms used in this
Agreement are defined in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and the Company regarding this
Option. Any prior agreements, commitments or
negotiations concerning this Option are superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE
TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
-5-
<PAGE> 1
EXHIBIT 10.6
NANOGEN, INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Company's Board of Directors on November 21,
1997. The Plan effective date is the effective date of the Company's initial
underwritten public offering.
The purpose of the Plan is to provide Eligible Employees with an
opportunity to increase their proprietary interest in the success of the Company
by purchasing Stock from the Company on favorable terms and to pay for such
purchases through payroll deductions. The Plan is intended to qualify under
section 423 of the Internal Revenue Code of 1986, as amended.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) The Committee. The Plan shall be administered by the Committee. The
interpretation and construction by the Committee of any provision of the Plan or
of any right to purchase Stock granted under the Plan shall be conclusive and
binding on all persons.
(b) Rules and Forms. The Committee may adopt such rules and forms under
the Plan as it considers appropriate.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) Offering Periods. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. Except for the first
Offering Period, Offering Periods shall consist of the 24-month periods
commencing on each January 1 and July 1. The first Offering Period shall
commence on the effective date of the Company's initial public offering and end
on December 31, 1999.
(b) Accumulation Periods. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. Except for the first Accumulation
Period, Accumulation Periods shall consist of the six-month periods commencing
on each January 1 and July 1. The first Accumulation Period shall commence on
the effective date of the Company's initial public offering and end on June 30,
1998.
(c) Enrollment. Any individual who, on the day preceding the first day
of an Offering Period, qualifies as an
<PAGE> 2
Eligible Employee may elect to become a Participant in the Plan for such
Offering Period by executing the enrollment form prescribed for this purpose by
the Committee. The enrollment form shall be filed with the Company not later
than one week prior to the last working day prior to the commencement of such
Offering Period.
(d) Duration of Participation. Once enrolled in the Plan, a Participant
shall continue to participate until he or she ceases to be an Eligible Employee,
withdraws from the Plan or reaches the end of the Accumulation Period in which
he or she discontinued contributions. A Participant who discontinued
contributions under Section 4(d) or withdrew from the Plan under Section 5(a)
may again become a Participant, if he or she then is an Eligible Employee, by
following the procedure described in Subsection (c) above.
(e) Applicable Offering Period. For purposes of calculating the Purchase
Price under Section 7(b), the applicable Offering Period shall be determined as
follows:
(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until
the earliest of (A) the end of such Offering Period, (B) the end of his
or her participation under Subsection (d) above or (C) reenrollment in a
subsequent Offering Period under Paragraph (ii) below.
(ii) In the event that the Fair Market Value of Stock on the last
trading day before the commencement of the Offering Period in which the
Participant is enrolled is higher than on the last trading day before
the commencement of any subsequent Offering Period, the Participant
shall automatically be re-enrolled for such subsequent Offering Period.
(iii) When a Participant reaches the end of an Offering Period
but his or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) Frequency of Payroll Deductions. A Participant may purchase shares
of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
-2-
<PAGE> 3
(b) Amount of Payroll Deductions. An Eligible Employee shall designate
on the enrollment form the portion of his or her Compensation that he or she
elects to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(c) Changing Withholding Rate. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Company not later than one week prior to the last working day prior to
the commencement of the Accumulation Period for which such change is to be
effective.
(d) Discontinuing Payroll Deductions. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form at any time. Payroll withholding shall cease as soon as
reasonably practicable after such form has been received by the Company.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) Withdrawal. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at any time before the last day of
an Accumulation Period. As soon as reasonably practicable thereafter, payroll
deductions shall cease and the entire amount credited to the Participant's Plan
Account shall be refunded to him or her in cash, without interest. No partial
withdrawals shall be permitted.
(b) Re-Enrollment After Withdrawal. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(b).
SECTION 6. TERMINATION OF EMPLOYMENT OR DEATH.
(a) Termination of Employment. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) Death. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company before
the Participant's death.
-3-
<PAGE> 4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) Plan Accounts. The Company shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. No interest shall be credited to Plan Accounts.
(b) Purchase Price. The Purchase Price for each share of Stock purchased
at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period
(as determined under Section 3(e)); or
(ii) 85% of the Fair Market Value of such share on the last
trading day in such Accumulation Period.
(c) Number of Shares Purchased. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than a maximum of 2,500
shares of Stock with respect to any Accumulation Period nor shares of Stock in
excess of the amounts set forth in Sections 8 and 12(a). The Committee may
determine with respect to all Participants that any fractional share, as
calculated under this Subsection (c), shall be rounded down to the next lower
whole share.
(d) Available Shares Insufficient. In the event that the aggregate
number of shares that all Participants elect to purchase during an Accumulation
Period exceeds the maximum number of shares remaining available for issuance
under Section 12(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
-4-
<PAGE> 5
(e) Issuance of Stock. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
(f) Unused Cash Balances. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above or Section 12(a) shall be refunded to the Participant in
cash, without interest.
(g) Failure of Shareholders to Approve Plan.
In the event shareholders of the Company do not approve this Plan, the
Participant's Plan Account shall be repaid to the Participant in cash and no
Company shares will be purchased for the Participant under this Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
Any other provision of the Plan notwithstanding, no Participant shall be
granted a right to purchase Stock under the Plan if:
(a) Such Participant, immediately after his or her election to
purchase such Stock, would own stock possessing more than 5% of the
total combined voting power or value of all classes of stock of the
Company or any parent or Subsidiary of the Company; or
(b) Under the terms of the Plan, such Participant's rights to
purchase stock under this and all other qualified employee stock
purchase plans of the Company or any parent or Subsidiary of the Company
would accrue at a rate that exceeds $25,000 of the fair market value of
such stock (determined at the time when such right is granted) for each
calendar year for which such right or option is outstanding at any time.
-5-
<PAGE> 6
Ownership of stock shall be determined after applying the attribution rules of
section 424(d) of the Internal Revenue Code of 1986, as amended. For purposes of
this Section 8, each Participant shall be considered to own any stock that he or
she has a right or option to purchase under this or any other plan, and each
Participant shall be considered to have the right to purchase _______ shares of
Stock under this Plan with respect to each Accumulation Period.
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner attempts
to transfer, assign or otherwise encumber his or her rights or interest under
the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan shall be construed to give any person the right to
remain in the employ of a Participating Company. Each Participating Company
reserves the right to terminate the employment of any person at any time, with
or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares that he or she has purchased, or may have a right to purchase, under the
Plan until the date of issuance of a stock certificate for such shares.
SECTION 12. STOCK OFFERED UNDER THE PLAN.
(a) Authorized Shares. The aggregate number of shares of Stock available
for purchase under the Plan shall be 150,000, subject to adjustment pursuant to
this Section 12.
(b) Anti-Dilution Adjustments. The aggregate number of shares of Stock
offered under the Plan, the 2,500-share limitation described in Section 7(c) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares, the
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payment of a stock dividend, any other increase or decrease in such shares
effected without receipt or payment of consideration by the Company or the
distribution of the shares of a Subsidiary to the Company's stockholders.
(c) Reorganizations. In the event of a dissolution or liquidation of the
Company, or a merger or consolidation to which the Company is a constituent
corporation, the Plan shall terminate unless the plan of merger, consolidation
or reorganization provides otherwise, and all amounts that have been withheld
but not yet applied to purchase Stock hereunder shall be refunded, without
interest. The Plan shall in no event be construed to restrict in any way the
Company's right to undertake a dissolution, liquidation, merger, consolidation
or other reorganization.
SECTION 13. AMENDMENT OR DISCONTINUANCE.
The Board of Directors shall have the right to amend, suspend or
terminate the Plan at any time and without notice. Except as provided in Section
12, any increase in the aggregate number of shares of Stock to be issued under
the Plan shall be subject to approval by a vote of the stockholders of the
Company. In addition, any other amendment of the Plan shall be subject to
approval by a vote of the stockholders of the Company to the extent required by
an applicable law or regulation.
SECTION 14. DEFINITIONS.
(a) "Accumulation Period" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "Board of Directors" means the Board of Directors of the Company, as
constituted from time to time.
(c) "Committee" means a committee of the Board of Directors, consisting
of one or more directors appointed by the Board of Directors.
(d) "Company" means Nanogen, Inc., a Delaware corporation.
(e) "Compensation" means the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, overtime pay
and commissions, but excluding bonuses, incentive compensation, moving or
relocation allowances, car allowances, imputed income attributable to cars or
life insurance, taxable fringe benefits and similar items, all as determined by
the Committee.
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(f) "Eligible Employee" means any employee of a Participating Company:
(i) Whose customary employment is for more than five months per
calendar year and for more than 20 hours per week; and
(ii) Who has been an employee of a Participating Company for not
less than one month.
(g) "Fair Market Value" shall mean the market price of Stock, determined
by the Committee as follows:
(i) If Stock was traded over-the-counter on the date in question
but was not traded on the Nasdaq Stock Market or the Nasdaq National
Market, then the Fair Market Value shall be equal to the mean between
the last reported representative bid and asked prices quoted for such
date by the principal automated inter-dealer quotation system on which
Stock is quoted or, if the Stock is not quoted on any such system, by
the "Pink Sheets" published by the National Quotation Bureau, Inc.;
(ii) If Stock was traded over-the-counter on the date in question
and was traded on the Nasdaq Stock Market or the Nasdaq National Market,
then the Fair Market Value shall be equal to the last-transaction price
quoted for such date by the Nasdaq Stock Market or the Nasdaq National
Market;
(iii) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date;
and
(iv) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
Journal or as reported directly to the Company by Nasdaq or a comparable
exchange. Such determination shall be conclusive and binding on all persons.
(h) "Offering Period" means a 24-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
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<PAGE> 9
(i) "Participant" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(c).
(j) "Participating Company" means the Company and each present or future
Subsidiary, except Subsidiaries excluded by the Committee.
(k) "Plan" means this Nanogen, Inc. Employee Stock Purchase Plan, as
amended from time to time.
(l) "Plan Account" means the account established for each Participant
pursuant to Section 6(a).
(m) "Purchase Price" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(n) "Stock" means the Common Stock of the Company.
(o) "Subsidiary" means a corporation, 50% or more of the total combined
voting power of all classes of stock of which is owned by the Company or by
another Subsidiary.
SECTION 15. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the
Company has caused its duly authorized officer to affix the corporate name and
seal hereto.
NANOGEN, INC.
By: ____________________________________
Its: ___________________________
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EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made and entered into as of the 11th
day of November, 1997 (the "Agreement"), by and between Nanogen, Inc., a
Delaware corporation (as successor by name change to Nanogen (Delaware), Inc., a
Delaware corporation, which was the surviving corporation of the merger of
Nanogen, Inc., a California corporation, with and into Nanogen (Delaware), Inc.)
(the "Company"), and ______________ (the "Indemnitee"), with reference to the
following facts:
WHEREAS, the Company desires the benefits of having Indemnitee
serve as an officer and/or director secure in the knowledge that any
expenses, liability and/or losses incurred by him in his good faith
service to the Company will be borne by the Company or its successors
and assigns; and
WHEREAS, Indemnitee is willing to serve in his position with the
Company only on the condition that he be indemnified for such expenses,
liability and/or losses; and
WHEREAS, the Company and Indemnitee recognize the increasing
difficulty in obtaining liability insurance for directors, officers and
agents of a corporation at reasonable cost; and
WHEREAS, the Company and Indemnitee recognize that there has been
an increase in litigation against corporate directors, officers and
agents; and
WHEREAS, the Company's Restated Certificate of Incorporation
allows and requires the Company to indemnify its directors, officers and
agents to the maximum extent permitted under Delaware law.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. For purposes of this Agreement:
1.1 "Agent" shall mean any person who (a) is or was a director,
officer, employee or agent of the Company or a subsidiary of the Company
whether serving in such capacity or as a director, officer, employee,
agent, fiduciary or other official of another corporation, joint
venture, trust or other enterprise at the request of, for the
convenience of, or to represent the interests of the Company or a
subsidiary of the Company or (b) was a director, officer, employee or
agent of Nanogen, Inc., a California corporation and the predecessor by
merger to the Company (the "Predecessor Corporation"), whether serving
in such capacity or as a director, officer, employee, agent, fiduciary
or other official of another
<PAGE> 2
corporation, joint venture, trust or other enterprise at the request of,
for the convenience of, or to represent the interests of such
Predecessor Corporation.
1.2 "Change of Control" shall mean the occurrence of any of the
following events after the date of this Agreement:
(a) A change in the composition of the board of directors
of the Company (the "Board"), as a result of which fewer than
two-thirds of the incumbent directors are directors who either
(a) had been directors of the Company 24 months prior to such
change or (b) were elected, or nominated for election, to the
Board with the affirmative votes of at least a majority of the
directors who had been directors of the Company 24 months prior
to such change and who were still in office at the time of the
election or nomination; or
(b) Any "person" (as such term is used in sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), as amended) through the acquisition or aggregation of
securities is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20 percent
or more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights accruing
under special circumstances) having the right to vote at
elections of directors (the "Capital Stock"); provided, however,
that any change in ownership of the Company's securities by any
person resulting solely from a reduction in the aggregate number
of outstanding shares of Capital Stock, and any decrease
thereafter in such person's ownership of securities, shall be
disregarded until such person increases in any manner, directly
or indirectly, such person's beneficial ownership of any
securities of the Company.
1.3 "Disinterested Director" shall mean a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is being sought by Indemnitee.
1.4 "Expenses" shall be broadly construed and shall include,
without limitation, (a) all direct and indirect costs incurred, paid or
accrued, (b) all attorneys' fees, retainers, court costs, transcripts,
fees of experts, witness fees, travel expenses, food and lodging
expenses while traveling, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service, freight or other
transportation fees and expenses, (c) all other disbursements and
out-of-pocket expenses, (d) amounts paid in settlement, to the extent
not prohibited by Delaware Law, and (e) reasonable compensation for time
spent by Indemnitee for which he is otherwise not compensated by the
Company or any
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<PAGE> 3
third party, actually and reasonably incurred in connection with or
arising out of a Proceeding, including a Proceeding by Indemnitee to
establish or enforce a right to indemnification under this Agreement,
applicable law or otherwise.
1.5 "Independent Counsel" shall mean a law firm or a member of a
law firm that neither is presently nor in the past five years has been
retained to represent: (a) the Company, an affiliate of the Company or
Indemnitee in any matter material to either party or (b) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's right to indemnification under this Agreement.
1.6 "Liabilities" shall mean liabilities of any type whatsoever,
including, but not limited to, judgments or fines, ERISA or other excise
taxes and penalties, and amounts paid in settlement (including all
interest, assessments or other charges paid or payable in connection
with any of the foregoing) actually and reasonably incurred by
Indemnitee in connection with a Proceeding.
1.7 "Delaware Law" means the Delaware General Corporation Law, as
amended and in effect from time to time or any successor or other
statutes of Delaware having similar import and effect.
1.8 "Proceeding" shall mean any pending, threatened or completed
action, hearing, suit or any other proceeding, whether civil, criminal,
arbitrative, administrative, investigative or any alternative dispute
resolution mechanism, including without limitation any such Proceeding
brought by or in the right of the Company.
2. Employment Rights and Duties. Subject to any other obligations
imposed on either of the parties by contract or by law, and with the
understanding that this Agreement is not intended to confer employment rights on
either party which they did not possess on the date of its execution, Indemnitee
agrees to serve as a director or officer so long as he is duly appointed or
elected and qualified in accordance with the applicable provisions of the
Restated Certificate of Incorporation (the "Certificate") and Bylaws (the
"Bylaws") of the Company or any subsidiary of the Company and until such time as
he resigns or fails to stand for election or until his employment terminates.
Indemnitee may from time to time also perform other services at the request, or
for the convenience of, or otherwise benefiting the Company. Indemnitee may at
any time and for any reason resign or be removed from such position (subject to
any other contractual obligation or other obligation imposed by operation of
law), in which event the Company shall have no obligation under this Agreement
to continue Indemnitee in any such position.
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<PAGE> 4
2.1 Directors' and Officers' Insurance.
(a) The Company hereby covenants and agrees that, so long
as Indemnitee shall continue to serve as a director or officer of
the Company and thereafter so long as Indemnitee shall be subject
to any possible Proceeding, the Company, subject to Section
2.1(c), shall maintain directors' and officers' insurance in full
force and effect.
(b) In all policies of directors' and officers' insurance,
Indemnitee shall be named as an insured in such a manner as to
provide Indemnitee the same rights and benefits, subject to the
same limitations, as are accorded to the Company's directors or
officers most favorably insured by such policy.
(c) The Company shall have no obligation to maintain
directors' and officers' insurance if the Company determines in
good faith that such insurance is not reasonably available, the
premium costs for such insurance are disproportionate to the
amount of coverage provided, or the coverage provided by such
insurance is limited by exclusions so as to provide an
insufficient benefit.
3. Indemnification. The Company shall indemnify Indemnitee to the
fullest extent authorized or permitted by Delaware Law and the provisions of the
Certificate and Bylaws of the Company in effect on the date hereof, and as
Delaware Law, the Certificate and Bylaws may from time to time be amended (but,
in the case of any such amendment, only to the extent such amendment permits the
Company to provide broader indemnification rights than Delaware Law, the
Certificate and/or Bylaws permitted the Company to provide before such
amendment). The right to indemnification conferred in the Certificate shall be
presumed to have been relied upon by Indemnitee in serving or continuing to
serve the Company as a director or officer and shall be enforceable as a
contract right. Without in any way diminishing the scope of the indemnification
provided by the Certificate and this Section 3, the Company shall indemnify
Indemnitee if and whenever he is or was a witness, party or is threatened to be
made a witness or a party to any Proceeding, by reason of the fact that he is or
was an Agent or by reason of anything done or not done, or alleged to have been
done or not done, by him in such capacity, against all Expenses and Liabilities
actually and reasonably incurred by Indemnitee or on his behalf in connection
with the investigation, defense, settlement or appeal of such Proceeding. In
addition to, and not as a limitation of, the foregoing, the rights of
indemnification of Indemnitee provided under this Agreement shall include those
rights set forth in Sections 4, 5 and 6 below.
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<PAGE> 5
4. Payment of Expenses.
4.1 All Expenses incurred by or on behalf of Indemnitee shall be
advanced by the Company to Indemnitee within 20 days after the receipt
by the Company of a written request for such advance which may be made
from time to time, whether prior to or after final disposition of a
Proceeding (unless there has been a final determination by a court of
competent jurisdiction that Indemnitee is not entitled to be indemnified
for such Expenses). Indemnitee's entitlement to advancement of Expenses
shall include those incurred in connection with any Proceeding by
Indemnitee seeking a determination, an adjudication or an award in
arbitration pursuant to this Agreement. The requests shall reasonably
evidence the Expenses incurred by Indemnitee in connection therewith.
Indemnitee hereby undertakes to repay the amounts advanced if it shall
ultimately be determined that Indemnitee is not entitled to be
indemnified pursuant to the terms of this Agreement.
4.2 Notwithstanding any other provision in this Agreement, to the
extent that Indemnitee has been successful on the merits or otherwise in
defense of any Proceeding, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by Indemnitee in connection
therewith.
5. Procedure for Determination of Entitlement to Indemnification.
5.1 Whenever Indemnitee believes that he is entitled to
indemnification pursuant to this Agreement, Indemnitee shall submit a
written request for indemnification (the "Indemnification Request") to
the Company to the attention of the President with a copy to the
Secretary. This request shall include documentation or information which
is necessary for the determination of entitlement to indemnification and
which is reasonably available to Indemnitee. Determination of
Indemnitee's entitlement to indemnification shall be made no later than
60 days after receipt of the Indemnification Request. The President or
the Secretary shall, promptly upon receipt of Indemnitee's request for
indemnification, advise the Board in writing that Indemnitee has made
such request for indemnification.
5.2 The Indemnification Request shall set forth Indemnitee's
selection of which of the following forums shall determine whether
Indemnitee is entitled to indemnification:
(1) A majority vote of Directors who are not parties to
the action with respect to which indemnification is sought, even
though less than a quorum.
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(2) A written opinion of an Independent Counsel (provided
there are no such Directors as set forth in (1) above or if such
Directors as set forth in (1) above so direct).
(3) A majority vote of the stockholders at a meeting at
which a quorum is present, with the shares owned by the person to
be indemnified not being entitled to vote thereon.
(4) The court in which the Proceeding is or was pending
upon application by Indemnitee.
The Company agrees to bear any and all costs and expenses incurred by
Indemnitee or the Company in connection with the determination of Indemnitee's
entitlement to indemnification by any of the above forums.
6. Presumptions and Effect of Certain Proceedings. No initial finding by
the Board, its counsel, Independent Counsel, arbitrators or the stockholders
shall be effective to deprive Indemnitee of the protection of this indemnity,
nor shall a court or other forum to which Indemnitee may apply for enforcement
of this indemnity give any weight to any such adverse finding in deciding any
issue before it. Upon making a request for indemnification, Indemnitee shall be
presumed to be entitled to indemnification under this Agreement and the Company
shall have the burden of proof to overcome that presumption in reaching any
contrary determination. The termination of any Proceeding by judgment, order,
settlement, arbitration award or conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, (a) adversely affect the rights of
Indemnitee to indemnification except as indemnification may be expressly
prohibited under this Agreement, (b) create a presumption that Indemnitee did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company or (c) with respect to any
criminal action or proceeding, create a presumption that Indemnitee had
reasonable cause to believe that his conduct was unlawful.
7. Remedies of Indemnitee in Cases of Determination not to Indemnify
or to Advance Expenses.
7.1 In the event that (a) an initial determination is made that
Indemnitee is not entitled to indemnification, (b) advances for Expenses
are not made when and as required by this Agreement, (c) payment has not
been timely made following a determination of entitlement to
indemnification pursuant to this Agreement or (d) Indemnitee otherwise
seeks enforcement of this Agreement, Indemnitee shall be entitled to a
final adjudication in an appropriate court of the State of Delaware of
his entitlement to such indemnification or advance. Alternatively,
Indemnitee at his option may seek an award in arbitration. If the
parties are unable to agree on an arbitrator, the parties shall provide
JAMS Endispute ("JAMS") with a statement of the nature of the dispute
and the desired qualifications of the arbitrator. JAMS will then provide
a list of three available arbitrators. Each party may strike one of the
names on the list, and the remaining
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<PAGE> 7
person will serve as the arbitrator. If both parties strike the same
person, JAMS will select the arbitrator from the other two names. The
arbitration award shall be made within 90 days following the demand for
arbitration. Except as set forth herein, the provisions of Delaware law
shall apply to any such arbitration. The Company shall not oppose
Indemnitee's right to seek any such adjudication or arbitration award.
In any such proceeding or arbitration Indemnitee shall be presumed to be
entitled to indemnification under this Agreement and the Company shall
have the burden of proof to overcome that presumption.
7.2 An initial determination, in whole or in part, that
Indemnitee is not entitled to indemnification shall create no
presumption in any judicial proceeding or arbitration that Indemnitee
has not met the applicable standard of conduct for, or is otherwise not
entitled to, indemnification.
7.3 If an initial determination is made or deemed to have been
made pursuant to the terms of this Agreement that Indemnitee is entitled
to indemnification, the Company shall be bound by such determination in
the absence of (a) a misrepresentation of a material fact by Indemnitee
in the request for indemnification or (b) a specific finding (which has
become final) by a court of competent jurisdiction that all or any part
of such indemnification is expressly prohibited by law.
7.4 The Company and Indemnitee agree herein that a monetary
remedy for breach of this Agreement, at some later date, will be
inadequate, impracticable and difficult of proof, and further agree that
such breach would cause Indemnitee irreparable harm. Accordingly, the
Company and Indemnitee agree that Indemnitee shall be entitled to
temporary and permanent injunctive relief to enforce this Agreement
without the necessity of proving actual damages or irreparable harm. The
Company and Indemnitee further agree that Indemnitee shall be entitled
to such injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, without the necessity
of posting bond or other undertaking in connection therewith. Any such
requirement of bond or undertaking is hereby waived by the Company, and
the Company acknowledges that in the absence of such a waiver, a bond or
undertaking may be required by the court.
7.5 The Company shall be precluded from asserting that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable. The Company shall stipulate in any such court or before any
such arbitrator that the Company is bound by all the provisions of this
Agreement and is precluded from making any assertion to the contrary.
7.6 Expenses incurred by Indemnitee in connection with his
request for indemnification under, seeking enforcement of or to recover
damages for breach of this Agreement shall be borne and advanced by the
Company.
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8. Other Rights to Indemnification. Indemnitee's rights of
indemnification and advancement of expenses provided by this Agreement shall not
be deemed exclusive of any other rights to which Indemnitee may now or in the
future be entitled under applicable law, the Certificate, the Bylaws, an
employment agreement, a vote of stockholders or Disinterested Directors,
insurance or other financial arrangements or otherwise.
9. Limitations on Indemnification. No indemnification pursuant to
Section 3 shall be paid by the Company nor shall Expenses be advanced pursuant
to Section 3:
9.1 Insurance. To the extent that Indemnitee is reimbursed
pursuant to such insurance as may exist for Indemnitee's benefit.
Notwithstanding the availability of such insurance, Indemnitee also may
claim indemnification from the Company pursuant to this Agreement by
assigning to the Company any claims under such insurance to the extent
Indemnitee is paid by the Company. Indemnitee shall reimburse the
Company for any sums he receives as indemnification from other sources
to the extent of any amount paid to him for that purpose by the Company;
9.2 Section 16(b). On account and to the extent of any wholly or
partially successful claim against Indemnitee for an accounting of
profits made from the purchase or sale by Indemnitee of securities of
the Company pursuant to the provisions of Section 16(b) or the
Securities Exchange Act of 1934, as amended, and amendments thereto or
similar provisions of any federal, state or local statutory law; or
9.3 Indemnitee's Proceedings. Except as otherwise provided in
this Agreement, in connection with all or any part of a Proceeding which
is initiated or maintained by or on behalf of Indemnitee, or any
Proceeding by Indemnitee against the Company or its directors, officers,
employees or other agents, unless (a) such indemnification is expressly
required to be made by Delaware Law, (b) the Proceeding was authorized
by a majority of the Disinterested Directors (c) there has been a Change
of Control or (d) such indemnification is provided by the Company, in
its sole discretion, pursuant to the powers vested in the Company under
Delaware Law.
10. Duration and Scope of Agreement; Binding Effect. This Agreement
shall continue so long as Indemnitee shall be subject to any possible Proceeding
subject to indemnification by reason of the fact that he is or was an Agent and
shall be applicable to Proceedings commenced or continued after execution of
this Agreement, whether arising from acts or omissions occurring before or after
such execution. This Agreement shall be binding upon the Company and its
successors and assigns (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company) and shall inure to the benefit of Indemnitee and his
spouse, assigns, heirs, devisees, executors, administrators and other legal
representatives.
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11. Notice by Indemnitee and Defense of Claims. Indemnitee agrees
promptly to notify the Company in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter which may be subject to indemnification hereunder,
whether civil, criminal, arbitrative, administrative or investigative; but the
omission so to notify the Company will not relieve it from any liability which
it may have to Indemnitee if such omission does not actually prejudice the
Company's rights and, if such omission does prejudice the Company's rights, it
will relieve the Company from liability only to the extent of such prejudice;
nor will such omission relieve the Company from any liability which it may have
to Indemnitee otherwise than under this Agreement. With respect to any
Proceeding:
(a) The Company will be entitled to participate therein
at its own expense;
(b) Except as otherwise provided below, to the extent that
it may wish, the Company jointly with any other indemnifying
party similarly notified will be entitled to assume the defense
thereof, with counsel reasonably satisfactory to Indemnitee.
After notice from the Company to Indemnitee of its election so to
assume the defense thereof and the assumption of such defense,
the Company will not be liable to Indemnitee under this Agreement
for any attorney fees or costs subsequently incurred by
Indemnitee in connection with Indemnitee's defense except as
otherwise provided below. Indemnitee shall have the right to
employ his counsel in such Proceeding but the fees and expenses
of such counsel incurred after notice from the Company of its
assumption of the defense thereof and the assumption of such
defense shall be at the expense of Indemnitee unless (i) the
employment of counsel by Indemnitee has been authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and
Indemnitee in the conduct of the defense of such action or that
the Company's counsel may not be adequately representing
Indemnitee or (iii) the Company 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 shall be at the expense of
the Company; and
(c) The Company shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in
settlement of any action or claim effected without its written
consent. The Company shall not settle any action or claim which
would impose any limitation or penalty on Indemnitee without
Indemnitee's written consent. Neither the Company nor Indemnitee
will unreasonably withhold its or his consent to any proposed
settlement.
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11.1 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for
in this Agreement is held by a court of competent jurisdiction to be
unavailable to Indemnitee in whole or part, the Company shall, in such
an event, after taking into account, among other things, contributions
by other directors and officers of the Company pursuant to
indemnification agreements or otherwise, and, in the absence of personal
enrichment, acts of intentional fraud or dishonesty or criminal conduct
on the part of Indemnitee, contribute to the payment of Indemnitee's
losses to the extent that, after other contributions are taken into
account, such losses exceed: (i) in the case of a director of the
Company or any of its subsidiaries who is not an officer of the Company
or any of such subsidiaries, the amount of fees paid to the director for
serving as a director during the 12 months preceding the commencement of
the Proceeding; or (ii) in the case of a director of the Company or any
of its subsidiaries who is also an officer of the Company or any of such
subsidiaries, the amount set forth in clause (i) plus 5% of the
aggregate cash compensation paid to said director for service in such
office(s) during the 12 months preceding the commencement of the
Proceeding; or (iii) in the case of an officer of the Corporation or any
of its subsidiaries, 5% of the aggregate cash compensation paid to such
officer for service in such office(s) during the 12 months preceding the
commencement of such Proceeding.
12. Establishment of Trust. In order to secure the obligations of the
Company to indemnify and to advance Expenses to Indemnitee pursuant to this
Agreement, upon a Change of Control of the Company, the Company or its successor
or assign shall establish a Trust (the "Trust") for the benefit of the
Indemnitee, the trustee (the "Trustee") of which shall be chosen by the Company
and which is reasonably acceptable to the Indemnitee. Thereafter, from time to
time, upon receipt of a written request from Indemnitee, the Company shall fund
the Trust in amounts sufficient to satisfy any and all Liabilities and Expenses
reasonably anticipated at the time of such request for which the Company may
indemnify Indemnitee hereunder. The amount or amounts to be deposited in the
Trust pursuant to the foregoing funding obligation shall be determined by mutual
agreement of the Indemnitee and the Company or, if the Company and the
Indemnitee are unable to reach such an agreement, by Independent Counsel
selected jointly by the Company and the Indemnitee. The terms of the Trust shall
provide that except upon the consent of the Indemnitee and the Company, (i) the
Trust shall not be revoked or the principal thereof invaded, without the written
consent of the Indemnitee, (ii) the Trustee shall advance to the Indemnitee,
within 20 days of a request by the Indemnitee, any and all Expenses, the
Indemnitee hereby agreeing to reimburse the Trustee of the Trust for all
Expenses so advanced if a final determination is made by a court in a final
adjudication from which there is no further right of appeal that the Indemnitee
is not entitled to be indemnified under this Agreement, (iii) the Trust shall
continue to be funded by the Company in accordance with the funding obligations
set forth in this Section, (iv) the Trustee shall promptly pay to the Indemnitee
any amounts to which the Indemnitee shall be entitled pursuant to this
Agreement, and (v) all unexpended funds in the Trust shall revert to the Company
upon a final determination by Independent Counsel selected by Indemnitee or a
court of competent jurisdiction that Indemnitee has been fully indemnified with
respect to the Proceeding giving rise to the funding of the Trust
-10-
<PAGE> 11
under the terms of this Agreement. The establishment of the Trust shall not, in
any way, diminish the Company's obligation to indemnify Indemnitee against
Expenses and Liabilities to the full extent required by this Agreement.
13. Miscellaneous Provisions.
13.1 Severability; Partial Indemnity. If any provision or
provisions of this Agreement (or any portion thereof) shall be held by a
court of competent jurisdiction to be invalid, illegal or unenforceable
for any reason whatever: (a) such provision shall be limited or modified
in its application to the minimum extent necessary to avoid the
invalidity, illegality or unenforceability of such provision; (b) the
validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby; and
(c) to the fullest extent possible, the provisions of this Agreement
shall be construed so as to give effect to the intent manifested by the
provision (or portion thereof) held invalid, illegal or unenforceable.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of any Expenses or
Liabilities of any type whatsoever incurred by him in the investigation,
defense, settlement or appeal of a Proceeding but not entitled to all of
the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for such total amount except as to the portion thereof for
which it has been determined pursuant to Section 5 hereof that
Indemnitee is not entitled.
13.2 Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed
to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against
whom enforceability is sought needs to be produced to evidence the
existence of this Agreement.
13.3 Interpretation of Agreement. It is understood that the
parties hereto intend this Agreement to be interpreted and enforced so
as to provide indemnification to Indemnitee to the fullest extent not
now or hereafter prohibited by law.
13.4 Headings. The headings of the Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed
to constitute part of this Agreement or to affect the construction
thereof.
13.5 Pronouns. Use of the masculine pronoun shall be deemed to
include use of the feminine pronoun where appropriate.
13.6 Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing
by both of the parties to this Agreement. No waiver of any provision of
this Agreement shall be deemed to constitute a waiver of any of the
provisions hereof (whether
-11-
<PAGE> 12
or not similar) nor shall such waiver constitute a continuing waiver. No
waiver of any provision of this Agreement shall be effective unless
executed in writing.
13.7 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have
been duly given if (i) delivered by hand and receipted for by the party
to whom said notice or other communication shall have been directed or
(ii) mailed by certified or registered mail with postage prepaid, on the
third business day after the date on which it is so mailed:
(a) If to Indemnitee, to:
______________________
______________________
______________________
______________________
Telephone:
Telefax:
(b) If to the Company to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, California 92121
Telephone: (619) 546-7700
Telefax: (619) 546-7718
Attention: Corporate Secretary
with a copy to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, California 92121
Telephone: (619) 546-7700
Telefax: (619) 546-7718
Attention: General Counsel
or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
13.8 Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws
of the State of Delaware, as applied to contracts between Delaware
residents entered into and to be performed entirely within Delaware.
-12-
<PAGE> 13
13.9 Consent to Jurisdiction. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the
State of Delaware for all purposes in connection with any action or
proceeding which arises out of or relates to this agreement and agree
that any action instituted under this agreement shall be brought only in
the state courts of the State of Delaware.
13.10 Entire Agreement. This Agreement represents the entire
agreement between the parties hereto, and there are no other agreements,
contracts or understanding between the parties hereto with respect to
the subject matter of this Agreement, except as specifically referred to
herein or as provided in Sections 8 and 2.1 hereof.
[The remainder of this page intentionally left blank]
-13-
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NANOGEN, INC.
By:________________________________
____________________________________
Indemnitee
-14-
<PAGE> 1
EXHIBIT 10.8
[CONFIDENTIAL TREATMENT REQUESTED. CERTAIN PORTIONS OF THIS
AGREEMENT HAVE BEEN MARKED CONFIDENTIAL AND HAVE BEEN
SEPARATELY FILED WITH THE COMMISSION]
[LOGO]
NANOGEN
HOWARD C. BIRNDORF
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
December 12, 1997
VIA FAX (011) 353-1-662-4963
Thomas G. Lynch
Chief Financial Officer
Elan Corporation, plc
Lincoln House
Lincoln Place
Dublin 2, Ireland
RE: Letter Agreement
Dear Tom:
This letter constitutes an offer by Nanogen to enter into a Research and
Development Agreement with Elan. Upon execution and return by the designated
individuals identified at the end of this letter, this Letter Agreement will
constitute our binding Agreement. The terms and conditions of our agreement are
as follows:
RESEARCH AND DEVELOPMENT AGREEMENT
- - Elan to sponsor a milestone-based Research and Development Agreement (the "R&D
Agreement") at Nanogen pursuant to the Exhibit A Research Program attached
hereto covering the following areas:
- Support development of a microarray-based instrumentation platform for
genomic research applications.
- Design and development of multi-site chips and cartridges to support
custom arrays for research applications and development of specific
arrays for high-throughput use.
- Development of formats and chips for discrimination of sequence
variations as demonstrated in: single nucleotide polymorphisms (SNPs),
allelic variations, genotyping, mutation detection, etc.
- Development of formats and chips for use in expression monitoring of RNA
levels for use in gene discovery, drug discovery, target validation,
animal studies and toxicity studies.
- Development of software for sample tracking and database applications
using array technology-derived data.
<PAGE> 2
Elan Corporation, plc
December 12, 1997
Page Two
***
COMMENCEMENT DATE
- - It is the parties' intention to formally commence the Research Program
in the first quarter 1998. Within sixty (60) days from the execution
date hereof, the parties will meet to prepare and finalize a definitive
agreement and will agree upon mutually acceptable research milestones
for the first year of research conducted hereunder.
SCOPE
- - The R&D Agreement shall be non-exclusive.
TERM
- - Subject to the completion of annual milestones to be agreed, the R&D
Agreement shall have a term of five (5) years. The first year's funding
shall be payable in all events.
RESEARCH PLAN AND BUDGET
- - The R&D Agreement will be conducted in accordance with a Research Plan
and Budget as agreed between the parties. The parties shall prepare
Research Plans and Budgets in accordance with the Research Program on an
annual basis throughout the term of the Agreement. The initial Research
Plan and Budget for the conduct of research through the first year is
attached hereto as Exhibit A. The Research Plan and Budget shall be
reviewed by the Research Management Committee on an annual basis. The
final Research Plan and Budgets will be approved by the Executive
Committee and may be revised based on mutual agreement between the
parties.
PROGRAM MANAGEMENT
- - A Research Management Committee ("RMC"), comprising two (2) members each
from Nanogen and Elan, will be established by the parties. The RMC will
be responsible for preparing an overall Research Program, establishing
and adhering to annual research
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 3
Elan Corporation, plc
December 12, 1997
Page Three
milestones and for fulfilling the overall goals of the R&D Agreement.
The RMC will also be responsible for the day-to-day management of the
R&D Agreement and for supervising, managing and monitoring the progress
of the Research Program and for ensuring the open exchange of
information. The Research Program will provide for an overview of the
R&D Agreement, the assignment of roles and responsibilities of the
respective parties and the establishment of, and adherence to, annual
milestones and budgets.
EXECUTIVE COMMITTEE
- - An Executive Committee, comprising two (2) members each from Nanogen and
Elan, will be established. The Executive Committee will be responsible
for overseeing the RMC and for setting the strategic goals for the
collaboration, approving annual Research Plans and Budgets and annual
research milestones. The committee will meet in person (or by video or
teleconference) at least twice annually and minutes shall be taken at
each such meeting and distributed to each of the parties.
DISPUTE RESOLUTION
- - The parties intend to incorporate a clause into the definitive agreement
to the effect that every effort will be made to resolve disputes
internally, with litigation as a last resort.
- - All decisions made by the RMC shall be unanimous.
- - All issues not unanimously agreed upon by the RMC shall be submitted to
the Executive Committee for resolution.
- - All issues not unanimously agreed upon by the Executive Committee shall
be submitted to the Chief Executive Officer of Nanogen and the Chief
Financial Officer of Elan for resolution.
- - All issues not resolved by the above designated officers shall be
submitted to mediation or arbitration.
FUNDING
- - Subject to completion of annual research milestones, Elan to fund the
Research Program with annual research fees in the following amounts
payable in U.S. Dollars in quarterly installments at the beginning of
each fiscal quarter starting on the date of commencement of the Research
Program:
<PAGE> 4
Elan Corporation, plc
December 11, 1997
Page Four
<TABLE>
<CAPTION>
<S> <C>
*** ***
-------------
TOTAL: $11.0 million
</TABLE>
ROYALTIES
- - In consideration for the foregoing payments, Nanogen to pay Elan a
royalty of ***% on Net Revenues of products developed pursuant to the
R&D Agreement and sold to third parties until Elan's R&D funding is
recouped, and ***% thereafter for a period of ten (10) years.
INTELLECTUAL PROPERTY
- - All technology, know-how, trade secrets, discoveries, and inventions
developed pursuant to the Research Program ("Program Intellectual
Property") shall be owned by Nanogen. Nanogen shall grant to Elan a
royalty-free license to use such Program Intellectual Property solely
for Elan's internal use.
PUBLICATIONS
- - All publications resulting from or relating to research conducted
pursuant to the R&D Agreement shall be reviewed and approved by Nanogen
and Elan prior to disclosure or publication in order to protect any
trade secrets, inventions or intellectual property rights inherent in
such research.
BETA SITE
- - In further consideration for the foregoing payments, Nanogen shall make
its instrument platform available to Elan, subject to export laws, on a
preferential basis for beta testing when available.
EQUITY
- - Elan agrees to purchase shares in a private placement concurrent with
Nanogen's Initial Public Offering in the amount of $5 million at the IPO
price to the public.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 5
Elan Corporation, plc
December 11, 1997
Page Five
CONFIDENTIALITY
- - Each party agrees to maintain in confidence all confidential information
provided by the other party throughout the term of this Agreement.
Except for such disclosure as is deemed necessary in the reasonable
judgment of a party to comply with applicable laws or regulations, no
announcement or communication relating to the terms of this Letter
Agreement will be made without the other party's prior written approval,
which approval shall not be unreasonably withheld.
This Letter Agreement will remain in full force and effect until such
time as it is specifically superseded by future definitive agreement(s) relating
to the subject matter hereof.
Very truly yours,
/s/ HOWARD C. BIRNDORF
Howard C. Birndorf
Chairman and Chief Executive Officer
HCB/dz
cc: Harry J. Leonhardt, Esq.
Tina S. Nova, Ph.D.
Pat Dillon
AGREED AND ACCEPTED BY:
By: /s/ Thomas G. Lynch
-----------------------------
Thomas G. Lynch
Elan Corporation, plc
Date: December 18, 1997
---------------------------
<PAGE> 6
EXHIBIT A
NANOGEN/ELAN RESEARCH PROGRAM
The purpose of this program is to allow Nanogen and Elan to collaborate in the
area of technology development. This will be a non-exclusive relationship and
will provide Elan with early access to Nanogen technology for use in Elan
discovery and development programs. In summary, this R&D plan primarily focuses
on technology development during years one through three with applications
specific to Elan's needs being developed in years two through five. It is
expected that the research management committee (RMC) will be responsible for
the definition and prioritization of milestones, goals and detailed research
plans for application development during the research term. As such, only the
technology development goals for years one through three are outlined below.
YEAR ONE R&D PLAN:
* * *
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 7
***
YEAR ONE MILESTONE
YEARS TWO/THREE R&D PLAN:
* * *
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 8
YEAR TWO MILESTONE: ***
YEARS THREE THROUGH FIVE R&D PLAN: ***
BUDGET JUSTIFICATION BASED ON *** PER FTE
YEAR ONE ***
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 9
YEAR TWO ***
YEARS THREE THROUGH FIVE ***
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 1
EXHIBIT 10.9
[Confidential treatment requested. Confidential portions of this document have
been redacted and have been separately filed with the commission.]
[LETTERHEAD OF NANOGEN, INC.]
HARRY J. LEONHARDT, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
December 4, 1997
TRANSMISSION VIA FAX
Dr. R. Helmut Rupp
Konzernforschung & Technologie
Hoechst Aktiengesellschaft
D-65926 Frankfurt am Main
RE: Letter Agreement
Dear Dr. Rupp:
This letter constitutes an offer by Nanogen to enter into a
Collaborative Research and Development Agreement ("the R&D Collaboration") and,
subject to the terms and conditions set forth herein, to enter into a Joint
Venture or other joint commercial relationship for commercialization of products
resulting from the R&D Collaboration. Upon execution and return by the
designated individuals identified at the end of this letter, this Letter
Agreement will constitute our binding agreement. The terms and conditions of our
agreement are as follows:
PURPOSE OF COLLABORATION
The focus of the Collaborative Research and Development Agreement ("R&D
Collaboration") shall be on the joint research and development of new tools in
"Molecular Recognition" and "Nanotechnology." The R&D Collaboration will be
divided into two phases, the Research Phase and the Product Development Phase.
The overall objective of the R&D Collaboration is to develop microarray
platforms and related devices and applications utilizing jointly developed
technology incorporating both Nanogen's Automated Programmable Electronic Matrix
("APEX") technology and CR&T's Exponential Library by Association of
Sublibraries ("ELIAS") technology and/or ("pRNA") technology which can be
commercialized by a Joint Venture or other joint relationship to be formed
between the parties in the Agreement Field as set forth below. Prior to the
successful completion of the R&D Collaboration, it is the intention of the
parties to identify an appropriate business model and conclude definitive
agreement(s) to commercialize products developed pursuant to the R&D
Collaboration.
<PAGE> 2
Dr. R. Helmut Rupp
December 4, 1997
Page Two
AGREEMENT FIELD
- - Agreement Field shall mean products or applications utilizing jointly
developed technology incorporating both Nanogen's "APEX" technology as
disclosed in the Nanogen patents and patent applications set forth in
Exhibit A, as amended from time to time and CR&T's "ELIAS" and /or "pRNA"
technologies as disclosed in the CR&T patent applications set forth in
Exhibit B, as amended from time to time.
SCOPE
- - The R&D Collaboration shall be worldwide and shall be exclusive in the
Agreement Field. Subject to the terms and conditions of the R&D
Collaboration, the parties shall be free to independently pursue all fields
outside of the Agreement Field.
TERM
- - The initial term of the R&D Collaboration, the Research Phase, shall run
for two (2) years, subject to extension for one (1) additional year based on
mutual agreement between the parties. Funding for the first year of the
Research Phase will not be subject to termination. After the first year of
the Research Phase, funding may be terminated upon mutual agreement. Prior
to the successful completion of the Research Phase, the parties will meet to
conclude a budget for the Product Development Phase. The Product Development
Phase may be terminated by either party upon the material non-achievement of
milestones established and agreed between the parties. In the event that
CR&T terminates the Product Development Phase without cause, CR&T will
continue to fund the R&D Collaboration for a period of nine (9) months at
the agreed budgeted level to facilitate the winding down of Nanogen's
development effort.
RESEARCH PROGRAM AND BUDGET
- - The R&D Collaboration will be conducted in accordance with a Research
Program and Budget as agreed between the parties. The initial Research
Program and Budget for the Research Phase is attached hereto as Exhibit C.
The Research Program and Budget shall be reviewed by the Research Management
Committee on an annual basis and may be revised based on mutual agreement
between the parties.
<PAGE> 3
Dr. R. Helmut Rupp
December 4, 1997
Page Three
RESEARCH PROGRAM PAYMENTS
- - CR&T will fund ***% of the research effort within CR&T.
- - CR&T will fund ***% of the research effort within Nanogen. Payments will be
based on Actual Costs (as defined by mutual agreement between Nanogen's
accountants and Hoechst's accountants) incurred by Nanogen, not to exceed
$*** per FTE.
- - In the event Nanogen is required in the course of its research pursuant to
the R&D Collaboration to lease equipment which would ordinarily not
otherwise be required, and CR&T agrees to such lease, CR&T will be
responsible for such lease payments.
PROGRAM MANAGEMENT
- - A Research Management Committee ("RMC"), comprising two (2) members each
from Nanogen and CR&T, will be established by the parties. The RMC will be
responsible for preparing an overall Research Program for fulfilling the
overall goals of the R&D Collaboration. The RMC will also be responsible for
the day-to-day management of the R&D Collaboration, for supervising,
managing, and monitoring the progress of the Research Program, conducting
relevant marketing studies and for ensuring the open exchange of information
between the parties. The Research Program will provide for an overview of
the R&D Collaboration, the assignment of roles and responsibilities of the
respective parties, including without limitation, obligations respecting the
prompt disclosure of research and intellectual property information to the
other party, the establishment of, and adherence to, annual budgets and the
development of research milestones. The RMC will meet at least four times
per year and minutes shall be taken for each meeting and distributed to each
of the parties. The location of such meetings shall alternate between the
headquarters of the respective parties unless otherwise agreed. The RMC will
report on the status and progress of the Research Program to the Executive
Committee on a periodic basis to be agreed between the parties.
- - An Executive Committee, comprising three (3) members each from Nanogen and
CR&T, will be established. The Executive Committee will be responsible for
overseeing the RMC and for setting the strategic goals for the
collaboration, approving annual budgets (the first two years of which have
been approved by both parties as set forth in Exhibit C) and research
milestones and determining the most favorable route to commercialize the
Agreement products. The Committee will meet at least twice annually and
minutes shall be taken at each such meeting and distributed to each of the
parties. The location of such meetings shall alternate between the
headquarters of the respective parties unless otherwise agreed.
Dr. R. Helmut Rupp
*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.
<PAGE> 4
December 4, 1997
Page Four
DISPUTE RESOLUTION
- - The parties intend to incorporate a clause to the effect that every effort
will be made to resolve disputes internally, with litigation as a last
resort.
- - All decisions made by the RMC shall be unanimous.
- - All issues not unanimously agreed upon by the RMC shall be submitted to the
Executive Committee for resolution.
- - All issues not unanimously agreed upon by the Executive Committee shall be
submitted to the Chief Executive Officer of Nanogen and the President of
CR&T for resolution.
- - All issues not resolved by the above designated officers shall be submitted
to mediation or arbitration.
TECHNOLOGY OWNERSHIP
- - All technology necessary for the conduct of research in the Agreement Field
pursuant to the Research Program shall be licensed by the respective parties
to each other on a royalty-free basis throughout the term of the R&D
Collaboration. The license is limited to enabling the research to be
conducted pursuant to the R&D Collaboration.
- - All technology developed pursuant to the Research Program which utilizes
jointly developed technology incorporating both "APEX" and "ELIAS" and/or
"pRNA" ("Joint Program Technology") will be owned jointly by the parties,
and may be used only as they mutually agree.
- - The parties will collaborate on the filing of patent applications covering
the Joint Program Technology ("Joint Program Inventions").
- - All technology incorporating inventions developed pursuant to the R&D
Collaboration which do not utilize jointly developed technology
incorporating both "APEX" and "ELIAS" and/or "pRNA" ("Individual Program
Technology") shall be owned by the party which invented such Technology.
- - Nanogen remains free to use its own technology in its business without
restriction and CR&T remains free to use its technology in its business
without restriction.
Dr. R. Helmut Rupp
December 4, 1997
<PAGE> 5
Page Five
- - Mutually acceptable provisions on technology ownership and use in the event
of termination at various points in the R&D Collaboration shall be
established and included in the definitive agreement.
PERMEATION LAYER
- - CR&T recognizes that Nanogen has conducted considerable research and
development activities in connection with its permeation layer technology
and has protected certain of its advancements with intellectual property.
CR&T is willing, as part of the R&D Collaboration, to conduct additional
research activities directed toward Nanogen's permeation layer. To the
extent CR&T invents any new inventions or any improvements to Nanogen's
inventions relating to permeation layers with utility on Nanogen's
microchips, CR&T will grant to Nanogen a worldwide, royalty-free license to
practice such intellectual property (without the right to sublicense unless
it applies to a Nanogen product). Nanogen will be licensed to practice such
intellectual property in connection with any of its other joint venture
arrangements or corporate collaborations subject to a ***% royalty payable
to the Nanogen/CR&T Joint Venture or other joint relationship.
PUBLICATIONS
- - All publications resulting from or relating to research conducted pursuant
to the R&D Collaboration shall be reviewed and approved by both parties
prior to disclosure or publication in order to protect any trade secrets,
inventions or intellectual property rights inherent in such research.
FUTURE BUSINESS RELATIONSHIP
- - Within ninety (90) days from the commencement of the R&D Collaboration, the
parties will commence substantive discussions toward the formation of a
Joint Venture or other joint relationship to facilitate the
commercialization of Agreement Products resulting from the Collaboration.
- - The Joint Venture or other joint relationship shall be structured such that
all profits derived from the sale of products developed as a result of the
R&D Collaboration in the Agreement Field shall be split 50/50 between the
Nanogen partner and the CR&T partner.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 6
Dr. R. Helmut Rupp
December 4, 1997
Page Six
- - In recognition of the higher percentage of research funding provided by
CR&T, CR&T will initially receive an accelerated return of *** on its
capital account until the differential between CR&T's actual funding
expenditures and Nanogen's actual funding expenditures is equalized. For
purposes of calculating the above differential, both parties shall utilize
Actual Costs, but not to exceed $*** per FTE. Joint Venture or other joint
relationship profits will be split equally between the Nanogen partner and
the CR&T partner.
- - The Joint Venture or other joint relationship will select the most
appropriate party to manufacture products resulting from the R&D
Collaboration, giving preference to Nanogen.
- - To the extent Individual Program Technology is patented ("Individual
Program Inventions") by a party and products incorporating Individual
Program Inventions are sold to third parties, a royalty of ***% shall be
payable to the Joint Venture or other joint relationship on such third party
sales. In addition, each party's Individual Program Inventions shall be
licensed royalty-free to the other party for internal research use only.
RIGHT OF FIRST NEGOTIATION
- - Hoechst AG or a designated affiliate or subsidiary (with the exception of
*** as discussed further below) will have a right of first negotiation for
a period of sixty (60) days after notice from the Joint Venture or other
joint relationship to contract for the right to market and sell products in
the Agreement Field resulting from the R&D Collaboration before rights to
such products will be offered to third parties.
- - Notwithstanding the foregoing Right of First Negotiation, in recognition of
Nanogen's Joint Venture with Becton Dickinson and Company and CR&T's
relationship with ***, the parties agree that the Nanogen/Becton Dickinson
Partnership and *** will have an equal opportunity to compete for sales and
marketing rights on products in the Agreement Field before an exclusive
arrangement would be offered to one or the other party or to a third party.
- - All such negotiations conducted pursuant to the foregoing Right of First
Negotiation shall be conducted on an arms length basis.
EQUITY/WARRANTS
- - CR&T agrees to purchase shares in a private placement concurrent with
Nanogen's Initial Public Offering in the amount of $10 million, at the IPO
price to the public. In no event shall Hoechst's ownership in Nanogen prior
to the time of the first sale of the first commercial product sold by or
through the Joint Venture or other joint relationship exceed 20%.
Dr. R. Helmut Rupp
*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.
<PAGE> 7
December 4, 1997
Page Seven
- - In recognition of CR&T's exclusive commitment to Nanogen in the Agreement
Field with respect to the R&D Collaboration, Nanogen will issue warrants to
CR&T to purchase Nanogen Common Stock after the IPO on the following general
terms, the specifics of which shall be agreed to between the parties.
Nanogen will issue five-year warrants to CR&T to purchase a specified number
of shares of Nanogen Common Stock at the specified premiums to the market
price (the "Strike Price") as follows:
- - The parties will immediately commence discussions regarding the
preparation of a definitive Collaborative Research and Development
Agreement. It is the intention of the parties to conclude such
definitive Agreement within ninety (90) days from the effective date
of this Letter Agreement. Upon execution of the definitive
Collaborative Research and Development Agreement, Nanogen will issue
CR&T a warrant to purchase ***% of the outstanding shares of Nanogen
Common Stock on the date hereof, assuming the conversion of all
outstanding shares of Nanogen Preferred Stock into shares of Nanogen
Common Stock at the applicable conversion ratio (the "Outstanding
Shares") at a ***% premium to market price on the date of execution
("First Warrant Strike Price"). If Nanogen's stock price on any
subsequent trading day exceeds the First Warrant Strike Price by ***%
or more, CR&T must exercise the warrant no later than the end of the
next fiscal year.
- - Upon announcement by the parties of entry into the Product
Development Phase of the R&D Collaboration, Nanogen will issue CR&T a
warrant to purchase ***% of the Outstanding Shares at a ***%
premium to market price, based on ten days post-announcement trading
average ("Second Warrant Strike Price"). If Nanogen's stock price on
any subsequent trading day exceeds the Second Warrant Strike Price by
***% or more, CR&T must exercise the warrant no later than the end of
its next fiscal year.
- - Upon first commercial sale of product by the Joint Venture or other
joint relationship, Nanogen will issue to CR&T a warrant to purchase
***% of the Outstanding Shares at a ***% premium to market price,
based on ten days post-first commercial sale trading average ("Third
Warrant Strike Price"). If Nanogen's stock price on any subsequent
trading day exceeds the Third Warrant Strike Price by ***% or more,
CR&T must exercise the warrant no later than the end of its next
fiscal year.
- - Neither the issuance of the Common Stock in the private placement, nor the
issuance of the Common Stock upon exercise of the warrants, nor the warrants
themselves, will be registered with the SEC, however Nanogen will register
the resale of Common Stock issued or issuable to CR&T on a Registration Form
S-3, when the Company becomes eligible to use such form.
*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.
<PAGE> 8
Dr. R. Helmut Rupp
December 4, 1997
Page Eight
CONFIDENTIALITY
- - Each party agrees to maintain in confidence all Confidential Information of
the other party in accordance with the February 20, 1997 Mutual Confidential
Disclosure Agreement between Nanogen and Hoechst. Except for such disclosure
as is deemed necessary in the reasonable judgment of a party to comply with
applicable laws or regulations, no announcement or communication relating to
the terms of this Letter Agreement or the relationship between the parties
will be made without the other party's prior written approval, which
approval shall not be unreasonably withheld. The parties agree that they
will use reasonable efforts to coordinate the initial announcement or press
release relating to the existence of this letter agreement.
BOARD VISITATION RIGHTS
- - In consideration for the foregoing R&D Collaboration and equity investment,
Nanogen will grant a representative of Hoechst senior management unofficial
non-voting visitation rights to attend up to and including one-half of the
number of Nanogen Board meetings held annually with the understanding that
such representative may not be present during executive sessions of the
Board or participate in discussions which may present a conflict of interest
as a result of any agreement between Nanogen and Hoechst.
MISCELLANEOUS
- - The definitive agreement(s) for both the R&D Collaboration and the Joint
Venture or other joint relationship will include appropriate representations
and warranties by both parties that they are authorized to enter into such
agreement(s). Nanogen's representations shall include an undertaking that it
sees no conflict between its relationship with B-D and the relationship
between CR&T and Nanogen as set forth herein.
- - If any provision(s) of this Letter Agreement are or become invalid, or are
ruled illegal, or are deemed unenforceable under then current applicable law
from time to time in effect during the term hereof, it is the intention of
the parties hereto that the remainder of this Letter Agreement shall not be
affected thereby. It is the further intention of the parties that in lieu of
each such provision which is invalid, illegal, or unenforceable, there be
substituted or added as part of this Letter Agreement, a provision which
shall be as similar as possible in economic and business objectives as
intended by the parties to such invalid, illegal or unenforceable provision,
but which shall be valid, legal, and enforceable, and shall be mutually
agreed by the parties.
<PAGE> 9
Dr. R. Helmut Rupp
December 4, 1997
Page Nine
This Letter Agreement will remain in full force and effect until such
time as it is specifically superseded by future definitive agreement(s) relating
to the subject matter hereof.
Very truly yours,
/s/ Harry J. Leonhardt
-------------------------------
Harry J. Leonhardt, Esq.
Vice President, General Counsel
and Secretary
HJL/dz
AGREED AND ACCEPTED BY:
By: /s/ Dr. R. Helmut Rupp
--------------------------------
Dr. R. Helmut Rupp
Hoechst Aktiengesellschaft
Date: 12-5-97
---------------------------
<PAGE> 10
EXHIBIT A
NANOGEN'S "APEX" PATENTS AND PATENT APPLICATIONS
TITLE APPLICATION NO. DATE
----- --------------- ----
Active Programmable Electronic
Devices for Molecular Biological
Analysis and Diagnostics (203/218) USP 5,605,662 Issued: 02/25/97
*** *** ***
Molecular Biological Diagnostic
Systems Including Electrodes USP 5,632,957 Issued: 05/27/97
*** *** ***
*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.
<PAGE> 11
EXHIBIT B
C.R.& T'S "ELIAS" AND "pRNA" PATENT APPLICATIONS
TITLE APPLICATION NO. DATE
----- --------------- ----
*** *** ***
EXHIBIT C
TOTAL PROGRAM (YEAR 1)
Personnel of Hoechst *** Nanogen ***
Materials of Hoechst *** Nanogen ***
*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.
<PAGE> 12
MATERIALS COSTS
---------------
TDM/PROJECT YEAR:
SYNTHESIS
Equipment (Synthesizer...) *** (Depreciation over *** Years)
Analytics ***
Chemicals ***
- ----------------------------------------
Total ***
PERMEATION LAYER
Equipment (Spin Coater...) *** (Depreciation over *** Years)
Materials (Chemicals) ***
- ----------------------------------------
Total ***
DIRECT READ-OUT
Equipment ***
- -------------------------------------------------------------------------------
TOTAL *** (*** TUS$)
*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.
<PAGE> 13
EXHIBIT C (CR&T)
PERSONNEL
TASK HEADCOUNT
Synthesis
- ---------
PhD, Organic Chemists ***
Postdocs, Lab Technicians ***
Permeation layer
- ----------------
PhD's Organic Chemist,
Physisist ***
PhD (Japan) ***
Postdocs, Lab Technicians ***
Direct Electronic Read-Out
- --------------------------
PhD's (Japan) ***
Lab Technicians ***
PhD Biophysical-Chemist ***
Program Management ***
- ------------------
- -------------------------------------------------------------------------------
Total Headcount ***
*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.
<PAGE> 14
Sheet 1
EXHIBIT C (NANOGEN)
PERSONNEL/NANOGEN
TASK YEAR 1 YEAR 2
---- ------ ------
CHIP
Process engineer *** ***
Software engineer *** ***
Test engineer *** ***
Test Tech *** ***
Packaging Engineer *** ***
Packaging Tech *** ***
INSTRUMENT
Electrical engineer *** ***
Software engineer *** ***
Mechanical engineer *** ***
PERMEATION LAYER
Chemical engineer *** ***
ASSAY DEVELOPMENT
Physical chemist *** ***
Biochemist *** ***
PROGRAM MANAGEMENT
Program Manager *** ***
TOTAL HEADCOUNT *** ***
*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.
Page 1
<PAGE> 15
Sheet 1
MATERIALS COSTS/NANOGEN
TASK YEAR 1 YEAR 2
---- ------ ------
CHIP
Design $*** $***
Masks $*** $***
Wafer fab $*** $***
Test $*** $***
Packaging $*** $***
TOTAL $*** $***
INSTRUMENTS
Read-out $***
Probe placement $***
TOTAL $*** $***
PERMEATION LAYER/CHEMISTRY
Perm Layer $***
Attachment Chem. $***
TOTAL $*** $***
ASSAY
Reagents $*** $***
TOTAL PROGRAM $*** $***
*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.
Page 1
<PAGE> 1
EXHIBIT 10.10
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH
THE COMMISSION.]
AGREEMENT
THIS AGREEMENT, is entered into as of November 24, 1997 by and between
Syntro Corporation, a Delaware corporation having a place of business at 3535
General Atomics Court, San Diego, California 92121 ("Syntro") and Nanogen, Inc.,
a Delaware corporation having a place of business at 10398 Pacific Center Court,
San Diego, California 92121 ("Nanogen"). Syntro and Nanogen may each be referred
to herein individually as a "Party" and collectively as the "Parties."
WHEREAS, Syntro has been assigned rights to United States Patent
4,787,963, entitled "Method and Means of Annealing Complementary Nucleic Acid
Molecules at an Accelerated Rate"; and
WHEREAS, Nanogen desires to obtain an exclusive license to practice such
patent in certain fields and Syntro is willing to grant such a license to
Nanogen;
NOW THEREFORE, in consideration of the foregoing and the promises and
covenants set forth below, the Parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
1.1 "Affiliate" shall mean any individual or entity directly or
indirectly controlling, controlled by or under common control with, a Party to
this Agreement. For purposes of this Agreement, the direct or indirect ownership
of fifty percent (50%) or more of the outstanding voting securities of an
entity, or the right to receive fifty percent (50%) or more of the profits or
earnings of an entity shall be deemed to constitute control. Such other
relationship as in fact results in actual control over the management, business
and affairs of an entity shall also be deemed to constitute control.
1.2 "Calendar Quarter" shall mean the respective periods of three (3)
consecutive calendar months ending on March 31, June 30, September 30 or
December 31, for so long as this Agreement is in effect.
1.3 "Field" shall mean all uses of Licensed Products.
1.4 "First Commercial Sale" shall mean, with respect to the Licensed
Product, the first sale for end use of any Licensed Product.
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<PAGE> 2
1.5 "Licensed Products" shall mean all products, the making, using or
selling of which, would infringe one or more claims included within the Patent
Rights.
1.6 "Net Sales" shall mean the amounts billed or invoiced to
independent, third-party customers by Nanogen, its Affiliates and sublicensees
for sales of Licensed Products, which are made, sold or used in the Territory,
less deductions for (a) quantity and/or cash discounts and rebates actually
allowed and taken; (b) freight, postage, duties, insurance and taxes directly
related to the sale of Licensed Products; (c) amounts repaid or credited by
reason of rejections or returns of goods or because of retroactive price
reductions. Licensed Products shall be considered sold in accordance with GAAP
and Nanogen's procedures for recording sales for financial reporting purposes.
The value of any Licensed Products used by Nanogen or its Affiliates, calculated
as if sold to a third party under an arms-length transaction, shall be deemed to
be included in Net Sales.
1.7 "Patent Rights" shall mean United States Patent
4,787,963, entitled "Method and Means of Annealing Complementary
Nucleic Acid Molecules at an Accelerated Rate."
1.8 "Territory" shall mean the United States of America, its
territories and possessions.
ARTICLE II.
GRANT OF RIGHTS
2.1 Exclusive License. Syntro hereby grants to Nanogen, and Nanogen
accepts, an exclusive, royalty-bearing license, under the Patent Rights, to
make, have made, use, import, market, offer to sell and sell Licensed Products
solely for use in the Licensed Field in the Territory. Subject to the prior
written approval of Syntro, which approval shall not unreasonably be withheld,
Nanogen shall have the right to sublicense the rights granted hereunder to third
parties, provided, however, that Nanogen shall be responsible for the
performance of each of its sublicensees.
2.2 Reserved Rights. Syntro hereby retains the right, without right
to sublicense, under the Patent Rights, to make, have made, use, import, market,
offer to sell and sell Licensed Products and practice the Patent Rights for any
and all human therapeutic uses and any and all veterinary uses and Syntro
further retains the right to practice the Patent Rights for research purposes,
including, without limitation, the development of products for human therapeutic
uses and/or any veterinary uses (hereinafter collectively referred to as
"Reserved Uses"). For avoidance of doubt, nothing in this Paragraph 2.2
reservation of rights by Syntro shall preclude or limit Nanogen's right to make,
have made, use, import, market, offer to sell and sell Licensed Products or
practice the Patent Rights for such Reserved Uses pursuant to the exclusive
license granted under Paragraph 2.1 above.
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<PAGE> 3
2.3 No Implied License. This Agreement confers upon Nanogen no
license or rights by implication, estoppel, or otherwise under any patent,
patent application, know-how or other intellectual property right of Syntro
(collectively, "IP Rights") other than the Patent Rights regardless of whether
such other IP Rights are dominant or subordinate to the Patent Rights.
ARTICLE III.
PAYMENTS AND ROYALTIES
3.1 License Fee. In partial consideration for the rights granted to
Nanogen hereunder, Nanogen shall pay to Syntro a license fee in the amount of
***. Such license fee shall be paid in three (3) installments as follows:
*** upon Nanogen's signature of this Agreement;
*** on the *** anniversary of the Effective Date of
this Agreement; and
*** on the *** anniversary of the Effective Date of
this Agreement.
3.2 Royalties. In further consideration for the rights granted to
Nanogen hereunder, Nanogen shall pay to Syntro a royalty in the amount of ***
of Nanogen's Net Sales of Licensed Products.
3.3 Term and Scope of Royalty Obligations. Royalties on Net Sales of
each Licensed Product at the rate set forth in Section 3.2 shall continue until
the expiration of the last to expire of the Patent Rights in the Territory. No
royalties shall be due upon the sale or other transfer among Nanogen, its
Affiliates or sublicensees, but in such cases the royalty shall be due and
calculated upon Nanogen's or its Affiliates' or its sublicensees' Net Sales to
the first independent third party.
3.4 Reports and Payment of Royalty.
3.4.1 Royalties Paid Quarterly. Within forty-five (45)
calendar days following the close of each Calendar Quarter, following
the First Commercial Sale of a Licensed Product, Nanogen shall furnish
to Syntro a written report for the Calendar Quarter showing the Net
Sales of Licensed Products sold by Nanogen, its Affiliates and its
sublicensees in the Territory during such Calendar Quarter and the
royalties payable under this Agreement for such Calendar Quarter.
Simultaneously with the submission of the written report, Nanogen shall
pay to Syntro, for the account of Nanogen or the applicable Affiliate or
sublicensee, as
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION
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<PAGE> 4
the case may be, a sum equal to the aggregate royalty due for such Calendar
Quarter calculated in accordance with this Agreement (reconciled for any
previous overpayments, underpayments or credits).
3.4.2 Method of Payment. Payments to be made by Nanogen to
Syntro under this Agreement shall be paid by bank wire transfer in
immediately available funds to such bank account as is designated in
writing by Syntro from time to time or by check in immediately available
funds. Royalty payments shall be made in United States dollars.
3.5 Maintenance of Records; Audits.
3.5.1 Record Keeping by Syntro. Nanogen and its Affiliates
shall keep and Nanogen shall require its sublicensees to keep complete
and accurate records in sufficient detail to enable the royalties
payable hereunder to be determined. Upon ten (10) days prior written
notice from Syntro, Nanogen shall permit an independent certified public
accounting firm of nationally recognized standing selected by Syntro, at
Syntro's expense, to have access during normal business hours to examine
pertinent books and records of Nanogen and/or its Affiliates as may be
reasonably necessary to verify the accuracy of the royalty reports
hereunder. The examination shall be limited to pertinent books and
records for any year ending not more than thirty-six (36) months prior
to the date of such request. An examination under this Section 3.5.1
shall not occur more than once in any Calendar Year. Nanogen may
designate competitively sensitive information which such auditor may not
disclose to Syntro, provided, however, that such designation shall not
encompass the auditor's conclusions. The accounting firm shall disclose
to Syntro only whether the royalty reports are correct or incorrect and
the specific details concerning any discrepancies. No other information
shall be provided to Syntro. Nanogen may require any such accounting
firms to sign a confidentiality agreement (in form and substance
acceptable to Nanogen) as to any of Nanogen's or its Affiliate's
confidential information which they are provided, or to which they have
access, while conducting any audit pursuant to this Section 3.5.1.
3.5.2 Underpayment/Overpayments. If such accounting firm
correctly concludes that additional royalties were owed during such
period, Nanogen shall pay the additional royalties within thirty (30)
days of the date Syntro delivers to Nanogen such accounting firm's
written report so concluding. If such underpayment exceeds five percent
(5%) of the royalty correctly due Syntro then the fees charged by such
accounting firm for the work associated with the underpayment audit
shall be paid by Nanogen. Any overpayments by Nanogen will be credited
against future royalty obligations.
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<PAGE> 5
ARTICLE IV.
PRODUCT DEVELOPMENT AND COMMERCIALIZATION
4.1 Development. Nanogen shall, at its own cost and expense,
diligently perform, consistent with sound scientific principles and reasonable
business judgment, those research and development activities necessary or
appropriate to develop, make, use and sell Licensed Products in the Field in the
Territory, complying with any applicable regulatory and other applicable legal
requirements in the Territory.
4.2 Manufacturing. Nanogen shall, at its own cost and expense, be
solely responsible for manufacturing, either itself or through third parties,
sufficient quantities of the Licensed Products to satisfy its obligations to
provide Licensed Products to its customers.
4.3 Commercialization. Nanogen shall, at its own cost and expense,
use diligent efforts to market and sell the Licensed Products and to exploit the
Patent Rights in the Field hereunder.
ARTICLE V.
PATENTS
5.1 Maintenance of Patent Rights. Subject to Sections 5.2 and 5.3
hereof, Syntro will, or will cause its Affiliates to, in its sole discretion,
maintain the Patent Rights, including, without limitation, payment of applicable
maintenance fees in the Territory.
5.2 Infringement.
5.2.1 Notice. In the event that Nanogen becomes aware of
substantial infringement by a third party in a country in the Territory
(e.g. greater than twenty percent (20%) of Nanogen's or its Affiliates'
sales of Licensed Products) of any issued patent within the Patent
Rights, Nanogen shall promptly notify Syntro in writing to that effect,
including with said written notice evidence to establish a prima facie
case of infringement by such third party.
5.2.2 Enforcement of Patent Rights by Syntro. Upon receipt
of notice provided by Nanogen pursuant to Section 5.2.1 hereof, Syntro
shall have the right but not the obligation to enforce the Patent Rights
against the alleged third party infringer. If Syntro, in its sole
discretion elects to so enforce the Patent Rights, Syntro shall have six
(6) months from the date of such notice to obtain a discontinuance of
such infringement or bring suit against such third party infringer.
Syntro shall bear all of the expenses of any suit brought by it and
shall retain all damages or other moneys awarded or received in
settlement of such suit. At Syntro's request, Nanogen will reasonably
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<PAGE> 6
cooperate with Syntro in any such suit and shall have the right to
consult with Syntro and bc represented by its own counsel at its own
expense.
5.2.3 Enforcement of Patent Rights by Nanogen. If Syntro
either (i) notifies Nanogen that it elects not to enforce the Patent
Rights against the alleged third party infringer or (ii) elects to
enforce the Patent Rights against the alleged third party infringer
pursuant to Section 5.2.2 hereof, but after the expiration of the six
(6) month period set forth in Section 5.2.2, has not obtained a
discontinuance of the infringement or brought suit against the third
party infringer, Nanogen shall have the right, but not the obligation,
to bring suit against such third party infringer under the Patent Rights
in its own name and/or that of Syntro, provided that Nanogen shall bear
all of the expenses of such suit. At Nanogen's request, Syntro will
reasonably cooperate with Nanogen in any such suit for infringement of a
Patent Right brought by Nanogen, and shall have the right to consult
with Nanogen and to participate in and be represented by independent
counsel in such litigation at its own expense. Nanogen shall impute no
liability to Syntro as a consequence of such litigation or any
unfavorable decision resulting therefrom, including any decision holding
any of the Patent Rights invalid or unenforceable. In the event that
Nanogen recovers any moneys in such litigation by way of damages or in
settlement thereof, Nanogen shall have the right to keep such sums to
offset its costs and expenses, provided, however, that to the extent
such recovery includes an award based on lost profits, Nanogen shall pay
to Syntro an amount equal to the royalties that would have been payable
to Syntro based on Net Sales corresponding to such lost profits. Nanogen
shall not enter into any settlement agreement which would adversely
affect the Patent Rights without the prior written consent of Syntro.
5.3 Defense of Patent Rights.
5.3.1 Notice. In the event that a declaratory judgment action
alleging invalidity or non-infringement of any of the Patent Rights
shall be brought against Syntro or Nanogen or raised by way of
counterclaim or affirmative defense to a suit brought under Section 5.2,
the Party that such suit is brought against shall immediately provide
the other Party with written notice of such suit.
5.3.2 Defense by Syntro. Syntro shall have the first right,
but not the obligation, to defend such suit. If Syntro, in its sole
discretion, elects to defend such suit, Syntro shall do so at its own
expense.
5.3.3 Defense by Nanogen. If Syntro, in its sole discretion,
elects not to defend such suit pursuant to
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<PAGE> 7
Section 5.3.2 hereof, Nanogen shall have the right, but not the
obligation to so defend such suit at its sole cost and expense,
provided, however, that Nanogen shall not enter into any settlement
agreement which would adversely affect the Patent Rights without the
prior written consent of Syntro.
ARTICLE VI.
INDEMNIFICATION
6.1 Indemnification by Nanogen. Nanogen shall indemnify and hold
Syntro, its Affiliates, and each of their respective employees, officers,
directors and agents (each, a "Syntro Indemnified Party") harmless from and
against any and all claims, suits, liability, damages, loss, costs or expenses
(including reasonable attorneys' fees) which the Syntro Indemnified Party may
incur, suffer or be required to pay resulting from or arising in connection with
(i) the breach by Nanogen or its Affiliates of any covenant, representation or
warranty contained in this Agreement, (ii) the testing, research, development,
manufacture, storage, distribution, use, marketing, promotion or sale of
Licensed Products by or on behalf of Nanogen or its Affiliates or any of their
respective customers or clients, (iii) any negligent act or omission or willful
misconduct of Nanogen or its Affiliates in the conduct of any activity by
Nanogen or such Affiliates under this Agreement which is the proximate cause of
injury, death or property damage to a third party, or (iv) the violation, by
Nanogen, its Affiliates or any of its or their respective employees, officers,
directors and agents, of any municipal, state, or federal laws, rules or
regulations applicable to the performance of Nanogen's obligations under this
Agreement, or (v) the successful enforcement by a Syntro Indemnified Party of
any of the foregoing. Upon learning of the filing of any such claim or suit,
Syntro shall immediately notify Nanogen thereof.
6.2 Indemnification by Syntro. Syntro shall indemnify and hold
Nanogen, its Affiliates, and each of their respective employees, officers,
directors and agents (each, a "Nanogen Indemnified Party") harmless from and
against any and all claims, suits, liability, damages, loss, costs or expenses
(including reasonable attorneys' fees) which the Nanogen Indemnified Party may
incur, suffer or be required to pay resulting from or arising in connection with
(i) the breach by Syntro or its Affiliates of any covenant, representation or
warranty contained in this Agreement, (ii) any negligent act or omission or
willful misconduct of Syntro or its Affiliates in the conduct of any activity by
Syntro or such Affiliates under this Agreement with respect to the Patent
Rights, or (iii) the violation, by Syntro, its Affiliates or any of its or their
respective employees, officers, directors and agents, of any municipal, state,
or federal laws, rules or regulations applicable to the performance of Syntro's
obligations under this Agreement, or (iv) the successful enforcement by a
Nanogen Indemnified Party of any of
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<PAGE> 8
the foregoing. Upon learning of the filing of any such claim or
suit, Nanogen shall immediately notify Syntro thereof.
6.3 Insurance. Nanogen shall maintain adequate insurance to cover its
liability exposure and indemnification obligations. Upon request of Syntro,
copies of certificates evidencing such insurance coverage will be made available
to Syntro and Nanogen shall provide thirty (30) days prior written notice to
Syntro in the event of cancellation or any material change in such insurance.
ARTICLE VII.
TERM AND TERMINATION
7.1 Term. Unless sooner canceled or terminated under the provisions
hereof, this Agreement shall continue in effect until the last to expire of the
Patent Rights.
7.2 Termination by Syntro. If Nanogen brings a declaratory action
against Syntro alleging invalidity or non-infringement of any of the Patent
Rights, Syntro shall have the right to terminate this Agreement at any time
thereafter upon thirty (30) days written notice to Nanogen.
7.3 Material Breach. Either Party hereto may, at its option, cancel
the licenses herein granted to Nanogen and terminate this Agreement by giving
the other Party prior notice in writing to that effect of not less that sixty
(60) days in the event such other Party shall materially breach this Agreement
and shall fail to cure such breach during the period of said notice; provided,
however, that any such cancellation and termination shall not release such other
Party from any obligations hereunder incurred prior thereto.
7.4 Insolvency. If Nanogen shall become insolvent or shall make an
assignment for the benefit of its creditors, or proceedings in voluntary or
involuntary bankruptcy shall be instituted on behalf of or against Nanogen, or a
receiver or trustee of Nanogen's property shall be appointed, the licenses
granted herein to Nanogen shall, without other action or notice, immediately
terminate.
7.5 Effects of Termination.
7.5.1 Payment Obligations. Upon cancellation or termination
of this Agreement for any reason, all royalties on Net Sales made on or
before the effective date of said cancellation or termination shall
accrue and become due and payable on the thirtieth (30th) day
thereafter. Additionally, any installments of the license fee required
under Section 3.1 which have not yet been paid shall accrue and become
immediately due and payable.
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7.5.2 Inventory. In the event of the cancellation or
termination of this Agreement prior to the expiration thereof, other
than as a result of a substantial safety question having arisen with
respect to Licensed Product(s) or as a result of a termination pursuant
to Section 7.2 hereof or because of a material breach of this Agreement
by Nanogen, Nanogen shall be permitted to sell its then existing
inventory of Licensed Products for a period of nine (9) months, on
condition that Nanogen pay to Syntro royalties thereon and comply with
the other terms of this Agreement. Any inventory not sold during such
nine (9) month period shall be promptly destroyed by Nanogen.
7.6 Survival. The obligations of the Parties set forth in
Sections 3.4, 3.5, 5.3.4, 6.1, 6.2, 6.3, 7.3, 7.4, 7.5, 9.1, 9.2, 10.1, 10.5 and
10.6 and the last sentence of Section 8.2 hereof shall survive expiration or any
termination of this Agreement.
ARTICLE VIII.
REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties of Each Party. Each of Syntro and
Nanogen hereby represents and warrants to the other that, as of the Effective
Date,:
(a) it is a corporation duly organized and validly existing
under the laws of the state or other jurisdiction of incorporation or
formation;
(b) except for the governmental and regulatory approvals
required to market Licensed Product(s) in the Territory, the execution,
delivery and performance of this Agreement by such Party does not
require the consent, approval or authorization of, or notice,
declaration, filing or registration with, any governmental or regulatory
authority and the execution, delivery or performance of this Agreement
will not violate any law, rule or regulation applicable to such Party;
(c) it shall comply with all applicable material laws and
regulations relating to its activities under this Agreement;
(d) the individual executing this Agreement is its duly
authorized representative with full power and authority to sign, bind
and otherwise commit such Party to the terms and obligations of this
Agreement;
(e) it has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder; and
(f) as of the date of this Agreement it is not a party to any
oral or written contract or understanding with any
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<PAGE> 10
third party that is inconsistent with this Agreement and/or its
performance hereunder or that will in any way limit or conflict with
it's ability to fulfill the terms of this Agreement and that it will not
enter into any such agreement during the term of this Agreement.
8.2 Representations and Warranties of Syntro. Syntro hereby
represents and warrants to Nanogen that Syntro owns the Patent Rights and, as of
the Effective Date, the Patent Rights are subsisting and all maintenance fees
that have become due on or before the Effective Date have been paid. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN SECTION 8.1 HEREOF OR IN THIS SECTION 8.2,
SYNTRO MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND AS
TO ANY OF THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE
PATENT RIGHTS LICENSED HEREUNDER OR ANY LICENSED PRODUCTS MADE, USED OR SOLD
HEREUNDER, AND SYNTRO FURTHER DISCLAIMS ANY LIABILITY, TO THE MAXIMUM EXTENT
PERMITTED BY LAW, ARISING OUT OF NANOGEN'S, ITS AFFILIATES' OR ANY OR THEIR
RESPECTIVE CUSTOMERS' USE OF LICENSED PRODUCTS OR THE PATENT RIGHTS.
ARTICLE IX.
CONFIDENTIALITY
9.1 Confidentiality. Each of Nanogen and Syntro shall use only in
accordance with this Agreement and shall not disclose to any third party any
Proprietary Information received by it from the other Party, without the prior
written consent of the other Party. The foregoing obligations shall survive the
expiration or termination of this Agreement for a period of five (5) years.
These obligations shall not apply to Proprietary Information that:
(i) is known by the receiving Party at the time of its receipt,
and not through a prior disclosure by the disclosing Party, as
documented by business records;
(ii) is at the time of disclosure or thereafter becomes published
or otherwise part of the public domain without breach of this Agreement
by the receiving Party;
(iii) is subsequently disclosed to the receiving Party by a third
party who has the right to make such disclosure;
(iv) is developed by the receiving Party independently of
Proprietary Information or other information received from the
disclosing Party and such independent development can be documented by
the receiving Party; or
(v) is required by law, regulation, rule, act or order of any
governmental authority or agency to be disclosed by a Party, provided
that notice is promptly delivered to the other Party in order to provide
an opportunity to seek a
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<PAGE> 11
protective order or other similar order with respect to such Proprietary
Information and thereafter the disclosing Party discloses to the
requesting entity only the minimum Proprietary Information required to
be disclosed in order to comply with the request, whether or not a
protective order or other similar order is obtained by the other Party.
9.2 Return of Proprietary Information. At any time upon request of
the disclosing Party after termination of this Agreement pursuant to Article VII
hereof, the receiving Party shall return all documents, and copies thereof,
containing the disclosing Party's Proprietary Information. However, the
receiving Party may retain one (1) copy of such documents in a secure location
solely for the purpose of determining its obligations hereunder, to comply with
any applicable regulatory requirements, or to defend against any product
liability claims.
ARTICLE X.
MISCELLANEOUS
10.1 Governing Law. This Agreement shall be construed and the legal
relations between the Parties hereto determined in accordance with the laws of
the State of New Jersey, without regard for its conflicts of law provisions.
10.2 Assignment. This Agreement and the licenses granted herein shall
not be assignable by either Party without the prior written consent of the other
Party, which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, either Party may assign this Agreement and its
rights and obligations hereunder to any of its Affiliates or in connection with
the acquisition, sale of all or substantially all of its assets without first
obtaining such consent, but shall notify the other Party, in writing, promptly
after such assignment is made. A Party may assign its rights and/or obligations
hereunder to one of its Affiliates only if such Party provides the other Party
with a signed document guaranteeing the performance of such Affiliate. If a
Party assigns its rights and obligations hereunder to a third party, such
assignment will be effective only if the third party agrees, in writing, to
assume all of the obligations under this Agreement of the Party from whom it is
receiving such assignment.
10.3 Entire Agreement. This Agreement, including any exhibits and
schedules hereto, constitutes the entire understanding of the Parties with
respect to the subject matter hereof. This Agreement supersedes and cancels all
previous agreements among the Parties, written and oral, in respect of the
subject matter hereof. No modification or amendment of this Agreement shall be
valid or binding upon the Parties unless made in writing and duly executed on
behalf or each of the Parties hereto.
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<PAGE> 12
10.4 Export Control. This Agreement is made subject to any
restrictions concerning the export of products or technical information from the
United States of America which may be imposed upon or related to Nanogen or
Syntro from time to time by the government of the United States of America.
Furthermore, Nanogen agrees that it will not export, directly or indirectly, any
technical information acquired from Syntro under this Agreement or any products
using such technical information to any country for which the United States
government or any agency thereof at the time of export requires an export
license or other governmental approval, without first obtaining the written
consent to do so from the Department of Commerce or other agency of the United
States government when required by an applicable statute or regulation.
10.5 Notices. Any notice or other communication required or permitted
to be given to the other Party pursuant to this Agreement shall be sufficiently
given if sent to such Party in writing by express delivery service or certified
or registered mail, return receipt postage prepaid, or by facsimile with
confirmation via mail, addressed to:
To Syntro: Syntro Corporation
3535 General Atomics Court
San Diego, California 92121
Attention: President
Facsimile no.: (908) 629-3103
with copies to:
Schering Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attention: Law Department,
Senior Legal Director - Licensing
Facsimile no.: (908) 298-2739
and
Schering Corporation
One Giralda Farms
Madison, New Jersey
Attention: Staff Vice President - Corporate
Business Development, Strategy
and Internal Consulting
Facsimile no.: (973) 822-7468
To Nanogen: Nanogen, Inc.
10398 Pacific Center Court
San Diego, California 92121
Attention: Chief Executive Officer
Facsimile no.: (619) 546-7717
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<PAGE> 13
with copies to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, California 92121
Attention: General Counsel
Facsimile no.: (619) 546-7717
or to such other address as it shall designate by written notice given to the
other Party. Any such notice or other communication shall be deemed to be
received on the earlier of the date actually received or the date five (5)
business days after the same was posted or sent. Either Party may change its
address or its facsimile number by giving the other Party written notice,
delivered in accordance with this Section.
10.6 Publicity. Neither Party shall use the name of the other Party
(or the such other Party's Affiliates) for promotional purposes without the
prior written consent of the Party whose name is proposed to be used. No news
release, publicity or other public announcement, either written or oral,
regarding the terms or existence of this Agreement or performance hereunder,
shall be made by either Party without the prior written agreement of the other
Party.
10.7 Severability. If any term or condition of this Agreement, the
deletion of which would not adversely affect the receipt of any material benefit
by either Party hereunder, shall be held illegal, invalid or unenforceable, the
remaining terms and conditions of this Agreement shall not be affected thereby
and such terms and conditions shall be valid and enforceable to the fullest
extent permitted by law.
10.8 No Waiver. Failure on the part of Syntro to exercise or enforce
any right conferred upon it hereunder shall not be deemed to be a waiver of any
such right nor operate to bar the exercise or enforcement thereof at any time or
times thereafter.
10.9 Force Majeure. Noncompliance by either Party with the obligations
of this Agreement due to force majeure, (laws or regulations of any government,
war, civil commotion, destruction of production facilities and materials, fire,
flood, earthquake or storm, labor disturbances, shortage of materials, failure
of public utilities or common carriers), or any other causes beyond the
reasonable control of the applicable Party, shall not constitute breach of this
Agreement and such Party shall be excused from performance hereunder to the
extent and for the duration of such prevention, provided it first notifies the
other Party in writing of such prevention and that it uses its best efforts to
cause the event of such force majeure to terminate, be cured or otherwise ended.
10.10 Dispute Resolution. The Parties recognize that a bona fide
dispute as to certain matters may from time to time
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<PAGE> 14
arise during the term of this Agreement. In the event of the occurrence of such
a dispute either Party may, by written notice to the other Party, have such
dispute referred to their respective officers (designated below) or their
successors for attempted resolution by good faith negotiations within thirty
(30) calendar days after such notice is received. Said designated officers are
as follows:
For Syntro: Staff Vice-President,
Corporate Business Development, Strategy and
Internal Consulting
Schering-Plough Corporation
For Nanogen: Chief Executive Officer
Nanogen Corporation
In the event the designated officers are not able to resolve such dispute
through good faith negotiations within such thirty (30) calendar day period,
either Party may invoke the provisions of Schedule 10.10 at any time within
thirty (30) calendar days following the end of such thirty (30) calendar day
period. Notwithstanding the foregoing, nothing in this Section 10.10 shall
prohibit a Party from seeking temporary or injunctive relief from a court of
competent jurisdiction pending the resolution of a dispute in accordance with
the provisions of this Section l0.l0.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed, by duly authorized representatives, as of the last date written below.
NANOGEN, INC. SYNTRO CORPORATION
By: /s/ Howard C. Birndorf By: /s/ Carl Battle
-------------------------------- -------------------------
Howard C. Birndorf Carl Battle
Chairman and CEO Vice President
Date: 11-24-97 Date: Nov. 24, 1997
-------------------------------------- ----------------
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<PAGE> 15
SCHEDULE 10.10
DISPUTE RESOLUTION PROCEDURES
Any dispute, controversy or claim arising out of or relating to the
validity, construction, enforceability or performance of this Agreement
including disputes relating to an alleged breach or termination of this
Agreement (but excluding disputes regarding the validity of any Patent Rights,
which disputes may be submitted to the appropriate tribunal) shall be settled by
binding arbitration in the manner set forth below:
(a) Scope. Subject to and in accordance with the terms of this
Agreement and this Schedule 10.10, all differences, disputes, claims or
controversies arising out of or in any way connected or related to this,
whether arising before or after the expiration of the term of this
Agreement, and including, without limitation, its negotiation,
execution, delivery, enforceability, performance, breach, discharge,
interpretation and construction, existence, validity and any damages
resulting therefrom or the rights, privileges, duties and obligations of
the Parties under or in relation to this Agreement (including any
dispute as to whether an issue is arbitrable), which are not otherwise
resolved in accordance with Section 10.10 of this Agreement, shall be
referred to binding arbitration in accordance with the rules of the
American Arbitration Association, as in effect at the time of the
arbitration.
(b) Parties to Arbitration. For the purposes of each arbitration
under this Agreement, Syntro shall constitute one Party to the
arbitration and Nanogen shall constitute the other Party to the
arbitration.
(c) Notice of Arbitration. A Party requesting arbitration
hereunder shall give a notice of arbitration to the other Party
containing a concise description of the matter submitted for
arbitration, including references to the relevant provisions of the
Agreement and a proposed solution (a "Notice of Arbitration"). Notice of
Arbitration shall be delivered to the other Party in accordance with
Section 10.5 of the Agreement.
(d) Response. The non-requesting Party must respond in writing
within forty-five (45) days of receiving a Notice of Arbitration with an
explanation, including references to the relevant provisions of the
Agreement and a response to the proposed solution and suggested time
frame for action. The nonrequesting Party may add additional issues to
be resolved.
(e) Meeting. Within fifteen (15) days of receipt of the response
from the non-requesting Party pursuant to Paragraph (d), the Parties
shall meet and discuss in good
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<PAGE> 16
faith options for resolving the dispute. The requesting Party must
initiate the scheduling of this resolution meeting; Each Party shall
make available appropriate personnel to meet and confer with the other
Party during such fifteen-(15) day period.
(f) Selection of Arbitrator. Any and all disputes that cannot be
resolved pursuant to Paragraphs (c), (d) and (e) shall be submitted to
an arbitrator (the "Arbitrator") to be selectee by mutual agreement of
the Parties. Unless the Parties otherwise agree, the Arbitrator shall be
a retired judge of a state or federal court, to be chosen from a list of
such retired judges to be prepared jointly by the Parties, with each
Party entitled to submit the names of three such retired judges for
inclusion in the list. No Arbitrator appointed or selected hereunder
shall be an employee, director or shareholder of, or otherwise have any
current or previous relationship with, any Party or its respective
Affiliates. If the Parties fail to agree on the selection of the
Arbitrator, the Arbitrator shall be designated by a judge of the Federal
District Court in New Jersey upon application by either Party.
(g) Powers of Arbitrator. The Arbitrator may determine all
questions of law and jurisdiction (including questions as to whether a
dispute is arbitrable) and all matters of procedure relating to the
arbitration. The Arbitrator shall have the right to grant legal and
equitable relief (including injunctive relief) and to award costs
(including reasonable legal fees and costs of arbitration) and interest.
The Arbitrator is not empowered to award punitive, exemplary or any
similar damages.
(h) Arbitration Procedure. In the event that Syntro is the Party
requesting arbitration, the arbitration shall take place in the State of
California unless otherwise agreed by the Parties, at such place and
time as the Arbitrator may fix for the purpose of hearing the evidence
and representations that the Parties may present. In the event that
Nanogen is the Party requesting arbitration, the arbitration shall take
place in the State of New Jersey unless otherwise agreed by the Parties
at such place and time as the Arbitrator may fix for the purpose of
hearing the evidence and representations that the Parties may present.
The arbitration proceedings shall be conducted in the English language.
The law applicable to the arbitration shall be the law of the State of
New Jersey. No later than twenty (20) business days after hearing the
representations and evidence of the Parties, the Arbitrator shall make
its determination in writing and deliver one copy to each of the
Parties.
(i) Discovery and Hearing. During the meeting referred to in
Paragraph (e) of this Schedule 10.10, the
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<PAGE> 17
Parties shall negotiate in good faith the scope and schedule of
discovery, relating to depositions, document production and other
discovery devices, taking into account the nature of the dispute
submitted for resolution. If the Parties are unable to reach agreement
as to the scope and schedule of discovery, the Arbitrator may order such
discovery as it deems necessary. To the extent practicable taking into
account the nature of the dispute submitted for resolution, such
discovery shall be completed within sixty (60) days from the date of the
selection of the Arbitrator. At the hearing, which shall commence within
twenty (20) days after completion of discovery unless the Arbitrator
otherwise orders, the Parties may present testimony (either live witness
or deposition), subject to cross-examination, and documentary evidence.
To the extent practicable taking into account the nature of the dispute
submitted for resolution and the availability of the Arbitrator, the
hearing shall be conducted over a period not to exceed thirty (30)
consecutive business days, with each Party entitled to approximately
half of the allotted time unless otherwise ordered by the Arbitrator.
The Arbitrator shall have sole discretion with regard to the
admissibility of any evidence and all other matters relating to the
conduct of the hearing.
(j) Witness Lists. At least twenty (20) business days prior to
the date set for the hearing, each Party shall submit to each other
Party and the Arbitrator a list of all documents on which such Party
intends to rely in any oral or written presentation to the Arbitrator
and a list of all witnesses, if any, such Party intends to call at such
hearing and a brief summary of each witness' testimony. At least five
(5) business days prior to the hearing, each Party must submit to the
Arbitrator and serve on each other Party a proposed findings of fact and
conclusions of law on each issue to be resolved. Following the close of
hearings, the Parties shall each submit such post-hearing briefs to the
Arbitrator addressing the evidence and issues to be resolved as may be
required or permitted by the Arbitrator.
(k) Confidentiality. The arbitration proceedings shall be
confidential and, except as required by law, no Party shall make, or
instruct the Arbitrator to make, any public announcement with respect to
the proceedings or decision of the Arbitrator without the prior written
consent of the other Party. The existence of any dispute submitted to
arbitration and the award of the Arbitrator shall be kept in confidence
by the Parties and the Arbitrator, except as required in connection with
the enforcement of such award or as otherwise required by law.
(l) Awards and Appeal. Subject to the provisions of this
Schedule 10.10, the decision of the Arbitrator shall be final and
binding upon the Parties in respect of all matters
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<PAGE> 18
relating to the arbitration, the conduct of the Parties during the
proceedings, and the final determination of the issues in the
arbitration. There shall be no appeal from the final determination of
the Arbitrator to any court, except in the case of fraud or bad faith on
the part of the Arbitrator or any Party to the arbitration proceeding in
connection with the conduct of such proceedings. Judgment upon any award
rendered by the Arbitrator may be entered in any court having
jurisdiction thereof.
(m) Costs of Arbitration. The costs of any arbitration hereunder
shall be borne by the Parties in the manner specified by the Arbitrator
in its determination.
(n) Performance of the Agreement. During the pendency of the
arbitration proceedings, each Party shall continue to perform its
obligations under this Agreement. For purposes of this Paragraph (n) the
term "pendency of the arbitration proceeding" shall mean the period
starting on the date on which arbitration proceedings are commenced by a
Party in accordance with Paragraph (c) of this Schedule 10.10 and ending
on the date on which the Arbitrator delivers its final determination in
writing to the Parties.
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<PAGE> 1
EXHIBIT 10.11
[CONFIDENTIAL TREATMENT REQUESTED. CERTAIN PORTIONS OF THIS
AGREEMENT HAVE BEEN MARKED CONFIDENTIAL AND HAVE BEEN
SEPARATELY FILED WITH THE COMMISSION]
================================================================================
MASTER AGREEMENT
between
BECTON, DICKINSON AND COMPANY
and
NANOGEN, INC.
------------------------
Dated as of October 1, 1997
------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE PARTNERSHIP......................................................3
1.1 Exclusive Arrangement...........................................3
1.2 Purpose.........................................................3
1.3 Partnership Agreement...........................................4
ARTICLE II ANCILLARY AGREEMENTS................................................4
2.1 Collaborative Research and Development and License Agreement....4
2.2 Administrative Services.........................................4
2.3 Future Agreements...............................................5
2.4 Cooperation................................................... 11
2.5 Access to Facilities.......................................... 11
2.6 Right of First Offer.......................................... 11
2.7 SDA License Outside the Field................................. 13
2.8 Letter of Intent.............................................. 13
2.9 Confirmation Under Stock Purchase Agreement................... 13
ARTICLE III REPRESENTATIONS AND WARRANTIES; COVENANTS........................ 14
3.1 Representations and Warranties of Becton...................... 14
3.2 Representations and Warranties of Nanogen..................... 15
3.3 Covenants of Becton and Nanogen............................... 17
ARTICLE IV EFFECTIVE DATE AND DELIVERIES..................................... 18
ARTICLE V DISPUTE RESOLUTION................................................. 18
5.1 Dispute Resolution............................................ 18
5.2 Non-binding Mediation......................................... 19
5.3 Statutes of Limitations....................................... 20
5.4 Equitable Relief.............................................. 20
5.5 Expenses of Consultation and Mediation........................ 20
ARTICLE VI TERMINATION....................................................... 21
ARTICLE VII MISCELLANEOUS PROVISIONS......................................... 21
7.1 Brokers' and Finders' Fees.................................... 21
7.2 Expenses...................................................... 21
7.3 Further Assurances............................................ 21
7.4 Entire Agreement.............................................. 22
7.5 Assignment and Binding Effect................................. 22
7.6 Written Amendment; Waiver..................................... 23
7.7 Notices....................................................... 23
7.8 Governing Law; Construction................................... 24
7.9 No Benefit to Others.......................................... 25
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
7.10 Counterparts.................................................. 25
7.11 Severability.................................................. 25
7.12 Relationship of the Parties................................... 25
7.13 Publicity..................................................... 25
EXHIBITS
A - General Partnership Agreement
B - Collaborative Research and Development and License Agreement
C - Administrative Services Agreements
D - SDA License Agreement
E - Letter of Intent
F - Officer's Certificate
G - CPR Procedures
</TABLE>
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<PAGE> 4
THIS MASTER AGREEMENT (the "Agreement") is made as of the 1st day of
October, 1997 by and between BECTON, DICKINSON AND COMPANY, a New Jersey
corporation ("Becton"), and NANOGEN, INC., a California corporation ("Nanogen"),
with reference to the following background:
A. Nanogen has developed certain technology related to electronically
addressable microchip oligonucleotide arrays ("Arrays").
B. Becton has developed certain technology related to methods for
creating multiple copies of an oligonucleotide sequence known as Strand
Displacement Amplification ("SDA").
C. On May 5, 1997 Becton and Nanogen entered into (i) a Series D
Preferred Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to
which Becton acquired an equity interest in Nanogen and agreed to purchase
additional shares of stock of Nanogen upon the occurrence of certain events. In
addition, as of May 5, 1997, Becton and Nanogen entered into a Collaborative
Research and Development Agreement (the "Prior R&D Agreement") to perform
research and development activities with the objective of producing
instrument/reagent systems which utilize Arrays ("Products").
D. Becton and Nanogen now desire to form through special purpose
entities a partnership to be named The Nanogen/Becton Dickinson Partnership (the
"Partnership") having the business of developing and commercializing worldwide
the Products and such other products as Becton and Nanogen shall agree. The
Partnership's activities with respect to Products shall be limited to the
"Field," which shall mean in vitro nucleic acid-based diagnostic and monitoring
technology involving tests utilizing Arrays for the detection, identification
and/or determination of susceptibility/resistance of microbial agents (i.e.,
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<PAGE> 5
bacteria, viruses, fungi and parasites), excluding, however, ***.
Notwithstanding the foregoing, the Field shall include *** for a period which
concludes on that date which is *** following the date of this Agreement or ***
following the first commercial introduction of a Product in the Field, whichever
shall first occur.
The Partnership, its Partners and their respective Affiliates will:
conduct research and development with respect to the Products solely in the
Field and any other products agreed to by Becton and Nanogen; obtain the
necessary notifications and applications, and amendments and/or supplements
thereto, as required by the Federal Food, Drug and Cosmetic Act, the Public
Health Service Act and the regulations of the U.S. Food and Drug Administration
("FDA") and comparable foreign regulatory authorities with respect to the
Products solely in the Field and any such other products; manufacture the
Products solely in the Field and any such other products after acquisition of
the appropriate approvals and licenses from the FDA and comparable foreign
regulatory authorities, to the extent so required; market and sell the Products
solely in the Field and any such other products worldwide and (5) do any and all
things related or incidental thereto. "Partnership Business" shall mean
collectively the foregoing activities and functions to be performed by the
Partnership, its Partners and their respective Affiliates. "Affiliates" as used
herein shall mean any corporation or other business entity controlled by or in
common control of a party. "Control" as used herein means the ownership directly
or indirectly of fifty percent (50%) or more of the voting stock of a
corporation or fifty percent (50%) or greater interest in the income of such
corporation or other business entity or the ability otherwise of a party to
secure that the affairs of such corporation or other business entity are managed
in accordance with its wishes.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 6
NOW, THEREFORE, in consideration of the respective covenants,
representations and warranties herein contained, and intending to be legally
bound, the parties agree as follows:
ARTICLE I
THE PARTNERSHIP
1.1 Exclusive Arrangement. The parties shall cause the Partnership to be
formed by their special purpose entities under the laws of the State of
Delaware, of which Becton Dickinson Venture LLC, a Delaware limited liability
company directly wholly-owned by Becton (the "Becton Partner") and NanoVenture
LLC, a Delaware limited liability company directly wholly-owned by Nanogen (the
"Nanogen Partner"), shall be the general partners (collectively, the
"Partners"). The Partnership Business shall be carried on exclusively by the
Partnership, its Partners and their respective Affiliates. Nothing in this
Agreement or in any Exhibit to this Agreement is intended to create, or may be
construed to create, except as specifically set forth herein or in any agreement
specifically referred to herein, any legal or business relationship between
Becton and Nanogen, including, without limitation, the relationship of principal
and agent or partner, the existence of which is hereby expressly denied by each
party.
1.2 Purpose. The purpose of the Partnership shall be to conduct the
Partnership Business.
1.3 Partnership Agreement. Concurrently with the execution of this
Agreement, the Partners shall enter into a General Partnership Agreement in the
form attached hereto as Exhibit A (the "Partnership Agreement").
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<PAGE> 7
ARTICLE II
ANCILLARY AGREEMENTS
2.1 Collaborative Research and Development and License Agreement.
Concurrently with the execution of this Agreement, the Partnership shall enter
into a Collaborative Research and Development and License Agreement with Becton
and Nanogen in the form attached hereto as Exhibit B (the "Research and
Development Agreement") to employ Becton and Nanogen to conduct continuing
research and development activities with respect to the Products in the Field.
Neither Becton nor Nanogen has entered into any outstanding options, licenses or
agreements of any kind relating to the Products in the Field other than as
otherwise specified in the Research and Development Agreement.
2.2 Administrative Services. Concurrently with the execution of this
Agreement, the Partnership shall enter into an Administrative Services Agreement
in the form attached hereto as Exhibit C (the "Administrative Services
Agreement") with Becton. Becton and Nanogen recognize that the Partnership may
in the future require additional administrative services and that, subject to
the terms of the Partnership Agreement, the Partnership shall enter into
additional agreements in substantially the form attached as Exhibit C with
Becton and/or Nanogen to provide such services, shall contract with third
parties for such services or shall undertake to provide those services itself.
2.3 Future Agreements. Becton and Nanogen recognize that, dependent upon
the results of activities conducted under the Research and Development Agreement
and other factors, the Partnership, Becton and Nanogen will in the future enter
into one or more license agreements, manufacturing/supply agreements and sales,
marketing and distribution agreements in furtherance of the Partnership
Business. Becton and Nanogen have agreed on
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<PAGE> 8
the basic terms of certain of those agreements (the "Basic Terms"), and each of
Becton and Nanogen covenants that it will, and each of Becton and Nanogen
covenants that it will cause the Partnership to, negotiate in good faith
definitive versions of such agreements that reflect the Basic Terms, in no event
later than the date which the Partnership Management Committee (as defined in
the Partnership Agreement) determines is sufficiently in advance of the
commencement of the marketing and manufacturing of Products in the Field. Such
agreements and their Basic Terms are as follows:
(a) License Agreements. The Partnership shall enter into separate
License Agreements with each of Becton and Nanogen (each, a "License Agreement"
and collectively, the "License Agreements"). The License Agreements shall
provide for the following:
(i) The Partnership will license to Nanogen or an Affiliate of
Nanogen all intellectual property rights within the Field necessary for
Nanogen or any such Nanogen Affiliate to manufacture SDA reagents, other
reagents, chips/devices, cartridges and probes (collectively the
"Components") for sale to Becton under the Manufacturing and Supply
Agreements (as described below). The Partnership will license to Becton
or an Affiliate of Becton all intellectual property rights within the
Field necessary for Becton or any such Becton Affiliate to (A)
manufacture instruments ("Instruments") to be used with the Components
to be supplied to Becton by Nanogen under the Manufacturing and Supply
Agreements, (B) sell such Components and sell or provide for the use of
Instruments to third parties in the United States, and (C) to sell such
Components and sell or provide for the use of Instruments to
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<PAGE> 9
foreign Affiliates of Becton for sale of such Components and sale or the
provision of the use of such Instruments by such Becton foreign
Affiliates to third parties in markets outside of the United States. The
royalties payable by Nanogen or its Affiliate and Becton or its
Affiliate to the Partnership under their respective License Agreements
shall be determined on an arm's length basis.
(ii) In order to support the commencement of and successful
manufacturing of the Components and the Instruments for each fiscal year
of the Partnership ("Partnership Fiscal Year"), the Partnership will pay
to each party and/or such Affiliates of such party as such party directs
as promptly as possible after the end of each Partnership Fiscal Year a
manufacturing start-up allowance equal to the amount expended by such
party and/or its Affiliates pursuant to the budget agreed to in
accordance with Section 7.2(1) of the Partnership Agreement for such
Partnership Fiscal Year for Component manufacturing start-up ("Component
Manufacturing Start-Up Allowance") and Instrument manufacturing start-up
("Instrument Manufacturing Start-Up Allowance").
(iii) In order to support the commencement of successful
marketing, sale and distribution of the Components and sale or provision
of the use of Instruments, for each Partnership Fiscal Year the
Partnership will pay to Becton and/or such Affiliates of Becton as
Becton directs as promptly as possible after the end of each Partnership
Fiscal Year a promotional and marketing allowance equal to the amount
expended by Becton and/or its
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<PAGE> 10
Affiliates pursuant to the budget agreed to in accordance with section
7.2(1) of the Partnership Agreement for such Partnership Fiscal Year for
marketing, selling and distributing Components and Instruments and the
costs of providing for the use of Instruments ("Marketing Allowance").
(iv) The allowances provided for in Sections 2.3(a)(ii) and (iii)
shall be paid by the Partnership for each Partnership Fiscal Year unless
the Partnership Business generates Net Cash Flow for such Partnership
Fiscal Year. Notwithstanding the foregoing provisions of this Section
2.3(a)(iv), the Partnership shall in all events pay the following
minimum allowances to Becton which Becton and/or its Affiliates shall
expend on the promotion, marketing, sale and distribution of Components
and sale or provision of the use of Instruments on behalf of the
Partnership's Business: (x) *** for the Partnership's first amplified
Product in the Field, (y) *** for the Partnership's first non-amplified
Product in the Field and (z) *** for the Partnership's first Product for
testing antibiotic resistance in the Field. For purposes of this Section
2.3(a)(iv), "Net Cash Flow" for a Partnership Fiscal Year shall mean the
excess, if any, of (A) total cash receipts of the Partnership Business
for such Partnership Fiscal Year, exclusive of contributions made to the
Partnership in such Partnership Fiscal Year, over (B) total cash
disbursements of the Partnership Business for such Partnership Fiscal
Year, exclusive of the sum of any Component Manufacturing Start-Up
Allowance, Instrument Manufacturing Start-Up Allowance and Marketing
Allowance paid by the Partnership in such Partnership Fiscal Year.
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(b) Funding of Allowances.
(i) The Becton Partner shall contribute to the Partnership as
provided in Section 8.1(a)(v) of the Partnership Agreement to fund the
Instrument Manufacturing Start-Up Allowance, and the Nanogen Partner
shall contribute to the Partnership as provided in Section 8.1(b)(v) of
the Partnership Agreement to fund the Component Manufacturing Start-Up
Allowance, to be paid to Becton or Nanogen, as the case may be, by the
Partnership pursuant to the applicable License Agreement. Such
contributions shall be consistent with each such allowance.
(ii) The Becton Partner shall contribute to the Partnership as
provided in Section 8.1(a)(v) of the Partnership Agreement to fund the
promotional and marketing allowance to be paid to Becton by the
Partnership pursuant to the License Agreement between the Partnership
and Becton. Such contributions by the Becton Partner shall be consistent
with the Marketing Allowance and in all events shall be in the following
minimum amounts: (x) *** for the Partnership's first amplified Product
in the Field, (y) *** for the Partnership's first non-amplified Product
in the Field and (z) *** for the Partnership's first Product for testing
antibiotic resistance in the Field.
(c) Manufacturing and Supply Agreements. Nanogen and Becton shall enter
into Manufacturing and Supply Agreements for, respectively, the United States
and outside of the United States (collectively, the "Manufacturing and Supply
Agreements"). The Manufacturing and Supply Agreements shall provide for the
following:
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(i) Nanogen shall supply Components to Becton for sale by Becton
to third parties in the United States, and for sale by Becton to its
Affiliates for sale to third parties outside the United States. The
prices at which, or procedures for determining the prices at which,
Components are to be supplied to Becton under the Manufacturing and
Supply Agreement for the United States shall be established in said
Manufacturing and Supply Agreement in such manner that as a result of
such pricing, the applicable Profit or Loss (as defined in Section
2.3(c)(ii)) relating to the United States market is shared *** by
Nanogen and *** by Becton. In the case of the sale of Components and the
sale or provision of use of Instruments by Becton Affiliates outside the
United States, the Profit or Loss relating to foreign markets also shall
be shared *** by Nanogen and *** by Becton, and such sharing shall be
achieved by (A) the pricing of Components to Becton under the
Manufacturing and Supply Agreement for outside the United States, (B)
special allocations of Partnership profit, loss, distributions and
contributions or (C) combinations of such pricing and Partnership
allocations, as agreed by Becton and Nanogen as part of the negotiation
of such Manufacturing and Supply Agreement. Becton shall consult in good
faith with Nanogen regarding the prices and amounts of any royalties to
be charged by Becton to its Affiliates for sales of Components and sale
or provision of the use of Instruments *** and the terms of any sales
and any license agreements between Becton and its Affiliates relating to
such sales of Components or sale or provision of the use of such
Instruments; provided,
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however, that ***, under the Manufacturing and Supply Agreement for ***,
to determine such prices, royalties and terms.
(ii) Under the Manufacturing and Supply Agreements, the
applicable Profit or Loss shall be computed quarterly and any
adjustments to such prices needed to, and payments to be made to,
achieve such sharing of such quarterly applicable Profit or Loss shall
be made promptly after the end of each such fiscal quarter. The
Manufacturing and Supply Agreements each shall define the applicable
"Profit or Loss" in detail and in a manner consistent with the general
principle that applicable Profit or Loss in each case shall be the sum
of (A) the pre-tax net profit earned or loss incurred by Nanogen on the
manufacture and sale of Components to Becton under the applicable
Manufacturing and Supply Agreement, determined after deduction of
royalties payable by Nanogen or its Affiliates under its License
Agreement, (B) the pre-tax net profit earned or loss incurred by Becton
on the manufacture of Instruments and the sale or provision of the use
of Instruments and the sale of Components to third parties in the United
States and to Becton's foreign Affiliates for markets outside the United
States, determined after deduction of royalties payable by Becton or its
Affiliates under its License Agreement; and (C) only in the case of
sales of Components and sale or provision of use of Instruments by
Becton Affiliates outside the United States to third parties outside the
United States, the pre-tax net profit earned or loss incurred by such
Becton foreign Affiliates on such sale or provision of the use of
Instruments and such sale of Components, determined
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after deduction of any royalties payable by any such Becton Affiliates
in connection therewith.
(d) Scope of Activities. The activities of Becton, Nanogen and their
respective Affiliates pursuant to the Manufacturing and Supply Agreements
described in this Section 2.3 shall be undertaken exclusively within the Field.
2.4 Cooperation. Subject to the terms of the Partnership Agreement,
Becton and Nanogen agree to cause the Becton Partner and the Nanogen Partner,
respectively, to do, all other reasonable acts or things helpful, necessary or
appropriate to maximize the success of the Partnership Business through the
development and commercial exploitation of Products and any other products
agreed to by Becton and Nanogen.
2.5 Access to Facilities. Each of Becton and Nanogen shall be granted
the right, upon reasonable prior notice, to visit the other party's facilities
twice each year during the term of the Partnership for orientation on all
research and development and manufacturing and marketing activities.
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2.6 Right of First Offer.
(a) Nanogen hereby grants to the Becton Partner, acting on behalf
of and for the benefit of the Partnership, rights of first offer to negotiate
licenses to the Partnership in the following fields:
(i) ***
(ii) ***
Upon agreement regarding license terms for one or both of the foregoing
fields, an appropriate change to the definition of "Field" in this Agreement,
the Partnership Agreement and the Research and Development Agreement and
appropriate amendments to incorporate agreed upon license terms shall be made.
(b) The Becton Partner's rights of first offer on behalf of the
Partnership shall be governed by the following procedures.
(i) If during the term of this Agreement Nanogen determines to
offer unrelated third parties a license in either field described in
subparagraph (a) on commercially reasonable terms, Nanogen shall first, prior to
taking any other action with respect to any such third parties, notify the
Becton Partner in writing of its intention to license same. Such written notice
shall include a reasonably detailed description of the proposed field and the
material terms and conditions of such license, including proposed royalty rates
and other financial and commercial terms. Within *** following the Becton
Partner's receipt of such notice, the Becton Partner shall give written notice
to Nanogen of its intention to negotiate such a license on behalf of the
Partnership (the "Notice of Intention"), provided, however, that the Becton
Partner shall not be entitled to negotiate a license for the field of *** unless
Becton or one of its at least 50 percent-owned affiliates is
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then engaged in that business with annual sales revenues in the relevant field
equal to at least ***.
(ii) Following Nanogen's receipt of such a Notice of Intention
from the Becton Partner, the parties shall negotiate in good faith to conclude a
definitive license agreement between the Partnership and Nanogen with respect to
such field. The Becton Partner's negotiating rights with Nanogen shall be
exclusive for a period of ***, subject to earlier termination in the Becton
Partner's discretion.
(iii) If the parties are unable to negotiate a license during the
exclusive negotiating period, thereafter Nanogen in its discretion may negotiate
a license in such field with a third party on terms no less favorable to Nanogen
than those last offered to the Becton Partner on behalf of the Partnership.
2.7 SDA License Outside the Field. Concurrently with the execution of
this Agreement, Becton and Nanogen shall enter into the SDA License Agreement in
the form attached hereto as Exhibit D (the "SDA License Agreement").
2.8 Letter of Intent. Concurrently with the execution of this Agreement,
Becton and Nanogen shall enter into a letter of intent in the form attached
hereto as Exhibit E (the "Letter of Intent") relating to the acquisition by the
Partnership of the assets of *** and of certain intellectual property rights of
***, and related transactions between Becton, Nanogen and the Partnership.
2.9 Confirmation Under Stock Purchase Agreement. Becton and Nanogen
hereby agree and confirm that the Partnership Agreement constitutes a
"partnership or joint venture agreement" as contemplated by the second sentence
of Section 1.3a of the Stock Purchase Agreement which shall remain in full force
and effect.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES; COVENANTS
3.1 Representations and Warranties of Becton. Becton represents and
warrants as of the Effective Date that:
(a) Organization, Power and Standing. Becton is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey, and the Becton Partner is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Becton has all necessary corporate power and authority, and the Becton
Partner has all necessary power and authority, to own their respective
properties and to carry on their respective business as now owned and operated
by them.
(b) Authority. Becton has full corporate power and authority to execute
and deliver this Agreement and the Research and Development Agreement, the
Administrative Services Agreement, the SDA License Agreement and the Letter of
Intent (collectively, the "Becton Ancillary Agreements") and to consummate and
perform the transactions contemplated hereby and thereby. The Becton Partner has
full power and authority to execute and deliver the Partnership Agreement and to
consummate and perform the transactions contemplated thereby. The execution and
delivery of this Agreement and the Becton Ancillary Agreements by Becton and the
consummation and performance by Becton of the transactions contemplated hereby
and thereby have been, and the execution and delivery of the Partnership
Agreement by the Becton Partner and the consummation and performance by the
Becton Partner of the transactions contemplated thereby have been, duly and
validly authorized by all necessary corporate or limited liability company
proceedings,
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as applicable; and this Agreement, the Becton Ancillary Agreements and the
Partnership Agreement shall, when executed and delivered on behalf of Becton and
the Becton Partner, as applicable, constitute the valid obligations of Becton
and the Becton Partner, as applicable, and be legally binding upon them in
accordance with their respective terms.
(c) Compliance. No approval or consent of any federal, state, county,
local or other governmental agency or body is required in connection with the
execution, delivery, consummation and performance by Becton of this Agreement or
the Becton Ancillary Agreements or by the Becton Partner of the Partnership
Agreement. The execution, delivery, consummation and performance by Becton of
this Agreement and the Becton Ancillary Agreements, and the execution, delivery,
consummation and performance by the Becton Partner of the Partnership Agreement,
will not conflict with or result in the breach or violation of any term or
provision of, or constitute a default under, the Certificate of Incorporation or
By-Laws of Becton or the operating agreement of the Becton Partner,
respectively, and will not conflict with or result in the breach or violation of
any material term or provision of, or constitute a material default under, any
statute, indenture, mortgage, deed of trust, note agreement or other agreement
or instrument to which Becton or the Becton Partner is a party or by which
Becton or the Becton Partner is bound, or any law, order, writ, injunction,
decree, rule or regulation of any court or any governmental agency or body.
3.2 Representations and Warranties of Nanogen. Nanogen represents and
warrants as of the Effective Date that:
(a) Organization, Power and Standing. Nanogen is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and the
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Nanogen Partner is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Delaware. Nanogen has all
necessary corporate power and authority, and the Nanogen Partner has all
necessary power and authority, to own their respective properties and to carry
on their respective business as now owned and operated by them.
(b) Authority. Nanogen has full corporate power and authority to execute
and deliver this Agreement and the Research and Development Agreement, the SDA
License Agreement and the Letter of Intent (collectively, the "Nanogen Ancillary
Agreements") and to consummate and perform the transactions contemplated hereby.
The Nanogen Partner will have full power and authority to execute and deliver
the Partnership Agreement and to consummate and perform the transactions
contemplated thereby. The execution and delivery of this Agreement and the
Nanogen Ancillary Agreements by Nanogen and the consummation and performance by
Nanogen of the transactions contemplated hereby and thereby have been, and the
execution and delivery of the Partnership Agreement by the Nanogen Partner and
the consummation and performance by the Nanogen Partner of the transactions
contemplated thereby have been, duly and validly authorized by all necessary
corporate proceedings; and this Agreement, the Nanogen Ancillary Agreements and
the Partnership Agreement shall, when executed and delivered on behalf of
Nanogen and the Nanogen Partner, as applicable, constitute the valid obligations
of Nanogen and the Nanogen Partner, as applicable, and be legally binding upon
them in accordance with their respective terms.
(c) Compliance. No approval or consent of any federal, state, county,
local or other governmental agency or body or any individual, corporation or
other entity is required
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in connection with the execution, delivery, consummation and performance by
Nanogen of this Agreement or the Nanogen Ancillary Agreements or by the Nanogen
Partner of the Partnership Agreement. The execution, delivery, consummation and
performance by Nanogen of this Agreement and the Nanogen Ancillary Agreements,
and the execution, delivery, consummation and performance by the Nanogen Partner
of the Partnership Agreement, will not conflict with or result in the breach or
violation of any term or provision of, or constitute a default under, the
Articles of Incorporation or By-Laws of Nanogen or the operating agreement of
the Nanogen Partner, respectively, and will not conflict with or result in the
breach or violation of any material term or provision of, or constitute a
material default under, any statute, indenture, mortgage, deed of trust, note
agreement or other agreement or instrument to which Nanogen or the Nanogen
Partner is a party or by which Nanogen or the Nanogen Partner is bound, or any
law, order, writ, injunction, decree, rule or regulation of any court or any
governmental agency or body.
3.3 Covenants of Becton and Nanogen. (a) Becton covenants to Nanogen
that Becton will ensure that, at all times during the term of the Partnership,
(i) the Becton Partner will have solely one member and (ii) no election to treat
the Becton Partner as a corporation for United States federal income tax
purposes will be made under section 301.7701-3 of the Income Tax Regulations or
any successor regulation; provided, however, beginning after the ***
of the formation of the Partnership, Becton may cause an increase in the
members of the Becton Partner or make such an election to treat the Becton
Partner as a corporation if Becton obtains the prior written consent of Nanogen.
(b) Nanogen covenants to Becton that Nanogen will ensure that, at all
times during the term of the Partnership, (i) the Nanogen Partner will have
solely one member and
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(ii) no election to treat the Nanogen Partner as a corporation for United States
federal income tax purposes will be made under section 301.7701-3 of the Income
Tax Regulations or any successor regulation; provided, however, beginning after
the *** of the formation of the Partnership, Nanogen may cause an increase in
the members of the Nanogen Partner or make such an election to treat the Nanogen
Partner as a corporation if Nanogen obtains the prior written consent of Becton.
(c) Each of Becton and Nanogen covenants that it will comply with, and
be bound by, the provisions of Section 7.2 of the Partnership Agreement
regarding Major Decisions (as defined therein) pertaining to the Partnership
Business.
ARTICLE IV
EFFECTIVE DATE AND DELIVERIES
4.1 This Agreement, the Research and Development Agreement, the
Partnership Agreement, the SDA License Agreement, the Letter of Intent and the
Administrative Services Agreement shall be executed and delivered by the
respective parties to each other party as of, and shall each have an effective
date of, October 1, 1997. Each party (other than the Partnership) shall deliver
to each other party an officer's certificate in the form of Exhibit F attached
hereto.
ARTICLE V
DISPUTE RESOLUTION
5.1 Dispute Resolution. Except as otherwise expressly set forth in this
Agreement or the Partnership Agreement, the parties shall attempt in good faith
to resolve
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any disputes, controversies or claims arising out of or related to (i) this
Agreement, (ii) the Partnership Agreement, (iii) the Research and Development
Agreement, (iv) the SDA License Agreement, (v) the Administrative Services
Agreement, (vi) the Letter of Intent and (vii) any other agreement subsequently
entered into between or among them and the Becton Partner and the Nanogen
Partner, including but not limited to any claim of breach, termination or
invalidity, promptly by negotiations between the Chief Executive Officer of
Nanogen and the President of Becton Dickinson Microbiology Systems or other
executives of the parties who have authority to settle the dispute. Either party
may give the other party written notice of any dispute not resolved in the
normal course of business. Within twenty (20) days after delivery of such
notice, executives of both parties shall discuss by telephone or meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to exchange relevant information and to attempt to resolve the
dispute. If the matter has not been resolved within forty (40) days of the
disputing party's notice, the matter shall be referred to the Board of Directors
of Nanogen and to such executive officer of Becton knowledgeable of the subject
matter thereof as the Chief Executive Officer of Becton in his or discretion
shall nominate for further consideration in an attempt to resolve the matter. If
a negotiator intends to be accompanied at a meeting by an attorney, the other
negotiator shall be given at least three (3) working days' notice of such
intention and may also be accompanied by an attorney. All negotiations pursuant
to this Section 5.1 and pursuant to Section 5.2 are confidential and shall be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence and state rules of evidence.
5.2 Non-binding Mediation. If a matter has not been resolved under the
procedures set forth in Section 5.2 above within sixty (60) days of the
disputing party's
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notice, or if the parties fail to discuss or meet within twenty (20) days, then
within ten (10) days thereafter, either party may, but shall not be obligated
to, initiate nonbinding mediation of the controversy or claim under the Center
for Public Resources Model ADR Procedures for Mediation of Business Disputes
attached hereto as Exhibit G (the "CPR Procedures"). Once the mediation is
initiated by one party, the other party agrees to participate in and conduct
mediation in accordance with the CPR Procedures in good faith and not to pursue
other remedies while such mediation is proceeding. If neither party initiates
mediation within the ten (10) day period, or if the dispute has not been
resolved by such mediation within sixty (60) days following initiation of
mediation, either party may pursue all available remedies.
5.3 Statutes of Limitations. All applicable statutes of limitations and
defenses based upon the passage of time shall be tolled while the negotiation
and mediation procedures set forth in Sections 5.1 and 5.2 are pending. The
parties will take such action, if any, as may be reasonably be required to
effectuate such tolling.
5.4 Equitable Relief. Notwithstanding the foregoing, the remedy at law
for any breach of the provisions of this Agreement or such other agreements may
be inadequate, and, accordingly, an aggrieved party seeking equitable relief or
remedies for such a breach shall have the right and is hereby granted the
privilege, in addition to all other remedies at law or in equity, to proceed
directly in a court of competent jurisdiction to seek temporary or preliminary
equitable relief.
5.5 Expenses of Consultation and Mediation. Each party shall pay its own
costs incurred in attempting to resolve a dispute pursuant to the consultation
and mediation
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procedures set forth in Sections 5.1 and 5.2 without the right to recover such
costs from the other party and shall share equally the cost of mediation.
ARTICLE VI
TERMINATION
6.1 This Agreement shall terminate conterminously with the dissolution
of the Partnership, except that the provisions of Article V shall survive.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Brokers' and Finders' Fees. Each of the parties represents and
warrants to the other party that all negotiations relative to this Agreement
have been carried on by it directly without the intervention of any person,
firm, corporation or entity who or which may be entitled to any brokerage fee,
finders' fee or other commission in respect of the execution of this Agreement
or the consummation of the transactions contemplated hereby, and such party
shall indemnify, defend and hold the other party harmless against any and all
claims, losses, liabilities or expenses which may be asserted against the other
party or any affiliate thereof as a result of such party's or any of its
affiliates' dealings, arrangements or agreements with any such person, firm,
corporation or entity.
7.2 Expenses. Each party to this Agreement shall be responsible for the
fees and expenses incurred by it incidental to the consummation of the
transactions contemplated by this Agreement (including, without limitation, fees
and disbursements of its attorneys and accountants in connection with their
respective services on behalf of each party).
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7.3 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties shall take, or cause to be taken, such action to
execute and deliver, or cause to be executed and delivered, such additional
documents and instruments and to do, or cause to be done, all things necessary,
proper or advisable under the provisions of this Agreement and under applicable
laws to consummate and make effective the transactions contemplated by this
Agreement.
7.4 Entire Agreement. This Agreement, the Partnership Agreement, the
Research and Development Agreement, the Administrative Services Agreement, the
Confidentiality Agreement (as such term is defined in the Partnership
Agreement), the SDA License Agreement and the Letter of Intent set forth the
entire understanding of the parties with respect to the subject matter hereof
and supersede and replace all prior agreements, understandings, writings and
discussions between the parties relating to said subject matter. Any and all
previous agreements and understandings between the parties regarding the subject
matter hereof, whether written or oral, including, without limitation, the Prior
Research and Development Agreement, are superseded by this Agreement. In the
event of any conflict between any term or provision of this Agreement and any of
the foregoing agreements, this Agreement shall control. Nothing contained in
this Agreement shall operate to contravene, amend or modify any term or
provision of the Stock Purchase Agreement, which remains in full force and
effect. The representations and warranties contained in this Agreement shall
survive the execution hereof.
7.5 Assignment and Binding Effect. This Agreement shall not be
assignable by Becton or Nanogen, nor shall any obligations hereunder be
delegated to a third party, without the other party's prior written consent,
which consent shall not be unreasonably
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withheld or delayed. In the event that Becton or Nanogen, as the case may be,
does not respond to a request from the other for consent to an assignment or
delegation within fifteen (15) days following written notice requesting such
consent, such consent shall be deemed to be granted. In addition, a condition to
any assignment or delegation hereunder shall be that the successor in interest
expressly agrees in writing to assume the assigning or delegating party's
obligations hereunder. All of the terms and provisions of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
permitted successors and assigns of the parties. No such assignment shall
release the assigning party from its obligations hereunder. Notwithstanding the
foregoing, the consent of either party shall not be required in connection with
a merger involving the other party or with respect to an assignment of this
Agreement in connection with the acquisition, sale of all or substantially all
of the assets of the other party, change of control or similar transaction.
7.6 Written Amendment; Waiver. This Agreement may be amended only by a
written instrument executed by the parties hereto. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect its rights at a later time to enforce the same. No waiver by any
party of any condition or term in any one or more instances shall be construed
as a further or continuing waiver of such condition or term or any other
condition or term.
7.7 Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally, by facsimile (upon
receipt of appropriate written confirmation) or sent by registered or certified
mail, return receipt requested, or by overnight courier service, postage prepaid
as follows:
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If to Becton or the Becton Partner, to:
Becton Dickinson Microbiology Systems
7 Loveton Circle
Sparks, MD 21152
Attention: President
With required copies to:
Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, NJ 07417-1880
Attention: General Counsel
If to Nanogen or the Nanogen Partner, to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: Chief Executive Officer
With required copies to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: General Counsel
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so received (in case of personal delivery or overnight courier
delivery) or upon refusal to accept delivery of same.
7.8 Governing Law; Construction. This Agreement and all agreements
attached hereto as Exhibits shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its choice of laws
principles, unless any agreement attached hereto as an exhibit shall otherwise
specifically provide. This Agreement shall be construed and interpreted without
application of any principle or rule to the effect that
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ambiguities are to be construed against the party responsible for drafting the
agreement. The headings contained herein are for reference purposes only and
shall not in any way affect the meaning of this Agreement.
7.9 No Benefit to Others. The terms and provisions contained in this
Agreement are for the sole benefit of the parties and their successors and
assigns, and they shall not be construed as conferring and are not intended to
confer any rights on any other persons.
7.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
7.11 Severability. If any provision(s) of this Agreement are or become
invalid, or are ruled illegal by any court of competent jurisdiction, or are
deemed unenforceable under then current applicable law from time to time in
effect during the term hereof, it is the intention of the parties hereto that
the remainder of this Agreement shall not be affected thereby. It is further the
intention of the parties that in lieu of each such provision which is invalid,
illegal, or unenforceable, there be substituted or added as part of this
Agreement, a provision which shall be as similar as possible in economic and
business objectives as intended by the parties to such invalid, illegal, or
unenforceable provision, but which shall be valid, legal, and enforceable, and
shall be mutually agreed by the parties.
7.12 Relationship of the Parties. Nothing contained in this Agreement
shall be deemed to create a partnership between Becton and Nanogen except as set
forth in the Partnership Agreement. No party shall be liable for the act of any
other party unless such act is expressly authorized in writing by all of the
parties hereto.
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7.13 Publicity. No press release or announcement concerning the terms of
this Agreement or the transactions contemplated hereby shall be issued by any
party without the prior consent of the other party, which shall not be
unreasonably withheld, except as such release or announcement may be required by
law, rule or regulation (including applicable federal and state securities laws,
rules and regulations) or legal process, provided that in each case the party
making the release or announcement shall allow the other party reasonable time
to comment on such release or announcement in advance of such issuance.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement as of the day and year first written
above.
BECTON, DICKINSON AND COMPANY
By /s/ Vincent A. Forlenza
----------------------------------------
Vincent A. Forlenza
President - Worldwide
Microbiology Systems
NANOGEN, INC.
By /s/ Howard C. Birndorf
----------------------------------------
Howard C. Birndorf
Chairman and Chief Executive Officer
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EXHIBIT A
GENERAL PARTNERSHIP AGREEMENT
THIS GENERAL PARTNERSHIP AGREEMENT (the "Agreement") is entered into as
of the 1st day of October, 1997, by and between Becton Dickinson Venture LLC, a
Delaware limited liability company (the "Becton Partner"), and NanoVenture LLC,
a Delaware limited liability company (the "Nanogen Partner"). The Becton Partner
and the Nanogen Partner are hereinafter collectively referred to as the
"Partners."
W I T N E S S E T H:
WHEREAS, the parties hereto desire to form a general partnership (the
"Partnership") under the laws of the State of Delaware for the purposes and on
the terms provided herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
expressed, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Definitions. All capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to them in the Research Agreement
(defined below). Unless the context clearly indicates otherwise, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean any corporation or other business entity
controlled by or in common control of a party. "Control" as used herein means
the ownership directly or indirectly of fifty percent (50%) or more of the
voting stock of a corporation or a fifty percent (50%) or greater interest in
the income of such corporation or other business entity or the ability otherwise
of a party to secure that the affairs of such corporation or other business
entity are managed in accordance with its wishes.
"Assumed Tax Rate" means for a taxable year the sum of (a) the highest
marginal federal income tax rate applicable to corporations for such taxable
year plus (b) the result of multiplying (i) the highest marginal California tax
rate for corporations by (ii) the percentage calculated by subtracting the
highest marginal federal income tax rate for such taxable year from one hundred
percent. The Assumed Tax Rate shall be determined with respect to each taxable
year by the Tax Matters Partner with the approval of the other Partners.
"Becton" means Becton, Dickinson and Company, a New Jersey corporation.
"Becton Partner Unrecovered Cash Contributions" shall mean as of any
date the excess of (a) the sum of the amount set forth in Section 8.1(a)(i) and
the amounts contributed by the Becton Partner under Sections 8.1(a)(iii), (iv)
and (v) as of such date over (b) the cumulative amount of Partnership Business
Cash received by Becton, the Becton Partner and any Affiliate of Becton prior to
such date.
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"Becton Partner Excess Unrecovered Cash Contributions" shall mean the
amount, if any, by which any Becton Partner Unrecovered Cash Contributions
exceed the amount of any Nanogen Partner Unrecovered Cash Contributions.
"Becton Intellectual Property License" shall mean the license set forth
in Section 6.1(a) of the Research Agreement.
"Capital Account" means, with respect to each Partner, an account
determined in accordance with the provisions of Section 8.3.
"Code" means the Internal Revenue Code of 1986, as in effect as of the
date hereof and as amended.
"Components" shall have the meaning ascribed to such term in Section 2.3
of the Master Agreement.
"Confidentiality Agreement" means the Confidentiality Agreement entered
into by Becton and Nanogen effective as of February 6, 1997 as amended.
"FDA" means the U.S. Food and Drug Administration.
"Field" shall have the meaning ascribed to such term in the Research
Agreement.
"Master Agreement" means the Master Agreement entered into by Becton and
Nanogen concurrently with the execution of this Agreement.
"Nanogen" means Nanogen, Inc., a California corporation.
"Nanogen Intellectual Property License" shall mean the license set forth
in Section 6.1(b) of the Research Agreement.
"Nanogen Partner Unrecovered Cash Contributions" shall mean as of any
date the excess of (a) the amounts contributed by the Nanogen Partner under
Sections 8.1(b)(iii), (iv) and (v) as of such date over (b) the cumulative
amount of Partnership Business Cash received by Nanogen, the Nanogen Partner and
any Affiliate of Nanogen prior to such date.
"Net Cash Flow" shall have the meaning ascribed to it in Section 2.3 of
the Master Agreement.
"Net Tax Income" shall mean the excess, if any, of the items of income
and gain for each taxable year over the items of deduction, loss and credit
(grossed up at the Assumed Tax Rate for each taxable year to a deduction
equivalent) for each taxable year as shown on the federal
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income tax returns of the Partnership for each taxable year, except that in the
case of property contributed to the capital of the Partnership, items of income,
gain, deduction and loss shall be computed as if the tax basis of such property
at the time of such contribution were equal to its fair market value at such
time.
"Partnership Business" shall have the meaning ascribed to such term in
the Master Agreement.
"Partnership Business Cash" shall mean the aggregate Net Cash Flow
derived from the Partnership Business by the Becton Partner and Becton and its
Affiliates, the Nanogen Partner and Nanogen and its Affiliates and the
Partnership.
"Partnership Interest" means the entire ownership interest of a Partner
in the Partnership at any particular time including, without limitation, the
right of such Partner to participate in the Partnership's profits and losses,
Net Cash Flow, distributions on liquidation of the Partnership and any and all
benefits to which a Partner may be entitled as provided in this Agreement,
together with the obligation of such Partner to comply with all the terms and
provisions of this Agreement.
"Percentage Interest" means as to the Becton Partner, fifty percent, and
as to the Nanogen Partner, fifty percent.
"Person" means an individual, partnership, corporation, association,
joint venture, trust, government or political subdivision thereof, governmental
agency or other entity.
"Prior Research Agreement" means the Collaborative Research and
Development Agreement entered into by Becton and Nanogen as of May 5, 1997,
which is being terminated by the Research Agreement.
"Product" shall have the meaning ascribed to such term in the Research
Agreement.
"Program Inventions" shall have the meaning ascribed to such term in the
Research Agreement.
"Project A" and "Project B" shall have the meanings ascribed to such
terms in the Research Agreement.
"Regulations" means regulations that have been promulgated by the United
States Department of the Treasury under the Code.
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"Research Agreement" means the Collaborative Research and Development
and License Agreement entered into by Becton, Nanogen and the Partnership
concurrently with the execution of this Agreement.
"Research Milestone I" and "Research Milestone II" shall have the
meanings ascribed to such terms in the Research Agreement.
"Research Program" shall have the meaning ascribed to such term in the
Research Agreement.
2. Formation. The parties hereto hereby associate themselves as partners
and hereby form the Partnership as a general partnership under the laws of the
State of Delaware.
3. Name. The name of the Partnership is The Nanogen/Becton Dickinson
Partnership, a Delaware general partnership. The name of the Partnership may be
changed at any time by the Partnership Management Committee of the Partnership.
4. Principal Place of Business. The principal place of business of the
Partnership shall be located at such location as may hereafter be determined
from time to time by the Partnership Management Committee of the Partnership.
5. Business. The business of the Partnership is to conduct the
Partnership Business.
6. Term. The term of the Partnership shall continue until terminated as
provided in Section 10.
7. Management and Control.
7.1 Partnership Management Committee. The Partnership and the
Partnership Business shall be managed by and under the direction of a
Partnership Management Committee which shall consist of six (6) members. The
Becton Partner shall appoint three (3) members and the Nanogen Partner shall
appoint three (3) members. The initial members shall consist of one (1) person
appointed by each Partner with expertise in (a) finance, (b) general management
and (c) research and development. The initial members to be appointed by each of
the Partners are listed on Exhibit A hereto. The Partnership Management
Committee shall be responsible for strategic planning and, among other things,
shall adopt a summary business plan for each fiscal year and a budget for each
fiscal quarter of the Partnership which shall govern the direction of the
Partnership Business.
7.2 Major Decisions. No action shall be taken or sum expended or
obligation incurred by the Partnership, any Partner or any Affiliate of any
Partner with respect to a matter within the scope of any of the "Major
Decisions" affecting the Partnership and/or the Partnership Business,
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unless such Major Decision shall have been approved by a majority vote of the
Partnership Management Committee (except for matters listed in Section *** where
the affirmative vote of seventy-five percent (75%) of the Partnership Management
Committee is required) made in writing. The following are "Major Decisions"
affecting the Partnership and/or the Partnership Business:
(1) adopting and approving a budget for the Partnership Business
for each fiscal year and each fiscal quarter of the Partnership;
(2) adopting and approving a summary business plan for the
Partnership Business for each fiscal year of the Partnership, and
departing in any material respect from the summary business plan adopted
by the Partnership for any fiscal year;
(3) adopting and approving a budget and clinical plan under the
Research Agreement for each fiscal quarter of the Partnership, and
departing in any material respect from such budget and plan;
(4) appointing a Project Manager within thirty (30) days
following the date hereof to manage the day-to-day affairs of the
Partnership;
(5) making any single expenditure or incurring any obligation
with respect to the Partnership Business involving a sum in excess of
$20,000 that is not provided for in the Partnership Business budget for
the fiscal year in which such expenditure is to be made or such
obligation is to be incurred;
(6) hiring of employees of the Partnership;
(7) retention of legal counsel or accountants for the
Partnership;
(8) selecting a firm of certified public accountants and
selecting accounting methods and making other decisions with respect to
the treatment of various transactions for tax purposes;
(9) approving the terms of and entering into a supply,
manufacturing, sales, marketing or distribution agreement with any party
(including the Partners and their Affiliates) relating to Products or
any other products agreed to by the Partners;
(10) entering into any license or sublicense agreement;
(11) determining the insurance program for the Partnership, and
any variations or changes thereto;
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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(12) determining the amount, if any, of funds otherwise available
for distribution to be withheld from distribution to the Partners (funds
available for distribution to the Partners are those funds not needed
for the Partnership's working capital purposes);
(13) determining the maximum and minimum working capital
requirements of the Partnership Business;
(14) compromising or paying any claim in excess of *** arising
out of the Partnership Business;
(15) borrowing or lending any money on behalf of the Partnership
or using any of the Partnership's property as security for loans;
(16) admitting additional Partners to the Partnership;
(17) assigning, transferring, pledging, compromising or releasing
any of the Partnership's claims or debts relating to the Partnership
Business, except upon payment in full, or arbitrate or consent to the
arbitration of any such disputes or controversies;
(18) selling or mortgaging any Partnership property or interest
therein or entering into any contract for such purposes;
(19) the assumption by the Partnership of any liability for
another or others by means of endorsement, or becoming guarantor or
surety;
(20) authorizing the confession of judgment against the
Partnership;
(21) designating a Partner as the Tax Matters Partner; and
(22) any other decision or action which, considered prior to the
making of such decision or the taking of such action, would be
reasonably expected to have a substantial or material effect upon the
Partnership and/or the Partnership Business as contrasted with decisions
or actions which would be routine and in the ordinary course of the
Partnership Business, including, but not limited to, a decision to enter
into any business not specifically identified in Section 5.
7.3 Operating Decisions. The Project Manager shall be responsible for
making all decisions affecting the Partnership which are not Major Decisions,
which decisions shall be hereinafter referred to as the "Operating Decisions."
Operating Decisions affecting the Partnership shall include, but shall not be
limited to, decisions with respect to the day to day management and operation of
the business of the Partnership and supervision of the employees
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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of the Partnership, if any. The Project Manager shall report and be accountable
to the Partnership Management Committee.
7.4 Resolution of Differences. (i) In the event that a Major Decision
cannot be reached by the Partnership Management Committee, the matter shall be
referred for further review and resolution solely pursuant to the consultation
and mediation procedures set forth in Article V of the Master Agreement or
through such other procedures as may be agreed upon in writing by the Partners.
In the absence of an agreement between the Partners on a proposed action through
these procedures, the action shall not be taken.
(ii) The parties agree that the procedures set forth in this
Section 7.4 shall be the sole procedures to be followed in any case where a
Major Decision cannot otherwise be reached by the Partnership Management
Committee.
7.5 No Partner May Act for the Partnership. Unless specifically
authorized to act for the Partnership by this Agreement, or by a decision made
pursuant to this Agreement, no Partner shall have any power or authority to act
for the Partnership in any manner. Accordingly, no Partner, unless so
authorized, shall have the power or authority to execute any instrument in the
Partnership's name, or to commit or obligate the Partnership to any liability,
obligation, undertaking, agreement or contract in any other way. Except as
otherwise authorized herein, all documents to be executed on behalf of the
Partnership shall not bind the Partnership or any Partner unless executed by all
of the Partners.
7.6 Representatives of Each Partner. Each Partner shall designate in
writing to the other Partner the names and business addresses of its
representatives who shall be appointed to the Partnership Management Committee.
Any such representative may be replaced by a successor representative by notice
in writing to the Partnership and the other Partner.
7.7 Meetings. The Partnership Management Committee shall meet from time
to time, but at least once every three (3) months during the term of this
Agreement, at a mutually agreed location. Meetings of the Partnership Management
Committee may be called by either Partner at any time, by sending written or
facsimile notice or by giving oral notice (which shall be confirmed in writing
immediately thereafter) to the other Partner at least ten (10) days prior to the
meeting date. A Partner may waive notice of a meeting. Members of the
Partnership Management Committee may participate in meetings by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at the meeting. Members of the
Partnership Management Committee shall have the right to vote at meetings by
proxy. Within five (5) business days following each meeting, the Partnership
Management Committee shall cause to be prepared a written summary of such
meeting.
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7.8 Buyout.
(a) Within forty-five (45) days following the occurrence of any one of
the following events (each a "Buyout Option Event"): (i) if a Partner does not
make contributions to the capital of the Partnership in addition to those
contributions required by Section 8.1 upon a proposal therefor, (ii) if
cumulative Net Sales (as defined below) of Products to third-party end users are
less than *** over a *** period commencing upon the first sale of the first
Product or (iii) if the Partnership Business does not achieve a profit
(calculated in accordance with generally accepted accounting principles) for at
least *** ending prior to ***, either Partner or an Affiliate of either Partner
will have the right, but not the obligation, to initiate the buyout procedures
(the initiating Partner, the "Offeror") set forth in this Section 7.8 by
delivering written notice thereof (the "Offering Notice") to the other Partner
(the "Offeree") which shall constitute an offer by the Offeror to purchase the
Offeree's Partnership Interest in the Partnership at its fair market value. For
purposes of this Section 7.8(a), "Net Sales" shall mean, with respect to any
Product, the invoiced sales price of such Product billed to independent
customers who are not Affiliates, less to the extent actually included in the
invoiced sales price (i) credits, allowances, discounts and rebates to, and
chargebacks from the account of, such independent customers for spoiled,
damaged, out-dated and returned Product; (ii) actual freight and insurance costs
incurred in transporting such Product in final form to such customers; (iii)
cash, quantity and trade discounts, rebates and other price reduction programs;
(iv) sales, value-added and other direct taxes incurred; and (v) customs duties,
surcharges and other governmental charges incurred in connection with the
exportation or importation of such Product in final form.
(b) Within forty-five (45) days following the date of the Offering
Notice, the Partners shall take all necessary steps to determine the fair market
value of the Partnership and the purchase price of the Partnership Interest as
set forth in subsection (h) below (the "Purchase Price"). The Partners shall set
forth the Purchase Price in a written notice delivered to both Partners (the
"Price Determination Notice").
(c) Within thirty (30) days following the date of the Price
Determination Notice, the Offeree shall elect, at its sole option, by written
notice (the "Election Notice") to the Offeror (A) to sell its Partnership
Interest in the Partnership to the Offeror or (B) to buy the Partnership
Interest of the Offeror at the Purchase Price. Thereafter, the party designated
in the Election Notice as selling its Partnership Interest shall be referred to
as the Selling Party and the party designated in the Election Notice as
purchasing the Partnership Interest shall be referred to as the Purchasing
Party.
(d) The purchase and sale pursuant to this Section 7.8 shall be
accomplished through an escrow established at a title insurance or escrow
company mutually approved by the Selling Party and the Purchasing Party, and
shall be consummated within forty-five (45) days following the effective date of
the Price Determination Notice. The Partners shall execute such further
instructions as the escrow holder and the Purchasing Party reasonably may
require to consummate
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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such escrow, provided such instructions are not inconsistent with the terms of
this Agreement. Closing costs shall be shared equally by the Partners. The
Selling Party shall transfer to the Purchasing Party the entire Partnership
Interest of the Selling Party free and clear of all liens, security interests
and competing claims, and shall deliver to the Purchasing Party such instruments
of transfer and such evidence of due authorization, execution and delivery and
of the absence of such liens, security interests or competing claims as the
Purchasing Party shall reasonably request. At the closing, the Purchasing Party
shall pay the Purchase Price to the Selling Party by a wire transfer of
immediately available funds to a bank account designated by the Selling Party.
(e) The Purchasing Party shall, effective as of the date of the closing
described in paragraph (d) above, indemnify and hold harmless the Selling Party
from and against any and all claims, liabilities, causes of action, liens,
charges and all other matters arising out of or in connection with the
Partnership and the Partnership Business, whether arising prior to or subsequent
to the date of the closing, except for unknown liabilities arising prior to the
date of closing and not taken into account in calculating the Purchase Price and
except for continuing obligations of the Selling Party pursuant to the Research
Agreement. If the Selling Party or any Affiliate of the Selling Party is a
guarantor of any obligations of the Partnership or otherwise liable thereon,
prior to closing the Purchasing Party shall use reasonable best efforts to
obtain a release of each such guaranty or liability in form and content
reasonably acceptable to the Selling Party and its guarantor Affiliates. If such
release cannot be obtained prior to closing, the Purchasing Party shall hold the
Selling Party harmless with respect to such guaranties and liabilities in form
and content reasonably acceptable to the Selling Party and its guarantor
Affiliates.
(f) Either the Purchasing Party or the Selling Party shall have the
right to seek specific performance of this Section 7.8 in a court of competent
jurisdiction, and the other Party shall not plead as a defense that an adequate
remedy at law exists.
(g) Upon the occurrence of a Buyout Option Event, if neither Partner
institutes the buyout provisions set forth in Section 7.8(a), then the
Partnership shall be dissolved pursuant to Section 10.1 unless the Partners
otherwise agree to continue the Partnership.
(h)(i) If required by subsection (b) above, each Partner will select a
qualified appraiser who will determine the fair market value of the Partnership.
The appraisers shall value the Partnership based on the value of the Partnership
Business and, therefore, to the extent that the appraisers utilize historical
financial information in their analysis, they shall take into account not only
the historical net profit or loss of the Partnership for financial reporting
purposes and related cash flows but also the historical Profit or Loss for
financial reporting purposes (as defined in Section 2.3(c)(ii) of the Master
Agreement) and related cash flows. In addition, the appraisers' analysis shall
take into consideration the value of the underlying tangible and intangible
assets and the liabilities of the Partnership Business. To the extent that the
Selling Party or an Affiliate
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of the Selling Party is to perform any service or other function relating to the
Partnership Business subsequent to the buyout, the amounts to be or projected to
be paid for such service or function shall be taken into account by the
appraisers in determining profit, loss and related cash flows projected to be
generated by the Partnership Business subsequent to the buyout. For purposes of
this Section 7.8(h)(i), the Partnership Business for periods subsequent to the
buyout shall mean the same functions and activities encompassing the Partnership
Business as defined in the Master Agreement without regard to whether the
parties described in such definition are the parties performing such functions
or activities after the buyout.
(ii) If the fair market value of the Partnership determined by the
higher of the two appraisals (the "Higher Initial Appraisal") is not greater
than *** of the fair market value of the Partnership determined by the lower of
the two appraisals (the "Lower Initial Appraisal"), the fair market value of the
Partnership will be the average of the two appraisals; however, if the resulting
value of the Partnership would not fall within this range, the two appraisers
selected by the parties will select a third qualified appraiser to determine the
fair market value of the Partnership. If the Higher Initial Appraisal is greater
than *** but not greater than *** of the Lower Initial Appraisal, then the fair
market value of the Partnership will be equal to the average of the two of the
three appraisals that are closest to one another (or if the highest and lowest
appraisal are equidistant from the middle, then such fair market value will be
equal to the middle appraisal). If the fair market value of the Partnership
determined by the Higher Initial Appraisal is greater than *** of the fair
market value of the Partnership determined by the Lower Initial Appraisal, then
the fair market value of the Partnership will be equal to either the Higher
Initial Appraisal or the Lower Initial Appraisal, whichever is closest to the
third appraisal (or if the Higher Initial Appraisal and the Lower Initial
Appraisal are equidistant from the third appraisal, then such fair market value
will be equal to the third appraisal). Each Partner will pay the cost of the
appraiser it selects. Such parties will split the costs of a third appraiser if
used. The fair market value of the Selling Partner's Partnership Interest shall
be an amount equal to the balance that the Selling Partner would have in its
Capital Account for purposes of Section 10.3(d) if the Partnership were
liquidated at the time that the fair market value of the Partnership was the
value determined under this Section 7.8(h). For purposes of determining such
Capital Account balance, in applying Section 8.3(b), the value of the
Partnership's assets shall be the value of the assets of the Partnership
Business determined under this Section 7.8(h) in determining the fair market
value of the Partnership.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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8. Capital Contributions, Partner Loans and Capital Accounts.
8.1 Contributions by the Partners.
(a) Becton Partner's Contribution.
(i) Concurrently with the execution and delivery of this
Agreement, Becton is contributing to the Partnership on behalf of the Becton
Partner all of Becton's rights to the results of the research undertaken under,
and all of its other rights under, the Prior Research Agreement. The Partners
agree that such contribution has a value of *** which shall be credited to
the Becton Partner's Capital Account.
(ii) Concurrently with the execution and delivery of this
Agreement, Becton is contributing the Becton Intellectual Property License to
the Partnership on behalf of the Becton Partner. The Partners agree that such
contribution does not have an ascertainable value and that no amount shall be
credited to the Becton Partner's Capital Account in respect thereof.
(iii) The Becton Partner hereby agrees to make the following
contributions to the Partnership for use by the Partnership exclusively in the
Research Program:
(A) Four (4) cash contributions of *** each, within five
(5) business days following each of ***.
(B) Upon the successful completion of Research Milestone I
by December 31, 1997, and Research Milestone II by June 30, 1998, for
either Research Project A or Research Project B, cash totaling a minimum
of *** for use in the Research Program, to be made in four (4)
installments of *** each, payable on ***, unless otherwise agreed upon
by the Partners.
(iv) In addition to and after the amounts that are contributed
under Section 8.1(a)(iii) to fund the Research Program, commencing on *** and
quarterly thereafter with the last payment to be made on ***, the Becton Partner
hereby agrees to make quarterly contributions in the minimum amounts of *** each
to fund additional Partnership research.
Each contribution made pursuant to this Section 8.1(a)(iv) shall be conditioned
upon the achievement of certain milestones to be mutually agreed upon by the
Partners thirty (30) days prior to the commencement of the twelve-month periods
ending *** and ***, respectively.
(v) In addition to the contributions set forth above in Sections
8.1(a)(iii) and (iv) to fund the Research Program and any additional Partnership
research, the Becton Partner hereby agrees to make cash contributions to the
Partnership in such amounts and at such times as are required for the
Partnership to pay the manufacturing start-up and promotional and marketing
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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allowances to be included in the License Agreement between Becton and the
Partnership as described in Section 2.3 of the Master Agreement.
(b) Nanogen Partner's Contribution.
(i) Concurrently with the execution and delivery of this Agreement,
Nanogen is contributing to the Partnership on behalf of the Nanogen Partner all
of Nanogen's rights to the results of the research undertaken under, and all of
its other rights under, the Prior Research Agreement. The Partners agree that
such contribution does not have an ascertainable value and that no amount shall
be credited to the Nanogen Partner's Capital Account in respect thereof.
(ii) Concurrently with the execution and delivery of this Agreement,
Nanogen is contributing the Nanogen Intellectual Property License to the
Partnership on behalf of the Nanogen Partner. The Partners agree that such
contribution does not have an ascertainable value and that no amount shall be
credited to the Nanogen Partner's Capital Account in respect thereof.
(iii) Upon the successful completion of Research Milestone I by
December 31, 1997, and Research Milestone II by June 30, 1998, in both cases for
either Research Project A or Research Project B, the Nanogen Partner hereby
agrees to contribute to the Partnership at the same time or times as the Becton
Partner contributes cash to the Partnership under Section 8.1(a)(iii)(B) cash
for use by the Partnership exclusively in the Research Program equal to *** of
the amount of cash contributed by the Becton Partner pursuant to Section
8.1(a)(iii)(B).
(iv) In addition to and after the amounts that are contributed under
8.1(b)(iii) hereof to fund the Research Program, the Nanogen Partner hereby
agrees to make the following contributions to the Partnership to fund additional
Partnership research:
(A) After the amounts contributed under Sections
8.1(a)(iii) and 8.1(b)(iii) hereof, cash to fund the first *** of
research costs in excess of those funded pursuant to Sections
8.1(a)(iii) and 8.1(b)(iii).
(B) After the amount contributed under Section
8.1(b)(iv)(A) hereof, at the same time or times as the Becton Partner
contributes cash to the Partnership under Section 8.1(a)(iv) hereof,
cash equal to *** of the amount of cash contributed by the Becton
Partner pursuant to Section 8.1(a)(iv).
(v) In addition to the contributions set forth above in Sections
8.1(b)(iii) and (iv) to fund the Research Program and any additional Partnership
research, the Nanogen Partner hereby agrees to make cash contributions to the
Partnership in such amounts and at such times as are required for the
Partnership to pay the manufacturing start-up allowance to be included in the
License Agreement between Nanogen and the Partnership as described in Section
2.3 of the Master Agreement
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(c) Limit on Contributions; Partner Loans. Other than the contributions
set forth in Sections 8.1(a) and (b) hereof, neither Partner shall be obligated
to make any contributions to the Partnership. The total amount contributed by
the Partners to the Partnership under Sections 8.1(a)(i), (iii), (iv) and (v)
and Sections 8.1(b)(iii) and (iv) shall not exceed *** unless the Partners
mutually agree otherwise in writing. Either or both Partners may, but neither is
obligated to, make loans to the Partnership to fund any needs of the
Partnership's Business in excess of such amount. Any such loans shall have such
terms and conditions as the Partner making any such loan and the Partnership
agree and such agreement by the Partnership shall be made in accordance with
Section 7.2(15).
8.2 Withdrawal. Except as expressly set forth herein, no Partner shall
be entitled to withdraw any portion of its capital contribution or Capital
Account balance.
8.3 Capital Accounts. A single Capital Account shall be maintained for
each Partner (regardless of the class of interests owned by such Partner and
regardless of the time or manner in which such interests were acquired) in
accordance with the capital accounting rules of section 704(b) of the Code, and
the Regulations thereunder (including particularly Section 1.704-1(b)(2)(iv) of
the Regulations).
(a) In general, under such rules, a Partner's Capital Account shall be:
(i) Increased by (1) the amount of money contributed by the
Partner to the Partnership (including the amount of any Partnership liabilities
that are assumed by such Partner other than in connection with distribution of
Partnership property); (2) the fair market value of property contributed by the
Partner to the Partnership (net of liabilities secured by such contributed
property that the Partnership is considered to assume or take subject to under
section 752 of the Code); and (3) allocations to the Partner of Partnership
income and gain (or item thereof), including income and gain exempt from tax;
(ii) Decreased by (1) the amount of money distributed to the
Partner by the Partnership (including the amount of such Partner's individual
liabilities that are assumed by the Partnership other than in connection with
contribution of property to the Partnership); (2) the fair market value of
property distributed to the Partner by the Partnership (net of liabilities
secured by such distributed property that such Partner is considered to assume
or take subject to under section 752 of the Code); (3) allocations to the
Partner of expenditures of the Partnership not deductible in computing its
taxable income and not properly chargeable to capital account; and (4)
allocations to the Partner of Partnership loss and deduction (or item thereof);
and
(iii) Increased or decreased by any adjustments to such Partner's
tax basis in its Partnership Interest pursuant to section 50(c)(5) of the Code;
and
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(iv) Where section 704(c) of the Code applies to Partnership
property or where Partnership property is revalued pursuant to Section
1.704-1(b)(2)(iv)(f) of the Regulations, adjusted in accordance with Section
1.704-1(b)(2)(iv)(g) of the Regulations as to allocations to the Partners of
depreciation, depletion, amortization and gain or loss, as computed for book
purposes with respect to such property.
(b) When Partnership property is revalued pursuant to Section
1.704-1(b)(2)(iv)(f) of Regulations or distributed in kind (whether in
connection with liquidation and dissolution of the Partnership or of a Partner's
Partnership Interest or otherwise), the Capital Accounts of the Partners shall
first be adjusted to reflect the manner in which the unrealized income, gain,
loss and deduction inherent in such property (that has not been reflected in the
Capital Account previously) would be allocated among the Partners if there were
a taxable disposition of such property for the fair market value of such
property (taking into account section 7701(g) of the Code) on the date of
distribution.
(c) The Tax Matters Partner shall direct the Partnership's accountant to
make all necessary adjustments in each Partner's Capital Account as required by
the capital accounting rules of section 704(b) of the Code and the Regulations
thereunder.
(d) If any Partner shall make any loan or loans to the Partnership or
advance money on its behalf, the amount of any such loan or advance shall not be
deemed an increase in or contribution to the Capital Account of the lending
Partner or entitle such lending Partner to any increase in its share of the
distributions from the Partnership.
(e) Any Partner who shall receive a Partnership Interest or whose
Partnership Interest shall be increased by means of a transfer to it of all or
part of the Partnership Interest of another Partner, shall have a Capital
Account that reflects such transfer.
8.4 Use of Partners' Contributions. The contributions made on behalf of
the Becton Partner pursuant to Sections 8.1(a)(i) and (ii) and on behalf of the
Nanogen Partner pursuant to Sections 8.1(b)(i) and (ii) shall be used
exclusively for the Partnership Business. The contributions made by the Becton
Partner pursuant to Section 8.1(a)(iii) and by the Nanogen Partner pursuant to
Section 8.1(b)(iii) shall be used exclusively for the Research Program. The
contributions made by the Becton Partner pursuant to Section 8.1(a)(iv) and by
the Nanogen Partner pursuant to Section 8.1(b)(iv) shall be used exclusively for
any research conducted by the Partnership in connection with the Partnership
Business in addition to that conducted pursuant to the Research Program. Any
contributions made by the Becton Partner pursuant to Section 8.1(a)(v) shall be
used for the payment of other costs and expenses incurred by the Partnership in
carrying on its Business and other liabilities and obligations of the
Partnership.
9. Profits and Losses and Distributions.
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9.1 Partner's Distributive Share. A Partner's distributive share of the
Partnership's total income, gain, loss, deduction or credit (or items thereof),
which total shall be as shown on the annual federal income tax return prepared
by the Partnership's accountants or as finally determined by the Internal
Revenue Service or the courts, and as modified by the capital account
maintenance rules of section 704(b) of the Code and the Regulations thereunder
as implemented by Section 8.3, as applicable, shall be determined as provided in
this Section 9.
(a) Except as otherwise provided in Sections 9(c) through 9(l):
(i) Items of Partnership loss or deduction incurred in a
Partnership taxable year in connection with the Research Program or any
additional research conducted by the Partnership in connection with the
Partnership Business shall be allocated among the Partners in proportion to and
up to the amount of cash that the Becton Partner contributes pursuant to
Sections 8.1(a)(iii) and (iv) and the Nanogen Partner contributes to the
Partnership pursuant to Sections 8.1(b)(iii) and (iv) to fund such Research
Program or additional research.
(ii) All items of Partnership loss or deduction for any
Partnership taxable year that are funded by the Becton Partner pursuant to
Section 8.1(a)(v) shall be allocated solely to the Becton Partner and that are
funded by the Nanogen Partner pursuant to Section 8.1(b)(v) shall be allocated
solely to the Nanogen Partner.
(iii) Items of Partnership income, gain, deduction and loss that
are not allocated under Sections 9.1(a)(i) and (ii) shall be allocated among the
Partners proportionately in accordance with their respective Percentage
Interests.
Notwithstanding the foregoing provisions of this Section 9.1(a), items of
deduction and loss shall not be allocated to any Partner to the extent it would
create a deficit balance in excess of such Partner's obligation to restore its
Capital Account balance, computed in accordance with the rules of Section
1.704-1(b)(2)(ii)(d) of the Regulations (including such Partner's share of
Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain as provided
in Sections 1.704-2(g) and 1.704-2(i)(5) of the Regulations). Any items of
deduction and loss which cannot be allocated to a Partner because of the
limitation set forth in the preceding sentence shall be allocated first to the
other Partner to the extent such other Partner would not be subject to such
limitation, and second any remaining amount to the Partners in the manner
required by the Code and the Regulations.
(b) Solely for tax purposes, in determining each Partner's allocable
share of the taxable income or loss of the Partnership, depreciation, depletion,
amortization and gain or loss with respect to any contributed property, or with
respect to revalued property where Partnership property is revalued pursuant to
Section 1.704-1(b)(2)(iv)(f) of the Regulations, shall be allocated to the
Partners under the traditional method as provided in Section 1.704-3(b) of the
Regulations.
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(c) Minimum Gain Chargeback. Notwithstanding anything to the contrary in
this Section 9, if there is a net decrease in Partnership Minimum Gain or
Partner Nonrecourse Debt Minimum Gain (as such terms are defined in Sections
1.704-2(b) and 1.704-2(i)(2), respectively, of the Regulations) during a
Partnership taxable year, then each Partner shall be allocated items of
Partnership income and gain for such year (and, if necessary, for subsequent
years), to the extent required by, and in the manner provided in, Section
1.704-2 of the Regulations. This provision is intended to be a "minimum gain
chargeback" within the meaning of Sections 1.704-2(f) and 1.704-2(i)(4) of the
Regulations and shall be interpreted and implemented as therein provided.
(d) Qualified Income Offset. Subject to the provisions of Section
9.1(c), but otherwise notwithstanding anything to the contrary in this Section
9, if any Partner's Capital Account has a deficit balance in excess of such
Partner's obligation to restore its Capital Account balance, computed in
accordance with the rules of Section 1.704-l(b)(2)(ii)(d) of the Regulations
(including such Partner's share of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain as provided in Sections 1.704-2(g) and
1.704-2(i)(5) of the Regulations), then sufficient amounts of income and gain
(consisting of a pro rata portion of each item of Partnership income, including
gross income, and gain for such year) shall be allocated to such Partner in an
amount and manner sufficient to eliminate such deficit as quickly as possible.
This provision is intended to be a "qualified income offset" within the meaning
of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted and
implemented as therein provided.
(e) Subject to the provisions of section 704(c) of the Code and Sections
9.1(b) through (d), gain recognized (or deemed recognized under the provisions
hereof) upon the sale or other disposition of Partnership property, which is
treated as depreciation recapture, shall be allocated to the Partner who was
entitled to deduct such depreciation.
(f) Except as otherwise provided in Section 9.1(j), if and to the extent
any Partner is deemed to recognize income as a result of any loans described
herein pursuant to the rules of sections 1272, 1273, 1274, 1274A, 7872, 482 or
483 of the Code, or any similar provision now or hereafter in effect, any
corresponding resulting deduction of the Partnership shall be allocated to the
Partner who is charged with the income. Subject to the provisions of section
704(c) of the Code and Sections 9.1(b) through (d), if and to the extent the
Partnership is deemed to recognize income as a result of any loans to a Partner
described herein pursuant to the rules of
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sections 1272, 1273, 1274, 1274A, 7872, 482 or 483 of the Code, or any similar
provision now or hereafter in effect, such income shall be allocated to such
Partner.
(g) Except as otherwise required by law, tax credits shall be allocated
among the Partners in proportion to the amounts of contributions made to the
Partnership by each Partner that were used by the Partnership to fund any
expenditures giving rise to such tax credit, or if no expenditure gave rise to
the tax credit, pro rata in accordance with the manner in which Partnership
profits are allocated to the Partners under Section 9(a)(iii) as of the time the
credit property is placed in service or if no property is involved, as of the
time the credit is earned. Recapture of any tax credit required by the Code
shall be allocated to the Partners in the same proportion in which such tax
credit was allocated.
(h) Except as provided in Sections 9.1(f) and (g) or as otherwise
required by law, if the Partnership Interests of the Partners are changed herein
during any taxable year, all items to be allocated to the Partners for such
entire taxable year shall be prorated on the basis of the portion of such
taxable year which precedes each such change and the portion of such taxable
year on and after each such change according to the number of days in each such
portion, and the items so allocated for each such portion shall be allocated to
the Partners in the manner in which such items are allocated as provided in this
Section 9 during each such portion of the taxable year in question.
(i) Any special allocation of income or gain pursuant to Section 9.1(d)
shall be taken into account in computing subsequent allocations of income and
gain pursuant to this Section 9 so that the net amount of all such allocations
to each Partner shall, to the extent possible, be equal to the net amount that
would have been allocated to each such Partner pursuant to the provisions of
this Section 9 if such special allocations of income or gain under Section
9.1(d) had not occurred.
(j) (i) Items of deduction and loss attributable to recourse liabilities
of the Partnership (within the meaning of section 1.752-1(a)(1) of the
Regulations but excluding Partner nonrecourse debt within the meaning of Section
1.704-2(b)(4) of the Regulations) shall be allocated among the Partners in
accordance with the ratio in which the Partners share the economic risk of loss
(within the meaning of section 1.752-2 of the Regulations) for such liabilities.
(ii) Items of deduction and loss attributable to Partner nonrecourse
debt within the meaning of Section 1.704-2(b)(4) of the Regulations shall be
allocated to the Partners bearing the economic risk of loss with respect to such
debt in accordance with Section 1.704-2(i) of the Regulations.
(iii) Items of deduction and loss attributable to Partnership
nonrecourse liabilities within the meaning of Section 1.704-2(b)(1) of the
Regulations shall be allocated among the Partners proportionately in accordance
with their Partnership interests.
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(k) Subject to the provisions of Sections 9.1(c) through (j), items of
income and gain shall be allocated to the Partners in the following priority:
(i) First, to those Partners who have had items of loss or
deduction allocated to them under Section 9.1(j)(i), in the amount of, and
proportionate to, the amount of such items of loss or deduction.
(ii) Second, if allocations of items of Partnership deduction and
loss have been made to the Partners under Sections 9.1(a)(i) and (ii), then in
the amount of, and proportionate to, the amount of such items of loss and
deduction.
(iii) Third, the balance among the Partners in proportion to
their respective Percentage Interests.
(1) Notwithstanding Section 9.1(a) and Section 9.1(k), but subject to
the provisions of Section 9.1(c) through (j), gain or loss which is recognized
(or deemed to be recognized) upon the sale, exchange or other disposition of all
or substantially all the assets of the Partnership or of any partnership in
which the Partnership holds an interest (whether directly or indirectly) or upon
the dissolution of the Partnership or any partnership in which the Partnership
holds an interest (whether directly or indirectly) and any unrealized gain or
loss to be allocated to the Partners' Capital Accounts under Section 8.3,
including without limitation Section 8.3(b), upon a distribution of Partnership
property to a Partner in connection with the liquidation of the Partnership or a
Partner's Partnership Interest shall be allocated in the following priority:
(i) Any such gain shall be allocated to the Partners having
deficit balances in their Capital Accounts (computed after giving effect to all
contributions, distributions, allocations and other Capital Account adjustments
for all taxable years, including the year during which such liquidation or
dissolution occurs and including such Partner's share of Partnership Minimum
Gain and Partner Nonrecourse Debt Minimum Gain as provided in Sections
1.704-2(g) and 1.704-2(i)(5) of the Regulations), to the extent of, and in
proportion to, those deficits; and
(ii) Any such gain in excess of any amount of gain allocated
under Section 9.1(l)(i) hereof and any such loss shall be allocated to the
Partners so as to make, as nearly as possible:
(1) First, the balance in the Becton Partner's Capital
Account (computed in the same manner as provided parenthetically in
Section 9.1(l)(i)) at least equal to any Becton Partner Excess
Unrecovered Cash Contributions.
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(2) Second, the balance in excess of the Becton Partner
Excess Unrecovered Cash Contributions in the Becton Partner's Capital
Account, computed in the same manner as provided parenthetically in
Section 9.1(l)(i), equal to 50 percent of, and the balance in the
Nanogen Partner's Capital Account, computed in such manner, equal to 50
percent of, the sum of the amount by which the balances in the Partners'
Capital Accounts, computed in such manner, exceed the Becton Partner
Excess Unrecovered Cash Contributions.
9.2 Distributions.
(a) Subject to Section 9.2(d), prior to dissolution of the Partnership,
the Partnership shall distribute Net Cash Flow of the Partnership no later than
sixty (60) days following the close of each fiscal year, in an amount equal to
the aggregate excess, if any, for all taxable years of (i) the sum of the
results for each taxable year of multiplying the Net Tax Income for each taxable
year by the Assumed Tax Rate applicable to each tax year over (ii) the sum of
amounts previously distributed pursuant to Sections 9.2(a) and (b).
Distributions pursuant to this Section 9.2(a) shall be made to the Partners
ratably in the proportions in which the aggregate Net Tax Income for such
taxable years has been allocated to them for federal income tax purposes
pursuant to Section 9.1.
(b) Subject to the mandatory distributions set forth in Section 9.2(a)
and Section 9.2(d), prior to dissolution of the Partnership, the Partnership
shall distribute Net Cash Flow of the Partnership to the Partners, as soon as is
practical following the end of each fiscal quarter, as follows:
(i) To the Partners in such amounts so that, to the extent
possible, the Becton Partner has received 60 percent, and the Nanogen Partner
has received 40 percent, of the Partnership Business Cash for such quarter
until the Becton Partner Unrecovered Cash Contributions are equal to the Nanogen
Partner Unrecovered Cash Contributions; and
(ii) Thereafter, in proportion to the Partners' Percentage
Interests.
(c) Except as otherwise provided herein, no Partner shall have a
priority over any other Partner as to return of its contributions to the
Partnership or as to income.
(d) Any other provision of this Agreement to the contrary
notwithstanding, no distribution shall be made which would render the
Partnership insolvent or which is prohibited by the terms of any Partnership
indebtedness.
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10. Dissolution and Liquidation.
10.1 Dissolution. The Partnership shall be dissolved, and its business
wound up, upon the happening of any of the following events:
(a) the Partners mutually agree in writing to dissolve the
Partnership;
(b) the termination of the Research Agreement as provided in
sections 8.1 (b), (f) or (g) or section 8.2;
(c) the sale of all, or substantially all, of the Partnership's
assets and the collection of all of the proceeds of such sale;
(d) the insolvency or bankruptcy of the Partnership;
(e) the transfer of all of a Partner's Partnership Interest to the
other Partner;
(f) the bankruptcy, insolvency or dissolution of any Partner; or
(g) the failure of the parties to initiate the buyout procedure set
forth in Section 7.8 within forty-five (45) days following the occurrence of a
Buyout Option Event.
A Partner shall be deemed bankrupt or insolvent if it shall (a) commence
a case under any bankruptcy law or otherwise seek protection from creditors
generally under any bankruptcy, insolvency, moratorium or similar law, (b) have
a case or proceeding commenced against it under any of such laws which remains
undismissed or unstayed for a period of ninety (90) days after it receives
notice or otherwise becomes aware of such case or proceeding, (c) suffer the
entry of a decree or order appointing, or otherwise consent in any manner to the
appointment of, a receiver, liquidator, assignee, custodian, trustee or similar
official of such Partner or for any material portion of such Partner's property
or (d) make a general assignment for the benefit of creditors.
10.2 Winding-up. Upon the occurrence of an event of dissolution, the
Partnership shall be wound up and liquidated. The Partnership Management
Committee or, if there is no Partnership Management Committee, a liquidator
appointed by mutual agreement of the Partners shall proceed with the dissolution
and the final distribution. In the dissolution, the Partnership Management
Committee or such liquidator shall use its best efforts to reduce to cash and
cash equivalent items such assets of the Partnership as the Partnership
Management Committee or such liquidator shall deem it advisable to sell, subject
to obtaining fair value for such assets and any tax or other legal
considerations. A reasonable time shall be allowed for the orderly winding up of
the business and affairs of the Partnership and the liquidation of its assets in
order to minimize any losses otherwise attendant upon such a winding up,
provided that the liquidation is carried
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out in conformity with the requirements of this Section 10.2 and section
1.704-1(b)(2)(ii)(b)(2) and (3) of the Regulations.
10.3 Order of Dissolution. In settling accounts after dissolution, the
assets of the Partnership shall be distributed as expeditiously as possible in
the following order not later than the end of the taxable year of the
liquidation (i.e., the date upon which the Partnership ceases to be a going
concern as provided in section 1.704-1(b)(2)(ii)(g) of the Regulations), or if
later, within ninety (90) days following the date of such liquidation:
(a) To creditors, including the Partners to the extent of any unpaid
expenses or any outstanding loan or advance made in accordance with this
Agreement;
(b) To the payment of the costs of winding up the affairs of,
liquidating and dissolving the Partnership including, without limitation,
expenses of selling assets of the Partnership, discharging the liabilities of
the Partnership, distributing the assets of the Partnership and terminating the
Partnership in accordance with Section 10.2;
(c) To the establishment of reasonable reserves to provide for
obligations to creditors;
(d) Thereafter, to the Partners in proportion to, and in return of,
their respective Capital Accounts determined after having reflected in such
Capital Accounts all adjustments, including adjustments for the taxable year of
the Partnership during which the liquidation occurs, as are required by this
Agreement and by section 1.704-1(b) of the Regulations, such adjustments to be
made within the time specified in such Regulations.
10.4 Orderly Methods of Liquidating Payments. Notwithstanding anything
to the contrary in this Section 10, if required to maximize the proceeds of
liquidation, the Partnership Management Committee (or the liquidator chosen in
accordance with Section 10.2) may, with the consent of the Partners, implement
the distribution provisions of Section 10.3 by transfer, on behalf of the
Partners, of the assets of the Partnership to a liquidating trustee or trustees.
11. Transfer of Partnership Interest of Partners.
11.1 Conditions to Transfer of Partnership Interest of Partners. No
Partner may assign, pledge or otherwise transfer its Partnership Interest in the
Partnership except in compliance with the provisions of this Section 11 and any
transfer not in accordance with this Section 11 shall be null and void. In
addition, neither the Partnership nor the Partners shall be bound by any such
assignment or transfer until the Partnership receives the following:
(a) a counterpart of the instrument of assignment, executed and
acknowledged by the parties thereto;
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(b) an opinion of counsel reasonably satisfactory to counsel for the
Partnership that such transfer is exempt from the registration requirements of
the Securities Act of 1933 and applicable state securities laws; and
(c) an agreement of the transferee to be bound by the terms and
conditions of this Agreement in form and substance satisfactory to the
Partnership Management Committee.
11.2 Restrictions on Transfer of Partnership Interest.
(a) Either Partner may transfer any or all of its Partnership Interest
in the Partnership to any wholly-owned, direct or indirect, subsidiary thereof.
(b) Either Partner may transfer all, but not less than all, of its
respective Partnership Interest in the Partnership to a third person, only upon
satisfaction of the following conditions and in accordance with the following
provisions:
(i) The Partnership Interest to be sold shall have been first
offered for sale by the transferring Partner (for purposes of this Section 11.2,
the "Selling Partner") to the non-transferring Partner (for purposes of this
Section 11.2, the "Buying Partner") by written offer setting forth the price and
the terms and conditions of the proposed sale to a third person and the name and
address of the prospective purchaser. The offer shall provide that the Buying
Partner may purchase the Partnership Interest of the Selling Partner at the same
price and on the same terms and conditions as the proposed sale described in the
offer.
(ii) *** following the receipt of such offer, the Buying Partner
may elect to purchase the Partnership Interest of the Selling Partner and shall
give notice of acceptance of the offer to the Buying Partner. Such notice shall
specify a date, time and place for the closing, which shall not be more than ***
days following the date of notice of acceptance of the Offer.
(iii) Within *** following the receipt of such offer, the Buying
Partner may consent to the sale of the Partnership Interest of the Selling
Partner to the third person named in the offer at the same price and on the same
terms and conditions as the proposed sale described in the offer and shall give
notice of such consent to the Selling Partner.
(iv) In the event that the Buying Partner has not given notice of
its election pursuant to this Section 11.2(b) to the Selling Partner within ***
following the receipt of such offer, the Buying Partner shall be deemed to have
consented to the sale of the Partnership Interest of the Selling Partner to the
third person named in the offer at the same price and on the same terms and
conditions as the proposed sale described in the offer.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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(v) If the sale to a third person contemplated by Sections
11.2(b)(iii) and 11.2(b)(iv) is not completed within *** notice to the Selling
Partner of the consent or deemed consent, as the case may be, of the Buying
Partner to such sale, the Selling Partner shall no longer be free to sell its
Partnership Interest pursuant hereto and must again comply with the procedures
set forth in this Section 11.2(b) prior to transferring its Partnership Interest
to a third person.
(c) Notwithstanding the foregoing, the Partners may agree in writing to
permit the transfer of any or all of their Partnership Interests upon the terms
and conditions set forth in such written agreement between the Partners. The
Partners may also transfer their Partnership Interests to each other upon such
terms and conditions as the Partners may agree.
11.3 Section 754 Election. In the event of a transfer of all or part of
the Partnership Interest of a Partner, at the request of the party purchasing
such Partnership Interest or portion thereof, the Partnership Management
Committee shall cause the Partnership to elect, pursuant to Section 754 of the
Code, or the corresponding provisions of subsequent law, to adjust the basis of
Partnership property as provided in Section 734 and 743 of the Code.
12. Confidentiality; Covenants Against Competition.
(a) Confidential Information. The parties hereto agree that the terms
and provisions of the Confidentiality Agreement shall remain in full force and
effect. The Partnership and the Partners hereby agree to be bound by the terms
and provisions thereof.
(b) Covenant Not to Compete. (i) Except as provided below, during the
term of the Partnership, a Partner and its Affiliates (other than individuals)
shall not, unless acting with the consent of all of the Partners or in
accordance with paragraph (ii) below, directly or indirectly, participate in the
ownership, management, operation, control or financing of, or be connected as an
investor, partner, officer, director, principal, agent, representative,
consultant, or otherwise with, or use or permit its name to be used in
connection with, any business or other enterprise in competition with the
Partnership Business worldwide.
(ii) If during the term of the Partnership a Partner or an
Affiliate of the Partner desires to pursue a business, venture or other
opportunity that would be competitive with the Partnership Business, it must
first offer such business, venture or other opportunity to the Partnership by
written notice to the Partnership Management Committee in as much detail as is
available, but in no event less that reasonable detail. The Partnership
Management Committee, acting through the members of the Partner who did not
submit such opportunity, shall respond within twenty (20) days thereafter to the
submitting Partner whether the Partnership elects to accept such offer. If such
offer is accepted, the funding for the new opportunity shall be mutually agreed
by the Partners. If the offer is declined or if the Partnership Management
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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Committee does not respond within the prescribed period, the submitting Partner
is free to pursue such opportunity without limitation.
13. Dispute Resolution. All disputes, controversies or claims arising
out of or related to (i) the interpretation or enforcement of this Agreement or
(ii) any breach, termination or claim of invalidity of this Agreement (excluding
in both (i) and (ii), however, any deadlock of the Partners or the Partnership
Management Committee relating to decisions regarding the business or conduct of
the Partnership as described in Section 7, which shall be handled as described
in Section 7.4) shall be governed by the terms and provisions of the Article V
of the Master Agreement.
14. Accounting and Records.
14.1 Fiscal and Taxable Year. The fiscal year and the taxable year of
the Partnership shall be the year ended September 30th or such other year as is
required by the Code and the Regulations as the taxable year of the Partnership.
14.2 Records. The Partnership shall keep, or cause to be kept, accurate
and complete records of all transactions of the Partnership in accordance with
principles and practices generally accepted for the accrual method of
accounting.
14.3 Availability for Inspection. All of the Partnership's books of
account shall at all times be maintained at the principal place of business of
the Partnership and shall be open during regular business hours for inspection
and examination by the Partners for any purpose reasonably related to the
Partnership Business.
14.4 Tax Returns; Statements of Capital Accounts. Becton shall use its
best efforts to prepare, or cause to be prepared, on behalf of the Partnership
and to distribute to the Partners no later than 30 days prior to the due date as
extended for each taxable year, for review, comment and approval within 14
business days after receipt, and then timely file, (i) Partnership income tax
returns (and related Partner information returns) reporting the taxable income
or loss and items thereof of the Partnership Business and such other tax
information relating to the Partnership and the Partnership Business as is
required to be set forth on such returns or is otherwise necessary to enable the
Partners to prepare their respective federal state and local income tax returns
and (ii) statements showing the calculation in accordance with the terms of this
Agreement of the Partners' respective Capital Accounts as of the end of each
fiscal year.
14.5 Financial Statements. The Partnership shall furnish to the
Partners, before December 31st of each year, an annual audited financial report
of the Partnership prepared in accordance with generally accepted accounting
principles, including a balance sheet and profit and loss statement. The
Partnership shall also furnish the Partners with such interim financial
statements as the Partnership deems appropriate.
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15. Bank Accounts. The Partnership shall maintain a bank account or
accounts in which shall be deposited all funds of the Partnership. Withdrawals
from such account or accounts shall be made upon checks signed by all of the
Partners or by the Project Manager or any other person authorized to do so by
the Partnership Management Committee.
16. Amendments. This Agreement may be amended only with the consent of
all the Partners.
17. Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally, by facsimile (upon
receipt of appropriate written confirmation) or sent by registered or certified
mail, return receipt requested, or by overnight courier service, postage prepaid
as follows:
If to the Becton Partner, to:
Becton Dickinson Venture LLC
c/o Becton Dickinson Microbiology Systems
7 Loveton Circle
Sparks, MD 21152
Attention: President
With required copies to:
Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, NJ 07417
Attention: General Counsel
If to the Nanogen Partner, to:
NanoVenture LLC c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: Chief Executive Officer
Facsimile: (619) 546-7717
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With required copies to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: General Counsel
Thomas E. Sparks, Esq.
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Facsimile: (415) 983-1200
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so received or upon refusal to accept delivery of same or inability to
deliver because of failure to give notice of change of address as provided
herein.
18. Tax Matters Partner; Elections. The Becton Partner is hereby
designated, and hereby agrees to discharge duly the duties of, the Tax Matters
Partner of the Partnership, as that term is defined in Section 6231(a)(7) of the
Code. Expenses incurred by the Tax Matters Partner in performing the duties as
Tax Matters Partner, including reasonable attorney's fees incurred to obtain
legal advice, guidance or services in connection with contesting any claim made
by the Internal Revenue Service, shall constitute expenses of the Partnership
and shall be paid by the Partnership. The Tax Matters Partner shall at all times
assure that each Partner is a Notice Partner (as defined in Section 6231(a)(8)
of the Code) with respect to the Partnership.
The Tax Matters Partner shall promptly (a) notify the Partners of any
audit or other tax matter which is brought to the attention of the Tax Matters
Partner, by written notice from the Internal Revenue Service, and (b) forward to
all Partners copies of any notices, correspondence, reports or other
instruments, communications or documents received by the Tax Matters Partner in
connection therewith; provided, however, that the Tax Matters Partner, unless
approved by the Partners, shall not have the right (i) under Section
6229(b)(1)(B) of the Code or any successor to such provision to extend the
period of limitations set forth in Section 6229(a) of the Code or any successor
provision; (ii) to agree to any settlement of any alleged tax deficiency arising
with respect to Partnership taxable income or loss, credits or any item included
therein, a Partner's share thereof or other Partnership tax matter, or agree to
any adjustment of Partnership taxable income or loss, credits or any item
included therein, or a Partner's share thereof; (iii) to file any petition for
judicial review, or any other judicial proceeding, with respect to the
Partnership or any Partner's share of Partnership taxable income or loss,
credits or any item included therein, or any Partnership tax matter; or (iv) to
file any requests for administrative review or adjustment,
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or other administrative relief, on behalf of the Partnership in any tax matter
or with respect to any Partner's share of Partnership taxable income or loss,
credits or any item included therein.
19. Indemnity. The Partnership shall indemnify each Partner against
expenses actually and necessarily incurred by it in connection with the defense
or any settlement of any action, suit or proceeding brought or threatened in
which the Partner is or may be made a party, by reason of it being or having
been a Partner, except in relation to matters as to which (i) the Partner acted
beyond the scope of the Partnership Business, or (ii) in such action, suit or
proceeding, the Partner's actions shall have been adjudged to constitute gross
negligence, recklessness, willful misconduct or fraud in the performance of its
duties. Furthermore, each Partner shall indemnify the other Partner from and
against any liability incurred by such other Partner over and above the
proportionate share of any liabilities of the Partnership.
20. Miscellaneous.
20.1 Binding Effect. Except as herein provided to the contrary, this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
their personal representatives, and permitted successors and assigns.
20.2 Written Amendment; Waiver. This Agreement may be amended only by a
written instrument executed by the parties hereto. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect its rights at a later time to enforce the same. No waiver by any
party of any condition or term in any one or more instances shall be construed
as a further or continuing waiver of such condition or term or any other
condition or term.
20.3 Governing Law; Construction. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
regard to its choice of laws principles. This Agreement shall be construed and
interpreted without application of any principle or rule to the effect that
ambiguities are to be construed against the party responsible for drafting the
agreement. The headings contained herein are for reference purposes only and
shall not in any way affect the meaning of this Agreement.
20.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
20.5 No Benefit to Others. The terms and provisions contained in this
Agreement are for the sole benefit of the parties and their successors and
assigns, and they shall not be construed as conferring and are not intended to
confer any rights on any other persons.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BECTON DICKINSON VENTURE LLC
By s/ Vincent A. Forlenza
------------------------------------------
Its President
---------
BDMS
------------------------------------------
NANOVENTURE LLC
By /s/ Howard Birndorf
------------------------------------------
Its Manager
--------------------------------------
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EXHIBIT B
COLLABORATIVE RESEARCH AND DEVELOPMENT
AND LICENSE AGREEMENT
THIS AGREEMENT is dated as of October 1, 1997 by and among Becton,
Dickinson and Company, a New Jersey corporation, through its Becton Dickinson
Microbiology Systems Division, having a place of business at 7 Loveton Circle,
Sparks, Maryland 21152 (hereinafter, "Becton"), Nanogen, Inc., a California
corporation, having its principal office and place of business at 10398 Pacific
Center Court, San Diego, California 92121 (hereinafter, "Nanogen"), and The
Nanogen/Becton Dickinson Partnership, a Delaware general partnership having its
principal place of business at 10398 Pacific Center Court, San Diego, California
92121 (hereinafter, the "Partnership").
R E C I T A L S
WHEREAS, Nanogen has developed certain technology related to
electronically addressable microchip oligonucleotide arrays ("Arrays"); and
WHEREAS, Becton has developed certain technology related to methods for
creating multiple copies of an oligonucleotide sequence known as Strand
Displacement Amplification ("SDA"); and
WHEREAS, concurrently with the execution of this Agreement, respective
companies owned by Becton and Nanogen have formed the Partnership; and
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WHEREAS, the Partnership wishes to engage Becton and Nanogen to perform
certain research and development activities on behalf of the Partnership as
contemplated herein.
NOW THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, the parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement:
1.1 "Agreement" shall mean this agreement and any exhibits, appendices,
attachments or addenda hereto, and any renewals or extensions of this agreement.
1.2 "Becton Intellectual Property" shall mean and include all
patentable and unpatentable inventions, ideas, discoveries, improvements, design
rights, semiconductor mask works, works of authorship, trade secrets, know-how
and any equivalents thereof which are in existence as of the Effective Date or
thereafter, as are necessary to make, have made, use or sell a Product and are
owned by Becton.
1.3 "Becton Patent Rights" shall mean all United States patents and
patent applications owned by Becton which are in existence as of the Effective
Date or thereafter and contain a claim necessary to make, have made, use or sell
a Product, including all divisionals, continuations, continuations-in-part,
re-examinations, reissues, and all foreign equivalents of any of the foregoing
in whole or in part.
1.4 "Becton Program Inventions" shall mean all Program Inventions made
or conceived by employees or others acting solely on behalf of Becton; provided,
however, that Becton Program Inventions shall not include Program Inventions
which constitute
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improvements, enhancements, modifications or alterations of Arrays ("Array
Improvements") which are made or conceived by employees or others acting on
behalf of Becton. For purposes of this Agreement, Array Improvements shall be
deemed Nanogen Program Inventions.
1.5 "Effective Date" shall mean October 1, 1997.
1.6 "Field" shall mean in vitro nucleic acid-based diagnostic and
monitoring technology involving tests utilizing Arrays for the detection,
identification and/or determination of susceptibility/resistance of microbial
agents (i.e., bacteria, viruses, fungi and parasites), excluding, however, ***.
Notwithstanding the foregoing, the Field shall include the detection of *** for
a period which concludes on that date which is *** following the Effective Date
or *** following the first commercial introduction of Product, whichever shall
first occur.
1.7 "Joint Program Inventions" shall mean all Program Inventions made or
conceived by employees or others acting on behalf of Becton jointly with
employees or others acting on behalf of Nanogen; provided, however, that Joint
Program Inventions shall not include: (a) *** which are made or conceived by
employees or others acting on behalf of Becton jointly with employees or others
acting on behalf of Nanogen, which ***, for purposes of this Agreement, ***, and
(b) *** which are made or conceived by employees or others acting on behalf of
Nanogen jointly with employees or others acting on behalf of Becton, which ***,
for purposes of this Agreement ***.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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1.8 "Master Agreement" shall mean that certain Master Agreement dated as
of October 1, 1997 between Becton and Nanogen.
1.9 "Nanogen Intellectual Property" shall mean and include all
patentable and unpatentable inventions, ideas, discoveries, improvements, design
rights, semiconductor mask works, works of authorship, trade secrets, know-how
and any equivalents thereof which are in existence as of the Effective Date or
thereafter, are necessary to make, have made, use or sell a Product and are
owned by Nanogen.
1.10 "Nanogen Patent Rights" shall mean all United States patents and
patent applications owned by Nanogen which are in existence as of the Effective
Date or thereafter and which contain a claim necessary to make, have made, use
or sell a Product, including all divisionals, continuations,
continuations-in-part, re-examinations, reissues, and all foreign equivalents of
any of the foregoing in whole or in part.
1.11 "Nanogen Program Inventions" shall mean all Program Inventions made
or conceived by employees or others acting solely on behalf of Nanogen;
provided, however, that Nanogen Program Inventions shall not include Program
Inventions which constitute improvements, enhancements, modifications or
alterations of SDA ("SDA Improvements") which are made or conceived by employees
or others acting on behalf of Nanogen. For purposes of this Agreement, SDA
Improvements shall be deemed Becton Program Inventions.
1.12 "Partners" or "Partner" shall mean a partner in the Partnership.
The Partners are Becton and NanoVenture LLC, a Delaware limited liability
company.
1.13 "Partnership Agreement" shall mean that certain General Partnership
Agreement dated as of October 1, 1997 between the Partners.
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1.14 "Partnership Management Committee" shall mean the Management
Committee of the Partnership (as defined in the Partnership Agreement).
1.15 "Primary Filing Countries" shall mean the United States, Canada,
European Community Countries and Japan.
1.16 "Prior R&D Agreement" shall mean that certain Collaborative
Research and Development Agreement dated as of May 5, 1997 between Becton and
Nanogen.
1.17 "Product" shall mean an instrument/reagent system which employs or
embodies Program Inventions.
1.18 "Program Inventions" shall mean and include all patentable and
unpatentable inventions, ideas, discoveries, improvements, design rights,
semiconductor mask works, works of authorship, trade secrets, know-how and any
equivalents thereof, and any patent applications or patents based thereon, made
or conceived during and as a result of the Research Program (including, without
limitation, Program Inventions as defined in the Prior R&D Agreement), all of
which shall be identified in Appendix A to this Agreement, which Appendix shall
be amended from time to time as warranted.
1.19 "Reimbursable Costs" shall mean all direct and indirect costs
incurred by the Researching Party in performing its obligations under this
Agreement, which may include without limitation, as applicable:
(i) salaries and wages,
(ii) payroll taxes,
(iii) contract labor,
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(iv) fringe benefits,
(v) expenses incurred in occupying facilities (including leasehold
improvements) and equipment-related expenses, excluding depreciation and
amortization expenses,
(vi) recruitment and relocation,
(vii) communications expense,
(viii) supplies,
(ix) development and prototype materials,
(x) freight and transportation,
(xi) training and education,
(xii) travel expenses,
(xiii) data processing costs,
(xiv) patent, trademark and license fees and filing, prosecution and
maintenance expenses,
(xv) insurance,
(xvi) professional services,
(xvii) depreciation and amortization of facilities (including leasehold
improvements) and equipment,
(xviii) a financing charge for capital acquisitions made by the
Researching Party for use in performing work under this Agreement,
(xix) outside purchased services,
(xx) sales and use taxes (including such taxes applicable to the
acquisition, use, transfer or deemed transfer of property by a
Researching Party),
(xxi) periodic lease and rental payments under capital or financing
leases,
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(xxii) costs of applying for approvals, and fees payable to governmental
agencies, including the United States Food and Drug Administration (the
"FDA") and comparable foreign regulatory authorities, including expenses
resulting from generation of chemical, toxicological, microbiological
and pharmacological data and techniques, clinical data and product
formulations and specifications,
(xxiii) periodic and special reports, including reports to Partners, and
(xxiv) costs of preparation, analysis and submission of post-marketing
reports required by the FDA, including, without limitation, adverse
reaction reports and annual reports.
(b) In determining Reimbursable Costs, each Researching Party will
employ the following accounting policies:
(i) Capital equipment, facilities and leasehold improvements will be
assigned an estimated economic useful life and salvage value, if any,
and depreciation and amortization will be computed using the
straight-line method. Depreciation and amortization will be allocated to
Reimbursable Costs under this Agreement directly or through overhead
rates applied to direct labor expense.
(ii) Total facilities expenses of each Researching Party, excluding
leasehold improvement amortization allocated to specific functional
areas and net of any sublease revenues, will be allocated to
Reimbursable Costs under this Agreement based on the ratio of square
footage utilized by or committed to use by direct and indirect personnel
engaged in work under this Agreement to the total amount of utilized or
committed square footage owned or leased by such Researching Party.
(iii) General and administrative expenses of each Researching Party will
be allocated to this Agreement directly or based on the ratio of total
Reimbursable Costs to total operating expenses of such Researching
Party, excluding (in both instances) general and administrative expenses
subject to such allocation.
(iv) All other indirect expenses not covered in paragraphs (i) through
(iii) of this subparagraph 1.19(b) which are in support of the Research
Program will be allocated to Reimbursable Costs under this Agreement
through overhead rates applied to direct labor expense.
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(c) The term "capital acquisition" as used herein shall mean that
portion of capital equipment, facilities, leasehold improvements or other
property, whenever acquired by the Researching Party, which are capitalized on
the Researching Party's accounting records and which are either: (A) purchased
directly by the Researching Party; (B) financed by the Researching Party under a
conditional sale contract; (C) financed by the Researching Party through a
secured loan; or (D) assets constructed in-house by the Researching Party.
Assets acquired under capital or financing leases will not be considered capital
acquisitions for purposes of this section.
(d) With respect to capital acquisitions financed by the Researching
Party with specific borrowing, the financing charge referred to above will be in
the amount and at the time of the actual financing costs incurred by the
Researching Party. With respect to capital acquisitions not financed by the
Researching Party with specific borrowing, the financing charge will be based on
the prime lending rate in effect from time to time at Citibank N.A., New York,
New York, plus two (2) percentage points, to the extent permitted by applicable
law, applied to the Researching Party's net book value. "Net book value" is
defined as the gross capital acquisition value excluding capital acquisitions
financed by the Researching Party with specific borrowing, less related
accumulated depreciation and amortization. The financing charge for each billing
period will be prorated to the extent depreciation or amortization of the
capital acquisitions has been allocated to work other than work under this
Agreement during such period. The financing charge will be calculated monthly
based on the net book value at the end of the preceding fiscal month.
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1.20 "Research Management Committee" shall mean a committee which
shall be responsible for administering and reviewing the Research Program. The
Research Management Committee shall consist of three (3) employees of Becton and
three (3) employees of Nanogen, at least one of whom from each company shall be
research director level or higher.
1.21 "Research Milestone I" shall mean, with respect to either or both
of Project A and Project B as applicable, all items listed in the Research
Program to be completed by December 31, 1997.
1.22 "Research Milestone II" shall mean, with respect to either or
both of Project A and Project B as applicable, all items listed in the Research
Program to be completed by June 30, 1998.
1.23 "Researching Party" shall mean Becton and Nanogen, jointly or
severally, as the context shall require.
1.24 "Research Program" shall mean the cumulative endeavors of the
parties to produce Products within the Field for the Partnership in accordance
with the specifications, timetables, milestones, reports and deliverables, as
set forth in Appendix B hereto, as it may be amended from time to time.
1.25 "Total Available Funds" shall mean the aggregate sums of cash
contributed to the Partnership by the Partners pursuant to Paragraph 8.1 of the
Partnership Agreement.
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2. RESEARCH PROGRAM
2.1 Each of Becton and Nanogen shall use reasonable efforts to perform
their respective activities in accordance with the Research Program.
2.2 Each of Becton and Nanogen shall promptly notify the other party,
in writing, through the Research Management Committee, of the existence of any
new Program Inventions.
2.3 The Research Management Committee shall meet from time to time,
but at least once every three (3) months during the term of this Agreement, at a
mutually agreed location, to: (a) review progress and ongoing resource
allocation and budgeting matters of the Research Program; (b) amend the Research
Program as agreed by the parties; (c) disclose Program Inventions which have not
previously been disclosed in accordance with Paragraph 2.2; and (d) review the
status of patent filings with respect to Program Inventions and, if necessary in
view of such review, propose amendments to Appendix A of this Agreement. In
order to facilitate the disclosure of Program Inventions and the review of the
status of patent filings with respect to Program Inventions, patent attorneys
for Becton and Nanogen should participate in all such meetings.
2.4 Within five (5) business days following each meeting pursuant to
Paragraph 2.3, the Research Management Committee shall cause to be prepared a
written summary of such meeting, which summary shall include, at a minimum: (a)
a list of all Program Inventions which have come into existence since the
Effective Date or since the previous meeting, whichever is applicable; (b) all
patent filings with respect to Program Inventions since the Effective Date or
since the previous meeting, whichever is applicable;
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and (c) a report regarding the progress of the Research Program. Such written
summary shall be signed by the patent attorneys for each party to evidence their
respective party's agreement regarding the accuracy of such written summary.
2.5 The Partners and each Researching Party may, upon reasonable
notice during normal business hours, (a) visit the facilities where the Research
Program is being conducted to the extent relating to such Research Program, (b)
consult informally, during such visits and by telephone, with personnel of the
other Researching Party performing work on the Research Program, and (c) with
the other Researching Party's prior approval, which approval shall not be
unreasonably withheld, visit the sites of any tests or experiments being
conducted by such other Researching Party in connection with the Research
Program, but only to the extent in each case as such trials or other experiments
relate to the Research Program. On such visits an employee of the Researching
Party conducting the research or development activities shall accompany the
employee(s) of the visiting Researching Party. If requested by the visiting
Researching Party, the Researching Party shall cause appropriate individuals
working on the Research Program to be available for meetings at the location of
the facilities where such individuals are employed at times reasonably
convenient to the party responding to such request. All information revealed to
representatives of the Partners and/or the Researching Parties during the visits
and consultations provided for in this Paragraph 2.5 shall be treated as
confidential information in accordance with Paragraph 5 of this Agreement.
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3. PAYMENT
3.1 The Partnership shall pay a research and development fee equal to
each Researching Party's Reimbursable Costs incurred in performing its
obligations under this Agreement (the "Fee"). The Fee in the aggregate for both
Researching Parties shall not exceed Total Available Funds. Neither Researching
Party makes any warranty of any kind that the Fee will be sufficient to complete
the Research Program. The Fee shall be payable by the Partnership to each
Researching Party as follows:
(a) The initial annual budget for the Research Program shall be prepared
by the Research Management Committee within forty-five (45) days following the
Effective Date, shall be approved by the respective parties and shall be
attached hereto as Appendix C. Annually thereafter during the term hereof, the
Research Management Committee shall develop a budget for the Research Program,
including anticipated quarterly expenditures by each Researching Party. The
Research Management Committee shall submit each such subsequent budget to the
Partnership Management Committee for its review and approval at least forty-five
(45) days prior to commencement of the next annual period. The Partnership
Management Committee shall review such budget and inform the Research Management
Committee of its determination with respect to same within thirty (30) days
following its receipt of same. If the budget is not approved, the Research
Management Committee shall confer with the Partnership Management Committee to
attempt to develop a mutually acceptable budget. If the parties are unable to do
so, the disagreement shall be resolved in accordance with the procedures set
forth in Article V of the Partnership Agreement. Until
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such time as a budget is established, the obligation of the Researching Parties
for periods covered by the budget shall be postponed.
(b) The Fee shall be payable to each Researching Party in quarterly
installments commencing on October 1, 1997. Each quarterly installment shall be
due not later than five (5) business days following the first day of each
quarter. All installments shall be based upon an estimate of the Reimbursable
Costs expected to be incurred by each Researching Party during its next
quarterly period beginning on such date, up to a maximum of such Researching
Party's budgeted amount for such quarter. Such estimate shall be set forth in an
invoice prepared by each Researching Party in reasonable detail, signed by a
duly authorized officer of each Researching Party and submitted to the
Partnership at least twenty (20) days prior to the beginning of the quarterly
period with respect to which such payment is to be made. Each such invoice shall
be due and payable in full by the Partnership prior to the beginning of such
quarterly period. Beginning with the second invoice under this Agreement, such
invoice shall include a reconciliation and adjustment for the period covered by
the preceding invoice to reflect any difference between actual Reimbursable
Costs incurred by each Researching Party and estimated Reimbursable Costs for
such period, up to a maximum of such Researching Party's budgeted amount for
such quarter. Any amounts in excess of the budgeted amount shall be subject to
the review and approval of the Partnership Management Committee.
3.2 If the Partnership fails to make prompt and timely payment, the
affected Researching Party may give written notice thereof, and unless the
Partnership within fifteen (15) days following receipt of such notice makes such
payment, such Researching Party may
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at any time thereafter until the Partnership makes such payment suspend the
research and development services under this Agreement on written notice to the
Partnership.
4. REPORTS AND RECORDS
4.1 Each Researching Party shall provide to the Partnership within
forty-five (45) days following the end of each of such Researching Party's
quarterly periods beginning with the end of the first period on December 31,
1997, a report in such reasonable detail as the Partnership may request setting
forth:
(a) the Reimbursable Costs during such period;
(b) the work performed by such Researching Party during such period;
and
(c) the status of the research and development of the Products at the
end of the period.
4.2 Each Researching Party shall keep and maintain, in accordance with
generally accepted accounting principles and practices, proper and complete
records and books of account documenting all Reimbursable Costs. Each
Researching Party agrees to permit nationally recognized certified public
accountants retained by the Partnership reasonable access to such records at
least annually to verify the Reimbursable Costs billed by such Researching Party
to the Partnership; and such Researching Party shall provide annually to the
Partnership a certification by nationally recognized certified public
accountants as to the Reimbursable Costs billed to the Partnership in that year.
The Partnership will keep confidential, and will not disclose to any third
party, except such disclosures as may be required by law, without the prior
written consent of the Researching Party, information in
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statements delivered to the Partnership or obtained by the Partnership through
access of its independent certified public accounting firm to the books and
records of such Researching Party.
5. CONFIDENTIALITY AND NON-DISCLOSURE
That certain Confidentiality Agreement effective as of February 6, 1997
between Becton and Nanogen, as amended (the "Confidentiality Agreement"), shall
remain in full force and effect, except that the terms "Becton Information",
"Nanogen Information" and "Information" shall include information provided under
this Agreement, the Partnership Agreement, the Prior R&D Agreement and the
Administrative Services Agreement dated as of October 1, 1997 between Becton and
the Partnership (the "Services Agreement"), and the term "Stated Purpose" shall
include the activities conducted for the Partnership contemplated by this
Agreement, the Partnership Agreement, the Prior R&D Agreement and the Services
Agreement. The Partnership also hereby agrees to be bound by the terms and
conditions of the Confidentiality Agreement as if a party thereto.
6. INTELLECTUAL PROPERTY LICENSES
6.1 (a) Becton hereby grants (i) solely during the existence of the
Partnership, to the Partnership, a worldwide, royalty-free, nonexclusive license
in and to Becton Intellectual Property and Becton Patent Rights, solely to make,
have made, use, offer to sell, sell and import Products in the Field, (ii)
solely during the term of this Agreement to Nanogen, a worldwide, royalty-free,
nonexclusive license in and to Becton Intellectual Property and Becton
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Patent Rights, solely to use in research and development activities of the
Research Program under this Agreement and (iii) solely in the event of a buyout
pursuant to Section 7.8 of the Partnership Agreement, to the Purchasing Party
(as defined in Section 7.8(c)), a worldwide, royalty-free, nonexclusive license
in and to Becton Intellectual Property and Becton Patent Rights, solely to make,
have made, use, offer to sell, sell and import Products in the Field.
(b) Nanogen hereby grants (i) solely during the existence of the
Partnership, to the Partnership, a worldwide, royalty-free, nonexclusive license
in and to Nanogen Intellectual Property and Nanogen Patent Rights, solely to
make, have made, use, offer to sell, sell and import Products in the Field, (ii)
solely during the term of this Agreement, to Becton, a worldwide, royalty-free,
nonexclusive license in and to Nanogen Intellectual Property and Nanogen Patent
Rights, solely to use in research and development activities of the Research
Program under this Agreement and (iii) solely in the event of a buyout pursuant
to Section 7.8 of the Partnership Agreement, to the Purchasing Party (as defined
in Section 7.8(c)), a worldwide, royalty-free, nonexclusive license in and to
Nanogen Intellectual Property and Nanogen Patent Rights, solely to make, have
made, use, offer to sell, sell and import Products in the Field.
(c) The Partnership hereby grants: (i) to Becton, a perpetual,
worldwide, royalty-free, exclusive license in and to Becton Program Inventions
for all applications other than to make, have made, use, offer to sell, sell and
import Products in the Field, (ii) to Nanogen, a perpetual, worldwide,
royalty-free, exclusive license in and to Nanogen Program Inventions for all
applications other than to make, have made, use, offer to sell, sell and import
Products in the Field; and (iii) to Becton and Nanogen, jointly, perpetual,
worldwide,
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royalty-free, co-exclusive licenses in and to Joint Program Inventions for all
applications other than to make, have made, use, offer to sell, sell and import
Products in the Field.
6.2 The licenses granted in accordance with Paragraphs 6.1(a) and (b) do
not include a right to grant sublicenses. The licenses granted by the
Partnership to Becton and Nanogen in accordance with Paragraphs 6.1(c) include a
right to grant sublicenses.
6.3. The Partnership shall use commercially reasonable efforts to
exploit Products in the Field.
6.4 The Partnership shall mark all Products manufactured or sold by it
under this Agreement in accordance with all applicable laws relating to patent
marking, which shall contain the following marking, as applicable,: "Licensed
from Becton, Dickinson and Company" or "Licensed from Nanogen, Inc."
6.5 The Partnership shall comply with all applicable laws of the United
States and any other appropriate jurisdiction and the regulations promulgated
thereunder, in the development, manufacture, distribution, sales and marketing
of Products.
6.6 In the event that any substantial and continuing infringement of any
of the Becton Patent Rights or Nanogen Patent Rights licensed hereunder comes to
the attention of any party hereto, such party shall promptly notify the
Partnership Management Committee, which Committee will determine an appropriate
action in accordance with its authority.
7. INTELLECTUAL PROPERTY AND PATENT RIGHTS
7.1 Subject to the licenses granted by the Partnership to Becton and
Nanogen, individually and jointly, in Paragraph 6.1(c), the entire right, title
and interest in all Program
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Inventions shall be owned solely by the Partnership. Becton hereby assigns its
entire right, title and interest in all Becton Program Inventions and Joint
Program Inventions to the Partnership, and Nanogen hereby assigns its entire
right, title and interest in all Nanogen Program Inventions and Joint Program
Inventions to the Partnership.
7.2 Each Researching Party promptly shall disclose to the other
Researching Party and the Partnership the making, conception or reduction to
practice of Program Inventions by employees or others acting on behalf of such
party. Each of Nanogen and Becton hereby represents and warrants that all
employees and others acting on its respective behalf in performing its
obligations under this Agreement shall be obligated under a binding written
agreement to assign to it, or as it shall direct, all Program Inventions made or
developed by such employees or others.
7.3 Promptly following any disclosure of Program Inventions pursuant
to Paragraph 2.2 and Paragraph 7.2, the Research Management Committee, in
consultation with patent attorneys for Becton and Nanogen, shall discuss and
determine, in good faith, whether patent applications should be prepared and
filed for such disclosed Program Inventions.
7.4 If patent applications are to be prepared and filed pursuant to
Paragraph 7.3, then the Research Management Committee shall discuss and
determine, in good faith, for each of such Program Inventions, which of the
parties shall be responsible for the preparation, filing, prosecution and
maintenance of such patent applications in the Primary Filing Countries. Each of
such patent applications shall become part of the Program Inventions, and
Appendix A shall be amended accordingly to evidence such Program Inventions.
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7.5 (1) If the Research Management Committee determines that a
particular patent application be filed in a country or countries in addition to
the Primary Filing Countries, then the Research Management Committee shall
determine which Researching Party shall be responsible for the filing,
prosecution and maintenance of such patent application, and such patent
application shall be part of the Program Inventions.
(2) If the Research Management Committee determines not to file a
particular patent application in a country or countries in addition to the
Primary Filing Countries, either Researching Party, alone, after written waiver
by the other Researching Party, may file such particular patent application in
such country or countries and shall pay, without right to reimbursement thereof,
all costs and expenses for filing, prosecution and maintenance of patent
application filed in such country or countries, and notwithstanding the
provisions of Paragraph 6.1, that Researching Party shall own, exclusively, all
right, title and interest in such patent application.
(3) If the other Researching Party of Paragraph 7.5(b) does not
provide such written waiver, then any such particular patent application shall
be treated as if the Research Management Committee had made a declaration to
file the particular patent application in a country or countries in addition to
the Primary Filing Countries in accordance with Paragraph 7.5(a).
7.6 Each Researching Party shall keep the Research Management Committee
currently informed of the filing and progress of all material aspects of the
prosecution of all such patent applications and of the issuance of patents, and
shall consult with the Research
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Management Committee concerning any decisions which would affect the scope of
any issued claims and other prosecutorial details, including the potential
abandonment of any application.
7.7 Upon request, each Researching Party shall execute and deliver to
the other Researching Party or the Partnership, as applicable, all descriptions,
applications, assignments and other documents and instruments as are necessary
or proper to carry out the provisions of Paragraphs 7.1, 7.2, 7.3, 7.4, 7.5 and
7.6, without further compensation except as otherwise provided in Paragraph
1.19, and the Researching Parties shall cooperate with and assist each other or
their nominees and the Partnership in all reasonable ways and at all reasonable
times, including, but not limited to, testifying in all legal proceedings,
signing all lawful papers and in general performing all lawful acts reasonable,
necessary or proper, to aid the other Researching Party or the Partnership, as
applicable, in obtaining, maintaining, defending and enforcing all lawful
patent, copyright, trade secret, know-how and the like in the Primary Filing
Countries and elsewhere.
7.8 Except as otherwise provided in this Agreement, under no
circumstances shall either Researching Party or the Partnership, as a result of
this Agreement, obtain any ownership interest or other right in any technology,
know-how, trade secrets, patents, pending patent applications or products of the
other Researching Party, including items owned, controlled or developed by the
other, or transferred by the other to such Researching Party at any time
pursuant to this Agreement. It is understood and agreed by the parties hereto
that this Agreement does not grant to either Researching Party or to the
Partnership any license or other right, other than the licenses granted in
Paragraph 6.1 and the assignments granted in Paragraph 7.1.
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8. TERM AND TERMINATION
8.1 This Agreement will terminate upon the earliest of:
(a) the expenditure or incurrence by both Researching Parties pursuant
to this Agreement of Reimbursable Costs of an aggregate amount equal to Total
Available Funds;
(b) the institution of voluntary or involuntary proceedings by or
against either Researching Party or the Partnership in bankruptcy, or under any
insolvency law, or for corporate reorganization, the appointment of a receiver,
or petition for the dissolution of such Researching Party or the Partnership for
the benefit of creditors;
(c) the date the Partnership gives notice to both Researching Parties of
its decision to terminate this Agreement;
(d) the date the Partnership terminates;
(e) the date mutually agreed to in writing for termination by both
Researching Parties and the Partnership;
(f) December 31, 1997 if Research Milestone I is not successfully
completed for either Project A or Project B;
(g) June 30, 1998 if Research Milestone II is not successfully completed
for either Project A or Project B;
(h) the date of the closing of a buyout in accordance with Section 7.8
of the Partnership Agreement; or
(i) as otherwise provided in this Agreement.
8.2 This Agreement may also be terminated by either Researching Party or
the Partnership upon default or breach of a material obligation or condition by
any of the other
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parties, such termination being effective sixty (60) days after receipt by the
alleged defaulting or breaching party of written notice of such termination
under this Paragraph specifying the default or breach; provided, however, that
if the default or breach is cured or shown to be nonexistent within the sixty
(60) day period after receipt of written notice, the notice shall be deemed
automatically withdrawn and of no effect.
8.3 Termination of this Agreement alone shall not affect (i) the
obligation of the Partnership under Article 3 to pay a Fee to a Researching
Party for Reimbursable Costs incurred prior to the date of such termination or
(ii) any of the rights or obligations provided for in Articles 5, 6 and 7.
8.4 All records required to be maintained pursuant to Paragraph 4.2
shall be retained for a period of at least five (5) years following the
termination of this Agreement.
9. REPRESENTATIONS AND WARRANTIES
9.1 Becton hereby represents and warrants to Nanogen and the Partnership
that it has full authority and power to enter into this Agreement, that it has
secured any and all necessary approvals, permits or consents deemed necessary or
advisable for the consummation of the transactions contemplated hereby and that,
upon execution by Becton, Nanogen and the Partnership, this Agreement shall
immediately be a valid and binding obligation of Becton, enforceable in
accordance with its terms.
9.2 Nanogen hereby represents and warrants to Becton and the Partnership
that it has full authority and power to enter into this Agreement, that it has
secured any and all necessary approvals, permits or consents deemed necessary or
advisable for the consummation
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of the transactions contemplated hereby and that, upon execution by Becton,
Nanogen and the Partnership, this Agreement shall immediately be a valid and
binding obligation of Nanogen enforceable in accordance with its terms.
9.3 The Partnership hereby represents and warrants to Becton and
Nanogen that it has full authority and power to enter into this Agreement, that
it has secured any and all necessary approvals, permits or consents deemed
necessary or advisable for the consummation of the transactions contemplated
hereby and that, upon execution by Becton, Nanogen and the Partnership, this
Agreement shall immediately be a valid and binding obligation of the
Partnership, enforceable in accordance with its terms.
9.4 Becton hereby represents and warrants to Nanogen and the
Partnership that: (a) it is the owner of the entire right, title and interest to
the Becton Intellectual Property and Becton Patent Rights, and (b) to Becton's
best knowledge, the Becton Patent Rights or the Becton Intellectual Property has
not infringed, and is not now infringing, any third party rights and Becton has
not received any notice of infringement from any third party respecting the
Becton Patent Rights or the Becton Intellectual Property.
9.5 Nanogen hereby represents and warrants to Becton and the
Partnership that: (a) it is the owner of the entire right, title and interest to
the Nanogen Intellectual Property and the Nanogen Patent Rights and (b) to
Nanogen's best knowledge, the Nanogen Patent Rights or the Nanogen Intellectual
Property has not infringed, and is not now infringing, any third party rights
and Nanogen has not received any notice of infringement from any third party
respecting the Nanogen Patent Rights or the Nanogen Intellectual Property.
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10. DISCLAIMERS
10.1 THE RESEARCHING PARTIES EACH HEREBY DISCLAIM ANY AND ALL
REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THEIR
RESPECTIVE RESEARCH AND DEVELOPMENT EFFORTS HEREUNDER, INCLUDING, WITHOUT
LIMITATION, (A) WHETHER ANY PRODUCT CAN BE SUCCESSFULLY DEVELOPED BY EITHER OF
THE RESEARCHING PARTIES, (B) WHETHER THE PRODUCTS AS DEVELOPED BY EITHER OF THE
RESEARCHING PARTIES HEREUNDER CAN BE COMMERCIALLY MARKETED, (C) THE ACCURACY,
PERFORMANCE, UTILITY, RELIABILITY, TECHNOLOGICAL OR COMMERCIAL VALUE,
COMPREHENSIVENESS, MERCHANTABILITY OR SUITABILITY FOR ANY PARTICULAR PURPOSE
WHATSOEVER OF ANY PRODUCT, AND (D) WHETHER ANY PRODUCTS MANUFACTURED WILL NOT
INFRINGE ANY THIRD-PARTY PATENT, COPYRIGHT OR SIMILAR RIGHT.
11. INSURANCE
The Researching Parties shall each, at all times during the term of this
Agreement, carry and maintain such insurance as each believes to be commercially
reasonable against risks from actions contemplated under this Agreement. Such
insurance shall be with insurers of recognized responsibility and may be carried
under blanket policies maintained by each of the Researching Parties. The
Partnership shall, to the extent reasonably possible, be included as an
additional named insured on all policies of such insurance.
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12. NOTICES
Any notice, request, demand, waiver, consent, approval, or other
communication which is required or permitted hereunder shall be in writing and
shall be deemed given only if delivered personally, by facsimile (upon receipt
of appropriate written confirmation) or sent by registered or certified mail,
return receipt requested, or by overnight courier service, postage prepaid as
follows:
If to Nanogen:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, California 92121
Attn: Chief Executive Officer
facsimile - (619) 546-7717
with a copy to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, California 92121
Attn: General Counsel
facsimile - (619) 546-7717
and if to Becton:
Becton Dickinson Microbiology Systems
7 Loveton Circle
Sparks, Maryland 21152
Attn: President
facsimile - (410) 316-4991
with a copy to:
Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, New Jersey 07417
Attn: Chief Patent and Licensing Counsel
facsimile - (201) 848-9228
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If to the Partnership:
The Nanogen/Becton Dickinson Partnership,
a Delaware general partnership
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attn: General Counsel
facsimile 619-546-7717
with a copy to:
Becton Dickinson Microbiology Systems
7 Loveton Circle
Sparks, Maryland 21152
Attn: President
facsimile - (410) 316-4991
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so received (in case of personal delivery, facsimile or overnight
courier service delivery) or upon refusal to accept delivery thereof.
13. DISPUTE RESOLUTION
13.1 Any dispute arising out of or relating to this Agreement which is
not resolved by the Research Management Committee or is not within the purview
of the Research Management Committee shall be governed by the terms and
provisions of Article V of the Master Agreement.
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14. MISCELLANEOUS
14.1 This Agreement, the Master Agreement, the Partnership Agreement,
the Administrative Services Agreement and the Confidentiality Agreement together
constitute the entire understanding among the parties with respect to the
subject matter hereof and supersede and replace all prior agreements,
understandings, writings and discussions between the parties relating to said
subject matter, including, without limitation, the Prior R&D Agreement, which
Prior R&D Agreement is hereby terminated immediately and of no further force and
effect. In the event of any conflict between any term or provision of this
Agreement and any of the foregoing agreements, the Master Agreement shall
control.
14.2 This Agreement may be amended only by a written instrument
executed by the parties hereto. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect its rights
at a later time to enforce the same. No waiver by any party of any condition or
term in any one or more instances shall be construed as a further or continuing
waiver of such condition or term or any other condition or term.
14.3 The terms and provisions contained in this Agreement are for the
sole benefit of the parties and their successors and assigns, and they shall not
be construed as conferring and are not intended to confer any rights on any
other persons.
14.4 Any delays in or failure of performance by any party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to acts of God; acts, regulations, or laws
of any government; strikes or other considered acts of workers; fires; floods;
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<PAGE> 85
explosions; riots; wars; rebellion; and sabotage; and any time for performance
hereunder shall be extended by the actual time of delay caused by such
occurrence.
14.5 This Agreement shall not be assignable by either Researching
Party, nor shall any of its obligations hereunder be delegated to a third party,
without the prior written consent of the other Researching Party and the
Partnership, which consent shall not be unreasonably withheld or delayed. In the
event that the other Researching Party or the Partnership does not respond to a
request from a Researching Party for consent to an assignment or delegation
within fifteen (15) days following written notice requesting such consent, such
Researching Party's or the Partnership's consent shall be deemed to be granted.
In addition, a condition to any assignment or delegation hereunder shall be that
the successor in interest expressly agrees in writing to assume the assigning or
delegating party's obligations hereunder. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective permitted successors and assigns. No such
assignment shall release the assigning party from its obligations hereunder.
Notwithstanding the foregoing, the consent of the other Researching Party and
the Partnership shall not be required in connection with a merger involving
either Becton or Nanogen or with respect to an assignment of this Agreement in
connection with, as the case may be, the acquisition, sale of all or
substantially all of the assets of Becton or Nanogen, or a change of control or
similar transaction.
14.6 If any provision(s) of this Agreement are or become invalid, or
are ruled illegal by any court of competent jurisdiction, or are deemed
unenforceable under then current applicable law from time to time in effect
during the term hereof, it is the intention of the parties hereto that the
remainder of this Agreement shall not be affected thereby. It is further the
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<PAGE> 86
intention of the parties that in lieu of each such provision which is invalid,
illegal, or unenforceable, there be substituted or added as part of this
Agreement, a provision which shall be as similar as possible in economic and
business objectives as intended by the parties to such invalid, illegal, or
unenforceable provision, but which shall be valid, legal, and enforceable, and
shall be mutually agreed by the parties.
14.7 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its choice of laws
principles. This Agreement shall be construed and interpreted without
application of any principle or rule to the effect that ambiguities are to be
construed against the party responsible for drafting the agreement. The headings
contained herein are for reference purposes only and shall not in any way affect
the meaning of this Agreement.
14.8 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one instrument.
14.9 (a) During the term of this Agreement, the Partnership, Nanogen
and Becton each acknowledge each party's interest in publishing certain of its
results to obtain recognition within the scientific community and to advance the
state of scientific knowledge. Each party also recognizes the mutual interest in
obtaining valid patent protection and protecting business interests.
Consequently, each party, its employees or consultants wishing to make a
publication (including any oral disclosure made without obligation of
confidentiality) relating to work performed by such party as part of the
Research Program (the "Publishing Party") shall transmit to the Research
Management Committee a copy of the proposed written publication at least
forty-five (45) days prior to submission for publication, or an outline of such
oral disclosure
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<PAGE> 87
at least fifteen (15) days prior to presentation. The Research Management
Committee shall have the right (i) to propose modifications to the publication
for patent reasons and (ii) to request a reasonable delay in publication in
order to protect patentable information.
(b) If the Research Management Committee requests such a delay, the
Publishing Party shall delay submission or presentation of the publication for a
period of ninety (90) days to enable patent applications protecting each party's
rights in such information to be filed in accordance with Paragraph 7 above.
Upon the expiration of forty-five (45) days, in the case of proposed written
disclosures, or fifteen (15) days, in the case of proposed oral disclosures,
from transmission to the Research Management Committee, the Publishing Party
shall be free to proceed with the written publication or the presentation,
respectively, unless the Research Management Committee has requested the delay
described above.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE> 88
IN WITNESS WHEREOF, the parties have executed this Agreement through
duly authorized representatives as of the Effective Date.
NANOGEN, INC. BECTON, DICKINSON AND COMPANY
By: /s/ Howard C. Birndorf By: /s/ Vincent A. Forlenza
------------------------------------ -----------------------------
Howard C. Birndorf Vincent A. Forlenza
Chairman and Chief President - Worldwide
Executive Officer Microbiology Systems
THE NANOGEN/BECTON DICKINSON PARTNERSHIP,
A DELAWARE GENERAL PARTNERSHIP
By Becton Dickinson Venture LLC
General Partner
By: /s/ Vincent A. Forlenza
-----------------------------------------
Name: Vincent A. Forlenza
Title: President Becton Dickinson
Microbiology Systems
By NanoVenture LLC
General Partner
By: /s/ Howard C. Birndorf
-----------------------------------------
Name: Howard C. Birndorf
Title: Manager
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<PAGE> 89
APPENDIX A
PROGRAM INVENTIONS
<PAGE> 90
[NANOGEN LOGO]
INVENTION DISCLOSURE FORM
SUBMITTED BY: ***
IF ADDITIONAL SPACE IS REQUIRED, USE A SUPPLEMENTAL
SHEET, AND SIGN, DATE AND REFER TO IT IN THIS FORM.
1. NAME(S) of INVENTOR(S): ***
2. SHORT TITLE: ***.
3. CIRCUMSTANCES LEADING TO THE IDEA CONSTITUTING THE INVENTION: (e.g.
problems and difficulties in present practice giving rise to the idea).
***
4. BRIEF SUMMARY OF THE INVENTION (TECHNICAL ABSTRACT), including a listing
of the key technical achievements of the invention:
***
5. KEY ISSUES REGARDING PATENTABILITY:
A. IS THE INVENTION NEW (NOVEL)? ***
B. IS THE INVENTION NON-OBVIOUS? ***
1
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 91
***
6. DETAILED DESCRIPTION OF THE INVENTION (If a MACHINE, give structure,
mode of operation and results; if an ARTICLE, give details of
structure and use; if a METHOD or PROCESS, give steps, conditions and
results; and if a COMPOSITION OF MATTER give components, proportions
and synthesis. Please attach sketches, blueprints or photographs).(1)
THE DESCRIPTION MUST (1) ENABLE ONE SKILLED IN THE ART TO MAKE AND USE
YOUR INVENTION AND (2) DESCRIBE WHAT YOU CURRENTLY BELIEVE TO BE THE
BEST MODE FOR PRACTICING YOUR INVENTION.
***
2
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 92
<PAGE> 93
***
1. IDENTIFY ALL RELEVANT PRIOR WORK (including of yourself or coworkers) of
which you are aware. Briefly describe the relevance to your invention, and
indicate how your invention differs from the prior work. Please provide
copies of any printed publications with this invention disclosure form.
2.
***
***
3. CONCEPTION DATE (day, month and year; and specify records relied on).
---------------------------------------------------------------------
---------------------------------------------------------------------
4. EARLIEST DISCLOSURE TO OTHERS (STATE where, when and to whom; specify
records relied on);
---------------------------------------------------------------------
5. DATE OF EARLIEST SKETCH OR DRAWING (Give drawing number):
---------------------------------------------------------------------
---------------------------------------------------------------------
6. EARLIEST DATE INVENTION WAS OPERATED OR PRODUCED (State when, where,
describe tests in detail, and give names of witnesses present during
operation or tests).
STATE THE DATE OF ACTUAL OR EXPECTED FIRST PUBLIC USE, DISCLOSURE OR SALE
(Including offers for sale):
Unknown
7. WAS INVENTION DEVELOPED USING FUNDS FROM THE FEDERAL GOVERNMENT?
_____ IF SO, please identify which contracts:
No
8. IS THIS INVENTION RELATED TO ANY OTHER INVENTION FOR WHICH ANY APPLICATION
OR OTHER INVENTION DISCLOSURE FORM HAS BEEN SUBMITTED? If so, please
identify.
Not that I am aware
***
3
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 94
Nanogen
INVENTION DISCLOSURE FORM
SUBMITTED BY: ***
IF ADDITIONAL SPACE IS REQUIRED, USE A SUPPLEMENTAL
SHEET, AND SIGN, DATE AND REFER TO IT IN THIS FORM.
1. NAME(S) OF INVENTOR(S): ***
2. SHORT TITLE: ***
3. CIRCUMSTANCES LEADING TO THE IDEA CONSTITUTING THE INVENTION: (e.g.
problems and difficulties in present practice giving rise to the idea).
***
4. BRIEF SUMMARY OF THE INVENTION (TECHNICAL ABSTRACT), including a listing of
the key technical achievements of the invention:
***
5. KEY ISSUES REGARDING PATENTABILITY:
A. IS THE INVENTION NEW (NOVEL)?
***
1
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 95
6. DETAILED DESCRIPTION OF THE INVENTION (If a MACHINE, give structure, mode
of operation and results; if an ARTICLE, give details of structure and use;
if a METHOD or PROCESS, give steps, conditions and results; and if a
COMPOSITION OF MATTER give components, proportions and synthesis. Please
attach sketches, blueprints or photographs).(1) THE DESCRIPTION MUST (1)
ENABLE ONE SKILLED IN THE ART TO MAKE AND USE YOUR INVENTION AND (2)
DESCRIBE WHAT YOU CURRENTLY BELIEVE TO BE THE BEST MODE FOR PRACTICING YOUR
INVENTION
***
- ---------
2
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 96
[CHART]
***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 97
[CHART]
***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 98
1. IDENTIFY ALL RELEVANT PRIOR WORK (including of yourself or coworkers) of
which you are aware. Briefly describe the relevance to your invention,
and indicate how your invention differs from the prior work. Please provide
copies of any printed publications with this invention disclosure form.
2. ***
3. CONCEPTION DATE (day, month and year; and specify records relied on).
Approximately July 24, 1997 (see above)
EARLIEST DISCLOSURE TO OTHERS (State where, when and to whom; specify
records relied on):
None
4. DATE OF EARLIEST SKETCH OR DRAWING (Give drawing number):
--------------------------------------------------------------------
--------------------------------------------------------------------
5. EARLIEST DATE INVENTION WAS OPERATED OR PRODUCED (State when, where,
describe tests in detail, and give names of witnesses present during
operation or tests).
STATE THE DATE OF ACTUAL OR EXPECTED FIRST PUBLIC USE, DISCLOSURE OR SALE
(Including offers for sale):
Unknown
6. WAS INVENTION DEVELOPED USING FUNDS FROM THE FEDERAL GOVERNMENT?
___________ IF SO, please identify which contracts:
No
7. IS THIS INVENTION RELATED TO ANY OTHER INVENTION FOR WHICH ANY APPLICATION
OR OTHER INVENTION DISCLOSURE FORM HAS BEEN SUBMITTED? (If so, please
identify.
***
Dated: ***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
3
<PAGE> 99
(Print Name)
***
--------------------------
(Print Name)
Dated: By:
-------------------------- --------------------------
(Signature)
--------------------------
(Print Name)
Dated: By:
-------------------------- --------------------------
(Signature)
--------------------------
(Print Name)
Dated: By:
-------------------------- --------------------------
(Signature)
4
<PAGE> 100
(Print Name)
***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
4
<PAGE> 101
APPENDIX B
Research Program
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<PAGE> 102
APPENDIX B
Nanogen - Becton Dickinson Research Program
Summary: This research plan was developed jointly with Becton Dickinson during
a series of meetings in ***. The plan covers two general areas: development of
Nanogen technology for specific Becton Dickinson applications and at BD cost
targets, and the development of Strand Displacement Amplification in the Nanogen
electronic chip format. The proposed research funding is for three years
contingent upon achievement of project milestones in accordance with the
agreement. Current milestones and deliverables are specified at the end ***
and ***. As the program professes, milestones and deliverables for later in
*** and *** will be developed.
Research management. The Research Management Committee will be responsible for
the general management of the research program. The Research Management
Committee will consist of 6 members, with three members appointed from each
company. The Committee will be responsible for developing and approving
project proposals, schedules, budgets, manpower and other resource allocation
between the companies, and system and reagent development/manufacturing plans.
In addition, the Committee is responsible for conducting periodic design
reviews and determining milestone attainment. The Committee will meet on a
quarterly basis.
Project Description:
***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 103
Assumptions:
***
Project Milestones
RESEARCH MILESTONE I/PROJECT A
December 31, 1997
APEX chips
***
Permeation materials and attachment chemistry
***
Cartridge and advanced chip design
***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 104
***
Instrument development
***
RESEARCH MILESTONE II/PROJECT A
June 30, 1998
APEX chips
***
Permeation materials and attachment chemistry
***
Cartridge and advanced chip design
***
Instrument development
***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 105
***
Project Milestones
RESEARCH MILESTONE I/PROJECT B
December 31, 1997
Assumptions:
***
tSDA
***
RESEARCH MILESTONE II/PROJECT B
June 30, 1998
***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 106
APPENDIX C
Initial Annual Budget
***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 107
EXHIBIT C
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (The "Agreement") is made and
entered into as of the 1st day of October, 1997 between Becton, Dickinson and
Company, a New Jersey corporation ("Service Provider"), and The Nanogen/Becton
Dickinson Partnership, a Delaware general partnership ("the Partnership").
Service Provider and the Partnership are herein referred to jointly as the
"Parties" and individually as "Party".
WITNESSETH:
WHEREAS, Service Provider and Nanogen, Inc. ("Nanogen") have entered into a
Master Agreement dated as of October 1, 1997 (the "Master Agreement") pursuant
to which Service Provider and Nanogen have formed a partnership (the
"Partnership") pursuant to that certain General Partnership Agreement of even
date therewith and herewith between Becton Dickinson Venture LLC, a Delaware
limited liability company (the "Becton Partner"), and NanoVenture LLC, a
Delaware limited liability company (the "Nanogen Partner") (the "Partnership
Agreement"); and
WHEREAS, the Master Agreement provides that Service Provider and the
Partnership shall enter into an agreement relating to certain administrative
services to be provided by Service Provider to the Partnership after the
Effective Date (as such term is defined in the Master Agreement).
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
1. SERVICES.
1.1 Service Provider agrees to provide to the Partnership the tax,
accounting and financial services (the "Services"). The Partnership shall pay
for such Services an amount of compensation which shall reflect the
"Reimbursable Cost" thereof, as such term is defined below.
1.2 The Parties understand that, prior to the date of this Agreement,
Service Provider may have subcontracted for services in connection with all or
any portion of the Services to be provided to the Partnership hereunder. Service
Provider reserves the right to continue to subcontract with third parties for
Services or enter into new subcontract relationships for any Service; provided,
however, that any such subcontracting relationship or services shall not relieve
Service Provider of any obligation to provide Services
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<PAGE> 108
hereunder. Such subcontractors used in connection with Services provided under
this Agreement will be charged to the Partnership at actual cost.
1.3 Unless otherwise agreed by the Parties, it is understood and agreed
that a Party shall not provide any services not specifically provided for in
this Agreement.
1.4 As used herein, the term "Reimbursable Cost" shall mean all direct and
indirect costs incurred by Service Provider in performing its obligations under
this Agreement as determined in accordance with generally accepted accounting
principles and the accounting policies described herein and in accordance with
the budget agreed to annually by the Parties hereto.
1.5.1 Such costs shall include without limitation:
a. salaries and wages,
b. payroll taxes,
c. contract labor,
d. fringe benefits,
e. expenses incurred in occupying facilities
(including leasehold improvements) and
equipment related expenses, excluding
depreciation and amortization expenses,
f. recruitment and relocation,
g. communications expense,
h. supplies,
i. freight and transportation,
j. training and education,
k. travel expenses,
l. data processing costs,
m. insurance,
n. professional services,
o. depreciation and amortization of facilities
(including leasehold improvements) and
equipment,
p. a financing charge for capital acquisitions
made by Service Provider for use in
performing work under this Agreement,
q. outside purchased services,
r. sales and use taxes (including such taxes
applicable to the acquisition, use,
transfer or deemed transfer of property by
Service Provider),
s. periodic lease and rental payments under
capital or financing leases, and
t. periodic and special reports,
1.5.2 In determining Reimbursable Costs allocable to this Agreement,
Service Provider will employ the following accounting policies:
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a. Capital equipment, facilities and leasehold improvements will be
assigned an estimated economic useful life and salvage value, if any, and
depreciation and amortization will be computed using the straight-line
method. Depreciation and amortization will be allocated to Reimbursable
Costs under this Agreement directly or through overhead rates applied to
direct labor expense.
b. Total facilities expenses of Service Provider, excluding leasehold
improvement amortization allocated to specific functional areas and net of
any sublease revenues, will be allocated to Reimbursable Costs under this
Agreement based on the ratio of square footage utilized by or committed to
use by direct and indirect personnel engaged in work under this Agreement
to the total amount of utilized or committed square footage owned or leased
by Service Provider.
c. General and administrative expenses of Service Provider will be
allocated to Reimbursable Costs under this Agreement directly or based on
the ratio of total Reimbursable Costs to total operating expenses of
Service Provider, excluding (in both instances) general and administrative
expenses subject to such allocation.
d. All other indirect expenses not covered in paragraphs (a) through
(c) above which are in support of work under this Agreement will be
allocated to Reimbursable Costs under this Agreement through overhead rates
applied to direct labor expense.
1.5.3. The term "capital acquisition" as used herein shall mean that
portion of capital equipment, leasehold improvements or other property, whenever
acquired by Service Provider, which are capitalized on Service Provider's
accounting records and which are either: i. purchased directly by Service
Provider; ii. financed by Service Provider under a conditional sale contract;
iii. financed by Service Provider through a secured loan; or iv. assets
constructed in-house by Service Provider. Assets acquired under capital or
financing leases will not be considered capital acquisitions for purposes of
this section. With respect to capital acquisitions financed by Service Provider
with specific borrowing, the financing charge referred to above will be in the
amount and at the time of the actual financing costs incurred by Service
Provider. With respect to capital acquisitions not financed by Service Provider
with specific borrowing, the financing charge will be based on the prime lending
rate in effect from time to time at Citibank, N.A., New York, New York, plus two
(2) percentage points, to the extent permitted by applicable law, applied to
Service Provider's net book value. Net book value is defined
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as the gross capital acquisition value excluding capital acquisitions financed
by Service Provider with specific borrowing, less related accumulated
depreciation and amortization. The financing charge for each billing period will
be prorated to the extent depreciation or amortization of the capital
acquisitions has been allocated to work other than work under this Agreement
during such period. The financing charge will be calculated monthly based on the
net book value at the end of the preceding fiscal month.
2. TERM AND RENEWAL.
2.1 The term of this Agreement shall commence as of October 1, 1997 and
shall expire on September 30, 2000, unless terminated by the Parties as provided
herein or conterminously with the dissolution of the Partnership or with the
buyout of a Partnership Interest pursuant to Section 7.8 of the Partnership
Agreement.
2.2 The Parties may, upon mutual written agreement, extend the term of this
Agreement for additional, successive two (2) year terms. In the event the
Partnership desires to renew this Agreement, the Partnership shall provide
Service Provider with written notice ("Notice of Renewal") thirty (30) days in
advance of the expiration of the Service term, or any renewal term. Service
Provider shall respond in writing to the Partnership within fifteen (15) days.
Upon mutual agreement of the Parties, this Agreement shall be amended in writing
to effect such renewal of Services.
3. COMPENSATION.
3.1 In consideration for the Services to be performed by Service Provider,
the Partnership shall pay to Service Provider the compensation described in
Section 1.1 hereof.
3.2 Except as otherwise provided in the applicable schedule, invoices for
Services provided hereunder shall be rendered in accordance with the Service
Provider's current and reasonable practices, and invoiced amounts shall be paid
promptly when due. In the event that a dispute arises, the Partnership may
either pay the entire amount of the invoice (including the disputed amount) and
notify the Service Provider that it disputes the invoice, or return the invoice
without payment before the due date. Both parties agree that any such disputes
shall be resolved in accordance with the provisions of Article V of the Master
Agreement. If resolution is in favor of Service Provider, and if payment has
been withheld, a late payment charge may be added to the extent permitted under
applicable law, based on the Citibank, N.A., reference rate on the date such
payment is made plus two (2) percentage points and computed from the date the
original invoice was due to be paid to the date of payment. If the resolution is
in favor of
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the Partnership and payment has been made pending such resolution, the payment
or any appropriate adjusted balance thereof shall be returned to the Partnership
with interest based on the same calculation as above.
3.3 Service Provider shall maintain such independent and verifiable books
and records as are required to evidence its compliance with the terms of this
Agreement.
3.4 Service Provider shall permit one or more representatives of the
Partnership to inspect, at any reasonable time and upon reasonable terms, but no
more often than once per quarter, its books and records pertaining to the basis
for payments to it for Services pursuant to this Agreement and to its compliance
with the provisions of this Agreement for as long as this Agreement is in effect
and Services are being provided hereunder.
4. CONFIDENTIALITY.
4.1 The Parties agree that the terms and provisions of the Confidentiality
Agreement (as defined in the Partnership Agreement) shall apply to the terms of
this Agreement, and the Parties hereto hereby agree to be bound by the terms and
provisions thereof.
5. MISCELLANEOUS.
5.1 Each party to this Agreement shall be responsible for the fees and
expenses incurred by it incidental to the consummation of the transactions
contemplated by this Agreement (including, without limitation, fees and
disbursements of its attorneys and accountants in connection with their
respective services on behalf of each party).
5.2 Subject to the terms and conditions herein provided, each of the
parties shall take, or cause to be taken, such action to execute and deliver, or
cause to be executed and delivered, such additional documents and instruments
and to do, or cause to be done, all things necessary, proper or advisable under
the provisions of this Agreement and under applicable laws to consummate and
make effective the transactions contemplated by this Agreement.
5.3 This Agreement, the Master Agreement (including each agreement the form
of which is attached as an exhibit thereto) and the Confidentiality Agreement
(as such term is defined in the Partnership Agreement) set forth the entire
understanding of the parties with respect to the subject matter hereof and
supersede and replace all prior agreements, understandings, writings and
discussions between the parties relating to said subject matter. Any and all
previous agreements and understandings between the parties regarding the subject
matter hereof, whether written or oral, are superseded by this
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Agreement. In the event of any conflict between any term or
provision of this Agreement and any of the foregoing
agreements, the Master Agreement shall control.
5.4 This Agreement shall not be assignable by Becton or the Partnership,
nor shall any obligations hereunder be delegated to a third party, without the
other party's prior written consent, which consent shall not be unreasonably
withheld or delayed. In the event that Becton or the Partnership, as the case
may be, does not respond to a request from the other for consent to an
assignment or delegation within fifteen (15) days following written notice
requesting such consent, such consent shall be deemed to be granted. In
addition, a condition to any assignment or delegation hereunder shall be that
the successor in interest expressly agrees in writing to assume the assigning or
delegating party's obligations hereunder. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective permitted successors and assigns of the parties.
No such assignment shall release the assigning party from its obligations
hereunder. Notwithstanding the foregoing, the consent of either party shall not
be required in connection with a merger involving the other party or with
respect to an assignment of this Agreement in connection with the acquisition,
sale of all or substantially all of the assets of the other party, change of
control or similar transaction.
5.5 This Agreement may be amended only by a written instrument executed by
the parties hereto. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect its rights at a
later time to enforce the same. No waiver by any party of any condition or term
in any one or more instances shall be construed as a further or continuing
waiver of such condition or term or any other condition or term.
5.6 Any notice, request, demand, waiver, consent, approval, or other
communication which is required or permitted hereunder shall be in writing and
shall be deemed given only if delivered personally, by facsimile (upon receipt
of appropriate written confirmation) or sent by registered or certified mail,
return receipt requested, or by overnight courier service, postage prepaid as
follows:
If to Becton, to:
Becton Dickinson Microbiology Systems
7 Loveton Circle
Sparks, MD 21152
Attention: President
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<PAGE> 113
With required copies to:
Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, NJ 07417-1880
Attention: General Counsel
If to the Partnership, to:
The Nanogen/Becton Dickinson Partnership
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: Chief Executive Officer
With required copies to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: General Counsel
and
Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, NJ 07417-1880
Attention: General Counsel
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so received (in case of personal delivery or overnight courier
delivery) or upon refusal to accept delivery of same.
5.7 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to its choice of laws
principles. This Agreement shall be construed and interpreted without
application of any principle or rule to the effect that ambiguities are to be
construed against the party responsible for drafting the agreement. The headings
contained herein are for reference purposes only and shall not in any way affect
the meaning of this Agreement.
5.8 The terms and provisions contained in this Agreement are for the sole
benefit of the parties and their successors and assigns, and they shall not be
construed as conferring and are not intended to confer any rights on any other
persons.
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<PAGE> 114
5.9 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
5.10 If any provision(s) of this Agreement are or become invalid, or are
ruled illegal by any court of competent jurisdiction, or are deemed
unenforceable under then current applicable law from time to time in effect
during the term hereof, it is the intention of the parties hereto that the
remainder of this Agreement shall not be affected thereby. It is further the
intention of the parties that in lieu of each such provision which is invalid,
illegal, or unenforceable, there be substituted or added as part of this
Agreement, a provision which shall be as similar as possible in economic and
business objectives as intended by the parties to such invalid, illegal, or
unenforceable provision, but which shall be valid, legal, and enforceable, and
shall be mutually agreed by the parties.
5.11 Nothing contained in this Agreement shall be deemed to create a
partnership between Becton and the Partnership, except as expressly provided in
the Partnership Agreement. No party shall be liable for the act of any other
party unless such act is expressly authorized in writing by all of the parties
hereto.
BECTON, DICKINSON AND COMPANY
By /s/ Vincent Forlenza
---------------------------------
Name:
-------------------------
Title:
------------------------
THE NANOGEN/BECTON DICKINSON PARTNERSHIP
By Becton Dickinson Venture LLC
By /s/ Vincent Forlenza
---------------------------------
Name:
-------------------------
Title:
------------------------
By NanoVenture LLC
By /s/ Howard Birndorf
---------------------------------
Name: Howard Birndorf
-------------------------
Title: Manager
------------------------
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LICENSE AGREEMENT
THIS LICENSE AGREEMENT is entered into as of the 1st day of October 1997
by and between BECTON DICKINSON AND COMPANY, a New Jersey corporation, through
its Becton Dickinson Microbiology Systems, Division, having a place of business
at 7 Loveton Circle, Sparks, Maryland 21152 (hereinafter "Becton") and NANOGEN,
INC., a California corporation having its principal office and place of business
at 10398 Pacific Center Court, San Diego, California 92121 (hereinafter
"Nanogen").
WHEREAS, Becton and Nanogen are parties to a certain Confidentiality
Agreement dated February 6, 1997 as amended; and
WHEREAS, Becton owns certain patent rights related to its proprietary
Strand Displacement Amplification ("SDA") technology; and
WHEREAS, Nanogen desires to make, have made, use, offer to sell, sell and
import certain products which employ Becton's SDA technology or would enable a
purchaser to employ Becton's SDA technology in certain applications; and
WHEREAS, simultaneous with the execution of certain agreements which will
establish a joint venture with respective Becton and Nanogen entities as
partners thereto, Becton and Nanogen desire to enter into a separate agreement
wherein Becton would grant to Nanogen a non-exclusive license to make, have
made, use, offer to sell, sell, import certain products which employ Becton's
SDA technology or would enable a purchaser to employ Becton's SDA technology in
certain applications outside of the field of the joint venture between the
Becton and Nanogen partners.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, the parties hereby agree as follows:
1. Definitions. As used in this agreement:
1.1 "Affiliate" shall mean any corporation or other business entity
controlled by or in common control of a party. "Control" as used herein means
the ownership directly or indirectly of fifty percent (50%) or the maximum
interest permitted by local law of the voting stock of a corporation or a fifty
percent (50%) or "rata interest in the income of such corporation or other by
entity or the ability otherwise
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of a party to secure that the affairs of such corporation or other business
entity are managed in accordance with its wishes.
1.2 "Agreements" shall mean this agreement and any exhibits, attachments
or addenda hereto, and any renewals or extensions of this agreement.
1.3 "Becton" shall include all of the divisions, subsidiaries and
Affiliates of Becton Dickinson and Company.
1.4 "Effective Date" shall mean October 1, 1997.
1.5 "Field" shall mean in vitro human genetic testing and in vitro human
cancer diagnostics employing electronically addressable oligonucleotide
microarrays.
1.6 "Know-How" shall mean Becton's SDA know-how to practice the Patent
Rights in the Field and Becton Intellectual Proper as such term is defined in
the Research Agreement as defined in Paragraph 1.11, which is directly related
to SDA and is used in the manufacture, use, offer for sale, salt or importation
of any Product as such term is defined in the Research Agreement.
1.7 "Licensed Product(s)" shall mean any assay product which contains
reagents used for the practice of a method which is the subject matter of a
claim of the Patent Rights.
1.8 "Net Sales" shall mean the amount billed or invoiced on sales of
Licensed Products by Nanogen less:
(a) Customary trade, quantity or cash discounts and non-affiliated
brokers' or agents commissions actually allowed and taken;
(b) Amounts repaid or credited by reason of rejection, rebate or return;
and/or
(c) To the extent separately stated on purchase orders, invoices or
other documents of sales, taxes or duties levies on and/or other governmental
charges made as to production, sale, transportation, delivery or use and paid by
or on behalf of Nanogen.
1.9 "Nanogen" shall include all of the divisions, subsidiaries and
Affiliates of Nanogen.
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1.10 "Patent Rights" shall mean the U.S. Patents and pending U.S. patent
applications listed in Appendix A to this Agreement as amended Tom time to time
to include (a) U.S. Patents and pending U.S. patent applications with claims to
SDA Inventions (b) Becton Patent Rights as such term is defined in the Research
Agreement, as amended from time to time, which are directly related to SDA and
are used in the manufacture, use, offer for sale, sale or importation of any
Product as such term is defined in the Research Agreement and (c) U.S. Patents
and pending U.S. patent applications with claims to SDA Improvements as such
term is defined in the Research Agreement, as amended from time to time, and any
divisionals, continuations, continuations-in-part, re-examinations, reissues,
and all foreign equivalents of any of the foregoing in whole or in part.
1.11 "Research Agreement" shall mean the Collaborative Research and
Development and License Agreement entered into by Becton, Nanogen and the
Partnership concurrently with the execution of this Agreement.
1.12 "ADA Invention(s)" shall mean any patentable and unpatentable
inventions, ideas, discoveries, improvements, design rights, semiconductor mask
works, trade secrets, know-how and any equivalents thereof which are made,
developed, conceived or reduced to practice by Nanogen, or on behalf of Nanogen
during the term of this Agreement, while conducting activities in accordance
with the license granted herein, and which constitute or employ any
improvement(s) related to SDA.
2. License Grant.
2.1 As consideration for fees and royalties to be paid by Nanogen to
Becton pursuant to this Agreement, Becton hereby grants to Nanogen a worldwide,
non-exclusive license in and to the Patent Rights and Know-How to make, have
made, use, offer to sell, sell and import Licensed Products strictly limited for
use only in the Field.
2.2 The non-exclusive license granted to Nanogen in Paragraph 2.1 ***
3. Payment and Records.
3.1 Nanogen shall pay to Becton a royalty of *** of Net Sales.
3.2 Nanogen shall submit to Becton within sixty (60) days after March
31, June 30, September 30 and December 31 of each calendar year during the term
of this Agreement, and upon the expiration or effective termination of this
Agreement, reports for the preceding three month period identifying the Net
Sales, and
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 118
the amount of royalty due to Becton together with payment of such royalty
amount. If no royalties are due to Becton for any reporting period, the written
report shall so state. All royalties due hereunder shall be payable in United
States Dollars; provided, however, that if any payment on account of Net Sales
is received by Nanogen in any currency other than United States Dollars, such
amount shall be converted to United States Dollars at the exchange rate
published in the Wall Street Journal on the date of remittance of such payment
to Becton.
3.3 Nanogen shall maintain complete and accurate books of account and
records showing all sales of Licensed Products and all NO Sales attributable to
such sales. For purposes of verifying the accuracy of the royalties paid by
Nanogen pursuant to this Agreement, such books and records shall be open to
inspection, during usual business hours, by an independent certified public
accountant acceptable to Nanogen. In the event that any such inspection shows
any underreporting and underpayment by Nanogen in excess of ten percent ( 10%)
for any fiscal year, then Nanogen shall pay the cost of such examination, the
amount of any underpaid royalty. Such books and records shall be maintained for
at least three full years after each accounting period has ended.
4. ***. If at any time after the Effective Date, Becton shall grant a
non-exclusive license to any unaffiliated third party with respect to the Patent
Rights and Know-How, Becton shall promptly provide to Nanogen a complete copy of
the third party license agreement on a confidential basis with appropriate
redaction to maintain as confidential the identity of such third party. Nanogen
shall, within ninety (90) days of the date of receipt of the copy from Becton,
***, effective thirty (30) days after Nanogen notifies Becton, in writing, that
***.
5. SDA Inventions.
5.1 As partial consideration for the license granted by Becton to
Nanogen pursuant to this Agreement, Nanogen hereby agrees that all SDA
Inventions shall be owned ***.
5.2 In order to facilitate the provisions of Paragraph 5.1, Nanogen
shall promptly notify Becton, in writing, of all SDA Inventions.
5.3 Nanogen shall, and does hereby, irrevocably grant and assign to
Becton ***, in and to any and all SDA Inventions, together with: (a) the right
to apply for patents thereon in any and all countries of the world, and (b) the
*** any and all applications for patents which may be prepared or filed thereon
at Becton's discretion and expense, and in and to any and all of the eventuating
patents.
5.4 Nanogen shall execute and driver to Becton all descriptions,
applications, assignments and other documents and instruments
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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necessary or proper to carry out the provisions of this License Agreement
without further compensation. Nanogen shall also cooperate with and assist
Becton or its nominees in all reasonable ways and at all reasonable times,
including, but not limited to, testifying in all legal proceedings, signing all
lawful papers and in general performing all lawful acts reasonable, necessary or
proper, to aid Becton in obtaining, maintaining, defending and enforcing all
lawful patent, trade secret, know-how and the like related to SDA Inventions in
the United States and elsewhere; and Nanogen shall maintain all information and
communications related thereto in confidence.
6. Licensed Product Marking. Nanogen shall mark all Licensed Products
made, used, offered for sale, sold or imported into the United States with
applicable United States Patent numbers in accordance with United States Patent
Laws. Nanogen shall also mark all Licensed Products made, used, offered for
sale, sold or imported into any other country with applicable patent numbers in
accordance with such country's patent law.
7. Maintenance and Enforcement of Patent Rights.
7.1 Nanogen shall notify Becton promptly in writing if Nanogen becomes
aware of any infringement or suspected infringement of any Patent Right by an
unlicensed party.
7.2 In the event of infringement of any Patent Right by an unlicensed
party, Beckon shall have the right, but not the obligation, to institute and
pursue legal proceedings at its own discretion and expense, and shall retain all
proceeds recovered, in settlement or through a judgment, in all such
proceedings.
8. Defense of Patent Infringement Actions.
8.1 Nanogen shall give Becton prompt written notice of each claim or
allegation thee Nanogen's use of SDA in the manufacture, use, offer for sale,
sale or importation of a Licensed Produce constitutes an infringement of ***
("Alleged Infringing Activity").
8.2 If such claim or allegation referenced in Paragraph 8.1 is (a) the
first claim or allegation against Becton, or any other party which has a license
in and to the Patent Rights and/or Know-How from Becton, that the use of SDA in
the manufacture, use, offer for sale, sale or importation of any product or
service constitutes an infringement of *** and (b) Nanogen's Alleged Infringing
Activity is the use of SDA as claimed in any issued patents of the Patent Rights
listed in the original unamended Appendix A, then Becton shall conduct the
defense of any action instituted against Nanogen based on such claim or
allegation.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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8.3 If Becton conducts such defense pursuant to Paragraph 8.2, then
Becton shall also have the right, but not the obligation in its sole discretion,
to approve, beforehand, in writing, any proposed settlement by Nanogen of any
such action.
8.4 All attorney's fees and disbursements related thereto incurred in
any suchdefense or settlement pursuant to Paragraph 8.2 or Paragraph 8.3 shall
be split evenly by Nanogen and Becton, provided, however, that any and all
damages and any other expenses of any other type or kind whatsoever which may be
assessed for infringement, and any and all enhanced damages, induding, but not
limited to multiples of assessed damages, punitive damages, costs and attorney's
fees of the party asserting the claim of infringement shall be the sole
responsibility of, and paid by, Nanogen.
8.5 During the time period that Becton conducts any such defense
pursuant to Paragraph 8.2, Nanogen shall deposit all accrued royalties payable
to Becton under this Agreement in an interest bearing escrow account. If, after
defense or settlement of any such action, Nanogen is not prohibited,
contractually or by court order, from making, using, offering for sale, soling
or importing Licensed Products, then Nanogen shall promptly pay to Becton all
such escrowed royalties and all interest accrued for such escrowed royalties.
8.6 In the event that following conclusion of the defense or settlement
of any such action, Nanogen is required to enter into a royalty-bearing license
agreement pursuant to which Nanogen receives a license in and to ***
to make, have made, use, offer to sell, sell and import Licensed Products, and
such royalty is *** or greater of Net Sales of Licensed Products, then the
prospective royalty payable by Nanogen to Becton pursuant to Paragraph 3.1 of
this Agreement shall be reduced to *** of Net Sales as of the date of last
signature to such royalty-bearing license agreement.
9. Term and Termination.
9.1 This Agreement shall remain in effect for a period ending: (a) on
the expiration date of the last to expire of the Patent Rights; (b) on the date
on which all of the Patent Rights have been finally adjudicated to be invalid
and/or unenforceable; or (c) on the date of termination of this Agreement in
accordance with Paragraph 9.2 or Paragraph 9.3, whichever occurs sooner.
9.2 Prior to expiration or termination of this Agreement by any of the
occurrences specified in Paragraph 9.1 (a) or (b), Nanogan may, at any time,
without cause, terminate this Agreement upon sixty (60) days prior written
notice to Becton.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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9.3 This Agreement may also be terminated by either party upon default
or breach of a material obligation or condition by the other, such termination
being effective sixty (60) days after receipt by the alleged tefauldog or
breaching party of written nodee of such termination under this Paragraph
specifying the default or breach; provided, however, that if the default or
breach is cured or shown to be non-existent within the sixty (60) day period
after receipt of written notice, the notice shall be deemed automatically
withdrawn and of no effect If the pardes do not agree on whether a default or
breach is of a Material obligation or condition, then the parties shall resolve
such a dispute in accordance with Paragraphs 13.1, 13.2, 13.3 and 13.4 of this
Agreement, and no termination shall occur.
9.4 In the event that either party shall make an assignment for the
benefit of creditors; voluntarily or involuntarily file a petition for
bankruptcy or reorganization. or substantially discontinue its business with
respect to this Agreement, the ether party shall have the right to terminate
this Agreement effective immediately upon written notice, but without prejudice
to any other rights of either party.
9.5 Following termination of this Agreement under Paragraph 9.2,
Paragraph 9.3 or Paragraph 9.4, Nanogen shall have the right for *** to sell all
Licensed Products on hand at the time of termination so long as the royalties
from such sales due Becton are paid to and statements rendered to Becton with
respect to such sales of Licensed Products when due in accordance with this
Agreement.
9.6 Upon termination, the parties hereto will have no further
obligations to each other except for those obligations pursuant to Paragraphs
3.3, 5.1, 5.2, 5.3, 5.4, 9.5 and 12 of this Agreement which shall survive
termination.
10. Representations and Warranties.
10.1 Becton hereby represents and warrants to Nanogen that it is the
owner of the entire right, title ant interest to the Patent Rights ant Know-How
and that it has full authority and power to enter into this Agreement and to
grant the rights and license specified herein that it has secured any and all
necessary approvals, permits or consents teemed necessary or advisable for the
consummation of the transactions contemplated hereby and that upon execution by
Becton and Nanogen this Agreement shall immediately be a valid and binding
obligation of Nanogen enforceable in accordance with its terms.
10.2 Nanogen hereby represents ant warrants to Becton that it has full
authority and power to enter into this Agreement, that it has secured any ant
all necessary approvals, permits or consents deemed necessary or advisable for
the consummation of the transactions contemplated hereby and that upon execution
by
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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Becton and Nanogen this Agreement shall immediately be a valid and binding
obligation of Nanogen enforceable in accordance with its terms.
11. Notices. Any notice, request, instruction or other document to be
given hereunder shall be deemed validly given, if in writing and delivered
personally, by overnight courier, or sent by U.S. certified mail, postage
prepaid, return receipt requested, as follows:
If to Nanogen:
Nanogen Inc.
10398 Pacific Center Court
San Diego, California 92121
Attn: Chief Executive Officer
facsimile - (619) S46-7717
with a copy to:
Nanogen Inc.
10398 Pacific Center Court
San Diego, California 92121
Attn: General Counsel
facsimile - (619) 546-7717
and if to Becton:
Becton Dickinson Microbiology Systems
7 Loveton Circle
Sparks, Maryland 21152
Attn: Vice President, Licensing & Patents
facsimile- (410) 316-4991
with a copy to:
Becton Dickinson and Company
1 Becton Drive
Franklin Lakes, New Jersey 07417
Attention: Chief Patent and Licensing Counsel
facsimile - (201) 848-9228
Alternatively, notices and other communications may be sent by facsimile
transmission with a confirmation copy sent by
-8-
<PAGE> 123
one of the forms of delivery set forth above. All notices and other
communications shall be deemed delivered on the date of actual receipt.
12. Confidentiality and Non-disclosure. That certain Confidentiality
Agreement between Becton and Nanogen dated February 6, 1997 as amended shall
remain in full force and effect, except that the terms "Becton Informationn,
~Nanogen Information" and "Information" shall include information provided
pursuant to this Agreement, including, but not limited to, all terms and
provisions of this Agreement and all Appendices hereto, and the "Stated Purpose"
shall include activities contemplated by this Agreement.
13. Dispute Resolution.
13.1 Except as otherwise set forth in this Agreement, the parties shall
attempt in good faith to resolve any dispute arising out of or related to this
Agreement, including but not limited to any claim of breach, termination or
invalidity, promptly by negotiations between the Chief Executive Officer of
Nanogen and the President of Becton Dickinson Microbiology Systems or other
executives of the parties who have authority to settle the dispute. Either party
may give the other party written notice of any dispute not resolved in the
normal course of business. Within twenty (20) days after delivery of such
notice, executives of both parties shall discuss by telephone or meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to exchange relevant information, and to attempt to resolve the
dispute. If the matter has not been resolved within forty (40) days of the
disputing party s notice, the matter shall be referred to the Board of Directors
of Nanogen and to such executive officer of Bccton knowledgeable of the subject
matter thereof as the Chief Executive Officer of Becton in his discretion shall
nominate for further consideration in an attempt to resolve the matter. If a
negotiator intends to be accompanied at a meeting by an attomey, the other
negotiator shall be given at least three (3) working days' notice of such
intention, and may also be accompanied by an afforney. All negotiations pursuant
to Paragraph 13.1 and pursuant to Paragraph 13.2 are confidential and shall be
treated as compromise and settlement negotiations for the purposes of the
Federal Rules of Evidence and any state rules of evidence.
13.2 If a matter has not been resolved under the procedures set forth in
Paragraph 13.1 above within sixty (60) days of the disputing Party's notice, or
if the parties fail to discuss or meet within twenty (20) days, then within ten
(10) days thereafter, either party may, but shall not be obligated to, initiate
nonbinding mediatdon of the controversy or claim under the Center for Public
Resources Model ADR Procedures for Mediation of Business Disputes (the HCPR
Proceduresn). Once the mediation is initiated by one party, the other party
agrees to participate in and conduct mediation in accordance with the CPR
Procedures in good faith and not pursue other legal remedies while such
mediation is proceeding. If neither party initiates mediation within the ten
(10)
-9-
<PAGE> 124
day period, or if the dispute has not been resolved by such mediation within
sixty (60) days following initiation of mediation, either party may pursue all
remedies available.
13.3 All applicable statutes of limitations and defenses based on the
passage of time shall be tolled while the negotiation and mediation procedures
set forth in Paragraphs 13.1 and 13.2 are pending. The parties will take such
action, if any, as may be reasonably required to effectuate such tolling.
13.4 Notwithstanding the foregoing, the remedy at law for any breach
of the provisions of this Agreement may be inadequate, and, accordingly, an
aggrieved party seeking equitable relief or remedies for such a breach shall
have the right and is hereby granted the privilege, in addition to all other
remedies at law or in equity, to proceed directly in a court of competent
jurisdiction to seek temporary or preliminary equitable relief.
14. Miscellaneous.
14.1 This Agreement sets forth the entire understanding of the parties
with respect to the subject matter hereof and supersedes and replaces all prior
agreements, understandings, writings and discussions between the parties
relating to said subject matter. No change or amendment hereof shall be
effective unless in writing and signed by the parties. Any and all previous
agreements and understandings between the parties regarding the subject matter
hereof, whether written or oral, arc superseded by this Agreement.
14.2 Any term or provision of this Agreement may be waived at any time by
the party entitled to the benefit thereof, but only by a written instrument
executed by such party or a duly authorized officer of any such party hereto.
14.3 This Agreement shall not be assignable by Nanogen without Becton's
prior written consent. Notwithstanding the foregoing, if notified in writing by
Nanogen of a party to which Nanogen desires to assign this Agreement in
conjunction with a sale of all or substantially all of the assets of Nanogen,
and such other party requires a license from Becton to conduct for itself
certain of those assets to be acquired from Nanogen, *** for the same Field as
this Agreement.
14.4 This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
14.5 The representations, warranties, covenants and agreements contained
in this Agreement are for the sole benefit of the parties
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 125
and their successors and permitted assigns, and they shalt not be construed as
conferring and are not intended to confer any rights on any other persons.
14.6 All section headings and the use of a particular gender are for
convenience only and shall in no way modify or restrict any of the terms or
provisions hereof.
14.7 This Agreement may be executed in two counterparts, each of which
shalt be deemed an original, and each of the parties may become a party hereto
by executing a counterpart hereof This Agreement and any counterpart so executed
shall be deemed to be one and the same instrument.
14.8 If any provision of this Agreement or application thereof to anyone
or under any circumstance is adjudicated to be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect any other
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application and shaft not invalidate
or render unenforceable such provision in any other jurisdiction.
14.9 Nothing contained in this Agreement shall be deemed to create a
partnership between Becton and Nanogen neither party shall be liable for the act
of the other party unless such act is expressly authorized in writing by all of
the other party.
14.10 This Agreement shall be interpreted in accordance with the laws of
the State of Delaware. This Agreement shall be construed and interpreted without
application of any principle or rule to the effect that ambiguities are to be
construed against the party responsible for drafting the agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement through duly
authorized representatives as of the date first above written.
NANOGEN, INC. BECTON DICKINSON AND COMPANY
By /s/ Howard C. Birndorf By /s/ Vincent A. Forlenza
------------------------------- --------------------------------
Howard C. Birndorf Vincent A. Forlenza
CEO President,
BD Microbiology Systems
Date 10-7-97 Date 10-7-97
----------------------------- ------------------------------
-11-
<PAGE> 126
APPENDIX A
U.S. PATENTS AND PATENT APPLICATIONS
1. U.S. Patent No. 5,270,184, entitled Nucleic Target Generation"
2. U.S. Patent No. 5,422,252, entitled "Simultaneous Amplification of
Multiple Targets"
3. U.S. Patent No. 5,455,166, entitled Strand Displacement Amplification"
4. U.S. Patent No. 5,536,649, entitled Decontamination of Nucleic Acid
Amplification Reactions"
5. U.S. Patent No. 5,648,211, entitled Strand Displacement Amplification
Using Thermophilic Enzymes
6. U.S. Patent Application Serial No. ***
7. U.S. Patent Application Serial No. ***
8. U.S. Patent Application Serial No. ***
9. U.S. Patent Application Serial No. ***
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 127
Becton Dickinson and Company
1 Becton Drive
Franklin Lakes, New Jersey 07417-1880
(201) 87-6800
BECTON
DICKINSON
October 1, 1997
VIA OVERNIGHT MAIL
Mr. Howard C. Birndorf
Chairman and Chief Executive Officer
Nanogen, Inc.
10398 Pacific Center Court
San Diego, California 92121
Re: ***
Dear Howard:
This letter will summarize the approach we have discussed regarding the
contemplated acquisition by our proposed general Partnership (the "Partnership")
of the assets of *** and certain intellectual property rights of ***. It is our
mutual intention that the Partnership would acquire both the *** assets (as
described in Nanogen's letter to *** dated May 13, 1997, a copy of which is
attached hereto), and the *** intellectual property rights in question (as
described in our joint letter to *** dated August 13, 1997, a copy of which is
also attached hereto). The basis upon which the Partnership would acquire the
*** assets and the *** intellectual property is generally as follows:
1. The purchase price for the *** assets, based upon the May 13 letter,
would be up to an aggregate maximum of $***; and
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 128
Mr. Howard C. Birndorf
October 1, 1997
Page 2
2. Acquisition of the *** intellectual property rights would encompass
an aggregate ***, for which the Partnership would be responsible).
3. In the event that the acquisition by the Partnership of the ***
assets and the *** intellectual property rights is ultimately agreed upon by
Becton, Nanogen and the respective parties, it is intended that Becton and
Nanogen each would contribute to the Partnership *** of the *** of the purchase
price payable at the closing for the *** assets, and the *** for the ***
intellectual property rights. Subject to approval of the proposed transactions
and agreement as to all applicable terms and conditions, Becton would lend to
Nanogen not more than ***, representing Nanogen's contribution toward the
aggregate *** outlay *** for the two transactions (the "Loan"), on the following
basic terms:
(a) The Loan would be evidenced by a Promissory Note with a term of not
greater than *** (as more fully discussed below), bearing interest at the rate
of *** per annum, in a form to be mutually agreed upon.
(b) The entire outstanding principal balance of the Loan, together with
accumulated interest thereon, would be payable on the sooner to occur of the
second anniversary of the Loan or upon the consummation by Nanogen of an iniital
public offering (the "IPO") of Nanoen's common stock (the "Common Stock"). In
the event of Nanogen's consummation of an IPO prior to the second anniversary
date, uponNanogen's consummation of the IPO: (i) the accumulated interest would
be payable in full; and (ii) Becton would convert the entire outstanding
principal balance of the Loan into such number of shars of the Common Stock as
would result from dividing the outstanding principal balance of the Loan by the
per-share price of the Common Stock in the IPO. Becton would have the right to
demand that Nanogen file a registration statement covering the Common Stock to
be effective no earlier than six (6) months following the closing of the IPO. In
the event that such demand registration were filed prior to one (1) year
following the closing of the IPO, Becton and Nanogen would split the costs of
the registration, other than underwriting discounts and commissions, which would
be paid by Becton. If such registration statement were filed thereafter, Nanogen
would bear all costs of the registration, other than underwriting discounts and
commissions, which would be paid by Becton. The registration rights would
otherwise be on customary terms and conditions.
4. If the Partnership were to so determine, the Partnership would
contract with Becton on terms to be negotiated to manufacture, market and sell
the *** products for the Partnership.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 129
Mr. Howard C. Birndorf
October 1, 1997
Page 3
5. As part of these transactions, consistent with our mutual goal of
allowig the fullest possible exploitation by the parties of the *** and ***
intellectual property, the Partnership would conconcurrently confer upon each of
Becton and Nanogen rights in such intellectual property as would not conflict
with the Partnership's activities on arm's-length terms and conditions to be
agreed upon.
This letter solely describes the intentions of the parties subject to
completion of all the matters contemplated in this letter, and does not purport
to contain all terms and conditions pertaining thereto. Accordingly, neither
party shall be legally obligatd with respect to this series of transactions
unless, and until, the Partnership is created, all requisite corporate and other
approvals have bene procured with respect to the transactions contemplated
hereby, and definitive agreements covering all of the foreoing matters have been
eecuted and delivered by all parties thereto.
This letter, including the contents hereof, is also subject to th
eprovisions of our Confidentiality Agreement dated February 5, 1997, as amended.
Please signify that this letter correctly describes our intentions by
countersigning and dating the enclosed copy and returning it to the attention of
Dean J. Paranicas in our Law Department. We look forward to proceeding with
these transactions.
Sincerely,
/s/ Vincent A. Forlenza
Vincent A. Forlenza
President - Worldwide Microbiology Systems
AGREED TO:
NANOGEN, INC.
By: /s/ Howard C. Birndorf
----------------------------------------------
Howard C. Birndorf
Chairman and Chief Executive Officer
Dated: 10-7-97
-------------------------------------------
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 130
Mr. Howard C. Birndorf
October 1, 1997
Page 4
cc: David A. Hahn, Esq.
Dean J. Paranicas, Esq.
Caroline Popper, M.D.
Thomas E. Sparks, Jr. Esq.
<PAGE> 131
[Nanogen Letterhead]
HARRY J. LEONHARDT, ESQ.
General Counsel, Vice President and Secretary
May 13, 1997
Via Fax (619) 452-6753
***, Ph.D.
President
***
***
San Diego, California 92121
RE: ***
Dear Mr. ***:
The purpose of this Letter of Intent is to set forth the basic aspects
upon which we would be interested in negotiating with you for the acquisition of
all the assets of ***. This Letter hereby supersedes all prior agreements and
understandings between the parties, and supersedes specificially, the May 6,
1997 Letter of Intent.
(1) Subject to the results of our Due Diligence (hereainfter defined)
and upon the execution of the Contemplated Agreement (hereinafter defined), the
purchase price to be paid for the assets of the COMPANY would be between *** in
a combination of (a minimum of) *** in cash and the balance in stock from either
or both Nanogen, Inc. (hereinafter "Nanogen") and a publicly traded third party
company (hereinafter "THIRD PARTY"), the precise allocation of which is subject
to agreement between the parties ("the Purchase Price") from the following three
options to be decided by Nanogen:
Option 1 - *** in cash and *** in Nanogen voting stock (total
consideration ***;
Option 2 - *** in cash, *** in Nanogen voting stock and *** in THIRD PARTY
stock (or cash) (total consideration ***); or
Option 3 - *** in cash, *** in THIRD PARTY stock (or cash, or combination
of cash and stock to be agreed) (total consideration ***).
The valuation of the NANOGEN stock and THIRD PARTY stock contemplated in
Options 1, 2 and 3 above shall be established based upon, and at the time of,
the Initial
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 132
***
May 13, 1997
Page B
Public Offering ("IPO") of NANOGEN stock. If NANOGEN selects the allocation set
forth in either Option 1 or Option 2 and NANOGEN does not conclude an IPO within
eighteen (18) months from the date of this Letter of Intent, then NANOGEN agrees
to purchase back from COMPANY the NANOGEN stock provided as part of the Purchase
Price as follows: If Option 1, NANOGEN shall purchase back the *** in NANOGEN
stock for ***. If Option 2, NANOGEN shall purchase pack the *** in NANOGEN stock
for ***. To the extent possible, the parties intend, and shall endeavor, to
structure the Contemplated Agreement as a "reorganization" pursuant to Internal
Revenue Code Section 368(a)(1)(A).
(2) Subject to obtaining final and formal approval ofo the proposed
transaction (including definitive documentation) by the Board of Directors of
NANOGEN, and, if necessary, the Board of Directors of THIRD PARTY, the
acquisition of the assets of COMPANY would be formalized by means of a
definitive written agreement to be executed and delivered by the parties hereto,
or by entities designated by them ("the Contemplated Agreement").
(3) As soon as practicable after the execution of this Letter of Intent,
NANOGEN and, to the extent required, THIRD PARTY and their respective
representatives and agents shall be permitted to make a full and complete
investigation of the assets, propoerties, business affairs and legal and
financial condition of the COMPANY ("the Due Diligence"). The parties hereby
acknowledge that the temrs and conditions of the Confidential Disclosure
Agreement between the parties, dated October 30, 1996 shall continue in full
force and effect in accordance with the terms thereof. Access to the premises
and personnel of COMPANY shall be made during business hours, with prior notice,
and under the reasonable instructions received from *** in order to ensure that
the execution of the Due Diligence activities does not alter the normal
operations of the COMPANY.
(4) Prior to the Expiration Date, as defined in paragraph 8 below, the
COMPANY will operate its business in the ordinary course and shall notify
NANOGEN in writing of any development, event or condition outside of the
ordinary course of business.
(5) Prior to the Expiration Date, as defined in paragraph 8 below,
neither the COMPANY nor any of its officers, directors, shareholders, employees
or agents shall (a) sell any of its assets, other than in the ordinary course of
busines, or sell any of the stock of COMPANY during this period, or (b)
otherwise encumber in any way the ability of COMPANY and/or NANOGEN to enter
into and /or consummate the Contemplated Agreement. In compensation for the
above, NANOGEN will make a one-time, non-refundable payment of *** to COMPANY
which will be credited toward the Purchase Price
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 133
***
May 13, 1997
Page B
if a Contemplated Agreement is concluded. This payment will be made to the
Company upon the signing of this Letter.
(6) None of the parties hereto will make any public announcement of any
transaction contemplated hereby without the written consent of the other party.
(7) Each of the parties shall bear its own expenses in connection with
this Letter of Intent and in connection with the execution of any Contemplated
Agreement.
(8) This Letter of Intent shall expire on September 15, 1997 (the
"Expiration Date"). Should the Contemplated Agreement not have been executed and
delivered before the Expiration Date, any and all agreements contained in this
Letter of Intent, with the exception of the confidentiality obligations referred
to in paragraph (3), shall be automatically terminated.
(9) This Letter of Intent does not constitute or create a binding
agreement (except for the agreements set forth in paragraphs 3, 4, 5, 6 and 7)
and does not indicate that an agreement exists with respect to the Contemplated
Agreement. This Letter of Intent only reflects our present understanding with
respect to the discussions we have had regarding certain proposed terms and
conditions of a Contemplated Agreement.
(10) The parties agree that any and all legal rights and obligations
between the parites to the Contemplated Agreement (other than the provisions
enumerated in paragraph 9 above) will arise and come into existence only when th
eContemplated Agreement is executed and deliverd by the parties thereto and only
in accordance with the terms and conditions of the Contemplated Agreement.
(11) This Letter of Intent shall be construed in accordance with the laws
of the State of California.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 134
***
May 13, 1997
Page B
If this Letter of Intent correctly sets forth your understanding of our
mutual intentions with respect to the Contemplated Agreement, please execute the
enclosed copyof this Letter and return it to my attention.
Very truly yours,
/s/ Harry J. Leonhardt
Harry J. Leonhardt, Esq.
General Counsel, Vice President and Secretary
HJL/dz
***
/s/ ***
- ----------------------------------
***, Ph.D.
President
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 135
***
August 13, 1997
Page B
[Nanogen Letterhead]
HARRY J. LEONHARDT, ESQ.
General Counsel, Vice President and Secretary
August 13, 1997
VIA FEDERAL EXPRESS
***
Managing Director
***
RE: Offer Letter
CONFIDENTIAL
Dear Peter:
As a follow-up to our June 20 meeting in London among Nanogen, Inc.
("Nanogen"), Becton Dickinson and Company ("B-D"), *** and Caroline Popper's
subsequent meeting and discussions with representatives of *** in Japan, I have
prepared this offer letter ("Offer Letter") which sets forth the basic aspects
upon which Nanogen and B-D would be interested in acquiring certain rights from
*** to certain patent families and related agreements (collectively "the
Assets") as set forth on Appendix A. The terms of th eoffer are as follows:
(1) In exchange for the unrestricted assignment of all rights to the
Assets, Nanogen and B-D shall pay, collectively, to *** the following
consideration:
***
(2) The parties agree that the above consideration, to the extent due
and payable, shall be paid directly to ** hereby represent and warrant that they
have agreed upon terms by which the financial consideration recited in Paragraph
1(a), (b) and (c) shall be divided among them. Both *** upon acceptance and
acknowledgment of the terms and conditions of this Offer Letter, hereby forever
release, indemnify and hold harmless both Nanogen and B-D for any losses or
damages (including, without limitation, attorneys fees), relating to or arising
from any disputes, claims, disagreements, lawsuits or controversies between them
regarding the manner in which the recited consideration is allocated between
***.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 136
Dr. ***
August 13, 1997
Page B
(3) Subsequent to obtaining final and formal approval of the proposed
transaction (including definitive documentation) by the Board of Directors of
Nanogen and, if necessary, the Board of Directors of B-D, the acquisition of the
Assets would be formalized by means of a definitive written agreement(s) to be
executed and delivered to the parties hereto, or by entities designated by them
("the Contemplated Agreement").
(4) At all times prior to the Closing Date, *** will continue to operate
its business relating to the Assets in the ordinary course and will not in any
way alter, change or otherwise affect the Assets or *** rights and in to the
Assets. In the event any development arises which impacts or affects the Assets
or *** rights in and to the Assets in any way prior to the closing date, as
defined below, *** shall promptly notify Nanogen and B-D in writing.
Notwithstanding the foregoing, *** will continue to pursue the foreign patent
filings and continue to diligently prosecute applications for all patent
families recited in Paragraph 1 above in the ordinary course and pay all
application and maintenance fees and prosecution expenses. Furthermore, *** will
continue to fulfill all obligations and responsibilities relating to or arising
from all *** agreements relating to the patent families recited in Paragraph 1
above.
(5) Execution of the Contemplated Agreement shall be subject to the
completion of certain closing conditions ("Conditions of Closing") as
hereinafter set forth. It is the intention of the parties that the completion of
all Conditions of Closing and the execution of the Contemplated Agreement(s)
shall occur on or before October 1, 1997 ("the Closing Date").
(6) Prior to the Closing Date, neither *** nor any of its officers,
directors, shareholders, employees or agents shall sell, mortgage or otherwise
encumber any of the Assets, or otherwise encumber in any way the ability of ***
and/or Nanogen and/or B-D to enter into or consummate any Contemplated
Agreement.
(7) As a Condition of Closing, *** shall provide Nanogen and B-D on or
before August 20 with a report detailing the countries in which each application
has bene or will be filed and the current status of prosecution of each case in
each country.
(8) *** shall be responsible for all legal, administrative and
maintenance expenses associated with the continuing prosecution, foreign filing,
and maintenance of the subject patent applications and for all services
rendered in connection with the Assets up the effective date of the
Contemplated Agreement.
(9) Upon the effective date of the Contemplated Agreement, responsibility
for prosecution of the subject patent applications shall shift to Nanogen and
B-D. Nanogen and B-D shall thereafter be responsible for payment of expenses
for all legal, administrative and maintenance services in connection with the
subject patent applications rendered after the effective date of the
Contemplated Agreement. For the avoidance of doubt, neither Nanogen nor B-D
shall be responsible for any expenses associated with ***, ***, which are
assigned to ***.
(10) *** represents and warrants that it has obtained all necessary
consents from third parties to assign all rights in and to the Assets to
Nanogen and B-D. As a Condition of Closing, *** shall deliver to Nanogen and
B-D all such consents in form and content acceptable to Nanogen and B-D. ***
shall, at no cost, assist Nanogen and B-D and cooperate in all reasonable
respects, including signing all documents necessary or desirable in order to
effect the transfer and assignment of all rights in and to the Assets to
Nanogen and B-D.
(11) As a Condition of Closing, Nanogen and B-D shall have reached
agreement with *** on mutually acceptable licensing terms respecting the ***
and related rights licensed by *** to ***. *** shall deliver to Nanogen and B-D
a written statement which outlines the extent to which the exclusive option to
secure certain license rights (with the right to grant third party sublicenses)
granted to *** as reflect in the July 31, 1996 letter from *** to *** remains
operative. *** position during our discussions has been that *** no longer has
any option rights as recited in paragraph 1 of that letter. As a Condition of
Closing, both *** and ***, shall represent and warrant that there are no
outstanding disputes or controversies between them relating to any ***
Agreement or letter of intent including, without limitation, the March 21, 1996
Letter of Intent and the July 31, 1996 letter from ***. The Contemplated
Agreement shall contain an indemnification clause whereby *** on behalf of
itself and its affiliates, indemnifies and holds harmless both Nanogen and B-D
against any losses or damages (including, without limitation, attorneys fees)
relating to or arising from any disputes, claims, disagreements, lawsuits or
controversies between *** and either Nanogen or B-D regarding
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 137
***
August 13, 1997
Page Four
any agreement, letter of intent or understanding between SGL and Sosei. As a
further Condition of Closing, Sosei must agree to sign a covenant not to sue
for the benefit of Nanogen and B-D.
(12) As a Condition of Closing, the parties to the October 10, 1996 Deed
Agreement ("the Deed Agreement") among *** have agreed to cause and shall cause
said Deed Agreement to terminate in all respects. Nanogen and B-D shall arrange
to commence discussions with *** regarding a possible consulting arrangement. As
a further Condition of Closing, Nanogen and *** shall have reached agreement on
mutually acceptable terms to a consulting agreement whereby *** and/or others
from *** shall provide consulting services to Nanogen.
(13) The terms of this Offer Letter and the fact that an offer has been
made shall be maintained in confidence. None of the parties hereto will make any
public announcement of any transaction contemplated hereby without the written
consent of the other party. The parties may wish to make an announcement upon
the execution of a Contemplated Agreement in form and content to be agreed.
(14) The Contemplated Agreement shall contain an indemnification clause
whereby *** and ***, on behalf of themselves and their affiliates, indemnify and
hold harmless both Nanogen and B-D against any losses or damages (including,
without limitation, attorneys fees) relating to or arising from any disputes,
claims, disagreements, lawsuits or controversies between Nanogen or B-D and any
third party regarding the Assets. ***, on behalf of themselves and their
affiliates, will also sign a covenant not to sue for the benefit of Nanogen and
B-D.
(15) Each of the parties shall bear its own expenses in connection with
this Offer Letter and in connection with the preparation and execution of any
Contemplated Agreement.
(16) Unless otherwise agreed between the parties in writing, should the
Contemplated Agreement not have been executed and delivered before the Closing
Date, any and all agreements contained in this Offer Letter, with the exception
of those obligations referred to in Paragraphs 13, 15, 17 and 18 shall be
automatically terminated.
(17) This Offer Letter does not constitute or create a binding agreement
(except to the extent set forth in Paragraph 16 above) and does not indicate
that an agreement exists with respect to the Contemplated Agreement. This Offer
Letter only reflects our present understanding with respect to the discussions
we have had regarding certain proposed terms and conditions of a Contemplated
Agreement.
(18) The parties agree that any and all legal rights and obligations
between the parties to the Contemplated Agreement will arise and come into
existence only when the Contemplated Agreement is executed and delivered by the
parties thereto and only in accordance with the terms and conditions of the
Contemplated Agreement.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 138
Dr. ***
August 13, 1997
Page Five
(19) This Offer Letter and any Contemplated Agreement shall be construed
in accordance with the laws of the State of California.
(20) All parties hereto possess the requisite corporate authority to sign
this Offer Letter and to enter into any Contemplated Agreement contemplated
hereby.
Please signify your acceptance of the above terms and conditions by
executing the enclosed copy of this Offer Letter. Please have the Offer Letter
acknowledged by P&B Consulting and return it to my attention. We can then
commence preparation of the Contemplated Agreement.
Very truly yours,
/s/ HARRY J. LEONHARDT
-----------------------------------
Harry J. Leonhardt, Esq.
Vice President, General Counsel and
Secretary, Nanogen, Inc.
/s/ VINCENT A. FORLENZA
------------------------------------
Vincent A. Forlenza
President, Becton Dickinson
Microbiology Systems
HJL//dz
Enclosures
cc: Howard C. Birndorf
Vincent A. Forlenza
Caroline Popper, M.D., MPH
Dean Paranicas, Esq.
David Highet, Esq.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 139
Dr. ***
August 13, 1997
Page Six
AGREED AND ACCEPTED BY:
***
- ---------------------------
By:
------------------------
Dr. ***
Managing Director
P&B LIMITED
- -----------
By:
------------------------
Dr. Ronald Pethig
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 140
***
Patent Applications as at 03 April 1997
1. ***
Patent Number Description
- --------------------------------------------------------------------------------
***
*** FIVE PAGES OF CONFIDENTIAL PATENT APPLICATION MATERIAL REDACTED AND FILED
SEPARATELY WITH THE COMMISSION.
<PAGE> 141
EXHIBIT F
OFFICER'S CERTIFICATE
The undersigned, [Name], [Title] of [Name of Party], a Delaware
____________ (the "Company"), in his official capacity on behalf of the Company
does hereby certify that:
1. Attached hereto as Exhibit A is a complete, true and correct
copy of the Certificate of [Incorporation][Formation] of the Company as in full
force and effect on the date hereof.
2. Attached hereby as Exhibit B is a complete, true and correct
copy of the [By-laws][Operating Agreement] of the Company, as in full force
and effect on the date hereof.
3. Attached hereto as Exhibit C are complete, true and correct
copies of resolutions duly adopted by the Company's [Board of Directors][sole
member] on ________________________________; said resolutions have not been
modified or rescinded since their adoption and are in full force and effect on
the date hereof; said resolutions are the only resolutions adopted by the
[Board of Directors or any committees][sole member] thereof relating to the
execution and delivery by the Company of the [Master Agreement][General
Partnership Agreement] between the Company and [Name of other party or parties]
and the transactions contemplated thereby. No action has been taken nor is any
such action necessary by the Company's stockholders in connection therewith.
4. Each of the following persons has been duly and validly elected
to, and on the date hereof holds, the office indicated opposite his name, and
the signature opposite the name and title of each person is his true and
genuine signature.
Name Office Signature
- ---- ------ ---------
--------------------------------
--------------------------------
--------------------------------
IN WITNESS WHEREOF, I have affixed my signature this _____ day of
September, 1997.
<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS
AGREEMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED
WITH THE COMMISSION]
EXHIBIT 10.12
EXCLUSIVE OPTION AGREEMENT
BETWEEN BILLUPS-ROTHENBERG, INC.
AND
NANOGEN, INC. ON
HEMOCHROMATOSIS
This Exclusive Option Agreement (hereinafter referred to as the
"Agreement") is made and effective this 12th of September 1997 (hereinafter
referred to as the "Effective Date") by and between Billups-Rothenberg, Inc.,
having its place of business at 11555 Sorrento Valley Road, Suite E, San Diego,
California 92121 (hereinafter referred to as "Licensor") and Nanogen, Inc.,
having its place of business at 10398 Pacific Center Count, San Diego,
California 92121 (hereinafter referred to as "Licensee").
RECITALS
WHEREAS, certain inventions, generally characterized as methods to
identify hemochromatosis, hereinafter collectively referred to as the
"Invention," were made in the course of research conducted by Barry E.
Rothenberg, Ph.D., which Invention was assigned to Licensor in its entirety;
WHEREAS, Licensor has provided certain Confidential Information relating
to the Invention to Licensee pursuant to a Mutual Confidential Disclosure
Agreement between the parties dated May 14,1997.
WHEREAS, Licensor is desirous of granting an exclusive option to the
Invention to Licensee; and
WHEREAS, Licensee is desirous of obtaining an exclusive option to the
Invention from Licensor;
1. DEFINITIONS
1.1 "BRI Patent Rights" means existing and any future subject matter on
the Invention claimed in or covered by U.S. Patent Application Serial No. ***
entitled *** by Barry E. Rothenberg, Ph.D. and assigned to Licensor; any
continuing applications thereof including divisionals, continuations,
continuations-in-part; any patents issuing on said applications or continuing
applications, including reissues; and all corresponding foreign applications.
1.2 "BRI Know-How" means BRI's DNA-based hemochromatosis detection
know-how to practice the BRI Patent Rights in the Field of Use.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 2
1.3 "Field of Use" means DNA-based in vitro detection, diagnosis,
screening and monitoring of hereditary hemochromatosis.
1.4 "Exclusive License Agreement" means the exclusive license agreement
between Licensor and Licensee that shall be executed if Licensee exercises the
option pursuant to Paragraph 4.1.
1.5 "Option Fee" means the option consideration recited in Paragraph
3.1.
1.6 "Option Period" means the option time period recited in Paragraph
2.2.
2. OPTION FOR EXCLUSIVE LICENSE
2.1 Licensor hereby grants to Licensee an exclusive option to acquire an
exclusive worldwide license (including the right to sublicense) in the Field of
Use under BRI Patent Rights and BRI Know-How. As part of the exclusive option,
the parties also contemplate entering into a Sponsored Research Agreement as
described in Paragraph 5.1.
2.2 Said option shall be for a period of three (3) months commencing on
the Effective Date of this Agreement.
3. OPTION CONSIDERATION
3.1 In exchange for the grant of the its exclusive option, Licensee
shall pay to BRI a non-refundable Option Fee of $*** within five (5) days of the
Effective Date of this Agreement.
3.2 Should Licensee exercise the exclusive option pursuant to this
Agreement, the Option Fee shall be fully creditable against future royalties
payable under the Exclusive License Agreement.
4. EXERCISE OF THE OPTION
4.1 If Licensee elects to exercise its exclusive option rights to secure
an exclusive license under Paragraph 2.1 hereof, Licensee shall notify Licensor
in writing to Article I (Notices) prior to the expiration of this Agreement.
Failure of Licensee to so notify Licensor shall be deemed to be an election by
Licensee not to secure a license.
5. TERMS OF PROPOSED LICENSE
5.1 If Licensee exercises its exclusive option under Paragraph 4.1,
Licensee and Licensor shall enter into an Exclusive License Agreement and
Sponsored Research
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<PAGE> 3
Agreement in accordance with the attached Exhibit A term sheet.
5.2 In the event Licensee enters into a hemochromatosis-related
licensing, option or similar transaction with *** (or its parent or affiliate)
within *** after the conclusion of the Option Period, and assuming there is no
material adverse development relating to the validity of the BRI Patent Rights
or BRI Know-How, Licensee and Licensor shall enter into an Exclusive License
Agreement and a Sponsored Research Agreement in accordance with the attached
Exhibit A term sheet. For purposes of this paragraph, the determination of
whether there has been such a material adverse development shall be made by an
independent third party mutually agreeable to the parties hereto. This paragraph
shall survive termination of this Agreement by Licensee, provided however that
neither party shall be required to enter into an Exclusive License Agreement and
Sponsored Research Agreement if, during the *** period specified above, Licensor
has licensed, optioned or otherwise sold the BRI Patent Rights or BRI Know-How
to a third party.
6. PATENT PROSECUTION AND MAINTENANCE
6.1 During the term of this Agreement, Licensor shall diligently
prosecute and maintain, and shall keep Licensee apprised of all developments in
connection with the prosecution and maintenance of, the patent applications
comprising the BRI Patent Rights relating to the Field of Use. Licensor shall
promptly provide Licensee with copies of all relevant documentation relating to
the above during the term of this Agreement. Licensee agrees to maintain in
confidence all such documentation.
6.2 During the term of this Agreement, all costs incurred by Licensor in
connection with the further foreign filing, prosecution and maintenance of BRI
Patent Rights shall be borne by Licensor.
7. STANDSTILL
7.1 In partial consideration for the payment of the Option Fee
hereunder, Licensor hereby agrees to extend the "Standstill Period" of the
parties' June 18, 1997 Standstill Agreement (as amended July 3, 1997) to be
coextensive with the Option Period.
8. TERMINATION BY LICENSOR
8.1 If Licensee should violate or fail to perform any term or covenant
of this Agreement, Licensor may give written notice of such default (Notice of
Default) to Licensee. If Licensee fails to remedy such default within fifteen
(15) days of the effective date of such notice, Licensor shall have the right to
terminate this Agreement by a second written notice (Notice of Termination) to
Licensee. If a Notice of Termination is sent to Licensee, this Agreement shall
automatically terminate on the effective date of such notice. The above
referenced notices shall be subject to the provisions of Paragraph 11.1.
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<PAGE> 4
9. TERMINATION BY LICENSEE
9.1 Licensee shall have the right at any time to terminate this
Agreement by giving notice in writing to Licensor. Such Notice of Termination
shall be subject to the provisions of Paragraphs 5.2 and 11.1 and such
termination shall be effective on the effective date of such notice.
10. AUTHORITY TO GRANT OPTION
10.1 Licensor represents and warrants that it has the full and lawful
right and authority to grant this option.
11. NOTICES
11.1 Any notices or payment required to be given to either party shall
be deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person, or (b) five (5) days after mailing if mailed by
first-class certified mail, postage prepaid, to the respective addresses provide
below:
If to Licensor: BILLUPS-ROTHENBERG, INC.
1555 Sorrento Valley Road, Suite E
San Diego, CA 92121
ATTENTION: Barry E. Rothenberg, Ph.D.
If to Licensee: NANOGEN, INC.
10398 Pacific Center Court
San Diego, CA 92121
ATTENTION: Harry J. Leonhardt, Esq.
12. ASSIGNABILITY
12.1 This Agreement is binding upon and shall inure to the benefit of
Licensor and Licensee and their respective successors and assigns.
13. WAIVER
13.1 It is hereby agreed that no waiver by either party hereto of any
breach or default of any of the covenants or agreements herein shall be deemed a
waiver as to any subsequent and/or similar breach or default.
14. GOVERNING LAW
14.1 This Agreement shall be interpreted and construed in accordance
with the laws of the State of California.
<PAGE> 5
15. MISCELLANEOUS
15.1 The headings of the several sections are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
15.2 This Agreement will not be binding upon the parties until it has
been signed below on behalf of each party, in which event, it shall be effective
as of the date recited on page one.
15.3 No amendment or modification hereof shall be valid or binding upon
the parties unless made in writing and signed on behalf of each party.
15.4 This Agreement and the Mutual Confidential Disclosure Agreement
between the parties dated May 14, 1997 embody the entire understanding of the
parties and shall supersede all previous communications, representations and
understandings, both oral and written, between the parties relating to the
subject matter hereof.
15.5 In case any of the provisions contained in this Agreement shall be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, but
this Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
IN WITNESS WHEREOF, both Licensor and Licensee have executed this
Agreement, in duplicate originals, by their respective authorized
representatives, as hereinafter set forth.
BILLUPS-ROTHENBERG, INC. NANOGEN, INC.
By: /s/ Barry E. Rothenberg, Ph.D. By: /s/ Harry J. Leonhardt, Esq.
Name: Barry E. Rothenberg, Ph.D. Name: Harry J. Leonhardt, Esq.
Title:President Title:Vice President, General Counsel and
Date: September 15, 1997 Secretary
Date: September 12, 1997
<PAGE> 6
EXHIBIT A
TERM SHEET
I. EXCLUSIVE LICENSE AGREEMENT
LICENSE GRANT
- - BRI to grant Nanogen an exclusive worldwide license (including the
exclusive right to grant sublicenses) in the Field of Use under "BRI
Patent Rights" and "BRI Know- How" (as those terms are defined in the
Exclusive Option Agreement). New inventions not claimed in or covered
under U.S. Patent Application Serial No. ***, its continuing and
divisional applications and its foreign equivalents are not included in
the license grant except to the extent agreed between the parties in a
separate Sponsored Research Agreement.
FOLD OF USE
- - DNA-based in vitro detection, diagnosis, screening and monitoring of
hereditary hemochromatosis in humans.
LICENSE FEE
- - Upon execution of the Exclusive License Agreement, Nanogen will pay BRI a
nonrefundable license fee of $*** (less credits of $*** paid to BRI
pursuant to the Standstill Agreement) and issue *** shares of Nanogen's
common stock.
- - BRI shall have the right to purchase, for cash, shares of Nanogen common
stock in Nanogen's Initial Public Offering ("IPO") up to the full amount
of $490,000 at the IPO per share price.
ROYALTY OBLIGATIONS
- - Nanogen to pay BRI royalties equal to ***% of end user net sales of
licensed products made and/or sold by Nanogen and its affiliates.
- - Royalty rate decreases to ***% in the event Nanogen licenses one or more
third party patents to practice the licensed technology.
- - In non-patent countries, royalty rate will be ***% of the applicable
rate above.
- - Nanogen shall not be required to pay royalties (excluding possible
sublicensing royalties from third parties) until (i) *** or (ii) ***,
whichever is earlier.
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<PAGE> 7
- - Subject to standard termination and walkaway provisions [to be agreed],
Nanogen shall commence payment of minimum annual royalty payments based
on end user net sales of licensed product commencing with the occurrence
of the earlier of (i) or (ii) above according to the following schedule:
<TABLE>
<S> <C>
Year One $ ***
Year Two $ ***
Year Three $ ***
Year Four $ ***
and thereafter for the life of the licensed patents.
</TABLE>
- - Annual minimum royalties are fully creditable against all royalties due
and payable for that year.
REVENUE DILUTION
- - In the case of multiple analyte chips and multiple sample chips, Nanogen
to pay BRI a minimum of $*** royalty per chip based on annual sales of
$*** or less and a minimum of $*** per chip based on annual sales in
excess of $***.
SUBLICENSES
- - BRI grants Nanogen the full right to grant worldwide sublicenses within
the prescribed Field of Use. For the avoidance of doubt, this grant does
not extend to sublicenses for genomics applications.
- - Nanogen to pay BRI ***% of all consideration, including royalties,
received by Nanogen or its affiliates from sublicensees for non-reference
lab applications and ***% of all-consideration, including royalties,
received by Nanogen or its affiliates from sublicensees for reference lab
applications.
- - Non-monetary consideration to Nanogen to be appraised in determining
consideration due BRI.
MILESTONE PAYMENTS
- - Nanogen shall pay milestone payments to BRI upon receipt of applicable
regulatory approvals to Nanogen or Nanogen's partner according to the
following schedule:
<TABLE>
<S> <C>
U.S. approval $***
First approval in Europe $***
First approval in ROW $***
</TABLE>
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 8
PATENT PROSECUTION
- - Nanogen to reimburse BRI for patent prosecution fees incurred for
services rendered ***.
- - Upon the effective date of the Exclusive License Agreement, Nanogen to
assume responsibility for prosecution and maintenance of licensed patents
at its own expense.
PATENT ENFORCEMENT
- - Standard infringement notification clauses
- - Nanogen to promptly review infringing activities upon issuance of patent
and send out cease and desist letters where appropriate.
- - In consideration of Nanogen's undertaking patent enforcement, Nanogen
receives full proceeds of litigation until all litigation expenses have
been fully reimbursed. Any remaining proceeds shall be split in
accordance with the allocation set forth in the SUBLICENSES section
above.
- BRI to cooperate fully with patent enforcement activities.
- BRI to be compensated at standard consulting rates for assistance
in patent enforcement.
- - If Nanogen elects not to pursue a substantial continuing infringement
within *** months of receipt of notice, BRI shall have the right to
pursue infringement at its own cost/own recovery.
- Nanogen to cooperate fully with patent enforcement activities.
- Nanogen to be compensated at standard consulting rates for
assistance in patent enforcement.
PERFORMANCE CLAUSE
- - Nanogen will use commercially reasonable efforts to develop and
commercialize in vitro diagnostic products in the licensed Field of Use.
- - If Nanogen or a sublicensee fails to market a royalty-bearing in vitro
diagnostic product in the U.S. on or before *** from the effective date
of the Exclusive License Agreement, at the option of BRI, the license
grant may become non-exclusive and the parties hereto shall engage in
good faith negotiations toward concluding a mutually acceptable
non-exclusive license on mutually agreeable terms.
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<PAGE> 9
WALKAWAY PROVISIONS
- - [Needs further discussion]
COVENANT NOT TO SUE
- - BRI to provide Nanogen with a covenant not to sue for patent infringement
on any other intellectual property rights owned or controlled by BRI or
its affiliates in the Field of Use as of the effective date of the
Exclusive License Agreement.
II. SPONSORED RESEARCH AGREEMENT
- - Nanogen to fund a *** R&D program at BRI based on a research plan and
budget to be mutually agreed. The objectives of the program are to
identify additional gene(s) relating to hereditary hemochromatosis and to
develop improvements to existing technology. [BRI to provide draft]
- - Annual funding requirements shall be $*** payable in monthly
installments.
- - A separate Sponsored Research Agreement shall be prepared outlining a ***
research program. The Sponsored Research Agreement will be renewable at
Nanogen's option for *** periods.
- - All intellectual property, improvements end 'know-hong developed from the
foregoing Sponsored Research Agreement during the respective R&D funding
period(s) shall be included as a part of the licensed technology in the
licensed Field of Use in the Exclusive License Agreement between the
parties.
III. OTHER TERMS AND CONDITIONS
- - The Exclusive License Agreement and Sponsored Research Agreement will
incorporate such additional terms and conditions as are customary in such
agreements generally, consistent with the terms and conditions set forth
above.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 1
EXHIBIT 10.13
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.]
SPONSORED RESEARCH AGREEMENT
by and between
NANOGEN, INC.
and
PROLINX, INC.
This Sponsored Research Agreement (the "Agreement") is entered into as
of the 18th day of December, 1996 (the "Effective Date"), by and between
NANOGEN, INC., a California corporation having offices at 10398 Pacific Center
Court, San Diego, California 92121 ("Nanogen") and PROLINX, INC., a Delaware
corporation having offices at 22322 20th Avenue, S.E., Suite 100, Bothell,
Washington 98021 ("Prolinx").
WHEREAS, Nanogen has developed proprietary expertise related to, among
other things, microelectronic DNA and macromolecular transport and detection,
screening and imaging of molecules, electronic hybridization, sample
preparation, genetic probe technology, electronic stringency control,
electronic complexity reduction and microfluidics; and
WHEREAS, Prolinx has developed proprietary expertise related to, among
other things, chemical affinity systems, probe immobilization, luminescent
detection reagents and amplification polymers to provide enhanced detection
sensitivity in probe assays; and
WHEREAS, Nanogen and Prolinx desire to collaborate on a sponsored
research program to be conducted by Prolinx and funded in part by Nanogen as
provided in Article 2 hereof (the "Sponsored Research Program"), the components
of which are to (1) identify and develop a chromophore/fluorophore/luminescent
detection reagent (the "Detection Reagent Research Program"), (2) refine and
develop an amplification polymer (the "Amplimer Research Program"), and (3)
apply Prolinx's proprietary chemical affinity systems to the immobilization of
oligonucleotide probes (the "Immobilization and Capture Program"), with the
overall goal of the Sponsored Research Program being the development of an
enhanced sensitivity detection system for use with Nanogen's proprietary
electronically addressable microchip assays.
NOW, THEREFORE, the parties agree as follows:
-1-
<PAGE> 2
ARTICLE 1
DEFINITIONS
1.1 "Information" means any and all current and future proprietary or
confidential information relating to, without limitation, either party's
designs, specifications, techniques, inventions, practices, knowledge, trade
secrets, know how, intellectual property, skill, experience, test data, quality
control, manufacturing data or drawings.
1.2 "Nanogen Background Inventions" means the proprietary inventions,
technology and expertise conceived and/or actually or constructively reduced to
practice by Nanogen prior to the Effective Date hereof, including, without
limitation, those covered by United States Patent Number 5,219,726 and its
foreign counterparts, and those described and claimed in United States Patent
Application Numbers *** and their respective foreign counterparts, and all
Nanogen invention disclosures.
1.3 "Nanogen Platform" means Nanogen's proprietary, electronically
addressable microchip arrays.
1.4 "Prolinx Background Inventions" means the proprietary inventions,
technology and expertise conceived and/or actually or constructively reduced to
practice by Prolinx prior to the Effective Date hereof, including, without
limitation, those described and claimed in United States Patent Application
Numbers ***, 08/188,531, 08/842,833, ***, 08/486,714, 08/472,851, 08/480,970,
08/188,958, 08/482,886, 08/189,176, ***, and their respective foreign
counterparts, and all Prolinx invention disclosures.
ARTICLE 2
FUNDING; ANNUAL RESEARCH FEE
2.1 Funding. The parties agree that the cost of the Sponsored
Research Program shall be funded as follows: the cost of the Detection Reagent
Research Program shall be funded solely by Nanogen, the cost of the Amplimer
Research Program shall be funded jointly by Nanogen and Prolinx, and the cost
of the Immobilization and Capture Program shall be funded solely by Prolinx.
2.2 Annual Research Fee. In satisfaction of its funding obligations
under the Detection Reagent Research Program and the Amplimer Research Program,
Nanogen shall pay Prolinx an annual research fee of Five Hundred Thousand
Dollars ($500,000) per year during the term of this Agreement (the "Annual
Research Fee"), unless sooner terminated as
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-2-
<PAGE> 3
set forth in Article 10. The Annual Research Fee shall be payable in equal
monthly Installments of $***. Such payments shall commence within
forty-five (45) days after the Effective Date, and thereafter shall be made on
the first day of each calendar month during the term of this Agreement. Such
monthly payments shall be made to Prolinx in immediately available U.S. funds
payable by cashier's or certified check or wire transfer.
ARTICLE 3
DETECTION REAGENT RESEARCH PROGRAM
3.1 Program Overview. The Detection Reagent Research Program to be
conducted by Prolinx shall focus on the identification and development of a
proprietary chromophore/fluorophore/luminescent detection reagent for Optimized
Use on the Nanogen Platform. For purposes of this Agreement, "Optimized Use"
means a ***-fold to ***-fold increase in detection sensitivity as compared to a
probe labeled with a single fluorophore.
3.2 Funding. As provided in Section 2.1 above, funding for the
Detection Reagent Research Program shall be provided solely by Nanogen from the
Annual Research Fee.
3.3 License. Nanogen shall be granted an exclusive license to the
detection reagent developed for Nanogen by Prolinx pursuant to the Detection
Reagent Research Program, with no field of use limitations, subject to the
terms of a License Agreement to be negotiated between the parties but
including, at a minimum, the terms provided in Sections 2, 3 and 4 of the
Letter of Intent between the parties dated July 24, 1996 (the "License
Agreement").
ARTICLE 4
AMPLIMER RESEARCH PROGRAM
4.1 Program View. The Amplimer Research Program to be conducted by
Prolinx shall focus on the refinement and development of an amplification
polymer designed to amplify and enhance detection sensitivity on the Nanogen
Platform to Optimized Use (as defined in Section 3.1).
4.2 Funding. As provided in Section 2.1 above, funding for the
Amplimer Research Program shall be provided jointly by Nanogen and Prolinx in
equal amounts. Nanogen's portion of such funding shall be provided from the
Annual Research Fee.
4.3 License. Nanogen shall be granted an exclusive license within
the Nanogen Field of Use (as defined in the License Agreement) to the
amplification polymer developed for
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-3-
<PAGE> 4
Nanogen by Prolinx pursuant to the Amplimer Research Program, subject to the
terms of the License Agreement.
ARTICLE 5
IMMOBILIZATION AND CAPTURE PROGRAM
5.1 Program Overview. The Immobilization and Capture Program to be
conducted by Prolinx shall involve the application by Prolinx of its already
existing immobilization and capture chemical affinity systems, which systems
are Prolinx Background Inventions, to the immobilization of oligonucleotide
probes, and the development by Prolinx of such additional immobilization and
capture chemical affinity systems as are necessary to achieve the goals and
purposes provided in the Research Plan.
5.2 Funding. As provided in Section 2.1 above, funding for the
Immobilization and Capture Program shall be provided solely by Prolinx.
5.3 License. Nanogen shall be granted a non-exclusive license within
the Nanogen Field of Use (as defined in the License Agreement) to the
immobilization and capture chemical affinity systems developed for Nanogen by
Prolinx pursuant to the Immobilization and Capture Program, subject to the
terms of the license Agreement.
ARTICLE 6
RESEARCH OVERSIGHT COMMITTEE
6.1 Research Oversight Committee. To further the objectives of the
parties and to coordinate the research activities conducted pursuant to the
Sponsored Research Program, the parties shall establish a Research Oversight
Committee ("ROC"). The ROC shall be created within thirty (30) days after the
Effective Date and shall be comprised of six (6) members, each with equal
voting power, three of whom shall be appointed, and may be replaced at any
time(s), by Nanogen in its sole discretion, and three of whom shall be
appointed, and may be replaced at any time(s), by Prolinx in its sole
discretion. The purposes of the ROC shall be to supervise and coordinate the
Sponsored Research Program and to provide a mechanism for exchanging
information, modifying the Research Plan (as described in Section 6.5 hereof),
monitoring progress on achieving Technical Milestones set forth in the Research
Plan and reviewing the overall progress of the Sponsored Research Program.
Each party shall be free to replace its representatives on the ROC from time to
time upon written notice to the other party. The ROC shall continue to operate
throughout the term of this Agreement.
6.2 Meeting. The ROC shall meet either in person or telephonically,
as the parties may agree, at least quarterly and, if in person, the meeting
site shall alternate between the offices of Nanogen and Prolinx. Each party
shall be responsible for the expenses incurred by its respective members of the
ROC in attending such meetings. A quorum of all six (6)
-4-
<PAGE> 5
members of the ROC shall be required to meet and conduct business, and all
decisions of the ROC shall require a majority vote.
6.3 Research Project Coordinator. Nanogen, as the sponsoring party,
shall name a Research Project Coordinator from its members on the ROC. The
Research Project Coordinator shall be responsible for convening and conducting
meeting of the ROC, overseeing the occasional and annual modification of the
Research Plan pursuant to agreement of the ROC, sending notices of meetings to
all members of the ROC, and preparing agendas for each ROC meeting. The
secretary of each meeting shall be designated by the party hosting such meeting
and shall be responsible for recording, preparing and disseminating minutes of
such meeting to all members of the ROC. The ROC also may be polled or
consulted by the Research Project Coordinator from time to time by means of
telecommunications or correspondence, but no action of the ROC shall be
effective unless it is by a majority vote.
6.4 Agendas. Each ROC member shall communicate to the Research
Project Coordinator proposed agenda items in advance of each meeting of the
ROC, and each such item shall be placed on the agenda.
6.5 Research Plan. Research under the Sponsored Research Program
shall be conducted pursuant to a research plan (the "Research Plan"), which
shall be modified annually under the oversight of the Research Project
Coordinator pursuant to the agreement of the ROC, or by either party at any
time with the consent of the ROC. A copy of the initial Research Plan is
attached hereto as Exhibit A. The Research Plan, among other things, shall
specify the direction, research and Technical Milestones, responsibilities of
the parties, reporting requirements, timetable and experimental parameters of
the research activities conducted pursuant to the Sponsored Research Program.
6.6 Research Commitment. In consideration for the funding provided
by Nanogen, Prolinx shall commit to the Sponsored Research Program a dedicated
team consisting of such number of appropriately qualified scientists and
support personnel per year for the duration of the Sponsored Research Program
as is called for under the Research Plan, as modified annually or from time to
time pursuant to Section 6.5 above. Upon the prior approval of Nanogen, which
approval shall not be unreasonably withheld, Prolinx may change the composition
of the dedicated team from time to time in its reasonable discretion to achieve
the needs of the Sponsored Research Program. Prolinx shall use its best
efforts to execute the Research Plan and to achieve the overall goals of the
Sponsored Research Program. In using its best efforts, it is understood that
Prolinx is not obligated to spend more than the Annual Research Fee as
specified in Section 2.2 hereof, plus those expenditures specified in Sections
4.2 and 5.2 hereof. It is further understood that Prolinx does not guarantee
the results of this scientific endeavor.
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ARTICLE 7
PATENTS AND TECHNOLOGY
7.1 Ownership of Intellectual Property. Each party hereto expressly
acknowledges and agrees that the other party currently is engaged, and shall
continue to be so engaged during the term of this Agreement, in research and
development activities on numerous other projects and matters besides the
Sponsored Research Program (the "Other Work"). Each party further expressly
acknowledges and agrees that all right, title and interest in and to the
Nanogen Background Inventions and the Prolinx Background Inventions, and any
and all intellectual property developed by Nanogen or Prolinx in connection
with its Other Work (the "Other Intellectual Property"), is and shall continue
to be the sole and exclusive property of Nanogen or Prolinx, respectively, and
that neither party shall have any rights whatsoever to the Background
Inventions or Other Intellectual Property of the other party. The following
provisions shall apply only to inventions that are conceived and actually or
constructively reduced to practice during the course of, and arising directly
from, the Sponsored Research Program (collectively "Inventions") pursuant to
this Agreement:
7.1.1 Upon conceiving or reducing to practice any Invention,
the party doing such immediately shall provide the other party with
written notice setting out in detail the nature of the Invention, the
experiments which support the Invention, the person or persons
responsible for conceiving and reducing to practice the Invention and
any other information relevant to the Invention. The discovering
party also shall supply the other party with copies of all invention
disclosures and patent and over applications describing and claiming
the Invention.
7.1.2 The ownership of all Inventions shall be determined as
follows: (i) all right, title and interest in and to all Inventions
conceived and reduced to practice solely by Nanogen, including its
independent contractors, shall be owned by Nanogen; (ii) all right,
title and interest in and to all Inventions conceived and reduced to
practice solely by Prolinx, including its independent contractors,
shall be owned by Prolinx; and (iii) all right, title and interest in
and to all Inventions conceived and reduced to practice jointly by
Nanogen and Prolinx shall be owned jointly by Nanogen and Prolinx.
7.1.3 With respect to any Invention owned by one party under
Section 7.1.2(i) or (ii), the other party shall assist the owner, to
the extent reasonably necessary, at the owner's written request and
expense, in the preparation of patent applications covering such
Inventions which the owner elects in its sole discretion to file.
7.1.4 With respect to any Inventions owned jointly under
Section 7.1.2(iii), Nanogen and Prolinx shall cooperate reasonably in
determining whether to file patent applications covering such
Inventions, but in no event shall either party thereby be compelled to
remit any payments in respect to
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such patent applications. Should one party elect to seek patent
protection covering an Invention and the other party elects not to
participate in the costs with respect to such application, then the
non-paying party shall relinquish all rights in the Invention to the
paying party. With respect to jointly owned Inventions for which
patent application and prosecution expenses are shared jointly, the
parties shall engage in good faith discussions regarding any proposed
licensing of such Inventions on a case by case basis. In addition, if
one party wishes to obtain an exclusive license for a jointly owned
Invention with regard to a particular field of use, the parties shall
engage in good faith negotiations for such license.
7.2 Limitations. Each party hereto expressly acknowledges and agrees
that any rights and interests arising in connection with this Agreement with
regard to intellectual property, technology or materials owned or developed by
the other party shall be strictly limited to those rights and interests
expressly granted to such party herein and in the License Agreement. Each
party further expressly agrees that no technology or materials provided by the
other party hereunder may be used for in vivo human studies under any
circumstance without such over party's prior written consent.
ARTICLE 8
CONFIDENTIALITY
8.1 Obligation of Nondisclosure. All Information communicated by one
party to the other party under this Agreement shall be maintained by the
receiving party in strict confidence and shall not be disclosed to any third
party without the express written permission of the disclosing party, which
permission may be granted or withheld in such disclosing party's sole
discretion. Notwithstanding the foregoing, either party may disclose
Information of the other party to its professional advisors, provided that such
advisors are bound by similar obligations of confidentiality to those contained
herein. In addition, either party may reveal Information of the other party
where required to do so by law or court order; provided, however, that the
party intending to so reveal shall provide the other party with notice of its
intent to reveal at least twenty (20) days prior to such revelations. The
confidentiality obligations of the parties hereunder shall continue for a
period of five (5) years from the expiration or termination of this Agreement.
8.2 Exceptions. The Section 8.1 obligation of non-disclosure
shall apply to all such Information except that which:
8.2.1 Is known by the receiving party prior to its disclosure
other than pursuant to an obligation of confidentiality; or
8.2.2 Becomes known to the receiving party from a third party
under no obligation of confidentiality regarding such Information; or
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8.2.3 Is public knowledge or later becomes public knowledge
through no act on the part of the receiving party.
8.3 Samples. No samples of chemicals, machinery, components, probes,
reagents, and other materials submitted by either party to the other party
pursuant to this Agreement shall be transferred by such other party to any
third party without the prior written consent of the submitting party. All
such samples and materials, to the extent unused, shall be returned to the
submitting party promptly upon the expiration or termination of this Agreement.
8.4 Publications. At least thirty (30) days prior to the
presentation or submission for publication of manuscripts, including abstracts,
and texts of poster presentations of the results of any research conducted
pursuant to this Agreement and containing Information, the party proposing to
make such publication shall submit the same to the other party for purposes of
allowing the other party to comment on the manuscript or text, decline to
authorize the publication of any of its Information, request the filing by the
submitting party of a patent application or initiate the filing of a patent
application prior to publication of any such Information. Each party shall
make such submissions to the other party until two (2) years following the
expiration or termination of this Agreement.
ARTICLE 9
WARRANTIES AND COVENANTS
9.1 Representations and Warranties. Nanogen and Prolinx each hereby
represents and warrants to the other that:
9.1.1 Corporate Power. It is duly organized and validly existing
and has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof.
9.1.2 Due Authorization. It is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder.
9.1.3 Binding Agreement. This Agreement is a legal and valid
obligation binding upon the party making such representation and
warranty and enforceable in accordance with its terms. The execution,
delivery and performance of this Agreement does not conflict with any
agreement, instrument or understanding, oral or written, to which or
by which the party making such representation and warranty may be
bound, nor violate any law or regulation of any court, governmental
body or administrative or other agency having jurisdiction over the
party making such representation and warrant.
9.1.4 Intellectual Property Rights. It holds all necessary right,
title and interest in and to its respective Background Inventions and
technology to permit it to undertake the Sponsored Research Program
contemplated by this
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Agreement without subjecting the other party hereto to liability for
infringement of any patent, copyright or trade secret of any third
party.
ARTICLE 10
TERM AND TERMINATION
10.1 Term and Termination. The term of this Agreement shall be three
(3) years from the Effective Date, unless sooner terminated by either party
upon ninety (90) days written notice. If either party fails materially to
perform its obligations hereunder or otherwise breaches in any material respect
any material covenant, term or condition set forth in this Agreement, the
nonbreaching party may give written notice specifying the breach together with
a statement of its intention to terminate this Agreement if the breach is not
cured within such thirty (30) day period immediately following the date of such
written notice. If such breach is not reasonably susceptible of cure within
such thirty (30) day period, but the breaching party has undertaken and
continues to make diligent efforts to cure said breach within such thirty (30)
day period, the period for cure shall be extended for an additional fifteen
(15) days. If, at the end of the cure period, the breaching party has not
cured the specified breach, the non-breaching party may cause this Agreement to
be terminated immediately effective upon notice to the breaching party.
10.2 Termination in First Year. Notwithstanding the provisions of
paragraph 10.1, except in the case of material nonperformance or other material
breach by Prolinx, Nanogen shall not terminate funding for the Sponsored
Research Program during the first twelve (12) months of the Sponsored Research
Program unless a determination is made, subject to the following procedures,
that the Technical Milestones, as defined in the Research Plan, have not been
achieved.
10.2.1 Dispute Resolution Procedures. If, within the first nine (9)
months of the Sponsored Research Program, Nanogen wishes to terminate funding
based upon a claim that the Technical Milestones have not been achieved, the
matter shall be presented to the ROC for consideration. If the ROC cannot
agree by majority vote, within ten (10) business days, that the Technical
Milestones have not been achieved, the matter shall be submitted to a
Management Committee comprised of the Chief Executive Officers of both Nanogen
and Prolinx for consideration. If the Management Committee cannot agree,
within ten (10) business days, that the Technical Milestones have not been
achieved, the parties shall have five (5) business days to reach a mutual
agreement on a competent third party technical arbitrator (the "Arbitrator") to
make such determination. Once the Arbitrator is chosen, both parties shall
exert best efforts to provide all reasonably necessary written information to
the Arbitrator within ten (10) business days. Upon the delivery of all such
information, the parties shall meet with the Arbitrator for a single eight (8)
hour session during which each party shall be available to answer questions
from the Arbitrator. The Arbitrator shall then have two (2) additional
business days to reach a decision on the dispute.
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10.2.2 Outcome of Dispute Resolution. If the Arbitrator concludes
that the Technical Milestones have not been achieved, Nanogen shall have the
right to terminate this Agreement upon sixty (60) days written notice to
Prolinx, commencing upon the date of the Arbitrator's decision. If the
Arbitrator concludes that the Technical Milestones have been achieved, Nanogen
shall have no right to terminate this Agreement under Section 10.2.1; provided,
however, that Nanogen shall continue to have rights of termination as provided
in Sections 10.1, 10.3 and 10.4 hereof. In the event of termination by Nanogen
during the first twelve (12) months of this Agreement pursuant to the terms of
this Section, Nanogen's sole and exclusive remedy hereunder shall be to cease
paying the Annual Research Fee provided under this Agreement; provided,
however, that such limitation on Nanogen's remedies shall not apply in the case
of termination by Nanogen for material breach by Prolinx.
10.3 Termination After first Year. After the first year, Nanogen
shall have the right, upon ninety (90) days written notice, to terminate this
Agreement, including the obligation to further fund the Sponsored Research
Program, without cause and at its sole discretion should it decide to do so.
10.4 Insolvency or Bankruptcy. Either party, in addition to any
other remedies available to it by law or in equity, may terminate this
Agreement by written notice to the other party in the event such other party
becomes insolvent or bankrupt, or makes an assignment for the benefit of its
creditors, or a trustee or receiver of such other party or for all or a
substantial part of its property has been appointed.
10.5 Actions Upon Termination. Upon termination of this Agreement,
each party shall return all Information and samples of the other party to such
other party and shall make no further use of such Information and samples.
Upon termination, each party's intellectual property and Inventions shall
remain exclusively its own, and each party shall retain ownership and control
of its respective patent applications (or, in its sole discretion, enter into
discussions for the transfer of such applications to the other party hereto).
All ownership and license rights granted hereunder by either party to the other
thereupon shall terminate.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification. Each party hereby acknowledges that other
party's technology is experimental in nature. Therefore, each party shall
defend, indemnify and hold harmless the other party and its directors,
officers, shareholders, employees and agents of, from and against any and all
actions, causes of action, claims, liabilities, damages, losses, fees
(including legal fees), expenses and costs whatsoever (including without
limitation losses, damages and expenses for death, personal injury, illness,
property damage or any other injury or damage) arising from (i) its use,
handling or storage of the other party's technology at its own facility unless
such actions, causes of action, claims, liabilities and/or damages are proven
to be the result of the gross negligence or the willful breach by the other
party of its
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<PAGE> 11
obligations hereunder, and (ii) any breach of its representations and
warranties contained herein.
ARTICLE 12
ASSIGNMENT
12.1 Assignment. Except as otherwise provided herein, no party may
assign its contractual rights or obligations under this Agreement to any other
person or entity without the prior written consent of the other party. Nothing
in this Section 12.1 shall restrict the power of either party to assign or
otherwise transfer any of its rights to any of its Background Inventions or
other property.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. To be effective, all notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by facsimile transmission (receipt verified), mailed by registered or
certified mail (return receipt requested), postage prepaid, or sent by express
courier service, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice; provided, that
notices of a change of address shall be effective only upon receipt thereof):
If to Nanogen, addressed to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: Vice President, General Counsel
With a copy to: Chairman and Chief Executive Officer
If to Prolinx, addressed to:
Prolinx, Inc.
22322 20th Avenue S.E., Suite 100
Bothell, WA 98021
Attention: President and Chief Executive Officer
13.2 Governing Law. This Agreement shall be governed by the laws of
the State of California. Any claim or controversy arising out of or relating
to this contract or any breach hereof shall be submitted to a court of
competent jurisdiction in the State of California or the State of Washington.
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<PAGE> 12
13.3 Severability. If any term, covenant or condition of this
Agreement or the application thereof to any party or circumstance, to any
extent, is held to be invalid or unenforceable, then (i) the remainder of this
Agreement, or the application of such term, covenant or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by
law; and (ii) the parties hereto covenant and agree to renegotiate any such
term, covenant or application thereof in good faith in order to provide a
reasonably acceptable alternative to the term, covenant or condition of this
Agreement or the application thereof that is invalid or unenforceable.
13.4 Ambiguities. Ambiguities, if any, in this Agreement shall not
be construed against either party, irrespective of which party may be deemed to
have authored the ambiguous provision.
13.5 Entire Agreement. This Agreement, including all Exhibits
hereto, sets forth all the covenants, promises, warranties, representations,
conditions and understandings between the parties hereto and supersedes all
prior agreements and understandings, written or oral, between the parties.
13.6 Modifications. No subsequent alteration, amendment, change or
addition to this Agreement shall be binding upon the parties hereto unless
reduced to writing and signed by the respective authorized officers of the
parties.
13.7 Force Majeure. Neither party hereto shall lose any rights
hereunder or be liable to the other party for damages or losses on account of
failure of performance by the defaulting party if the failure is occasioned by
government action (including compliance with requests, rules, regulations or
orders of any governmental authority), war, fire, robbery, vandalism,
explosion, flood, strike, lockout, embargo, act of God, or any similar cause
beyond the control of the defaulting party, provided that the party claiming
force majeure has exerted all reasonable efforts to avoid or remedy such force
majeure.
13.8 Further Actions. Each party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
13.9 Independent Contractors. The parties acknowledge and agree that
they are acting as independent contractors, and neither party is granted any
rights or authority to assume or create any obligation or liability, express or
implied, on the other party's behalf or to bind the other party in any manner
whatsoever.
13.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
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IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate originals by their authorized officers as of the date and year first
above written.
NANOGEN, INC. PROLINX, INC.
By: /s/ Howard C. Birndorf By: /s/ Mark L. Stolowitz
------------------------------ -----------------------------
Howard C. Birndorf Mark L. Stolowitz
Chairman and President and
Chief Executive Officer Chief Executive Officer
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EXHIBIT A
INITIAL RESEARCH PLAN
RESEARCH PROTOCOL FOR THE JOINT PROGRAM
BETWEEN NANOGEN AND PROLINX ON ATTACHMENT CHEMISTRY
AND SIGNAL AMPLIFICATION
November 21, 1996
The application of Prolinx's attachment chemistry to Nanogen's chip
technology is critically dependent on the stability of the *** under electric
field conditions. A feasibility study has been designed to address this issue
before the research agreement is finalized. This study must be completed
within one month of receiving the reagents from Prolinx so that the Research
Oversight Committee will have time to assess the results and determine if
continuation of the Sponsored Research Agreement scheduled to commence on
January 1, 1997, is justified.
This plan is based on the assumption that the linkage is stable. We
will continue with a full-scale evaluation of the probes and linkers supplied
by Prolinx. The first three quarters will focus on the use of *** attachment
chemistry with a variety of polymer surfaces. Work on signal amplification
will begin in the third quarter with greater emphasis occurring toward the end
of the year.
Feasibility Study (Nov.-Dec. '96)
- ---------------------------------
Stability of ***
----------------
[6 PAGES OF TECHNICAL DATA AND RESEARCH PROGRAM DETAILS REDACTED AND FILED
SEPARATELY WITH THE COMMISSION.]
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 1
EXHIBIT 10.14
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH
THE COMMISSION.]
COLLABORATIVE RESEARCH AGREEMENT
THIS COLLABORATIVE RESEARCH AGREEMENT (the "Agreement") is made between
THE UNIVERSITY OF TEXAS SOUTHWESTERN MEDICAL CENTER AT DALLAS ("University"), a
component institution of The University of Texas System ("System") and NANOGEN,
INC., a California corporation with its principal place of business at 10398
Pacific Center Court, San Diego, CA 92121 ("Nanogen").
RECITALS:
A. Nanogen and University desire to collaborate on certain
research hereinafter described; and
B. Nanogen desires to obtain certain rights to intellectual property
developed during the course of such research with a view to profitable
commercialization of such intellectual property for Nanogen's benefit; and
C. University is willing to collaborate with Nanogen with respect to
such research and to grant certain rights to such intellectual property.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, University and Nanogen agree as follows:
1. Effective Date and Term. This Agreement shall be effective as of
August 1, 1995 (the "Effective Date"). The Research Program (as defined herein)
shall be performed during the period from the Effective Date through and
including July 31, 1997 ("Term"). The Term shall be subject to extension for up
to two additional one-year periods ("Extension Periods" upon Nanogen's written
elections given before the beginning of the applicable one-year Extension
Periods. Nanogen shall have the option of further extending the Term under
mutually reasonably agreeable terms not less favorable to Nanogen than those
hereof.
2. Research Program.
2.1 University and Nanogen will use reasonable efforts to conduct the
research program described as follows (hereinafter referred to as "Research
Program"):
(a) Nanogen shall be responsible for the aspects of the Research
Program described in Attachment A, attached hereto and incorporated
herein.
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<PAGE> 2
(b) University shall be responsible for the aspects of the
Research Program described in Attachment B. attached hereto and
incorporated herein. In addition to the aspects of the Research Program
described on Attachment B. University will furnish the facilities
necessary to carry out the Research Program.
The Research Program will be under the direction of Glen A. Evans, M.D., Ph.D.
(the "University Investigator") and James P. O'Connell, Ph.D. (the "Nanogen
Investigator").
2.2 Except as otherwise set forth on Attachment A attached hereto, each
party shall be responsible for its own expenses in conducting the Research
Program.
2.3 Nanogen understands that University's mission is advancement of
knowledge, education, and patient care and, consequently, the Research Program
will be designed to carry out that mission. The manner of University's
performance of the Research Program shall be determined in the reasonable
discretion of the University Investigator. University does not guarantee
specific results.
2.4 Nanogen understands that University may be involved in similar
research through other researchers on behalf of itself and others. University
shall be free to continue such research provided that it is conducted separately
and by different investigators from the Research Program, and Nanogen shall not
gain any rights via this Agreement to such other research.
2.5 University does not guarantee that any Patent Rights (as defined
herein) will result from the Research Program, that the scope of any Patent
Rights obtained will cover Nanogen's commercial interest, or that any such
Patent Rights will be free of dominance by others independent of the Research
Program (however, University is unaware of any such dominant patent).
2.6 (a) University and University Investigator agree that the materials
being provided to University as set forth in Attachment A, including, without
limitation, techniques, processes, know-how, patents, patent applications,
copyrights, trade secrets and other proprietary information associated therewith
("Research Material") may only be used by University and University Investigator
in connection with the Research Program and not for any commercial purpose and
not for the benefit of any third party. The Research Material may not be used in
connection with any diagnosis, treatment or any other activity involving humans
or for any use not directly related to the Research Program unless prior written
approval is received from Nanogen. In addition, the Research Material may be
possessed or used only by employees of the University who are under the control
of the University Investigator and bound to the terms of this Agreement, and may
not be provided to any other individual, entity or institution, including
institutions and
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entities affiliated or under contract with the University without the prior
written consent of Nanogen.
(b) It is agreed that the transfer of the Research Material shall be a
bailment and shall not constitute a sale of Research Material or a grant, option
or license of any patent or other rights. Nanogen shall retain and have all
right, title and interest in the original Research Material. In addition,
University, University Investigator and Nanogen agree that Nanogen will own all
intellectual property, excluding Patents and/or Patent Rights as defined herein,
in tangible or intangible form, including without limitation, any and all data,
preclinical and clinical results, inventions, improvements, Research Materials,
discoveries, ideas and other proprietary information and rights (collectively,
"Intellectual Property") arising out of or in connection with the original
Research Material.
(c) Upon completion or termination of the Research Program, or upon
Nanogen's request at any time, University and/or University Investigator will
either destroy the Research Material or return it to Nanogen.
(d) THE RESEARCH MATERIAL IS UNTESTED AND HAS BEEN GIVEN TO UNIVERSITY
GRATUITOUSLY. ACCORDINGLY, IT IS PROVIDED "AS IS" WITH NO WARRANTIES EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. TO THE EXTENT AUTHORIZED BY THE
CONSTITUTION AND LAWS OF THE STATE OF TEXAS, UNIVERSITY BEARS ALL RISK RELATING
TO THE RESEARCH MATERIALS OR THEIR USE AND NANOGEN WILL NOT BE LIABLE UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR ANY DAMAGES
INCLUDING, WITHOUT LIMITATION, DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR
COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES OR TECHNOLOGY, EXCEPT AS SET
FORTH IN ARTICLE 9 HEREOF.
(e) For purposes of this Agreement, Research Material shall include any
derivative of the original Research Material made by University, University
Investigator or members of University Investigator's research group or anyone
receiving original Research Materials from any such person. Nanogen will be
entitled to samples of any such Research Material upon request.
3. Consultation and Reports.
3.1 Nanogen's designated representative for consultation and
communications with the University Investigator shall be Tina S. Nova or such
other person as Nanogen may from time to time designate in writing to University
and the University Investigator ("Designated Representative").
3.2 University will keep accurate scientific records relating to the
Research Program and will make such records available for inspection to Nanogen
or its authorized representative throughout the Term of the Agreement during
normal
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<PAGE> 4
business hours upon reasonable notice. University also agrees to provide copies
of any such records to Nanogen in confidence, at Nanogen's sole expense, upon
the request of Nanogen's Designated Representative or the Nanogen Investigator
for Nanogen's internal research use.
3.3 During the Term of the Agreement, Nanogen's representatives may
consult informally with University's representatives regarding the project, both
personally and by telephone. Access to work carried on in University
laboratories in the course of these investigations shall be entirely under the
control of University personnel but shall be made available on a reasonable
basis for observance of the work. At the conclusion of each year, the University
Investigator and the Nanogen Investigator shall exchange written reports
summarizing the work completed under the Research Program during the previous
year.
3.4 The University Investigator shall submit a final technical report,
summarizing the Research Program, within sixty (60) days of termination of the
Agreement, which shall contain a report of all activities undertaken and
accomplishments- achieved through the Research Program during the Term of the
Agreement.
4. Publicity. Neither party shall make reference to the other in a press
release or any other written statement in connection with work performed under
this Agreement, if it is intended for use in the public media, except as
required by The Texas Open Records Act or other law or regulation. University,
however, shall have the right to acknowledge Nanogen's contributions to the
investigations under this Agreement in scientific or academic publications and
other scientific or academic communications, without Nanogen's prior approval.
In any such statements, the parties shall describe the scope and nature of their
participation accurately and appropriately.
5. Publication and Academic Rights.
5.1 University and University Investigator have the right to publish or
otherwise publicly disclose information gained as a result of their research in
the course of this Agreement. In order to avoid loss of Patent Rights as a
result of premature public disclosure of patentable information, University, or
the University Investigator or members of the University Investigator's research
group will submit any prepublication materials and a summary of any other
planned public disclosure to Nanogen for review and comment at least sixty (60)
days prior to planned submission for publication. Nanogen shall notify
University within thirty (30) days of receipt of such materials whether it
desires University (or if Joint Patent Rights (as defined herein) exist with
respect to inventions or discoveries contained in the materials, University and
Nanogen jointly) to file patent applications on any inventions contained in the
materials; and, University will promptly proceed to file a patent application(s)
and University and the University Investigator will delay publication and any
other disclosure for up to thirty
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<PAGE> 5
(30) additional days to ensure that such filings are made before publication or
other disclosure. University and the University Investigator shall have the
final authority to determine the scope and content of any publications, but
University and the University Investigator will consider in good faith any
suggestions by Nanogen.
5.2 It is understood that the University Investigator may discuss the
research being performed under this Agreement with other investigators but shall
not reveal information which is Nanogen's Confidential Information under Article
6. In the event any joint inventions result, other than between University
investigators and Nanogen investigators, University shall grant to Nanogen the
rights outlined in Article 7 of this Agreement, to the extent these are not in
conflict with obligations to another party as a result of the involvement of the
other investigator(s). In this latter case, University shall, in good faith,
exercise reasonable efforts to enable Nanogen to obtain rights to the joint
invention.
6. Confidential Information.
6.1 The parties may wish, from time to time, in connection with work
contemplated under this Agreement, to disclose confidential information to each
other ("Confidential Information"). Subject to the rights of Nanogen under any
license agreement that may come into effect pursuant to the option set forth in
Article 7 herein (the "License Agreement"), each party agrees not to use the
other party's Confidential Information (other than for purposes contemplated by
this Agreement or the License Agreement), and to use reasonable efforts to
prevent the disclosure of any of the other party's Confidential Information to
third parties for a period of three (3) years from receipt thereof, provided
that the recipient party's obligation shall not apply to information that the
recipient party can show:
(1) is not disclosed in writing or reduced to writing and so
marked with an appropriate confidentiality legend within thirty (30)
days of disclosure;
(2) is already in the recipient party's possession at the time of
disclosure thereof (except Confidential Information previously disclosed
pursuant to agreements in place between Nanogen and the University
Investigator on the Effective Date);
(3) is or later becomes part of the public domain through no
fault of the recipient party;
(4) is received from a third party having no obligations of
confidentiality to the disclosing party, provided that the recipient
party complies with any restrictions imposed by the third party;
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(5) is independently developed by the recipient
party; or
(6) is required by law or regulation to be disclosed, provided
that the recipient party uses reasonable efforts to restrict disclosure
and to obtain confidential treatment.
6.2 In the event that information is required to be disclosed pursuant
to subsection (6), the party required to make disclosure shall notify the other
to allow that party to assert whatever exclusions or exemptions may be available
to it under such law or regulation.
7. Patents, Copyrights, and Technology Rights.
7.1 Title to all inventions and discoveries made solely by University
resulting from the research performed hereunder shall reside in University;
however University hereby grants to Nanogen an exclusive option to negotiate a
License Agreement (the "Option"), granting an exclusive, worldwide,
royalty-bearing license (including the right to grant sublicenses) to make, have
made, use, have used, sell or have sold under any Patent Right made and
conceived during the Term, and having the further terms and conditions set forth
on Attachment C. During the term of the Option, University shall not offer any
rights or licenses to Patent Rights to any third party and Nanogen shall be
entitled to an exclusive right of first negotiation with respect to such Patent
Rights.
7.2 The Option shall become exercisable upon the filing of a Patent (as
defined herein) by University or University Investigator. University shall
notify Nanogen in writing within three (3) days of any such filing and shall,
pursuant to such notice fully disclose to Nanogen all claims set forth therein,
and Nanogen shall then have three (3) months following University's written
notice of a Patent filing to notify University in writing of its desire to enter
into the License Agreement (the "Option Exercise Notice").
7.3 The License Agreement shall be negotiated in good faith within a
period not to exceed six (6) months following the delivery of the Option
Exercise Notice by Nanogen to University (the "Option Period").
7.4 In the event that University and Nanogen are not able to negotiate a
License Agreement on mutually agreeable terms within the Option Period,
University hereby agrees that if University intends to accept any offer from a
third party which is not more favorable to it than Nanogen's last offer,
University shall promptly notify Nanogen and Nanogen shall have the right to
enter into a License Agreement (which shall include the right to grant
sublicenses) with University on the terms and conditions of such third party
offer. This right of first refusal shall
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<PAGE> 7
survive termination of negotiations pursuant to Section 7.3 for a period of two
(2) years. University warrants that it will not enter into a license with any
third party with respect to any Patent Rights which contains any terms more
favorable to such third party than terms offered to Nanogen during such two (2)
year period.
7.5 In the event Nanogen and University enter into a License Agreement,
Nanogen shall reimburse University for all reasonable expenditures incurred by
University in respect of preparing, filing, prosecuting and maintaining Patent
Rights in the U.S. and in preparing, filing, prosecuting and maintaining
corresponding patent applications and patents outside the U.S. in countries as
agreed in writing by Nanogen. In any event, if Nanogen requests that any patent
or patent application be prepared, filed, prosecuted or maintained, anywhere in
the world, University will diligently undertake such activity to the extent and
for so long as Nanogen reimburses University's reasonable expenditures therefor.
7.6 As used in this Agreement, the following terms shall have the
meanings indicated:
(a) "Patent" shall mean a patent having claims that relate to
inventions or discoveries made pursuant to the Research Program in part,
or in whole, by University, University Investigator or members of the
University Investigator's research group, including any extension,
registration, confirmation, reissue, renewal or re-examination of such
patent.
(b) "Patent Rights" shall mean the Patents and/or patent
applications whether domestic or foreign arising out of inventions or
discoveries made in part, or in whole by University, University
Investigator or members of the University Investigator's research group
pursuant to the Research Program and any Patents and/or applications in
any other country corresponding or relating to any of the foregoing, and
all divisions, continuations, continuations in part, reissues,
reexaminations or extensions thereof, and any Patents that issue
thereon.
8. Joint Inventions and Discoveries. Notwithstanding the provisions of
any other section of this Agreement, it is agreed that any Patents or Patent
Rights arising out of or in connection with the Research Program that are
jointly invented by one or more employees of both the University and Nanogen
shall be jointly owned by the University and Nanogen ("Joint Patent Rights").
All patent applications on the Joint Patent Rights shall be agreed to by each of
the parties and filed, prosecuted and maintained jointly by the parties at their
joint expense. If for any reason Nanogen or the University shall decline to
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<PAGE> 8
participate in the filing, prosecution or maintenance of any patent application
or patent on the Joint Patent Rights, the other party shall be entitled to
assume sole responsibility for such filing, prosecution or-maintenance of such
patent application or patent at its sole expense and the nonparticipating party
shall have no further rights to such patent application or patent. Each party
may use the Joint Patent Rights or assign its own interests in them to others
without approval or accounting to the other party, provided that if the
University intends to license to others, University will notify Nanogen of such
intent in writing, and Nanogen will have the rights outlined in Article 7 of
this Agreement.
9. Liability.
9.1 Subject to Section 9.2, Nanogen agrees to indemnify and hold
harmless System, University, their Regents, officers, agents and employees from
any liability, loss or damage they may suffer as a result of claims, demands,
costs or judgments against them arising out of Nanogen's activities to be
carried out pursuant to the obligations of this Agreement, including but not
limited to the use by Nanogen of the results obtained from the activities
performed by University under this Agreement; provided, however, that the
following is excluded from Nanogen's obligation to indemnify and hold harmless:
(a) the negligent failure of University to
substantially comply with any applicable FDA or other
governmental requirements; or
(b) the negligence or willful malfeasance of any
Regent, officer, agent or employee of University or
System.
To the extent authorized by the Constitution and laws of the State of Texas, UT
Southwestern shall indemnify and hold Nanogen harmless against any and all
claims, demands, damages, liabilities and costs incurred by Nanogen which
directly or indirectly result from, or arise in connection with, any negligent
act or omission of UT Southwestern, its agents, or employees in performing UT
Southwestern's obligations hereunder.
9.2 Both parties agree that upon receipt of a notice of claim or action
for which indemnity may be claimed (or any threat thereof), the party receiving
such notice will notify the other party promptly. Nanogen agrees, at its own
expense, to provide one counsel to defend against any actions brought or filed
against University, System, their Regents, officers, agents and/or employees
with respect to the subject of the indemnity contained herein, whether such
claims or actions are rightfully brought or filed; and subject to the statutory
duty of The Texas Attorney General, University agrees to cooperate with Nanogen,
and to provide Nanogen with sole control, in the defense and settlement of such
claim or action.
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<PAGE> 9
10. Independent Contractor. For the purposes of this Agreement and all
services to be provided hereunder, the parties shall be, and shall be deemed to
be, independent contractors and not agents or employees of the other party.
Neither party shall have authority to make any statements, representations or
commitments of any kind, or to take any action which shall be binding on the
other party, except as may be expressly provided for herein or authorized in
writing.
11. Term and Termination.
11.1 This Agreement shall commence on the Effective Date and extend
until the end of the Research Program as described hereinabove, unless sooner
terminated in accordance with the provisions of this Section.
11.2 This Agreement may be terminated by the written agreement of both
parties.
11.3 In the event that either party shall be in default of its material
obligations under this Agreement and shall fail to remedy such default within
sixty (60) days after receipt of written notice thereof, this Agreement shall
terminate upon expiration of the sixty (60) day period.
11.4 Termination or cancellation of this Agreement shall not affect the
rights and obligations of the parties accrued prior to termination. As its sole
liability upon termination by University pursuant to Section 11.3 of this
Agreement, Nanogen shall pay University for all reasonable expenses incurred as
a result of the termination and all reasonable expenses committed to be expended
as of the termination date which cannot be cancelled.
11.5 Any provisions of this Agreement which be their nature extend
beyond termination shall survive such termination.
12. Attachments. Attachments A, B and C are incorporated and made a part
of this Agreement for all purposes.
13. General.
13.1 This Agreement may not be assigned by either party without the
prior written consent of the other party; provided, however, that subject to the
approval of University, which may not be unreasonably withheld, Nanogen may
assign this Agreement to any purchaser or transferee of all or substantially all
of Nanogen's assets or stock upon prior written notice to University, and
University may assign its right to receive payments hereunder.
13.2 This Agreement constitutes the entire and only agreement between
the parties relating to the Research Program, and all prior negotiations,
representations, agreements and
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<PAGE> 10
understandings are superseded hereby; provided, however, that certain Consulting
Agreement dated July 15, 1994 between the University Investigator and Nanogen
shall continue in full force and effect for the term set forth therein. No
agreements altering or supplementing the terms hereof may be made except by
means of a written document signed by the duly authorized representatives of the
parties.
13.3 Any notice required by this Agreement by Articles 7, 8, 9 or 11
shall be given by prepaid, first class, certified mail, return receipt
requested, addressed in the case of University to:
The University of Texas System, O.G.C.
201 West 7th Street
Austin, TX 78701
Attention: Intellectual Property Section
Facsimile: (512) 499-4523
Telephone: (512) 499-4462
The University of Texas Southwestern
Medical Center at Dallas
5323 Harry Hines Blvd.
Dallas, TX 75235-9062
Attention: Gerald Mussey
Director, Contracts Management
Facsimile: (214) 688-8805
Telephone: (214) 688-8748
or in the case of Nanogen to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: Howard Birndorf, CEO
Facsimile: (619) 546-7717
Telephone: (619) 546-7700
or at such other addresses as may be given from time to time in accordance with
the terms of this notice provision.
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13.4 This Agreement shall be governed by, construed, and enforced in
accordance with the internal laws of the State of Texas.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
THE UNIVERSITY OF TEXAS NANOGEN, INC.
SOUTHWESTERN MEDICAL CENTER
AT DALLAS
/s/ Peter H. Fitzgerald /s/ Howard Birndorf
------------------------------ ----------------------
Peter H. Fitzgerald Howard Birndorf
Executive Vice President CEO
for Business Affairs
Date July 20, 1995 Date 8-1-95
--------------------------------------- -------------------
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<PAGE> 12
ATTACHMENT A
Proposed Collaborative Project Between Nanogen Incorporated
and the Laboratory of Dr. Glen Evans,
The University of Texas Southwestern Medical Center
Nanogen and the laboratory of Dr. Glen Evans have proposed a joint research
project utilizing Nanogen technology for the analysis of polymorphisms, and
human genetic linkage studies. Nanogen will supply technical protocols,
software, chips and current technical "know-how" to accomplish this goal. In
addition, Nanogen will continually update all technical approaches for this
project as they develop.
Nanogen - Technology Background
Nanogen is designing and developing a general purpose, integrated system for the
rapid analysis of charged macromolecules using microelectronics and molecular
biology. Nanogen's current focus is in the analysis of DNA and RHA, but is not
limited to nucleic acids. Essentially any charged molecule can be analyzed with
Nanogen technology. Diagnostic assays such as immunoassay, receptor assays, and
other ligand binding assays could be adapted to Nanogen technology, and would
gain the same enhanced speed, sensitivity and specificity that has been shown in
APEX-based ("Automated Programmable Electronic Matrix") DNA probe assays.
Central to Nanogen's technology, and the major subject of Nanogen patent
applications is the concept of electronically facilitated hybridization. As an
example of this, DNA - which is strongly electronegative and therefore carries a
net negative charge - can be moved in an electric field to an area of net
positive charge. The sample DNA is significantly concentrated over time in the
area of positive charge. This concentrating effect facilitates and greatly
speeds up the hybridization of DNA probes due to the Law of Mass Action, and
would effect other ligand binding reactions of charged molecules in essentially
the same way. This effect can simultaneously occur at each test site, permitting
rapid, multiple tests on a single sample.
Also central to Nanogen's technology is the reverse process, in which
nonspecifically bound probes are removed from the test site by reversing the
field polarity. With Nanogen's electronic stringency control, unwanted,
non-specific DNA is repelled from the area of the electrode under closely
controlled electronic conditions. In model systems, we have demonstrated the
ability to discriminate single base pair mismatches in relatively short DNA
probe sequences. The combination of increased speed, high sensitivity, and
specificity provides a significant competitive advantage. No other DNA chip
company uses "active hybridization" and therefore are slower and less specific.
Nanogen Proposal
In order to carry out the proposed project described by Dr. Evans in the
attached exhibit, Nanogen will supply the technical knowledge and expertise
needed to utilize each component
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<PAGE> 13
of its experimental system. The system is composed of four separate components
and each are discussed below.
(1) THE DNA CHIP
The basic Nanogen technology is the APEX microchip, a multi-site, electronically
controlled array of independent test areas, each capable of attracting, binding
or repelling DNA under specific conditions of charge, polarity, current and
voltage. The APEX microchip takes advantage of the well established principles
of electrophoresis in moving charged molecules in an electric field but on a
greatly miniaturized scale. Since the chip itself is designed and constructed
using standard semiconductor techniques of microlithography and chip
fabrication, the actual number of available test sites, requirements for charge
and charge density, current and voltage, are well within the design and
manufacturing limits of the current state of the art.
Nanogen will supply Dr. Evans with its prototype chip for the described project.
Numerous prototype chips have been developed over the past year, and numerous
prototype chips will be produced in the future. Once a new prototype chip has
been established, that specific chip will be provided for this project. The
current prototype chip, the 5580, is a *** comprised of ***. Over each electrode
a *** has been etched for ***. *** are included in the design for experimental
purposes, and in some prototype chips a *** has been added. A total of 100
prototype chips will be furnished to Dr. Evans for this project per month. If
additional chips are needed, they will be sold to Dr. Evan's laboratory at cost.
Current manufacturing cost is approximately *** per chip.
In addition, the masks used for the manufacture of the chips, and the masks used
for prototype chips produced in the past will be made available to this project
if desired.
(2) PERMEATION LAYER
*** is critically important to Nanogen technology. Electrophoresis requires
water hydrolysis, producing oxygen and hydrogen gas. These may be *** modified
at the ***. The APEX immobilized reagent and test sample must therefore be ***.
Similarly, the microelectronic chip must be ***. The permeation Layer is
designed to accomplish the tasks. Chemically, the permeation layer is a ***
capable of permitting ***. The permeation layer must ***, and provide a surface
that is ***. Since target molecules are attached to the surface of the
permeation layer, ***. Additionally, the permeation layer must be comparable
with mass production techniques, possess the requisite shelf life, and survive
normal shipping conditions.
Currently, Nanogen is employing a *** layer which is composed of a ***. *** is
incorporated into the procedure, and is utilized as the attachment chemistry for
capture DNA.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH
THE COMMISSION
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All technical protocols for these procedures will be provided for this
project, and will be updated as the formulations are modified over time.
(3) REAGENTS
Reagents are an integral part of the Nanogen diagnostic system. Target DNA
sequences will be immobilized on the surface of the microelectronic chip in a
configuration that allows this sequence to interact with sample DNA molecules in
a controlled, precise way. Both the target and sample DNA must be stable to a
wide range of ***. Sample DNA must be accessible to ***, and must be easily ***.
Detection of hybridization can be accomplished using several proven approaches
based on ***.
At this time experimental conditions for *** have been accomplished. New
proprietary methods for *** have been elucidated and patent disclosures have
been filed. Protocols for these procedures will be furnished for this project.
Conditions for *** have not yet been successfully described, and therefore
protocols are not currently available. These will be made available as the
experimental design is elucidated. We expect this project to be completed by the
third quarter of 1995.
DNA chemistry is an important aspect of the reagent program. ***. *** need to be
developed so *** is maintained throughout the assay. A source of *** must be
available for assay development. A ***. Several excellent commercial systems are
available for the production of ***.
Methods for the *** must be developed. Although *** are well known, they are
technically demanding, *** will be an important and integral component of the
Nanogen system, and will require a dedicated research effort. However, because
of the inherent operation of the APEX chip, it is reasonable to assume that ***
will be possible. *** should simplify ***. This is a future research objective
for Nanogen and technical advances will be added to the current project as they
are made available.
(4) INSTRUMENTATION
Instrumentation is required both to control the microchip electronics and to
process the data into a form useful to the operator. The requirements for the
instrument are complex. The system must be designed such that ***.
The Nanogen system is a semi-automated DNA analyzer capable of analyzing the DNA
content of a prepared sample on a single APEX microchip. The instrument system
consists of a system control unit (SCU) and an APEX microchip controller (AMC).
The SCU is a dedicated desktop computer that contains all user interface
software, all AMC software drivers, and data analysis and communications
capabilities. The AMC contains all the
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH
THE COMMISSION
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electronic packaging required to control the electronic environment of the APEX
chip. AMC electronics include a power supply, switching circuits,
current/voltage analysis circuits, timing circuits, and multiplexing capability.
An ***, provides signal detection and analysis. The frame analysis and
interpretation software resides in and is controlled by the SCU.
Nanogen mill provide Dr. Evans with the information required to assemble an
instrument to carry out the experiments described if requested. In addition, all
controller/instrument software currently developed at Nanogen will be provided.
Modifications and improvements to the instrument system and software are
continually being made, these changes will be communicated as they are
finalized.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH
THE COMMISSION
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ATTACHMENT B
USE OF DNA HYBRIDIZATION CHIPS FOR POLYMORPHISM ANALYSIS AND
HUMAN GENETIC LINKAGE
A Proposed Collaborative Project between
Nanogen, Incorporated,
San Diego, California
and the Laboratory of Dr. Glen Evans,
McDermott Center for Human Growth and Development,
The University of Texas Southwestern Medical Center at Dallas,
Dallas, Texas
The laboratory of Dr. Evans is focusing on the analysis of the human genome
through high resolution physical mapping and sequencing, the conversion of this
information into probes for genetic analysis of humans, and the identification
of human disease genes and phenotypes through high efficiency genotyping.
Currently, the laboratory is utilizing large scale robotics, automated DNA
sequencing, high capacity oligonucleotide synthesis and informatics for
approaching human genotyping. Our genotyping lab is utilizing Beckman Biomek
robots and ABI 377 sequencers, along with panels of fluorescence based probes we
developed spanning the entire human genome, to begin analysis of DNA from
individual sand families for genotyping information. As an alternative to this
conventional approach, it may be possible to utilize Nanogen's DNA chip
technology to develop microchip-based genotyping instruments. If successful,
this could vastly speed up the process of localizing genes for diseases and
phenotypes after patients and families are identified. Following the
localization, techniques now used extensively in our laboratory could allow
isolation and sequencing of such genes, as swell as allow rapid determination of
the variety of mutations responsible for human disease. the proposed
collaboration would involve use of the Nanogen chip technology and chips
produced at Nanogen for use in UTSW laboratories and provided to our laboratory.
this development effort would involve directions separate from Nanogen's current
development work, would be done in UTSW laboratories and would be funded from
grants to investigators at this institute.
The proposed project would involve the following:
1) The production of array-format chips containing metal electrodes, surface
polymer layer to which DNA can be covalently attached, and controller hardware
and software by Nanogen. The chips produced by Nanogen will be unformatted, will
contain no attached DNA sequences, and they will provide the chips to UTSW as
well as provide information necessary to attach DNA, or to develop the
technology to attach DNA, in the UTSW labs. They will also provide information
on the controller hardware and software and supply controller software for chip
control.
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<PAGE> 17
2) We will, using a number of strategies, develop polymorphic markers which cam
be used in an array hybridization type format. The techniques used for
developing these will be ***. For complete analysis of the human genome, we
estimate that more than *** sequences will be necessary. For each sequence, ***
oligonucleotides will be designed and synthesized: ***. The synthesis will be
done at a commercial supplier of oligonucleotides.
3) Each polymorphic sequence will be analyzed on a set of standardized human
DNAs to calculate ***, and to evaluate ***. These will be done in a ***.
4) Development work for the analysis of these polymorphisms on an *** format,
such as DHA chips, will then be carried out. First, ***. Following this, Nanogen
prototype chips will be ***.
5) Assuming these tests are successful, we will consider the construction of a
whole genome polymorphism screening using a new chip format or Nanogen's current
prototype chips.
6) Assuming a usable testbed for polyscreening can be derived and put into
operation, we will then move forward to identify families with genetic disease
and evaluate linkage using these chips. Again, assuming the linkage chip device
can be made, this project will then need to deal with and solve the following
problems: *** These issues are independent of the chip design, materials or in
fact the chip approach at all.
The potential results could include: 1) the development of *** ; 2) the
development of ***; 3) the development of new *** and 4) the potential
development of a more powerful and rapid way of identifying genes significant
for human health and disease.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH
THE COMMISSION
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Attachment C
Terms of License Agreement
o LICENSE
An exclusive worldwide, royalty-bearing license to make, have made, use,
have used, sell or have sold under any Patent Right any product incorporating
such Patent Rights and to otherwise exploit the Patent rights. An exclusive
worldwide, royalty-bearing license to reproduce, copy, alter, make, have made,
use, have used, sell or have sold under any Software Right any product
incorporating such Software Rights and to otherwise exploit the Software Rights.
A non-exclusive worldwide, royalty-bearing license to make, have made, use, have
used, sell or have sold under any Technology Right any product incorporating
such Technology Rights and to otherwise exploit the Technology Rights. Nanogen
shall have the right to grant sublicenses consistent with the License Agreement
provided that, with respect to University, Nanogen shall be responsible for (and
entitled to credit for) the operations of its sublicensees relevant to this
Agreement as if such operations were carried out by Nanogen.
Software Rights shall mean the computer program or set of programs
(stored in sets of instructions) in binary code form as embodied in a hardware
medium such as magnetic tape or in printed listing, or in any other form, which
govern the operation of a computer system and cause the computer hardware to
perform a specific sequence of tasks and calculations in the processing of
information useful for the practice of Patent Rights, Technology Rights or
products sold by Nanogen. Software Rights includes computer instructions
embodied in magnetic media and in written form, that is understandable by humans
(Source Code), but is ultimately converted into computer or machine-readable
instructions (Objection Code or Binary Code) for actual calculations and
processing, and further includes U.T. Southwestern standardized databases, error
corrections U.T. Southwestern enhancements, and translations.
Technology Rights shall mean U.T. Southwestern's rights in any technical
information, know how, process, procedure, composition, device, method, formula,
protocol, technique, design, drawing, or data not otherwise covered under Patent
Rights or Software Rights.
o ROYALTY
Royalties rates payable to U.T. Southwestern by Nanogen on selected
categories of products incorporating Patent Rights, Technology Rights and
Software Rights developed under the Collaborative Research Agreement are shown
below. In some cases, a royalty rate range applies for selected categories. The
royalty rate shown applies to the net sales of the total price of product or
products sold by Nanogen:
Rate Description
*** Products incorporating "probe technologies" useful in generating
sequences for
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION
<PAGE> 19
probes that define a genetic linkage to disease (including, but not limited to,
DNA and RNA constructs). The royalty rate would vary from *** depending t on
U.T. Southwestern's relative contribution to the value of "probe technologies"
incorporated in the commercialized product (inclusive for the sequences of all
probes for a particular disease or gene linkage).
<TABLE>
<S> <C>
Rate Description
*** Products incorporating processes, including, but not limited to, activating
techniques or methodologies, wash techniques or methodologies, storage
techniques or methodologies, coatings (not otherwise covered under "probe
technologies") useful for the stabilization, protection or maintenance of
technologies incorporated in products commercialized by Nanogen. The
royalty rate would vary from *** depending on U.T. Southwestern's relative
contribution to the value of processes incorporated in the commercialized
product.
Rate Description
*** Products incorporating software, including, but not limited to,
binary code, source code, standardized databases, algorithms,
calculations, data handling and processing, and data presentation
modules. The royalty rate would vary from *** depending on U.T.
southwestern's relative contribution to the value of software
incorporated in the commercialized product.
Rate Description
*** Genes identified through the use of Nanogen materials or devices under the
Collaborative Research Agreement.
</TABLE>
In the event that products sold by Nanogen incorporate technologies
developed under the Collaborative Research Agreement from multiple categories,
royalties shall be calculated on a cumulative basis calculated from the sum of
rates due from category to category. However, the effective royalty rate paid to
U.T. Southwestern on sales of products incorporating Patent Rights and
Technology Rights shall not exceed ***. If the product or products incorporates
Patent Rights and/or Technology Rights in addition to Software Rights, the
effective royalty rate paid to U.T. Southwestern shall not exceed ***.
In the event that Nanogen or a sublicensee of Nanogen sells a product
not included in the categories of products shown above, a running royalty rate
shall be negotiated in good faith between Nanogen and U.T. Southwestern prior to
the first sale of any such product.
For any periods where Nanogen is required to pay a royalty to a third
party for the right to carry out a sale of a product incorporating Patent
Rights, Technology Rights and/or Software Rights, and such royalty obligation
was incurred after the Effective Date of the Collaborative Research Agreement,
Nanogen shall be entitled to offset royalties due U.T.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH
THE COMMISSION
<PAGE> 20
Southwestern in an amount not to exceed 50% of what was otherwise due on a
category of product-by-category of product basis.
o TERM AND TERMINATION
The term of the License Agreement will extend from the effective date of
the agreement to the later of: (a) the end of the term of the last to expire of
the Patents; or (b) a term of fifteen years from the date of first sale of any
product incorporating or utilizing Software Rights or Technology Rights. Upon
expiration, Nanogen will be entitled to fully exploit Patent Rights, Software
Rights or Technology Rights without restriction or payment of royalties.
Other standard termination events for material breach, mutual agreement,
bankruptcy and notice by Nanogen.
o PATENT RIGHTS, PROSECUTION AND PROTECTION
Nanogen shall be responsible for all costs related to the prosecution
and maintenance of Patent Rights underlying the Patent Rights and shall be
solely responsible for defense of any third-party claims of infringement.
o OTHER STANDARD LICENSE TERMS
<PAGE> 1
EXHIBIT 10.15
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.]
LICENSE AGREEMENT
This License Agreement (the "Agreement") is made and entered into as of
April 1, 1993 (the "effective date"), by and between The Salk Institute for
Biological Studies, a nonprofit corporation organized under the laws of the
State of California ("Salk"), and Nanotronics, Inc., a corporation organized
under the laws of the State of California ("Licensee").
WHEREAS, Salk is the owner of certain Patent Rights (as hereinafter
defined) and of the technical information and improvements relating to the same;
WHEREAS, Licensee is a "small business firm" as defined in Section 2 of
Public Law 85-536 (15 U.S.C. 632);
WHEREAS, the development of the certain inventions listed in Schedule A
was sponsored in part by the National Institutes of Health and, as a
consequence, this License Agreement is subject to overriding obligations to the
Federal Government as set forth in 35 U.S.C. Section 202-204;
WHEREAS, Salk desires that such Patent Rights be developed and utilized
to the fullest extent possible so that products resulting therefrom may be
available for public use and benefit;
WHEREAS, Salk has determined that the best method for disseminating such
Patent Rights is through the grant of an exclusive license to an entity willing
to enter into a program to develop therapeutic, diagnostic or research products
and services covered by such Patent Rights;
WHEREAS, Licensee represents that it can bring to bear the scientific
talent, know-how and facilities to develop and market products and services
based upon said Patent Rights; and
WHEREAS, Licensee wishes to obtain, and Salk is willing to grant, a
worldwide, exclusive license to practice inventions covered by such Patent
Rights and the Technical Information (as hereinafter defined) relating thereto,
with the right to grant sublicenses, for the purpose of undertaking development
and to make, have made, use, and sell therapeutic, diagnostic and research
products and services.
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants contained herein, the parties hereby agree as follows:
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<PAGE> 2
1. Definitions.
1.1 The term "Affiliate" shall mean any entity which controls, is
controlled by or is under common control with Licensee, where "control" means
beneficial ownership of more than fifty percent (50%) of the outstanding shares
or securities or the ability otherwise to elect a majority of the board of
directors or other managing authority.
1.2 The term "Commercial Sale" shall mean any transaction that transfers
to a purchaser, for value, physical possession and title to a Licensed Product,
after which transfer the seller has no right or power to determine the
purchaser's resale price, if any. Transfer of possession and title to an
Affiliate or sublicensee shall not constitute a Commercial Sale unless the
Affiliate or sublicensee is an end user of the Licensed Product. Distribution of
free promotional samples, by Licensee or any of its Affiliates or sublicensees,
of any Licensed Products is not considered a Commercial Sale.
1.3 The term "FDA" shall mean the United States Food and Drug
Administration.
1.4 The term "Later Developments" shall mean all patent applications
filed and patents issuing therefrom which arise after the effective date from
research conducted in the field of gene discovery in the laboratory of Dr. Glen
Evans at Salk in which Salk in the future acquires any interest.
1.5 The term "Licensee Improvements," shall mean any change or
modification to any invention or discovery disclosed in the Patent Rights or the
Technical Information, performed or discovered solely by Licensee or in which
Licensee acquires rights, provided such change or modification, if unlicensed,
would infringe one or more valid claims of any issued patent included within the
Patent Rights.
1.6 The term "Licensed Product" shall mean any substance, composition or
article of manufacture, the use or sale of which is covered by a valid claim of
one or more issued, unexpired patents within the Patent Rights or is covered by
any claim being prosecuted or previously prosecuted in an application within the
Patent Rights. "Valid claim" shall mean a claim of an issued patent, which claim
has not been declared invalid by a court of competent jurisdiction.
1.7 The term "Licensed Service" shall mean the use of the Licensed
Technology to perform a service on behalf of a third party, or the performance
on behalf of a third party of a method within the scope of any claim of an
issued patent or any claim being prosecuted or previously prosecuted in an
application included in the Patent Rights.
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<PAGE> 3
1.8 The term "Licensed Technology" shall mean the Patent Rights and the
Technical Information.
1.9 The term "Net Sales" shall mean the gross sales price actually
charged by Licensee, its Affiliates or sublicensees in the Commercial Sale of
Licensed Products or Licensed Services less:
(i) shipping, storage, packing and insurance expenses, each as
actually paid or allowed;
(ii) distributor discounts;
(iii) amounts repaid or credited by reason of rejections,
defects or returns or because of retroactive price reductions; and
(iv) sales and other excise taxes, use taxes, tariffs, export
license fees and duties actually paid or allowed.
1.10 The term "Patent Rights" shall mean all information, inventions or
discoveries covered by the patents and patent applications listed on Schedule A
hereto, and any and all patents issuing therefrom, owned by or licensed to Salk
with the right to sublicense. "Patents" as used in this Agreement shall include,
without limitation, all substitutions, continuations, continuations-in-part,
divisions, reissues, extensions and foreign counterparts of the aforementioned.
1.11 The term "Technical Information" shall mean all know-how, trade
secrets, inventions, data, processes, procedures, devices, methods, formulas,
protocols and information, whether or not patentable, which are not covered by
the Patent Rights, but which are necessary or useful for the commercial
exploitation of the Patent Rights, and which are known as of the date hereof, or
become known within the term of this Agreement set forth in Section 10.1 hereof
(the "Term"), in the laboratory of Dr. Glen Evans at Salk and which Salk has the
lawful right to license and disclose.
2. Grant of Rights.
2.1 Patent Rights and Technical Information. Subject to the terms and
conditions hereof, including without limitation the rights retained by Salk
under Section 2.3 below, Salk hereby grants to Licensee and its Affiliates
during the Term (a) an exclusive (including as to Salk), worldwide license,
including the right to grant sublicenses, under the Patent Rights, to make, have
made, use, have used, sell or have sold any Licensed Product or Licensed Service
and any Licensee Improvement and (b) a non-exclusive, worldwide license,
including the right to giant sublicenses, under the Technical Information, to
make, have made, use, have used, sell or have sold any Licensed Product or
Licensed Service and any Licensee Improvement.
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<PAGE> 4
2.2 Government Rights. Licensee understands that certain of the Licensed
Technology was developed in part with funds furnished by the Government of the
United States of America and that the Government has certain rights relative
thereto. This Agreement is explicitly made subject to the Government's rights
under any applicable law or regulation. To the extent that there is a conflict
between any such applicable law or regulation and this Agreement, the terms of
such applicable law or regulation shall prevail.
2.3 Retained Rights. Salk shall have the right to make, have made and
use the inventions and discoveries within the Licensed Technology for
educational and research purposes only, including the right to publish the
general scientific findings from research related to the Licensed Technology in
scholarly journals and publications.
2.4 Researchers. (a) Licensee agrees that it will supply kits to
researchers (including for mapping or similar uses) if Licensee believes it
makes strategic sense to exploit the Licensed Technology commercially by doing
so. (b) Further, Licensee will make a good faith effort to make transfers of
materials which are part of the Licensed Technology to researchers that are not
commercially sponsored at academic institutions for the advancement of science
and the benefit of humankind so long as such transfers are not reasonably deemed
by Licensee to be likely to impair its competitive advantages.
2.5 Sublicenses. Licensee shall have the right to grant sublicenses
consistent with this Agreement. Licensee further agrees to deliver to Salk for
informational purposes (and under an obligation of confidentiality) a true and
correct copy of each sublicense granted by Licensee, and any modification or
termination thereof, within thirty (30) days after execution, modification, or
termination. Upon termination of this Agreement, no existing sublicenses granted
by Licensee shall be affected by such termination, and all such sublicenses
shall remain in effect according to their terms. Salk shall continue to be
entitled to royalties under such sublicenses pursuant to Section 3.4 below, and
such sublicenses shall be deemed assigned to Salk if necessary to ensure
continued royalties.
2.6 Right to Negotiate for License to Later Development. Salk agrees to
notify Licensee in writing of any Later Development that occurs during a period
of three (3) years following the effective date of this Agreement, which notice
shall be given within sixty (60) days of the filing of a patent application by
Salk concerning such Later Development. Salk undertakes to provide such notice
to Licensee as early as reasonably practicable within such period. Salk hereby
grants to Licensee the right, during the one hundred fifty (150) day period
after delivery of such notice, to negotiate with Salk for a license to any such
Later Development. If Salk and Licensee are
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<PAGE> 5
unable to agree upon mutually acceptable terms for any such license to such
Later Development by the end of the applicable one hundred fifty (150) day
period, Salk may license such Later Development to another party as long as the
initial license fees and royalty rates offered to such other party are no more
favorable than those offered to Licensee. Licensee specifically acknowledges and
agrees that the requirements of the foregoing sentence shalL apply only to
initial license fees and royalty rates and shall be without regard to any other
terms offered by Salk either to Licensee or such other party.
2.7 Disclosure of Information. Salk agrees to provide Licensee with
copies of all published reports, manuscripts accepted for publication and all
other publications of Salk which relate to the Licensed Technology. Further
information and Technical Information will be provided to Licensee from time to
time through scientific discussions and meetings between Licensee and Salk. Salk
further agrees to provide Licensee promptly with copies of all United States
and, to the extent not duplicative, foreign patent applications which Salk files
and patents which may issue thereon, in each case which are included in the
Patent Rights.
3. Payments.
3.1 Equity Payment. As partial consideration for the rights granted to
Licensee under this Agreement and as a nonrefundable license fee, Licensee shall
issue to Salk upon execution of this Agreement forty thousand (40,000) shares of
Licensee's Series A Preferred Stock of Licensee (the "Shares"). The Shares shall
have the same rights, preferences and privileges (including, without limitation,
any applicable registration, preemptive and information rights) as the rights,
preferences and privileges of the preferred stock of Licensee outstanding as of
the date of this Agreement. Licensee represents and warrants that the Shares
represent not less than five percent (5%) of the total number of outstanding
shares of all classes and series of capital stock of Licensee (including the
Shares). Licensee further represents and warrants that (i) the execution and
delivery of this Agreement and the issuance of the Shares have been duly and
validly authorized by all necessary corporate action by Licensee, (ii) the
issuance of the Shares is not subject to any preemptive or similar rights,
except for any such rights which have been waived or otherwise complied with and
(iii) it has reserved sufficient shares of Common Stock to satisfy any
conversion of the Shares.
3.2 Milestone Payments. Licensee shall provide Salk written notice
within fifteen (15) days of its becoming aware of the achievement of each of the
milestone events set forth below in respect of any Licensed Product developed by
Licensee, its Affiliates or sublicensees hereunder. Within ten (10) days after
delivering each such notice, Licensee shall pay to Salk the amounts set forth
below:
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<PAGE> 6
<TABLE>
<CAPTION>
Diagnostic Products Payment Amount
------------------- --------------
<S> <C>
Initiation of clinical trials $ ***
Filing of a Pre Market Approval
application with the FDA $ ***
Written approval by the FDA to
market the applicable Licensed
Product $ ***
Therapeutic Products Payment Amount
-------------------- --------------
Filing of an Investigational
New Drug application with the
FDA $ ***
Submission of a New Drug
Application to the FDA $ ***
Written approval by the FDA to
market the applicable Licensed
Product $ ***
</TABLE>
If any milestone payment is not paid when due, Salk shall have the
option to either terminate this Agreement or to convert the license to the
Patent Rights granted under this Agreement to a non-exclusive license without
the right to sublicense, which non-exclusive license shall be subject to all of
the terms and obligations of this Agreement other than this Section 3.2. The
foregoing shall not relieve Licensee of its obligation to make any milestone
payment in the event Salk has elected to convert the license to the Patent
Rights to a non-exclusive license without the right to sublicense.
3.3 Royalty Payments. Licensee shall pay Salk royalties on Net Sales of
Licensed Products or Licensed Services sold by Licensee or its Affiliates as
follows through the period ending on the later of (i) the life of the applicable
patent included in the Patent Rights, or (ii) ten (10) years from the effective
date of this Agreement:
Diagnostic Products, Kits
for Research and Licensed
Services Royalty Rate
------------------------- ------------
If the Licensed Products or Licensed ***%
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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<PAGE> 7
Services are based on technology
covered by the Licensed Technology
If the Licensed Products or Licensed ***%
Services are based on discoveries made
by Licensee using methods covered by
the Licensed Technology ***%
Therapeutic Products Royalty Rate
-------------------- ------------
If the Licensed Products are based ***%
on technology covered by the Licensed
Technology
If the Licensed Products are based on ***%
discoveries made by Licensee using
methods covered by the Licensed Technology
Upon the earlier of notice of final disallowance from which no further appeal
can be taken or voluntary or involuntary abandonment which cannot be revived of
all applicable patent applications pertaining to a particular Licensed Product
or Licensed Service, the royalty rates set forth above shall be reduced by
one-half for any such Licensed Product or Licensed Service which is not covered
by an issued patent included in the Patent Rights. Any such reduction shall not
be applied retroactively. No royalty shall be payable for products or services
sold by Licensee or its Affiliates that use or include Technical Information but
that are not covered by any claim that is or was included in any patent or
patent application that is or was within the Patent Rights.
3.4 Other Payments. Licensee shall pay Salk for amounts received by
Licensee in consideration of the sublicense of any Licensed Technology, or other
agreement with any third party (other than an Affiliate of Licensee) with
respect to the Licensed Technology, in an amount equal to the greater of (i) the
royalty determined in accordance with Section 3.3 above on Net Sales by the
sublicensee or such third party; or (ii) fifty percent (50%) of the actual
invoice amount received by Licensee from the sublicensee or third party,
provided, however, that, with respect to this subparagraph (ii), if the
sublicense or third party agreement includes technology subject to an issued
patent or a pending patent application that was developed by Licensee in
addition to the Licensed Technology, the amount to be paid by Licensee to Salk
will be fifty percent (50%) of the actual invoice amount in the first year
following the date of this Agreement and will decrease by five percent (5%) on
the first anniversary of the date of this Agreement and on the anniversary date
in each year thereafter until reaching fifteen percent (15%) of the actual
invoice amount.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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<PAGE> 8
3.5 Credit for Third Party Payments. If Licensee must make payment to a
third party (other than an Affiliate) in order to sell a Licensed Product for
which a royalty would be payable to Salk, Licensee may credit no more than fifty
percent (50%) of the actual amount of any such payment to a third party against
the royalty payable to Salk hereunder with respect to such Licensed Product;
provided, however, that in no event will the royalty payable to Salk with
respect to such Licensed Product be reduced by more than fifty percent (50%).
Any credit contemplated by the foregoing sentence that has been accrued but not
used to offset royalties owed by Licensee to Salk may be applied against future
royalty payments.
4. Due Diligence.
4.1 Commercialization. Licensee shall proceed diligently with the
commercialization of products based upon the Patent Rights. Licensee will be
deemed to have met its diligence obligations if it expends at least the
following amounts, on a cumulative basis, in developing and exploiting the
Patent Rights:
<TABLE>
<CAPTION>
Anniversary Date of
this Agreement Cumulative Dollar Amount
-------------- ------------------------
<S> <C>
First $ ***
Second ***
Third ***
Fourth ***
Fifth ***
Sixth ***
Seventh ***
Eighth ***
Ninth ***
Tenth ***
</TABLE>
4.2 Reports. Licensee shall supply Salk annually, within ninety (90)
days of the applicable anniversary date, with a report substantiating in
reasonable detail the satisfaction of the minimum cumulative expenditures
specified in Section 4.1
5. Ownership: Intellectual Property.
5.1 Patent Rights and Technical Information. Licensee (for itself, its
Affiliates and sublicensees) acknowledges and agrees that Salk is and shall
remain (as to Licensee) the sole owner of the Patent Rights and Technical
Information and that Licensee (including its Affiliates and sublicensees) has no
rights in or to them other than the rights specifically granted herein.
5.2 Inventions. Each party acknowledges and agrees that any and all
discoveries, know-how, inventions, methods, ideas and
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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<PAGE> 9
the like ("Inventions") made or discovered pursuant to this Agreement solely by
its employees, consultants or agents shall be owned solely by it.
6. Representations as to Patent Filings: Disclaimer.
6.1 Patent Filings. Salk represents and warrants that, as of the
effective date of this Agreement, patent applications have been filed as
indicated in Schedule A.
6.2 Warranty Disclaimer. Nothing in this Agreement is or
shall be construed as:
(a) a warranty or representation by Salk as to the validity
or scope of any Patent Rights;
(b) a warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this Agreement
is or will be free from infringement of patents, copyrights and
other rights of third parties;
(c) an obligation to bring or prosecute actions or suits against
third parties for infringement, except to the extent and in the
circumstances described in Section 8; or
(d) a grant by implication, estoppel, or otherwise of any licenses
under patent applications or patents of Salk or other persons
other than as provided in Section 2 hereof.
6.3 No Warranty. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SALK
MAKES NO REPRESENTATION AND EXTENDS NO WARRANTY OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING WARRANTIES AS TO TITLE, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
6.4 Disclaimer of Liability. In no event will Salk be liable for any
incidental, special or consequential damages resulting from the exercise of
Licensee's rights under the license granted pursuant to this Agreement or the
use of the Licensed Technology.
7. Indemnification and Insurance
7.1 Indemnification. Licensee agrees to indemnify, hold harmless and
defend Salk, its trustees, officers, employees and agents, the sponsors of the
research that led to the Licensed Technology and the inventors of the patents
and patent applications included in the Patent Rights against any and all
damages finally awarded, with respect to any claims, suits, demands, judgments
or causes of action arising out of (a) the development, manufacture; storage,
sale or other distribution, or any other use of Licensed Products or performance
of Licensed
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<PAGE> 10
Services, or exercise of rights granted hereunder, by Licensee, its Affiliates
or subLicensees, distributors, agents or representatives; (b) the use by
end-users and other third parties of Licensed Products; or (c) any
representation, warranty or statement by Licensee or its Affiliates,
subLicensees, distributors, agents or representatives, concerning Salk or the
Patent Rights. In the event any such claims, demands or actions are made,
Licensee shall defend Salk at Licensee's sole expense by counsel selected by
Licensee, subject to approval by Salk, which such approval is not to be
unreasonably withheld.
7.2 Insurance. In addition to the foregoing, from and after the time
Licensee or any Affiliate or sublicensee begins clinical trials on Licensed
Product, Licensee shall use reasonable commercial efforts to obtain and
maintain, during the Term, comprehensive general liability insurance, including
products liability insurance, with reputable and financially secure insurance
carriers to cover the activities of Licensee, it Affiliates and subLicensees, if
any, contemplated by this Agreement. Such insurance shall include Salk as a
named insured, shall require prior notice to Salk before cancellation and shall,
to the extent reasonably possible, be in an amount which is customarily carried
by companies at a comparable stage of development or introduction of new
pharmaceutical products.
8. Prosecution and Maintenance of Patent Rights.
8.1 Prosecution and Maintenance. Salk shall have full control over
prosecution and maintenance of the patent applications and patents contained in
the Patent Rights. Salk will keep Licensee advised of the status of such
prosecution and maintenance by providing Licensee with copies of all official
communications with respect to the patent applications and patents contained in
the Patent Rights. In the event Salk elects not to prosecute or defend any
patent application or patent contained in the Patent Rights, Licensee shall have
the right to assume prosecution and defense of any such patent application or
patent, at Licensee's sole expense. Salk will notify Licensee a reasonable time
prior to the abandonment or expiration of any patent application or patent
included in the Patent Rights. In the event Licensee determines to abandon a
patent application or patent it has previously elected to continue the
prosecution and defense of pursuant to this Section 8.1, Licensee will so notify
Salk in writing within ninety (90) days of its proposed abandonment. Upon
receipt of such notice, Salk may elect to renew its prosecution and defense of
such patent application or patent, at its sole expense.
8.2 Payment of Patent Costs. Upon execution of this Agreement, Licensee
shall pay to Salk $54,708.44 as reimbursement for all Patent Costs incurred
through December 31, 1992. Licensee shall reimburse Salk for all Patent Costs
hereafter incurred with respect to the Patent Rights, as well as for all Patent
Costs thereafter incurred with respect to all patents and
-10-
<PAGE> 11
patent applications Licensee may license from Salk pursuant to Section 2.5
above. "Patent Costs" as used in this Agreement shall mean out-of-pocket
expenses incurred in connection with the preparation, filing, prosecution and
maintenance of patent applications and patents, including the fees and expenses
of attorneys and patent agents, filing fees and maintenance fees, but excluding
costs associated with any patent infringement actions. Salk will provide an
invoice to Licensee for any such Patent Costs on a semiannual basis, and
Licensee shall reimburse Salk for such Patent Costs within thirty (30) days
after delivery of any such invoice.
8.3 Cooperation. Salk and Licensee agree to consult and cooperate in a
mutually satisfactory manner with respect to all decisions related to the
preparation and filing of patent applications contained in the Patent Rights or
licensed by Licensee pursuant to Section 2.5 above.
8.4 Defense Against Infringement. In the event Licensee or Salk becomes
aware of any actual or threatened infringement of any Patent Rights, that party
shall promptly notify the other and the parties shall discuss the most
appropriate action to take. Both parties shall use their best efforts in
cooperating with each other to terminate such infringement without litigation.
If, within one hundred twenty (120) days after the date of notification of
infringement, attempts to abate such infringement are unsuccessful, then
Licensee may bring such action at its own expense, in which event Salk shall
cooperate with Licensee as reasonably requested, at Licensee's expense. Salk
may, on its own initiative, join in such suit. All recoveries, damages and
awards in such suit, after reimbursement of any litigation expenses of Salk not
previously reimbursed, shall belong to Licensee. To the extent Licensee's
recoveries exceed Licensee's expenses with respect to such infringement action,
such excess recoveries shall be considered Net Sales under this Agreement,
giving rise to the royalty obligations under Section 3.3. In the event that
Licensee elects not to institute or prosecute any suit to enjoin or recover
damages from any infringer, then Salk alone may, in its sole discretion and at
its expense, initiate and conduct an infringement action and keep any settlement
or award which may be obtained. Licensee and Salk agree that neither will settle
any action commenced by it in a manner that is prejudicial to any Patent Rights
without the other party's prior written approval. The parties agree that it is
in their interest to allow non-profit research organizations to practice the
methodologies included in the Licensed Technology to the extent the results
thereof are not used or, to their knowledge, contemplated to be used for the
purpose of development or exploitation by commercial entities and that such
activity shall not constitute infringement for purposes hereof.
8.5 Third Party Infringement Claims. In the event any
Licensed Product or Licensed Service becomes the subject of a
claim for patent or other proprietary right infringement anywhere
-11-
<PAGE> 12
in the world by virtue of the incorporation of the Patents Rights or Technical
Information therein, the parties shall promptly give notice to the other and
meet to consider the claim and the appropriate course of action. Licensee shall
have the right to conduct the defense of any such suit brought against Licensee
and/or Salk, including the right to file counterclaims against the party
claiming infringement in the event Salk does not do so within the time to file
an answer to such claim, and shall have the sole right and authority to settle
any such suit; provided that Salk shall cooperate with Licensee, as reasonably
requested by Licensee, in connection with the defense of such claim, at
Licensee's expense; and provided further, that Salk shall use commercially
reasonable efforts to engage in negotiations for settlement of such infringement
claim and to procure for Licensee the right to continue selling the allegedly
infringing Licensed Product or Licensed Service.
8.6 Marking. Licensee agrees to mark and to cause any Affiliate or
sublicensee to mark any Licensed Products (or their containers or labels) made,
sold, or otherwise disposed of by it or them with any notice of patent rights
necessary or desirable under applicable law to enable the Patent Rights to be
enforced to their full extent in any country where Licensed Products are made,
used or sold.
8.7 Use of Salk's Name. Licensee shall have no right to publicize this
Agreement or its relationship with Salk without Salk's prior written approval,
except as provided in this Section 8.7 and as may be required to comply with
federal or state laws and regulations. Salk agrees that Licensee may make known
in promotional and technical literature that the Licensed Technology was
developed at Salk by Dr. Glen Evans and other scientists in his laboratory, that
products are offered under license from Salk and that Salk is a shareholder of
Licensee; provided, however, that such use shall not state or imply that Salk
has any relationship with Licensee other than as "licensor" or as "shareholder."
9. Reporting, Verification and Payment.
9.1 Books and Records. Licensee agrees to keep proper records and books
of account in accordance with good accounting practices, showing the sales upon
which the royalty payments of Licensee are based, and all other information
necessary for the accurate determination of payment to be made hereunder.
9.2 Reports. Licensee agrees to deliver to Salk, within thirty (30) days
after each half year period ending June 30 and December 31, a report showing the
information on which the payments herein provided are calculated, including a
breakdown of income from sales of each Licensed Product and Licensed Service and
to accompany each such report with the payments shown to be due thereby.
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<PAGE> 13
9.3 Audit. On reasonable written notice, Salk, at its own expense, shall
have the right to have an independent certified public accountant, satisfactory
to Licensee, inspect and audit the books and records of Licensee, its Affiliates
and its sublicensees during usual business hours for the sole purpose of, and
only to the extent necessary for, determining the correctness of payments due
under this Agreement; provided that such right may be exercised only once during
any twelve (12) month period. Such examination with respect to any fiscal year
shall not take place later than two years following the expiration of such
period. The expense of any such audit shall be borne by Salk; provided, however,
that, if the audit discloses an error in excess of 10% in favor of Licensee,
then Licensee shall pay, in addition to the amount of any underpayment, the cost
to Salk of the audit. Licensee shall include substantially the same audit rights
in any sublicense it grants in order to ensure correctness of payments due
hereunder.
9.4 Foreign Payments. Royalties based on Net Sales in any foreign
country shall be payable to Salk in the United States in United States Dollars.
Dollar amounts shall be calculated using the foreign exchange rate, as published
by the Wall Street Journal, in effect for such foreign currency on the last
business day of each half year for which a report is required. Where royalties
are due for Net Sales in a country where, for reasons of currency, tax or other
regulations, transfer of foreign currency out of such country is prohibited,
Licensee has the right to place Salk's royalties in a bank account in such
country in the name of and under the sole control of Salk; provided, however,
that the bank selected be reasonably acceptable to Salk and that Licensee inform
Salk of the location, account number, amount and currency of money deposited
therein. After Salk has been so notified, those monies chewy be considered as
royalties duly paid to Salk and will be completely controlled by Salk, and
Licensee will have no further responsibility with respect thereto.
9.5 Taxes. Licensee shall be liable for any and all taxes which may be
levied by a proper taxing authority on account of royalties or other payments
accruing to Salk under this Agreement. Such taxes may not be deducted from
royalties or other payments to be paid to Salk hereunder. Licensee acknowledges
that Salk is a not-for-profit corporation and thus does not qualify under U.S.
tax laws to obtain a tax credit for any such taxes paid by Licensee.
10. Term and Termination.
10.1 Term. Unless earlier terminated under this Section 10, this
Agreement shall become effective as of the effective date and end on the later
to occur of the following (the "term"): (a) ten years from and after the
effective date; or (b) the date of expiration of the last to expire of any
patent included in the Patent Rights.
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<PAGE> 14
10.2 Termination by Either Party. This Agreement may be terminated by
either party, if the other party substantially fails to perform or otherwise
materially breaches any of the material terms, covenants or provisions of this
Agreement, such termination to be effected by giving written notice of intent to
terminate to the breaching party stating the grounds therefor. The party
receiving the notice shall have thirty (30) days thereafter to correct such
breach. If such breach is not corrected within said thirty (30) days after
notice as aforesaid, then this Agreement shall automatically terminate.
10.3 Consequences of Termination.
(a) In the event of termination of the Agreement for any reason
whatsoever, including the expiration of the Term pursuant to Section 10.1:
(i) Licensee shall not thereby be discharged from any liability
or obligation to Salk which became due or payable prior to the effective
date of such termination.
(ii) The rights and obligations of the parties under Sections 7,
8.7, 10.3, 11 and 12 shall survive any termination of this Agreement.
(b) In the event of termination of the Agreement pursuant to Section
10.2:
(i) If Licensee, its Affiliates or its sublicensees then possess
Licensed Product, have started the manufacture thereof or have accepted
orders therefor, Licensee, its Affiliates or its sublicensees shall have
the right to sell their inventories thereof, complete the manufacture
thereof and market such fully manufactured Licensed Product, in order to
fulfill such accepted orders, subject to the obligation of Licensee to
pay Salk the royalty payments therefor as provided in Section 3 of this
Agreement;
(ii) Subject to Section 10.3(b)(i), Licensee shall discontinue,
and shall cause its Affiliates to discontinue, the manufacture, use,
marketing and sale of Licensed Product and shall do all things necessary
or appropriate in order to effect the assignment of any sublicenses
granted hereunder to Salk in accordance with Section 2.5.
(iii) All rights sold, assigned or transferred by Salk to Licensee
hereunder shall revert to Salk, and Licensee agrees to execute all
instruments necessary and desirable to revest said rights in Salk.
(c) Provided that this Agreement has not been earlier terminated, upon
the expiration of the Term pursuant to Section 10.1, Licensee shall have the
royalty-free, non-exclusive right
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<PAGE> 15
to practice the Patent Rights and Technical Information previously subject to
the license set forth in Section 2.1.
11. Confidential Information. All confidential scientific and technical
information in respect of the Licensed Technology communicated by Salk to
Licensee, including, without limitation, information contained in patent
applications, shall be received in strict confidence by Licensee, its Affiliates
and sublicensees, used only for the purposes of this Agreement and not disclosed
by Licensee, its Affiliates and sublicensees or their respective agents or
employees without the prior written consent of Salk, unless such information (i)
was in the public domain at the time of disclosure, (ii) later became part of
the public domain, through no act or omission of the recipient party, its
employees agents' successors, or assigns, (iii) was lawfully disclosed to the
recipient by a third party having the right to disclose it, (iv) was already
known by the recipient at the time of disclosure, or (v) was independently
developed by the recipient without use of any Licensed Technology and the
recipient can so demonstrate with competent written proof. Nothing contained
herein shall prevent Licensee or its Affiliates from disclosing information to
sublicensees; provided that such sublicensees agree to be bound by substantially
the same confidentiality provisions as provided herein.
12. Choice of Law: Dispute Resolution.
12.1 Governing Law. This Agreement is made in accordance with and shall
be governed and construed in accordance with the laws of the State of
California, as applied to contracts executed and performed entirely within the
State of California, without regard to conflicts of laws rules.
12.2 Arbitration. If a dispute arises between the parties relating to
the interpretation or performance of this Agreement or the grounds for the
termination thereof, the parties agree to hold a meeting, attended by
individuals with decision-making authority regarding the dispute, to attempt in
good faith to negotiate a resolution of the dispute prior to pursuing other
available remedies. If, within thirty (30) days after such meeting, the parties
have not succeeded in negotiating a resolution of the dispute, such dispute
shall be submitted to final and binding arbitration under the then current
Licensing Agreement Arbitration Rules of the American Arbitration Association
("AAA"), with a panel of three (3) arbitrators in San Diego County, California;
provided, however, that California Code of Civil Procedure Section 1283.05 shall
apply to any such proceeding. Such arbitrators shall be selected by the mutual
agreement of the parties or, failing such agreement, shall be selected according
to the aforesaid AAA rules. The parties shall bear the costs of arbitration
equally unless the arbitrators, pursuant to their right, but not their
obligation, require the non-prevailing party to bear all or any unequal portion
of the prevailing party's costs. The decision of the arbitrator shall be final
and may be
-15-
<PAGE> 16
sued on or enforced by the party in whose favor it runs in any court of
competent jurisdiction at the option of the successful party. The arbitrators
will be instructed to prepare and deliver a written, reasoned opinion conferring
their decision. The rights and obligations of the parties to arbitrate any
dispute relating to the interpretation or performance of this Agreement or the
grounds for the termination thereof shall survive the expiration or termination
of this Agreement for any reason.
13. Miscellaneous.
13.1 Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties with respect to the subject matter hereof, and
merges all prior discussions, representations and negotiations with respect to
the subject matter of this Agreement.
13.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by either party without the prior written
consent of the other party (such consent not to be unreasonably withheld with
respect to an assignment in the event of a sale of all or substantially all of a
party's assets). This Agreement chewy be binding upon and inure to the benefit
of Salk, Licensee and their respective assigns and successors in interest.
13.3 Headings. The headings used in this Agreement are for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
13.4 Amendment. No amendment or modification hereof shall be valid or
binding upon the parties unless made in writing and signed by both parties.
13.5 Force Majeure. Any delays in performance by any party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to, acts of God, embargoes, governmental
restrictions, strikes or other concerted acts of workers, fire, flood,
explosion, riots, wars, civil disorder, rebellion or sabotage. The party
suffering such occurrence shall immediately notify the other party and any time
for performance hereunder shall be extended by the actual time of delay caused
by the occurrence.
13.6 Addresses. The payments to be made hereunder to Salk shall be made
by mailing checks for the required amount to Salk's address. Notices provided
for herein shall effectively be given by mailing the same by certified or
registered mail, properly addressed. For the purposes of making payments and
giving notices, the addresses of"the parties hereto are as follows:
The Salk Institute for Biological Studies
Post Office Box 85800
-16-
<PAGE> 17
San Diego, CA 92138
Attn: Patent Administrator
Nanotronics, Inc.
c/o Enterprise Partners
5000 Birch Street, Suite 6200
Newport Beach, CA 92660
Attn: President
or to such subsequent addresses as either party may furnish the other by giving
notice thereof as provided in this paragraph 13.6.
13.7 Independent Contractors. In making and performing this Agreement,
Salk and Licensee act and shall act at all times as independent contractors and
nothing contained in this Agreement shall be construed or implied to create an
agency, partnership or employer and employee relationship between Salk and
Licensee. At no time shall one party make commitments or incur any charges or
expenses for or in the name of the other party except as specifically provided
herein.
13.8 Severability. If any term, condition or provision of this Agreement
is held to be unenforceable for any reason, it shall, if possible, be
interpreted rather than voided, in order to achieve the intent of the parties to
this Agreement to the extent possible. In any event, all other terms, conditions
and provisions of this Agreement shall be deemed valid and enforceable to the
full extent.
13.9 Waiver. None of the terms, covenants, and conditions of this
Agreement can be waived except by the written consent of the party waiving
compliance.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers or representatives.
THE SALK INSTITUTE FOR BIOLOGICAL
STUDIES
By /s/ Dilbert E. Glang
----------------------------------------------
Title Executive Vice President
--------------------------------------------
NANOTRONICS, INC.
By /s/ Howard C. Birndorf
----------------------------------------------
Title President
--------------------------------------------
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<PAGE> 18
THE SALK INSTITUTE
SCHEDULE A
GENOMIC ANALYSIS
U.S. PATENT APPLICATIONS
U.S. Serial No. ***.
U.S. Serial No. ***.
U.S. Serial-No. ***.
U.S. Serial No. ***.
FOREIGN COUNTERPARTS CORRESPONDING TO
U.S. SERIAL NO. ***
<TABLE>
<CAPTION>
APPLICATION FILING PATENT
COUNTRY NO. DATE NO. GRANTED EXPIRES
- ------- --- ---- --- ------- -------
<S> <C> <C> <C> <C> <C>
PCT *** *** ***
Australia
Canada
Japan
EPC *** ***
- ---
Austria
Belgium
Denmark
France
Germany
Great Britain
Greece
Holland
Italy
Luxembourg
Spain
Sweden
Switzerland
</TABLE>
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
-18-
<PAGE> 19
FOREIGN COUNTERPARTS CORRESPONDING TO
U.S. SERIAL NO. ***
<TABLE>
<CAPTION>
APPLICATION FILING PATENT
COUNTRY NO. DATE NO. GRANTED EXPIRES
- ------- --- ---- --- ------- -------
<S> <C> <C> <C> <C> <C>
PCT ***
Canada
Japan
EPC
Austria
Belgium
France
Germany
Great Britain
Greece
Holland
Italy
Luxembourg
Spain
Sweden
Switzerland
</TABLE>
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
-19-
<PAGE> 1
EXHIBIT 10.16
Execution Copy
NANOGEN, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
May 5, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
1. Authorization and Sale of Stock........................................ 1
1.1 Sale and Issuance of Series D Preferred Stock................... 1
1.2 Closing......................................................... 1
1.3 Purchase of Additional Shares................................... 1
2. Representations and Warranties of the Company.......................... 2
2.1 Organization, Good Standing and Qualification................... 2
2.2 Capitalization and Voting Rights................................ 2
a. Preferred Stock.......................................... 2
b. Common Stock............................................. 3
c. Rights to Purchase Shares/Shareholder
Agreements............................................... 3
2.3 Subsidiaries.................................................... 3
2.4 Authorization................................................... 3
2.5 Valid Issuance of Preferred and Common Stock.................... 4
2.6 Governmental Consents........................................... 4
2.7 Litigation...................................................... 5
2.8 Proprietary Information......................................... 5
2.9 Patents and Trademarks.......................................... 5
2.10 Compliance with Other Instruments............................... 6
2.11 Agreements; Action.............................................. 6
2.12 Related-Party Transactions...................................... 7
2.13 Permits......................................................... 8
2.14 Environmental and Safety Laws................................... 8
2.15 Manufacturing and Marketing Rights.............................. 8
2.16 Registration Rights............................................. 8
2.17 Title to Property and Assets.................................... 8
2.18 Qualified Small Business........................................ 8
2.19 Financial Statements............................................ 9
2.20 Changes......................................................... 9
2.21 Employee Benefit Plan........................................... 10
2.22 Tax Returns, Payments and Elections............................. 10
2.23 Insurance....................................................... 10
2.24 Labor Agreements and Actions.................................... 10
2.25 Real Property Holding Company................................... 11
2.26 Disclosure...................................................... 11
2.27 Minute Books.................................................... 11
2.28 Private Placement Memorandum.................................... 11
3. Representations and Warranties of Investor............................. 12
3.1 Authorization................................................... 12
3.2 Purchase Entirely for Own Account............................... 12
3.3 Nature of Solicitation; Access to Data.......................... 12
3.4 Investment Experience........................................... 13
3.5 Accredited Investor............................................. 13
3.6 Restricted Securities........................................... 13
3.7 Further Limitations on Disposition.............................. 13
3.8 Legends......................................................... 13
4. Conditions of Investor's Obligations at Closing........................ 14
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C> <C>
4.1 Representations and Warranties.................................. 14
4.2 Performance..................................................... 14
4.3 Compliance Certificate.......................................... 14
4.4 Qualifications.................................................. 14
4.5 Opinion of Company's Counsel.................................... 14
4.6 Blue Sky........................................................ 15
4.7 Amendment to Investors' Rights Agreement........................ 15
4.8 Legal Matters................................................... 15
4.9 Research and Development Agreement.............................. 15
5. Conditions of the Company's Obligations at Closing..................... 15
5.1 Representations and Warranties.................................. 15
5.2 Payment of Purchase Price....................................... 15
5.3 Blue Sky........................................................ 15
5.4 Restated Articles............................................... 15
5.5 Legal Matters................................................... 15
5.6 Research and Development Agreement.............................. 15
6. Miscellaneous.......................................................... 16
6.1 Survival of Warranties.......................................... 16
6.2 Successors and Assigns.......................................... 16
6.3 Governing Law................................................... 16
6.4 Counterparts.................................................... 16
6.5 Titles and Subtitles............................................ 16
6.6 Notices......................................................... 16
6.7 Finder's Fee.................................................... 16
6.8 Attorneys' Fees................................................. 17
6.9 Amendments and Waivers.......................................... 17
6.10 Severability.................................................... 17
6.11 Aggregation of Stock............................................ 17
6.12 Entire Agreement................................................ 17
Exhibit A Amended and Restated Articles of Incorporation
Exhibit B Research and Development Agreement
Exhibit C Schedule of Exceptions
Exhibit D Opinion of Pillsbury Madison & Sutro LLP
</TABLE>
-ii-
<PAGE> 4
NANOGEN, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT is made as of the 5th day
of May 1997, by and between Nanogen, Inc., a California corporation (the
"Company"), and Becton, Dickinson and Company, a New Jersey corporation (the
"Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Authorization and Sale of Stock.
1.1 Sale and Issuance of Series D Preferred Stock.
a. The Company has, or before the Closing (as defined
below), will have, authorized the sale and issuance (the "Offering") of up to
1,000,000 shares of its Series D Preferred Stock (the "Series D Preferred
Stock"), having the rights, preferences, privileges and restrictions set forth
in the Amended and Restated Articles of Incorporation of the Company attached to
this Agreement as Exhibit A. The Company has, or before the Closing will have,
adopted and filed the Amended and Restated Articles of Incorporation with the
California Secretary of State.
b. Subject to the terms and conditions of this Agreement,
Investor agrees to purchase at the Closing, and the Company agrees to sell and
issue to Investor at the Closing, 1,000,000 shares of Series D Preferred Stock
at a purchase price of $6.00 per share.
1.2 Closing. The purchase and sale of the Series D Preferred Stock
shall take place at the offices of Pillsbury Madison & Sutro LLP, 235 Montgomery
Street, San Francisco, CA 94104, at 11:00 am., on May 13, 1997, or at such other
time and place as the Company and Investor mutually agree upon orally or in
writing (which time and place are designated as the "Closing"). At the Closing
the Company shall deliver to Investor a certificate representing the Series D
Preferred Stock which Investor is purchasing against delivery to the Company by
Investor of wired funds or a check in the amount of the purchase price therefor
payable to the Company's order.
1.3 Purchase of Additional Shares.
a. Investor agrees, in the event the Company consummates a
public offering of Common Stock in a firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended,
of which the aggregate gross proceeds to the Company (exclusive of amounts
purchased by Investor) are at least $20,000,000(a "Public Offering") before May
31, 1999 (the "Termination Date"),
<PAGE> 5
to purchase, pursuant to the registration statement as part of such Public
Offering, such number of shares of the Company's Common Stock equal to
$1,000,000 divided by the price offered to the public ("Price to the Public")
for such Common Stock. In the event, prior to such Public Offering, Investor and
the Company shall have entered into a partnership or joint venture agreement as
provided in Section 7.2 of the Research and Development Agreement of even date
herewith between the parties (the "Research and Development Agreement") and such
agreement shall be in full force and effect, Investor shall purchase pursuant to
the registration statement as part of such Public Offering an additional number
of shares of the Company's Common Stock equal to $5,000,000 divided by the Price
to the Public.
b. In the event no Public Offering of the Company's Common
Stock is made before the Termination Date, Investor shall be entitled, but not
obligated, for a period of six months from the Termination Date, to exercise an
option to purchase up to $6,000,000 of the Company's Series D Preferred Stock at
a purchase price of $6.00 per share. If such option is exercised, the purchase
shall be made within 15 days pursuant to a purchase agreement substantially in
the form of this Agreement.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to Investor that, except as set forth on the Schedule of
Exceptions attached hereto as Exhibit C, specifically identifying the relevant
subparagraph hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to own and operate its properties and assets, to carry on its business
as now conducted and as proposed to be conducted, to execute and deliver and
perform the Agreement and the Investors' Rights Agreement dated December 19,
1996 between the Company and the investors listed on Schedule A thereto, as
amended to add Investor as a party (the "Investors' Rights Agreement"). The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on the assets, properties, financial condition, operating results or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted) (hereafter, a "Material Adverse Effect").
2.2 Capitalization and Voting Rights. The authorized capital of
the Company consists, or will consist prior to the Closing, of:
a. Preferred Stock. 15,500,000 shares of Preferred Stock
(the "Preferred Stock"), of which 2,339,667
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<PAGE> 6
shares have been designated Series A Preferred Stock and all of which have been
issued and are outstanding, 3,800,600 shares have been designated Series B
Preferred Stock, of which 3,715,600 are currently issued and outstanding,
6,700,000 shares have been designated Series C Preferred Stock, of which
6,553,598 are currently issued and outstanding, 2,000,000 shares have been
designated Series D Preferred Stock, none of which are currently issued and
outstanding, and 1,000,000 of which will be sold pursuant to this offering. The
rights, privileges and preferences of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock
will be as stated in the Company's Amended and Restated Articles of
Incorporation.
b. Common Stock. 40,000,000 shares of common stock ("Common
Stock"), of which as of April 30, 1997, 2,740,177 shares are issued and
outstanding.
c. Rights to Purchase Shares/Shareholder Agreements. Except
for (i) the conversion privileges of the Series A, Series B and Series C
Preferred Stock outstanding and the Series D Preferred Stock to be issued under
this Agreement, (ii) the rights set forth in Section 2.4 of the Investors'
Rights Agreement, (iii) options to purchase an aggregate of 362,325 shares of
Common Stock granted pursuant to the Company's 1993 Stock Option/Stock Issuance
Plan, as amended, and the Company's 1995 Amended and Restated Stock Option/Stock
Issuance Plan, (iv) warrants to purchase an aggregate of 626,905 shares of
Common Stock granted pursuant to agreements described in the Schedule of
Exceptions, (v) warrants to purchase an aggregate of 60,000 shares of Series B
Preferred Stock pursuant to agreements described in the Schedule of Exceptions
and (vi) a warrant to purchase 9,000 shares of Series C Preferred Stock issued
to Lease Management Services, Inc., there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from the Company of any shares of its capital stock.
The Company is not a party or subject to any agreement or understanding, and, to
the Company's knowledge, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association or
other business entity.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Investors'
Rights Agreement, the performance of all obligations of the Company hereunder
and thereunder and the authorization, issuance (or reservation for issuance) and
delivery of the Series D Preferred Stock being sold hereunder
-3-
<PAGE> 7
and the Common Stock issuable upon conversion of the Series D Preferred Stock
has been taken or will be taken prior to the Closing, and this Agreement and the
Investors' Rights Agreement constitute valid and legally binding obligations of
the Company, enforceable in accordance with their respective terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
2.5 Valid Issuance of Preferred and Common Stock.
a. The Series D Preferred Stock which is being purchased by
Investor hereunder, when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, will be duly and validly issued,
fully paid and nonassessable, free of any restrictions on transfer other than
pursuant to this Agreement and the Investors' Rights Agreement, and, based in
part upon the representations of Investor in this Agreement, will be issued in
compliance with all applicable federal and state securities laws. The Common
Stock issuable upon conversion of the Series D Preferred Stock purchased under
this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Amended and Restated Articles of
Incorporation, shall be duly and validly issued, fully paid and nonassessable,
free of any restrictions on transfer other than pursuant to this Agreement and
the Investors' Rights Agreement, and issued in compliance with all applicable
securities laws, as presently in effect, of the United States and each of the
states whose securities laws govern the issuance of any of the Series D
Preferred Stock hereunder. The Series D Preferred Stock issued hereunder will be
free and clear from any liens or encumbrances.
b. The outstanding shares of Common Stock, Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are all
duly and validly authorized and issued, fully paid and nonassessable, and were
issued in compliance with all applicable federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority
("Consents and Filings") on the part of the Company is required in connection
with the consummation of the transactions contemplated by this Agreement, except
for (i) such Consents and Filings as have been or will be obtained or made prior
to the Closing, (ii) pre-sale filings as may be required under applicable state
or foreign securities laws which have been or will be timely filed and
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<PAGE> 8
(iii) any notices of sale required to be filed with the Securities and Exchange
Commission pursuant to Regulation D under the Securities Act of 1933, as amended
(the "Securities Act") or such post-closing filings as may be required under
applicable state or foreign securities laws, which will be timely filed within
the applicable periods therefor.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company which questions the validity of this Agreement or the
Investors' Rights Agreement, or the right of the Company to enter into either of
them, or to consummate the transactions contemplated hereby or thereby. The
foregoing includes, without limitation, actions pending or threatened involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
2.8 Proprietary Information. Each employee, officer and consultant
of the Company has executed a Proprietary Information and Inventions Agreement
in the form provided to special counsel to Investor. The Company, after
reasonable investigation, is not aware that any of its employees, officers or
consultant are in violation thereof, and the Company will use its reasonable
commercial efforts to prevent any such violation.
2.9 Patents and Trademarks. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses and proprietary rights necessary for its business as now
conducted and as proposed to be conducted without any conflict with or
infringement of the rights of others. Other than as described in the Schedule of
Exceptions, there are no outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, licenses, trade secrets,
licenses, information or proprietary rights of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, licenses, copyrights or trade
secrets or other proprietary rights of any other person or entity, which
violation would have a Material Adverse Effect. The Company is not aware that
any of its employees are obligated under any contract (including licenses,
covenants or commitments of any
-5-
<PAGE> 9
nature) or other agreement, or subject to any judgment, decree or order of any
court or administrative agency, that would interfere with the use of his best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement and the Investors' Rights Agreement, nor the carrying
on of the Company's business as currently conducted or as proposed to be
conducted by the employees of the Company will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees (or people
it currently intends to hire) made prior to their employment by the Company.
2.10 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Amended and Restated Articles of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound or, after diligent
inquiry, to the best of its knowledge, of any provision of federal or state
statute, rule or regulation applicable to the Company, which violation or
default would have a Material Adverse Effect. The execution, delivery and
performance of this Agreement and the Investors' Rights Agreement and the
consummation of the transactions contemplated hereby and thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture or nonrenewal of
any material permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.11 Agreements; Action.
a. Except for agreements explicitly contemplated hereby and
by the Investors' Rights Agreement or as disclosed in the Schedule of
Exceptions, there are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors, affiliates or any
affiliate thereof.
b. There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of, $50,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company or
-6-
<PAGE> 10
(iii) provisions restricting or affecting the development, manufacture or
distribution of the Company's products or services.
c. The Company has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money borrowed
or any other liabilities individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
d. For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
e. The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Amended and Restated Articles of Incorporation or Bylaws, which has a Material
Adverse Effect.
f. The Company has not engaged in the past three (3) months
in any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company in a
transaction or series of related transactions or regarding any transaction of
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of, or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company.
2.12 Related-Party Transactions. Other than as disclosed in the
Schedule of Exceptions, no employee, officer or director of the Company or
member of his or her immediate family is indebted to the Company, nor is the
Company indebted (or committed to make loans or extend or guarantee credit) to
any of them. To the best of the Company's knowledge, none of such persons has
any direct or indirect ownership interest in any firm or corporation with which
the Company is affiliated or with which the Company has a business relationship,
or any firm or corporation that competes with the Company, except that
employees, officers or directors of the Company and members of
-7-
<PAGE> 11
their immediate families may own stock in publicly traded companies that may
compete with the Company. No member of the immediate family of any officer or
director of the Company is directly or indirectly interested in any material
contract with the Company.
2.13 Permits. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could have a Material Adverse Effect and
believes it can obtain without undue burden or expense, any similar authority
for the conduct of its business as proposed to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
2.14 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.15 Manufacturing and Marketing Rights. The Company has not
granted rights to manufacture, produce, assemble, license, market or sell its
products to any other person and is not bound by any agreement that affects the
Company's exclusive right to develop, manufacture, assemble, distribute, market
or sell its products.
2.16 Registration Rights. Except as provided in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.17 Title to Property and Assets. The Company owns its property
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens which arise in the ordinary course of
business and do not materially impair the Company's ownership or use of such
property or assets. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
2.18 Qualified Small Business. The Company represents and warrants
to Investor that it qualifies as a "Qualified Small Business" as defined in
Section 1202(d) of the Internal Revenue Code of 1986, as amended (the "Code").
The Company covenants that so long as it reasonably believes that the Series D
Preferred Stock (or shares issuable upon conversion) held by Investor or a
transferee would qualify as Qualified Small Business Stock as defined in Section
1202(c) of the Code it will
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<PAGE> 12
timely file all reports or filings with the Internal Revenue Service required of
a Qualified Small Business.
2.19 Financial Statements. The Company has delivered to Investor
its audited financial statements at and for the year ended December 31, 1996 and
its unaudited financial statements (without footnotes) at and for the
three-month period ended March 31, 1997 (the "Financial Statements). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
consistently applied. Except as set forth in the Financial Statements, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of the last
Financial Statements and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in the Financial Statements,
which, in both cases, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
2.20 Changes. Other than as disclosed in the Schedule of
Exceptions, since March 31, 1997, there has not been:
a. any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business which
have not been, in the aggregate, materially adverse.
b. any damage, destruction or loss, whether or not covered
by insurance which has had a Material Adverse Effect;
c. any waiver by the Company of a valuable right or of a
material debt owed to it;
d. any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business or which does not have a Material Adverse Effect;
e. any change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
f. any material change in any compensation arrangement or
agreement with any employee; or
g. to the Company's knowledge, any other event or condition
of any character which might have a Material Adverse Effect.
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<PAGE> 13
2.21 Employee Benefit Plan. Except for the Company's 401(k) plan
(the "Plan"), the Company does not have any Employee Benefit Plan as defined in
the Employee Retirement Income Security Act of 1974. The Plan is in full force
and effect in accordance with its terms and complies in all material respects
with all applicable law. The Company has made or provided for all payments due
under or with respect to the Plan to date, and all amounts properly accrued to
date (in accordance with generally accepted accounting principles) as
liabilities of the Company under the Plan in the current plan years have been
recorded on its financial statements.
2.22 Tax Returns, Payments and Elections. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has timely paid all taxes and
other assessments due. The provision for taxes, penalties and interest of the
Company as shown in the Financial Statements is adequate for taxes due or
accrued as of the date thereof. The Company has not elected pursuant to the
Code, to be treated as a Subchapter S corporation or a collapsible corporation
pursuant to Section 341(f) or Section 1362(a) of the Code, nor has it made any
other elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) which would have a Material
Adverse Effect. The Company has fulfilled all withholding obligations with
respect to taxes and has timely paid to the appropriate governmental authorities
the proper amounts with respect to the foregoing. The tax and audit positions
taken by the Company have been consistently applied in connection with the tax
returns filed and were reasonable and asserted in good faith. The Company has
not waived any statute of limitations in respect of taxes or agreed to an
extension of time with respect to a tax assessment or deficiency. Neither the
Internal Revenue Service nor any foreign, state, local or other taxing authority
has examined or is in the process of examining any federal, foreign, state,
local or other tax returns of the Company. Neither the Internal Revenue Service
nor any foreign, state, local or other taxing authority is now asserting or
threatening to assert any deficiency or claim in respect of taxes. The Company
is not a party to, or bound by, any tax indemnity, tax sharing or tax allocation
agreement. There are no liens for taxes (other than for current taxes not yet
due and payable) upon the assets of the Company. The Company has not had an
"ownership change" as defined in Section 382 of the Code.
2.23 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.24 Labor Agreements and Actions. The Company is not bound by or
subject to (and none of its assets or properties is
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<PAGE> 14
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or other
labor dispute involving the Company pending, or to the knowledge of the Company
threatened, which could have a Material Adverse Effect, nor is the Company aware
of any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the will
of the Company.
2.25 Real Property Holding Company. The Company is not a real
property holding company within the meaning of Code Section 897.
2.26 Disclosure. The Company has fully provided Investor with all
the information which Investor has requested for deciding whether to purchase
the Series D Preferred Stock and all information which the Company believes is
reasonably necessary to enable Investor to make such decision. Neither this
Agreement nor the Investors' Rights Agreement, nor any other statements or
certificates made or delivered in connection herewith or therewith contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading.
2.27 Minute Books. The minute books of the Company contain a
complete and accurate account of all meetings of the Board of Directors and
shareholders and all actions by written consent since the date of incorporation
of the Company.
2.28 Private Placement Memorandum. The Confidential Private
Placement Memorandum dated September 20, 1996, as supplemented on December 6,
1996, used by the Company in connection with the offer and sale of the Series C
Preferred Stock (the "Memorandum") has been prepared in good faith by the
Company and, together with the Schedule of Exceptions, does not contain any
untrue statement of a material fact nor does it omit to state a material fact
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading, except that with respect to
financial projections and other forward looking statements contained in the
Memorandum the Company represents only that such projections and forward looking
statements were prepared in good faith and that the Company reasonably believes
there is a reasonable basis for such projections and forward looking statements
(subject to the risk factors disclosed in the Memorandum relating to such
projections and forward looking statements).
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<PAGE> 15
3. Representations and Warranties of Investor. Investor hereby
represents and warrants that:
3.1 Authorization. This Agreement constitutes its valid and
legally binding obligation, enforceable in accordance with its terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
Investor in reliance upon Investor's representation to the Company, which by
Investor's execution of this Agreement Investor hereby confirms, that the Series
D Preferred Stock to be received by Investor and the Common Stock issuable upon
conversion thereof (collectively, the "Securities") will be acquired for
investment for Investor's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Investor has no
present intention of selling, granting any participation in or otherwise
distributing the same. By executing this Agreement, Investor further represents
that Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities. Investor represents
that it has full power and authority to enter into this Agreement.
3.3 Nature of Solicitation; Access to Data. Investor confirms that
the offer to sell the Shares was communicated to Investor by the Company in such
manner that Investor was able to ask questions of and received answers from the
Company or a person acting on its behalf concerning the terms and conditions of
this transaction as well as to obtain any information requested by Investor. Any
questions raised by Investor or its representatives concerning the transaction
have been answered to the satisfaction of Investor and its representatives.
Investor's decision to purchase the Series D Preferred Stock is based in part on
the answers to such questions as Investor and its representatives have raised
concerning the transaction and on its own evaluation of the risks and merits of
the purchase and the Company's proposed business activities, provided that the
foregoing does not limit the right of Investor to rely upon the representations
and warranties of the Company set forth in Section 2 of this Agreement. Investor
confirms that at no time was Investor presented with or solicited by or through
any leaflet, public promotional meeting, television advertisement or any other
form of general advertising in connection and concurrently with such
communicated offer.
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<PAGE> 16
3.4 Investment Experience. Investor has experience in investing in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series D
Preferred Stock. If other than an individual, Investor also represents it has
not been organized for the purpose of acquiring the Series D Preferred Stock.
3.5 Accredited Investor. Investor is an "accredited investor" as
defined in Rule 501(a) of Regulation D, as amended, of the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933 (the
"Securities Act").
3.6 Restricted Securities. It understands that the shares of
Series D Preferred Stock it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act, only in certain limited
circumstances. In this connection, Investor represents that it is familiar with
SEC Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, Investor further agrees not to
make any disposition of all or any portion of the Series D Preferred Stock (or
the Common Stock issuable upon the conversion thereof) unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3.7 and Section 6, and by the Investors' Rights Agreement and:
a. There is then in effect a Registration Statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement; or
b. (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, Investor shall have furnished the Company
with an opinion of counsel reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
3.8 Legends. It is understood that the certificates evidencing the
Series D Preferred Stock (and the Common Stock
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<PAGE> 17
issuable upon conversion thereof) may bear one or all of the following legends:
a. "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
b. Any legend required by the laws of the state in which
Investor resides.
4. Conditions of Investor's Obligations at Closing. The obligations of
Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Amended and Restated Articles of
Incorporation attached as Exhibit A shall have been filed with the Secretary of
State of the State of California, the Company shall have received the purchase
price specified in Section 1.1(b) hereof, and the Company shall have performed
and complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to Investor at the Closing a certificate certifying that the conditions
specified in Sections 4.1 and 4.2 have been fulfilled and stating that there
shall have been no material adverse change in the business, affairs, operations,
properties, assets or financial condition of the Company since March 31, 1997.
4.4 Qualifications. The Commissioner of Corporations of the State
of California shall have issued a permit qualifying the offer and sale of the
Series D Preferred Stock and the underlying Common Stock to Investor pursuant to
this Agreement, or such offer and sale shall be exempt from such qualification
under the California Corporate Securities Law of 1968, as amended.
4.5 Opinion of Company's Counsel. At the Closing Investor shall
have received from Pillsbury Madison & Sutro LLP, counsel to the Company, a
favorable opinion addressed to it,
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<PAGE> 18
dated the Closing Date, in substantially the form attached to this Agreement as
Exhibit D.
4.6 Blue Sky. The Company shall have obtained all necessary blue
sky law permits and qualifications, or secured exemptions therefrom, required by
any state for the offer and sale of the Series D Preferred Stock issuable upon
conversion thereof.
4.7 Amendment to Investors' Rights Agreement. The Investors'
Rights Agreement shall have been amended to make Investor a party thereto.
4.8 Legal Matters. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated by this Agreement
shall have been reasonably approved by counsel to Investor.
4.9 Research and Development Agreement. The Research and
Development Agreement shall have been executed by the Company.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by Investor:
5.1 Representations and Warranties. The representations and
warranties of Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Payment of Purchase Price. Investor shall have delivered the
purchase price of $6,000,000.
5.3 Blue Sky. The Company shall have obtained all necessary blue
sky law permits and qualifications, or secured exemptions therefrom, required by
any state for the offer and sale of the Series D Preferred Stock issuable upon
conversion thereof.
5.4 Restated Articles. The Amended and Restated Articles of
Incorporation shall have been filed with the California Secretary of State.
5.5 Legal Matters. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated by this Agreement
shall have been reasonably approved by counsel to the Company.
5.6 Research and Development Agreement. The Research and
Development Agreement shall have been executed by Investor.
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<PAGE> 19
6. Miscellaneous.
6.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of Investor or the Company.
6.2 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Series D Preferred Stock sold hereunder or any
Common Stock issued upon conversion thereof). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
6.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
6.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified (or upon
the date of attempted delivery where delivery is refused) or, if sent by
telecopier, telex, telegram, or other facsimile means, upon receipt of
appropriate confirmation of receipt, or upon deposit with the United States
Postal Service, by registered or certified mail, or next day air courier, with
postage and fees prepaid and addressed to the party entitled to such notice at
the address indicated for such party on the signature page hereof, or at such
other address as such party may designate by 10 days' advance written notice to
the other parties to this Agreement.
6.7 Finder's Fee. Investor represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. Investor agrees to indemnify and to hold harmless the Company from
any liability
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<PAGE> 20
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which Investor or any of its officers, partners, employees, or
representatives is responsible.
The Company agrees to indemnify and hold harmless Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
6.8 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or the Amended and
Restated Articles of Incorporation, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
6.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Common Stock issued or issuable upon conversion of the Series
D Preferred Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
6.10 Severability. If one or more provisions of this Agreement are
held to unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
6.11 Aggregation of Stock. All shares of the Series D Preferred
Stock held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
6.12 Entire Agreement. This Agreement, the Confidentiality
Agreement effective as of February 5, 1997 between the parties, the Research and
Development Agreement and the documents referred to herein constitute the entire
agreement among the parties and no party shall be liable or bound to any other
party in any manner by any warranties, representations, or covenants except as
specifically set forth herein or therein.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NANOGEN, INC.
By: /s/ Howard Birndorf
-----------------------------------
Howard Birndorf, Chief
Executive Officer
Address: 10398 Pacific Center Court
San Diego, CA 92121
BECTON, DICKINSON AND COMPANY
By: /s/ Vincent A. Forlenza
-----------------------------------
Vincent A. Forlenza
President - Worldwide
Microbiology Systems
Address: One Becton Drive
Franklin Lakes, NJ 07417
[SIGNATURE PAGE TO SERIES D PREFERRED STOCK
PURCHASE AGREEMENT]
<PAGE> 22
EXHIBIT A
Amended and Restated Articles of Incorporation
-2-
Schedule A
<PAGE> 23
EXHIBIT B
Research and Development Agreement
-3-
Schedule A
<PAGE> 24
EXHIBIT C
Schedule of Exceptions
-4-
Schedule A
<PAGE> 25
EXHIBIT D
Form of Legal Opinion of
Pillsbury Madison & Sutro LLP
-5-
Schedule A
<PAGE> 1
EXHIBIT 10.17
No. PW-
____ Shares
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
RESTRICTIONS CONTAINED HEREIN. THIS WARRANT
HAS BEEN ISSUED IN RELIANCE UPON THE
REPRESENTATION OF THE HOLDER THAT IT HAS BEEN
ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION
THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS.
NANOGEN, INC.
Series B Preferred Stock Purchase Warrant
To Subscribe for and Purchase _______ April 11, 1995
Shares of Series B Preferred Stock
of Nanogen, Inc.
VOID AFTER 5:00 P.M.
PACIFIC TIME
April 11, 2000
THIS CERTIFIES that, for value received, _______________ or its registered
assigns (the "Holders"), is entitled to subscribe for and purchase from NANOGEN,
INC., a California corporation (hereinafter called the "Company"), at the price
of $1.50 per share (such price as from time to time to be adjusted as
hereinafter provided being hereinafter called the "Warrant Price"), at any time
from the date hereof but at or prior to 5:00 p.m. Pacific time on April 11,
2000, up to _____ shares of fully paid and non-assessable Series B Preferred
Stock of the Company (the "Series B Preferred Stock"), subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. This warrant
and any warrant subsequently issued upon exchange or transfer hereof are
hereinafter collectively called the "Warrant". This warrant is one of a series
of warrants to purchase Series B Preferred Stock of even date herewith, each
containing substantially identical terms and conditions, which warrants shall
together be referred to as the "Series B Warrants."
Section 1. Exercise of Warrant. The rights represented by this Warrant may
be exercised by the Holder, in whole or in part (but not as to fractional
shares) at any time or
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<PAGE> 2
from time to time in part, but not as to a fractional share of Series B
Preferred Stock by the completion of the purchase form attached hereto and by
the surrender of this Warrant (properly endorsed) at the office of the Company
as it may designate by notice in writing to the Holder hereof at the address of
the Holder appearing on the books of the Company, and by payment to the Company
of the Warrant Price in cash or by certified or official bank check for each
share being purchased. In the event of any exercise of the rights represented by
this Warrant, a certificate or certificates for the shares of Series B Preferred
Stock so purchased, registered in the name of the Holder, or its nominee or
other party designated in the purchase form by the Holder hereof, shall be
delivered to the Holder within thirty business days after the date in which the
rights represented by this Warrant shall have been so exercised; and, unless
this Warrant has expired or has been exercised in full, a new Warrant
representing the number of shares (except a remaining fractional share), if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the Holder within such time. The person in whose name any
certificate for shares of Series B Preferred Stock is issued upon exercise of
this Warrant shall for all purposes be deemed to have become the Holder of
record of such shares on the date on which this Warrant was surrendered and
payment of the Warrant Price, except that, if the date of such surrender and
payment is a date on which the stock transfer books of the Company are closed,
such person shall be deemed to have become the Holder of such shares at the
close of business on the next succeeding date on which the stock transfer books
are open. No fractional shares shall be issued upon exercise of this Warrant and
no payment or adjustment shall be made upon any exercise on account of any cash
dividends on the Series B Preferred Stock issued upon such exercise. If any
fractional interest in a share of Series B Preferred Stock would, except for the
provision of this Section 1, be delivered upon such exercise, the Company, in
lieu of delivery of a fractional share thereof, shall pay to the Holder an
amount in cash equal to the current fair market value of such fractional share.
Section 2. Net Issuance.
(1) Right to Convert. In addition to and without limiting the rights of
the Holder under the terms of this Warrant, the Holder shall have the right to
convert this Warrant or any portion thereof (the "Conversion Right") into shares
of Series B Preferred Stock as provided in this Section 2 at any time or from
time to time during the term of the Warrant. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to the Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the Holder (without
payment by the Holder of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Series B Preferred Stock
computed using the following formula:
X = Y (A - B)
---------
A
Where X = the number of shares of Series B Preferred Stock to be
delivered to the holder
Y = the number of Converted Warrant Shares
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<PAGE> 3
A = the fair market value of one share of the Company's Series B
Preferred Stock on the Conversion Date (as defined below)
B = the per share exercise price of the Warrant (as adjusted to
the Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date. Shares
issued pursuant to the Conversion Right shall be treated as if they were issued
upon the exercise of the Warrant.
(2) Method of Exercise. The Conversion Right may be exercised by the
Holder by the surrender of the Warrant at the principal office of the Company
together with a written statement specifying that the Holder thereby intends to
exercise the Conversion Right and indicating the total number of shares under
the Warrant that the Holder is exercising through the Conversion Right. Such
conversion shall be effective upon receipt by the Company of the Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"). Certificates for the shares issuable
upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
(3) Determination of Fair Market Value. For purposes of Section 1 and
this Section 2, fair market value of a share of Common Stock on the Conversion
Date shall mean:
(i) If traded on a stock exchange, the fair market value of the
Common Stock shall be deemed to be the average of the closing selling prices of
the Series B Preferred Stock on the stock exchange determined by the Board to be
the primary market for the Series B Preferred Stock over the ten (10) trading
day period (or such shorter period immediately following the closing of an
initial public offering) ending on the date prior to the Conversion Date, as
such prices are officially quoted in the composite tape of transactions on such
exchange;
(ii) If traded over-the-counter, the fair market value of the
Series B Preferred Stock shall be deemed to be the average of the closing bid
prices (or, if such information is available, the closing selling prices) of the
Series B Preferred Stock over the ten (10) trading day period (or such shorter
period immediately following the closing of an initial public offering) ending
on the date prior to the Conversion Date, as such prices are reported by the
National Association of Securities Dealers through its NASDAQ system or any
successor system; and
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<PAGE> 4
(iii) If there is no public market for the Series B Preferred Stock,
then the fair market value shall be determined by the Company's Board of
Directors in good faith.
Section 3. Stock Splits, Consolidation, Merger and Sale. In the event the
outstanding shares of Series B Preferred Stock shall be split, combined or
consolidated, by dividend, reclassification or otherwise, into a greater or
lesser number of shares of Series B Preferred Stock, the Warrant Price in effect
immediately prior to such combination or consolidation and the number of shares
purchasable under this Warrant shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately adjusted. If there shall
be effected any consolidation or merger of the Company with another corporation,
or a sale of all or substantially all of the Company's assets to another
corporation, and if the holders of Series B Preferred Stock shall be entitled
pursuant to the terms of any such transaction to receive stock, securities or
assets with respect to or in exchange for Series B Preferred Stock (or Common
Stock issued upon conversion of Series B Preferred Stock), then, as a condition
of such consolidation, merger or sale, lawful and adequate provisions shall be
made whereby the Holder of this Warrant shall thereafter have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Series B Preferred Stock immediately theretofore
receivable upon the exercise of such Warrant, such shares of stock, securities
or assets as may be issuable or payable with respect to or in exchange for a
number of outstanding shares of such Series B Preferred Stock equal to the
number of shares of such Series B Preferred Stock immediately theretofore so
receivable had such consolidation, merger or sale not taken place, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holder to the end that the provisions hereof shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise of this Warrant.
(1) Stock to Be Reserved.
(a) The Company will at all times reserve and keep available out of its
authorized Series B Preferred Stock solely for the purpose of issue upon the
exercise of this Warrant as herein provided, such number of shares of Series B
Preferred Stock as shall then be issuable upon the exercise of this Warrant. The
Company shall from time to time in accordance with applicable law increase the
authorized amount of its Series B Preferred Stock if at any time the number of
shares of Series B Preferred Stock remaining unissued and available for issuance
shall not be sufficient to permit exercise of this Warrant. The Company
covenants that all shares of Series B Preferred Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Company will take all such action
as may be necessary to assure that all such shares of Series B Preferred Stock
may be so issued without violation of any applicable law or regulation, or of
any requirements of any national securities exchange upon which shares of
capital stock of the Company may be listed.
(b) The Company will at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue upon the conversion of
the Series B
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<PAGE> 5
Preferred Stock issuable upon exercise of this Warrant as herein provided, such
number of shares of Common Stock as shall then be issuable upon conversion of
the Series B Preferred Stock issuable upon exercise of this Warrant. The Company
shall from time to time in accordance with applicable law increase the
authorized amount of its Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall not be
sufficient to permit conversion of the shares of Series B Preferred Stock
issuable upon exercise of this Warrant. The Company covenants that all shares of
Common Stock which shall be so issued shall be duly and validly issued and fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issue thereof, and, without limiting the generality of the foregoing, the
Company will take all such action as may be reasonably necessary to assure that
all such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirements of any national securities
exchange upon which shares of capital stock of the Company may be listed.
(2) Issue Tax. The issuance of certificates for shares of Series B
Preferred Stock upon exercise of this Warrant shall be made without charge to
the Holders of this Warrant for any issuance tax in respect thereof provided
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of Holder of this Warrant.
(a) Closing of Books. The Company will at no time close its transfer
books against the transfer of the shares of Series B Preferred Stock (or Common
Stock issued upon the conversion of Series B Preferred Stock) issued or issuable
upon the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant.
Section 4. Conversion of Series B Preferred Stock into Common Stock. Upon
conversion of all of the issued and outstanding shares of the Company's Series B
Preferred Stock into Common Stock this Warrant shall automatically be
exercisable only for such number of shares of Common Stock of the Company as the
Holder hereof would have received had this Warrant been exercised in full for
Series B Preferred Stock and then converted into Common Stock on the date all
issued and outstanding shares of Series B Preferred Stock converted into Common
Stock. The Warrant Price in effect immediately prior to such conversion shall,
concurrently with the effectiveness of such conversion, be proportionally
adjusted. Upon such conversion of Series B Preferred Stock into Common Stock all
references under this Warrant to Series B Preferred Stock shall be deemed to be
references to Common Stock.
Section 5. No Shareholder Rights or Liabilities. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of Series B Preferred Stock, and no mere
enumeration hereon of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the Warrant Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
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<PAGE> 6
Section 6. Representations of Holder. By acceptance of this Warrant, the
Holder hereby represents and acknowledges to the Company that:
(1) this Warrant, the Series B Preferred Stock issuable upon exercise of
this Warrant, and the Common Stock issuable upon conversion of the Series B
Preferred Stock and any securities issued with respect to any of them by way of
a stock dividend or stock split or in connection with a recapitalization,
merger, consolidation or other reorganization will be "restricted securities" as
such term is used in the rules and regulations under the Securities Act and that
such securities have not been and will not be registered under the Securities
Act or any state securities law, and that such securities must be held
indefinitely unless registration is effected or transfer can be made pursuant to
appropriate exemptions;
(2) the Holder has read, and fully understands, the terms of this
Warrant set forth on its face and the attachments hereto, including the
restrictions on transfer contained herein;
(3) the Holder has either a pre-existing personal or business
relationship with the Company or one of its officers, directors or controlling
persons;
(4) the Holder is purchasing for investment for its own account and not
with a view to or for sale in connection with any distribution of this Warrant,
the Series B Preferred Stock of the Company issuable upon exercise of this
Warrant or the Common Stock of the Company issuable upon conversion of the
Series B Preferred Stock and it has no intention of selling such securities in a
public distribution in violation of the federal securities laws or any
applicable state securities laws; provided that nothing contained herein will
prevent Holder from transferring such securities in compliance with the terms of
this Warrant and the applicable federal and state securities laws;
(5) the Holder is an "accredited investor" within the meaning of
paragraph (a) of Rule 501 of Regulation D promulgated by the Securities and
Exchange Commission and an "excluded purchaser" within the meaning of Section
25102(f) of the California Corporate Securities Law of 1968; and
(6) the Company may affix the following legend (in addition to any other
legend(s), if any, required by applicable state corporate and/or securities laws
to certificates for shares of Series B Preferred Stock (or other securities)
issued upon exercise of this Warrant and the shares of Common Stock issued upon
conversion of the Series B Preferred Stock ("Warrant Shares"):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
RULE 144 OF SUCH ACT."
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<PAGE> 7
Section 7. Notice of Proposed Transfers. The Holder of this Warrant, by
acceptance hereof, agrees to comply in all respects with the provisions of this
Section 7. Prior to any proposed transfer of this Warrant or any Warrant Shares,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the Holder of such securities shall give written
notice to the Company of such Holder's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail and shall be accompanied (except in transactions in
compliance with Rule 144) by either (i) a written opinion of legal counsel who
shall be reasonably satisfactory to the Company addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel to the
effect that the proposed transfer of the Warrant and/or Warrant Shares may be
effected without registration under the Securities Act, or (ii) a "no action"
letter from the U.S. Securities and Exchange Commission (the "Commission") to
the effect that the transfer of such securities without registration will not
result in a recommendation by the staff of the Commission that enforcement
action be taken with respect thereto, whereupon the Holder of such securities
shall be entitled to transfer such securities in accordance with the terms of
the notice delivered by the Holder to the Company. Each new certificate
evidencing the Warrant and/or Warrant Shares so transferred shall bear the
appropriate restrictive legends set forth in Section 7 above, except that such
certificate shall not bear such restrictive legend if, in the opinion of counsel
for the Company, such legend is not required in order to establish or assist in
compliance with any provisions of the Securities Act or any applicable state
securities laws.
Section 8. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
Section 9. Presentment. Prior to due presentment of this Warrant together
with a completed assignment form attached hereto for registration of transfer,
the Company may deem and treat the Holder as the absolute owner of the Warrant,
notwithstanding any notation of ownership or other writing thereon, for the
purpose of any exercise thereof and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
Section 10. Notice. All notices, requests, demands, instructions,
payments, documents and other communications to be given hereunder shall be
governed by the applicable provisions of the Note.
Section 11. Governing Law. The validity, interpretation and performance of
this Warrant shall be governed by the laws of the State of California without
regard to principles of conflicts of laws.
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<PAGE> 8
Section 12. Successors Assigns. Subject to the restrictions on transfer by
Holder set forth in Section 8 hereof, all the terms and provisions of the
Warrant shall be binding upon and inure to the benefit and be enforceable by the
respective successors and assigns of the parties hereto.
Section 13. Amendment. This Warrant may be modified or amended by a
writing signed by the Company and the Holder.
Section 14. Severability. Should any part but not the whole of this
Warrant for any reason be declared invalid, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Warrant had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Warrant without including
therein any such part which may, for any reason, be hereafter declared invalid.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered on and as of the day and year first above written by one
of its officers thereunto duly authorized.
Dated: April 11, 1995
NANOGEN, INC., a California corporation
By /s/ HOWARD BIRNDORF
----------------------------------------
Howard Birndorf, Chief Executive Officer
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<PAGE> 9
PURCHASE FORM
(To be executed by the Warrant Holder if he desires to exercise the Warrant in
whole or in part)
To: NANOGEN, INC.
The undersigned, whose Social Security or other identifying number
is__________, hereby irrevocably elects the right of purchase represented by the
within Warrant for, and to purchase thereunder, ____________________
__________ shares of securities provided for therein and tenders payment
herewith to the order of:
NANOGEN, INC.
in the amount of
$__________
The undersigned requests that certificates for such shares be issued as follows:
Name: __________________________________________________________________________
Address: _______________________________________________________________________
Deliver to: ____________________________________________________________________
Address: _______________________________________________________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below:
Address: _______________________________________________________________________
Dated: __________, 19__
-----------------------------------------------
(Signature must conform in all respects to
the name of the Warrant Holder as specified
on the face of the Warrant, without alteration,
enlargement or any change whatsoever)
<PAGE> 10
ASSIGNMENT
(To be executed by the Warrant Holder if he desires to effect a transfer of the
Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ____________________ whose Social Security or other identification number
is __________ [residing/located] at ______________________________ the attached
Warrant, and appoints ____________________ residing at _________________________
the undersigned's attorney-in-fact to transfer said Warrant on the books of the
Company, with full power of substitution in the premises.
Dated: __________, 19__
In the presence of:
- ----------------------------------- -----------------------------------------
(Signature must conform in all respects to
the name of the Warrant Holder as
specified on the face of the Warrant,
without alteration, enlargement
or any change whatsoever).
<PAGE> 1
EXHIBIT 10.18
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 5th day of May 1997, by
and between Nanogen, Inc., a California corporation (the "Company"), and the
investors listed on Schedule A hereto, each of which is herein referred to as an
"Investor."
RECITALS
WHEREAS, the Company and certain of the Investors are parties to (i) the
Series A Preferred Stock Purchase Agreement dated February 10, 1994, as amended
(the "Series A Agreement"), (ii) the Series B Preferred Stock and Warrant
Purchase Agreement, dated as of April 11, 1995, as amended ("Series B
Agreement") and (iii) the Series C Preferred Stock Purchase Agreement dated as
of December 19, 1996, as amended ("Series C Agreement");
WHEREAS, the Company previously entered into an Investors' Rights
Agreement dated December 19, 1996 (the "1996 Agreement"), with Dominion Ventures
and certain holders of the Series A, Series B and Series C Preferred Stock (the
"Prior Investors") pursuant to which the Company agreed to grant such
shareholders certain registration rights, information rights, rights of first
refusal and other rights;
WHEREAS, in order to induce Investor to purchase the Company's Series D
Preferred Stock pursuant to the Series D Preferred Stock Purchase Agreement
dated as of May 4, 1997 (the "Series D Agreement"), the Prior Investors holding
rights under the 1996 Agreement desire to amend and restate the 1996 Agreement
as set forth herein; and
WHEREAS, the holders of the Company's Series D Preferred Stock desire to
enter into this Agreement and to accept the rights created pursuant hereto.
NOW THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the Prior Investors who are parties to the 1996 Agreement hereby
agree that the 1996 Agreement shall be superseded and replaced in its entirety
by this Agreement, and the parties hereto further agree as follows:
<PAGE> 2
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (1) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, (2)
the Common Stock issuable or issued upon exercise of the warrant issued to
Dominion Ventures, Inc. (which expires September 11, 1999), (3) the Common Stock
issuable or issued upon exercise of the warrants issued to purchasers of Series
B Preferred Stock pursuant to the Series B Agreement, and (4) any Common Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(d) The term "Holder" means any Investor who holds or has
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.13 hereof; and
(e) The term "Initiating Holder" shall mean (i) prior to the
Company's initial public offering of securities, any Holder or Holders who in
the aggregate are Holders of more than 50% of the then outstanding Registrable
Securities and (ii) after the Company's initial public offering of securities,
any Holder or Holders who request to register Registrable Securities that would
have an aggregate price to the public of at least $7,500,000.
(f) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
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<PAGE> 3
(g) The term "Act" means the Securities Act of 1933, as
amended.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the
earlier of (i) January 1, 2000, or (ii) six (6) months after the effective date
of the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
an Initiating Holder that the Company file a registration statement under the
Act covering the registration of at least twenty percent (20%) of the
Registrable Securities then outstanding (or a lesser percent if the anticipated
aggregate offering price, net of underwriting discounts and commissions, would
exceed $7,500,000), then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 1.2(b), effect as soon as practicable, and in
any event within 60 days of the receipt of such request, the registration under
the Act of all Registrable Securities which the Holders request to be registered
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 3.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1.2 and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by a majority in interest of
the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating
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<PAGE> 4
Holders, in proportion (as nearly as practicable) to the amount of Registrable
Securities of the Company owned by each Holder; provided, however, that the
number of shares of Registrable Securities to be included in such underwriting
shall not be reduced unless all other securities are first entirely excluded
from the underwriting.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 60 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve month period.
1.3 Company Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at each
such time, promptly give each Holder written notice of such registration. Upon
the written request of each Holder given within twenty (20) days after mailing
of such notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
1.4 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
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<PAGE> 5
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Cause all such securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed.
(g) Provide a transfer agent and registrar for all such
securities not later than the effective date of such registration statement.
(h) With respect solely to an underwritten offering, make
available for inspection by any seller of securities, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement, subject to non-disclosure
obligations by the recipients of such information.
(i) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
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<PAGE> 6
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
1.5 Furnish Information. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printing
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.2; provided
further, however, that if at the time of such withdrawal, the Holders have
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to the Holders at the time of their request and have
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section
1.2.
1.7 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing and
qualification fees, printing and accounting fees relating or apportionable
thereto, fees and disbursement of counsel for the Company, and the reasonable
fees and disbursements of one counsel for the selling Holders selected by them,
but excluding underwriting discounts and commissions relating to Registrable
Securities.
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<PAGE> 7
1.8 Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required, subject to the limitations set forth below, under
Section 1.3 to include any of the Holders' securities in such underwriting
unless they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (or by other persons entitled to
select the underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as shall mutually be agreed to by such selling shareholders)
but in no event shall (i) the amount of securities of the selling Holders
included in the offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering unless such offering is the
initial public offering of the Company's securities in which case the selling
shareholders may be excluded entirely if the underwriters make the determination
described above and no other shareholder's securities are included or (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right similar to that granted in Section 1.2 be excluded
from such offering. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
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<PAGE> 8
(a) To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder, any officer, director, partner or agent thereof, and each
person, if any, who controls such Holder or underwriter within the meaning of
the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"),
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Act, the 1934 Act or other United States
federal or state securities law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act or other United States federal or state
securities law, or any rule or regulation promulgated under the Act, the 1934
Act or other United States federal or state securities law; and the Company will
pay to each such Holder, underwriter or controlling person any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action as incurred;
provided, however, that the indemnity agreement contained in this subsection
1.10(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement, any officer, director,
partner or agent thereof and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other United States federal or state securities law insofar
as such losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information
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<PAGE> 9
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection l.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
1.10(b) exceed the proceeds (net of underwriting discounts and commissions) from
the offering received by such Holder.
(c) After receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section l.10.
(d) If the indemnification provided for in this Section 1.10
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
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<PAGE> 10
considerations; provided, however, that, in any such case, (A) no such Holder
will be required to contribute any amount in excess of the proceeds (net of
underwriting discounts and commissions) received by such Holder from all
Registrable Securities offered and sold by such Holder pursuant to the
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the Violation relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies),
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<PAGE> 11
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from
one or more Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, provided that the number of shares requested to be sold would have an
aggregate price to the public of at least $1,000,000, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.12; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
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(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with the
first two registrations requested pursuant to Section 1.12, including (without
limitation) all registration, filing and qualification fees, printing and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders, but excluding any underwriters' discounts or commissions associated
with Registrable Securities, shall be borne by the Company, and the expenses of
any subsequent registration shall be borne pro rata by the Holder or Holders
participating in the Form S-3 Registration. Registrations effected pursuant to
this Section 1.12 shall not be counted as demands for registration or
registrations effected pursuant to Section 1.2.
1.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 175,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
partnership.
1.14 Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration
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<PAGE> 13
statement being declared effective prior to the earlier of either of the dates
set forth in subsection 1.2(a) or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees
that, during the period specified by the Company's underwriter (such period not
to exceed 180 days following the effective date of the Company's registration
statement filed under the Act relating to its initial public offering), it shall
not, to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any Registrable
Securities of the Company held by it at any time during such period except
common stock included in such registration, so long as all then-current officers
and directors of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.16 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after (a) five (5)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public (the "IPO"), or (b) after the one-year anniversary of the effective date
of the IPO, as to any Holder (or permitted assignee) who can sell all
Registrable Securities held by such Holder under Rule 144(k) and owns less than
0.4% of the Company's outstanding Common Stock.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver to
each Investor:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial reports
to be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("GAAP"), and audited and certified by independent public
accountants of nationally recognized standing selected by the Company;
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<PAGE> 14
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement, schedule
as to the sources and application of funds for such fiscal quarter, an unaudited
balance sheet and a statement of shareholder's equity as of the end of such
fiscal quarter and a statement showing the number of shares of each class and
series of capital stock and securities convertible into or exercisable for
shares of capital stock outstanding at the end of the period, the number of
common shares issuable upon conversion or exercise of any outstanding securities
convertible or exercisable for common shares and the exchange ratio or exercise
price applicable thereto, all in sufficient detail as to permit the Investor to
calculate its percentage equity ownership in the Company;
(c) and to each Investor who holds at least 100,000 shares
of the Company's Preferred Stock, within thirty (30) days of the end of each
month, an unaudited income statement and schedule as to the sources and
application of funds and balance sheet for and as of the end of such month, in
reasonable detail;
(d) and to each Investor who holds at least 100,000 shares
of the Company's Preferred Stock, within 30 days prior to the close of each
fiscal year, a comprehensive operating budget for the next fiscal year
forecasting the Company's revenues, expenses and cash position, prepared on a
monthly basis;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
(f) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request,
provided, however, that the Company shall not be obligated under this subsection
(f) or any other subsection of Section 2.1 to provide information which it deems
in good faith to be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each Investor who holds
at least 100,000 shares of the Company's Preferred Stock, at such Investor's
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's finances and accounts with its
officers, all at such reasonable times as may be requested by
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<PAGE> 15
the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants. The
covenants set forth in subsections 2.1(c), (d), (e) and (f) and Section 2.2
shall terminate as to Investors and be of no further force or effect when the
sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with the firm commitment underwritten offering of
its securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Major
Investor (as hereinafter defined) a right of first offer with respect to future
sales by the Company of its Shares (as hereinafter defined). For purposes of
this Section 2.4, a Major Investor shall mean (i) any Investor signatory to this
Agreement who holds at least 10% of the original investment such Investor made
in the Company pursuant to the Series A Agreement, the Series B Agreement, the
Series C Agreement or Series D Agreement and who has not waived all rights of
first offer pursuant to Section 2.4 of the 1996 Agreement and (ii) any person
who acquires at least 10% of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock (or the Common Stock
issued upon conversion thereof) issued pursuant to the Series A Agreement,
Series B Agreement, Series C Agreement, or Series D Agreement and who has not
waived all rights of first offer pursuant to Section 2.5 of the 1996 Agreement.
For purposes of this Section 2.4, Investor includes any general partners and
affiliates of an Investor. An Investor shall be entitled to apportion the right
of first offer hereby granted it among itself and its partners and affiliates in
such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investors stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
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(b) Within 20 calendar days after giving of the Notice, any
Major Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares which equals the
proportion that the number of shares of Common Stock issuable upon conversion of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock then held by such Major Investor bears to the total
number of shares of Common Stock issuable upon conversion of the Series A,
Series B, Series C and Series D Preferred Stock then held by all the Major
Investors. The Company shall promptly, in writing, inform each Major Investor
which purchases all the shares available to it ("Fully-Exercising Investor") of
any other Major Investor's failure to do likewise. During the ten-day period
commencing after such information is given, each Fully-Exercising Investor shall
be entitled to obtain that portion of the Shares not subscribed for by the Major
Investors which is equal to the proportion that the number of shares of Common
Stock issuable upon conversion of Series A, Series B, Series C and Series D
Preferred Stock then held, by such Fully-Exercising Investor bears to the total
number of shares of Common Stock issuable upon conversion of the Series A,
Series B, Series C and Series D Preferred Stock then held, by all
Fully-Exercising Investors who wish to purchase some of the unsubscribed shares.
(c) If all Shares which Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the 30-day period following
the expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 30 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not
be applicable (i) to the issuance or sale of Common Stock (or options therefor)
to employees, officers, directors or consultants for the primary purpose of
soliciting or retaining their service, (ii) to or after consummation of a bona
fide, firmly underwritten public offering of shares of common stock, registered
under the Act pursuant to a registration statement on Form S-1, at an offering
price of at least $7.50 per share (appropriately adjusted for any stock split,
dividend, combination or other recapitalization) and $7,500,000 in the
aggregate, (iii) the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities, (iv) the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or
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<PAGE> 17
otherwise (v) the issuance of stock, warrants or other securities or rights in
connection with a strategic alliance, research and development partnership or
agreement, license agreement or other similar business relationship, or (vi) the
issuance of stock, warrants or other securities or rights to persons or entities
with which the Company has business relationships provided such issuances are
for other than primarily equity financing purposes.
2.5 Pay to Play.
(a) In the event a Major Investor does not purchase ("a
Failure to Purchase") its Pro Rata Amount of a Future Issuance (as defined
below) subsequent to the initial sale of Series D Preferred Stock, such Major
Investor (and any transferee of all or any part of such Major Investor's shares
of Series A, Series B, Series C and Series D Preferred Stock) shall
automatically waive any and all rights of first offer pursuant to Section 2.4
with respect to any and all Future Issuances of Shares of the Company's capital
stock subsequent to such Failure to Purchase.
(b) "Future Issuance" means an issuance of Shares which is
designated and allocated by resolution at a duly held meeting of the Board of
Directors of the Company for issuance to the holders of Series A, Series B,
Series C and Series D Preferred Stock less any of such stock issuable to one or
more new investors approved by the Board.
(c) "Pro Rata Amount" means the number of shares of Series
A, Series B, Series C and Series D Preferred Stock which such Investor holds on
the date of this Agreement divided by the number of shares of Series A, Series
B, Series C and Series D Preferred Stock held on the date of this Agreement by
all Investors.
2.6 Termination of Certain Covenants. The covenants set forth in
this Section 2 shall terminate and be of no further force or effect upon the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm commitment
underwritten offering of its securities to the general public.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
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3.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified (or upon
the date of attempted delivery where delivery is refused) or, if sent by
telecopier, telex, telegram, or other facsimile means, upon receipt of
appropriate confirmation of receipt, or upon deposit with the United States
Postal Service, by registered or certified mail, or next day air courier, with
postage and fees prepaid and addressed to the party entitled to such notice at
the address indicated for such party on the signature page hereof, or at such
other address as such party may designate by 10 days' advance written notice to
the other parties to this Agreement.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
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3.9 Aggregation of Stock. All shares of Registrable Securities
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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3.10 Entire Agreement. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NANOGEN, INC.
By: /s/ Howard C. Birndorf
-------------------------------------
Howard C. Birndorf, Chief
Executive Officer
Address: 10398 Pacific Center Court
San Diego, CA 92121
ENTERPRISE PARTNERS II, L.P.
By: Enterprise Management Partners II,
L.P.
Its: General Partner
By: /s/ Andrew Senyei
--------------------------------
General Partner
Series A: 909,091 shares
Series B: 545,455 shares
Series C: 125,832 shares
ENTERPRISE PARTNERS II ASSOCIATES, L.P.
By: Enterprise Management Partners II,
L.P.
Its: General Partner
By: /s/ Andrew Senyei
--------------------------------
General Partner
Series A: 90,909 shares
Series B: 54,545 shares
Series C: 12,583 shares
-20-
<PAGE> 21
KLEINER PERKINS CAUFIELD & BYERS VI
By: /s/ B. Byers
-------------------------------------
General Partner
Series A: 867,000 shares
Series B: 520,200 shares
Series C: 138,416 shares
KPCB VI FOUNDERS FUND, L.P.
By: /s/ B. Byers
-------------------------------------
General Partner
Series A: 133,000 shares
Series B: 79,800 shares
INTERWEST PARTNERS V, L.P.
By: Interwest Management Partners V,
L.P.,
Its: General Partner
By: /s/ Philip Raines
--------------------------------
General Partner
Series B: 993,750 shares
Series C: 85,976 shares
INTERWEST INVESTORS V
By: /s/ Philip Raines
-------------------------------------
General Partner
Series B: 6,250 shares
Series C: 540 shares
-21-
<PAGE> 22
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corporation
Its Managing General Partner
By: /s/ Robert E. Curry
--------------------------------
Robert E. Curry,
Attorney-in-Fact
Series B: 1,100,407 shares
Series C: 95,142 shares
DLJ CAPITAL CORPORATION
By: /s/ Robert E. Curry
-------------------------------------
Robert E. Curry,
Attorney-in-Fact
Series B: 91,593 shares
Series C: 7,919 shares
/s/ Howard Birndorf
------------------------------------------
Howard Birndorf
Series A: 200,000 shares
Series B: 240,000 shares
Series C: 38,064 shares
------------------------------------------
Dr. Alexander D. Cross
Series C: 689 shares
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA.
By:_______________________________________
Series C: 750,000 shares
-22-
<PAGE> 23
ELAN INTERNATIONAL SERVICES LIMITED
By: /s/ Thomas Lynch
-------------------------------------
Series C: 1,250,000 shares
INTEGRAL CAPITAL PARTNERS III, L.P.
By:_______________________________________
Series C: 368,250 shares
INTEGRAL CAPITAL PARTNERS
INTERNATIONAL III, L.P.
By:_______________________________________
Series C: 131,750 shares
THE GLOBAL HEALTH SCIENCES FUND
By:_______________________________________
Series C: 625,000 shares
------------------------------------------
Ronald J. Judy
Series C: 100,000 shares
------------------------------------------
Judith B. Judy
Series C: 100,000 shares
-23-
<PAGE> 24
THE HEALTH CARE AND BIOTECHNOLOGY
VENTURE FUND
By:_______________________________________
Series C: 281,250 shares
MDS HEALTH VENTURES INC.
By:_______________________________________
Series C: 93,750 shares
------------------------------------------
David B. and Valerie C. Murphy
Series C: 25,000 shares
TECHNO VII A LIMITED PARTNERSHIP
By:_______________________________________
Series C: 44,872 shares
TECHNO VII B LIMITED PARTNERSHIP
By:_______________________________________
Series C: 205,128 shares
VULCAN VENTURES INC.
By:_______________________________________
Series C: 500,000 shares
-24-
<PAGE> 25
ORACLE PARTNERS
By:_______________________________________
Series C: 1,250,000 shares
-25-
<PAGE> 1
EXHIBIT 10.19
Master Lease Agreement [LOGO] Mellon US Leasing
LESSOR: Mellon US Leasing, a Division LESSEE: Nanogen, Inc.
of Mellon Leasing Corporation ADDRESS: 10398 Pacific Center Court
San Diego, CA 92121
ADDRESS: 525 Market Street, Suite 3500
San Francisco, California 94105-2743
TERMS AND CONDITIONS OF LEASE
The undersigned Lessee hereby requests Lessor to purchase the personal property
described in any Equipment Schedule hereunder (herein called "Equipment") from
supplier listed in any Equipment Schedule hereunder (herein called "Vendor"
and/or "Manufacturer", as applicable) and to lease the Equipment to Lessee on
the terms and conditions of the lease set forth below.
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
Equipment upon the following terms and conditions:
1. NO WARRANTIES BY LESSOR. Lessee has selected the Equipment and may have
entered into certain purchase, licensing, or maintenance agreements with the
Vendor and/or Manufacturer (herein referred to as an "Acquisition Agreement")
covering the Equipment as further described in Paragraph 26 hereof. If Lessee
has entered into any Acquisition Agreement, each agreement shall provide for
certain rights and obligations of the parties thereto with respect to the
Equipment, and Lessee shall perform all of the obligations set forth in each
Acquisition Agreement as if this lease did not exist. LESSOR MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE
EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND,
AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS." LESSOR SHALL HAVE NO
LIABILITY FOR ANY LOSS, DAMAGE OR EXPENSE OF ANY KIND WHATSOEVER RELATING
THERETO, INCLUDING WITHOUT LIMITATION ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY CHARACTER.
2. CLAIMS AGAINST VENDOR AND/OR MANUFACTURER. If the Equipment is not properly
installed, does not operate as represented or warranted by Vendor and/or
Manufacturer, or is unsatisfactory for any reason, Lessee shall make any claim
on account thereof solely against Vendor and/or Manufacturer pursuant to the
Acquisition Agreement, if any, and shall, nevertheless, pay Lessor all rent
payable under this lease. All warranties from Vendor and/or Manufacturer are, to
the extent they are assignable, hereby assigned to Lessee for the term of this
lease or until an Event of Default occurs hereunder, for Lessee's exercise at
Lessee's expense. Lessee may directly inquire with Vendor and/or Manufacturer to
receive an accurate and complete statement of such warranties, including any
disclaimers or limitations of such warranties or of any remedies with respect
thereto.
3. VENDOR NOT AN AGENT. Lessee understands and agrees that neither Vendor, nor
any sales representative or other agent of Vendor, is an agent of Lessor. Sales
representatives or agents of Vendor, and persons that are not employed by Lessor
(including brokers and agents) are not authorized to waive or alter any term or
condition of this lease, and no representation as to the Equipment or any other
matter by Vendor or any other person that is not employed by Lessor (including
brokers and agents) shall in any way affect Lessee's duty to pay the rent and
perform its other obligations as set forth in this lease.
4. NON-CANCELLABLE LEASE. This lease and any Equipment Schedule hereto cannot be
cancelled or terminated except as expressly provided herein. Lessee agrees that
its obligation to pay all rent and other sums payable hereunder and the rights
of Lessor in and to such rent are absolute and unconditional and are not subject
to any abatement, reduction, setoff, defense, counterclaim or recoupment due or
alleged to be due to, or by reason of, any past, present or future claims which
Lessee may have against Lessor, any assignee, any Manufacturer or Vendor, or
against any person for any reason whatsoever.
5. ORDERING EQUIPMENT. Lessee shall arrange for delivery of the Equipment so
that it can be accepted in accordance with Paragraph 6 hereof within 90 days
after the date on which Lessor accepts Lessee's offer to enter into this lease
with respect to any Equipment Schedule or by such other date as may be set forth
in an Equipment Schedule or Approval Letter issued by lessor as the Approval
Expiration Date. Unless otherwise specified on the Equipment Schedule, Lessee
shall be responsible for all transportation, packing, installation, testing and
other charges in connection with the delivery, installation and use of the
Equipment. Lessee hereby authorizes Lessor to insert in any Equipment Schedule
hereunder the serial numbers and other identification data of Equipment when
determined by Lessor.
6. ACCEPTANCE. Lessee acknowledges that for purposes of receiving or accepting
the Equipment from Vendor, Lessee is acting on Lessor's behalf. Upon delivery of
the Equipment to Lessee and Lessee's inspection thereof, Lessee shall furnish
Lessor a written statement (a) acknowledging receipt of the Equipment in good
condition and repair and (b) accepting it as satisfactory in all respects for
the purposes of this lease (the "Certificate of Acceptance"). The date of
receipt and acceptance of the Equipment covered by an Equipment Schedule (or any
later date that Lessor chooses) shall be the Rent Commencement Date therefor.
Lessor is authorized to fill in on any Equipment Schedule hereunder the Rent
Commencement Date in accordance with the foregoing.
7. TERMINATION BY LESSOR. If, by the Approval Expiration Date, the Equipment
described in any Equipment Schedule has not been delivered to Lessee and
accepted by Lessee as provided in Paragraph 6 hereof, or if other conditions of
Lessor's Approval Letter, if any, have not been met, then Lessor may, at its
option, terminate this lease and its obligations hereunder with respect to such
Equipment Schedule at any time after the expiration of such 90 days or any date
after the Approval Expiration Date, as applicable. Lessor shall give Lessee
written notice whether or not it elects to exercise such option with 10 days
after Lessor's receipt of Lessee's written request for such notice.
8. TERM. The term of this lease commences upon the Rent Commencement Date, as
provided in Paragraph 9 below. The term shall continue until all of Lessee's
obligations are fulfilled hereunder. The Initial Term with respect to any
Equipment Schedule begins on the Rent commencement Date for such Equipment
Schedule (as defined in Paragraph 6) and expires after the later of (i) the
number of periods for which the rent payments are due, or (ii) the date Lessee
fulfills all Lessee's obligations hereunder.
9. RENTAL. Lessee shall pay the rent payments as stated on each Equipment
Schedule, the first of which shall be due on the Rent Commencement Date for said
Equipment Schedule, and subsequent payments shall be due on the same day of each
calendar period as indicated on the Equipment Schedule for the balance of the
Initial Term. Rent payments shall be due whether or not Lessee has received any
notice that such payments are due. All rent payments shall be paid to Lessor at
its address set forth on the Equipment Schedule or as otherwise directed by
Lessor in writing.
10. RENEWAL. If no default shall have occurred and be continuing, Lessee shall
be entitled to renew this lease with respect to all, but not less than all, of
the Equipment covered by an Equipment Schedule for a minimum 12 month period at
an amount equal to the fair market rental value thereof, in use and operational,
in the condition required by this lease, payable on a periodic basis, as
mutually agreed by Lessor and Lessee ("Renewal Rent"). Lessee must give Lessor
written notice of its intention to exercise said option, which notice must be
received by Lessor at least 90 days before expiration of the Initial Term. The
first installment of the Renewal Rent shall be due at expiration of the Initial
Term of this lease. Should Lessee fail to comply with the provisions described
above covering renewal, upon expiration of the Initial Term, the term of this
lease shall be automatically extended for a term of 3 months. Thereafter, the
term of this lease will be extended for subsequent full month periods, on a
month to month basis, until Lessee has given at least 90 days written notice
terminating this lease. Such termination will take effect upon completion of all
Lessee's obligations under this lease (including payment of all periodic rental
payments due during such 90 day period, as provided in Paragraph 9 of this
lease). At any time after the expiration of the Initial Term, if this lease has
been automatically extended as set forth herein, Lessor reserves the right to
terminate this lease by 30 days written notice to Lessee.
<PAGE> 2
11. LOCATION; INSPECTION; LABELS. The Equipment shall be delivered to and shall
not be removed without Lessor's prior written consent from the "Equipment
Location" shown on the related Equipment Schedule, or if none is specified,
Lessee's billing address shown on the Equipment Schedule. Lessor shall have the
right to inspect the Equipment at any reasonable time. If Lessor supplies
Lessee with labels stating that the Equipment is owned by Lessor, Lessee shall
affix such labels to and keep them in a prominent place on the Equipment.
12. REPAIRS; USE; ALTERATIONS. Lessee, at its own cost and expense, shall keep
the Equipment in good repair and working order, in the same condition as when
delivered to Lessee, reasonable wear and tear excepted, and in accordance with
the manufacturer's recommended specifications; shall use the Equipment
lawfully; shall not alter the Equipment without Lessor's prior written consent;
shall use the Equipment in compliance with any existing Manufacturer's service
and warranty requirements and any insurance policies applicable to the
Equipment and shall furnish all parts and servicing required therefor. All
parts, repairs, additions, alterations and attachments placed on or
incorporated into the Equipment which cannot be removed without damage to the
Equipment shall immediately become part of the Equipment and shall be the
property of the Lessor. Lessee will obtain and maintain all permits, licenses
and registrations necessary to lawfully operate the facility where the
Equipment is located. Lessee shall comply with all applicable environmental and
industrial hygiene laws, rules and regulations (including but not limited to
federal, state, and local environmental protection, occupational, health and
safety or similar laws, ordinances and restrictions). Lessee shall, not later
than 5 days after the occurrence, provide Lessor with copies of any report
required to be filed with governmental agencies regulating environmental
claims. Lessee shall immediately notify Lessor in writing of any existing,
pending or threatened investigation, inquiry, claim or action by any
governmental authority in connection with any law, rule or regulation relating
to industrial hygiene or environmental conditions that could affect the
Equipment.
13. MAINTENANCE. If the Equipment is such that Lessee is not normally capable
of maintaining it, Lessee, at its expense, shall enter into and maintain in
full force and effect throughout the Initial Term, and any renewal term, Vendor
and/or Manufacturer's standard maintenance contract, and shall comply with all
its obligations thereunder. An alternate source of maintenance may be used with
Lessor's prior written consent. Such consent shall be granted if, in Lessor's
reasonable opinion, the Equipment will be maintained in an equivalent state of
good repair, condition and working order.
14. SURRENDER. Provided that Lessee does not exercise the purchase option as
set forth in Paragraph 28 hereof, upon the expiration of the Initial Term, or
any renewal term, or upon demand by Lessor made pursuant to Paragraph 22 of
this lease, Lessee, at its expense, shall return all, but not less than all, of
the Equipment by delivering it to such place or on board such carrier, packed
for shipping, as Lessor may specify. Lessee agrees that the Equipment, when
returned, shall be in the same condition as when delivered to Lessee,
reasonable wear and tear excepted, and in a condition which will permit Lessor
to be eligible for Manufacturer's standard maintenance contract without
incurring any expense to repair or rehabilitate such Equipment. Lessee shall be
liable for reasonable and necessary expenses to place the Equipment in such
condition. Lessee shall remain liable for the condition of the Equipment until
it is received and accepted at the destination designated by Lessor as set
forth above. If any items of Equipment are missing or damaged when returned,
such occurrence shall be treated as an event of Loss or Damage with respect to
such missing or damaged items and shall be subject to the terms specified in
Paragraph 15 below. Lessee shall provide Lessor with a Letter of
Maintainability from the Manufacturer of the Equipment, which letter shall
state that the Equipment will be eligible for the Manufacturer's standard
maintenance contract when sold or leased to a third party. Lessee shall give
Lessor prior written notice that it is returning the Equipment as provided
above, and such notice must be received by Lessor at least 90 days prior to
such return. Should Lessee fail to comply with the provisions described above
covering surrender, upon expiration of the Initial Term, the term of this lease
shall be automatically extended for a term of 3 months. Thereafter, the term of
this lease will be extended for subsequent full month periods, on a month to
month basis, until Lessee has given at least 90 days written notice terminating
this lease. Such termination will take effect upon completion of all Lessee's
obligations under this lease (including payment of all periodic rental payments
due during such 90 day period, as provided in Paragraph 9 of this lease). At
any time alter the expiration of the Initial Term, if this lease has been
automatically extended as set forth herein. Lessor reserves the right to
terminate this lease by 30 days written notice to Lessee.
15. LOSS OR DAMAGE. Lessee shall bear the entire risk of loss, theft,
destruction of or damage to the Equipment or any item thereof (herein "Loss or
Damage") from any cause whatsoever. No Loss or Damage shall relieve Lessee of
the obligation to pay rent or of any other obligation under this lease. In the
event of Loss or Damage, Lessee, at the option of Lessor, shall; (a) place the
same in good condition and repair; (b) replace the same with like equipment
acceptable to Lessor in good condition and repair with clear title thereto in
Lessor; or (c) pay to Lessor the total of the following amounts; (i) the total
rent and other amounts due and owing at the time of such payments, plus (ii) an
amount calculated by Lessor which is the present value at 5% per annum simple
interest discount of all rent and other amounts payable by Lessee with respect
to said item from date of such payment to date of expiration of its Initial
Term, plus (iii) the "reversionary value" of the Equipment, which shall be
determined by Lessor as the total cost of the Equipment less 60% of the total
rent (net of sales/use taxes, if any) required to be paid pursuant to Paragraph
9. Upon Lessor's receipt of such payment, Lessee and/or Lessee's insurer shall
be entitled to Lessor's interest in said item, for salvage purposes, in its
then condition and location, "as-is", without any warranty, express or implied.
16. INSURANCE. Lessee shall provide, maintain and pay for (a) all risk property
insurance against the loss or theft of or damage to the Equipment, for the full
replacement value thereof, naming Lessor as a loss payee, and (b) commercial
general liability insurance (and if Lessee is a doctor, hospital or other
health care provider, medical malpractice insurance). All such policies shall
name Lessor as an additional insured and shall have combined single limits in
amounts acceptable to Lessor. All such insurance policies shall be endorsed to
be primary and non-contributory to any policies maintained by Lessor. In
addition Lessee shall cause Lessor to be named as an additional insured on any
excess or umbrella policies purchased by Lessee. A copy of each paid-up policy
evidencing such insurance (appropriately authenticated by the insurer) or a
certificate of the insurer providing such coverage proving that such policies
have been issued, providing the coverage required hereunder shall be delivered
to Lessor prior to the Rent Commencement Date. All insurance shall be placed
with companies satisfactory to Lessor and shall contain the insurer's agreement
to give 30 days written notice to Lessor before cancellation or any material
change of any policy of insurance.
17. TAXES. Lessee shall reimburse to Lessor (or pay directly if, but only if,
instructed by Lessor) all charges and taxes (local, state and federal) which
may now or hereafter be imposed or levied upon the sale, purchase, ownership,
leasing, possession or use of the Equipment, excluding, however, all income
taxes levied on (a) any rental payments made to Lessor hereunder, (b) any
payment made to Lessor in connection with Loss or Damage to the Equipment under
Paragraph 15 hereof, or (c) any payment made to Lessor in connection with
Lessee's exercise of its purchase option under Paragraph 28 hereof.
18. LESSOR'S PAYMENT. If Lessee fails to provide or maintain said insurance, to
pay said taxes, charges and fees, or to discharge any levies, liens and
encumbrances created by Lessee, Lessor shall have the right, but shall not be
obligated, to obtain such insurance, pay such taxes, charges and fees, or
effect such discharge. In that event, Lessee shall remit to Lessor the cost
thereof with the next rent payment.
19. INDEMNITY. (a) General Indemnity. Lessee shall indemnify Lessor against and
hold Lessor harmless from any and all claims, actions, damages, costs, expenses
including reasonable attorneys' fees, obligations, liabilities and liens
(including any of the foregoing arising or imposed under the doctrines of
"strict liability" or "product liability" and including without limitation the
cost of any fines, remedial action, damage to the environment and cleanup and
the fees and costs of consultants and experts), arising out of the manufacture,
purchase, lease, ownership, possession, operation, condition, return or use of
the Equipment, or by operation of law, excluding however, any of the foregoing
resulting from the gross negligence or willful misconduct of Lessor. Lessee
agrees that upon written notice by Lessor of the assertion of such a claim
action, damage, obligation, liability or lien, Lessee shall assume full
responsibility for the defense thereof. Lessee's choice of counsel shall be
mutually acceptable to both Lessee and Lessor. This indemnity also extends to
any environmental claims arising out of or relating to prior acts or omissions
of any party whatsoever. The provisions of this paragraph shall survive
termination of this lease with respect to events occurring prior to such
termination. (b) Tax Indemnity. Lessee acknowledges that Lessor shall be
entitled to all tax benefits of ownership with respect to the Equipment (the
"Tax Benefits"), including but not limited to, (i) the accelerated cost recovery
deductions determined in accordance with Section 168(b)(1) of the Internal
Revenue Code of 1986 for the Equipment based on the original cost of the
Equipment to Lessor (ii) deductions for interest on any indebtedness incurred by
Lessor to finance the Equipment and (iii) sourcing of income and losses
attributable to this lease to the United States. Lessee represents that the
Equipment shall be depreciable for Federal tax purposes utilizing the MACRS
Recovery Period as set forth in the Equipment Schedule, with such depreciation
commencing as of the date of Equipment acceptance by Lessee as set forth on the
Certificate of Acceptance. Lessee agrees to take no action inconsistent with the
foregoing or any action which would result in the loss, disallowance or
unavailability to Lessor of all or any part of the Tax Benefits. Lessee hereby
indemnifies and holds harmless Lessor and its assigns from and against (i) the
loss, disallowance, unavailability or recapture of all or any part of the Tax
Benefits resulting from any action, statement, misrepresentation or breach of
warranty or covenant by Lessee of any nature whatsoever including but not
limited to the breach of any representations, warranties or covenants contained
in this paragraph, plus (ii) all interest, penalties, fines or additions to tax
resulting from such loss, disallowance, unavailability or recapture, plus
<PAGE> 3
(iii) all taxes required to be paid by Lessor upon receipt of the indemnity set
forth in this paragraph. Any payments made by Lessee to reimburse Lessor for
lost Tax Benefits shall be calculated (i) on the assumption that Lessor is
subject to the maximum Federal Corporate Income Tax with respect to each year
and that all Tax Benefits are currently utilized, and (ii) without regard to
whether Lessor or any members of a consolidated group of which Lessor is also a
member is then subject to any increase in tax as a result of the loss of Tax
Benefits. For the purposes of this paragraph, "Lessor" includes for all tax
purposes the consolidated taxpayer group of which Lessor is a part.
(c) Payment. The amounts payable pursuant to this Paragraph 19 shall be payable
upon demand of Lessor, accompanied by a statement describing in reasonable
detail such claim, action, damage, cost, expense, fee, obligation, liability,
lien or tax and setting forth the computation of the amount so payable, which
computation shall be binding and conclusive upon Lessee, absent manifest error.
The indemnities and assumptions of liabilities and obligations contained in this
Paragraph 19 shall continue in full force and effect notwithstanding the
expiration or other termination of this Lease.
20. ASSIGNMENT. Without Lessor's prior written consent, Lessee shall not assign,
transfer, pledge, hypothecate or otherwise dispose of this lease, the Equipment,
or any interest therein. Without Lessor's prior written consent, Lessee shall
not sublet or lend the Equipment or permit it to be used by anyone other than
Lessee or Lessee's employees. Lessor may assign this lease in whole or in part
without notice to Lessee. If Lessee is given notice of such assignment it agrees
to acknowledge receipt thereof in writing. Each such assignee shall have all of
the rights, but none of the obligations, of Lessor under this lease. Lessee
shall not assert against assignee any defense, counterclaim or offset that
Lessee may have against Lessor. Notwithstanding any such assignment, Lessor
warrants that Lessee shall quietly enjoy use of the Equipment subject to the
terms and conditions of this lease so long as Lessee is not in default
hereunder. Subject to the forgoing, this lease inures to the benefit of and is
binding upon the successors and assigns of the parties hereto.
21. DELINQUENT PAYMENTS. (a) Service Charge. Since it would be impractical or
extremely difficult to fix Lessor's actual damages for collecting and accounting
for a late payment, if any payment to Lessor required herein (including, but not
limited to, rental, renewal, tax, purchase and other amounts) is not paid on or
before its due date, Lessee shall pay to Lessor an amount equal to 5% of any
such late payment. (b) Interest. Lessee shall also pay interest on any such late
payment from the due date thereof until the date paid at the lesser of 18% per
annum or the maximum rate allowed by law.
22. DEFAULT; REMEDIES. Any of the following shall constitute an Event of
Default: If a) Lessee fails to pay when due any rent or other amount required
herein to be paid by Lessee, or b) Lessee makes an assignment for the benefit of
creditors, whether voluntary or involuntary, or c) a petition is filed by or
against Lessee under any bankruptcy, insolvency or similar legislation , or d)
Lessee violates or fails to perform any provision of either this lease or any
Acquisition Agreement, or violates or fails to perform any covenant or
representation made by Lessee herein, or e) Lessee makes a bulk transfer of
furniture, furnishings, fixtures or other equipment or inventory, or f) Lessee
ceases doing business as a going concern or terminates its existence, or g)
Lessee consolidates with, merges with or into, or conveys or leases all or
substantially all of its assets as an entirety to any person or engages in any
other form of reorganization, or there is a change in the legal structure of
Lessee, in each case which results, in the opinion of Lessor, in a material
adverse change in Lessee's ability to perform its obligations under this lease,
or h) any representation or warranty made by Lessee in this lease or in any
other document or agreement furnished by Lessee to Lessor shall prove to have
been false or misleading in any material respect when made or when deemed to
have been made, or i) Lessee shall be in default under any material obligation
for the payment of borrowed money or the deferred purchase price of, or for the
payment of any rent due with respect to, any real or personal property, or j)
Lessee shall be in default under any other agreement now existing or hereafter
made with Lessor or any of Lessor's affiliates, or k) any event or condition
described in the foregoing clauses (b), (c), (e), (f), (g), (h) (in clauses (g)
and (h) substituting the phrase "guaranty or other credit support document" for
the word "lease"), (i) or (j) shall have occurred with respect to any guarantor
of, or other party liable in whole or in part for, Lessee's obligations
hereunder, or such guarantor or other party shall have defaulted in the
observance or performance of any covenant, condition or agreement to be observed
or performed by it under the guaranty or other credit support document pursuant
to which it is liable for Lessee's obligations hereunder, or such guaranty or
other credit support document shall have been revoked or terminated or shall
have otherwise ceased, for any reason, to be in full force and effect. An Event
of Default with respect to any Equipment Schedule shall constitute an Event of
Default for all Equipment Schedules. Lessee shall promptly notify Lessor of the
occurrence of any Event of Default.
If an Event of Default occurs, Lessor shall have the right to exercise any
one or more of the following remedies in order to protect the interests and
reasonably expected profits and bargains of Lessor: a) Lessor may terminate this
lease with respect to all or any part of the Equipment, b) Lessor may recover
from Lessee all rent and other amounts then due and as they shall thereafter
become due hereunder, c) Lessor may take possession of any or all items of
Equipment, wherever the same may be located, without demand or notice, without
any court order or other process of law and without liability to Lessee for any
damages occasioned by such taking of possession, and any such taking of
possession shall not constitute a termination of this lease, d) Lessor may
recover from Lessee, with respect to any and all items of Equipment, and with or
without repossessing the Equipment the sum of (1) the total amount due and owing
to Lessor at the time of such default, plus (2) an amount calculated by Lessor
which is the present value at 5% per annum simple interest discount of all rent
and other amounts payable by Lessee with respect to said item(s) from date of
such payment to date of expiration of its Initial Term, plus (3) the
"reversionary value" of the Equipment, which shall be determined by Lessor as
the total cost of the Equipment less 60% of the total rent (net of sales/use
taxes, if any) required to be paid pursuant to Paragraph 9; and which the
parties agree is a reasonable estimate of such value; and upon the payment of
all amounts described in clauses (1), (2) and (3) above, Lessee will become
entitled to the Equipment AS IS, WHERE IS, without warranty whatsoever;
provided, however, that if Lessor has repossessed or accepted the surrender of
the Equipment, Lessor shall sell, lease or otherwise dispose of the Equipment in
a commercially reasonable manner, with or without notice and on public or
private bid, and apply the net proceeds thereof (after deducting all expenses,
including attorneys' fees incurred in connection therewith), to the sum of (1),
(2) and (3) above, and e) Lessor may pursue any other remedy available at law or
in equity, including but not limited to seeking damages or specific performance
and/or obtaining an injunction.
No right or remedy herein conferred upon or reserved to Lessor is exclusive
of any right or remedy herein or by law or equity provided or permitted; but
each shall be cumulative of every other right or remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise, and may be
enforced concurrently therewith or from time to time, but Lessor shall not be
entitled to recover a greater amount in damages than Lessor could have gained by
receipt of Lessee's full, timely and complete performance of its obligations
pursuant to the terms of this lease plus accrued delinquent payments under
Paragraph 21.
23. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses,
including attorneys' fees and the fees of collection agencies, incurred by
Lessor in enforcing any of the terms, conditions, or provisions hereof or in
protecting Lessor's rights herein. Lessee's obligation hereunder includes all
such costs and expenses expended by Lessor (a) prior to filing of an action,
(b) in connection with an action which is dismissed, and (c) in the enforcement
of any judgment. Lessee's obligation to pay Lessor's attorneys' fees incurred in
enforcing any judgment is a separate obligation of Lessee, severable from
Lessee's other obligations hereunder, which obligation will survive such
judgment and will not be deemed to have been merged into such judgment.
24. OWNERSHIP, PERSONAL PROPERTY. The Equipment shall at all times remain the
property of Lessor and Lessee shall have no right, title or interest therein or
thereto except as expressly set forth in this lease and the Equipment shall at
all times be and remain personal property notwithstanding that the Equipment
or any part thereof may now be, or hereafter become, in any manner, affixed or
attached to real property or any improvements thereon.
25. NOTICES. Service of all notices under this lease shall be sufficient if
given personally or mailed to the respective party at its address set forth on
any Equipment Schedule, or at such address as either party may provide in
writing from time to time. Any such notice mailed to said address shall be
effective when deposited in the United States mail, duly addressed and with
postage prepaid.
26. ACQUISITION AGREEMENTS. If the Equipment is subject to any Acquisition
Agreement, Lessee, as part of this lease, transfers and assigns to Lessor all
of its rights, but none of its obligations (except for Lessee's obligation to
pay for the Equipment conditioned upon Lessee's acceptance in accordance with
Paragraph 6), in and to the Acquisition Agreement, including but not limited to
the right to take title to the Equipment. Lessee shall indemnify and hold
Lessor harmless in accordance with Paragraph 19 from any liability resulting
from any Acquisition Agreement as well as liabilities resulting from any
Acquisition Agreement Lessor is required to enter into on behalf of Lessee or
with Lessee for purposes of this lease.
27. UPGRADES. Any existing lease between Lessor and Lessee subject to an
"upgrade" program shall continue in full force and effect and shall be kept
free of default by Lessee (even if the Equipment covered by the existing lease
is sold, traded-in, etc.) until any such existing lease is cancelled by Lessor
when, if applicable, the new Equipment is accepted by Lessee for all purposes
of this lease.
28. PURCHASE OPTION. If no default shall have occurred and be continuing,
Lessee shall be entitled, as its option upon written notice to Lessor, which
notice must be received by Lessor at least 90 days prior to the end of either
the Initial Term or any renewal term of any Equipment Schedule, to purchase
all, but not less than all, of the Equipment covered by such Equipment Schedule
from Lessor at the end of the Initial Term or any renewal term for such
<PAGE> 4
Equipment Schedule at a purchase price equal to the then fair market value of
the Equipment in use and operational, in the condition required by this lease,
as mutually agreed by Lessor and Lessee. On a date which is no later than the
expiration date of the Initial Term or any renewal term, as applicable, Lessee
shall pay to Lessor the purchase price for the Equipment covered by such
Equipment Schedule (plus any taxes levied thereon) and Lessor shall sell the
Equipment "as-is where-is" without any warranties express or implied.
29. RELATED EQUIPMENT SCHEDULES. In the event that any Equipment Schedule
hereunder shall include Equipment that may become attached to, affixed to, or
used in connection with Equipment covered under another Equipment Schedule
hereunder ("Related Equipment Schedule"), Lessee acknowledges the following:
(a) if Lessee elects to exercise a purchase option or renewal option under any
Equipment Schedule, if provided; or (b) if Lessee elects to return the
Equipment under any Equipment Schedule as described in Paragraph 14, then
Lessor, at its discretion, may require the similar disposition of all Related
Equipment Schedules as provided for by this lease.
30. MISCELLANEOUS. This instrument and any Approval Letter issued by Lessor
and any Equipment Schedule hereunder constitutes the entire agreement between
Lessor and Lessee, and shall not be amended, altered or changed except by a
written agreement signed by the parties hereto, and in the case of Lessor, such
agreement shall not be valid unless executed by Lessor at Lessor's home office.
To the extent any provision of this lease may be determined to be invalid or
unenforceable, it shall be ineffective without affecting the other provisions of
this lease. To the extent permitted by applicable law, Lessee hereby waives any
provisions of law which render any provision of this lease unenforceable in any
respect. Unless specified otherwise, in the event such written agreement is
attached to and made a part of an Equipment Schedule, the terms and conditions
of said written agreement shall apply only to said Equipment Schedule and shall
not apply to any other Equipment Schedule made a part of this lease. In the
event Lessee issues a purchase order to Lessor covering Equipment to be leased
hereunder, it is agreed that such purchase order is issued for purposes of
authorization and Lessee's internal use only, and none of its terms and
conditions shall modify the terms and conditions of this lease and/or related
documentation, or affect Lessor's responsibility to Lessee as defined in this
lease. An executed Equipment Schedule that incorporates by reference the terms
of this Master Lease Agreement, marked "Original," shall be the original of this
lease for the Equipment described therein for all purposes. All other executed
counterparts of this lease shall be marked "Duplicate." To the extent this lease
constitutes chattel paper, as such term is defined in the Uniform Commercial
Code of the applicable jurisdiction, no security interest in this lease may be
created through the transfer of possession of any counterpart other than the
Original of this lease. Lessor reserves the right to charge Lessee fees for its
provision of additional administrative services related to this lease requested
by Lessee. Lessee shall provide Lessor with such corporate resolutions, opinions
of counsel, financial statements, and other documents (including documents for
filing or recording) as Lessor may request from time to time. LESSEE REPRESENTS
AND WARRANTS THAT ALL CREDIT AND FINANCIAL INFORMATION SUBMITTED TO LESSOR
HEREWITH OR AT ANY OTHER TIME IS TRUE AND CORRECT. LESSEE HEREBY APPOINTS LESSOR
OR ITS ASSIGNEE ITS TRUE AND LAWFUL ATTORNEY IN FACT TO EXECUTE ON BEHALF OF
LESSEE ALL UNIFORM COMMERCIAL CODE FINANCING STATEMENTS OR OTHER DOCUMENTS
WHICH, IN LESSOR'S DETERMINATION, ARE NECESSARY TO SECURE LESSOR'S INTEREST IN
SAID EQUIPMENT. The filing of UCC Financing Statements is precautionary and
shall not be evidence that this lease is intended as security. If for any reason
this agreement is determined not to be a lease, Lessee hereby grants Lessor a
security interest in this lease, the Equipment or collateral pertaining thereto
and the proceeds thereof, including re-lease, sale or disposition of the
Equipment or other collateral. If more than one Lessee is named in this lease,
the liability of each shall be joint and several. Time is of the essence with
respect to this lease. Lessee represents and warrants that the Equipment is
being leased hereunder for business purposes. The descriptive headings which are
used in this lease are for convenience of the parties only and shall not affect
the meaning of any provision of this lease. Any failure of the Lessor to require
strict performance by the Lessee or any waiver by Lessor of any provision herein
shall not be construed as a consent or waiver of any other breach of the same or
of any other provision. This agreement shall be governed by the laws of the
state of California (without giving effect to principles of conflicts of law
thereof).
31. LESSEE'S REPRESENTATIONS; WAIVER OF JURY TRIAL. Lessee represents and
warrants, as of the date of this lease: (a) Lessee is duly organized, validly
existing and in good standing under the laws of the state of its incorporation
or organization, and is duly qualified to do business wherever necessary to
carry on its present business and operations and to own its property; (b) this
lease (and any Equipment Schedule entered into pursuant to this lease) has been
duly authorized by all necessary action on the part of Lessee, duly executed
and delivered by authorized officers or agents of Lessee, does not require any
further shareholder or partner approval, does not require the approval of, or
the giving notice to, any federal, state, local or foreign governmental
authority, does not contravene any law binding on Lessee or contravene any
certificate or articles of incorporation or by-laws or partnership certificate
or agreement, or any agreement, indenture or other instruments to which Lessee
is a party or by which it or any of its assets or property may be bound; (c)
this lease (and any Equipment Schedule entered into pursuant to this lease)
constitutes the legal, valid and binding obligation of Lessee and is
enforceable in accordance with its terms; (d) all credit and financial
information, and all other information submitted to Lessor at any time is true
and correct, and there does not exist any pending or threatened action or
proceeding before any court or administrative agency which might materially
adversely affect Lessee's financial condition or operations; (e) Lessee agrees
to furnish to Lessor(i) as soon as available, and in any event within 120 days
after the last day of each fiscal year of Lessee, a copy of the financial
statements of Lessee as of the end of such fiscal year, certified by an
independent certified public accounting firm; (ii) as soon as available, and in
any event within 60 days after the last day of each quarter of Lessee's fiscal
year, a copy of quarterly financial statements certified by the principal
financial officer of Lessee; and (iii) such additional information concerning
Lessee as Lessor may reasonably request. LESSEE AND LESSOR HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS LEASE OR ANY OTHER
AGREEMENT EXECUTED IN CONNECTION HEREWITH.
32. GOOD FAITH DEPOSIT REQUIREMENT. Lessee agrees, with respect to each
transaction, to pay the Good Faith Deposit specified in Lessor's proposal for
such transaction or in the Equipment Schedule related thereto. This Good Faith
Deposit is given in consideration for Lessor's costs and expenses in
investigating and appraising and/or establishing credit for Lessee. This Good
Faith Deposit shall not be refunded unless Lessor declines to accept Lessee's
offer to enter into this lease. Upon lessor's acceptance of Lessee's offer to
enter into this lease, unless otherwise specified in the proposal or Equipment
Schedule, the amount shall be applied to the first period's rent payment.
Lessee acknowledges that Leessor's act of depositing any Good Faith Deposit
into Lessor's bank account shall not in itself constitute Lessor's acceptance
of Lessee's offer to enter into this lease.
IN WITNESS WHEREOF, the parties have executed this Master Lease Agreement
effective as of the first date it is executed by Lessee below.
Mellon US Leasing, a Division of Mellon Leasing Corporation (LESSOR)
Name
--------------------------------------
Title
-------------------------------------
HOME OFFICE: 525 MARKET STREET, Suite 3500
SAN FRANCISCO, CA 94105-2743 (415) 538-7100
Nanogen, Inc.
- -------------------------(LESSEE) TITLE DATE
By PRESIDENT
x /s/ [SIG] AND COO 11/7/97
- ---------------------------------------------------------------------
By
X
- ---------------------------------------------------------------------
- ------------------------(CO-LESSEE) TITLE DATE
By
X
- ---------------------------------------------------------------------
<PAGE> 5
EQUIPMENT SCHEDULE DATED AS OF 10/31/97
TO AND INCORPORATING BY REFERENCE
MASTER LEASE AGREEMENT DATED AS OF 10/31/97
LESSOR LESSEE
Mellon US Leasing, a Division of Nanogen, Inc.
Mellon Leasing Corp. 10398 Pacific Center Court
525 Market Street, Suite 350 San Diego, CA 92121
San Francisco, CA 94105-2743
This Equipment Schedule (this "Schedule") is executed pursuant to, and
incorporates by this reference, all the terms and conditions of the Master
Lease Agreement identified above (the "Agreement"). This Schedule, together with
the Agreement, constitutes a separate instrument of lease (the "Lease"). By
their execution of this Schedule, the parties reaffirm all terms and conditions
of the Agreement except as they may be modified hereby.
<TABLE>
<CAPTION>
TOTAL TRANSACTION COST: APPROX. $1.5M EQUIPMENT: AS SET FORTH ON THE EXHIBIT A ATTACHED HERETO
<S> <C> <C> <C> <C>
# OF RENT INITIAL TERM EQUIPMENT LOCATION (ADDRESS, CITY, STATE, ZIP CODE)
PAYMENTS RENTAL AMOUNT FREQUENCY (MONTHS) Same as Above
36 2.71229% monthly 36
or
36 3.21517% monthly 36 X IN CITY LIMITS NOT IN CITY LIMITS COUNTY
softcosts ---- ---- ----
EQUIPMENT CONTACT
VENDOR NAME and ADDRESS NAME: Chris Pyle
PHONE: (619) 546-7700 x 137
various
INVOICING ADDRESS
VENDOR CONTACT Same as Above
NAME:
PHONE:
INVOICE CONTACT
MACRS RECOVER PERIOD 5 YEARS
- NAME: Chris Pyle
PHONE: (619) 546-7700 x 137
LESSEE REFERENCE NUMBER:
SPECIAL TERMS: THE TERMS AND CONDITIONS OF THE AGREEMENT ARE HEREBY MODIFIED FOR THIS SCHEDULE AS FOLLOWS:
WE CERTIFY THAT THE EQUIPMENT DESCRIBED IN THAT ATTACHED EXHIBIT "A" HAS BEEN INSTALLED, OPERATES PROPERLY, AND IS, THEREFORE,
ACCEPTED FOR PURPOSES OF THE LEASE. WE REQUEST THAT LESSOR PAY THE VENDOR FOR THE EQUIPMENT AND WE UNDERSTAND THAT RENTAL PAYMENTS
WILL COMMENCE.
ATTACHMENTS: IN ADDITION TO EXHIBIT A, THE FOLLOWING EXHIBITS ARE ATTACHED HERETO AND INCORPORATED HEREIN
Exhibit B, S and X
IN WITNESS WHEREOF, the parties have executed this Equipment Schedule effective as of the date first set forth above.
Mellon US Leasing, a Division of Mellon Leasing Corp. (LESSOR) LESSEE SIGNATURE TITLE DATE
BY BY
X X [SIG] President & C.O.O. 11/7/97
- -------------------------------------------------------------- -----------------------------------------------------------------
TITLE BUSINESS UNIT BY
X X
- -------------------------------------------------------------- -----------------------------------------------------------------
HOME OFFICE; 525 MARKET STREET, SUITE 3500 CO-LESSEE SIGNATURE TITLE DATE
SAN FRANCISCO, CA 94105-2743 BY
Not valid unless executed by Lessor at Lessor's home office X
------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INTERNAL USE COMMITMENT DATE RENT COMMENCEMENT DATE BILLING ACCOUNT NO. LEASE NO.
ONLY
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LMS-147 Rev. 03/97
<PAGE> 1
EXHIBIT 10.20
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
June 29, 1994, is made by and between LMP PROPERTIES, LTD., a California Limited
Partnership ("Lessor") and NANOGEN, INC., a California Corporation ("Lessee")
(collectively the "Parties," or individually a "Party.").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 10398 Pacific Center Court (43,645 sq. ft.)
located in the County of San Diego, State of California and generally described
as (describe briefly the nature of the property) Pacific Corporate Center (Lot
27) See Addendum 1.2 ("Premises"). (See Paragraph 2 for further provisions.)
1.3 TERM: Ten (10) years and ______ months ("Original Term") commencing
Jan. 1, 1995 See Addendum 1.3 ("Commencement Date") and ending ten (10) years
after commencement date ("Expiration Date"). (See Paragraph 3 for further
provisions.)
1.4 EARLY POSSESSION: See Addendum 1.4 ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $36,225.35 per month ("Base Rent"), payable on the first
day of each month commencing the second month of the Lease term. Monthly rent
for the first month of the Lease term shall be payable upon the execution of
this Lease. See Addendum 1.5 (See Paragraph 4 for further provisions.)
If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $36,225.35 as Base Rent for the
period first month of the Lease term.
1.7 SECURITY DEPOSIT: $36,225.35 See Addendum 1.7 ("Security Deposit").
(See Paragraph 5 for further provisions.)
1.8 PERMITTED USE: Office, laboratory, manufacturing, assembly, pilot
plants, warehousing, and any other lawful use as permitted by applicable zoning
laws. (See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively
the "Brokers") and brokerage relationships exist in this
-1-
<PAGE> 2
transaction and are consented to by the Parties (check applicable boxes):
BUSINESS REAL ESTATE BROKERAGE COMPANY represents Lessor exclusively ("Lessor's
Broker"); JOHN BURNHAM & COMPANY represents Lessee exclusively ("Lessee's
Broker"). (See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 1, 4 through __ and Exhibits ___ Tenant improvement plans and
specifications all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. See Addendum 2.2.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the Improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to any Alterations or Utility Installations (as defined in
Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply
with said warranty, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify the same at
Lessor's expense. See Addendum 2.3.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental
-2-
<PAGE> 3
aspects, compliance with Applicable Law, as defined in Paragraph 6.3) and the
present and future suitability of the Premises for Lessee's intended use, (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters and assumes all responsibility therefor as the same relate to
Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that
neither Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to the said matters other than as set
forth in this Lease.
2.5 PARKING. See Addendum 2.6
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
Lease are as specified in Addendum 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however (including but not limited to the obligations to pay Real
Property taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, ___ one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee. See Addendum 3.3.
-3-
<PAGE> 4
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, it any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor within ten (10) days after
surrender of the Premises by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term Hazardous Substance
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation,
-4-
<PAGE> 5
spill, release or effect, either by itself or in combination with other
materials expected to be on the Premises, is regulated or monitored by any
governmental authority. Hazardous Substance shall include, but not be limited
to, hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof. Lessee shall not engage in any activity in, on or about the
Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). Reportable Use shall mean (i) the
installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of Lessee's
business permitted on the Premises, so long as such use is not a Reportable Use
and does not expose the Premises or neighboring properties to any meaningful
risk of contamination or damage or expose Lessor to any liability therefor. See
Addendum 6.2(a).
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Premises,
other than as previously consented to by Lessor or as permitted pursuant to
Section 6.2(a), Lessee shall immediately give written notice of such fact to
Lessor. Lessee shall also immediately give Lessor a copy of any statement,
report, notice, registration, application, permit, business plan, license,
claim, action or proceeding given to, or received from, any governmental
authority or private party, or persons entering or occupying the Premises,
concerning the presence, spill, release, discharge of, or exposure to, any
Hazardous Substance or contamination in, on, or about the Premises, including
but not limited to all such documents as may be involved in any Reportable Uses
involving the Premises. See Addendum 6.2(b).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
reasonable attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for Lessee
or under Lessee's control. See Addendum 6.2(c). The parties' obligations under
this Paragraph 6 shall include, but not be limited to, the effects of any
contamination or injury to person, property or
-5-
<PAGE> 6
the environment created or suffered by the indemnifying party and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement. See Addendum 6.2(c).
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner; comply with all "Applicable Law" pertaining to Lessee's use
and occupancy of the Premises, which term is used in this Lease to include all
laws, rules, regulations, ordinances, directives covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill or release of
any Hazardous Substance or storage tank), now in effect or which may hereafter
come into effect, and whether or not reflecting a change in policy from any
previously existing policy. Lessee shall, within five (5) days after receipt of
Lessor's written request, provide Lessor with copies of all documents and
information, including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with any
Applicable Law specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable Law.
See Addendum 6.3.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times after 24 hours for the
purpose of inspecting the condition of the Premises and for verifying compliance
by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3),
and to employ experts and/or consultants in connection therewith and/or to
advise Lessor with respect to Lessee's activities, including but not limited to
the installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
material contamination, caused or materially contributed to by Lessee is found
to exist or be imminent, or unless the inspection is requested or ordered by
governmental authority as the result of any such existing or imminent violation
or contamination caused by Lessee in which event Lessee
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shall pay for such inspection within 30 days after written request therefor.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATION; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty
as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, non-structural whether or not such portion of the Premises requiring
repair, or the means of repairing the same, are reasonably or readily accessible
to Lessee, including without limiting the generality of the foregoing, all
equipment or facilities exclusively serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system below the sprinkler drops
including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior), ceilings, floors, windows, doors, plate
glass, skylights, signs, located in, on, about, or adjacent to the Premises.
Lessee shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under or about the Premises (including through the plumbing or
sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. See Addendum 7.2
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection. See Addendum 7.2.
7.2 LESSOR'S OBLIGATIONS. It is the intention of the Parties that the
terms of this Lease govern the respective obligations of the
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Parties as to maintenance and repair of the Premises. Lessee and Lessor
expressly waive the benefit of any statute now or hereafter in effect to the
extent it is inconsistent with the terms of this Lease with respect to, or which
affords Lessee the right to make repairs at the expense of Lessor or to
terminate this Lease by reason of, any needed repairs. See Addendum 7.2.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility
Installations" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and
equipment that can be removed without doing material damage to the Premises. The
term "Alterations" shall mean any modification of the improvements on the
Premises from that which are provided by Lessor under the terms of this Lease,
other than Utility Installations or Trade Fixtures, whether by addition or
deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations in, on, under or about the Premises without Lessor's
prior written consent. Lessee may, however, make non-structural alterations,
Utility Installations to the interior of the Premises (excluding the roof), as
long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls and the cost thereof per
occurrence does not exceed $25,000. See Addendum 7.3.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefore.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not
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<PAGE> 9
less than ten (10) days' notice prior to the commencement of any work in, on or
about the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend and protect itself, Lessor and the Premises
against the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Lessor or the
Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the amount
of such contested lien claim or demand, indemnifying Lessor against liability
for the same, as required by law for the holding of the Premises free from the
effect of such lien or claim. In addition, Lessor may require Lessee to pay
Lessor's reasonable attorney's fees and costs in participating in such action if
Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to request their removal
or become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility installations made to the Premises and paid for by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises. See Addendum 7.4(a).
(b) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance
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required under this Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor in excess of $1,000,000 per occurrence.
Premiums for policy periods commencing prior to or extending beyond the Lease
term shall be prorated to correspond to the Lease term. Payment shall be made by
Lessee to Lessor within ten (10) days following receipt of an invoice for any
amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an insured
contract for the performance of Lessee's indemnity obligations under this Lease.
The limits of said insurance required by this Lease or as carried by Lessee
shall not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance to be carried by Lessee
_______________________ contributory with any similar insurance carried by
Lessor, whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor upon
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written notice to Lessee. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the
full rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event the
Lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
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<PAGE> 12
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee and Lessor shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in this Paragraph 8.
Each party shall cause to be delivered to the other party certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancelable or subject to modification except
after thirty (30) days prior written notice to the other. Each party shall at
least thirty (30) days prior to the expiration of such policies, furnish the
other with evidence of renewals or "insurance binders" evidencing renewal
thereof. If the Insuring Party shall fail to procure and maintain the insurance
required to be carried by the Insuring Party under this Paragraph 8, the other
Party may, but shall not be required to, procure and maintain the same, but at
the insuring party's expense. See Addendum 8.5.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto. See Addendum 8.6.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnity, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's partners and Lenders, from and against
any and all claims, loss of rents and/or damages, costs, liens, judgments,
penalties, permits, reasonable attorney's and consultant's fees, expenses and/or
liabilities arising out of, involving, or in dealing with Lessee's negligence or
willful
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<PAGE> 13
misconduct in connection with the occupancy of the Premises by Lessee, the
conduct of Lessee's business, any act, omission or neglect of Lessee, its
agents, contractors, employees or invitees, and out of any Default or Breach by
Lessee in the performance in a timely manner of any obligation on Lessee's part
to be performed under this Lease. The foregoing shall include, but not be
limited to, the defense or pursuit of any claim or any action or proceeding
involved therein, and whether or not litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters upon notice, the indemnifying
party shall defend the indemnified party at indemnifying party's expense by
counsel reasonably satisfactory to the indemnified party and shall cooperate
with the indemnified party in such defense.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except to the extent caused by
Lessor's negligence, willful misconduct or breach of this Lease, Lessor shall
not be liable for injury or damage to the person or goods, wares, merchandise or
other property of Lessee, Lessee's employees, contractors, invitees, customers,
or any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Lessor shall not be liable for any damages arising from any act or neglect
of any other tenant of Lessor.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility Installations
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be
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covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the tact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within thirty (30) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof with said thirty (30) day
________________ responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice _______ Lessee within _________ (__) days
thereafter to make such restoration and repair as is commercially reasonable
with Lessor paying any shortage in proceeds, in which case this Lease shall
remain in full force and effect. If in such case Lessor does not so elect, then
this Lease shall terminate _____________ the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such
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insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee, within thirty (30) days after receipt by Lessor of knowledge of
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date of the damage. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the repair of such damage totally at Lessee's
expense and without reimbursement from Lessor. Lessee shall provide Lessor with
the required funds or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed diligently to make such repairs
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within the
times specified above, this Lease shall terminate as of the date of the damage.
9.4 TOTAL DESTRUCTION. Notwithstanding any of the provisions hereof, if
a Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate as of the date of such
Premises Total Destruction, whether or not the damage or destruction is an
Insured Loss or was caused by a negligent or willful act of Lessee.
9.5 DAMAGES NEAR END OF TERM. If at any time during the last six (6)
months of the terms of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss either party
may at its option, terminate this Lease effective as of sixty (60) days
following the date of occurrence of such damage by giving written notice of its
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs, unless the casualty was an insured loss. If
Lessee duly exercises such option during said Exercise Period and provides
Lessor with funds if required (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such funds
or assurance during said Exercise Period, then Lessor may at Lessor's option
terminate this Lease following the occurrence of such
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damage by giving written notice to Lessee of Lessor's election to do so within
ten (10) days after the expiration of the Exercise Period, notwithstanding any
term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues, shall be abated in proportion
to the degree to which Lessee's use of the Premises is impaired, from the date
of the casualty. Except for abatement of Base Rent, Real Property Taxes, a
common costs, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
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notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for, which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a).
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover the period of
time within the tax fiscal year this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment after such proration. If Lessee shall fail
to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Real Property Taxes, to be paid
in advance to Lessor by Lessee
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or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects
to require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein,the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any improvement bond or bonds,
levy or tax (other than inheritance, personal income or estate taxes) imposed
upon the Premises by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district thereof, levied
against any legal or equitable interest of Lessor in the Premises or in the real
property of which the Premises are a part, Lessor's right to rent or other
income therefrom. The term "Real Property Taxes" shall also include any tax,
fee, levy, assessment or charge, or any increase therein, imposed by reason of
events occurring, or changes in applicable law taking effect, during the term of
this Lease, ________________________________, the execution of this Lease, or
any modification, amendment or transfer thereof, and whether or not contemplated
by the Parties. See Addendum 10.2.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessors work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive. Lessee's share of property tax on the real property other than
improvements is 37.318%.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings,
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equipment and all personal property of Lessee contained in the Premises or
elsewhere. When possible, Lessee shall cause its Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor. ______________ of Lessee's said personal
property shall be assessed with Lessor's real property, Lessee shall pay Lessor
the taxes attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property or, at
Lessor's option, as provided in Paragraph 10.1(b).
10.5 UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
11. [INTENTIONALLY OMITTED]
12. ASSIGNMENT AND SUBLETTING. See Addendum 12.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
fifty-one percent (51%) or more of the voting control of Lessee shall constitute
a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs which
results of will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than fifty percent (50%) of such Net
Worth of Lessee as it was represented to Lessor at the time of the execution by
Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established, under generally accepted accounting principles
consistently applied.
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(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall be a Default curable after
notice per Paragraph 13.1(c).
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease arising
after the date of the assignment, (ii) release Lessee of any obligations
hereunder, or (iii) alter the primary liability of Lessee for the payment of
Base Rent and other sums due Lessor hereunder or for the performance of any
other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to appropriateness of the proposed assignee or sublessee including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a non-refundable deposit of $250 of the current monthly Base
Rent, whichever is greater, as reasonable consideration for Lessor's considering
and processing the request for consent. Lessee agrees to provide Lessor with
such other or additional information and/or documentation as may be reasonably
requested by Lessor.
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(f) Any assignee of, or subleases under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
a part of the Premises and shall be deemed included in all subleases under this
Lease whether or not expressly incorporated therein:
(a) In the event of a Breach by Lessee in the performance of its
obligations under this Lease. Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
13. DEFAULT; BREACH; REMEDIES.
13.1 _____________________. ____________________________
__________________________________________________ Lessor in connection with a
Lessee Default or Breach (as hereinafter defined, Lessee shall pay actual and
reasonable attorneys fees not to exceed $350,000 for legal services and costs in
the preparation and service of a notice of Default, ___________ by the Lessee to
observe, comply with or perform any of the terms, covenants, conditions or rules
applicable to Lessee under this Lease. A "Breach" is defined as the occurrence
of any one or more of the following Defaults, and, where a grace period for cure
after notice is specified herein, the failure by Lessee to cure such Default
prior to the expiration of the applicable grace period, and shall entitled
Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of ten
(10) days following written notice thereof by or on behalf of Lessor to Lessee.
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(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of thirty (30) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making
by Lessee of any general arrangement or assignment for the benefit of creditors
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. ss. 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days: provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform
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such duty or obligation on Lessee's behalf, including but not limited to the
obtaining of reasonably required bonds, insurance policies, or governmental
licenses, permits or approvals. The costs and expenses of any such performance
by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If
any check given to Lessor by Lessee shall not be honored by the bank upon which
it is drawn, Lessor, at its option, may require all future payments to be made
under this Lease by Lessee, to be made only by cashier's check. In the event of
a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting including necessary renovation
and alteration of the Premises, reasonable attorneys' fees, and that portion of
the leasing commission paid by Lessor applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph. If termination of this Lease is obtained through
the provisional Remedy of unlawful detainer, Lessor shall have the right to
recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two such grace
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periods shall constitute both an unlawful detainer and a Breach of this Lease
entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for giving
or paying by Lessor to or for Lessee of any cash or other bonus, inducement or
consideration for Lessee's entering into this Lease, all of which concessions
are hereinafter referred to as "Inducement Provisions," shall be deemed
conditioned upon Lessee's full and faithful performance of all of the terms,
covenants and conditions of this Lease to be performed or observed by Lessee
during the term hereof as the same may be extended. Upon the occurrence of a
Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
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Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to three percent (3%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessor. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's
obligations __________________________________________ required for its
performance, then Lessor shall not __________________
_____________________________________ thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
___________ (all of which are herein called Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
______________ or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent (25%)
of the __________ area not occupied by any building, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the building located on the Premises.
No reduction of Base Rent shall occur if the only portion of the Premises taken
is land on which there is no building. Any award for the taking ____________ or
any part of the Premises under the power of eminent domain or any payment made
under threat of the exercise of such power
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shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages: provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures and Lessee shall be entitled to
a portion of any award attributable to the value of any Tenant Improvements,
alterations or utility installations paid for by Lessee. In the event that this
Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority.
15. BROKER'S FEE.
15.1 BROKER'S FEE. The Brokers named in Paragraph 1.10 are the procuring
causes of this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $ per agreement for brokerage services
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
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15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions or the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting party a statement in writing in form
similar to the current "Tenancy Statement" form published by the American
Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
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18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due either party
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after notice of delinquency due at the rate of prime +2%
per annum, but not exceeding the maximum rate allowed by law, in addition to the
late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon, if sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein
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and mailed with postage prepaid. Notices delivered by United States Express Mail
or overnight courier that guarantees next day delivery shall be deemed given
twenty-four (24) hours after delivery of same to the United States Postal
Service or courier. If any notice is transmitted by facsimile transmission or
similar means, the same shall be deemed served or delivered upon telephone
confirmation of receipt of the transmission thereof, provided a copy is also
delivered via delivery or mail. If notice is received on a Sunday or legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor or Lessee of the Default or Breach of any
term, covenant or condition hereof by either party, shall be deemed a waiver of
any other term, covenant or condition hereof, or of any subsequent Default or
Breach by either party of the same or of any other term, covenant or condition
hereof. Lessor's consent to, or approval of, any act shall not be deemed to
render unnecessary the obtaining of a party's consent to, or approval of, any
subsequent or similar act by either party, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of either party's knowledge of a Default or Breach at the
time of accepting rent, the acceptance of rent by Lessor shall not be a waiver
of any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
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30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof provided that
the Lender agrees in writing not to disturb Lessee's quiet possession of the
Premises so long as Lessee is not in default under the lease. Lessee agrees that
the Lenders holding any such Security Device shall have no duty, liability or
obligation to perform any of the obligations of Lessor under this Lease, but
that in the event of Lessor's default with respect to any such obligation,
Lessee will give any Lender whose name and address have been furnished Lessee in
writing for such purpose notice of Lessor's default and allow such Lender thirty
(30) days following receipt of such notice for the cure of said default before
invoking any remedies Lessee may have by reason thereof. If any Lender shall
elect to have this Lease and/or any Option granted hereby superior to the lien
of its Security Device and shall give written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to such Security Device,
notwithstanding the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorneys' fee award
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shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorney's fees reasonably incurred. Lessor shall
be entitled to attorney's fees, costs and expenses incurred in the preparation
and service of notices of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with such
Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times after 24 hours prior notice to
Lessee for the purpose of showing the same to prospective purchasers, lenders,
or lessees, and making such alterations, repairs, improvements or additions to
the Premises or to the building of which they are a part, as Lessor may
reasonably deem necessary. Lessor may at any time during the last one hundred
twenty (120) days of the term hereof place on or about the Premises any ordinary
"For Lease" signs. All such activities of Lessor shall be without abatement of
rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
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36. CONSENTS.
(a) Except for paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the imposition
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS. See Addendum 39.5
39.1 DEFINITION. As used in this Paragraph 37 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor' (c) the right to purchase the Premises, or the right of first offer to
purchase the Premises, or the right of first offer to purchase the
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Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first offer
to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Paragraph 1.1 hereof and cannot
be voluntarily or involuntarily assigned or exercised by any person or entity
other than said original Lessee while the original Lessee _______ in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee ______
not assignable, either as a part of an assignment of this Lease or separately or
a part therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have the right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the Default is cured, or (ii) during the period of
___________ monetary obligation due Lessor from Lessee is unpaid (without regard
to whether notice thereof is given Lessee), or (iii) during the time Lessee
__________ Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and
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<PAGE> 34
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of such other buildings and their invitees, and that Lessee will pay its
fair share of common expenses incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
rant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereof is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions (including the Addendum) shall be
controlled by the typewritten and handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The
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<PAGE> 35
parties shall amend this Lease from time to time to reflect any adjustments that
are made to the Base Rent or other rent payable under this Lease. As long as
they do not materially change Lessee's obligations hereunder, Lessee agrees to
make such reasonable non-monetary modifications to this Lease as may be
reasonably required by an institutional, insurance company, or pension plan
Lender in connection with the obtaining or normal financing or refinancing of
the property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entitles named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATE IN A STATE OTHER THAN CALIFORNIA,
AN
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ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Los Angeles, California
on July ___, 1994
by Lessor:
LMP PROPERTIES, LTD., a California
Limited Partnership
By: MESA PACIFICA, General
Partner
By: ____________________________
One of its general partners
By: /s/ Norton N. Brown
--------------------------------
Name Printed: Norton N. Brown
Title: General Partner
Address: 11930 San Vicente
Blvd., Los Angeles, CA
90040
Tel. No. 310-820-6666
Fax No. 310-826-2860
Executed at San Diego, California
on July __, 1994
by Lessee:
NANOGEN, INC., a California
Corporation
By: /s/ Howard C. Birndorf
--------------------------------
Name Printed: Howard C. Birndorf
Title: CEO
By:_________________________________
Name Printed:_______________________
Title:______________________________
Address:____________________________
____________________________
Tel No. (_____)_____________________
Fax No. (_____)_____________________
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<PAGE> 1
EXHIBIT 10.21
LEASE MANAGEMENT SERVICES, INC.
ADDENDUM TO
EQUIPMENT FINANCING AGREEMENT
NUMBER 10766
BY AND BETWEEN
NANOGEN, INC., AS DEBTOR,
AND
LEASE MANAGEMENT SERVICES, INC., AS SECURED PARTY
NANOGEN, INC., as Debtor, hereby acknowledges our responsibility to pay, and
agrees to pay any additional sales taxes which may be due to the State of
California or where applicable, for the collateral covered under the above
referenced Equipment Financing Agreement.
DEBTOR:
NANOGEN, INC.
By: Signature of Tina Berger-Nova, Ph.D.
---------------------------------------
Title: President & COO
------------------------------------
Date: 5/10/94
-------------------------------------
<PAGE> 2
LEASE MANAGEMENT SERVICES, INC.
EQUIPMENT FINANCING AGREEMENT
(Number 10766)
THIS EQUIPMENT FINANCING AGREEMENT NUMBER 10766 ("Agreement") is dated as of the
date set forth at the foot hereof and is between LEASE MANAGEMENT SERVICES,
INC., ("Secured Party") and NANOGEN, INC., ("Debtor").
1. EQUIPMENT; SECURITY INTEREST. The terms and conditions of this Agreement
cover each item of machinery, equipment and other property (individually an
"Item" or "Item of Equipment" and collectively the "Equipment") described in a
schedule now or hereafter executed by the parties hereto and made a part hereof
(individually a "Schedule" and collectively the "Schedules"). Debtor hereby
grants Secured Party a security interest in and to all Debtor's right, title and
interest in and to the Equipment under the Uniform Commercial Code, such grant
with respect to an Item of Equipment to be as of Debtor's execution of a related
Equipment Financing Commitment referencing this Agreement or, if Debtor then has
no interest in such Item, as of such subsequent time as Debtor acquires an
interest in the Item. Such security interest is granted by Debtor to secure
performance by Debtor of Debtor's obligations to Secured Party hereunder and
under any other agreements under which Debtor has or may hereafter have
obligations to Secured Party. Debtor will ensure that such security interest
will be and remain a sole and valid first lien security interest subject only to
the lien of current taxes and assessment not in default but only if such taxes
are entitled to priority as a matter of law.
2. DEBTOR'S OBLIGATIONS. The obligations of Debtor under this Agreement
respecting an Item of Equipment, except the obligation to pay installment
payments with respect thereto which will commence as set forth in Paragraph 3
below, commence upon the grant to Secured Party of a security interest in the
Item. Debtor's obligations hereunder with respect to an Item of Equipment and
Secured Party's security interest therein will continue until payment of all
amounts due, and performance of all terms and conditions required hereunder
provided, however, that if this Agreement is in default said obligations and
security interest will continue during the continuance of said default. Upon
termination of Secured Party's security interest in an Item of Equipment,
Secured Party will execute such release of interest with respect thereto as
Debtor reasonably requests.
3. INSTALLMENT PAYMENTS AND OTHER PAYMENTS. Debtor will repay advances
Secured Party makes on account of the Equipment in installment payments in the
amounts and at the times set forth in the Schedules, whether or not Secured
Party has rendered an invoice therefor, at the office of Secured Party set forth
at the foot hereof, or to such person and/or at such other place as Secured
Party may from time to time designate by notice to Debtor. Any other amounts
required to be paid Secured Party by Debtor hereunder are due upon Debtor's
receipt of Secured Party's invoice therefor and will be payable as directed in
the invoice. Payments under this Agreement may be applied to Debtor's then
accrued obligations to Secured Party in such order as Secured Party may choose.
4. NET AGREEMENT; NO OFFSET, SURVIVAL. This Agreement is a net agreement, and
Debtor will not be entitled to any abatement of installment payments or other
payments due hereunder or any reduction thereof under any circumstance or for
any reason whatsoever. Debtor hereby waives any and all existing and future
claims, as offsets, against any installment payments or other payments due
hereunder and agrees to pay the installment payments and other amounts due
hereunder as and when due regardless of any offset or claim which may be
asserted by Debtor or on its behalf. The obligations and liabilities of Debtor
hereunder will survive the termination of the Agreement.
5. FINANCING AGREEMENT. THIS AGREEMENT IS SOLELY A FINANCING AGREEMENT.
DEBTOR ACKNOWLEDGES THAT THE EQUIPMENT HAS OR WILL HAVE BEEN SELECTED AND
ACQUIRED SOLELY BY DEBTOR FOR DEBTOR'S PURPOSES, THAT SECURED PARTY IS NOT AND
WILL NOT BE THE VENDOR OF ANY EQUIPMENT AND THAT SECURED PARTY HAS NOT MADE AND
WILL NOT MAKE ANY AGREEMENT, REPRESENTATION OR WARRANTY WITH RESPECT TO THE
<PAGE> 3
NANOGEN, INC.
EQUIPMENT FINANCING AGREEMENT NUMBER 10766
PAGE 2 OF 8
MERCHANTABILITY, CONDITION, QUALIFICATION OR FITNESS FOR A PARTICULAR PURPOSE OR
VALUE OF THE EQUIPMENT OR ANY OTHER MATTER WITH RESPECT THERETO IN ANY RESPECT
WHATSOEVER.
6. NO AGENCY. DEBTOR ACKNOWLEDGES THAT NO AGENT OF THE MANUFACTURER OR OTHER
SUPPLIER OF AN ITEM OF EQUIPMENT OR OF ANY FINANCIAL INTERMEDIARY IN CONNECTION
WITH THIS AGREEMENT IS AN AGENT OF SECURED PARTY. SECURED PARTY IS NOT BOUND BY
A REPRESENTATION OF ANY SUCH PARTY AND, AS CONTEMPLATED IN PARAGRAPH 27 BELOW,
THE ENTIRE AGREEMENT OF SECURED PARTY AND DEBTOR CONCERNING THE FINANCING OF THE
EQUIPMENT IS CONTAINED IN THIS AGREEMENT AS IT MAY BE AMENDED ONLY AS PROVIDED
IN THAT PARAGRAPH.
7. ACCEPTANCE. Execution by Debtor and Secured Party of a Schedule covering
the Equipment or any Items thereof will conclusively establish that such
Equipment has been included under and will be subject to all the terms and
conditions of this Agreement. If Debtor has not furnished Secured Party with an
executed Schedule by the Earlier of fourteen (14) days after receipt thereof or
expiration of the commitment period set forth in the applicable Equipment
Financing Agreement, Secured Party may terminate its obligation to advance funds
as to the applicable Equipment.
8. LOCATION; INSPECTION; USE. Debtor will keep, or in the case of motor
vehicles, permanently garage and not remove from the United States, as
appropriate, each Item of Equipment in Debtor's possession and control at the
Equipment Location designated in the applicable Schedule, or at such other
location to which such Item may have been moved with the prior written consent
of Secured Party. Whenever requested by Secured Party, Debtor will advise
Secured Party as to the exact location of an Item of Equipment. Secured Party
will have the right to inspect the Equipment and observe its use during normal
business hours, subject to Debtor's security procedures and to enter into and
upon the premises where the Equipment may be located for such purpose. The
Equipment will at all times be used solely for commercial or business purposes
and operated in a careful and proper manner and in compliance with all
applicable laws, ordinances, rules and regulations, all conditions and
requirements of the policy or policies of insurance required to be carried by
Debtor under the terms of this Agreement and all manufacturer's instructions and
warranty requirements. Any modifications or additions to the Equipment required
by any such governmental edict or insurance policy will be promptly made by
Debtor.
9. ALTERATIONS; SECURITY INTEREST COVERAGE. Without the prior written consent
of Secured Party, Debtor will not make any alterations, additions or
improvements to any Item of Equipment which detract from its economic value or
functional utility, except as may be required pursuant to Paragraph 8 above.
Secured Party's security interest in the Equipment will include all
modifications and additions thereto and replacements and substitutions therefor,
in whole or in part. Such reference to replacements and substitutions will not
grant Debtor greater rights to replace or substitute than are provided in
Paragraph 11 below or as may be allowed upon the prior written consent of
Secured Party.
10. MAINTENANCE: Debtor will maintain the Equipment in good repair, condition
and working order. Debtor will also cause each Item of Equipment for which a
service contract is generally available to be covered by such a contract which
provides coverages typical to property of the type involved and is issued by a
competent servicing entity.
11. LOSS AND DAMAGE; CASUALTY VALUE. In the event of the loss of, theft of,
requisition of, damage to or destruction of an Item of Equipment ("Casualty
Occurrence"), Debtor will give Secured Party prompt notice thereof and will
thereafter place such Item in good repair, condition and working order,
provided, however, that if such Item is determined by Secured Party to be lost,
stolen, destroyed or damaged beyond repair, is requisitioned or suffers a
constructive total loss as defined in any applicable insurance policy carried by
Debtor in accordance with Paragraph 14
<PAGE> 4
NANOGEN, INC.
EQUIPMENT FINANCING AGREEMENT NUMBER 10766
PAGE 3 OF 8
below, Debtor, at Secured Party's option, will (a) replace such Item with like
Equipment in good repair, condition and working order whereupon such replacement
equipment will be deemed such Item for all purposes hereof or (b) pay Secured
Party the "Casualty Value" of such Item which will equal the total of (i) all
installment payments and other amounts due from Debtor to Secured Party at the
time of such payment and (ii) future installment payments due with respect to
such Item with each such payment including any final uneven payment discounted
at a rate equal to the discount rate of the Federal Reserve Bank of San
Francisco from the date due to the date of such payment.
Upon such replacement or payment, as appropriate, this Agreement and Secured
Party's security interest will terminate with, and only with, respect to the
Item of Equipment so replaced or as to which such payment is made in accordance
with Paragraph 2 above.
12. TITLING; REGISTRATION. Each item of Equipment subject to title
registration laws will at all times be titled and/or registered by Debtor as
Secured Party's agent and attorney-in-fact with full power and authority to
register (but without power to affect title to) the Equipment in such manner and
in such jurisdiction or jurisdictions as Secured Party directs. Debtor will
promptly notify Secured Party of any necessary or advisable retitling and/or
reregistration of an Item of Equipment in a jurisdiction other than the one in
which such Item is then titled and/or registered. Any and all documents of title
will be furnished or caused to be furnished Secured Party by Debtor within sixty
(60) days of the date any titling or registering or restating or reregistering,
as appropriate, is directed by Secured Party.
13. TAXES. Debtor will make all filings as to and pay when due all personal
property and other ad valorem taxes and all other taxes, fees, charges and
assessments based on the ownership or use of the Equipment and will pay as
directed by Secured Party or reimburse Secured Party for all other taxes,
including, but not limited to, gross receipt taxes (exclusive of federal and
state taxes based on Secured Party's net income, unless such net income taxes
are in substitution for or relieve Debtor from any taxes which Debtor would
otherwise be obligated to pay under the terms of this Paragraph 13), fees,
charges and assessments whatsoever, however designated, whether based on the
installment payments or other amounts due hereunder, levied, assessed or imposed
upon the Equipment or otherwise related hereto or to the Equipment, now or
hereafter levied, assessed or imposed under the authority of a federal, state,
or local taxing jurisdiction, regardless of when and by whom payable. Filings
with respect to such other amounts will, at Secured Party's option, be made by
Secured Party or by Debtor as directed by Secured Party.
14. INSURANCE. Debtor will procure and continuously maintain all risk
insurance against loss or damage to the Equipment from any cause whatsoever for
not less than the full replacement value thereof naming Secured Party as Loss
Payee. Such insurance must be in a form and with companies approved by Secured
Party, must provide at least thirty (30) days advance written notice to Secured
Party of cancellation, change or modification in any term, condition, or amount
of protection provided therein, must provide full breach of warranty protection
and must provide that the coverage is "primary coverage" (does not require
contribution from any other applicable coverage). Debtor will provide Secured
Party with an original policy or certificate evidencing such insurance. In the
event of an assignment of this Agreement of which Debtor has notice, Debtor will
cause such insurance to provide the same protection to the assignee as its
interests may appear. The proceeds of such insurance, at the option of the
Secured Party or such assignee, as appropriate, will be applied toward (a)
repair or replacement of the appropriate Item or Items of Equipment, (b) payment
of the Casualty Value thereof and/or (c) payment of, or as provision for,
satisfaction of any other accrued obligations of Debtor hereunder. Debtor hereby
appoints Secured Party as Debtor's attorney-in-fact with full power and
authority to do all things, including, but not limited to, making claims,
receiving payments and endorsing documents, checks or drafts, necessary to
secure payments due under any policy contemplated hereby on account of a
Casualty Occurrence. Debtor and Secured Party contemplate that the jurisdictions
where the Equipment will be located will not impose any liability upon Secured
Party for personal injury and/or property damage resulting out of the
possession, use, operation or condition of the Equipment. In the event Secured
Party determines that such is not or may not be the case with respect to a given
jurisdiction, Debtor will provide Secured Party with
<PAGE> 5
NANOGEN, INC.
EQUIPMENT FINANCING AGREEMENT NUMBER 10766
PAGE 4 OF 8
public liability and property damage coverage applicable to the Equipment in
such amounts and in such form as Secured Party requires.
15. SECURED PARTY'S PAYMENT. If Debtor fails to pay any amounts due hereunder
or to perform any of its other obligations under this Agreement, Secured Party
may, at its option, but without any obligation to do so, pay such amounts or
perform such obligations, and Debtor will reimburse Secured Party the amount of
such payment or cost of such performance, plus interest at 1.5% per month.
16. INDEMNITY. Debtor does hereby assume liability for and does agree to
indemnify, defend, protect, save and keep harmless Secured Party from and
against any and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including court costs and legal
expenses, of whatever kind and nature, imposed on, incurred by or asserted
against Secured Party (whether or not also indemnified against by any other
person) in any way relating to or arising out of this Agreement or the
manufacture, financing, ownership, delivery, possession, use, operation,
condition or disposition of the Equipment by Secured Party or Debtor, including,
without limitation, any claim alleging latent and other defects, whether or not
discoverable by Secured Party or Debtor, and any other claim arising out of
strict liability in tort, whether or not in either instance relating to an event
occurring while Debtor remains obligated under this Agreement, and any claim for
patent, trademark or copyright infringement. Debtor agrees to give Secured Party
and Secured Party agrees to give Debtor notice of any claim or liability hereby
indemnified against promptly following learning thereof.
17. DEFAULT. Any of the following will constitute an event of default
hereunder: (a) Debtor's failure to pay when due any installment payment or other
amount due hereunder, which failure continues for ten (10) days after the due
date thereof; (b) Debtor's default in performing any other obligation, term or
condition of this Agreement or any other agreement between Debtor and Secured
Party or default under any further agreement providing security for the
performance by Debtor of its obligations hereunder provided such default has
continued for more than twenty (20) days, except as provided in (c) and (d)
hereinbelow, or, without limiting the generality of subparagraph (l)
hereinbelow, default under any lease or any mortgage or other instrument
contemplating the provision of financial accommodation applicable to the real
property where an Item of Equipment is located; (c) any writ or order of
attachment or execution or other legal process being levied on or charged
against any Item of Equipment and not being released or satisfied within ten
(10) days; (d) Debtor's failure to comply with its obligations under Paragraph
14 above or any transfer by Debtor in violation of Paragraph 21 below; (e) a
non-appealable judgment for the payment of money in excess of $100,000 being
rendered by a court of record against Debtor which Debtor does not discharge or
make provision for discharge in accordance with the terms thereof within ninety
(90) days from the date of entry thereof; (f) death or judicial declaration of
incompetency of Debtor, if an individual; (g) the filing by Debtor of a petition
under the Bankruptcy Act or any amendment thereto or under any other insolvency
law or law providing for the relief of debtors, including, without limitation, a
petition for reorganization, arrangement or extension, or the commission by
Debtor of an act of bankruptcy; (h) the filing against Debtor of any such
petition not dismissed or permanently stayed within thirty (30) days of the
filing thereof; (i) the voluntary or involuntary making of an assignment of
substantial portion of its assets by Debtor for the benefit of creditors,
appointment of a receiver or trustee for Debtor or for any of Debtor's assets,
institution by or against Debtor or any other type of insolvency proceeding
(under the Bankruptcy Act or otherwise) or of any formal or informal proceeding
for dissolution, liquidation, settlement of claims against or winding up of the
affairs of Debtor, Debtor's cessation of business activities or the making by
Debtor of a transfer of all or a material portion of Debtor's assets or
inventory not in the ordinary course of business; (j) the occurrence of any
event described in parts (e), (f), (g), (h) or (i) hereinabove with respect to
any guarantor or other party liable for payment or performance of this
Agreement; (k) any certificate, statement, representation, warranty or audit
heretofore or hereafter furnished with respect hereto by or on behalf of Debtor
or any guarantor or other party liable for payment or performance of this
Agreement proving to have been false in any material respect at the time as of
which the facts therein set forth were stated or certified or having omitted any
substantial contingent or unliquidated liability
<PAGE> 6
NANOGEN, INC.
EQUIPMENT FINANCING AGREEMENT NUMBER 10766
PAGE 5 OF 8
or claim against Debtor or any such guarantor or other party; (l) breach by
Debtor of any lease or other agreement providing financial accommodation under
which Debtor or its property is bound; or (m) a transfer of effective control of
Debtor, if an organization.
18. REMEDIES. Upon the occurrence of an event of default, Secured Party will
have the rights, options, duties and remedies of a Secured Party, and Debtor
will have the rights and duties of a debtor, under the Uniform Commercial Code
(regardless of whether such Code or a law similar thereto has been enacted in a
jurisdiction wherein the rights or remedies are asserted) and, without limiting
the foregoing, Secured Party may exercise any one or more of the following
remedies: (a) declare the Casualty Value or such lesser amount as may be set by
law immediately due and payable with respect to any or all Items of Equipment
without notice or demand to Debtor; (b) sue from time to time for and recover
all installment payments and other payments then accrued and which accrue during
the pendency of such action with respect to any or all Items of Equipment; (c)
take possession of and, if deemed appropriate, render unusable any or all Items
of Equipment, without demand or notice, wherever same may be located, without
any court order or other process of law and without liability for any damages
occasioned by such taking of possession and remove, keep and store the same or
use and operate or lease the same until sold; (d) require Debtor to assemble any
or all Items of Equipment at the Equipment Location therefor, or at such
location to which such Equipment may have been moved with the written consent of
Secured Party or such other location in reasonable proximity to either of the
foregoing as Secured Party designates; (e) upon ten (10) days notice to Debtor
or such other notice as may be required by law, sell or otherwise dispose of any
Item of Equipment, whether or not in Secured Party's possession, in a
commercially reasonable manner at public or private sale at any place deemed
appropriate and apply the new proceeds of such sale, after deducting all costs
of such sale, including, but not limited to, costs of transportation,
repossession, storage, refurbishing, advertising and brokers' fees, to the
obligations of Debtor to Secured Party hereunder or otherwise, with Debtor
remaining liable for any deficiency and with any excess being returned to
Debtor; (f) upon thirty (30) days notice to Debtor, retain any repossessed or
assembled Items of Equipment as Secured Party's own property in full
satisfaction of Debtor's liability for the installment payments due hereunder
with respect thereto, provided that Debtor will have the right to redeem such
Items by payment in full of its obligations to Secured Party hereunder or
otherwise or to require Secured Party to sell or otherwise dispose of such Items
in the manner set forth in subparagraph (e) hereinabove upon notice to Secured
Party within such thirty (30) day period; or (g) utilize any other remedy
available to Secured Party under the Uniform Commercial Code or similar
provision of law or otherwise at law or in equity.
No right or remedy conferred herein is exclusive of any other right or remedy
conferred herein or by law; but all such remedies are cumulative of every other
right or remedy conferred hereunder or at law or in equity, by statute or
otherwise, and may be exercised concurrently or separately from time to time.
Any sale contemplated by subparagraph (e) of this Paragraph 18 may be adjourned
from time to time by announcement at the time and place appointed for such sale,
or for any such adjourned sale, without further published notice, Secured Party
may bid and become the purchaser at any such sale. Any sale of an Item of
Equipment, whether under said subparagraph or by virtue of judicial proceedings,
will operate to divest all right, title, interest, claim and demand whatsoever;
either at law or in equity, of Debtor in and to said item and will be a
perpetual bar to any claim against such Item, both at law and in equity, against
Debtor and all persons claiming by, through or under Debtor.
19. DISCONTINUANCE OF REMEDIES. If Secured Party proceeds to enforce any right
under this Agreement and such proceedings are discontinued or abandoned for any
reason or are determined adversely, then and in every such case Debtor and
Secured Party will be restored to their former positions and rights hereunder.
20. SECURED PARTY'S EXPENSES. Debtor will pay Secured Party all costs and
expenses, including attorney's fees and court costs and sales costs not offset
against sales proceeds under Paragraph 18 above, incurred by Secured Party in
exercising any of its rights or remedies hereunder or enforcing any of the
terms, conditions or provisions hereof. This obligation includes the payment
<PAGE> 7
NANOGEN, INC.
EQUIPMENT FINANCING AGREEMENT NUMBER 10766
PAGE 6 OF 8
or reimbursement of all such amounts whether an action is ultimately filed and
whether an action is ultimately dismissed.
21. ASSIGNMENT. Without the prior written consent of Secured Party, Debtor
will not sell, lease, pledge or hypothecate, except as provided in this
Agreement, any Item of Equipment or any interest therein or assign, transfer,
pledge, or hypothecate this Agreement or any interest in this Agreement or
permit the Equipment to be subject to any lien, charge or encumbrance of any
nature except the security interest of Secured Party contemplated hereby.
Debtors interest herein is not assignable and will not be assigned or
transferred by operation of law. Consent to any of the foregoing prohibited acts
applies only in the given instance and is not a consent to any subsequent like
act by Debtor or any other person.
All rights of Secured Party hereunder may be assigned, pledged, mortgaged,
transferred or otherwise disposed of, either in whole or in part, without notice
to Debtor but always, however, subject to the rights of Debtor under this
Agreement. If Debtor is given notice of any such assignment, Debtor will
acknowledge receipt thereof in writing. In the event Secured Party assigns this
Agreement or the installment payments due or to become due hereunder or any
other interest herein, whether as security for any of its indebtedness or
otherwise, no breach or default by Secured Party hereunder or pursuant to any
other agreement between Secured Party and Debtor, should there be one, will
excuse performance by Debtor of any provision hereof, it being understood that
in the event of such default or breach by Secured Party that Debtor will pursue
any rights on account thereof solely against Secured Party. No such assignee,
unless such assignee agrees in writing, will be obligated to perform any duty,
covenant or condition required to be performed by Secured Party in connection
with this Agreement.
Subject always to the foregoing, this Agreement inures to the benefit of, and is
binding upon, the heirs, legatees, personal representative, successors and
assigns of the parties hereto.
22. MARKINGS; PERSONAL PROPERTY. If Secured Party supplies Debtor with labels,
plates, decals or other markings stating that Secured Party has an interest in
the Equipment, Debtor will affix and keep the same prominently displayed on the
Equipment or will otherwise mark the Equipment or its then location or
locations, as appropriate, at Secured Party's request to indicate Secured
Party's security interest in the Equipment. The Equipment is, and at all times
will remain, personal property notwithstanding that the Equipment or any Item
thereof may now be, or hereafter become, in any manner affixed or attached to,
or embedded in, or permanently resting upon real property or any improvement
thereof or attached in any manner to what is permanent as by means of cement,
plaster, nails, bolts, screws or otherwise. If requested by Secured Party,
Debtor will obtain and deliver to Secured Party waivers of interest or liens in
recordable form satisfactory to Secured Party from all persons claiming any
interest in the real property on which an Item of Equipment is or is to be
installed or located.
23. LATE CHARGES. Time is of the essence in this Agreement and if any
Installment Payment is not paid within ten (10) days after the due date thereof,
Secured Party shall have the right to add and collect, and Debtor agrees to pay:
(a) a late charge on and in addition to, such Installment Payment equal to five
percent (5%) of such Installment Payment or a lesser amount if established by
any state or federal statute applicable thereto, and (b) interest on such
Installment Payment from thirty (30) days after the due date until paid at the
highest contract rate enforceable against Debtor under applicable law but never
to exceed eighteen percent (18%) per annum.
24. NON-WAIVER. No covenant or condition of this Agreement can be waived
except by the written consent of Secured Party. Forbearance or indulgence by
Secured Party in regard to any breach hereunder will not constitute a waiver of
the related covenant or condition to be performed by Debtor.
25. ADDITIONAL DOCUMENTS. In connection with and in order to perfect and
evidence the security interest in the Equipment granted Secured Party hereunder
Debtor will execute and deliver to
<PAGE> 8
NANOGEN, INC.
EQUIPMENT FINANCING AGREEMENT NUMBER 10766
PAGE 7 OF 8
Secured Party such financing statements and similar documents as Secured Party
requests. Debtor authorizes Secured Party where permitted by law to make filings
of such financing statements without Debtor's signature. Debtor further will
furnish Secured Party (a) on a timely basis, Debtor's future financial
statements, including Debtor's most recent annual report, balance sheet and
income statement, prepared in accordance with generally accepted accounting
principles, which reports, Debtor warrants, shall fully and fairly represent the
true financial condition of Debtor (b) any other information normally provided
by Debtor to the public and (c) such other financial data or information
relative to this Agreement and the Equipment, including, without limitation,
copies of vendor proposals and purchase orders and agreements, listings of
serial numbers or other identification data and confirmations of such
information, as Secured Party may from time to time reasonably request. Debtor
will procure and/or execute, have executed, acknowledge, have acknowledged,
deliver to Secured Party, record and file such other documents and showings as
Secured Party deems necessary or desirable to protect its interest in and rights
under this Agreement and interest in the Equipment. Debtor will pay as directed
by Secured Party or reimburse Secured Party for all filing, search, title
report, legal and other fees incurred by Secured Party in connection with any
documents to be provided by Debtor pursuant to this Paragraph or Paragraph 22
and any further similar documents Secured Party may procure.
26. DEBTOR'S WARRANTIES. Debtor certifies and warrants that the financial data
and other information which Debtor has submitted, or will submit, to Secured
Party in connection with this Agreement is, or will be at time of delivery, as
appropriate, a true and complete statement of the matters therein contained.
Debtor further certifies and warrants: (a) this Agreement has been duly
authorized by Debtor and when executed and delivered by the person signing on
behalf of Debtor below will constitute the legal, valid and binding obligation,
contract and agreement of Debtor enforceable against Debtor in accordance with
its respective terms; (b) this Agreement and each and every showing provided by
or on behalf of Debtor in connection herewith may be relied upon by Secured
Party in accordance with the terms thereof notwithstanding the failure of Debtor
or other applicable party to ensure proper attestation thereto, whether by
absence of a seal or acknowledgment or otherwise; (c) Debtor has the right,
power and authority to grant a security interest in the Equipment to Secured
Party for the uses and purposes herein set forth and (d) each Item of Equipment
will, at the time such Item becomes subject hereto, be in good repair, condition
and working order.
27. ENTIRE AGREEMENT. This instrument with exhibits and related documentation
constitutes the entire agreement between Secured Party and Debtor and will not
be amended, altered or changed except by a written agreement signed by the
parties.
28. NOTICES. Notices under this Agreement must be in writing and must be
mailed by United States mail, certified mail with return receipt requested, duly
addressed, with postage prepaid, to the party involved at its respective address
set forth at the foot hereof or at such other address as each party may provide
on notice to the other from time to time. Notices will be effective when
deposited. Each party will promptly notify the other of any change in that
party's address.
29. GENDER, NUMBER: JOINT AND SEVERAL LIABILITY. Whenever the context of this
Agreement requires, the neuter gender includes the feminine or masculine and the
singular number includes the plural; and whenever the words "Secured Party" are
used herein, they include all assignees of Secured Party, it being understood
that specific reference to "assignee" in Paragraph 14 above is for further
emphasis. If there is more than one Debtor named in this Agreement, the
liability of each will be joint and several.
30. TITLES. The titles to the Paragraphs of this Agreement are solely for the
convenience of the parties and are not an aid in the interpretation of the
instrument.
31. GOVERNING LAW; VENUE. This Agreement will be governed by and construed in
accordance with the laws of the State of California. Venue for any action
related to the Agreement will be in an appropriate court in San Mateo County,
California, to which Debtor consents, or in
<PAGE> 9
NANOGEN, INC.
EQUIPMENT FINANCING AGREEMENT NUMBER 10766
PAGE 8 OF 8
another court selected by Secured Party which has jurisdiction over the parties.
In the event any provision hereof is declared invalid, such provision will be
deemed severable from the remaining provisions of this Agreement, which will
remain in full force and effect.
32. TIME. Time is of the essence of this Agreement and for each and all of its
provisions.
In WITNESS WHEREOF, the undersigned have executed this Agreement as of
May 10, 1994.
DEBTOR:
NANOGEN, INC.
4510 Executive Drive, Suite 214
San Diego, CA 92121
By: /S/ TINA NOVA
-------------------------------------
Title: President & Chief Operating Officer
-------------------------------------
SECURED PARTY:
LEASE MANAGEMENT SERVICES, INC.
2500 Sand Hill Road, Suite 101
Menlo Park, CA 94025
By: /S/ BARBARA KAISER
-------------------------------------
Title: Sr.Vice President / General Manager
-------------------------------------
<PAGE> 10
LEASE MANAGEMENT SERVICES, INC.
ADDENDUM TO
MASTER LEASE AGREEMENT NUMBER 10466
BY AND BETWEEN
NANOGEN, INC., AS LESSEE
AND
LEASE MANAGEMENT SERVICES, INC., AS LESSOR
Attached to and made an integral part of Master Lease Agreement Number 10466
("Master Lease"), by and between NANOGEN, INC., as Lessee, and LEASE MANAGEMENT
SERVICES, INC., as Lessor.
In consideration of Lessor acquiring and leasing the Equipment as more fully
described in subsequent Lease Schedules of the Master Lease, Lessor and Lessee
hereby agree that at the end of the initial lease term, Lessee shall exercise
one of the following options:
OPTION 1: PURCHASE
Lessee will purchase the leased Equipment at its residual value which the
parties agree is equal to Ten percent (10%) of its initial cost. Such
initial cost includes any/all taxes, installation, freight, and other
charges capitalized into the Lease Schedule; or
OPTION 2: RENEWAL*
Subject to satisfactory credit review, Lessee may renew the Lease for an
additional Eight (8) month period at 1.30% of Equipment cost per month,
after which time Lessee will own the Equipment.
*Exercise of Option 2 requires 60-day prior written notice to Lessor.
No Lease Schedule may be subdivided. All Equipment subject to a Lease Schedule
shall be treated identically for purposes of purchase or renewal.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum to be duly
executed in their respective names this 10th day of May, 1994.
<TABLE>
<S> <C>
LESSEE: LESSOR:
NANOGEN, INC. LEASE MANAGEMENT SERVICES, INC.
By: Signature of Tina Berger-Nova, Ph.D. By: Signature of Barbara B. Kaiser
------------------------------------ ------------------------------------
Title: President & Chief Operating Officer Title: Sr. Vice President / General Manager
</TABLE>
<PAGE> 11
MASTER LEASE AGREEMENT NUMBER 10466
<TABLE>
<S> <C>
LESSEE: NANOGEN, INC. LESSOR: LEASE MANAGEMENT SERVICES, INC.
------------------------------------
4510 EXECUTIVE DRIVE, SUITE 214 2500 Sand Hill Road, Suite 101
------------------------------------
SAN DIEGO, CA 92121 Menlo Park, CA 94025
------------------------------------
</TABLE>
LEASE TERMS
1. LEASE. Lessor hereby agrees to lease to Lessee and Lessee hereby agrees to
lease from Lessor, subject to the terms of this Master Lease Agreement and any
addenda thereto (the "Master Lease") and the Schedule defined below, the
personal property (together with all attachments, replacements, parts,
substitutions, additions, repairs, accessions, and accessories, incorporated
therein and/or affixed, thereto) (the "Equipment") described in any Lease
Schedule and any addenda thereto (a "Schedule") executed by the parties hereto
and incorporating the terms of this Master Lease by reference therein (the
"Lease). The parties agree that this Lease is a "Finance Lease" as defined by
Section 10103 (1) (g) of the California Commercial Code (Cal.Com.C.). Lessee
acknowledges either (a) that Lessee has reviewed and approved any written Supply
Contract (as defined by Cal.Com.C. 10103 (1) (y) covering the Equipment
purchased from the "Supplier" (as defined by Cal.Com.C. 10103 (1) (x) thereof
for lease to Lessee or (b) that Lessor has informed or advised Lessee, in
writing, either previously or by this Lease of the following: (i) the identity
of the Supplier, (ii) that the Lessee may have rights under the Supply Contract;
and (iii) that the Lessee may contact the Supplier for a description of any such
rights Lessee many have under the Supply Contract.
2. TERM AND RENT. The term of this Lease shall be as specified in the
Schedule(s). The rental payments ("Rent") for the Equipment shall be as set
forth therein.
3. LATE CHARGES. Time is of the essence in this Lease and if any Rent is not
paid within ten (10) days after the due date thereof, Lessor shall have the
right to add and collect, and Lessee agrees to pay: (a) a late charge on and in
addition to such Rent equal to five percent (5%) of such Rent or a lesser amount
if established by any state or federal statute applicable thereto, and (b)
interest on such Rent from thirty (30) days after the due date until paid at the
highest contract rate enforceable against Lessee under applicable law but never
to exceed eighteen percent (18%) per annum.
4. DISCLAIMER OF WARRANTIES. LESSOR IS NOT THE MANUFACTURER, SUPPLIER OR
SELLER OF THE EQUIPMENT. LESSOR IS NOT THE AGENT OF THE MANUFACTURER, SUPPLIER
OR SELLER OF THE EQUIPMENT. LESSOR MAKES NOT EXPRESS OR IMPLIED WARRANTIES AS TO
ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE FITNESS,
MERCHANTABILITY, CONDITION, QUALITY, DURABILITY, OR SUITABILITY OF THE EQUIPMENT
IN ANY RESPECT, OR IN CONNECTION WITH, OR FOR THE PURPOSES AND USES OF LESSEE,
OR ANY OTHER REPRESENTATION OR COVENANT OF ANY KIND OR CHARACTER, EXPRESS OR
IMPLIED, WITH RESPECT THERETO. As between Lessor and Lessee, the Equipment shall
be accepted and leased by Lessee "as is" and "with all faults." Lessee
specifically waives all rights to make claim against Lessor herein for breach of
any warranty of any kind whatsoever, asserting and resolving any such claims
directly with the Supplier of the Equipment, and Lessor hereby assigns to Lessee
all warranties, if any, received by Lessor resulting from its ownership of the
Equipment. Lessor shall not be responsible for any repairs, service or defects
in the quality or in its operation or for any delay of Supplier and Lessee
waives any claim it might have with respect to Lessor for any loss, damage, or
expense caused by the Equipment, its use or maintenance. In no event shall
Lessor be liable for any consequential damages. Supplier is not an agent of
Lessor and no employee, salesperson, or agent of Supplier is authorized to
waive, supplement, or otherwise alter any provision of this Lease, and no
representation as to the Equipment or any other matter by the Supplier shall in
any way affect the Lessee's duty to pay Rent and perform all its obligations as
set forth in this Lease. Lessor makes not warranty that the Equipment is in
compliance with applicable governmental requirements, rules or regulations.
Lessor has not made any representation or warranty to Lessee as to the tax
benefits, if any, Lessee will obtain from this Lease, or as to the manner in
which Lessee should treat this Lease in Lessee's records for tax, financial
reporting or accounting purposes.
5. ACCEPTANCE. Lessee's acceptance of the Equipment shall be conclusively and
irrevocably evidenced by Lessee signing the Lessor's standard form Certificate
of Acceptance. If Lessee fails or refuses to sign the Certificate of Acceptance
as to all or any part of the Equipment within a reasonable time, Lessee shall
automatically assume all of Lessor's purchase obligations for the Equipment and
Lessee agrees to indemnify and defend Lessor from any claim including any demand
for payment of the purchase price of the Equipment by the manufacturer, Supplier
or seller of the Equipment.
6. USE, OPERATION AND LOCATION. Lessee shall not use or operate the Equipment
so as to violate the terms of any insurance coverage for the Equipment as
required herein. Lessee agrees not to allow the Equipment to be used by persons
other than employees of Lessee, not to rent or sublet the Equipment or any part
thereof to others, to use the Equipment solely for commercial, agricultural or
business purposes, and to use and operate the Equipment in accordance with the
manufacturer's operating procedures and all applicable governmental laws,
ordinances, rules and regulations. If at any time during the term hereof, Lessor
supplies Lessee with labels or other markings, stating that the Equipment is
owned by Lessor, Lessee (or Lessor, at Lessor's opinion) shall affix and keep
the labels upon a prominent place on the Equipment.
The Equipment shall be located as shown on the Schedule(s). Lessee, without the
prior written consent of Lessor, shall not remove the Equipment from such
location nor give up possession or control thereof. Lessor, upon prior
reasonable notice to Lessee, shall have the right to inspect the Equipment
during Lessee's normal business hours.
7. ALTERATIONS, MAINTENANCE AND REPAIRS. Lessee, at its sole expense, shall
keep Equipment in good condition and working order and furnish all labor, parts
and supplies required therefor. Lessee agrees to maintain accurate and complete
records of all repairs and maintenance to the Equipment. Any modifications or
additions to the Equipment required by any governmental edict shall be promptly
made by Lessee at its own expense.
Without the prior written consent of Lessor, Lessee shall not make any
alterations, additions or improvements to the Equipment which are permanent or
which detract form its economic value or functional utility, except as many be
required pursuant to the preceding sentence of this Paragraph 7. All additions
and improvements to the Equipment shall belong to and immediately become the
property of Lessor and shall be returned to Lessor with the Equipment upon the
expiration or earlier termination of this Lease unless Lessor notifies Lessee to
restore such Equipment to its original state.
8. LOSS, DAMAGE. Lessee assumes the risk of loss and damage to the Equipment,
or any portion thereof, from every cause whatsoever, including but not limited
to damage, destruction, loss or theft. No loss, theft, damage, destruction of
the Equipment shall relieve Lessee of the obligation to pay Rent or to comply
with any other obligation under this Lease. In the event of damage to any item
of Equipment, Lessee shall immediately place the Equipment in good condition and
working order at Lessee's expense. If Lessor determines that any item of
Equipment is lost, stolen, destroyed, or damaged beyond repair, Lessee shall, at
Lessor's option, either:
(a) Replace the same with like equipment in good condition and working
order, free and clear of all liens, claims or encumbrances, which equipment
shall thereupon become subject to this Lease; or
(b) Pay Lessor, not as a penalty, but herein liquidated for all purposes
an amount equal to the sum of (i) any accrued and unpaid Rent as of the date the
loss, theft, damage or destruction occurred ("Date of Loss") plus the total of
any amounts due to Lessor pursuant to Paragraph 3; (ii) the present value of all
future rentals reserved in this Lease and contracted to be paid over the
unexpired term of this Lease discounted at a rate equal to the discount rate of
the Federal Reserve Bank of San Francisco as of the Date of Loss; (iii) the
discounted value of the agreed upon or estimated residual value of the Equipment
as of the expiration of this Lease or any renewal thereof discounted at a rate
equal to the discount rate of the Federal Reserve Bank of San Francisco as of
the Date of Loss; and (iv) any other amount otherwise then due and owing under
this Lease or which otherwise will become due and owing irrespective of the fact
that the Equipment has been damaged, destroyed, lost or stolen including any
additional taxes or other charges that may otherwise arise by reason of the
damage, destruction, loss or theft of the Equipment. Lessee further agrees to
pay late charges calculated in accordance with Paragraph 3 from the Date of Loss
to the date the casualty payment is paid to Lessor.
9. INSURANCE. Commencing on the date risk of loss passes to Lessor from the
Supplier and continuing until all of Lessee's obligations under this Lease have
been satisfied, Lessee shall, at Lessee's own expense, keep the Equipment and
any replacements thereto insured against such risks, and in such amounts, in
such form and with such companies as are satisfactory to Lessor. All such
insurance policies shall protect Lessor and Lessee, as their respective
interests may appear, and shall provide that all losses shall be payable to and
adjusted solely with Lessor. Lessee shall, at Lessee's own expense, also
maintain public liability insurance, in such form and with such companies as are
satisfactory to Lessor, insuring Lessor with respect to injury to person or
property resulting from the condition, locations, maintenance, and actual or
alleged use of the Equipment. Lessee shall, prior to the acceptance of a
Schedule by Lessor, deliver to Lessor each of the foregoing policies or
satisfactory evidence of such insurance. Each such policy shall contain an
endorsement providing that the insurer will give Lessor not less than 30 days'
prior written notice of the effective date of any alteration or cancellation of
such policy. Lessee shall furnish annually to Lessor satisfactory evidence of
the maintenance of such insurance. Lessee hereby irrevocably appoints Lessor as
Lessee's attorney-in-fact to make claim for, receive payment of, and execute any
and endorse all documents for loss or damages under any insurance policy as
herein specified. In case of the failure of Lessee to maintain any of such
insurance, Lessor shall have the right, but shall not be obligated, to obtain
such insurance, and therefor, Lessee hereby grants Lessor the irrevocable right
to select an insurance broker for the procurement and maintenance of such
insurance coverage herein specified.
10. TAXES. Lessee shall pay directly, or to Lessor, all license fees,
registration fees, assessments and taxes which may now or hereafter be imposed
upon the ownership, sale (if authorized), possession or use of the Equipment,
excepting only those based on Lessor's income or any single business tax of
Lessor. All required personal property tax returns relating to the Equipment
shall be filed by Lessor unless otherwise provided in writing. If Lessee fails
to pay and said fees,
THIS LEASE MAY NOT BE AMENDED EXCEPT BY A WRITING SIGNED BY LESSOR AND LESSEE.
LESSEE'S INITIALS (INITIALS)
Dated: May 10, 1994
------------------------
LESSEE: LESSOR:
<PAGE> 12
<TABLE>
<S> <C>
NANOGEN, INC. LEASE MANAGEMENT SERVICES, INC.
- -------------------------------------
By Signature of Tina Nova, Ph.D. By Signature of Barbara B. Kaiser
----------------------------------- --------------------------------------------
Title PRESIDENT & COO Title SR. VICE PRESIDENT / GENERAL MANAGER
-------------------------------- -----------------------------------------
</TABLE>
<PAGE> 13
assessments, or taxes, Lessor shall have the right but not the obligation to pay
the same, and such amount, including penalties and costs, shall be payable to
Lessor at the next Rent due date, and if not so paid, shall be the same as
failure to pay any Rent due hereunder. Lessor shall not be responsible for
contesting any valuation of tax imposed on the Equipment but may do so strictly
as an accommodation to Lessee and shall not be liable or accountable to Lessee
therefor. If Lessee pays any taxes, fees, or assessments directly to the
appropriate taxing authority, Lessee agrees to immediately notify Lessor and to
provide Lessor documentary evidence of said payment.
11. LESSEE'S FAILURE TO PAY: LESSOR'S PAYMENT. In the event Lessee fails to
pay any amounts due hereunder, including Lessee's obligation to pay taxes and
insurance, or to perform any of its other obligations under this Lease, Lessor
may, at its option, pay such amounts or perform such obligations, and Lessee
shall reimburse Lessor the amount of such payment or cost of such performance,
including any charges or penalties which have been levied by the taxing
authority or insurance carrier for such late payment. Within ten (10) days from
demand, such reimbursement shall be paid as additional Rent plus late charges as
calculated in accordance with Paragraph 3 from the date of Lessor's payment to
the date of reimbursement.
12. TITLE. The Equipment is, and shall at all times be the sole and exclusive
property of Lessor, and Lessee shall have no right, title or interest therein or
thereto except as expressly set forth in this Lease. Further, the Equipment
shall at all times remain personal property, notwithstanding that the Equipment
or any part thereof may be affixed or attached to real property or any building
thereon.
Lessee shall keep the Equipment free and clear from all liens, charges,
encumbrances, legal process, and claims. Lessee shall not assign, sublet,
hypothecate, sell, transfer or give up possession of the Equipment or any
interest in this Lease, and any such attempt shall be null and void.
13. INDEMNITY. Lessee shall indemnify and hold Lessor harmless from and
against all claims, losses, liabilities (including negligence, tort and strict
liability), damages, judgments, suits, and all legal proceedings, and any and
all costs and expenses in connection therewith (including attorney's fees)
arising out of or in any manner connected (a) with the manufacture, purchase,
financing, ownership, delivery, rejection, nondelivery, possession, use,
transportation, storage, operation, maintenance, repair, return or other
disposition of the Equipment; or (b) with this Lease, including, without
limitation, claims for injury or death of persons and for damage to property,
and claims for patent, trademark or copyright infringement, and give Lessor
prompt notice of any claim or liability.
14. NON-TERMINABLE LEASE: OBLIGATIONS UNCONDITIONAL. This Lease cannot be
terminated except as expressly provided herein. Lessee hereby agrees that
Lessee's obligation to pay all Rent and any other amounts owing hereunder shall
be absolute and unconditional.
15. HOLDING OVER. Any use of the Equipment by Lessee beyond the initial Lease
term or any renewal thereof shall be an extension of this Lease term at the then
current Rent on a month-to-month basis terminable by Lessor on ten (10) days'
notice to Lessee and all obligations of Lessee herein contained, including
payment of Rents, shall continue during such holding over. Any holdover period
is limited to twelve (12) months without written consent of Lessor.
16. RETURN OF EQUIPMENT. Upon the expiration or earlier termination of this
Lease with respect to the Equipment or any part thereof, Lessee shall return the
same to Lessor in good condition and working order, ordinary wear and tear
excepted, in the following manner as selected by Lessor:
(a) By properly packing and delivering the Equipment at Lessee's cost and
expense, to such place as Lessor shall specify within the County in which the
same was delivered to Lessee; or
(b) By properly packing and loading the Equipment, at Lessee's cost and
expense, on board such carrier as Lessor shall specify, and shipping the same,
freight prepaid, to the destination indicated by Lessor.
Lessee agrees to pay for all repair to the Equipment other than
attributable to ordinary wear and tear. Notice of Lessee's intent to return
Equipment must be received by Lessor at least sixty (60) days prior to return.
17. LESSEE'S WAIVERS. To the extent permitted by applicable law, Lessee hereby
waives any and all rights and remedies conferred upon a Lessee by Sections 10508
through 10522 of the Cal.Com.C., including but not limited to Lessee's rights
to: (i) cancel this Lease; (ii) repudiate this Lease; (iii) reject the
Equipment; (iv) revoke acceptance of the Equipment; (v) recover damages from
Lessor for any breaches of warranty or for any other reason; (vi) a security
interest in the Equipment in Lessee's possession or control for any reason;
(vii) deduct all or any part of any claimed damages resulting from Lessor's
default, if any, under this Lease; (viii) accept partial delivery of the
Equipment; (ix) "cover" by making any purchase or lease of or contract to
purchase or lease Equipment in substitution for Equipment due from Lessor; (x)
recover any general, special, incidental or consequential damages, for any
reason whatsoever; and (xi) specific performance, replevin, detinue,
sequestration, claim and delivery or the like for any Equipment identified to
this Lease. To the extent permitted by applicable law, Lessee also hereby waives
any rights now or hereafter conferred by statue or otherwise which may require
Lessor to sell, lease or otherwise use any Equipment in mitigation of Lessor's
damages as set forth in Paragraph 19 or which may otherwise limit or modify any
of Lessor's rights or remedies under Paragraph 19. Any action by Lessee against
Lessor for any default by Lessor under this Lease, including breach of warranty
or indemnity, shall be commenced within one (1) year after any such cause of
action accrues.
18. DEFAULT. Any of the following events or conditions shall constitute an
event of default ("Event of Default") hereunder:
(a) Lessee's failure to pay when due any Rent or other amount due
hereunder;
(b) Lessee's failure to perform any other term, covenant, or condition
hereof or a default under any other agreement between Lessor and Lessee;
(c) The breach of any representation or warranty made by Lessee or any
guarantor of this Lease;
(d) Seizure of the Equipment under legal process;
(e) A filing by or against Lessee of a Petition for Reorganization or
Liquidation under the Bankruptcy Code or any amendments thereto or any other
insolvency law providing for the relief of debtors;
(f) The voluntary or involuntary making of an assignment of a substantial
portion of its assets by Lessee for the benefit of creditors, employment of a
receiver or trustee for Lessee or for any of Lessee's assets, the institution of
formal or informal proceedings by or against Lessee for dissolution,
liquidation, settlement of claims against or winding up of the affairs of
Lessee, or the making by Lessee of a transfer of all or a material portion of
Lessee's assets or inventory not in the ordinary course of business;
(g) The value or condition of any collateral furnished by the Lessee, or
any guarantor of this Lease, becomes impaired or diminished as to, in Lessor's
reasonable opinion, increase Lessor's credit risk;
(h) If , in Lessor's reasonable opinion, there should be a material
adverse change in the financial condition of Lessee.
19. REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter, Lessor may, with or without canceling this Lease, in its sole
discretion, do any one or more of the following:
(a) upon notice to Lessee cancel this Lease and any or all Schedules;
(b) continue to be the owner of the Equipment and may, but is not
obligated to, take possession of the Equipment, dispose of the Equipment by sale
or otherwise, all of which determinations may be made by Lessor in its absolute
discretion and for its own account;
(c) declare immediately due and payable all Rents due and to become due
hereunder for the full term of this Lease (including any renewal or purchase
obligations);
(d) recover from Lessee damages not as penalty but herein liquidated for
all purposes and in an amount equal to the sum of (i) any accrued and unpaid
rent as of the date of entry of judgment in favor of Lessor plus the total of
any amounts due to Lessor pursuant to Paragraph 3; (ii) the present value of all
future rentals reserved in this Lease and contracted to be paid over the
unexpired term of this Lease discounted at a rate equal to the discount rate of
the Federal Reserve Bank of San Francisco as of the date of entry of judgment in
favor of Lessor; (iii) all commercially reasonable costs and expenses incurred
by Lessor in any repossession, recovery, storage, repair, sale, re-lease, or
other disposition of the Equipment including reasonable attorneys' fees and
costs incurred in connection therewith or otherwise resulting from Lessee's
default; (iv) the present value of the agreed upon or estimated residual value
of the Equipment as of the expiration of this Lease or any renewal thereof
discounted at a rate equal to the discount rate of the Federal Reserve Bank of
San Francisco as of the date of entry of judgment in favor of Lessor; and (v)
any indemnity, if then determinable, plus interest at eighteen percent (18%) per
annum;
(e) in its sole discretion, re-lease or sell any or all of the Equipment
at a public or private sale on such terms and notice as Lessor shall deem
reasonable and recover from Lessee damages, not as a penalty, but herein
liquidated for all purposes and in an amount equal to the sum of (i) any accrued
and unpaid rent as of the later of (A) the date of default or (B) the date that
Lessor has obtained possession of the Equipment or such other date as Lessee has
made an effective tender of possession of the Equipment back to Lessor ("Default
Date"); plus rent (at the rate provided for in this Lease) for the additional
period (but in no event longer than two (2) months) that it takes Lessor to
resell or re-let all of the Equipment, plus the total of any amounts due to
Lessor pursuant to Paragraph 3; (ii) the present value of all future rentals
reserved in this Lease and contracted to be paid over the unexpired term of this
Lease discounted at a rate equal to the discount rate of the Federal Reserve
Bank of San Francisco as of the Default Date; (iii) all commercially reasonable
costs and expenses incurred by Lessor in any repossession, recovery, storage,
repair, sale, re-lease or other disposition of the Equipment including
reasonable attorneys' fees and costs incurred in connection with or otherwise
resulting from the for the additional period (but in no event longer than two
(2) months) that it takes Lessor to resell or re-let all of the Equipment, plus
the total of any amounts due to Lessor pursuant to Paragraph 3; (ii) the present
value of all future rentals reserved in this Lease and contracted to be paid
over the unexpired term of this Lease discounted at a rate equal to the discount
rate of the Federal Reserve Bank of San Francisco as of the Default Date; (iii)
all commercially reasonable costs and expenses incurred by Lessor in any
repossession, recovery, storage, repair, sale, re-lease or other disposition of
the Equipment including reasonable attorneys' fees and costs incurred in
connection with or otherwise resulting from the Lessee's default; (iv) estimated
residual value of the Equipment as of the expiration of this Lease or any
renewal thereof; and (v) any indemnity, if then determinable, plus interest at
eighteen percent (18%) per annum; LESS the amount received by Lessor upon such
public or private sale or re-lease of such items of Equipment; if any;
(f) exercise any other right or remedy which may be available to it under
the Uniform Commercial Code or any applicable law.
A cancellation hereunder shall occur only upon notice by Lessor and only
as to such items of Equipment as Lessor specifically elects to cancel and this
Lease shall continue in full force and effect as to the remaining items, if any.
If this Lease is deemed at any time to be one intended as security, Lessee
agrees that the Equipment shall secure; in addition to the indebtedness set
forth herein, all other indebtedness at any time owing by Lessee to Lessor.
No remedy referred to in this Paragraph is intended to be exclusive, but
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity. No express or implied waiver
by Lessor of any default shall constitute a waiver of any other default by
Lessee or a waiver of any of Lessor's rights.
20. ASSIGNMENT BY LESSOR. LESSOR MAY ASSIGN OR TRANSFER THIS LEASE OR ANY
SCHEDULES OR LESSOR'S INTEREST IN THE EQUIPMENT WITHOUT NOTICE TO LESSEE. Any
assignee or transferee of Lessor shall have the rights, but none of the
obligations, of Lessor under this Lease. Lessee agrees that it will not assert
against any assignee or transferee of Lessor any defense, counterclaim or offset
that Lessee may have against Lessor and that upon notice, it will pay Rent to
such assignee or transferee. Lessee acknowledges that any assignment or transfer
by Lessor shall not materially change Lessee's duties or obligations under this
Lease nor materially increase the burdens or risks imposed on Lessee.
21. NO ASSIGNMENT BY LESSEE. LESSEE SHALL NOT ASSIGN OR IN ANY WAY DISPOSE OF
ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER THIS LEASE OR ENTER INTO ANY
SUBLEASE OF ALL OR ANY PART OF THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT
OF LESSOR.
22. FURTHER ASSURANCES. Lessee will promptly and duly execute and deliver to
Lessor such further documents and take such further actions as Lessor may from
time to time deem necessary in order to carry out the intent and purpose of this
Lease and to protect the interests of Lessor under this Lease. Lessee, at the
request of Lessor, agrees to execute and deliver to Lessor, any financing
statements, fixture filings, or other instruments necessary for perfecting the
interest and title of Lessor in this Lease and the Equipment, agrees that a copy
of this Lease may be so filed, and agrees that all costs incurred in connection
therewith (including, without limitation, filing fees and taxes) shall be paid
by Lessee. Lessee hereby appoints Lessor as Lessee's attorney-in-fact to affix
Lessee's signature to any and all such documents. Lessee will deliver to Lessor
monthly financial statements (unaudited but prepared in accordance to generally
accepted accounting principles) within 30 days of each month-end and audited
annual financial statements within three months of fiscal year-end, which
financial statements, Lessee warrants, shall fully and fairly represent the true
financial condition of Lessee.
23. MISCELLANEOUS. This Lease shall constitute and agreement of lease and
nothing herein shall be construed as giving to Lessee any right, title or
interest in any of the Equipment except as a Lessee only. If Lessee is a
partnership, then this Lease is executed by a general partner thereof, and if
Lessee is a corporation, then this Lease is executed by a duly authorized
officer of said corporation pursuant to authority granted by the board of
directors of said corporation. This Lease may be executed in several
counterparts, each of which shall constitute an original and in each case, such
counterparts together shall constitute but one and the same instrument.
(a) Law: Jurisdiction, Venue. This Lease shall be deemed to have been made
an accepted in San Mateo County, California, where Lessor's principal place of
business is located, and shall be governed by the laws of the State of
California, except for local recording statutes. Lessee hereby agrees that all
actions and proceedings arising from this Lease may be litigated, at the
election of Lessor, only in courts having sites within the State of California
and Lessee hereby consents to the jurisdiction of any state or federal court
located within the State of California. Lessee agrees that if any action is
brought to enforce the provisions of this Lease by either party, the County of
San Mateo shall be a proper place for the trial of such action. Lessee agrees to
waive trial by jury.
<PAGE> 14
(b) Binding on Successors. The terms and conditions of this Lease shall,
subject only to the provisions as to assignment, be binding upon and inure to
the benefit of Lessor and Lessee and their respective heirs, executors,
administrators and assigns.
(c) Survival. Lessee's indemnities such as given in Paragraph 13 and in
any addenda to this Lease shall survive the expiration or other termination of
this Lease.
(d) Entire Agreement; Non-Waiver; Notices; Severability. This Lease
constitutes the entire understanding between Lessor and Lessee relating to the
subject matter hereof. Any representation, promise or conditions not contained
herein shall not be binding unless in writing and signed by duly authorized
representatives of each party. No covenant or condition of this Lease can be
waived except by the written consent of Lessor. Any notices required to be given
hereunder shall be given in writing at the address of each party herein set
forth, or at such other address as either party may substitute by written notice
to the other. If any condition of this Lease is held invalid, such invalidity
shall not affect any other provision hereof.
(e) Gender; Number; Joint and Several Liability; Authorization; Paragraph
Headings. Whenever the content of this Lease requires, the masculine gender
includes the feminine or neuter, and the single number includes the plural.
Whenever the word "Lessor" is used herein, it shall include all assignees of
Lessor. Whenever the word "herein" is used referring to this Lease, it shall
include the applicable Schedules hereto. If there is more than one Lessee named
in this Lease, the liability of each shall be joint and several. Lessee hereby
authorizes Lessor to (i) insert serial numbers and other identification in the
Equipment Description when known and (ii) correct any patent errors or omissions
in this Lease. The titles to the Paragraphs of this Lease are solely for the
convenience of the parties and shall in no way be held to explain, modify,
amplify or aid in the interpretation of the terms and provisions hereof.
<PAGE> 15
LEASE MANAGEMENT SERVICES, INC.
1ST AMENDMENT
TO COLLATERAL SECURITY AGREEMENT
DATED JULY 30, 1996
BY AND BETWEEN
NANOGEN, INC., AS LESSEE/DEBTOR
AND
LEASE MANAGEMENT SERVICES, INC., AS LESSOR/SECURED PARTY
Lessee/Debtor and Lessor/Secured Party hereby agree to amend the Collateral
Security Agreement dated July 30, 1996 and all other related documents (herein
collectively referred to as the "Agreements") as follows:
DELETE THE FOLLOWING DEFINITION OF COLLATERAL:
All equipment and personal property which has been or is presently leased or
financed by LMSI to NANOGEN as set forth on the sixty-nine (69) page Exhibit A
attached hereto and made an integral part hereof, including, but not limited to,
lab, test and office furniture and equipment and any and all attachments,
accessions, additions, replacements, improvements, upgrades, modifications and
substitutions thereto and thereof and all proceeds including insurance proceeds
thereof and therefrom (collectively "Collateral").
REPLACE WITH THE FOLLOWING DEFINITION OF COLLATERAL:
All equipment and personal property now owned or hereafter acquired and leased
or financed by Lessor/Secured Party to Lessee/Debtor under Master Lease
Agreement No. 10466, Equipment Financing Agreement No. 10766, and all schedules
thereunder, including, but not limited to lab equipment and furniture, test and
scientific equipment, office equipment and furniture, and computer and
networking equipment, including any and all attachments, accessions, additions,
replacements, improvements, upgrades, modifications and substitutions thereto
and thereof and all proceeds including insurance proceeds thereof and therefrom,
(collectively, the "Collateral").
All other terms and conditions remain the same.
IN WITNESS WHEREOF, Lessee/Debtor and Lessor/Secured Party have each caused this
Amendment to be duly executed in their respective names.
LESSEE/DEBTOR: LESSOR/SECURED PARTY:
NANOGEN, INC. LEASE MANAGEMENT SERVICES, INC.
BY: /S/ TINA NOVA BY: /S/ BARBARA B. KAISER
------------------------------ -----------------------------------------
TITLE: PRESIDENT AND COO TITLE: SR. VICE PRESIDENT / GENERAL MANAGER
--------------------------- --------------------------------------
DATE: 10/8/97 DATE: 10/8/97
---------------------------- ---------------------------------------
<PAGE> 16
LEASE MANAGEMENT SERVICES, INC.
COLLATERAL SECURITY AGREEMENT
Agreement made and entered into as of this 30th day of July, 1996, by and
between NANOGEN, INC. Lessee/Debtor and LEASE MANAGEMENT SERVICES, INC.
Lessor/Secured Party.
As security for the payment and performance by NANOGEN, INC. ("NANOGEN") to
LEASE MANAGEMENT SERVICES, INC. ("LMSI") under (a) Master Lease Agreement Number
10466 and the Equipment Financing Agreement Number 10766, and all schedules
thereunder between NANOGEN and LMSI (hereinafter collectively referred to as the
"Agreements"); (b) any and all obligations of NANOGEN hereinunder to LMSI and
any and all indebtedness and obligations of NANOGEN to LMSI, direct, indirect or
contingent, joint or several, whether or not otherwise secured, and whether now
existing or hereafter incurred; and (c) any and all amounts advanced or expended
by LMSI for the maintenance or preservation of the Fixed Assets (hereinafter
referred to as "Collateral"); NANOGEN hereby pledges, assigns and grants to
LMSI, a first security interest in:
All equipment and personal property which has been or is presently leased or
financed by LMSI to NANOGEN as set forth on the sixty-nine (69) page Exhibit A
attached hereto and made an integral part hereof, including, but not limited to,
lab, test and office furniture and equipment and any and all attachments,
accessions, additions, replacements, improvements, upgrades, modifications and
substitutions thereto and thereof and all proceeds including insurance proceeds
thereof and therefrom (collectively "Collateral").
NANOGEN hereby warrants that it is the sole owner in possession of all
Collateral and that the Collateral is free and clear of all liens, encumbrances
and adverse claims, with the exception of the security interest herein created
and all other security interests previously granted to LMSI. NANOGEN agrees to
execute and deliver to LMSI at any time and from time to time such other
security agreements or mortgages of chattel as LMSI may reasonably request,
covering the Collateral. NANOGEN also agrees to appear in and defend any and all
actions and proceedings, at its own expense, affecting title to the Collateral
or any part thereof, or affecting the security interest of LMSI therein.
NANOGEN also agrees to: do all acts which may necessary to maintain, preserve
and protect the Collateral and to keep the Collateral in good condition and
repair; not to cause or permit any waste or unusual or unreasonable depreciation
thereof or any act for which the Collateral might be confiscated; to pay before
delinquency all taxes, assessments and liens now or hereafter imposed upon the
Collateral; not to sell, lease, encumber or dispose of all or any part of the
Collateral; at any time upon demand of LMSI to exhibit to and allow inspection
by LMSI of the Collateral; not to remove or permit the removal of the Collateral
from the premises where it is now located without the prior written consent of
LMSI; to provide, maintain and deliver to LMSI policies insuring the Collateral
against loss or damage by such risks and in such amounts, forms and companies as
LMSI reasonably requires and with loss payable to LMSI. If LMSI takes possession
of the Collateral in the event of a Default, the insurance policy or policies of
any unearned or returned premium shall, at the option of LMSI, be assigned by
NANOGEN to LMSI, upon LMSI crediting the amount of any unearned premium upon the
obligation secured hereby.
In the event the Collateral is destroyed or an item thereof and payment upon
such policies of insurance is made to NANOGEN and NANOGEN chooses not to replace
the Collateral with
<PAGE> 17
COLLATERAL SECURITY AGREEMENT
NANOGEN, INC.
PAGE 2 OF 3
equipment of like kind or value, LMSI will retain all insurance proceeds except
to the extent that the proceeds exceed the remaining obligation of NANOGEN to
LMSI. If NANOGEN chooses to replace the Collateral or item thereof with
equipment of like kind and value, the replacement must be completed within 35
days of loss, unless otherwise agreed by LMSI, NANOGEN must acquire title to the
replacement free and clear of liens and encumbrances and grant to LMSI a first
priority perfected security interest therein; otherwise LMSI shall be entitled
to the insurance proceeds. The provisions of this paragraph shall not apply to
Collateral specifically covered by any schedules to a Master Lease or Equipment
Financing Agreement between NANOGEN and LMSI which shall governed by the
provisions of the applicable Master Lease and Equipment Financing Agreement.
If NANOGEN fails to make any payment or do any act as herein required, then LMSI
may, but without obligation to do so, and without notice to or demand upon
NANOGEN, make such payments and do such acts as LMSI may deem necessary to
protect its security interest in the Collateral. LMSI is hereby authorized
(without limiting the general nature of the authority hereinabove conferred) to
take possession of the Collateral; to pay, purchase, contest, and compromise any
encumbrance, charge or lien which in the judgment of LMSI appears to be prior or
superior to its security interest; and, in exercising any such powers and
authority, to pay necessary expenses, employ counsel and pay reasonable fees
therefor. NANOGEN hereby agrees to repay immediately, and without demand, all
sums so expended by LMSI, with interest from date of expenditure at the rate of
Eighteen Percent (18%), but never to exceed any legal limit for such interest.
Any officer of LMSI is hereby irrevocably appointed the attorney-in-fact of
NANOGEN, with full power of substitution, to sign any certificate of ownership,
registration card, application therefor, affidavits or documents necessary to
transfer title to any of the Collateral, to receive and give receipt for all
licenses, registration cards and certificates of ownership, and to do all acts
necessary or incident to the powers granted to LMSI herein, as full as NANOGEN
might.
Should NANOGEN default under the Lease, upon written notice, pursuant to the
terms and conditions of the Agreements, LMSI may (a) immediately take possession
of the Collateral wherever it may be found, using all necessary force to do so
or require NANOGEN to assemble the Collateral and make it available to LMSI at a
place designated by LMSI which is reasonably convenient to LMSI, and NANOGEN
waives all claims for damages due to or arising from or connected with any such
taking; (b) proceed in the foreclosure of LMSI's security interest and the sale
of the Collateral in any manner permitted by law, or provided for herein; (c)
sell, lease or otherwise dispose of the Collateral at public or private sale,
with or without having the Collateral at the place of sale, and upon terms and
in such manner as LMSI may determine, and LMSI may purchase the same at any such
sale; (d) retain the Collateral in full satisfaction of the obligations secured
thereby; (e) exercise any remedies of a LMSI under the Uniform Commercial Code.
Prior to any such disposition, LMSI may, at its option, cause any of the
Collateral to be repaired or reconditioned in such manner and to such extent as
LMSI may deem advisable, and any sums expended therefor by LMSI shall be repaid
by NANOGEN and secured hereby; LMSI shall have the right to enforce one or more
remedies hereunder successively or concurrently, and any such action shall not
stop or prevent LMSI from pursuing any further remedy which it may have
hereunder or by law. If a sufficient sum is not realized from any such
disposition of Collateral to pay all obligations secured by this agreement,
NANOGEN hereby promises and agrees to pay LMSI any deficiency.
Time and exactitude of each of the terms, obligations, covenants and conditions
are hereby declared to be the essence hereof. No waiver by LMSI of any breach or
default shall be deemed a waiver of any breach or default thereafter occurring
and the taking of any action by LMSI shall not be deemed to be an election of
that action but rather the rights and privileges and options
<PAGE> 18
COLLATERAL SECURITY AGREEMENT
NANOGEN, INC.
PAGE 3 OF 3
granted to LMSI under the terms hereof shall be deemed cumulative, the one with
the other and not alternative.
Should the Collateral be sold, with or without the consent of LMSI, then it is
expressly agreed that the proceeds from said sale are hereby assigned to LMSI
who shall immediately receive the entire proceeds.
NANOGEN agrees to execute any additional documents deemed necessary by LMSI to
assure the perfection of the security interest created hereunder and to pay any
fees or charges paid by LMSI in connection with the perfection of, or continue
the perfection of, the security interest created hereunder.
Upon termination of the Agreements and the satisfaction of all obligations of
NANOGEN thereunder, LMSI shall release its security interest in the Collateral,
and this Collateral Security Agreement shall thereupon be without further
effect.
IN WITNESS WHEREOF, the parties have caused this Collateral Security Agreement
to be executed as of this 30th day of July, 1996.
LESSEE/DEBTOR: LESSOR/SECURED PARTY
NANOGEN, INC. LEASE MANAGEMENT SERVICES, INC.
LESSEE/DEBTOR: LESSOR/SECURED PARTY:
NANOGEN, INC. LEASE MANAGEMENT SERVICES, INC.
BY: /S/ TINA NOVA BY: /S/ BARBARA B. KAISER
------------------------------ -----------------------------------------
TITLE: PRESIDENT & COO TITLE: EVP/General Manager
--------------------------- --------------------------------------
<PAGE> 19
LEASE MANAGEMENT SERVICES, INC.
NEGATIVE COVENANT PLEDGE AGREEMENT
Agreement made and entered into as of the 10th day of May , 1994, by and between
NANOGEN, INC., a California Corporation, with its principal place of business at
4510 Executive Drive, Suite 214, San Diego, CA 92121 ("Pledgor") and LEASE
MANAGEMENT SERVICES, INC., a California Corporation, with its principal place of
business at 2500 Sand Hill Road, Suite #101, Menlo Park, CA 94025 ("Pledgee").
In consideration of, and as an inducement for Pledgee to enter into a Master
Lease Agreement Number 10466 and Equipment Financing Agreement Number 10766, and
all Schedules thereunder, (referred to hereinafter as the "Agreements") with
Pledgor, and to secure the payment and performance of all Pledgor's obligations
under the Agreements, Pledgor and Pledgee agree as follows:
1) If at any point, effective the earlier of March 31, 1996 or 9 months from
the closing of Pledgor's next equity financing, Pledgor's Unrestricted
Cash (as defined below) falls below the greater of the financial
requirements listed in A) or B), or Pledgor is in default of the
Agreements, Pledgor agrees to provide to Pledgee within 10 days of such
occurrence a cash security deposit in an amount equal to Twenty percent
(20%) of the total aggregate Equipment cost (including any soft costs)
which are included in the Agreements ("Collateral Pledge").
A) PRE-IPO: $3,000,000.00 or 6 months' cash needs (defined as the cash
burn for three months just completed, multiplied by a factor of
2.3).
B) POST- IPO: $8,000,000.00 or 9 months' cash needs (defined as the
cash burn for the quarter just completed, multiplied by a factor of
3.3).
Unrestricted Cash shall be defined as cash on hand, including investments
in marketable securities with maturities of less than one (1) year, less
all debt which is not subordinated to Pledgee.
The failure to timely provide the Collateral Pledge to Pledgee shall
constitute an event of default under the Agreements.
2) Pledgor agrees to provide monthly financial statements, including a cash
flow statement, balance sheet and statement of operations, to Pledgee
within 30 days of each month-end, and an audited annual statement within
90 days of Pledgor's fiscal year end. All such statements to be prepared
using generally accepted accounting principles and to be in compliance
with SEC requirements. Failure to provide these statements as specified
herein will constitute an event of default under the Agreements.
3) Pledgor agrees to keep all Unrestricted Cash within the following
financial institutions:
Financial Institution: Bank of America
-----------------------------
Account Number: 10-20-008-753300
-----------------------------
Officer Contact: Ronald R. Bettenhausen
-----------------------------
Phone Number: (213) 229-1470
-----------------------------
<PAGE> 20
NEGATIVE COVENANT PLEDGE AGREEMENT
NANOGEN, INC.
PAGE 2 OF 3
Financial Institution:
-----------------------------
Account Number:
-----------------------------
Officer Contact:
-----------------------------
Phone Number:
-----------------------------
Any changes in the above information shall be provided in writing by the
Pledgor to Pledgee within five (5) days of such change.
Pledgor hereby authorizes these financial institutions to give specific
account balance information to Pledgee and agrees to execute any other
documents or take any other action required to provide verification of
unrestricted cash balances.
4) Pledgee agrees to pay interest on the Collateral Pledge at a simple
interest rate equal to 4.50%, which interest will accrue from the date the
Collateral Pledge is received until the date the Collateral Pledge and
interest are returned to the Pledgor.
5) Pledgor agrees to recognize the Collateral Pledge as a contingent
liability and to establish the appropriate reserves.
6) Upon any default by Pledgor under the Agreements and while the same is
continuing, interest accrual on the Collateral Pledge shall cease and
Pledgee may, at its option, apply the Collateral Pledge and any interest
accrued to that date toward the satisfaction of Pledgor's obligations
under the Agreements, and the payment of all costs and expenses incurred
by Pledgee as a result of such default. including reasonable attorney's
fees. Pledgee is liable to Pledgor only for any surplus remaining from
said Collateral Pledge after the full satisfaction of the foregoing
obligations, costs and expenses.
7) Pledgee shall have no duty to first commence an action against or seek
recourse from Pledgor, in the event of a default under the Agreements,
before enforcing the provisions of, and proceeding under the provisions
of, this Negative Covenant Pledge Agreement. The obligations of Pledgor
under this Negative Covenant Pledge Agreement shall be absolute and
unconditional and shall remain in full force and effect without regard to,
and shall not be released or discharged or in any way affected by:
a) any amendment or modification of or supplement to the Agreements;
b) any exercise or non-exercise of any right, remedy or privilege under
or in respect to this Negative Covenant Pledge Agreement, the
Agreements, or any other instrument provided for in the
Agreement(s), or any waiver, consent, explanation, indulgency or
actions or inaction with respect to any such instrument; or
c) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceeding of
Pledgor.
<PAGE> 21
NEGATIVE COVENANT PLEDGE AGREEMENT
NANOGEN, INC.
PAGE 3 OF 3
8) The entire Collateral Pledge and any accrued interest will be returned to
Pledgor when Pledgor's Unrestricted Cash exceeds the benchmark defined
above for a period of at least one fiscal quarter and continues to remain
greater and Pledgor is not in default of any financial obligation.
Return of any required Collateral Pledge prior to the Termination of the
Agreements (as defined below) is contingent upon the following additional
conditions: (a) verification of all benchmarks is to be acceptable to
Pledgee; (b) Pledgor has made all payments in a timely manner to Pledgee
according to the terms of the Agreements; (c) Pledgor is not then, nor has
ever been in default of its obligation to the Pledgee under the
Agreements, and Pledgor has not defaulted on any other financial
obligation; (d) monthly financial statements have been provided to Pledgee
within 30 days of each month-end; (e) an annual audited statement has been
provided to Pledgee within 90 days of Pledgor's fiscal year end; and (f)
Pledgor has not suffered any material adverse change.
The Termination of the Agreements shall be defined as the satisfaction of
all Pledgor's obligations under the Agreements.
If the Collateral Pledge is returned prior to the Termination of the
Agreements, this Negative Covenant Pledge Agreement shall remain in full
force and effect.
9) If the Collateral Pledge has not been previously returned, upon
Termination of the Agreements and the satisfaction of all obligations of
Pledgor thereunder, Pledgee shall deliver the Collateral Pledge (less any
portion of same cashed, sold, assigned or delivered pursuant to, and under
the circumstances specified in, Paragraph 6 hereof) to Pledgor, and this
Negative Covenant Pledge Agreement shall thereupon be without further
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Negative Covenant Pledge
to be executed as of the date first above written.
<TABLE>
<S> <C>
PLEDGOR: PLEDGEE:
NANOGEN, INC. LEASE MANAGEMENT SERVICES, INC.
By: Signature of Tina Berger-Nova, Ph.D. By: Signature of Barbara B. Kaiser
------------------------------------- ---------------------------------------
Its: President & COO Its: Sr. Vice President / General Manager
------------------------------------ --------------------------------------
</TABLE>
<PAGE> 22
LEASE MANAGEMENT SERVICES, INC.
NEGATIVE COVENANT PLEDGE AGREEMENT
Agreement made and entered into as of the 8th day of May, 1995, by and between
NANOGEN, INC., a California Corporation, with its principal place of business at
10398 Pacific Center Court, San Diego, CA 92121 ("Pledgor") and LEASE MANAGEMENT
SERVICES, INC., a California Corporation, with its principal place of business
at 2500 Sand Hill Road, Suite #101, Menlo Park, CA 94025 ("Pledgee").
In consideration of, and as an inducement for Pledgee to enter into a Master
Lease Agreement Number 10466 Schedule Number 14 and subsequent and Equipment
Financing Agreement Number 10766 Schedule Number 07 and subsequent, (referred to
hereinafter as the "Agreements") with Pledgor, and to secure the payment and
performance of all Pledgor's obligations under the Agreements, Pledgor and
Pledgee agree as follows:
1) If at any point in time from the date of this Agreement, Pledgor's
Unrestricted Cash (as defined below) falls below the financial
requirements listed in A) or B), or Pledgor is in default of the
Agreements, Pledgor agrees to provide to Pledgee within 10 days of such
occurrence a cash security deposit as defined in A) or B) below.
A) PRE-IPO: Effective 7/31/95, in the event unrestricted cash falls
below $3,000,000 or 6 months' cash needs (defined as the cash burn
for quarter just completed, multiplied by a factor of 2.3), Pledgor
will provide a cash security deposit in an amount equal to twenty
percent (20%) of the total aggregate Equipment cost (including any
soft costs) which are included in the Agreements ("Collateral
Pledge").
B) POST- IPO: At the earlier of Pledgor's IPO or after such time
Pledgor's cash balance is equal to or greater than $18,000,000 in
the event unrestricted cash falls below the greater of $8,000,000 or
9 months' cash needs (defined as the cash burn for the quarter just
completed, multiplied by a factor of 3.3), Pledgor will provide a
cash security deposit in an amount equal to twenty-five (25%)
percent of the total aggregate Equipment cost (including any soft
costs) which are included in the Agreements ("Collateral Pledge").
Unrestricted Cash shall be defined as cash on hand, including investments
in marketable securities with maturities of less than one (1) year, less
all debt which is not subordinated to Pledgee.
The failure to timely provide the Collateral Pledge to Pledgee shall
constitute an event of default under the Agreements.
2) Pledgor agrees to provide monthly financial statements, including a cash
flow statement, balance sheet and statement of operations, to Pledgee
within 30 days of each month-end, and an audited annual statement within
90 days of Pledgor's fiscal year end. All such statements to be prepared
using generally accepted accounting principles and to be in compliance
with SEC requirements. Failure to provide these statements as specified
herein will constitute an event of default under the Agreements.
<PAGE> 23
NEGATIVE COVENANT PLEDGE AGREEMENT
NANOGEN, INC.
PAGE 2 OF 3
3) Pledgor agrees to keep all Unrestricted Cash within the following
financial institutions:
Financial Institution: Bank of America
-----------------------------
Account Number: 01-40-403-0007612
-----------------------------
Officer Contact: Ronald R. Bettenhausen
-----------------------------
Phone Number: (213) 229-1470
-----------------------------
Financial Institution:
-----------------------------
Account Number:
-----------------------------
Officer Contact:
-----------------------------
Phone Number:
-----------------------------
Financial Institution:
-----------------------------
Account Number:
-----------------------------
Officer Contact:
-----------------------------
Phone Number:
Any changes in the above information shall be provided in writing by the
Pledgor to Pledgee within five (5) days of such change.
Pledgor hereby authorizes these financial institutions to give specific
account balance information to Pledgee and agrees to execute any other
documents or take any other action required to provide verification of
unrestricted cash balances.
4) Pledgee agrees to pay interest on the Collateral Pledge at a simple
interest rate equal to 4.50%, which interest will accrue from the date the
Collateral Pledge is received until the date the Collateral Pledge and
interest are returned to the Pledgor.
5) Pledgor agrees to recognize the Collateral Pledge as a contingent
liability and to establish the appropriate reserves.
6) Upon any default by Pledgor under the Agreements and while the same is
continuing, interest accrual on the Collateral Pledge shall cease and
Pledgee may, at its option, apply the Collateral Pledge and any interest
accrued to that date toward the satisfaction of Pledgor's obligations
under the Agreements, and the payment of all costs and expenses incurred
by Pledgee as a result of such default. including reasonable attorney's
fees. Pledgee is liable to Pledgor only for any surplus remaining from
said Collateral Pledge after the full satisfaction of the foregoing
obligations, costs and expenses.
7) Pledgee shall have no duty to first commence an action against or seek
recourse from Pledgor, in the event of a default under the Agreements,
before enforcing the provisions of, and proceeding under the provisions
of, this Negative Covenant Pledge Agreement. The obligations of Pledgor
under this Negative Covenant Pledge Agreement shall be absolute and
unconditional and shall remain in full force and effect without regard to,
and shall not be released or discharged or in any way affected by:
a) any amendment or modification of or supplement to the Agreements;
b) any exercise or non-exercise of any right, remedy or privilege under
or in respect to this Negative Covenant Pledge Agreement, the
Agreements, or any other
<PAGE> 24
NEGATIVE COVENANT PLEDGE AGREEMENT
NANOGEN,INC.
PAGE 3 OF 3
instrument provided for in the Agreement(s), or any waiver, consent,
explanation, indulgency or actions or inaction with respect to any
such instrument; or
c) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceeding of
Pledgor.
8) The entire Collateral Pledge and any accrued interest will be returned to
Pledgor when Pledgor's Unrestricted Cash exceeds the benchmark defined
above for a period of at least one fiscal quarter and continues to remain
greater and Pledgor is not in default of any financial obligation.
Return of any required Collateral Pledge prior to the Termination of the
Agreements (as defined below) is contingent upon the following additional
conditions: (a) verification of all benchmarks is to be acceptable to
Pledgee; (b) Pledgor has made all payments in a timely manner to Pledgee
according to the terms of the Agreements; (c) Pledgor is not then, nor has
ever been in default of its obligation to the Pledgee under the
Agreements, and Pledgor has not defaulted on any other financial
obligation; (d) Pledgor, if privately held, has provided monthly financial
statements to Pledgee within 30 days of each month-end or if Pledgor is
publicly held, has provided quarterly statements as required to be filed
by the Securities and Exchange Commission (the "SEC"); (e) Pledgor, if
privately held, has provided annual audited financial statements to
Pledgee within 90 days of Pledgor's fiscal year end or if Pledgor is
publicly held, has provided Pledgee with annual statements as required to
be filed by the SEC; and (f) Pledgor has not suffered any material adverse
change.
The Termination of the Agreements shall be defined as the satisfaction of
all Pledgor's obligations under the Agreements.
If the Collateral Pledge is returned prior to the Termination of the
Agreements, this Negative Covenant Pledge Agreement shall remain in full
force and effect.
9) If the Collateral Pledge has not been previously returned, upon
Termination of the Agreements and the satisfaction of all obligations of
Pledgor thereunder, Pledgee shall deliver the Collateral Pledge (less any
portion of same cashed, sold, assigned or delivered pursuant to, and under
the circumstances specified in, Paragraph 6 hereof) to Pledgor, and this
Negative Covenant Pledge Agreement shall thereupon be without further
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Negative Covenant Pledge
to be executed as of the date first above written.
<TABLE>
<S> <C>
PLEDGOR: PLEDGEE:
NANOGEN, INC. LEASE MANAGEMENT SERVICES, INC.
By: Signature of Tina Berger-Nova, Ph.D. By: Signature of Barbara B. Kaiser
------------------------------------- ---------------------------------------
Its: President & COO Its: EVP/ General Manager
------------------------------------ --------------------------------------
</TABLE>
<PAGE> 25
LEASE MANAGEMENT SERVICES, INC.
NEGATIVE COVENANT PLEDGE AGREEMENT
Agreement made and entered into as of the 13th day of August, 1996, by and
between NANOGEN, INC., a California Corporation, with its principal place of
business at 10398 Pacific Center Court, San Diego, CA 92121 ("Pledgor") and
LEASE MANAGEMENT SERVICES, INC., a California Corporation, with its principal
place of business at 2500 Sand Hill Road, Suite #101, Menlo Park, CA 94025
("Pledgee").
In consideration of, and as an inducement for Pledgee to enter into a Master
Lease Agreement Number 10466 Schedule Number 24 and Equipment Financing
Agreement Number 10766 Schedule Number 14 and subsequent, (referred to
hereinafter as the "Agreements") with Pledgor, and to secure the payment and
performance of all Pledgor's obligations under the Agreements,
Pledgor and Pledgee agree as follows:
1) If at any point in time from the date of this Agreement, Pledgor's
Unrestricted Cash (as defined below) falls below the financial
requirements listed in A) or B), or Pledgor is in default of the
Agreements, Pledgor agrees to provide to Pledgee within 10 days of such
occurrence a cash security deposit as defined in A) or B) below.
A) PRE-IPO: In the event unrestricted cash falls below $3,000,000 or 6
months' cash needs (defined as the cash burn for the quarter just
completed, multiplied by a factor of 2.3), Pledgor will provide a
cash security deposit in an amount equal to twenty percent (20%) of
the total aggregate Equipment cost (including any soft costs) which
are included in the Agreements ("Collateral Pledge").
B) POST-IPO: At the earlier of Pledgor's IPO or after such time
Pledgor's cash balance is equal to or greater than $18,000,000, in
the event unrestricted cash falls below the greater of $12,000,000
or 9 months' cash needs (defined as the cash burn for the quarter
just completed multiplied by a factor of 3.3), Pledgor will provide
a cash security deposit in an amount equal to twenty-five percent
(25%) of the total aggregate Equipment cost (including any soft
costs) which are included in the Agreements ("Collateral Pledge").
Unrestricted Cash shall be defined as cash on hand, including investments
in marketable securities with maturities of less than one (1) year, less
all debt which is not subordinated to Pledgee.
The failure to timely provide the Collateral Pledge to Pledgee shall
constitute an event of default under the Agreements.
2) Pledgor agrees to provide monthly financial statements, including a cash
flow statement, balance sheet and statement of operations, to Pledgee
within 30 days of each month-end, and an audited annual statement within
90 days of Pledgor's fiscal year end. All such statements are to be
prepared using generally accepted accounting principles and are to be in
compliance with SEC requirements. Failure to provide these statements as
specified herein will constitute an event of default under the Agreements.
<PAGE> 26
NEGATIVE COVENANT PLEDGE AGREEMENT
NANOGEN, INC.
PAGE 2 OF 3
3) Pledgor agrees to keep all Unrestricted Cash within the following
financial institutions:
Financial Institution: Bank of America
-----------------------------
Account Number: 504-11745
-----------------------------
Officer Contact: Lynda Robson
-----------------------------
Phone Number: (619) 515-7547
-----------------------------
Financial Institution: Bank of America
-----------------------------
Account Number: 507-11758
-----------------------------
Officer Contact: Lynda Robson
-----------------------------
Phone Number: (619) 515-7547
-----------------------------
Financial Institution: Bank of America
-----------------------------
Account Number: 01-40-403-0007612
-----------------------------
Officer Contact: Lynda Robson
-----------------------------
Phone Number: (619) 515-7547
-----------------------------
Any changes in the above information shall be provided in writing by the
Pledgor to Pledgee within five (5) days of such change.
Pledgor hereby authorizes these financial institutions to give specific
account balance information to Pledgee and agrees to execute any other
documents or take any other action required to provide verification of
unrestricted cash balances.
4) Pledgee agrees to pay interest on the Collateral Pledge at a simple
interest rate equal to 4.50% per annum, which interest will accrue from
the date the Collateral Pledge is received until the date the Collateral
Pledge and interest are returned to the Pledgor.
5) Pledgor agrees to recognize the Collateral Pledge as a contingent
liability and to establish the appropriate reserves.
6) Upon any default by Pledgor under the Agreements and while the same is
continuing, interest accrual on the Collateral Pledge shall cease and
Pledgee may, at its option, apply the Collateral Pledge and any interest
accrued to that date toward the satisfaction of Pledgor's obligations
under the Agreements, and the payment of all costs and expenses incurred
by Pledgee as a result of such default, including reasonable attorney's
fees. Pledgee is liable to Pledgor only for any surplus remaining from
said Collateral Pledge after the full satisfaction of the foregoing
obligations, costs and expenses.
7) Pledgee shall have no duty to first commence an action against or seek
recourse from Pledgor, in the event of a default under the Agreements,
before enforcing the provisions of, and proceeding under the provisions
of, this Negative Covenant Pledge Agreement. The obligations of Pledgor
under this Negative Covenant Pledge Agreement shall be absolute and
unconditional and shall remain in full force and effect without regard to,
and shall not be released or discharged or in any way affected by:
a) any amendment or modification of or supplement to the Agreements;
b) any exercise or non-exercise of any right, remedy or privilege under
or in respect to this Negative Covenant Pledge Agreement, the
Agreements, or any other instrument provided for in the
Agreement(s), or any waiver, consent, explanation, indulgency or
actions or inaction with respect to any such instrument; or
c) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceeding of
Pledgor.
<PAGE> 27
NEGATIVE COVENANT PLEDGE AGREEMENT
NANOGEN, INC.
PAGE 3 OF 3
8) The entire Collateral Pledge and any accrued interest will be returned to
Pledgor when Pledgor's Unrestricted Cash exceeds the benchmark defined
above for a period of at least one fiscal quarter and continues to remain
greater and Pledgor is not in default of any financial obligation.
Return of any required Collateral Pledge prior to the Termination of the
Agreements (as defined below) is contingent upon the following additional
conditions: (a) verification of all benchmarks is to be acceptable to
Pledgee; (b) Pledgor has made all payments in a timely manner to Pledgee
according to the terms of the Agreements; (c) Pledgor is not then, nor has
ever been in default of its obligation to the Pledgee under the
Agreements, and Pledgor has not defaulted on any other financial
obligation; (d) Pledgor, if privately held, has provided monthly financial
statements to Pledgee within 30 days of each month-end or if Pledgor is
publicly held, has provided quarterly statements as required to be filed
by the Securities and Exchange Commission (the "SEC"); (e) Pledgor, if
privately held, has provided an annual audited financial statements to
Pledgee within 90 days of Pledgor's fiscal year end or if Pledgor is
publicly held, has provided Pledgee with annual statements as required to
be filed by the SEC; and (f) Pledgor has not suffered any material adverse
change.
The Termination of the Agreements shall be defined as the satisfaction of
all Pledgor's obligations under the Agreements.
If the Collateral Pledge is returned prior to the Termination of the
Agreements, this Negative Covenant Pledge Agreement shall remain in full
force and effect.
9) If the Collateral Pledge has not been previously returned, upon
Termination of the Agreements and the satisfaction of all obligations of
Pledgor thereunder, Pledgee shall deliver the Collateral Pledge (less any
portion of same cashed, sold, assigned or delivered pursuant to, and under
the circumstances specified in, Paragraph 6 hereof) to Pledgor, and this
Negative Covenant Pledge Agreement shall thereupon be without further
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Negative Covenant Pledge
to be executed as of the date first above written.
<TABLE>
<S> <C>
PLEDGOR: PLEDGEE:
NANOGEN, INC. LEASE MANAGEMENT SERVICES, INC.
By: Signature of Tina Berger-Nova, Ph.D. By: Signature of Barbara B. Kaiser
------------------------------------- ---------------------------------------
Its: President & COO Its: EVP/ General Manager
------------------------------------ --------------------------------------
</TABLE>
<PAGE> 28
LEASE MANAGEMENT SERVICES, INC.
NEGATIVE COVENANT PLEDGE AGREEMENT
Agreement made and entered into as of the 8th day of October, 1997, by
and between NANOGEN, INC., a California Corporation, with its principal place of
business at 10398 Pacific Center Court, San Diego, CA 92121 ("Pledgor") and
LEASE MANAGEMENT SERVICES, INC., a California Corporation, with its principal
place of business at 2500 Sand Hill Road, Suite #101, Menlo Park, CA 94025
("Pledgee").
In consideration of, and as an inducement for Pledgee to enter into a Master
Lease Agreement Number 10466 Schedules Number 28 and Equipment Financing
Agreement Number 10766 Schedules Number 23 and subsequent, (referred to
hereinafter as the "Agreements") with Pledgor, and to secure the payment and
performance of all Pledgor's obligations under the Agreements,
Pledgor and Pledgee agree as follows:
1) If at any point in time from the date of this Agreement, Pledgor's
Unrestricted Cash (as defined below) falls below the greater of
$12,000,000 or 9 months' cash needs (defined as the cash burn for the
quarter just completed, multiplied by a factor of 3.3), or Pledgor is in
default of the Agreements, Pledgor will Provide to Pledgee within ten (10)
days of such occurrence a cash security deposit in an amount equal to
forty-five percent (45%) of the total aggregate leasehold and tenant
improvement cost and twenty-five percent (25%) of the total aggregate
Equipment cost which are financed under the Agreements ("Collateral
Pledge"), but in no event to exceed the remaining gross receivable.
Unrestricted Cash shall be defined as cash on hand, including investments
in marketable securities with maturities of less than one (1) year, less
all debt which is not subordinated to Pledgee.
The failure to timely provide the Collateral Pledge to Pledgee shall
constitute an event of default under the Agreements.
2) Pledgor agrees to provide monthly financial statements, including a cash
flow statement, balance sheet and statement of operations, to Pledgee
within 30 days of each month-end, and an audited annual statement within
90 days of Pledgor's fiscal year end. All such statements are to be
prepared using generally accepted accounting principles and are to be in
compliance with SEC requirements. Failure to provide these statements as
specified herein will constitute an event of default under the Agreements.
<PAGE> 29
NEGATIVE COVENANT PLEDGE AGREEMENT
NANOGEN, INC.
PAGE 2 OF 3
3) Pledgor agrees to keep all Unrestricted Cash within the following
financial institutions:
Financial Institution: Bank of America
-----------------------------
Account Number: 00500-13302
-----------------------------
Officer Contact: Lynda Robson
-----------------------------
Phone Number: (619) 515-7547
-----------------------------
Financial Institution: Bank of America
-----------------------------
Account Number: 01-40-403-0007612
-----------------------------
Officer Contact: Ed Hale
-----------------------------
Phone Number: (312)828-5986
-----------------------------
Financial Institution:
-----------------------------
Account Number:
-----------------------------
Officer Contact:
-----------------------------
Phone Number:
-----------------------------
Any changes in the above information shall be provided in writing by the
Pledgor to Pledgee within five (5) days of such change.
Pledgor hereby authorizes these financial institutions to give specific
account balance information to Pledgee and agrees to execute any other
documents or take any other action required to provide verification of
unrestricted cash balances.
4) Pledgee agrees to pay interest on the Collateral Pledge at a simple
interest rate equal to 4.50% per annum, which interest will accrue from
the date the Collateral Pledge is received until the date the Collateral
Pledge and interest are returned to the Pledgor.
5) Pledgor agrees to recognize the Collateral Pledge as a contingent
liability and to establish the appropriate reserves.
6) Upon any default by Pledgor under the Agreements and while the same is
continuing, interest accrual on the Collateral Pledge shall cease and
Pledgee may, at its option, apply the Collateral Pledge and any interest
accrued to that date toward the satisfaction of Pledgor's obligations
under the Agreements, and the payment of all costs and expenses incurred
by Pledgee as a result of such default, including reasonable attorney's
fees. Pledgee is liable to Pledgor only for any surplus remaining from
said Collateral Pledge after the full satisfaction of the foregoing
obligations, costs and expenses.
7) Pledgee shall have no duty to first commence an action against or seek
recourse from Pledgor, in the event of a default under the Agreements,
before enforcing the provisions of, and proceeding under the provisions
of, this Negative Covenant Pledge Agreement. The obligations of Pledgor
under this Negative Covenant Pledge Agreement shall be absolute and
unconditional and shall remain in full force and effect without regard to,
and shall not be released or discharged or in any way affected by:
a) any amendment or modification of or supplement to the Agreements;
b) any exercise or non-exercise of any right, remedy or privilege under
or in respect to this Negative Covenant Pledge Agreement, the
Agreements, or any other instrument provided for in the
Agreement(s), or any waiver, consent, explanation, indulgency or
actions or inaction with respect to any such instrument; or
c) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceeding of
Pledgor.
<PAGE> 30
NEGATIVE COVENANT PLEDGE AGREEMENT
NANOGEN, INC.
PAGE 3 OF 3
8) The entire Collateral Pledge and any accrued interest will be returned to
Pledgor when Pledgor's Unrestricted Cash exceeds the benchmark defined
above for a period of at least one fiscal quarter and continues to remain
greater and Pledgor is not in default of any financial obligation.
Return of any required Collateral Pledge prior to the Termination of the
Agreements (as defined below) is contingent upon the following additional
conditions: (a) verification of all benchmarks is to be acceptable to
Pledgee; (b) Pledgor has made all payments in a timely manner to Pledgee
according to the terms of the Agreements; (c) Pledgor is not then, nor has
ever been in default of its obligation to the Pledgee under the
Agreements, and Pledgor has not defaulted on any other financial
obligation; (d) Pledgor, if privately held, has provided monthly financial
statements to Pledgee within 30 days of each month-end or if Pledgor is
publicly held, has provided quarterly statements as required to be filed
by the Securities and Exchange Commission (the "SEC"); (e) Pledgor, if
privately held, has provided an annual audited financial statements to
Pledgee within 90 days of Pledgor's fiscal year end or if Pledgor is
publicly held, has provided Pledgee with annual statements as required to
be filed by the SEC; and (f) Pledgor has not suffered any material adverse
change.
The Termination of the Agreements shall be defined as the satisfaction of
all Pledgor's obligations under the Agreements.
If the Collateral Pledge is returned prior to the Termination of the
Agreements, this Negative Covenant Pledge Agreement shall remain in full
force and effect.
9) If the Collateral Pledge has not been previously returned, upon
Termination of the Agreements and the satisfaction of all obligations of
Pledgor thereunder, Pledgee shall deliver the Collateral Pledge (less any
portion of same cashed, sold, assigned or delivered pursuant to, and under
the circumstances specified in, Paragraph 6 hereof) to Pledgor, and this
Negative Covenant Pledge Agreement shall thereupon be without further
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Negative Covenant Pledge
to be executed as of the date first above written.
<TABLE>
<S> <C>
PLEDGOR: PLEDGEE:
NANOGEN, INC. LEASE MANAGEMENT SERVICES, INC.
By: Signature of Tina Berger-Nova, Ph.D. By: Signature of Barbara B. Kaiser
------------------------------------- ---------------------------------------
Its: President & COO Its: EVP/ General Manager
------------------------------------ --------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.22
NANOGEN, INC
RESTRICTED STOCK ISSUANCE AGREEMENT
AGREEMENT made as of this 7th day of November, 1997, by and
between Nanogen, Inc., a California corporation (the "Corporation), and
__________, an individual resident in the State of California ("Purchaser").
I. PURCHASE OF SHARES
1.1 PURCHASE. The Purchaser hereby purchases, and the Corporation
hereby sells to Purchaser, ________ shares (the "Shares") of the Corporation's
common stock ("Common Stock") at a purchase price of $0.60 per share (the
"Purchase Price") with a vesting start date of May 16, 1997 (the "Vesting Start
Date").
1.2 PAYMENT. Concurrently with the execution of this Agreement,
the Purchaser shall deliver to the Corporation (i) a promissory note in the
amount of $_________ (the "Promissory Note") in substantially the form attached
hereto as Exhibit A, which Promissory Note shall be secured by a first priority
security interest pursuant to a stock pledge agreement; (ii) the Stock Pledge
Agreement in substantially the form attached hereto as Exhibit B; and (iii) a
duly-executed blank Assignment Separate from Certificate (in the form attached
hereto as Exhibit C).
1.3 DELIVERY OF CERTIFICATES. Subject to the terms of the Stock
Pledge Agreement, the certificates representing the Shares hereunder shall be
held in escrow by the Secretary of the Corporation as provided in Article VII
hereof.
1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation
actually exercises its repurchase right, rights of first refusal or special
purchase right under this Agreement, Purchaser (or any successor in interest)
shall have all the rights of a shareholder (including voting and dividend
rights) with respect to the Shares, including the Shares held in escrow under
Article VII, subject, however, to the transfer restrictions of Article IV.
II. SECURITIES LAW COMPLIANCE
2.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with Purchaser in reliance upon Purchaser's representation to the Company, which
by Purchaser's execution of this Agreement Purchaser hereby confirms, that the
Shares are being acquired for investment for Purchaser's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that Purchaser has no present intention of selling, granting any
participation in or otherwise distributing the same. By executing this
Agreement, Purchaser further represents that Purchaser does not have any
contract,
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<PAGE> 2
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Shares. Purchaser represents that she has full power and authority to enter into
this Agreement.
2.2 DISCLOSURE OF INFORMATION. Purchaser believes she has
received all the information she considers necessary or appropriate for deciding
whether to purchase the Shares. Purchaser acknowledges that the Company has not
prepared any financial statements. Purchaser further represents that she has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares.
2.3 INVESTMENT EXPERIENCE. Purchaser is an investor in securities
of companies in the early development stage and acknowledges that she is able to
fend for herself, can bear the economic risk of her investment and has such
knowledge and experience in financial or business matters that she is capable of
evaluating the merits and risks of the investment in the Shares.
2.4 PERSONAL KNOWLEDGE. As of Purchaser's execution of this
Agreement, Purchaser (i) has a preexisting personal and business relationship
with the Company, (ii) is thoroughly familiar with the Company's operations and
its financial condition and (iii) has such knowledge and experience in financial
and business matters (including experience with investments of a similar
nature), that Purchaser is capable of evaluating the merits and risks of an
investment in the Shares. PURCHASER RECOGNIZES THAT THE PURCHASE OF THE SHARES
IS A SPECULATIVE INVESTMENT THAT INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE
ONLY FOR PERSONS WITH THE FINANCIAL CAPABILITY OF MAKING AND HOLDING LONG-TERM
INVESTMENTS NOT READILY REDUCIBLE TO CASH.
2.5 EXEMPTION FROM REGISTRATION. The Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
are accordingly being issued to Purchaser in reliance upon the exemption from
such registration provided by Rule 701 of the Securities and Exchange Commission
for stock issuances under compensatory agreements.
2.6 RESTRICTED SECURITIES.
(a) Purchaser hereby confirms that Purchaser has been
informed that the Shares are restricted securities under the 1933 Act and may
not be resold or transferred unless the Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Purchaser hereby acknowledges that Purchaser is prepared
to hold the Shares for an indefinite period and that Purchaser is aware that
Rule 144 of the Securities and Exchange Commission issued under the 1933 Act is
not presently available to exempt the sale of the Shares from the registration
requirements of the 1933 Act.
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<PAGE> 3
(b) Upon the expiration of the ninety (90)-day period
immediately following the date on which the Corporation first becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Shares, to the extent vested under Article V, may be
sold (without registration) pursuant to the applicable requirements of Rule 144.
If Purchaser is at the time of such sale an affiliate of the Corporation for
purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the two-year holding period requirement of
the Rule will not be applicable. If Purchaser is not at the time of the sale an
affiliate of the Corporation nor was such an affiliate during the preceding
three (3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Shares held for less than three (3)
years following payment in cash of the Purchase Price therefor) will be
applicable to the sale.
(c) Should the Corporation not become subject to the
reporting requirements of the Exchange Act, then Purchaser may, provided he/she
is not at the time an affiliate of the Corporation (nor was such an affiliate
during the preceding three (3) months), sell the Shares (without registration)
pursuant to paragraph (k) of Rule 144 after the Shares have been held for a
period of three (3) years following the payment in cash of the Purchase Price
for such shares.
2.7 DISPOSITION OF SHARES. Purchaser hereby agrees that Purchaser
shall make no disposition of the Shares (other than a permitted transfer under
paragraph 4.1) unless and until there is compliance with all of the following
requirements:
(a) Purchaser shall have notified the Corporation of the
proposed disposition and provided a written summary of the terms
and conditions of the proposed disposition.
(b) Purchaser shall have complied with all requirements of
this Agreement applicable to the disposition of the Shares.
(c) Purchaser shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (i) the proposed disposition does not require
registration of the Shares under the 1933 Act or (ii) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or of any exemption from
registration available under the 1933 Act (including Rule 144)
has been taken.
The Corporation shall not be required (i) to transfer on its books any
Shares which have been sold or transferred in violation of the provisions of
this Article II nor (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of this Agreement.
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<PAGE> 4
2.8 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Shares, the stock certificates for the Shares will be
endorsed with restrictive legends, including one or more of the following
legends:
(i) "The shares represented by this certificate
have not been registered under the Securities Act of 1933, as
amended. The shares may not be sold or offered for sale in the
absence of (a) an effective registration statement for the shares
under such Act, (b) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (c)
satisfactory assurances to the Corporation that registration
under such Act is not required with respect to such sale or
offer."
(ii) "The shares represented by this certificate
are unvested and accordingly may not be sold, assigned,
transferred, encumbered, or in any manner disposed of except in
conformity with the terms of a written agreement dated as of
November 7, 1997, between the Corporation and the registered
holder of the shares (or the predecessor in interest to the
shares). Such agreement grants certain repurchase rights and
rights of first refusal to the Corporation (or its assignees)
upon the sale, assignment, transfer, encumbrance or other
disposition of the Corporation's shares or upon termination of
service with the Corporation. The Corporation will upon written
request furnish a copy of such agreement to the holder hereof
without charge."
III. SPECIAL TAX PROVISIONS
3.1 SECTION 83(B) ELECTION. The Purchaser understands that under
Section 83 of the Code, the excess of the fair market value of the Shares on the
date any forfeiture restrictions applicable to such shares lapse over the
Purchase Price for such Shares will be reportable as ordinary income on such
lapse date. For this purpose, the term "forfeiture restrictions" includes the
right of the Corporation to repurchase the Shares pursuant to the Repurchase
Right provided under Article V of this Agreement. Purchaser understands that
he/she may elect under Section 83(b) of the Internal Revenue Code of 1986, as
amended (the "Code") to be taxed at the time the Shares are acquired hereunder,
rather than when and as such Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of this Agreement. Even if the fair
market value of the Shares on the date of this Agreement equals the Purchase
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as Exhibit D hereto. Purchaser understands that failure to make this
filing within the thirty (30)-day period will result in the recognition of
ordinary income by the Purchaser as the forfeiture restrictions lapse.
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<PAGE> 5
3.2 PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE
RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER
SECTION 83(B), EVEN IF PURCHASER REQUESTS THE CORPORATION OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON HIS/HER BEHALF. This filing should be made by registered
or certified mail, return receipt requested, and Purchaser must retain two (2)
copies of the completed form for filing with his/her State and Federal tax
returns for the current tax year and an additional copy for his/her personal
records.
IV. TRANSFER RESTRICTIONS
4.1 RESTRICTION ON TRANSFER. Purchaser shall not transfer,
assign, encumber or otherwise dispose of any of the Shares which are subject to
the Corporation's Repurchase Right under Article V. In addition, Shares which
are released from the Repurchase Right shall not be transferred, assigned,
encumbered or otherwise made the subject of disposition in contravention of the
Corporation's First Refusal Right under Article VI. Such restrictions on
transfer, however, shall not be applicable to (i) a gratuitous transfer of the
Shares made to the Purchaser's spouse or issue, including adopted children, or
to a trust for the exclusive benefit of the Purchaser or the Purchaser's spouse
or issue, provided and only if the Purchaser obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Shares
effected pursuant to the Purchaser's will or the laws of intestate succession or
(iii) a transfer to the Corporation in pledge as security for any purchase-money
indebtedness incurred by the Purchaser in connection with the acquisition of the
Shares.
4.2 TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Shares are transferred by means of one of the permitted
transfers specified in paragraph 4.1 must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Corporation that such
person is bound by the provisions of this Agreement and that the transferred
shares are subject to (i) both the Corporation's Repurchase Right and the
Corporation's First Refusal Right granted hereunder and (ii) the market
stand-off provisions of paragraph 4.4, to the same extent such Shares would be
so subject if retained by the Purchaser.
4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI and
VII of this Agreement, the term "Owner" shall include the Purchaser and all
subsequent holders of the Shares who derive their chain of ownership through a
permitted transfer from the Purchaser in accordance with paragraph 4.1.
4.4 MARKET STAND-OFF PROVISIONS.
(a) In connection with any underwritten public offering by
the Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing
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<PAGE> 6
transactions with respect to, any Shares without the prior written consent of
the Corporation or its underwriters. Such limitations shall be in effect for
such period of time from and after the effective date of such registration
statement as may be requested by the Corporation or such underwriters; provided,
however, that in no event shall such period exceed one hundred-eighty (180) days
in connection with Corporation's initial public offering or ninety (90) days in
connection with any subsequent public offering.
(b) Owner shall be subject to the market stand-off
provisions of this paragraph 4.4 provided and only if the then-current officers
and directors of the Corporation are also subject to similar arrangements.
(c) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Corporation's outstanding Common
Stock effected without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Shares shall be
immediately subject to the provisions of this paragraph 4.4, to the same extent
the Shares are at such time covered by such provisions.
(d) In order to enforce the limitations of this paragraph
4.4, the Corporation may impose stop-transfer instructions with respect to the
Shares until the end of the applicable stand-off period.
V. REPURCHASE RIGHT
5.1 GRANT.
(a) The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date the Purchaser ceases for any reason to remain in Service or
(if later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Purchase Price all or (at the discretion of the
Corporation and with the consent of the Purchaser) any portion of the Shares in
which the Purchaser has not acquired a vested interest in accordance with the
vesting provisions of paragraph 5.3 below (such shares to be hereinafter called
the "Unvested Shares"). For purposes of this Agreement, the Purchaser shall be
deemed to remain in Service for so long as the Purchaser continues to be
employed by the Corporation or any parent or subsidiary corporation on a
full-time basis.
(b) For purposes of this Section 5.1 and all other
provisions of this Agreement, the following provisions shall be in effect:
(i) The Purchaser shall be deemed to be employed on
a full-time basis by the Corporation for so long as the
Purchaser renders at least thirty (30) hours of service
per week to the Corporation or one or more of its parents
or subsidiaries.
(ii) A leave of absence (regardless of the reason
therefor) shall be deemed to constitute the cessation of
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<PAGE> 7
full-time employment as of the commencement date of the
leave, unless such leave is authorized by the Corporation
in writing and the Purchaser returns to work prior to the
expiration date of such leave. Accordingly, the Purchaser
shall receive credit for full-time employment during a
leave of absence only if the leave is authorized by the
Corporation and the Purchaser returns to work prior to the
expiration date of the leave.
5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one or
more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with paragraph 7.3 or from Owner as herein
provided), pay to Owner in cash or cash equivalents an amount equal to the
original Purchase Price paid by Owner hereunder for the Unvested Shares which
are to be repurchased.
5.3 TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under paragraph 5.2. In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to any and all Shares in
which the Purchaser vests in accordance with the schedule below. Accordingly, as
the Purchaser continues in the employ of the Company, the Owner shall acquire a
vested interest in, and the Repurchase Right shall lapse with respect to, the
Shares in installments in accordance with the following provisions:
(i) The Purchaser shall not acquire any vested interest
in, nor shall the Repurchase Right lapse with respect to, any
Shares unless and until the Purchaser has completed twelve (12)
months of Service measured from the Vesting Start Date.
(ii) Upon the completion of the twelve (12) month Service
period specified in subparagraph (i) above, the Purchaser shall
acquire a vested interest in, and the Repurchase Right shall
lapse with respect to, 25% of the Shares.
(iii) The Purchaser shall acquire a vested interest in,
and the Repurchase Right shall lapse with respect to, the
remaining Shares in a series of successive equal monthly
installments over each of the next thirty-six (36)
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<PAGE> 8
months of Service completed by the Purchaser after the initial
vesting date under subparagraph (ii) above.
All Shares as to which the Repurchase Right lapses shall,
however, continue to be subject to (i) the First Refusal Right under Article VI
and (ii) the market stand-off and other transfer restrictions of Article IV.
5.4 FRACTIONAL SHARES. No fractional shares shall be repurchased
by the Corporation. Accordingly should the Repurchase Right extend to a
fractional share (in accordance with the vesting computation provisions of
paragraph 5.3) at the time the Purchaser ceases Service, then such fractional
share shall be added to any fractional share in which the Purchaser is at such
time vested in order to make one whole vested share no longer subject to the
Repurchase Right.
5.5 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of
any stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Shares shall
be immediately subject to the Repurchase Right, but only to the extent the
Shares are at the time covered by such right. Appropriate adjustments to reflect
the distribution of such securities or property shall be made to the number of
Shares at the time subject to the Repurchase Right hereunder and to the price
per share to be paid upon the exercise of the Repurchase Right in order to
reflect the effect of any such transaction upon the Corporation's capital
structure; provided, however, that the aggregate Purchase Price shall remain the
same.
5.6 CORPORATE TRANSACTION. The Repurchase Right granted under
this Article V shall automatically lapse in its entirety immediately prior to
the consummation of any of the following shareholder-approved transactions (a
"Corporate Transaction"):
(i) a merger or consolidation in which more than fifty
percent (50%) of the Corporation's outstanding voting stock is
transferred to a person or persons different from those who held
the stock immediately prior to such transaction,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) a merger or consolidation in which the Corporation
is not the surviving entity (other than a transaction effected
primarily to change the State in which the Corporation is
incorporated, or to create a holding company structure).
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<PAGE> 9
VI. RIGHT OF FIRST REFUSAL
6.1 GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable ln connection with any proposed
transfer of the Shares in which the Purchaser has vested in accordance with the
vesting provisions of Article V. For purposes of this Article VI, the term
"transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Shares intended to be made by the Owner, but shall
not include any of the permitted transfers under paragraph 4.1.
6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner
desires to accept a bona fide third-party offer for any or all of the Shares
(the shares subject to such offer to be hereinafter called the "Target Shares"),
Owner shall promptly (i) deliver to the Corporate Secretary of the Corporation
written notice (the "Disposition Notice") of the terms and conditions of the
offer, including the purchase price and the identity of the third-party offeror
and (ii) provide satisfactory proof that the disposition of the Target Shares to
such third-party offeror would not be in contravention of the provisions set
forth in Articles II and IV of this Agreement.
6.3 EXERCISE OF RIGHT. The Corporation (or its assignees) shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares specified
in the Disposition Notice upon substantially the same terms and conditions
specified therein or upon terms and conditions which do not materially vary from
those specified therein. Such right shall be exercisable by delivery of written
notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect to
all the Target Shares specified in the Disposition Notice, then the Corporation
(or its assignees) shall effect the repurchase of the Target Shares, including
payment of the purchase price, not more than five (5) business days after
delivery of the Exercise Notice; and at such time Owner shall deliver to the
Corporation the certificates representing the Target Shares to be repurchased,
each certificate to be properly endorsed for transfer. To the extent any of the
Target Shares are at the time held in escrow under Article VII, the certificates
for such shares shall automatically be released from escrow and delivered to the
Corporation for purchase.
6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is
not given to Owner within twenty-five (25) days following the date of the
Corporation's receipt of the Disposition Notice, Owner shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; provided,
however, that any such sale or disposition must not be effected in contravention
of the provisions of Article II of this Agreement. To the extent any of the
Target Shares are at the time held in escrow under Article VII, the certificates
for such shares shall automatically be released from escrow and surrendered to
the Owner. The third-party offeror shall acquire the Target Shares free and
clear of the Corporation's Repurchase Right under Article V and the
Corporation's First Refusal Right hereunder, but the acquired shares shall
remain subject to (i) the securities law restrictions of paragraph 2.2(a) and
(ii) the market stand-off
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<PAGE> 10
provisions of paragraph 4.4. In the event Owner does not effect such sale or
disposition of the Target Shares within the specified thirty (30) day period,
the Corporation's First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses in
accordance with paragraph 6.7.
6.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation (or
its assignees) makes a timely exercise of the First Refusal Right with respect
to a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Corporation delivered within thirty (30) days after the date of the Disposition
Notice, to effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in the Disposition Notice, but
in full compliance with the requirements of paragraph 6.4, as if
the Corporation did not exercise the First Refusal Right
hereunder; or
(ii) sale to the Corporation (or its assignees) of the
portion of the Target Shares which the Corporation (or its
assignees) has elected to purchase, such sale to be effected in
substantial conformity with the provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the
Corporation under this paragraph 6.5 shall be deemed to be an election by Owner
to sell the Target Shares pursuant to alternative (i) above.
6.6 RECAPITALIZATION/MERGER.
(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Purchased Shares shall be
immediately subject to the Corporation's First Refusal Right hereunder, but only
to the extent the Purchased Shares are at the time covered by such right.
(b) The Corporation's First Refusal Right shall terminate
in the event of any of the following transactions:
(i) a merger or consolidation in which more than
fifty percent (50%) of the Corporation's outstanding
voting stock is transferred to a person or persons
different from those who held the stock immediately prior
to such transaction,
(ii) the sale, transfer or other disposition of all
or substantially all of the Corporation's assets, or
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<PAGE> 11
(iii) a merger or consolidation in which the
Corporation is not the surviving entity (other than a
transaction effected primarily to change the State in
which the Corporation is incorporated, or to create a
holding company structure).
6.7 LAPSE. The First Refusal Right under this Article VI shall
lapse and cease to have effect upon the earliest to occur of (i) the first date
on which shares of the Corporation's Common Stock are held of record by more
than five hundred (500) persons, (ii) a determination is made by the
Corporation's Board of Directors that a public market exists for the outstanding
shares of the Corporation's Common Stock, or (iii) a firm commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Corporation's Common
Stock in the aggregate amount of at least $5,000,000. However, the market
stand-off provisions of paragraph 4.4 shall continue to remain in full force and
effect following the lapse of the First Refusal Right hereunder.
VII. ESCROW
7.1 DEPOSIT. Subject to the terms of the Stock Pledge Agreement,
the certificates for any Unvested Shares purchased hereunder shall be deposited
in escrow with the Corporation to be held in accordance with the provisions of
this Article VII. Each deposited certificate shall be accompanied by a duly
executed Assignment Separate from Certificate in the form of Exhibit A. The
deposited certificates, together with any other assets or securities from time
to time deposited with the Corporation pursuant to the requirements of this
Agreement, shall remain in escrow until such time or times as the certificates
(or other assets and securities) are to be released or otherwise surrendered for
cancellation in accordance with paragraph 7.3. Upon delivery of the certificates
(or other assets and securities) to the Corporation, the Owner shall be issued
an instrument of deposit acknowledging the number of Unvested Shares (or other
assets and securities) delivered in escrow to the Corporation.
7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any stock
dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, any new, substituted or additional securities or other property
which is by reason of such transaction distributed with respect to the Unvested
Shares shall be immediately delivered to the Corporation to be held in escrow
under this Article VII, but only to the extent the Unvested Shares are at the
time subject to the escrow requirements of paragraph 7.1.
7.3 RELEASE/SURRENDER. The Unvested Shares, together with any
other assets or securities held in escrow hereunder, shall be subject to the
following terms and conditions relating to their release from escrow or their
surrender to the Corporation for repurchase and cancellation:
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<PAGE> 12
(i) Should the Corporation (or its assignees) elect to
exercise the Repurchase Right under Article V with respect to any
Unvested Shares, then the escrowed certificates for such Unvested
Shares (together with any other assets or securities issued with
respect thereto) shall be delivered to the Corporation,
concurrently with the payment to the Owner, in cash or cash
equivalent (including the cancellation of any purchase-money
indebtedness), of an amount equal to the aggregate Purchase Price
for such Unvested Shares, and the Owner shall cease to have any
further rights or claims with respect to such Unvested Shares (or
other assets or securities attributable to such Unvested Shares).
(ii) Should the Corporation (or its assignees) elect to
exercise its First Refusal Right under Article VI with respect to
any vested Target Shares held at the time in escrow hereunder,
then the escrowed certificates for such Target Shares (together
with any other assets or securities attributable thereto) shall,
concurrently with the payment of the paragraph 6.3 purchase price
for such Target Shares to the Owner, be surrendered to the
Corporation, and the Owner shall cease to have any further rights
or claims with respect to such Target Shares (or other assets or
securities).
(iii) Should the Corporation (or its assignees) elect not
to exercise its First Refusal Right under Article VI with respect
to any Target Shares held at the time in escrow hereunder, then
the escrowed certificates for such Target Shares (together with
any other assets or securities attributable thereto) shall be
surrendered to the Owner for disposition in accordance with the
provisions of paragraph 6.4.
(iv) As the interest of the Purchaser in the Unvested
Shares (or any other assets or securities attributable thereto)
vests in accordance with the provisions of Article V, the
certificates for such vested shares (as well as all other vested
assets and securities) shall be released from escrow and
delivered to the Owner in accordance with the following schedule:
a. The initial release of vested shares (or other
vested assets and securities) from escrow shall be effected
within thirty (30) days following the expiration of the initial
twelve (12)-month period measured from the Vesting Start Date
under paragraph 5.3.
b. Subsequent releases of vested shares (or other
vested assets and securities) from escrow shall be
effected at semi-annual intervals thereafter, with the
first such semi-annual
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<PAGE> 13
release to occur six (6) months after the initial
paragraph 5.3 vesting date.
c. Upon the Purchaser's cessation of Service, any
escrowed Shares (or other assets or securities) in which
the Purchaser is at the time vested shall be promptly
released from escrow.
d. Upon any earlier termination of the
Corporation's Repurchase Right in accordance with the
applicable provisions of Article V, the Shares (or other
assets or securities) at the time held in escrow hereunder
shall promptly be released to the Owner as fully-vested
shares or other property.
(v) All Shares (or other assets or securities) released
from escrow in accordance with the provisions of subparagraph
(iv) shall nevertheless remain subject to (I) the Corporation's
First Refusal Right under Article VI until such right lapses
pursuant to paragraph 6.7, (II) the restrictions on transfer,
including the market stand-off provision, of Article IV, until
such provisions terminate in accordance with their terms and
(III) the Special Purchase Right under Article VIII.
VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION
8.1 GRANT. In connection with the dissolution of the Purchaser's
marriage or the legal separation of the Purchaser and the Purchaser's spouse,
the Corporation shall have the right (the "Special Purchase Right"), exercisable
at any time during the thirty (30)-day period following the Corporation's
receipt of the required Dissolution Notice under paragraph 8.2, to purchase from
the Purchaser's spouse, in accordance with the provisions of paragraph 8.3, all
or any portion of the Shares which would otherwise be awarded to such spouse in
settlement of any community property or other marital property rights such
spouse may have in such shares.
8.2 NOTICE OF DECREE OR AGREEMENT. The Purchaser shall promptly
provide the Secretary of the Corporation with written notice (the "Dissolution
Notice") of (i) the entry of any judicial decree or order resolving the property
rights of the Purchaser and the Purchaser's spouse in connection with their
marital dissolution or legal separation or (ii) the execution of any contract or
agreement relating to the distribution or division of such property rights. The
Dissolution Notice shall be accompanied by a copy of the actual decree of
dissolution or settlement agreement between the Purchaser and the Purchaser's
spouse which provides for the award to the spouse of one or more Shares in
settlement of any community property or other marital property rights such
spouse may have in such shares.
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<PAGE> 14
8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase
Right shall be exercisable by delivery of the Purchase Notice to the Purchaser
and the Purchaser's spouse within thirty (30) days after the Corporation's
receipt of the Dissolution Notice. The Purchase Notice shall indicate the number
of shares to be purchased by the Corporation, the date such purchase is to be
effected (such date to be not less than five (5) business days, nor more than
ten (10) business days, after the date of the Purchase Notice), and the fair
market value to be paid for such Shares. The Purchaser (or the Purchaser's
spouse, to the extent such spouse has physical possession of the Shares) shall,
prior to the close of business on the date specified for the purchase, deliver
to the Corporate Secretary of the Corporation the certificates representing the
shares to be purchased, each certificate to be properly endorsed for transfer.
To the extent any of the shares to be purchased by the Corporation are at the
time held in escrow under Article VII, the certificates for such shares shall be
promptly delivered out of escrow to the Corporation. The Corporation shall,
concurrently with the receipt of the stock certificates, pay to the Purchaser's
spouse (in cash or cash equivalents) an amount equal to the fair market value
specified for such shares in the Purchase Notice.
If the Purchaser's spouse does not agree with the fair market
value specified for the shares in the Purchase Notice, then the spouse shall
promptly notify the Corporation in writing of such disagreement and the fair
market value of such shares shall thereupon be determined by an appraiser of
recognized standing selected by the Corporation and the spouse. If they cannot
agree on an appraiser within twenty (20) days after the date of the Purchase
Notice, each shall select an appraiser of recognized standing, and the two
appraisers shall designate a third appraiser of recognized standing whose
appraisal shall be determinative of such value. The cost of the appraisal shall
be shared equally by the Corporation and the Purchaser's spouse. The Closing
shall then be held on the fifth business day following the completion of such
appraisal; provided, however, that if the appraised value is more than fifteen
percent (15%) greater than the fair market value specified for the shares in the
Purchase Notice, the Corporation shall have the right, exercisable prior to the
expiration of such five (5) business-day period, to rescind the exercise of the
Special Purchase Right and thereby revoke its election to purchase the shares
awarded to the spouse.
8.4 LAPSE. The Special Purchase Right under this Article VIII
shall lapse and cease to have effect upon the earlier to occur of (i) the first
date on which the First Refusal Right under Article VI lapses or (ii) the
expiration of the thirty (30)-day exercise period specified in paragraph 8.3, to
the extent the Special Purchase Right is not timely exercised in accordance with
such paragraph.
IX. GENERAL PROVISIONS
9.1 ASSIGNMENT. The Corporation may assign its Repurchase Right
under Article V, its First Refusal Right under Article VI and/or its Special
Purchase Right under Article VIII to any person or entity selected by the
Corporation's Board of Directors, including (without limitation) one or more
shareholders of the Corporation, provided that, if the assignee of the
Repurchase Right is other than a one hundred percent (100%) owned subsidiary
corporation of the Corporation or the parent corporation owning one hundred
percent (100%) of the Corporation, then such assignee must make a cash payment
to the
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<PAGE> 15
Corporation, upon the assignment of the Repurchase Right, in an amount equal to
the excess (if any) of (i) the fair market value of the Unvested Shares at the
time subject to the assigned Repurchase Right over (ii) the aggregate repurchase
price payable for Unvested Shares thereunder.
9.2 DEFINITIONS. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall
be considered to be a PARENT corporation of the Corporation,
provided each such corporation in the unbroken chain (other than
the Corporation) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other
corporations in such chain.
(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation
shall be considered to be a SUBSIDIARY of the Corporation,
provided each such corporation (other than the last corporation)
in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
9.3 NOTICES. Any notice required in connection with (i) the
Repurchase Right, the First Refusal Right or the Special Purchase Right or (ii)
the disposition of any Shares covered thereby shall be given in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States mail, registered or certified, postage prepaid and addressed to the party
entitled to such notice at the address indicated below such party's signature
line on this Agreement or at such other address as such party may designate by
ten (10) days advance written notice under this paragraph 9.3 to all other
parties to this Agreement.
9.4 NO WAIVER. The failure of the Corporation (or its assignees)
in any instance to exercise the Repurchase Right granted under Article V, or the
failure of the Corporation (or its assignees) in any instance to exercise the
First Refusal Right granted under Article VI or the failure of the Corporation
(or its assignees) in any instance to exercise the Special Purchase Right
granted under Article VIII, shall not constitute a waiver of any other
repurchase rights and/or rights of first refusal that may subsequently arise
under the provisions of this Agreement or any other agreement between the
Corporation and the Purchaser or the Purchaser's spouse. No waiver of any breach
or condition of this Agreement shall be deemed to be a waiver of any other or
subsequent breach or condition, whether of like or different nature.
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<PAGE> 16
9.5 CANCELLATION OF SHARES. If the Corporation (or its assignees)
shall make available, at the time and place and in the amount and form provided
in this Agreement, the consideration for the Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement), and such shares shall be
deemed purchased in accordance with the applicable provisions hereof and the
Corporation (or its assignees) shall be deemed the owner and holder of such
shares, whether or not the certificates therefor have been delivered as required
by this Agreement.
9.6 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
shall confer upon the Purchaser any right to continue in the Service of the
Corporation (or any parent or subsidiary corporation employing or retaining
Purchaser) for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any parent or subsidiary
corporation employing or retaining Purchaser) or the Purchaser, which rights are
hereby expressly reserved by each, to terminate the Purchaser's Service at any
time for any reason whatsoever, with or without cause.
9.7 RIGHT TO OFFSET. The Corporation may apply any amount
otherwise due and payable to the Purchaser hereunder to the payment (including
as a prepayment) of any and all amounts owed to the Corporation under the
Promissory Note (whether or not then due and payable) and shall remit to
Purchaser only such amounts which are in excess of the amount of such payment.
X. MISCELLANEOUS PROVISIONS
10.1 PURCHASER UNDERTAKING. Purchaser hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may in its judgment deem necessary or advisable in order to carry
out or effect one or more of the obligations or restrictions imposed on either
the Purchaser or the Shares pursuant to the express provisions of this
Agreement.
10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof.
10.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict-of- laws rules.
10.4 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 17
10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and the Purchaser and the Purchaser's legal
representatives, heirs, legatees, distributees, assigns and transferees by
operation of law, whether or not any such person shall have become a party to
this Agreement and have agreed in writing to join herein and be bound by the
terms and conditions hereof.
10.6 COMPANY COUNSEL. PURCHASER EXPRESSLY ACKNOWLEDGES AND AGREES
THAT THIS AGREEMENT HAS BEEN PREPARED BY THE COMPANY'S COUNSEL WHICH COUNSEL HAS
REPRESENTED THE INTERESTS OF THE COMPANY AND NOT THOSE OF PURCHASER WITH RESPECT
TO THIS AGREEMENT, THAT PURCHASER IS NOT RELYING ON ANY REPRESENTATION OR ADVICE
FROM THE COMPANY OR ITS COUNSEL OR FROM ANY OTHER INVESTOR IN THE COMPANY ABOUT
THIS AGREEMENT, ITS CONTENT OR EFFECT AND THAT PURCHASER HAS BEEN ENCOURAGED TO
SEEK INDEPENDENT COUNSEL TO REVIEW THIS AGREEMENT ON BEHALF OF PURCHASER.
PURCHASER REPRESENTS THAT HE HAS REVIEWED THIS AGREEMENT, AND SPECIFICALLY
ACKNOWLEDGES THAT THE VESTING OF THE SHARES UNDER THIS AGREEMENT IS EARNED ONLY
BY CONTINUING EMPLOYMENT OR SERVICE TO THE COMPANY AT THE WILL OF THE COMPANY.
10.7 POWER OF ATTORNEY. Purchaser's spouse hereby appoints
Purchaser his true and lawful attorney in fact, for him and in his name, place
and stead, and for his use and benefit, to agree to any amendment or
modification of this Agreement and to execute such further instruments and take
such further actions as may reasonably be necessary to carry out the intent of
this Agreement. Purchaser's spouse further gives and grants unto Purchaser as
his attorney in fact full power and authority to do and perform every act
necessary and proper to be done in the exercise of any of the foregoing powers
as fully as he might or could do if personally present, with full power of
substitution and revocation, hereby ratifying and confirming all that Purchaser
shall lawfully do and cause to be done by virtue of this power of attorney.
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
NANOGEN, INC.
By
------------------------------
10398 Pacific Center Court
San Diego, CA 92121
PURCHASER
--------------------------------
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
The undersigned spouse of Purchaser has read and hereby approves the
foregoing Restricted Stock Issuance Agreement. In consideration of the
Corporation's granting the Purchaser the right to acquire the Shares in
accordance with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms and provisions of such Agreement, including,
(specifically) the right of the Corporation (or its assignees) to purchase any
and all interest or right the undersigned may otherwise have in such shares
pursuant to community property laws or other marital property rights.
------------------------------------------
Purchaser's Spouse
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<PAGE> 19
EXHIBIT A
PROMISSORY NOTES
A-1
<PAGE> 20
PROMISSORY NOTE SECURED BY
STOCK PLEDGE AGREEMENT
$____________ San Diego, California
November 7, 1997
For value received, the undersigned ("Maker") hereby promises to pay to
Nanogen, Inc., a California corporation ("Holder") at 10398 Pacific Center
Court, San Diego, California, the principal amount of
___________________________ Dollars ($__________), together with interest
thereon from the date hereof at the rate of 6.01% per annum, interest to be
compounded semi-annually.
The performance of the Maker's obligations under this Promissory Note
are secured by the pledge of shares of the common stock of Holder (the "Pledged
Shares") pursuant to the terms of that certain Stock Pledge Agreement entered
into by and between the Maker and the Holder of even date herewith (the "Stock
Pledge Agreement").
All principal and accrued interest under this Promissory Note shall be
due and payable in a lump sum on November 7, 2002.
Payment shall be made in lawful tender of the United States. Except as
otherwise provided herein or by applicable law, all payments shall be applied
first to any unpaid enforcement or collection costs, then to accrued interest
but unpaid interest, and the remainder shall be applied to principal.
This Promissory Note may be prepaid in whose or in part at any time
without premium or penalty. Partial prepayments shall not postpone or delay the
date of any subsequent payment.
Each of the following events shall constitute a default ("Default")
under this Promissory Note:
(a) The Maker's failure to pay when due any payment of principal or
interest due under this Note;
(b) The Maker's failure to perform or observe any of the terms or
conditions of the Stock Pledge Agreement;
(c) The Maker's failure to perform or observe any of the terms or
conditions of the Restricted Stock Issuance Agreement between Maker and Holder
of even date herewith;
(d) The Maker's failure to perform or observe any of the terms or
conditions of any other agreement between Maker and Holder;
A-2
<PAGE> 21
(e) The making by the Maker of any assignment for the benefit of
creditors or the voluntary appointment (at the request or with the consent of
the Maker) of a receiver, custodian, liquidator or trustee in bankruptcy of any
of the Maker's property, or the filing by the Maker of a petition in bankruptcy
or other similar proceeding under any law for relief of debtors; or
(f) The filing against the Maker of a petition in bankruptcy or other
similar proceeding under any law for relief of debtors, or the involuntary
appointment of a receiver, custodian, liquidator or trustee in bankruptcy of the
property of the Maker, if such petition or appointment is not vacated or
discharged within sixty (60) calendar days after the filing or making thereof.
Upon the occurrence of any Default, the Holder may, at its option,
declare the entire unpaid principal balance and accrued interest to be
immediately due and payable, without notice to the Maker. The Maker further
understands that this is a full recourse promissory note and that the Holder
may, at its option, proceed against assets of the undersigned other that the
Pledged Stock (as defined in the Stock Pledge Agreement) under the Stock Pledge
Agreement in the event of a default.
The Maker promises to pay all costs and expenses (including reasonable
attorneys' fees) incurred by the Holder in the exercise or enforcement of any
right under this Promissory Note.
The acceptance by Holder of any payment hereunder which is less than the
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express written
consent of Holder except as and to the extent otherwise provided by law.
The Maker waives diligence, presentment, protest and demand and also
notice of protest, demand, dishonor and nonpayment of this Promissory Note, and
expressly agrees that this Promissory Note, or any payment hereunder, may be
extended from time to time and consents to the acceptance of security, if any,
or the release of security, if any, from this Promissory Note, all without in
any way affecting the liability of the Maker.
The right to plead any and all statutes of limitations as a defense to
any demand on this Promissory Note or any agreement to the same, or any
instrument securing this Promissory Note, or any and all obligations or
liabilities arising out of or in connection with this Promissory Note, is
expressly waived by the Maker to the fullest extent permitted by law.
No extension of the time for the payment of this Promissory Note, or any
installment hereof, made by agreement by the Holder hereof with any person now
or hereafter liable for the payment of this Promissory Note shall affect the
original liability under the terms of this Promissory Note by the Maker even if
it is not a party to such agreement.
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<PAGE> 22
If Holder should institute collection efforts, of any nature whatsoever,
to attempt to collect any and all amounts due hereunder upon the default of the
Maker, the Maker shall be liable to pay to Holder immediately and without demand
all reasonable costs and expenses of collection incurred by Holder, including
without limitation reasonable attorneys fees, whether or not suit or other
action or proceeding be instituted and specifically including but not limited to
collection efforts that may be made through a bankruptcy court, and all such
sums shall be fully secured by the Pledged Stock pursuant to the Stock Pledge
Agreement.
The provisions of this Promissory Note are intended by the Maker to be
severable and divisible and the invalidity or unenforceability of a provision or
term herein shall not invalidate or render unenforceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed by and construed and interpreted
in accordance with the internal laws of the State of California.
THE "MAKER"
---------------------------------------
A-4
<PAGE> 23
EXHIBIT B
STOCK PLEDGE AGREEMENT
B-1
<PAGE> 24
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Agreement") is entered into as of November
7, 1997, by and between Nanogen, Inc., a California corporation ("Secured
Party") and ______________("Pledgor"), with reference to the following facts:
A. Contemporaneously with the execution of this Agreement and pursuant
to a certain Restricted Stock Issuance Agreement dated as of November 7, 1997,
by and between Pledgor and Secured Party (the "Stock Purchase Agreement"),
Pledgor is delivering a Secured Promissory Note to Secured Party in the original
principal amount of _____________________________ Dollars ($__________) (the
"Promissory Note"), in order to evidence a loan which Secured Party has agreed
to make to Pledgor in connection with Pledgor's purchase of shares of Secured
Party's Common Stock pursuant to the Stock Purchase Agreement.
B. Pledgor is required by the Stock Purchase Agreement to secure its
Obligations under the Promissory Note by granting Secured Party a first priority
security interest in the shares of Common Stock of Secured Party being acquired
by Pledgor under the Stock Purchase Agreement, and any and all new or additional
securities of Secured Party subsequently acquired by or distributed to Pledgor.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties hereby agree as follows:
1. Security. The term "Pledged Stock" shall mean ______________________
(_______) shares of Common Stock of Secured Party evidenced by Stock Certificate
No. ___, registered in the name of Pledgor, together with all certificates,
options, rights or other securities of Secured Party acquired by Pledgor
including any distributions issued as an addition to, in substitution or in
exchange for, or on account of, any such shares, and all proceeds of the
foregoing, as further described in and subject to the provisions of Section 4
below, now or hereafter owned or acquired by Pledgor, and any and all new or
additional securities subsequently distributed to Pledgor by Secured Party.
2. Grant of Security Interest. As security for full and timely payment,
performance and satisfaction of the Obligations (as defined in Section 3 below),
Pledgor hereby grants to Secured Party a first priority security interest in the
Pledged Stock. Upon the execution hereof, the Pledged Stock and any related
stock powers shall be deposited with Secured Party.
3. Obligations of Pledgor. As used herein, the term "Obligations" shall
mean: (a) all of Pledgor's obligations, covenants and agreements under the
Promissory Note and (b) all of Pledgor's obligations, covenants and agreements
under this Agreement.
4. Pledged Stock. In the event Pledgor shall become entitled to receive
or shall receive, in connection with any of the Pledged Stock, (a) any stock
certificate, including any
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certificate representing a stock dividend or any certificate in connection with
any increase or reduction of capital, reclassification, merger, consolidation,
sale of assets, combination of shares, stock split or spin-off, (b) any option,
warrant or right, whether as an addition to or in substitution of any of the
Pledged Stock, or otherwise, (c) any dividend or distribution payable in
property, including securities issued as a dividend on the Pledged Stock, or (d)
any other distributions of any kind whatsoever, Pledgor shall accept same as
encumbered by the security interest created hereby, and shall deliver same
forthwith to Secured Party in the exact form received, including as appropriate,
Pledgor's endorsement or appropriate stock powers duly executed in blank, to be
held by Secured Party, as a part of the Pledged Stock subject to the terms
hereof.
5. Representations and Warranties of Pledgor. Pledgor warrants and
represents to Secured Party that (a) Pledgor is the legal and beneficial owner
of all of the Pledged Stock, (b) all of the shares of the Pledged Stock are
owned by Pledgor free of any pledge, mortgage, lien or security interest of any
kind, except as created hereby, and (c) upon execution and delivery by Pledgor
of this Agreement and upon delivery of the Pledged Stock to Secured Party, this
Agreement shall create a valid and perfected first priority security interest in
the Pledged Stock, and the proceeds thereof, subject to no prior security
interest.
6. Transfer of Interests. Pledgor hereby covenants that, until such time
as the Obligations have been fully paid, performed and satisfied, Pledgor will
not sell, convey or otherwise dispose of any of the Pledged Stock or any
interest therein, or create, incur or permit to exist any pledge, mortgage,
lien, charge, encumbrance or any security interest whatsoever in or with respect
to any of the Pledged Stock, or the proceeds thereof, other than the security
interest created hereby.
7. Default. As used herein, the term "Default" shall mean the failure of
full and timely payment or performance and satisfaction of any of the
Obligations.
8. Rights of Secured Party. Upon the occurrence of a Default, Secured
Party may, at its option, do any one or more of the following: (a) declare all
indebtedness of Pledgor to Secured Party to be immediately due and payable,
whereupon all unpaid principal and interest on the Promissory Note shall become
and be immediately due and payable; (b) exercise any and all of the rights and
remedies of a secured party as provided for by the California Commercial Code;
(c) proceed by an action or actions at law or in equity to recover the
indebtedness secured hereby or to foreclose this Agreement and sell the
collateral, or any portion thereof, pursuant to a judgment or decree of a court
or courts of competent jurisdiction; (d) proceed immediately to have any or all
of the Pledged Stock registered in Secured Party's name or in the name of a
nominee; (e) exercise all voting rights with respect to the Pledged Stock and
all other corporate rights, including any rights of conversion, exchange,
subscription or other rights, privileges or options pertaining thereto as if
Secured Party were the absolute owner thereof, including, without limitation,
the right to exchange any or all of the Pledged Stock upon the merger,
consolidation, reorganization, recapitalization or other readjustment of
Pledgor; (f) enforce one or more remedies hereunder, successively or
concurrently; and (g) proceed immediately to dispose of and
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<PAGE> 26
realize upon the Pledged Stock, or any part thereof, and in connection
therewith, sell or otherwise dispose of and deliver the Pledged Stock, or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange, broker's board or at any of Secured Party's offices or elsewhere, at
such prices and on such terms as Secured Party may deem best, for cash or on
credit, or for future delivery without assumption of any credit risk, with the
right of Secured Party or any purchaser to purchase at any such sale either the
whole or any part of the Pledged Stock (in connection with any such sale or
disposition, Secured Party need not give more than thirty (30) calendar days
notice of the time and place of any public sale or of the time after which a
private sale may take place, which notice Pledgor hereby acknowledges to be
reasonable).
9. Proceeds. The proceeds of any disposition of all or any part of the
Pledged Stock, as provided in Section 8 above, shall be applied as follows: (a)
first, to the costs and expenses incurred in connection therewith or incidental
thereto, including reasonable attorneys' fees and legal expenses; (b) second, to
the satisfaction of the Obligations; (c) third, to the payment of any other
amounts required by applicable law; and (d) fourth, to Pledgor to the extent of
any surplus remaining.
10. Private Sale. Pledgor recognizes and acknowledges that Secured Party
may be unable to effect a public sale of all or a part of the Pledged Stock and
may elect to resort to one or more private sales to purchasers who will be
obligated to agree, among other things, to acquire the Pledged Stock for their
own account, for investment, and not with a view to the distribution or resale
thereof. Pledgor acknowledges that any such private sales may be at prices and
on terms less favorable than those of public sales, and agrees that such private
sales shall be deemed to have been made in a commercially reasonable manner and
that Secured Party has no obligation to delay sale of any Pledged Stock to
permit Pledgor to register it for public sale under the Securities Act of 1933,
as amended.
11. Release of Pledged Stock. Upon the execution hereof, Pledgor shall
deliver to Secured Party, the stock certificate or certificates representing the
Pledged Stock, including Pledgor's endorsement thereon or appropriate stock
powers duly executed in blank, to be held in accordance with the terms of this
Agreement. Provided all indebtedness secured hereunder shall at the time have
been paid in full, the Pledged Stock shall be released from pledge and returned
to Pledgor upon the full and final satisfaction of Pledgor's obligations under
the Promissory Note and this Agreement.
12. Partial Release of Pledged Stock. Provided that there are no unpaid
enforcement or collection costs due and payable under the terms of the
Promissory Note, and provided further that Pledgor executes such documents,
agreements and certificates as may reasonably be required by Holder in order to
effectuate the partial release contemplated herein, a portion of the shares of
Pledged Stock shall be released from pledge and returned to Pledgor upon receipt
of a prepayment under the Promissory Note. The number of shares of Pledged Stock
to be released from pledge and returned to Pledgor shall be that number of
shares of Pledged Stock which bears the same ratio to the total number of shares
of Pledged Stock as the amount of prepayment under the Promissory Note bears to
the total of the
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<PAGE> 27
principal and accrued interest then payable under the Promissory Note, provided
that no fractional shares shall be released from pledge under this paragraph 12.
13. Irrevocable Proxy and Power of Attorney. To further secure
Obligations hereunder, Pledgor grants the irrevocable proxy and power of
attorney set forth in this Section 13 to Secured Party for the purposes set
forth below. Pledgor hereby irrevocably constitutes and appoints Secured Party,
any person or entity who becomes the successor to Secured Party, or any officer
of Secured Party or such successor (the "Attorneys"), and each of the foregoing
acting singly, in each case with full power of substitution and resubstitution,
the true and lawful agent and attorney-in-fact of such Purchaser, with full
power and authority in such Purchaser's name, place and stead, to vote the
shares of Pledged Stock in favor of any corporate transaction which has
otherwise been approved by the shareholders of Secured Party and in which (i)
more than fifty percent (50%) of the outstanding shares of the common stock of
Secured Party will be acquired by a single purchaser or a group of purchasers
acting in concert, (ii) all or substantially all of the assets of Holder are
acquired by a single purchaser or group of purchasers, and (iii) Holder merges
with or into another organization; and to do and perform each and every other
act and thing whatsoever requisite, necessary or appropriate to be done to carry
out the purposes of this paragraph 13 as fully to all intents and purposes as
Pledgor might or could do if personally present, Pledgor hereby ratifying all
that such attorney-in-fact shall do or cause to be done by these presents. It is
expressly understood and intended by Pledgor that the irrevocable proxy and
power of attorney granted in this paragraph 13 is coupled with an interest,
irrevocable and may be delegated by said Attorneys. The irrevocable proxy and
power of attorney shall survive the death or incapacity of such Pledgor and
shall continue until all Pledged Shares have been released from pledge
hereunder.
14. Voting Rights. Except as set forth in Paragraph 13 hereof, so long
as no default shall have occurred or exist under this Agreement, Secured Party
shall have no voting rights with respect to the Pledged Stock.
15. Written Notices. Pledgor agrees to promptly deliver to Secured Party
a copy of all written notices received by Pledgor with respect to the Pledged
Stock.
16. Performance by Pledgor. Upon full payment and performance of all of
the Obligations by Pledgor and upon payment of all additional costs and expenses
provided herein, this Agreement shall terminate and Secured Party shall deliver
or caused to be delivered to Pledgor (except as set forth in the Stock Purchase
Agreement or otherwise), such of the Pledged Stock as shall not have been sold
or otherwise disposed of pursuant to this Agreement.
17. Remedies. The rights and remedies provided herein are cumulative and
are in addition to, and not exclusive of, any rights or remedies provided in
other instruments and agreements between Secured Party and Pledgor, or as
provided by law, including, without limitation, the rights and remedies of a
secured party under the California Commercial Code.
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18. Successors and Assigns. This Agreement is binding upon and shall
inure to the benefit of the parties hereto, and their successors and assigns.
19. Governing Law. This Agreement has been accepted and is performable
within San Diego County, California. This Agreement shall be governed and
construed in accordance with the internal laws of the State of California.
20. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given on the
third business day after mailing within the United States, postage prepaid, by
registered or certified mail, return receipt requested, addressed as follows:
If to Pledgor: _____________________
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
If to Secured Party: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Each of the parties hereto shall be entitled to specify a different address by
giving written notice to the other parties hereto in accordance with this
Section 20.
21. Entire Agreement. This Agreement and any other agreement expressly
referred to herein supersedes any and all other agreements, either oral or in
writing, among the parties hereto, with respect to the subject matter hereof and
contains all of the covenants and agreements among the parties with respect to
the subject matter hereof.
22. Waiver: Modification. No term or condition of this Agreement shall
be deemed to have been waived nor shall there be any estoppel to enforce any
provision of this Agreement except by written instrument of the party charged
with such waiver or estoppel. No amendment or modification of this Agreement
shall be deemed effective unless and until executed in writing by all of the
parties hereto.
23. Severability. All agreements and covenants contained herein are
severable and in the event that any of them shall be held to be invalid by any
court of competent jurisdiction, this Pledge Agreement shall be interpreted as
if such invalid agreements or covenants were not contained herein.
24. Delay; Time of Essence. No failure or delay by a party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, and
no single or partial exercise thereof shall preclude any other or further
exercise or the exercise of any other right, power, or privilege. Time is of the
essence of each and every provision of this Agreement of which time is an
element.
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<PAGE> 29
25. Attorneys' Fees. In any action or proceeding brought to enforce or
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
PLEDGOR: SECURED PARTY:
Nanogen, Inc.
____________________________ By:_________________________________
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EXHIBIT C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto NANOGEN, INC. (the "Corporation") _____________________
(_______) shares of the Common Stock of the Corporation standing in his or her
name on the books of the Corporation represented by Certificate No. ________ and
does hereby irrevocably constitute and appoint _____________ as Attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: ___________________
Signature ___________________________
INSTRUCTION: Please do not fill in blanks other than the signature line. The
purpose of this assignment is to enable the Corporation to exercise the
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Purchaser.
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<PAGE> 31
EXHIBIT D
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is ______
shares of the common stock of Nanogen, Inc.
(3) The property was issued on November 7, 1997.
(4) The taxable year in which the election is being made is the calendar
year 1997.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of annual
and monthly installments over a four (4) year period.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $____ per share.
(7) The amount paid for such property is $0.60 per share.
(8) A copy of this statement was furnished to Nanogen, Inc. for whom
taxpayer rendered the service underlying the transfer of property.
(9) This statement is executed as of: November 10, 1997.
- ------------------------------ -----------------------------
Spouse (if any) Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Restricted Stock Issuance
Agreement.
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<PAGE> 1
EXHIBIT 10.23
PROMISSORY NOTE SECURED BY
STOCK PLEDGE AGREEMENT
$__________ San Diego, California
August 22, 1996
For value received, the undersigned ("Maker") hereby promises to pay to
Nanogen, Inc., a California corporation ("Holder") at 10398 Pacific Center
Court, San Diego, California, the principal amount of _____________ Dollars
($______), together with interest thereon from the date hereof. Interest shall
accrue at the rate of 6.36% per annum, compounded semi-annually, provided that
in no event shall the rate of interest be less than the minimum rate required to
avoid the imputation of interest under the Internal Revenue Code.
The performance of the Maker's obligations under this Promissory Note are
secured by the pledge of shares of the common stock of Holder (the "Pledged
Shares") pursuant to the terms of that certain Stock Pledge Agreement entered
into by and between the Maker and the Holder of even date herewith (the "Stock
Pledge Agreement").
All principal and accrued interest under this Promissory Note shall be due
and payable in a lump sum on August 22, 2001.
Payment shall be made in lawful tender of the United States. Except as
otherwise provided herein or by applicable law, all payments shall be applied
first to any unpaid enforcement or collection costs, then to accrued interest
but unpaid interest, and the remainder shall be applied to principal.
This Promissory Note may be prepaid in whole or in part at any time
without premium or penalty. Partial prepayments shall not postpone or delay the
date of any subsequent payment.
Each of the following events shall constitute a default ("Default") under
this Promissory Note:
(a) The Maker's failure to pay when due any payment of principal or
interest due under this Note;
(b) The Maker's failure to perform or observe any of the terms or
conditions of the Stock Pledge Agreement;
(c) The Maker's failure to perform or observe any of the terms or
conditions of the Stock Purchase Agreement between Maker and Holder of even date
herewith;
(d) The making by the Maker of any assignment for the benefit of
creditors or the voluntary appointment (at the request or with the consent of
the Maker) of a receiver, custodian, liquidator or trustee in bankruptcy of any
of the
<PAGE> 2
Maker's property, or the filing by the Maker of a petition in bankruptcy or
other similar proceeding under any law for relief of debtors; or
(e) The filing against the Maker of a petition in bankruptcy or other
similar proceeding under any law for relief of debtors, or the involuntary
appointment of a receiver, custodian, liquidator or trustee in bankruptcy of the
property of the Maker, if such petition or appointment is not vacated or
discharged within sixty (60) calendar days after the filing or making thereof.
Upon the occurrence of any Default, the Holder may, at its option, declare
the entire unpaid principal balance and accrued interest to be immediately due
and payable, without notice to the Maker. The Maker further understands that
this is a full recourse promissory note and that the Holder may, at its option,
proceed against assets of the undersigned other than the Pledged Stock (as
defined in the Stock Pledge Agreement) under the Stock Pledge Agreement in the
event of a default.
The Maker promises to pay all costs and expenses (including reasonable
attorneys' fees) incurred by the Holder in the exercise or enforcement of any
right under this Promissory Note.
The acceptance by Holder of any payment hereunder which is less than the
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express written
consent of Holder except as and to the extent otherwise provided by law.
The Maker waives diligence, presentment, protest and demand and also
notice of protest, demand, dishonor and nonpayment of this Promissory Note, and
expressly agrees that this Promissory Note, or any payment hereunder, may be
extended from time to time and consents to the acceptance of security, if any,
or the release of security, if any, from this Promissory Note, all without in
any way affecting the liability of the Maker.
The right to plead any and all statutes of limitations as a defense to any
demand on this Promissory Note or any agreement to the same, or any instrument
securing this Promissory Note, or any and all obligations or liabilities arising
out of or in connection with this Promissory Note, is expressly waived by the
Maker to the fullest extent permitted by law.
No extension of the time for the payment of this Promissory Note, or any
installment hereof, made by agreement by the Holder hereof with any person now
or hereafter liable for the payment of this Promissory Note shall affect the
original liability under the terms of this Promissory Note by the Maker even if
it is not a party to such agreement.
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<PAGE> 3
If Holder should institute collection efforts, of any nature whatsoever,
to attempt to collect any and all amounts due hereunder upon the default of the
Maker, the Maker shall be liable to pay to Holder immediately and without demand
all reasonable costs and expenses of collection incurred by Holder, including
without limitation reasonable attorneys fees, whether or not suit or other
action or proceeding be instituted and specifically including but not limited to
collection efforts that may be made through a bankruptcy court, and all such
sums shall be fully secured by the Pledged Stock pursuant to the Stock Pledge
Agreement.
The provisions of this Promissory Note are intended by the Maker to be
severable and divisible and the invalidity or unenforceability of a provision or
term herein shall not invalidate or render unenforceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed by and construed and interpreted in
accordance with the internal laws of the State of California.
THE "MAKER"
------------------------------
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<PAGE> 4
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Agreement") is entered into as of August 22,
1996, by and between Nanogen, Inc., a California corporation ("Secured Party")
and ______________ ("Pledgor"), with reference to the following facts:
A. Contemporaneously with the execution of this Agreement and pursuant
to two Stock Purchase Agreements, each dated August 22, 1996, by and between
Pledgor and Secured Party (the "Stock Purchase Agreements"), Pledgor is
delivering a Promissory Note Secured by Stock Pledge Agreement to Secured Party
in the original principal amount of ___________________ Dollars ($__________)
(the "Promissory Note"), in order to evidence a loan which Secured Party has
agreed to make to Pledgor in connection with Pledgor's purchase of shares of
Secured Party's Common Stock pursuant to the Stock Purchase Agreements.
B. Pledgor is required by the Stock Purchase Agreements to secure its
obligations under the Promissory Note by granting Secured Party a first priority
security interest in the shares of Common Stock of Secured Party being acquired
by Pledgor under the Stock Purchase Agreements, and any and all new or
additional securities of Secured Party subsequently acquired by or distributed
to Pledgor.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties hereby agree as follows:
1. Security. The term "Pledged Stock" shall mean ____________ (_____)
shares of Common Stock of Secured Party registered in the name of Pledgor,
together with all certificates, options, rights or other securities of Secured
Party acquired by Pledgor including any distributions issued as an addition to,
in substitution or in exchange for, or on account of, any such shares, and all
proceeds of the foregoing, as further described in and subject to the provisions
of Section 4 below, now or hereafter owned or acquired by Pledgor, and any and
all new or additional securities subsequently distributed to Pledgor by Secured
Party.
2. Grant of Security Interest. As security for full and timely payment,
performance and satisfaction of the Obligations (as defined in Section 3 below),
Pledgor hereby grants to Secured Party a first priority security interest in the
Pledged Stock. Upon the execution hereof, the Pledged Stock and any related
stock powers shall be deposited with Secured Party.
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<PAGE> 5
3. Obligations of Pledgor. As used herein, the term "Obligations" shall
mean: (a) all of Pledgor's obligations, covenants and agreements under the
Promissory Note and (b) all of Pledgor's obligations, covenants and agreements
under this Agreement.
4. Pledged Stock. In the event Pledgor shall become entitled to receive
or shall receive, in connection with any of the Pledged Stock, (a) any stock
certificate, including any certificate representing a stock dividend or any
certificate in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split or spin-off, (b) any option, warrant or right, whether as an
addition to or in substitution of any of the Pledged Stock, or otherwise, (c)
any dividend or distribution payable in property, including securities issued as
a dividend on the Pledged Stock, or (d) any other distributions of any kind
whatsoever, Pledgor shall accept same as encumbered by the security interest
created hereby, and shall deliver same forthwith to Secured Party in the exact
form received, including as appropriate, Pledgor's endorsement or appropriate
stock powers duly executed in blank, to be held by Secured Party, as a part of
the Pledged Stock, subject to the terms hereof.
5. Representations and Warranties of Pledgor. Pledgor warrants and
represents to Secured Party that (a) Pledgor is the legal and beneficial owner
of all of the Pledged Stock, (b) all of the shares of the Pledged Stock are
owned by Pledgor free of any pledge, mortgage, lien or security interest of any
kind, except as created hereby, and (c) upon execution and delivery by Pledgor
of this Agreement and upon delivery of the Pledged Stock to Secured Party, this
Agreement shall create a valid and perfected first priority security interest in
the Pledged Stock, and the proceeds thereof, subject to no prior security
interest.
6. Transfer of Interests. Pledgor hereby covenants that, until such
time as the Obligations have been fully paid, performed and satisfied, Pledgor
will not sell, convey or otherwise dispose of any of the Pledged Stock or any
interest therein, or create, incur or permit to exist any pledge, mortgage,
lien, charge, encumbrance or any security interest whatsoever in or with respect
to any of the Pledged Stock, or the proceeds thereof, other than the security
interest created hereby.
7. Default. As used herein, the term "Default" shall have the meaning
set forth in the Promissory Note.
8. Rights of Secured Party. Upon the occurrence of a Default, Secured
Party may, at its option, do any one or more of the following: (a) declare all
indebtedness of Pledgor to Secured Party to be immediately due and payable,
whereupon all unpaid principal and interest on the Promissory Note shall become
and be immediately due and payable; (b) exercise any and
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<PAGE> 6
all of the rights and remedies of a secured party as provided for by the
California Commercial Code; (c) proceed by an action or actions at law or in
equity to recover the indebtedness secured hereby or to foreclose this Agreement
and sell the collateral, or any portion thereof, pursuant to a judgment or
decree of a court or courts of competent jurisdiction; (d) proceed immediately
to have any or all of the Pledged Stock registered in Secured Party's name or in
the name of a nominee; (e) exercise all voting rights with respect to the
Pledged Stock and all other corporate rights, including any rights of
conversion, exchange, subscription or other rights, privileges or options
pertaining thereto as if Secured Party were the absolute owner thereof,
including, without limitation, the right to exchange any or all of the Pledged
Stock upon the merger, consolidation, reorganization, recapitalization or other
readjustment of Pledgor; (f) enforce one or more remedies hereunder,
successively or concurrently; and (g) proceed immediately to dispose of and
realize upon the Pledged Stock, or any part thereof, and in connection
therewith, sell or otherwise dispose of and deliver the Pledged Stock, or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange, broker's board or at any of Secured Party's offices or elsewhere, at
such prices and on such terms as Secured Party may deem best, for cash or on
credit, or for future delivery without assumption of any credit risk, with the
right of Secured Party or any purchaser to purchase at any such sale either the
whole or any part of the Pledged Stock (in connection with any such sale or
disposition, Secured Party need not give more than thirty (30) calendar days
notice of the time and place of any public sale or of the time after which a
private sale may take place, which notice Pledgor hereby acknowledges to be
reasonable).
9. Proceeds. The proceeds of any disposition of all or any part of the
Pledged Stock, as provided in Section 8 above, shall be applied as follows: (a)
first, to the costs and expenses incurred in connection therewith or incidental
thereto, including reasonable attorneys' fees and legal expenses; (b) second, to
the satisfaction of the Obligations; (c) third, to the payment of any other
amounts required by applicable law; and (d) fourth, to Pledgor to the extent of
any surplus remaining.
10. Private Sale. Pledgor recognizes and acknowledges that Secured Party
may be unable to effect a public sale of all or a part of the Pledged Stock and
may elect to resort to one or more private sales to purchasers who will be
obligated to agree, among other things, to acquire the Pledged Stock for their
own account, for investment, and not with a view to the distribution or resale
thereof. Pledgor acknowledges that any such private sales may be at prices and
on terms less favorable than those of public sales, and agrees that such private
sales shall be deemed to have been made in a commercially reasonable manner and
that Secured Party has no obligation to delay sale of any Pledged
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<PAGE> 7
Stock to permit Pledgor to register it for public sale under the Securities Act
of 1933, as amended.
11. Release of Pledged Stock. Upon the execution hereof, Pledgor shall
deliver to Secured Party, the stock certificate or certificates representing the
Pledged Stock, including Pledgor's endorsement thereon or appropriate stock
powers duly executed in blank, to be held in accordance with the terms of this
Agreement. Provided all indebtedness secured hereunder shall at the time have
been paid in full, the Pledged Stock shall be released from pledge and returned
to Pledgor upon the full and final satisfaction of Pledgor's obligations under
the Promissory Note and this Agreement.
12. Partial Release of Pledged Stock. Provided that there are no unpaid
enforcement or collection costs due and payable under the terms of the
Promissory Note, and provided further that Pledgor executes such documents,
agreements and certificates as may reasonably be required by Holder in order to
effectuate the partial release contemplated herein, a portion of the shares of
Pledged Stock shall be released from pledge and returned to Pledgor upon receipt
of a prepayment under the Promissory Note. The number of shares of Pledged Stock
to be released from pledge and returned to Pledgor shall be that number of
shares of Pledged Stock which bears the same ratio to the total number of shares
of Pledged Stock as the amount of prepayment under the Promissory Note bears to
the total of the principal and accrued interest then payable under the
Promissory Note, provided that no fractional shares shall be released from
pledge under this Paragraph 12.
13. Irrevocable Proxy and Power of Attorney. To further secure
Obligations hereunder, Pledgor grants the irrevocable proxy and power of
attorney set forth in this Section 13 to Secured Party for the purposes set
forth below. Pledgor hereby irrevocably constitutes and appoints Secured Party,
any person or entity who becomes the successor to Secured Party, or any officer
of Secured Party or such successor (the "Attorneys"), and each of the foregoing
acting singly, in each case with full power of substitution and resubstitution,
the true and lawful agent and attorney-in-fact of such Purchaser, with full
power and authority in such Purchaser's name, place and stead, to vote the
shares of Pledged Stock in favor of any corporate transaction which has
otherwise been approved by the shareholders of Secured Party and in which (i)
more than fifty percent (50%) of the outstanding shares of the common stock of
Secured Party will be acquired by a single purchaser or a group of purchasers
acting in concert, (ii) all or substantially all of the assets of Holder are
acquired by a single purchaser or group of purchasers, and (iii) Holder merges
with or into another organization; and to do and perform each and every other
act and thing whatsoever requisite, necessary or appropriate to be done to carry
out the purposes of this Paragraph 13 as fully to all intents and purposes as
Pledgor might or could do if
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<PAGE> 8
personally present, Pledgor hereby ratifying all that such attorney-in-fact
shall do or cause to be done by these presents. It is expressly understood and
intended by Pledgor that the irrevocable proxy and power of attorney granted in
this Paragraph 13 is coupled with an interest, is irrevocable and may be
delegated by said Attorneys. The irrevocable proxy and power of attorney shall
survive the death or incapacity of such Pledgor and shall continue until all
Pledged Shares have been released from pledge hereunder.
14. Voting Rights. Except as set forth in Paragraph 13 hereof, so long
as no default shall have occurred or exist under this Agreement, Secured Party
shall have no voting rights with respect to the Pledged Stock.
15. Written Notices. Pledgor agrees to promptly deliver to Secured Party
a copy of all written notices received by Pledgor with respect to the Pledged
Stock.
16. Performance by Pledgor. Upon full payment and performance of all of
the Obligations by Pledgor and upon payment of all additional costs and expenses
provided herein, this Agreement shall terminate and Secured Party shall deliver
or caused to be delivered to Pledgor (except as set forth in the Stock Purchase
Agreements or otherwise), such of the Pledged Stock as shall not have been sold
or otherwise disposed of pursuant to this Agreement.
17. Remedies. The rights and remedies provided herein are cumulative and
are in addition to, and not exclusive of, any rights or remedies provided in
other instruments and agreements between Secured Party and Pledgor, or as
provided by law, including, without limitation, the rights and remedies of a
secured party under the California Commercial Code.
18. Successors and Assigns. This Agreement is binding upon and shall
inure to the benefit of the parties hereto, and their successors and assigns.
19. Governing Law. This Agreement has been accepted and is performable
within San Diego County, California. This Agreement shall be governed and
construed in accordance with the internal laws of the State of California.
20. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given on the
third business day after mailing within the United States, postage prepaid, by
registered or certified mail, return receipt requested, addressed as follows:
-8-
<PAGE> 9
If to Pledgor: __________________
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
If to Secured Party: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Each of the parties hereto shall be entitled to specify a different address by
giving written notice to the other parties hereto in accordance with this
Section 20.
21. Entire Agreement. This Agreement and any other agreement expressly
referred to herein supersedes any and all other agreements, either oral or in
writing, among the parties hereto, with respect to the subject matter hereof and
contains all of the covenants and agreements among the parties with respect to
the subject matter hereof.
22. Waiver; Modification. No term or condition of this Agreement shall
be deemed to have been waived nor shall there be any estoppel to enforce any
provision of this Agreement except by written instrument of the party charged
with such waiver or estoppel. No amendment or modification of this Agreement
shall be deemed effective unless and until executed in writing by all of the
parties hereto.
23. Severability. All agreements and covenants contained herein are
severable and in the event that any of them shall be held to be invalid by any
court of competent jurisdiction, this Pledge Agreement shall be interpreted as
if such invalid agreements or covenants were not contained herein.
24. Delay; Time of Essence. No failure or delay by a party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, and
no single or partial exercise thereof shall preclude any other or further
exercise or the exercise of any other right, power, or privilege. Time is of the
essence of each and every provision of this Agreement of which time is an
element.
-9-
<PAGE> 10
25. Attorneys' Fees. In any action or proceeding brought to enforce or
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
PLEDGOR: SECURED PARTY:
Nanogen, Inc.
__________________________ By:___________________________
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<PAGE> 1
EXHIBIT 10.24
PROMISSORY NOTE SECURED BY
STOCK PLEDGE AGREEMENT
$_______ San Diego, California
June 30, 1995
For value received, the undersigned ("Maker") hereby promises to pay to
Nanogen, Inc., a California corporation ("Holder") at 10398 Pacific Center
Court, San Diego, California, the principal amount of ___________ ($__________),
together with interest thereon from the date hereof. Interest shall accrue at
the rate of 6.72% per annum, compounded semi-annually, provided that in no event
shall the rate of interest be less than the minimum rate required to avoid the
imputation of interest under the Internal Revenue Code.
The performance of the Maker's obligations under this Promissory Note
are secured by the pledge of shares of the common stock of Holder (the "Pledged
Shares") pursuant to the terms of that certain Stock Pledge Agreement entered
into by and between the Maker and the Holder of even date herewith (the "Stock
Pledge Agreement").
All principal and accrued interest under this Promissory Note shall be
due and payable in a lump sum on June 30, 2000.
Payment shall be made in lawful tender of the United States. Except as
otherwise provided herein or by applicable law, all payments shall be applied
first to any unpaid enforcement or collection costs, then to accrued interest
but unpaid interest, and the remainder shall be applied to principal.
This Promissory Note may be prepaid in whole or in part at any time
without premium or penalty. Partial prepayments shall not postpone or delay the
date of any subsequent payment.
Each of the following events shall constitute a default ("Default")
under this Promissory Note:
(a) The Maker's failure to pay when due any payment of principal or
interest due under this Note;
(b) The Maker's failure to perform or observe any of the terms or
conditions of the Stock Pledge Agreement;
(c) The Maker's failure to perform or observe any of the terms or
conditions of the Stock Purchase Agreement between Maker and Holder of even date
herewith;
(d) The making by the Maker of any assignment for the benefit of
creditors or the voluntary appointment (at the
<PAGE> 2
request or with the consent of the Maker) of a receiver, custodian, liquidator
or trustee in bankruptcy of any of the Maker's property, or the filing by the
Maker of a petition in bankruptcy or other similar proceeding under any law for
relief of debtors; or
(e) The filing against the Maker of a petition in bankruptcy or other
similar proceeding under any law for relief of debtors, or the involuntary
appointment of a receiver, custodian, liquidator or trustee in bankruptcy of the
property of the Maker, if such petition or appointment is not vacated or
discharged within sixty (60) calendar days after the filing or making thereof.
Upon the occurrence of any Default, the Holder may, at its option,
declare the entire unpaid principal balance and accrued interest to be
immediately due and payable, without notice to the Maker. The Maker further
understands that this is a full recourse promissory note and that the Holder
may, at its option, proceed against assets of the undersigned other than the
Pledged Stock (as defined in the Stock Pledge Agreement) under the Stock Pledge
Agreement in the event of a default.
The Maker promises to pay all costs and expenses (including reasonable
attorneys' fees) incurred by the Holder in the exercise or enforcement of any
right under this Promissory Note.
The acceptance by Holder of any payment hereunder which is less than the
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express written
consent of Holder except as and to the extent otherwise provided by law.
The Maker waives diligence, presentment, protest and demand and also
notice of protest, demand, dishonor and nonpayment of this Promissory Note, and
expressly agrees that this Promissory Note, or any payment hereunder, may be
extended from time to time and consents to the acceptance of security, if any,
or the release of security, if any, from this Promissory Note, all without in
any way affecting the liability of the Maker.
The right to plead any and all statutes of limitations as a defense to
any demand on this Promissory Note or any agreement to the same, or any
instrument securing this Promissory Note, or any and all obligations or
liabilities arising out of or in connection with this Promissory Note, is
expressly waived by the Maker to the fullest extent permitted by law.
No extension of the time for the payment of this Promissory Note, or any
installment hereof, made by agreement by the Holder hereof with any person now
or hereafter liable for the payment of this Promissory Note shall affect the
original liability
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<PAGE> 3
under the terms of this Promissory Note by the Maker even if it is not a party
to such agreement.
If Holder should institute collection efforts, of any nature whatsoever,
to attempt to collect any and all amounts due hereunder upon the default of the
Maker, the Maker shall be liable to pay to Holder immediately and without demand
all reasonable costs and expenses of collection incurred by Holder, including
without limitation reasonable attorneys fees, whether or not suit or other
action or proceeding be instituted and specifically including but not limited to
collection efforts that may be made through a bankruptcy court, and all such
sums shall be fully secured by the Pledged Stock pursuant to the Stock Pledge
Agreement.
The provisions of this Promissory Note are intended by the Maker to be
severable and divisible and the invalidity or unenforceability of a provision or
term herein shall not invalidate or render unenforceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed by and construed and interpreted
in accordance with the internal laws of the State of California.
THE "MAKER"
-------------------------------------
--------------------
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<PAGE> 4
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Agreement") is entered into as of June 30,
1995, by and between Nanogen, Inc., a California corporation ("Secured Party")
and ___________ ("Pledgor"), with reference to the following facts:
A. Contemporaneously with the execution of this Agreement and pursuant
to a certain Restricted Stock Issuance Agreement, dated June 30, 1995, by and
between Pledgor and Secured Party (the "Stock Purchase Agreement"), Pledgor is
delivering a Promissory Note Secured by Stock Pledge Agreement to Secured Party
in the original principal amount of _______________ dollars ($__________) (the
"Promissory Note"), in order to evidence a loan which Secured Party has agreed
to make to Pledgor in connection with Pledgor's purchase of shares of Secured
Party's Common Stock pursuant to the Stock Purchase Agreement.
B. Pledgor is required by the Stock Purchase Agreement to secure its
obligations under the Promissory Note by granting Secured Party a first priority
security interest in the shares of Common Stock of Secured Party being acquired
by Pledgor under the Stock Purchase Agreement, and any and all new or additional
securities of Secured Party subsequently acquired by or distributed to Pledgor.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties hereby agree as follows:
1. Security. The term "Pledged Stock" shall mean ________________
(____) shares of Common Stock of Secured Party registered in the namen of
Pledgor, together with all certificates, options, rights or other securities of
Secured Party acquired by Pledgor including any distributions issued as an
addition to, in substitution or in exchange for, or on account of, any such
shares, and all proceeds of the foregoing, as further described in and subject
to the provisions of Section 4 below, now or hereafter owned or acquired by
Pledgor, and any and all new or additional securities subsequently distributed
to Pledgor by Secured Party.
2. Grant of Security Interest. As security for full and timely
payment, performance and satisfaction of the Obligations (as defined in Section
3 below), Pledgor hereby grants to Secured Party a first priority security
interest in the Pledged Stock. Upon the execution hereof, the Pledged Stock and
any related stock powers shall be deposited with Secured Party.
3. Obligations of Pledgor. As used herein, the term "Obligations"
shall mean: (a) all of Pledgor's obligations, covenants and agreements under the
Promissory Note and (b) all
<PAGE> 5
of Pledgor's obligations, covenants and agreements under this Agreement.
4. Pledged Stock. In the event Pledgor shall become entitled to
receive or shall receive, in connection with any of the Pledged Stock, (a) any
stock certificate, including any certificate representing a stock dividend or
any certificate in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split or spin-off, (b) any option, warrant or right, whether as an
addition to or in substitution of any of the Pledged Stock, or otherwise, (c)
any dividend or distribution payable in property, including securities issued as
a dividend on the Pledged Stock, or (d) any other distributions of any kind
whatsoever, Pledgor shall accept same as encumbered by the security interest
created hereby, and shall deliver same forthwith to Secured Party in the exact
form received, including as appropriate, Pledgor's endorsement or appropriate
stock powers duly executed in blank to be held by Secured Party, as a part of
the Pledged Stock, subject to the terms hereof.
5. Representations and Warranties of Pledgor. Pledgor warrants and
represents to Secured Party that (a) Pledgor is the legal and beneficial owner
of all of the Pledged Stock, (b) all of the shares of the Pledged Stock are
owned by Pledgor free of any pledge, mortgage, lien or security interest of any
kind, except as created hereby, and (c) upon execution and delivery by Pledgor
of this Agreement and upon delivery of the Pledged Stock to Secured Party, this
Agreement shall create a valid and perfected first priority security interest in
the Pledged Stock, and the proceeds thereof, subject to no prior security
interest.
6. Transfer of Interests. Pledgor hereby covenants that, until such
time as the Obligations have been fully paid, performed and satisfied, Pledgor
will not sell, convey or otherwise dispose of any of the Pledged Stock or any
interest therein, or create, incur or permit to exist any pledge, mortgage,
lien, charge, encumbrance or any security interest whatsoever in or with respect
to any of the Pledged Stock, or the proceeds thereof, other than the security
interest created hereby.
7. Default. As used herein, the term "Default" shall have the
meaning set forth in the Promissory Note.
8. Rights of Secured Party. Upon the occurrence of a Default,
Secured Party may, at its option, do any one or more of the following: (a)
declare all indebtedness of Pledgor to Secured Party to be immediately due and
payable, whereupon all unpaid principal and interest on the Promissory Note
shall become and be immediately due and payable; (b) exercise any and all of the
rights and remedies of a secured party as provided for by the California
Commercial Code; (c) proceed by an action or actions at law or in equity to
recover the indebtedness
- 2 -
<PAGE> 6
secured hereby or to foreclose this Agreement and sell the collateral, or any
portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction; (d) proceed immediately to have any or all of the
Pledged Stock registered in Secured Party's name or in the name of a nominee;
(e) exercise all voting rights with respect to the Pledged Stock and all other
corporate rights, including any rights of conversion, exchange, subscription or
other rights, privileges or options pertaining thereto as if Secured Party were
the absolute owner thereof, including, without limitation, the right to exchange
any or all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other readjustment of Pledgor; (f) enforce one or more
remedies hereunder, successively or concurrently; and (g) proceed immediately to
dispose of and realize upon the Pledged Stock, or any part thereof, and in
connection therewith, sell or otherwise dispose of and deliver the Pledged
Stock, or any part thereof, in one or more parcels at public or private sale or
sales, at any exchange, broker's board or at any of Secured Party's offices or
elsewhere, at such prices and on such terms as Secured Party may deem best, for
cash or on credit, or for future delivery without assumption of any credit risk,
with the right of Secured Party or any purchaser to purchase at any such sale
either the whole or any part of the Pledged Stock (in connection with any such
sale or disposition, Secured Party need not give more than thirty (30) calendar
days notice of the time and place of any public sale or of the time after which
a private sale may take place, which notice Pledgor hereby acknowledges to be
reasonable).
9. Proceeds. The proceeds of any disposition of all or any part of
the Pledged Stock, as provided in Section 8 above, shall be applied as follows:
(a) first, to the costs and expenses incurred in connection therewith or
incidental thereto, including reasonable attorneys' fees and legal expenses; (b)
second, to the satisfaction of the Obligations; (c) third, to the payment of any
other amounts required by applicable law; and (d) fourth, to Pledgor to the
extent of any surplus remaining.
10. Private Sale. Pledgor recognizes and acknowledges that Secured
Party may be unable to effect a public sale of all or a part of the Pledged
Stock and may elect to resort to one or more private sales to purchasers who
will be obligated to agree, among other things, to acquire the Pledged Stock for
their own account, for investment, and not with a view to the distribution or
resale thereof. Pledgor acknowledges that any such private sales may be at
prices and on terms less favorable than those of public sales, and agrees that
such private sales shall be deemed to have been made in a commercially
reasonable manner and that Secured Party has no obligation to delay sale of any
Pledged Stock to permit Pledgor to register it for public sale under the
Securities Act of 1933, as amended.
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<PAGE> 7
11. Release of Pledged Stock. Upon the execution hereof, Pledgor
shall deliver to Secured Party, the stock certificate or certificates
representing the Pledged Stock, including Pledgor's endorsement thereon or
appropriate stock powers duly executed in blank, to be held in accordance with
the terms of this Agreement. Provided all indebtedness secured hereunder shall
at the time have been paid in full, the Pledged Stock shall be released from
pledge and returned to Pledgor upon the full and final satisfaction of Pledgor's
obligations under the Promissory Note and this Agreement.
12. Partial Release of Pledged Stock. Provided that there are no
unpaid enforcement or collection costs due and payable under the terms of the
Promissory Note, and provided further that Pledgor executes such documents,
agreements and certificates as may reasonably be required by Holder in order to
effectuate the partial release contemplated herein, a portion of the shares of
Pledged Stock shall be released from pledge and returned to Pledgor upon receipt
of a prepayment under the Promissory Note. The number of shares of Pledged Stock
to be released from pledge and returned to Pledgor shall be that number of
shares of Pledged Stock which bears the same ratio to the total number of shares
of Pledged Stock as the amount of prepayment under the Promissory Note bears to
the total of the principal and accrued interest then payable under the
Promissory Note, provided that no fractional shares shall be released from
pledge under this paragraph 12.
13. Irrevocable Proxy and Power of Attorney. To further secure
Obligations hereunder, Pledgor grants the irrevocable proxy and power of
attorney set forth in this Section 13 to Secured Party for the purposes set
forth below. Pledgor hereby irrevocably constitutes and appoints Secured Party,
any person or entity who becomes the successor to Secured Party, or any officer
of Secured Party or such successor (the "Attorneys"), and each of the foregoing
acting singly, in each case with full power of substitution and resubstitution,
the true and lawful agent and attorney-in-fact of such Purchaser, with full
power and authority in such Purchaser's name, place and stead, to vote the
shares of Pledged Stock in favor of any corporate transaction which has
otherwise been approved by the shareholders of Secured Party and in which (i)
more than fifty percent (50%) of the outstanding shares of the common stock of
Secured Party will be acquired by a single purchaser or a group of purchasers
acting in concert, (ii) all or substantially all of the assets of Holder are
acquired by a single purchaser or group of purchasers, and (iii) Holder merges
with or into another organization; and to do and perform each and every other
act and thing whatsoever requisite, necessary or appropriate to be done to carry
out the purposes of this paragraph 13 as fully to all intents and purposes as
Pledgor might or could do if personally present, Pledgor hereby ratifying all
that such attorney-in-fact shall do or cause to be done by these presents. It is
expressly understood and intended by Pledgor that the
- 4 -
<PAGE> 8
irrevocable proxy and power of attorney granted in this paragraph 13 is coupled
with an interest, is irrevocable and may be delegated by said Attorneys. The
irrevocable proxy and power of attorney shall survive the death or incapacity of
such Pledgor and shall continue until all Pledged Shares have been released from
pledge hereunder.
14. Voting Rights. Except as set forth in Paragraph 13 hereof, so
long as no default shall have occurred or exist under this Agreement, Secured
Party shall have no voting rights with respect to the Pledged Stock.
15. Written Notices. Pledgor agrees to promptly deliver to Secured
Party a copy of all written notices received by Pledgor with respect to the
Pledged Stock.
16. Performance by Pledgor. Upon full payment and performance of all
of the Obligations by Pledgor and upon payment of all additional costs and
expenses provided herein, this Agreement shall terminate and Secured Party shall
deliver or caused to be delivered to Pledgor (except as set forth in the Stock
Purchase Agreement or otherwise), such of the Pledged Stock as shall not have
been sold or otherwise disposed of pursuant to this Agreement.
17. Remedies. The rights and remedies provided herein are cumulative
and are in addition to, and not exclusive of, any rights or remedies provided in
other instruments and agreements between Secured Party and Pledgor, or as
provided by law, including, without limitation, the rights and remedies of a
secured party under the California Commercial Code.
18. Successors and Assigns. This Agreement is binding upon and shall
inure to the benefit of the parties hereto, and their successors and assigns.
19. Governing Law. This Agreement has been accepted and is
performable within San Diego County, California. This Agreement shall be
governed and construed in accordance with the internal laws of the State of
California.
20. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given on the
third business day after mailing within the United States, postage prepaid, by
registered or certified mail, return receipt requested, addressed as follows:
If to Pledgor:
-----------------------------------
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
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<PAGE> 9
If to Secured Party: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Each of the parties hereto shall be entitled to specify a different
address by giving written notice to the other parties hereto in accordance with
this Section 20.
21. Entire Agreement. This Agreement and any other agreement
expressly referred to herein supersedes any and all other agreements, either
oral or in writing, among the parties hereto, with respect to the subject matter
hereof and contains all of the covenants and agreements among the parties with
respect to the subject matter hereof.
22. Waiver: Modification. No term or condition of this Agreement
shall be deemed to have been waived nor shall there be any estoppel to enforce
any provision of this Agreement except by written instrument of the party
charged with such waiver or estoppel. No amendment or modification of this
Agreement shall be deemed effective unless and until executed in writing by all
of the parties hereto.
23. Severability. All agreements and covenants contained herein are
severable and in the event that any of them shall be held to be invalid by any
court of competent jurisdiction, this Pledge Agreement shall be interpreted as
if such invalid agreements or covenants were not contained herein.
24. Delay: Time of Essence. No failure or delay by a party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, and no single or partial exercise thereof shall preclude any other or
further exercise or the exercise of any other right, power, or privilege. Time
is of the essence of each and every provision of this Agreement of which time is
an element.
25. Attorneys' Fees. In any action or proceeding brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
PLEDGOR: SECURED PARTY:
Nanogen, Inc.
By:
- ------------------------------- -------------------------------
- 6 -
<PAGE> 1
EXHIBIT 10.25
NANOGEN, INC.
COMMON STOCK PURCHASE AGREEMENT
SECTION 1. PURCHASE OF SHARES.
THIS AGREEMENT is dated as of ___________, ____, between NANOGEN, INC.,
a Delaware corporation (the "Company"), and ___________________________________
("Purchaser").
W I T N E S S E T H:
WHEREAS, the Company desires to issue and Purchaser desires to purchase
shares of the Company as herein described, on the terms and conditions
hereinafter set forth:
NOW, THEREFORE, it is agreed between the parties as follows:
(a) Pursuant to the terms of an Incentive Stock Option Agreement ("ISO
Agreement") between Company and Purchaser dated __________, 199_, Purchaser
hereby agrees to purchase from the Company and the Company agrees to sell and
issue to Purchaser _________ shares of its common stock (the "Stock") for a
purchase price of $.__ per share payable in the following form permitted in the
ISO Agreement _______________________________. Payment shall be delivered at the
Closing, as such term is hereinafter defined.
(b) The closing hereunder (the "Closing") shall occur at the offices of
the Company on __________, ____, or such other time and place as may be
designated by the Company (the "Closing Date").
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<PAGE> 2
SECTION 2. REPURCHASE OPTION.
All shares of the Stock to be purchased by the Purchaser pursuant to
this Agreement (sometimes referred to as the "Option Stock") shall be subject to
the following option (the "Repurchase Option"):
(a) In the event the Purchaser ceases to be an employee of the Company
for any reason, with or without cause, the Company may exercise the Repurchase
Option.
(b) Purchaser understands that the Stock is being sold in order to
induce Purchaser to become and/or remain associated with the Company and to work
diligently for the success of the Company. Accordingly, the Company shall have
the right at any time within 90 days after the termination to purchase from the
Purchaser at the price per share paid by Purchaser pursuant to this Agreement
(the "Option Price"), all shares of Stock purchased hereunder less the number of
shares of Stock which have vested in accordance with the vesting criteria set
forth in the ISO Agreement.
(c) Nothing in this Agreement shall be construed as a right by Purchaser
to be employed by Company, or a parent or subsidiary of Company.
SECTION 3. EXERCISE OF REPURCHASE OPTION.
The Repurchase Option shall be exercised by written notice signed by an
officer of the Company and delivered or mailed as provided in Section 16 of this
Agreement and to the Escrow Agent
-2-
<PAGE> 3
as provided in Section 16 of the Joint Escrow Instructions attached as Exhibit B
to the ISO Agreement.
SECTION 4. WAIVER, ASSIGNMENT, EXPIRATION OF REPURCHASE OPTION.
If the Company waives or fails to exercise the Repurchase
Option as to all of the shares subject thereto, the Company may, in the
discretion of its Board of Directors, assign the Repurchase Option to any other
holder or holders of preferred or common stock of the Company in such
proportions as such Board of Directors may determine. In the event of such an
assignment, the assignee shall pay to the Company in cash an amount equal to the
fair market value of the Repurchase Option. The Company shall promptly, upon
expiration of the 90-day period referred to in Section 2 above, notify Purchaser
of the number of shares subject to the Repurchase Option assigned to such
stockholders and shall notify both the Purchaser and the assignees of the time,
place and date for settlement of such purchase, which must be made within 90
days from the date of cessation of continuous employment. In the event that the
Company and/or such assignees do not elect to exercise the Repurchase Option as
to all or part of the shares subject to it, the Repurchase Option shall expire
as to all shares which the Company and/or such assignees have not elected to
purchase.
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<PAGE> 4
SECTION 5. ESCROW OF SHARES.
(a) As security for Purchaser's faithful performance of the terms of
this Agreement and to ensure the availability for delivery of Purchaser's shares
upon exercise of the Repurchase Option herein provided for, Purchaser agrees at
the Closing hereunder, to deliver to and deposit with the Escrow Agent named in
the Joint Escrow Instructions attached to the ISO Agreement as Exhibit B, the
certificate or certificates evidencing the Option Stock and two Assignments
Separate from Certificate duly executed (with date and number of shares in
blank) in the form attached to the ISO Agreement as Exhibit D. Such documents
are to be held by the Escrow Agent and delivered by the Escrow Agent pursuant to
the Joint Escrow Instructions, which instructions shall also be delivered to the
Escrow Agent at the Closing hereunder.
(b) Within 30 days after the last day of each successive completed
calendar quarter after the Closing Date, if Purchaser so requests, the Escrow
Agent will deliver to Purchaser certificates representing so many shares of
Stock as are no longer subject to the Repurchase Option (less such shares as
have been previously delivered). Sixty days after cessation of Purchaser's
employment with the Company the Company will direct the Escrow Agent to deliver
to Purchaser a certificate or certificates representing the number of shares not
repurchased by the Company or its assignees pursuant to exercise of the
Repurchase Option (less such shares as have been previously delivered).
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<PAGE> 5
SECTION 6. ADJUSTMENT OF SHARES.
Subject to the provisions of the Certificate of Incorporation of the
Company, if, from time to time during the term of the Repurchase Option:
(a) there is any stock dividend or liquidating dividend of cash
and/or property, stock split or other change in the character or amount
of any of the outstanding securities of the Company, or
(b) there is any consolidation, merger or sale
of all or substantially all, of the assets of the
Company,
then, in such event, any and all new, substituted or additional securities or
other property to which Purchaser is entitled by reason of Purchaser's ownership
of the shares shall be immediately subject to such Repurchase Option with the
same force and effect as the shares of Option Stock from time to time subject to
the Repurchase Option. While the total Option Price shall remain the same after
each such event, the Option Price per share of Option Stock upon exercise of the
Repurchase Option shall be appropriately and equitably adjusted as determined by
the Board of Directors of the Company.
SECTION 7. THE COMPANY'S RIGHT OF FIRST REFUSAL.
Before any shares of Stock registered in the name of Purchaser and not
subject to the Repurchase Option may be sold or transferred, such shares shall
first be offered to the Company as set forth in the ISO Agreement.
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<PAGE> 6
SECTION 8. PURCHASER'S RIGHTS AFTER EXERCISE OF REPURCHASE OPTION OR RIGHT OF
FIRST REFUSAL.
If the Company makes available, at the time and place and in the amount
and form provided in this Agreement, the consideration for the Stock to be
repurchased in accordance with the provisions of Sections 2 and 7 of this
Agreement, then from and after such time the person from whom such shares are to
be repurchased shall no longer have any rights as a holder of such shares (other
than the right to receive payment of such consideration in accordance with this
Agreement). Such shares shall be deemed to have been repurchased in accordance
with the applicable provisions hereof, whether or not the certificate(s)
therefor have been delivered as required by this Agreement.
SECTION 9. TRANSFER BY PURCHASER TO CERTAIN TRUSTS.
Purchaser shall have the right to transfer all or any portion of
Purchaser's interest in the shares issued under this Agreement which have been
delivered to Purchaser under the provisions of Section 5 of this Agreement, to a
trust established by Purchaser for the benefit of Purchaser, Purchaser's spouse
or Purchaser's children, without being subject to the provisions of Section 7
hereof, provided that the trustee on behalf of the trust shall agree in writing
to be bound by the terms and conditions of this Agreement. The transferee shall
execute a copy of Exhibit C attached to the ISO Agreement and file the same with
the Secretary of the Company.
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<PAGE> 7
SECTION 10. LEGEND OF SHARES.
All certificates representing the Stock purchased under this Agreement
shall, where applicable, have endorsed thereon the legend set forth in the ISO
Agreement.
SECTION 11. PURCHASER'S INVESTMENT REPRESENTATIONS.
(a) This Agreement is made with Purchaser in reliance upon
Purchaser's representation to the Company, which by Purchaser's acceptance
hereof Purchaser confirms, that the Stock which Purchaser will receive will be
acquired with Purchaser's own funds for investment for an indefinite period for
Purchaser's own account, not as a nominee or agent, and not with a view to the
sale or distribution of any part thereof, and that Purchaser has no present
intention of selling, granting participation in, or otherwise distributing the
same, but subject, nevertheless, to any requirement of law that the disposition
of Purchaser's property shall at all times be within Purchaser's control. By
executing this Agreement, Purchaser further represents that Purchaser does not
have any contract, understanding or agreement with any person to sell, transfer,
or grant participation, to such person or to any third person, with respect to
any of the Stock.
(b) Purchaser understands that the Stock will not be registered or
qualified under federal or state securities laws on the ground that the sale
provided for in this Agreement is exempt from registration or qualification
under federal or state securities laws and that the Company's reliance on such
exemp-
-7-
<PAGE> 8
tion is predicated on Purchaser's representations set forth herein.
(c) Purchaser agrees that in no event will Purchaser make a disposition
of any of the Stock (including a disposition under Section 9 of this Agreement),
unless and until (i) Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition and (ii) Purchaser shall have
furnished the Company with an opinion of counsel satisfactory to the Company to
the effect that (A) such disposition will not require registration or
qualification of such Stock under federal or state securities laws or (B)
appropriate action necessary for compliance with the federal or state securities
laws has been taken or (iii) the Company shall have waived, expressly and in
writing, its rights under clauses (i) and (ii) of this section.
(d) In connection with the investment representations made herein,
Purchaser represents that Purchaser is able to fend for himself or herself in
the transactions contemplated by this Agreement, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of Purchaser's investment, has the ability to bear the economic
risks of Purchaser's investment and has been furnished with and has had access
to such information as would be made available in the form of a registration
statement together with such additional information as is necessary to verify
the
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<PAGE> 9
accuracy of the information supplied and to have all questions answered by the
Company.
(e) Purchaser understands that if the Company does not register with the
Securities and Exchange Commission pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or if a registration
statement covering the Stock (or a filing pursuant to the exemption from
registration under Regulation A of the Securities Act of 1933) under the
Securities Act of 1933 is not in effect when Purchaser desires to sell the
Stock, Purchaser may be required to hold the Stock for an indeterminate period.
Purchaser also acknowledges that Purchaser understands that any sale of the
Stock which might be made by Purchaser in reliance upon Rule 144 under the
Securities Act of 1933 may be made only in limited amounts in accordance with
the terms and conditions of that Rule.
SECTION 12. ASSISTANCE TO PURCHASER UNDER RULE 144.
The Company covenants and agrees that (a) at all times after it first
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, it will use its best efforts to comply with the current public
information requirements of Rule 144(c)(1) under the Securities Act of 1933, and
that if prior to becoming subject to such reporting requirements an
over-the-counter market develops for the Stock, it will make publicly available
the information required by Rule 144(c)(2); (b) it will furnish Purchaser, upon
request, with all information required for the preparation and filing of
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<PAGE> 10
Form 144; and (c) it will on a timely basis use its best efforts to file all
reports required to be filed and make all disclosures, including disclosures of
materially adverse information, required to permit Purchaser to make the
required representations in Form 144.
SECTION 13. NO DUTY TO TRANSFER IN VIOLATION HEREUNDER.
The Company shall not be required (a) to transfer on its books any
shares of Stock of the Company which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement or (b) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
SECTION 14. RIGHTS OF PURCHASER.
Except as otherwise provided herein, Purchaser shall, during the term of
this Agreement, exercise all rights and privileges of a stockholder of the
Company with respect to the Stock.
SECTION 15. OTHER NECESSARY ACTIONS.
The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
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<PAGE> 11
SECTION 16. NOTICE.
Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon the earliest of personal delivery,
receipt or the third full day following deposit in the United States Post Office
with postage and fees prepaid, addressed to the other party hereto at the
address hereinafter shown below such party's signature or at such other address
as such party may designate by 10 days' advance written notice to the other
party hereto.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of the successors and assigns
of the Company and, subject to the restrictions on transfer herein set forth, be
binding upon Purchaser and Purchaser's heirs, executors, administrators,
successors and assigns. The failure of the Company in any instance to exercise
the Repurchase Option or rights of first offer described herein shall not
constitute a waiver of any other Repurchase Option or right of first offer that
may subsequently arise under the provisions of this Agreement. No waiver of any
breach or condition of this Agreement shall be deemed to be a waiver of any
other or subsequent breach or condition, whether of a like or different nature.
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<PAGE> 12
SECTION 18. APPLICABLE LAW.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California, as such laws are applied to contracts
entered into and performed in such state.
SECTION 19. NO STATE QUALIFICATION.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS
NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY
PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100,
25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
SECTION 20. NO ORAL MODIFICATION.
No modification of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
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<PAGE> 13
SECTION 21. ENTIRE AGREEMENT.
This Agreement and the ISO Agreement constitute the entire complete and
final agreement between the parties hereto with regard to the subject matter
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
NANOGEN, INC. PURCHASER
By _________________________ _____________________________
Address: Address:
10398 Pacific Center Court
San Diego, CA 92121
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<PAGE> 14
EXHIBIT B
JOINT ESCROW INSTRUCTIONS
---------, -----
Secretary
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Dear Sir or Madam:
As Escrow Agent for both Nanogen, Inc., a Delaware Corporation (the
"Company"), and ___________________ ("Purchaser"), you are hereby authorized and
directed to hold the documents delivered to you pursuant to the terms of that
certain Common Stock Purchase Agreement (the "Agreement") of even date herewith,
to which a copy of these Joint Escrow Instructions is attached as Exhibit B to a
certain Incentive Stock Option dated ___________, 199_, ("ISO Agreement"), in
accordance with the following instructions:
1. In the event the Company shall elect to exercise the Repurchase
Option set forth in the Agreement, the Company shall give to Purchaser and you a
written notice as provided in the Agreement. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice, including prompt delivery of stock certificates.
2. At the closing, you are directed (a) to date the stock assignment
form or forms necessary for the transfer in question, (b) to fill in the number
of shares being transferred, and (c) to deliver same, together with the
certificate or certificates evidencing the shares to be transferred, to the
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<PAGE> 15
Company against the simultaneous delivery to you of the purchase price (by
Company check) for the number of shares being purchased pursuant to the exercise
of the Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares to be held by you hereunder and any additions and
substitutions to said shares as defined in the Agreement. Purchaser does hereby
irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent
for the term of this escrow to execute with respect to such securities all
documents necessary or appropriate to make such securities negotiable and to
complete any transaction herein contemplated. Subject to the provisions of this
Section 3, Purchaser shall exercise all rights and privileges, including but not
limited to, the right to vote and to receive dividends (if any), of a
stockholder of the Company while the shares are held by you.
4. In accordance with the terms of Section 5 of the Agreement, you may
from time to time deliver to Purchaser a certificate or certificates
representing so many shares as are no longer subject to the Repurchase Option.
5. This escrow shall terminate upon the release of all shares held under
the terms and provisions hereof.
6. If at the time of termination of this escrow you should have in your
possession any documents, securities or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged from all
further obligations hereunder.
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<PAGE> 16
7. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
8. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact of Purchaser while acting in good faith and
in the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
9. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
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<PAGE> 17
10. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
11. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
12. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder and may rely upon the advice of such counsel.
13. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Company or if you shall resign by written
notice of each party. In the event of any such termination, the Company shall
appoint any officer of the Company as successor Escrow Agent.
14. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
15. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree
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<PAGE> 18
or judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
16. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by 10
days' advance written notice to each of the other parties hereto.
Company: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Purchaser: Notices to Purchaser shall be sent
to the address set forth below
Purchaser's signature on the
Agreement.
Escrow Agent: ________________
Secretary
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
17. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
18. This instrument shall be governed by and construed in accordance
with the laws of the State of California.
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<PAGE> 19
19. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Very truly yours,
Nanogen, Inc.
By ___________________________
ESCROW AGENT: PURCHASER:
- -------------------------- ------------------------------
Address:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
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<PAGE> 20
EXHIBIT C
ACKNOWLEDGMENT OF AND AGREEMENT TO BE BOUND
BY THE COMMON STOCK PURCHASE AGREEMENT OF
NANOGEN, INC.
A DELAWARE CORPORATION
The undersigned, as transferee of shares of Nanogen, Inc., hereby
acknowledges that he or she has read and reviewed the terms of the Common Stock
Purchase Agreement of Nanogen, Inc., and hereby agrees to be bound by the terms
and conditions thereof, as if the undersigned had executed said Agreement as an
original party thereto.
Dated: ____________________, ____.
By ___________________________
<PAGE> 21
EXHIBIT D
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _________________________________ hereby
sells, assigns and transfers unto _________________________
________________________ (________) shares of the Common Stock of Nanogen, Inc.,
a Delaware corporation (the "Company"), standing in __________ name on the books
of the Company represented by Certificate No. ___________ herewith and hereby
irrevocably constitutes and appoints ________________ Attorney to transfer said
stock on the books of the Company with full power of substitution in the
premises.
Dated: ____________________, ____.
------------------------------
<PAGE> 22
EXHIBIT D
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _________________________________ hereby
sells, assigns and transfers unto ______________________________
________________________ (________) shares of the Common Stock of Nanogen, Inc.,
a Delaware corporation (the "Company"), standing in __________ name on the books
of the Company represented by Certificate No. ___________ herewith and hereby
irrevocably constitutes and appoints ________________ Attorney to transfer said
stock on the books of the Company with full power of substitution in the
premises.
Dated: ____________________, _____.
------------------------------
<PAGE> 1
EXHIBIT 10.26
NANOGEN, INC.
PERFORMANCE STOCK OPTION AGREEMENT
AGREEMENT made as of this ____ day of ______, 199_, by and among
Nanogen, Inc. (the "Corporation"), _____________________, an individual and an
employee of Corporation (the "Optionee") and _________________, the Optionee's
spouse.
RECITALS
A. The Board of Directors of the Corporation has determined that it is
in the best interests of the Corporation to award certain options to certain key
employees for the purpose of creating incentives for such persons to achieve
certain milestones in the development of the business of the Corporation.
B. Optionee is an employee who the Board of Directors believe is
critical to the future success of the business and to the achievement by the
Corporation of its business goals.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of
____________, the date on which this option was granted to Optionee (the "Grant
Date"), a stock option to purchase up to ________ shares of the Corporation's
Common Stock (the "Option Shares"). The Option Shares shall be purchasable at
the option price per share (the "Option Price") of $______. This option is not
intended to qualify as an incentive stock option.
2. Option Term. This option shall have a maximum term of ten years
measured from the Grant Date and shall expire at the close of business on
____________ (the "Expiration Date"), unless sooner terminated in accordance
with Paragraph 5 or 6 (the "Option Term").
3. Limited Transferability. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee, provided that this option may be assigned to a
revocable inter vivos trust established for the benefit of Optionee.
<PAGE> 2
4. Dates of Exercise. This option may be exercised in whole or in part
at any time or from time to time during the Option Term.
5. Accelerated Termination of Option Term. The Option Term specified in
Paragraph 2 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should any of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraph (ii) or (iii)
below, should Optionee cease to remain in Service while this option is
outstanding, then the period for exercising this option shall be reduced
to a three (3)-month period commencing with the date of such cessation
of Service, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such three (3)-month
period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(ii) Should Optionee die while this option is outstanding, then
the personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the law of descent and distribution shall
have the right to exercise this option. Such right shall lapse and this
option shall cease to be exercisable upon the earlier of (A) the
expiration of the twelve (12) month period measured from the date of
Optionee's death or (B) the Expiration Date. Upon the expiration of such
twelve (12) month period or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to remain in Service while this option is outstanding,
then the Optionee shall have a period of twelve (12) months (commencing
with the date of such cessation of Service) during which to exercise
this option, but in no event shall this option be exercisable at any
time after the Expiration Date. Optionee shall be deemed to be
permanently disabled if Optionee is unable to engage in any substantial
gainful activity for the Corporation or the parent or subsidiary
corporation retaining his/her services by reason of any medically
determinable physical or mental impairment, which can be expected to
result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months. Upon the
expiration of such limited period of exercisability or (if earlier) upon
the Expiration Date, this option shall terminate and cease to be
outstanding.
(iv) For purposes of this Paragraph 5 and for all other purposes
under this Agreement:
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<PAGE> 3
A. The Optionee shall be deemed to remain in Service for so long
as the Optionee continues to render periodic services to the Corporation
or any parent or subsidiary corporation, whether as an Employee, a
non-employee member of the board of directors, or an independent
contractor or consultant.
B. The Optionee shall be deemed to be an Employee of the
Corporation and to continue in the Corporation's employ for so long as
the Optionee remains in the employ of the Corporation or one or more of
its parent or subsidiary corporations, subject to the control and
direction of the employer entity as to both the work to be performed and
the manner and method of performance.
C. A corporation shall be considered to be a subsidiary
corporation of the Corporation if it is a member of an unbroken chain of
corporations beginning with the Corporation, provided each such
corporation in the chain (other than the last corporation) owns, at the
time of determination, stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
D. A corporation shall be considered to be a parent corporation
of the Corporation if it is a member of an unbroken chain ending with
the Corporation, provided each such corporation in the chain (other than
the Corporation) owns, at the time of determination, stock possessing
50% or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
6. Special Termination of Option.
A. This Option, to the extent not previously exercised, shall terminate
and cease to be exercisable upon the consummation of one or more of the
following shareholder-approved transactions (a "Corporate Transaction") unless
this Option is expressly assumed by the successor corporation or parent thereof:
(i) a merger or consolidation in which the
Corporation is not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation.
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<PAGE> 4
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the option on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.
C. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. Adjustment in Option Shares. In the event any change is made to the
Corporation's outstanding Common Stock by reason of any stock split, stock
dividend, combination of shares, exchange of shares, or other change affecting
the outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments shall be made to (i) the total number of Option Shares
subject to this option, and (ii) the Option Price payable per share in order to
reflect such change and thereby preclude a dilution or enlargement of benefits
hereunder.
8. Privilege of Stock Ownership. The holder of this option shall not
have any of the rights of a shareholder with respect to the Option Shares until
such individual shall have exercised the option and paid the Option Price.
9. Manner of Exercising Option.
A. In order to exercise this option with respect to all or any part of
the Option Shares for which this option is at the time exercisable, Optionee (or
in the case of exercise after Optionee's death, the Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions: (i) Execute and deliver to the Secretary of the Corporation a stock
purchase agreement (the "Purchase Agreement") in substantially the form attached
hereto as Exhibit A; (ii) pay the aggregate Option Price for the purchased
shares in one or more forms approved hereunder; and (iii) furnish to the
Corporation appropriate documentation that the person or persons exercising the
option, if other than Optionee, have the right to exercise this option.
B. Except as provided in subparagraph C. below, the Option Price payable
hereunder may be paid in cash.
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<PAGE> 5
C. Should the Corporation's outstanding Common Stock be registered under
Section 12(g) of the 1934 Act at the time the option is exercised, then the
Option Price may also be paid as follows:
(i) in shares of Common Stock held by the Optionee for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at fair market
value on the Exercise Date; or
(ii) through a special sale and remittance procedure pursuant to
which the Optionee is to provide irrevocable written instructions (a) to
a designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate Option Price payable for the purchased shares plus all
applicable Federal and State income and employment taxes required to be
withheld by the Corporation by reason of such purchase and (b) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to effect the sale transaction.
D. For purposes of this Agreement, the Exercise Date shall be the date
on which the executed Purchase Agreement shall have been delivered to the
Corporation, and the fair market value of a share of Common Stock on any
relevant date shall be determined in accordance with subparagraphs (i) through
(iii) below:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the Nasdaq Stock Market
or the Nasdaq National Market, the fair market value shall be the
closing selling price of one share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers through the Nasdaq Stock Market or the Nasdaq
National Market. If there is no closing selling price for the Common
Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be
determinative of fair market value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall be the
closing selling price per share of Common Stock on the date in question
on the stock exchange determined by the Corporation to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no reported
sale of Common Stock on such exchange on the date in question, then the
fair market value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
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(iii) If the Common Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the
over-the-counter market, or if the Board of Directors of the Corporation
determines that the value determined pursuant to subparagraphs (i) and
(ii) above does not accurately reflect the fair market value of the
Common Stock, then such fair market value shall be determined by the
Board of Directors of the Corporation after taking into account such
factors as the Board of Directors of the Corporation shall deem
appropriate.
E. As soon after the Exercise Date as practical, the Corporation shall
mail or deliver to Optionee, or to the other person or persons entitled thereto
in accordance with the terms of this Option or the Purchase Agreement, a
certificate or certificates representing the shares so purchased and paid for,
with the appropriate legends affixed thereto.
F. In no event may this option be exercised for any fractional shares.
10. Compliance with Laws and Regulations.
A. The exercise of this option and the issuance of Option Shares upon
such exercise shall be subject to compliance by the Corporation and the Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Corporation's Common
Stock may be listed at the time of such exercise and issuance.
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. Successors and Assigns. Except to the extent otherwise provided in
Paragraph 3, 5 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
12. REPURCHASE RIGHTS. THE OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO REPURCHASE RIGHTS
AND RIGHTS OF FIRST REFUSAL AS SET FORTH IN THE PURCHASE AGREEMENT TO BE
EXECUTED BY OPTIONEE UPON EXERCISE THIS OPTION.
13. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
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writing and addressed to Optionee at the address indicated below Optionee's
signature line. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
14. No Employment or Service Contract. Nothing in this Agreement shall
confer upon the Optionee any right to continue in the Service of the Corporation
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation or the Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee's Service at any time for any
reason whatsoever, with or without cause.
15. Governing Law. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
16. Withholding. Optionee hereby agrees to make appropriate arrangements
with the Corporation or parent or subsidiary corporation employing Optionee for
the satisfaction of all Federal, State or local income tax withholding
requirements and Federal social security employee tax requirements applicable to
the exercise of this option.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
NANOGEN, INC.
By:
---------------------------------
Title:
------------------------------
Address: 10398 Pacific Center Ct.
San Diego, CA 92121
------------------------------------
Optionee
Address:
------------------------------------
------------------------------------
The undersigned spouse of Optionee has read and hereby approves the
foregoing Performance Stock Option Agreement. In consideration of the
Corporation's granting the Optionee the right to acquire the Option Shares in
accordance with the terms of such Agreement, the undersigned hereby agrees to be
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irrevocably bound by all the terms and provisions of such Agreement.
------------------------------------
Address:
------------------------------------
------------------------------------
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<PAGE> 9
EXHIBIT A
STOCK PURCHASE AGREEMENT
<PAGE> 10
NANOGEN, INC.
STOCK PURCHASE AGREEMENT
UNDER PERFORMANCE STOCK OPTION AGREEMENT
AGREEMENT made as of this _____ day of _____________, 199_, by and among
Nanogen, Inc. (the "Corporation"), _______________ (the "Optionee") and
_____________, the Optionee's spouse.
1. EXERCISE OF OPTION.
1.1 Exercise. Optionee hereby purchases _______ shares ("Purchased
Shares") of the Corporation's common stock ("Common Stock") pursuant to that
certain option ("Option") granted Optionee on ______________ ("Grant Date") to
purchase up to _____________ shares of the Common Stock ("Total Purchasable
Shares") at an option price of $_____ per share ("Option Price").
1.2 Payment. Concurrently with the delivery of this Agreement to the
Corporate Secretary of the Corporation, Optionee shall pay the Option Price for
the Purchased Shares in accordance with the provisions of the agreement between
the Corporation and Optionee evidencing the Option (the "Option Agreement") and
shall deliver whatever additional documents may be required by the Option
Agreement as a condition for exercise, together with (if any Purchased Shares
are Unvested Shares as defined in Section 5.1 hereof) a duly-executed blank
Assignment Separate from Certificate (in the form attached hereto as Exhibit I).
1.3 Delivery of Certificates. The certificates representing any
Purchased Shares which are Unvested Shares hereunder shall be held in escrow by
the Corporate Secretary of the Corporation in accordance with the provisions of
Article 7. Certificates representing Vested Shares shall be delivered to
Optionee within a reasonable time of the date hereof.
1.4 Shareholder Rights. Until such time as the Corporation actually
exercises any repurchase right, rights of first refusal or special purchase
right under this Agreement, Optionee (or any successor in interest) shall have
all the rights of a shareholder (including voting and dividend rights) with
respect to the Purchased Shares, including the Purchased Shares held in escrow
under Article 7, subject, however, to the transfer restrictions of Article 4.
2. SECURITIES LAW COMPLIANCE.
2.1 Purchase Entirely for Own Account. This Agreement is made with
Participant in reliance upon Participant's representation to the Corporation,
which by Participant's
<PAGE> 11
execution of this Agreement Participant hereby confirms, that the Shares are
being acquired for investment for Participant's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that Participant has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Participant further represents that Participant does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares. Participant represents that he has full power and
authority to enter into this Agreement.
2.2 Exemption from Registration. The Purchased Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
are accordingly being issued to Optionee in reliance upon the exemption from
such registration provided by Rule 701 of the Securities and Exchange Commission
for stock issuances under written compensatory agreements.
2.3 Restricted Securities.
A. Optionee hereby confirms that Optionee has been informed that the
Purchased Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless the Purchased Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Optionee hereby acknowledges that Optionee is prepared
to hold the Purchased Shares for an indefinite period and that Optionee is aware
that Rule 144 of the Securities and Exchange Commission issued under the 1933
Act is not presently available to exempt the sale of the Purchased Shares from
the registration requirements of the 1933 Act.
B. Upon the expiration of the ninety (90)-day period immediately
following the date on which the Corporation first becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Purchased Shares, to the extent vested under Article 5, may
be sold (without registration) pursuant to the applicable requirements of Rule
144. If Optionee is at the time of such sale an affiliate of the Corporation for
purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the one (1)-year holding period requirement
of the Rule will not be applicable. If Optionee is not at the time of the sale
an affiliate of the Corporation nor was such an affiliate during the preceding
three (3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Purchased Shares held for less than two
(2) years following
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payment in cash of the Option Price therefor) will be applicable to the sale.
C. Should the Corporation not become subject to the reporting
requirements of the Exchange Act, then Optionee may, provided he/she is not at
the time an affiliate of the Corporation (nor was such an affiliate during the
preceding three (3) months), sell the Purchased Shares (without registration)
pursuant to paragraph (k) of Rule 144 after the Purchased Shares have been held
for a period of two (2) years following the payment in cash of the Option Price
for such shares.
2.4 Disposition of Shares. Optionee hereby agrees that Optionee shall
make no disposition of the Purchased Shares (other than a permitted transfer
under paragraph 4.1) unless and until there is compliance with all of the
following requirements:
(a) Optionee shall have notified the Corporation of the proposed
disposition and provided a summary of the terms and conditions of the
proposed disposition.
(b) Optionee shall have completed and provided to the Corporation
a written statement, on a form to be prepared and provided by the
Corporation at the Corporation's sole cost, that Optionee is in
compliance with all requirements of this Agreement applicable to the
disposition of the Purchased Shares.
(c) Optionee shall have provided the Corporation with a written
statement, on a form to be prepared and provided by the Corporation at
the Corporation's sole cost, that, to the best of Optionee's knowledge
and belief, (i) the proposed disposition does not require registration
of the Purchased Shares under the 1933 Act or (ii) all appropriate
action necessary for compliance with the registration requirements of
the 1933 Act or of any exemption from registration available under the
1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books any
Purchased Shares which have been sold or transferred in violation of the
provisions of this Article 2 nor (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee to
whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.5 Restrictive Legends. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with restrictive legends, including one or more of the
following legends:
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(i) "The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
(ii) "The shares represented by this certificate are unvested and
accordingly may not be sold, assigned, transferred, encumbered, or in any manner
disposed of except in conformity with the terms of a written agreement dated
__________________, 199_ between the Corporation and the registered holder of
the shares (or the predecessor in interest to the shares). Such agreement grants
certain repurchase rights and rights of first refusal to the Corporation (or its
assignees) upon the sale, assignment, transfer, encumbrance or other disposition
of the Corporation's shares or upon termination of service with the Corporation.
The Corporation will upon written request furnish a copy of such agreement to
the holder hereof without charge."
3. SPECIAL TAX ELECTION.
3.1 Section 83(b) Election. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S
SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S TO TIMELY FILE ANY ELECTION WHICH
OPTIONEE DETERMINES TO BE APPROPRIATE UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS/HER
BEHALF. An appropriate form for filing a Section 83(b) election is attached
hereto as Exhibit II. Such filing must be made within 30-days of the purchase of
the Purchased Shares, should be made by registered or certified mail, return
receipt requested, and Optionee must retain two (2) copies of the completed form
for filing with his or her State and Federal tax returns for the current tax
year and an additional copy for his or her records.
4. TRANSFER RESTRICTIONS.
4.1 Restriction on Transfer. Optionee shall not transfer, assign,
encumber or otherwise dispose of any of the Purchased Shares which are subject
to the Corporation's Repurchase Right under Article 5. In addition, Purchased
Shares which are released from the Repurchase Right shall not be transferred,
assigned, encumbered or otherwise made the subject of disposition in
contravention of the Corporation's First Refusal Right under Article 6. Such
restrictions on transfer, however, shall not be applicable to (i) a gratuitous
transfer of the Purchased Shares made to the Optionee's spouse or issue,
including adopted children, or to a trust for the exclusive benefit of the
Optionee or the Optionee's spouse or issue, provided and only if the Optionee
obtains the Corporation's
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<PAGE> 14
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to the Optionee's will or the laws of
intestate succession or (iii) a transfer to the Corporation in pledge as
security for any purchase money indebtedness incurred by the Optionee in
connection with the acquisition of the Purchased Shares.
4.2 Transferee Obligations. Each person (other than the Corporation) to
whom the Purchased Shares are transferred by means of one of the permitted
transfers specified in paragraph 4.1 must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Corporation that such
person is bound by the provisions of this Agreement and that the transferred
shares are subject to (i) both the Corporation's Repurchase Right and the
Corporation's First Refusal Right granted hereunder and (ii) the market
stand-off provisions of paragraph 4.4, to the same extent such shares would be
so subject if retained by the Optionee.
4.3 Definition of Owner. For purposes of Articles 4, 5, 6 and 7 of this
Agreement, the term "Owner" shall include the Optionee and all subsequent
holders of the Purchased Shares who derive their chain of ownership through a
permitted transfer from the Optionee in accordance with paragraph 4.1.
4.4 Market Stand-Off Provisions.
A. In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such limitations shall be in effect for such
period of time from and after the effective date of such registration statement
as may be requested by the Corporation or such underwriters; provided, however,
that in no event shall such period exceed one hundred-eighty (180) days. The
limitations of this paragraph 4.4 shall remain in effect for the two-year period
immediately following the effective date of the Corporation's initial public
offering and shall thereafter terminate and cease to have any force or effect.
B. Owner shall be subject to the market stand-off provisions of this
paragraph 4.4 provided and only if the officers and directors of the Corporation
are also subject to similar arrangements.
C. In the event of any stock dividend, stock split, recapitalization or
other change affecting the Corporation's outstanding Common Stock effected as a
class without receipt of
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<PAGE> 15
consideration, then any new, substituted or additional securities distributed
with respect to the Purchased Shares shall be immediately subject to the
provisions of this paragraph 4.4, to the same extent the Purchased Shares are at
such time covered by such provisions.
D. In order to enforce the limitations of this paragraph 4.4, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
5. REPURCHASE RIGHT.
5.1 Grant. The Corporation is hereby granted the right (the "Repurchase
Right"), exercisable at any time during the sixty (60)-day period following the
date the Optionee ceases for any reason to remain in Service or (if later)
during the sixty (60)-day period following the execution date of this Agreement,
to repurchase at the Option Price all or (at the discretion of the Corporation
and with the consent of the Optionee) any portion of the Purchased Shares in
which the Optionee has not acquired a vested interest, if any, in accordance
with the vesting provisions of paragraph 5.3 (such shares to be herein referred
to as "Unvested Shares"). For purposes of this Agreement, the Optionee shall be
deemed to remain in Service for so long as the Optionee continues to render
periodic services to the Corporation or any parent or subsidiary corporation,
whether as an employee, a non-employee member of the board of directors, or an
independent contractor or consultant.
5.2 Exercise of the Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one or
more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with paragraph 7.3 or from Owner as herein
provided), pay to Owner in cash or cash equivalents (including the cancellation
of any purchase-money indebtedness), an amount equal to the Option Price
previously paid for the Unvested Shares which are to be repurchased.
5.3 Termination of the Repurchase Right. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under paragraph 5.2.
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<PAGE> 16
In addition, the Total Purchasable Shares shall vest on ______________
(the "Employment Vesting Date"), provided that Optionee has remained in Service
to the Corporation at all times from and after the Grant Date through the
Employment Vesting Date.
Notwithstanding the above, vesting of a portion of the Total Purchasable
Shares shall be accelerated upon the attainment of the "Objectives" set forth in
Exhibit III in accordance with the weighted percentage of the Total Purchasable
Shares for each Objective also set forth in Exhibit III.
All Purchased Shares as to which the Repurchase Right lapses shall,
however, continue to be subject to (i) the First Refusal Right of the
Corporation and its assignees under Article 6, (ii) the market stand-off
provisions of paragraph 4.4 and (iii) the Special Purchase Right under Article
8.
5.4 Aggregate Vesting Limitation. If the Option is exercised in more
than one increment so that the Optionee is a party to one or more other Stock
Purchase Agreements ("Prior Purchase Agreements") which are executed prior to
the date of this Agreement, then the total number of Purchased Shares as to
which the Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which the Optionee would otherwise at the time
be vested, in accordance with the vesting provisions of paragraph 5.3, had all
the Purchased Shares been acquired exclusively under this Agreement.
5.5 Fractional Shares. No fractional shares shall be repurchased by the
Corporation. Accordingly, should the Repurchase Right extend to a fractional
share (in accordance with the vesting provisions of paragraph 5.3) at the time
the Optionee ceases Service, then such fractional share shall be added to any
fractional share in which the Optionee is at such time vested in order to make
one whole vested share no longer subject to the Repurchase Right.
5.6 Additional Shares or Substituted Securities. In the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased
Shares shall be immediately subject to the Repurchase Right, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number of Purchased Shares and Total Purchasable Shares hereunder
and to the price per share to be paid upon the exercise of the Repurchase Right
in order to
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<PAGE> 17
reflect the effect of any such transaction upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
same.
5.7 Corporate Transaction.
A. Immediately prior to the consummation of any of the following
shareholder-approved transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which the
Corporation is not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation,
the Repurchase Right shall automatically lapse in its entirety except to the
extent the Repurchase Right is to be assigned to the successor corporation (or
its parent company) in connection with such Corporate Transaction.
B. To the extent the Repurchase Right remains in effect following such
Corporate Transaction, such right shall apply to the new capital stock or other
property (including cash) received in exchange for the Purchased Shares in
consummation of the Corporate Transaction, but only to the extent the Purchased
Shares are at the time covered by such right. Appropriate adjustments shall be
made to the price per share payable upon exercise of the Repurchase Right to
reflect the effect of the Corporate Transaction upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
same.
C. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
6. RIGHT OF FIRST REFUSAL.
6.1 Grant. The Corporation is hereby granted rights of first refusal
(the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which the Optionee has vested in accordance
with the vesting provisions of Article 5. For purposes of this Article 6, the
term "transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Purchased
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<PAGE> 18
Shares intended to be made by the Owner, but shall not include any of the
permitted transfers under paragraph 4.1.
6.2 Notice of Intended Disposition. In the event the Owner desires to
accept a bona fide third-party offer for the transfer of any or all of the
Purchased Shares (the shares subject to such offer to be hereinafter called the
"Target Shares"), Owner shall promptly (i) deliver to the Corporate Secretary of
the Corporation written notice (the "Disposition Notice") of the terms and
conditions of the offer, including the purchase price and the identity of the
third-party offeror, and (ii) provide satisfactory proof that the disposition of
the Target Shares to such third-party offeror would not be in contravention of
the provisions set forth in Articles 2 and 4 of this Agreement.
6.3 Exercise of Right. The Corporation shall, for a period of forty-five
(45) days following receipt of the Disposition Notice, have the right to
repurchase any or all of the Target Shares specified in the Disposition Notice
upon the same terms and conditions specified therein or upon terms and
conditions which do not materially vary from those specified therein. Such right
shall be exercisable by delivery of written notice (the "Exercise Notice") to
Owner prior to the expiration of the forty-five (45)-day exercise period. If
such right is exercised with respect to all the Target Shares specified in the
Disposition Notice, then the Corporation (or its assignees) shall effect the
repurchase of the Target Shares, including payment of the purchase price, not
more than ten (10) business days after delivery of the Exercise Notice; and at
such time Owner shall deliver to the Corporation the certificates representing
the Target Shares to be repurchased, each certificate to be properly endorsed
for transfer. To the extent any of the Target Shares are at the time held in
escrow under Article 7, the certificates for such shares shall automatically be
released from escrow and delivered to the Corporation for purchase. Should the
purchase price specified in the Disposition Notice be payable in property other
than cash or evidences of indebtedness, the Corporation (or its assignees) shall
have the right to pay the purchase price in the form of cash equal in amount to
the value of such property. If the Owner and the Corporation (or its assignees)
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by the Corporation (or its assignees) within
(20) days after the Corporation's receipt of the Disposition Notice, whose
appraisal shall be determinative of such value. The cost of such appraisal shall
be paid entirely by the Corporation. The closing shall then be held on the later
of (i) the tenth business day following delivery of the Exercise Notice or (ii)
the tenth business day after such cash valuation shall have been made.
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6.4 Non-Exercise of Right. In the event the Exercise Notice is not given
to Owner within forty-five (45) days following the date of the Corporation's
receipt of the Disposition Notice, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms and
conditions (including the purchase price) no more favorable to such third-party
offeror than those specified in the Disposition Notice; provided, however, that
any such sale or disposition must not be effected in contravention of the
provisions of Article 2 of this Agreement. To the extent any of the Target
Shares are at the time held in escrow under Article 7, the certificates for such
shares shall automatically be released from escrow and surrendered to the Owner.
The third-party offeror shall acquire the Target Shares free and clear of the
Corporation's Repurchase Right under Article 5 and the Corporation's First
Refusal Right hereunder, but the acquired shares shall remain subject to (i) the
securities law restrictions of Article 2 and (ii) the market stand-off
provisions of paragraph 4.4. In the event Owner does not effect such sale or
disposition of the Target Shares within the specified thirty (30)-day period,
the Corporation's First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses in
accordance with paragraph 6.7.
6.5 Partial Exercise of Right. In the event the Corporation (or its
assignees) makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within thirty (30) days after the date of the Disposition Notice, to
effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) to elect not to sell any shares to the Corporation pursuant
to the First Refusal Right, but to instead sell all the Target Shares to
the third-party offeror identified in the Disposition Notice (which sale
shall otherwise be in full compliance with the requirements of paragraph
6.4 as if the Corporation did not offer to exercise the First Refusal
Right with respect to any of the Target Shares); or
(ii) sale to the Corporation (or its assignees) of the portion of
the Target Shares which the Corporation (or its assignees) has elected
to purchase, such sale to be effected in substantial conformity with the
provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the Corporation under
this paragraph 6.5 shall be deemed to be an election by Owner to sell the Target
Shares pursuant to alternative (i) above.
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6.6 Recapitalization/Merger.
A. In the event of any stock dividend, stock split, recapitalization or
other transaction affecting the Corporation's outstanding Common Stock as a
class effected without receipt of consideration, then any new, substituted or
additional securities or other property which is by reason of such transaction
distributed with respect to the Purchased Shares shall be immediately subject to
the Corporation's First Refusal Right hereunder, but only to the extent the
Purchased Shares are at the time covered by such right.
B. In the event of any of the following transactions:
(i) a merger or consolidation in which the
Corporation is not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to person or persons other than those
who held such securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the State in
which the Corporation is incorporated, or to create a holding company
structure,
the Corporation's First Refusal Right shall remain in full force and effect and
shall apply to the new capital stock or other property received in exchange for
the Purchased Shares in consummation of the transaction but only to the extent
the Purchased Shares are at the time covered by such right.
6.7 Lapse. The First Refusal Right under this Article 6 shall lapse and
cease to have effect upon the earliest to occur of (i) the first date on which
shares of the Corporation's Common Stock are held of record by more than five
hundred (500) persons, (ii) a determination is made by the Corporation's Board
of Directors that a public market exists for the outstanding shares of the
Corporation's Common Stock, or (iii) a firm commitment underwritten public
offering pursuant to an effective registration statement under the 1933 Act,
covering the offer and sale of the Corporation's Common Stock in the aggregate
amount of at least $5,000,000. However, the market stand-off provisions of
paragraph 4.4 shall continue to remain in full force and effect following the
lapse of the First Refusal Right hereunder.
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<PAGE> 21
7. ESCROW.
7.1 Deposit. Upon issuance, the certificates for any Unvested Shares
purchased hereunder shall be deposited in escrow with the Corporate Secretary of
the Corporation to be held in accordance with the provisions of this Article 7.
Each deposited certificate shall be accompanied by a duly-executed Assignment
Separate from Certificate in the form of Exhibit I. The deposited certificates,
together with any other assets or securities from time to time deposited with
the Corporate Secretary pursuant to the requirements of this Agreement, shall
remain in escrow until such time or times as the certificates (or other assets
and securities) are to be released or otherwise surrendered for cancellation in
accordance with paragraph 7.3. Upon delivery of the certificates (or other
assets and securities) to the Corporate Secretary of the Corporation, the Owner
shall be issued an instrument of deposit acknowledging the number of Unvested
Shares (or other assets and securities) delivered in escrow.
7.2 Recapitalization. All regular cash dividends on the Unvested Shares
(or other securities at the time held in escrow) shall be paid directly to the
Owner and shall not be held in escrow. However, in the event of any stock
dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Unvested Shares shall be immediately
delivered to the Corporate Secretary to be held in escrow under this Article 7,
but only to the extent the Unvested Shares are at the time subject to the escrow
requirements of paragraph 7.1.
7.3 Release/Surrender. The Unvested Shares, together with any other
assets or securities held in escrow hereunder, shall be subject to the following
terms and conditions relating to their release from escrow or their surrender to
the Corporation for repurchase and cancellation:
(i) Should the Corporation (or its assignees) elect to exercise
the Repurchase Right under Article 5 with respect to any Unvested
Shares, then the escrowed certificates for such Unvested Shares
(together with any other assets or securities issued with respect
thereto) shall be delivered to the Corporation concurrently with the
payment to the Owner, in cash or cash equivalent (including the
cancellation of any purchase-money indebtedness), of an amount equal to
the aggregate Option Price for such Unvested Shares, and the Owner shall
cease to have any further rights or claims with respect to such Unvested
Shares (or other assets or securities attributable to such Unvested
Shares).
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<PAGE> 22
(ii) Should the Corporation (or its assignees) elect to exercise
its First Refusal Right under Article 6 with respect to any vested
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall, concurrently with the payment of
the paragraph 6.3 purchase price for such Target Shares to the Owner, be
surrendered to the Corporation, and the Owner shall cease to have any
further rights or claims with respect to such Target Shares (or other
assets or securities).
(iii) Should the Corporation (or its assignees) elect not to
exercise its First Refusal Right under Article 6 with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with provisions of paragraph 6.4.
(iv) As the interest of the Optionee in the Unvested Shares (or
any other assets or securities attributable thereto) vests in accordance
with the provisions of Article 5, the certificates for such vested
shares (as well as all other vested assets and securities) shall be
released from escrow and delivered to the Owner in accordance with the
following schedule:
a. The initial release of vested shares (or other vested
assets and securities) from escrow shall be effected within
thirty (30) days following the expiration of the initial twelve
(12)-month period measured from the Grant Date.
b. Subsequent releases of vested shares (or other vested
assets and securities) from escrow shall be effected at
semi-annual intervals thereafter, with the first such semi-annual
release to occur eighteen (18) months after the Grant Date.
c. Upon the Optionee's cessation of Service, any escrowed
Purchased Shares (or other assets or securities) in which the
Optionee is at the time vested shall be promptly released from
escrow.
d. Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article 5, any Purchased Shares (or other assets or securities)
at the time held in escrow hereunder shall promptly be released
to the Owner as fully vested shares or other property.
(v) All Purchased Shares (or other assets or securities) released
from escrow in accordance with the
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<PAGE> 23
provisions of subparagraph (iv) above shall nevertheless remain subject
to (I) the Corporation's First Refusal Right under Article 6 until such
right lapses pursuant to paragraph 6.7, (II) the market stand-off
provisions of paragraph 4.4 until such provisions terminate in
accordance therewith and (III) the Special Purchase Right under Article
8.
8. MARITAL DISSOLUTION OR LEGAL SEPARATION.
8.1 Grant. In connection with the dissolution of the Optionee's marriage
or the legal separation of the Optionee and the Optionee's spouse, the
Corporation shall have the right (the "Special Purchase Right"), exercisable at
any time during the thirty (30)-day period following the Corporation's receipt
of the required Dissolution Notice under paragraph 8.2, to purchase from the
Optionee's spouse, in accordance with the provisions of paragraph 8.3, all or
any portion of the Purchased Shares which would otherwise be awarded to such
spouse in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.2 Notice of Decree or Agreement. The Optionee shall promptly provide
the Secretary of the Corporation with written notice (the "Dissolution Notice")
of (i) the entry of any judicial decree or order resolving the property rights
of the Optionee and the Optionee's spouse in connection with their marital
dissolution or legal separation or (ii) the execution of any contract or
agreement relating to the distribution or division of such property rights. The
Dissolution Notice shall be accompanied by a copy of the actual decree of
dissolution or settlement agreement between the Optionee and the Optionee's
spouse which provides for the award to the spouse of one or more Purchased
Shares in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.3 Exercise of Special Purchase Right. The price at which the Special
Purchase Right shall be exercisable by the Corporation will be the higher of the
Option Price as set forth in Section 1.1 hereof or the fair market value of the
shares as of the date the Special Purchase Right is exercised. The right shall
be exercised by delivery of written notice (the "Purchase Notice") to the
Optionee and the Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date such
purchase is to be effected (such date to be not less than five (5) business
days, nor more than ten (10) business days, after the date of the Purchase
Notice), and the price to be paid for such Purchased Shares. The Optionee (or
the Optionee's spouse, to the extent such spouse has physical possession of the
Purchased Shares) shall, prior to the close of business on the date specified
for the purchase, deliver to the Corporate Secretary
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<PAGE> 24
of the Corporation the certificates representing the shares to be purchased,
each certificate to be properly endorsed for transfer. To the extent any of the
shares to be purchased by the Corporation are at the time held in escrow under
Article 7, the certificates for such shares shall be promptly delivered out of
escrow to the Corporation. The Corporation shall, concurrently with the receipt
of the stock certificates, pay to the Optionee's spouse (in cash or cash
equivalents) an amount equal to the price to be paid for such shares as
specified in the Purchase Notice.
If the Optionee's spouse does not agree with the Corporation's
determination of the fair market value of the shares, then the spouse shall
promptly notify the Corporation in writing of such disagreement and the fair
market value of such shares shall thereupon be determined by an appraiser of
recognized standing selected by the Corporation whose appraisal shall be
determinative of such value. The cost of the appraisal shall be borne entirely
by the Corporation. The closing shall then be held on the fifth business day
following the completion of such appraisal; provided, however, that if the
appraised value is more than fifteen percent (15%) greater than the fair market
value specified for the shares in the Purchase Notice, the Corporation shall
have the right, exercisable prior to the expiration of such five
(5)-business-day period, to rescind the exercise of the Special Purchase Right
and thereby revoke its election to purchase the shares awarded to the spouse.
8.4 Lapse. The Special Purchase Right under this Article 8 shall lapse
and cease to have effect upon the earlier to occur of (i) the first date on
which the First Refusal Right under Article 6 lapses or (ii) the expiration of
the thirty (30)-day exercise period specified in paragraph 8.3, to the extent
the Special Purchase Right is not timely exercised in accordance with such
paragraph.
9. GENERAL PROVISIONS.
9.1 Assignment. The Corporation may assign its Repurchase Right under
Article 5, its First Refusal Right under Article 6 and/or its Special Purchase
Right under Article 8 to any person or entity selected by the Corporation's
Board of Directors, including (without limitation) one or more shareholders of
the Corporation.
If the assignee of the Repurchase Right is other than a one hundred
percent (100%) owned subsidiary corporation of the Corporation or the parent
corporation owning one hundred percent (100%) of the Corporation, then such
assignee must make a cash payment to the Corporation, upon the assignment of the
Repurchase Right, in an amount equal to the excess (if any) of (i) the fair
market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Unvested Shares thereunder.
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<PAGE> 25
9.2 Definitions. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation shall be considered to
be a parent corporation of the Corporation, provided each such
corporation in the unbroken chain (other than the Corporation) owns, at
the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
(ii) Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered
to be a subsidiary of the Corporation, provided each such corporation
(other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
9.3 No Employment or Service Contract. Nothing in this Agreement shall
confer upon the Optionee any right to continue in the Service of the Corporation
(or any parent or subsidiary corporation of the Corporation employing or
retaining Optionee) for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any parent or
subsidiary corporation of the Corporation employing or retaining Optionee) or
the Optionee, which rights are hereby expressly reserved by each, to terminate
the Optionee's Service at any time for any reason whatsoever, with or without
cause.
9.4 Notices. Any notice required in connection with (i) the Repurchase
Right, the Special Purchase Right or the First Refusal Right or (ii) the
disposition of any Purchased Shares covered thereby shall be given in writing
and shall be deemed effective upon personal delivery or upon deposit in the
United States mail, registered or certified, postage prepaid and addressed to
the party entitled to such notice at the address indicated below such party's
signature line on this Agreement or at such other address as such party may
designate by ten (10) days advance written notice under this paragraph 9.4 to
all other parties to this Agreement.
9.5 No Waiver. The failure of the Corporation (or its assignees) in any
instance to exercise the Repurchase Right granted under Article 5, or the
failure of the Corporation (or its assignees) in any instance to exercise the
First Refusal Right granted under Article 6, or the failure of the Corporation
(or its assignees) in any instance to exercise the Special Purchase Right
granted under Article 8 shall not constitute a
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<PAGE> 26
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and the Optionee or the Optionee's spouse. No waiver of
any breach or condition of this Agreement shall be deemed to be a waiver of any
other or subsequent breach or condition, whether of like or different nature.
9.6 Cancellation of Shares. If the Corporation (or its assignees) shall
make available, at the time and place and in the amount and form provided in
this Agreement, the consideration for the Purchased Shares to he repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement), and such shares shall be
deemed purchased in accordance with the applicable provisions hereof and the
Corporation (or its assignees) shall be deemed the owner and holder of such
shares, whether or not the certificates therefor have been delivered as required
by this Agreement.
10. MISCELLANEOUS PROVISIONS.
10.1 Optionee Undertaking. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
10.2 Agreement is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof.
10.3 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California, as such laws are
applied to contracts entered into and performed in such State without resort to
that State's conflict-of-laws rules.
10.4 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
10.5 Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this
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<PAGE> 27
Agreement and have agreed in writing to join herein and be bound by the terms
and conditions hereof.
10.6 Power of Attorney. Optionee's spouse hereby appoints Optionee his
or her true and lawful attorney in fact, for him or her and in his or her name,
place and stead, and for his or her use and benefit, to agree to any amendment
or modification of this Agreement and to execute such further instruments and
take such further actions as may reasonably be necessary to carry out the intent
of this Agreement. Optionee's spouse further gives and grants unto Optionee as
his or her attorney in fact full power and authority to do and perform every act
necessary and proper to be done in the exercise of any of the foregoing powers
as fully as he or she might or could do if personally present, with full power
of substitution and revocation, hereby ratifying and confirming all that
Optionee shall lawfully do and cause to be done by virtue of this power of
attorney.
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
NANOGEN, INC.
By:
---------------------------------
Title:
------------------------------
Address: 10398 Pacific Center Ct.
San Diego, CA 92121
------------------------------------
Optionee
Address:
------------------------------------
------------------------------------
The undersigned spouse of Optionee has read and hereby approves the
foregoing Performance Stock Option Agreement. In consideration of the
Corporation's granting the Optionee the right to acquire the Option Shares in
accordance with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms and provisions of such Agreement.
------------------------------------
Address:
------------------------------------
------------------------------------
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<PAGE> 29
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _________________________ hereby sell(s), assign(s)
and transfer(s) unto Nanogen, Inc. (the "Corporation"),
_____________________________ (_______) shares of the Common Stock of the
Corporation standing in his\her name on the books of the Corporation represented
by Certificate No. __________ and do hereby irrevocably constitute and appoint
_________________________________ as Attorney to transfer the said stock on the
books of the Corporation with full power of substitution in the premises.
Dated:_____________________
Signature
----------------------------------
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Corporation to exercise its
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Optionee.
EXHIBIT I-1
<PAGE> 30
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue
Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:________________________________________________________________
Taxpayer Ident. No.:____________________________________________________
(2) The property with respect to which the election is being made is ______
shares of the common stock of Nanogen, Inc.
(3) The property was issued on _____________________, 19__.
(4) The taxable year in which the election is being made is the calendar
year 19_.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of annual
and monthly installments over a four (4) year period ending on
___________________________________________________.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $_________ per share.
(7) The amount paid for such property is $_________ per share.
(8) A copy of this statement was furnished to Nanogen, Inc. for whom
taxpayer rendered the service underlying the transfer of property.
(9) This statement is executed as of: __________________, 19_.
- ---------------------------------
Spouse (if any)
Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Restricted Stock Issuance
Agreement.
EXHIBIT II-1
<PAGE> 31
NANOGEN, INC.
PERFORMANCE STOCK OPTION AGREEMENT
AGREEMENT made as of this ____ day of ______, 1997, by and among
Nanogen, Inc. (the "Corporation"), _______________, an individual and an
employee of Corporation (the "Optionee") and _________________, the Optionee's
spouse.
RECITALS
A. The Board of Directors of the Corporation has determined that it is
in the best interests of the Corporation to award certain options to certain key
employees for the purpose of creating incentives for such persons to achieve
certain milestones in the development of the business of the Corporation.
B. Optionee is an employee who the Board of Directors believe is
critical to the future success of the business and to the achievement by the
Corporation of its business goals.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of
______________, the date on which this option was granted to Optionee (the
"Grant Date"), a stock option to purchase up to __________ shares of the
Corporation's Common Stock (the "Option Shares"). The Option Shares shall be
purchasable at the option price per share (the "Option Price") of $______. This
option is not intended to qualify as an incentive stock option.
2. Option Term. This option shall have a maximum term of ten years
measured from the Grant Date and shall expire at the close of business on
_________________ (the "Expiration Date"), unless sooner terminated in
accordance with Paragraph 5 or 6 (the "Option Term").
3. Limited Transferability. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee, provided that this option may be assigned to a
revocable inter vivos trust established for the benefit of Optionee.
<PAGE> 32
4. Dates of Exercise. This option may be exercised in whole or in part
at any time or from time to time during the Option Term.
5. Accelerated Termination of Option Term. The Option Term specified in
Paragraph 2 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should any of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraph (ii) or (iii)
below, should Optionee cease to remain in Service while this option is
outstanding, then the period for exercising this option shall be reduced
to a three (3)-month period commencing with the date of such cessation
of Service, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such three (3)-month
period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(ii) Should Optionee die while this option is outstanding, then
the personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the law of descent and distribution shall
have the right to exercise this option. Such right shall lapse and this
option shall cease to be exercisable upon the earlier of (A) the
expiration of the twelve (12) month period measured from the date of
Optionee's death or (B) the Expiration Date. Upon the expiration of such
twelve (12) month period or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to remain in Service while this option is outstanding,
then the Optionee shall have a period of twelve (12) months (commencing
with the date of such cessation of Service) during which to exercise
this option, but in no event shall this option be exercisable at any
time after the Expiration Date. Optionee shall be deemed to be
permanently disabled if Optionee is unable to engage in any substantial
gainful activity for the Corporation or the parent or subsidiary
corporation retaining his/her services by reason of any medically
determinable physical or mental impairment, which can be expected to
result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months. Upon the
expiration of such limited period of exercisability or (if earlier) upon
the Expiration Date, this option shall terminate and cease to be
outstanding.
(iv) For purposes of this Paragraph 5 and for all other purposes
under this Agreement:
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<PAGE> 33
A. The Optionee shall be deemed to remain in Service for so long
as the Optionee continues to render periodic services to the Corporation
or any parent or subsidiary corporation, whether as an Employee, a
non-employee member of the board of directors, or an independent
contractor or consultant.
B. The Optionee shall be deemed to be an Employee of the
Corporation and to continue in the Corporation's employ for so long as
the Optionee remains in the employ of the Corporation or one or more of
its parent or subsidiary corporations, subject to the control and
direction of the employer entity as to both the work to be performed and
the manner and method of performance.
C. A corporation shall be considered to be a subsidiary
corporation of the Corporation if it is a member of an unbroken chain of
corporations beginning with the Corporation, provided each such
corporation in the chain (other than the last corporation) owns, at the
time of determination, stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
D. A corporation shall be considered to be a parent corporation
of the Corporation if it is a member of an unbroken chain ending with
the Corporation, provided each such corporation in the chain (other than
the Corporation) owns, at the time of determination, stock possessing
50% or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
6. Special Termination of Option.
A. This Option, to the extent not previously exercised, shall terminate
and cease to be exercisable upon the consummation of one or more of the
following shareholder-approved transactions (a "Corporate Transaction") unless
this Option is expressly assumed by the successor corporation or parent thereof:
(i) a merger or consolidation in which the
Corporation is not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation.
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<PAGE> 34
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the option on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.
C. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. Adjustment in Option Shares. In the event any change is made to the
Corporation's outstanding Common Stock by reason of any stock split, stock
dividend, combination of shares, exchange of shares, or other change affecting
the outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments shall be made to (i) the total number of Option Shares
subject to this option, and (ii) the Option Price payable per share in order to
reflect such change and thereby preclude a dilution or enlargement of benefits
hereunder.
8. Privilege of Stock Ownership. The holder of this option shall not
have any of the rights of a shareholder with respect to the Option Shares until
such individual shall have exercised the option and paid the Option Price.
9. Manner of Exercising Option.
A. In order to exercise this option with respect to all or any part of
the Option Shares for which this option is at the time exercisable, Optionee (or
in the case of exercise after Optionee's death, the Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions: (i) Execute and deliver to the Secretary of the Corporation a stock
purchase agreement (the "Purchase Agreement") in substantially the form attached
hereto as Exhibit A; (ii) pay the aggregate Option Price for the purchased
shares in one or more forms approved hereunder; and (iii) furnish to the
Corporation appropriate documentation that the person or persons exercising the
option, if other than Optionee, have the right to exercise this option.
B. Except as provided in subparagraph C. below, the Option Price payable
hereunder may be paid in cash.
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<PAGE> 35
C. Should the Corporation's outstanding Common Stock be registered under
Section 12(g) of the 1934 Act at the time the option is exercised, then the
Option Price may also be paid as follows:
(i) in shares of Common Stock held by the Optionee for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at fair market
value on the Exercise Date; or
(ii) through a special sale and remittance procedure pursuant to
which the Optionee is to provide irrevocable written instructions (a) to
a designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate Option Price payable for the purchased shares plus all
applicable Federal and State income and employment taxes required to be
withheld by the Corporation by reason of such purchase and (b) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to effect the sale transaction.
D. For purposes of this Agreement, the Exercise Date shall be the date
on which the executed Purchase Agreement shall have been delivered to the
Corporation, and the fair market value of a share of Common Stock on any
relevant date shall be determined in accordance with subparagraphs (i) through
(iii) below:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the Nasdaq Stock Market
or the Nasdaq National Market, the fair market value shall be the
closing selling price of one share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers through the Nasdaq Stock Market or the Nasdaq
National Market. If there is no closing selling price for the Common
Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be
determinative of fair market value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall be the
closing selling price per share of Common Stock on the date in question
on the stock exchange determined by the Corporation to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no reported
sale of Common Stock on such exchange on the date in question, then the
fair market value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
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<PAGE> 36
(iii) If the Common Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the
over-the-counter market, or if the Board of Directors of the Corporation
determines that the value determined pursuant to subparagraphs (i) and
(ii) above does not accurately reflect the fair market value of the
Common Stock, then such fair market value shall be determined by the
Board of Directors of the Corporation after taking into account such
factors as the Board of Directors of the Corporation shall deem
appropriate.
E. As soon after the Exercise Date as practical, the Corporation shall
mail or deliver to Optionee, or to the other person or persons entitled thereto
in accordance with the terms of this Option or the Purchase Agreement, a
certificate or certificates representing the shares so purchased and paid for,
with the appropriate legends affixed thereto.
F. In no event may this option be exercised for any fractional shares.
10. Compliance with Laws and Regulations.
A. The exercise of this option and the issuance of Option Shares upon
such exercise shall be subject to compliance by the Corporation and the Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Corporation's Common
Stock may be listed at the time of such exercise and issuance.
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. Successors and Assigns. Except to the extent otherwise provided in
Paragraph 3, 5 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
12. REPURCHASE RIGHTS. THE OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO REPURCHASE RIGHTS
AND RIGHTS OF FIRST REFUSAL AS SET FORTH IN THE PURCHASE AGREEMENT TO BE
EXECUTED BY OPTIONEE UPON EXERCISE THIS OPTION.
13. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
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writing and addressed to Optionee at the address indicated below Optionee's
signature line. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
14. No Employment or Service Contract. Nothing in this Agreement shall
confer upon the Optionee any right to continue in the Service of the Corporation
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation or the Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee's Service at any time for any
reason whatsoever, with or without cause.
15. Governing Law. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
16. Withholding. Optionee hereby agrees to make appropriate arrangements
with the Corporation or parent or subsidiary corporation employing Optionee for
the satisfaction of all Federal, State or local income tax withholding
requirements and Federal social security employee tax requirements applicable to
the exercise of this option.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
NANOGEN, INC.
By:
--------------------------------
Title:
------------------------------
Address: 10398 Pacific Center Ct.
San Diego, CA 92121
------------------------------------
Optionee
Address:
------------------------------------
------------------------------------
The undersigned spouse of Optionee has read and hereby approves the
foregoing Performance Stock Option Agreement. In consideration of the
Corporation's granting the Optionee the right to acquire the Option Shares in
accordance with the terms of such Agreement, the undersigned hereby agrees to be
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irrevocably bound by all the terms and provisions of such
Agreement.
------------------------------------
Address:
------------------------------------
------------------------------------
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<PAGE> 39
EXHIBIT A
STOCK PURCHASE AGREEMENT
<PAGE> 40
NANOGEN, INC.
STOCK PURCHASE AGREEMENT
UNDER PERFORMANCE STOCK OPTION AGREEMENT
AGREEMENT made as of this _____ day of _____________, 1997, by and among
Nanogen, Inc. (the "Corporation"), ______________ (the "Optionee") and
___________________, the Optionee's spouse.
1. EXERCISE OF OPTION.
1.1 Exercise. Optionee hereby purchases _______ shares ("Purchased
Shares") of the Corporation's common stock ("Common Stock") pursuant to that
certain option ("Option") granted Optionee on ________________ ("Grant Date") to
purchase up to _____________ shares of the Common Stock ("Total Purchasable
Shares") at an option price of $__________ per share ("Option Price").
1.2 Payment. Concurrently with the delivery of this Agreement to the
Corporate Secretary of the Corporation, Optionee shall pay the Option Price for
the Purchased Shares in accordance with the provisions of the agreement between
the Corporation and Optionee evidencing the Option (the "Option Agreement") and
shall deliver whatever additional documents may be required by the Option
Agreement as a condition for exercise, together with (if any Purchased Shares
are Unvested Shares as defined in Section 5.1 hereof) a duly-executed blank
Assignment Separate from Certificate (in the form attached hereto as Exhibit I).
1.3 Delivery of Certificates. The certificates representing any
Purchased Shares which are Unvested Shares hereunder shall be held in escrow by
the Corporate Secretary of the Corporation in accordance with the provisions of
Article 7. Certificates representing Vested Shares shall be delivered to
Optionee within a reasonable time of the date hereof.
1.4 Shareholder Rights. Until such time as the Corporation actually
exercises any repurchase right, rights of first refusal or special purchase
right under this Agreement, Optionee (or any successor in interest) shall have
all the rights of a shareholder (including voting and dividend rights) with
respect to the Purchased Shares, including the Purchased Shares held in escrow
under Article 7, subject, however, to the transfer restrictions of Article 4.
2. SECURITIES LAW COMPLIANCE.
2.1 Purchase Entirely for Own Account. This Agreement is made with
Participant in reliance upon Participant's representation to the Corporation,
which by Participant's
<PAGE> 41
execution of this Agreement Participant hereby confirms, that the Shares are
being acquired for investment for Participant's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that Participant has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Participant further represents that Participant does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Shares. Participant represents that he has full power and
authority to enter into this Agreement.
2.2 Exemption from Registration. The Purchased Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
are accordingly being issued to Optionee in reliance upon the exemption from
such registration provided by Rule 701 of the Securities and Exchange Commission
for stock issuances under written compensatory agreements.
2.3 Restricted Securities.
A. Optionee hereby confirms that Optionee has been informed that the
Purchased Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless the Purchased Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Optionee hereby acknowledges that Optionee is prepared
to hold the Purchased Shares for an indefinite period and that Optionee is aware
that Rule 144 of the Securities and Exchange Commission issued under the 1933
Act is not presently available to exempt the sale of the Purchased Shares from
the registration requirements of the 1933 Act.
B. Upon the expiration of the ninety (90)-day period immediately
following the date on which the Corporation first becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Purchased Shares, to the extent vested under Article 5, may
be sold (without registration) pursuant to the applicable requirements of Rule
144. If Optionee is at the time of such sale an affiliate of the Corporation for
purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the one (1)-year holding period requirement
of the Rule will not be applicable. If Optionee is not at the time of the sale
an affiliate of the Corporation nor was such an affiliate during the preceding
three (3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Purchased Shares held for less than two
(2) years following
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payment in cash of the Option Price therefor) will be applicable
to the sale.
C. Should the Corporation not become subject to the reporting
requirements of the Exchange Act, then Optionee may, provided he/she is not at
the time an affiliate of the Corporation (nor was such an affiliate during the
preceding three (3) months), sell the Purchased Shares (without registration)
pursuant to paragraph (k) of Rule 144 after the Purchased Shares have been held
for a period of two (2) years following the payment in cash of the Option Price
for such shares.
2.4 Disposition of Shares. Optionee hereby agrees that Optionee shall
make no disposition of the Purchased Shares (other than a permitted transfer
under paragraph 4.1) unless and until there is compliance with all of the
following requirements:
(a) Optionee shall have notified the Corporation of the proposed
disposition and provided a summary of the terms and conditions of the
proposed disposition.
(b) Optionee shall have completed and provided to the Corporation
a written statement, on a form to be prepared and provided by the
Corporation at the Corporation's sole cost, that Optionee is in
compliance with all requirements of this Agreement applicable to the
disposition of the Purchased Shares.
(c) Optionee shall have provided the Corporation with a written
statement, on a form to be prepared and provided by the Corporation at
the Corporation's sole cost, that, to the best of Optionee's knowledge
and belief, (i) the proposed disposition does not require registration
of the Purchased Shares under the 1933 Act or (ii) all appropriate
action necessary for compliance with the registration requirements of
the 1933 Act or of any exemption from registration available under the
1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books any
Purchased Shares which have been sold or transferred in violation of the
provisions of this Article 2 nor (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee to
whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.5 Restrictive Legends. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with restrictive legends, including one or more of the
following legends:
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(i) "The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
(ii) "The shares represented by this certificate are unvested and
accordingly may not be sold, assigned, transferred, encumbered, or in any manner
disposed of except in conformity with the terms of a written agreement dated
__________________, 1997 between the Corporation and the registered holder of
the shares (or the predecessor in interest to the shares). Such agreement grants
certain repurchase rights and rights of first refusal to the Corporation (or its
assignees) upon the sale, assignment, transfer, encumbrance or other disposition
of the Corporation's shares or upon termination of service with the Corporation.
The Corporation will upon written request furnish a copy of such agreement to
the holder hereof without charge."
3. SPECIAL TAX ELECTION.
3.1 Section 83(b) Election. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S
SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S TO TIMELY FILE ANY ELECTION WHICH
OPTIONEE DETERMINES TO BE APPROPRIATE UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS/HER
BEHALF. An appropriate form for filing a Section 83(b) election is attached
hereto as Exhibit II. Such filing must be made within 30-days of the purchase of
the Purchased Shares, should be made by registered or certified mail, return
receipt requested, and Optionee must retain two (2) copies of the completed form
for filing with his or her State and Federal tax returns for the current tax
year and an additional copy for his or her records.
4. TRANSFER RESTRICTIONS.
4.1 Restriction on Transfer. Optionee shall not transfer, assign,
encumber or otherwise dispose of any of the Purchased Shares which are subject
to the Corporation's Repurchase Right under Article 5. In addition, Purchased
Shares which are released from the Repurchase Right shall not be transferred,
assigned, encumbered or otherwise made the subject of disposition in
contravention of the Corporation's First Refusal Right under Article 6. Such
restrictions on transfer, however, shall not be applicable to (i) a gratuitous
transfer of the Purchased Shares made to the Optionee's spouse or issue,
including adopted children, or to a trust for the exclusive benefit of the
Optionee or the Optionee's spouse or issue, provided and only if the Optionee
obtains the Corporation's
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<PAGE> 44
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to the Optionee's will or the laws of
intestate succession or (iii) a transfer to the Corporation in pledge as
security for any purchase money indebtedness incurred by the Optionee in
connection with the acquisition of the Purchased Shares.
4.2 Transferee Obligations. Each person (other than the Corporation) to
whom the Purchased Shares are transferred by means of one of the permitted
transfers specified in paragraph 4.1 must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Corporation that such
person is bound by the provisions of this Agreement and that the transferred
shares are subject to (i) both the Corporation's Repurchase Right and the
Corporation's First Refusal Right granted hereunder and (ii) the market
stand-off provisions of paragraph 4.4, to the same extent such shares would be
so subject if retained by the Optionee.
4.3 Definition of Owner. For purposes of Articles 4, 5, 6 and 7 of this
Agreement, the term "Owner" shall include the Optionee and all subsequent
holders of the Purchased Shares who derive their chain of ownership through a
permitted transfer from the Optionee in accordance with paragraph 4.1.
4.4 Market Stand-Off Provisions.
A. In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such limitations shall be in effect for such
period of time from and after the effective date of such registration statement
as may be requested by the Corporation or such underwriters; provided, however,
that in no event shall such period exceed one hundred-eighty (180) days. The
limitations of this paragraph 4.4 shall remain in effect for the two-year period
immediately following the effective date of the Corporation's initial public
offering and shall thereafter terminate and cease to have any force or effect.
B. Owner shall be subject to the market stand-off provisions of this
paragraph 4.4 provided and only if the officers and directors of the Corporation
are also subject to similar arrangements.
C. In the event of any stock dividend, stock split, recapitalization or
other change affecting the Corporation's outstanding Common Stock effected as a
class without receipt of
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<PAGE> 45
consideration, then any new, substituted or additional securities distributed
with respect to the Purchased Shares shall be immediately subject to the
provisions of this paragraph 4.4, to the same extent the Purchased Shares are at
such time covered by such provisions.
D. In order to enforce the limitations of this paragraph 4.4, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
5. REPURCHASE RIGHT.
5.1 Grant. The Corporation is hereby granted the right (the "Repurchase
Right"), exercisable at any time during the sixty (60)-day period following the
date the Optionee ceases for any reason to remain in Service or (if later)
during the sixty (60)-day period following the execution date of this Agreement,
to repurchase at the Option Price all or (at the discretion of the Corporation
and with the consent of the Optionee) any portion of the Purchased Shares in
which the Optionee has not acquired a vested interest, if any, in accordance
with the vesting provisions of paragraph 5.3 (such shares to be herein referred
to as "Unvested Shares"). For purposes of this Agreement, the Optionee shall be
deemed to remain in Service for so long as the Optionee continues to render
periodic services to the Corporation or any parent or subsidiary corporation,
whether as an employee, a non-employee member of the board of directors, or an
independent contractor or consultant.
5.2 Exercise of the Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one or
more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with paragraph 7.3 or from Owner as herein
provided), pay to Owner in cash or cash equivalents (including the cancellation
of any purchase-money indebtedness), an amount equal to the Option Price
previously paid for the Unvested Shares which are to be repurchased.
5.3 Termination of the Repurchase Right. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under paragraph 5.2.
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<PAGE> 46
The Repurchase Right shall terminate with respect to Purchased Shares
(which to the extent thereof shall "vest") on the basis of performance criteria
determined annually and mutually agreed upon between Optionee and the
Corporation. Such performance criteria, once agreed upon, shall be attached to
this Agreement as Exhibit III.
Exactly twenty-five percent (25%) of the Total Purchasable Shares
shall be eligible for vesting in each of the four successive one-year periods
commencing ______________. To the extent performance criteria set forth in
Exhibit III for the applicable one-year period are not met, and accordingly the
vesting percentage for that year's allotment is less than 100%, Purchased Shares
which do not vest shall thereafter remain subject to the Repurchase Right and
shall not be eligible for vesting in any subsequent year.
All Purchased Shares as to which the Repurchase Right lapses shall,
however, continue to be subject to (i) the First Refusal Right of the
Corporation and its assignees under Article 6, (ii) the market stand-off
provisions of paragraph 4.4 and (iii) the Special Purchase Right under Article
8.
Notwithstanding anything herein to the contrary, if the Optionee resigns
during the first 12 month period of his employment, none of the Purchasable
Shares will vest.
Notwithstanding the above, the Optionee will automatically be vested in
50% of any remaining Unvested Shares if he is terminated "without cause" or if
he terminates employment for "good reason" (even if such termination occurs
before the first anniversary of Optionee's employment).
For purposes hereof, termination "without cause" shall mean an
involuntary termination of Optionee's employment by Corporation for any reason
other than: (1) repeated and willful failure by Optionee to perform duties
reasonably assigned by Corporation; (2) Optionee's repeated gross negligence in
carrying out such duties; (3) Optionee's illegal conduct in carrying out such
duties; (4) Optionee's repeated refusal to comply with lawful and reasonable
instructions from the Corporation's board of directors; or (5) Optionee's
repeated and willful actions contrary to the Corporation's best interests.
For purposes hereof, termination for "good reason" shall mean the
Optionee's termination of employment on account of any of the following without
Optionee's good faith consent: (1) material and adverse change of Optionee's
status, title, position or responsibilities with Corporation; (2) relocation of
Optionee's principal office outside metropolitan San Diego, CA; (3) reduction in
Optionee's base salary or a material reduction of Optionee's other compensation
and benefits; (4) harassment of Optionee by the Corporation or its employees in
violation of law or in frustration of Optionee's abilities to perform his duties
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<PAGE> 47
with the Corporation; (5) request by Corporation or its employees that Optionee
commit an illegal act; (6) material breach of the Corporation's employment
agreement with Optionee; (7) conviction of the Corporation by a court of
competent jurisdiction for a felony or in connection with a fraudulent or
dishonest act; or (8) insolvency or bankruptcy of the Corporation.
5.4 Aggregate Vesting Limitation. If the Option is exercised in more
than one increment so that the Optionee is a party to one or more other Stock
Purchase Agreements ("Prior Purchase Agreements") which are executed prior to
the date of this Agreement, then the total number of Purchased Shares as to
which the Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which the Optionee would otherwise at the time
be vested, in accordance with the vesting provisions of paragraph 5.3, had all
the Purchased Shares been acquired exclusively under this Agreement.
5.5 Fractional Shares. No fractional shares shall be repurchased by the
Corporation. Accordingly, should the Repurchase Right extend to a fractional
share (in accordance with the vesting provisions of paragraph 5.3) at the time
the Optionee ceases Service, then such fractional share shall be added to any
fractional share in which the Optionee is at such time vested in order to make
one whole vested share no longer subject to the Repurchase Right.
5.6 Additional Shares or Substituted Securities. In the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased
Shares shall be immediately subject to the Repurchase Right, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number of Purchased Shares and Total Purchasable Shares hereunder
and to the price per share to be paid upon the exercise of the Repurchase Right
in order to reflect the effect of any such transaction upon the Corporation's
capital structure; provided, however, that the aggregate purchase price shall
remain the same.
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5.7 Corporate Transaction.
A. Immediately prior to the consummation of any of the following
shareholder-approved transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which the
Corporation is not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation,
the Repurchase Right shall automatically lapse in its entirety except to the
extent the Repurchase Right is to be assigned to the successor corporation (or
its parent company) in connection with such Corporate Transaction.
B. To the extent the Repurchase Right remains in effect following such
Corporate Transaction, such right shall apply to the new capital stock or other
property (including cash) received in exchange for the Purchased Shares in
consummation of the Corporate Transaction, but only to the extent the Purchased
Shares are at the time covered by such right. Appropriate adjustments shall be
made to the price per share payable upon exercise of the Repurchase Right to
reflect the effect of the Corporate Transaction upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
same.
C. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
6. RIGHT OF FIRST REFUSAL.
6.1 Grant. The Corporation is hereby granted rights of first refusal
(the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which the Optionee has vested in accordance
with the vesting provisions of Article 5. For purposes of this Article 6, the
term "transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Purchased Shares intended to be made by the Owner,
but shall not include any of the permitted transfers under paragraph 4.1.
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<PAGE> 49
6.2 Notice of Intended Disposition. In the event the Owner desires to
accept a bona fide third-party offer for the transfer of any or all of the
Purchased Shares (the shares subject to such offer to be hereinafter called the
"Target Shares"), Owner shall promptly (i) deliver to the Corporate Secretary of
the Corporation written notice (the "Disposition Notice") of the terms and
conditions of the offer, including the purchase price and the identity of the
third-party offeror, and (ii) provide satisfactory proof that the disposition of
the Target Shares to such third-party offeror would not be in contravention of
the provisions set forth in Articles 2 and 4 of this Agreement.
6.3 Exercise of Right. The Corporation shall, for a period of forty-five
(45) days following receipt of the Disposition Notice, have the right to
repurchase any or all of the Target Shares specified in the Disposition Notice
upon the same terms and conditions specified therein or upon terms and
conditions which do not materially vary from those specified therein. Such right
shall be exercisable by delivery of written notice (the "Exercise Notice") to
Owner prior to the expiration of the forty-five (45)-day exercise period. If
such right is exercised with respect to all the Target Shares specified in the
Disposition Notice, then the Corporation (or its assignees) shall effect the
repurchase of the Target Shares, including payment of the purchase price, not
more than ten (10) business days after delivery of the Exercise Notice; and at
such time Owner shall deliver to the Corporation the certificates representing
the Target Shares to be repurchased, each certificate to be properly endorsed
for transfer. To the extent any of the Target Shares are at the time held in
escrow under Article 7, the certificates for such shares shall automatically be
released from escrow and delivered to the Corporation for purchase. Should the
purchase price specified in the Disposition Notice be payable in property other
than cash or evidences of indebtedness, the Corporation (or its assignees) shall
have the right to pay the purchase price in the form of cash equal in amount to
the value of such property. If the Owner and the Corporation (or its assignees)
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by the Corporation (or its assignees) within
(20) days after the Corporation's receipt of the Disposition Notice, whose
appraisal shall be determinative of such value. The cost of such appraisal shall
be paid entirely by the Corporation. The closing shall then be held on the later
of (i) the tenth business day following delivery of the Exercise Notice or (ii)
the tenth business day after such cash valuation shall have been made.
6.4 Non-Exercise of Right. In the event the Exercise Notice is not given
to Owner within forty-five (45) days following the date of the Corporation's
receipt of the
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<PAGE> 50
Disposition Notice, Owner shall have a period of thirty (30) days thereafter in
which to sell or otherwise dispose of the Target Shares to the third-party
offeror identified in the Disposition Notice upon terms and conditions
(including the purchase price) no more favorable to such third-party offeror
than those specified in the Disposition Notice; provided, however, that any such
sale or disposition must not be effected in contravention of the provisions of
Article 2 of this Agreement. To the extent any of the Target Shares are at the
time held in escrow under Article 7, the certificates for such shares shall
automatically be released from escrow and surrendered to the Owner. The
third-party offeror shall acquire the Target Shares free and clear of the
Corporation's Repurchase Right under Article 5 and the Corporation's First
Refusal Right hereunder, but the acquired shares shall remain subject to (i) the
securities law restrictions of Article 2 and (ii) the market stand-off
provisions of paragraph 4.4. In the event Owner does not effect such sale or
disposition of the Target Shares within the specified thirty (30)-day period,
the Corporation's First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses in
accordance with paragraph 6.7.
6.5 Partial Exercise of Right. In the event the Corporation (or its
assignees) makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within thirty (30) days after the date of the Disposition Notice, to
effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) to elect not to sell any shares to the Corporation pursuant
to the First Refusal Right, but to instead sell all the Target Shares to
the third-party offeror identified in the Disposition Notice (which sale
shall otherwise be in full compliance with the requirements of paragraph
6.4 as if the Corporation did not offer to exercise the First Refusal
Right with respect to any of the Target Shares); or
(ii) sale to the Corporation (or its assignees) of the portion of
the Target Shares which the Corporation (or its assignees) has elected
to purchase, such sale to be effected in substantial conformity with the
provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the Corporation under
this paragraph 6.5 shall be deemed to be an election by Owner to sell the Target
Shares pursuant to alternative (i) above.
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6.6 Recapitalization/Merger.
A. In the event of any stock dividend, stock split, recapitalization or
other transaction affecting the Corporation's outstanding Common Stock as a
class effected without receipt of consideration, then any new, substituted or
additional securities or other property which is by reason of such transaction
distributed with respect to the Purchased Shares shall be immediately subject to
the Corporation's First Refusal Right hereunder, but only to the extent the
Purchased Shares are at the time covered by such right.
B. In the event of any of the following transactions:
(i) a merger or consolidation in which the
Corporation is not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to person or persons other than those
who held such securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the State in
which the Corporation is incorporated, or to create a holding company
structure,
the Corporation's First Refusal Right shall remain in full force and effect and
shall apply to the new capital stock or other property received in exchange for
the Purchased Shares in consummation of the transaction but only to the extent
the Purchased Shares are at the time covered by such right.
6.7 Lapse. The First Refusal Right under this Article 6 shall lapse and
cease to have effect upon the earliest to occur of (i) the first date on which
shares of the Corporation's Common Stock are held of record by more than five
hundred (500) persons, (ii) a determination is made by the Corporation's Board
of Directors that a public market exists for the outstanding shares of the
Corporation's Common Stock, or (iii) a firm commitment underwritten public
offering pursuant to an effective registration statement under the 1933 Act,
covering the offer and sale of the Corporation's Common Stock in the aggregate
amount of at least $5,000,000. However, the market stand-off provisions of
paragraph 4.4 shall continue to remain in full force and effect following the
lapse of the First Refusal Right hereunder.
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7. ESCROW.
7.1 Deposit. Upon issuance, the certificates for any Unvested Shares
purchased hereunder shall be deposited in escrow with the Corporate Secretary of
the Corporation to be held in accordance with the provisions of this Article 7.
Each deposited certificate shall be accompanied by a duly-executed Assignment
Separate from Certificate in the form of Exhibit I. The deposited certificates,
together with any other assets or securities from time to time deposited with
the Corporate Secretary pursuant to the requirements of this Agreement, shall
remain in escrow until such time or times as the certificates (or other assets
and securities) are to be released or otherwise surrendered for cancellation in
accordance with paragraph 7.3. Upon delivery of the certificates (or other
assets and securities) to the Corporate Secretary of the Corporation, the Owner
shall be issued an instrument of deposit acknowledging the number of Unvested
Shares (or other assets and securities) delivered in escrow.
7.2 Recapitalization. All regular cash dividends on the Unvested Shares
(or other securities at the time held in escrow) shall be paid directly to the
Owner and shall not be held in escrow. However, in the event of any stock
dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Unvested Shares shall be immediately
delivered to the Corporate Secretary to be held in escrow under this Article 7,
but only to the extent the Unvested Shares are at the time subject to the escrow
requirements of paragraph 7.1.
7.3 Release/Surrender. The Unvested Shares, together with any other
assets or securities held in escrow hereunder, shall be subject to the following
terms and conditions relating to their release from escrow or their surrender to
the Corporation for repurchase and cancellation:
(i) Should the Corporation (or its assignees) elect to exercise
the Repurchase Right under Article 5 with respect to any Unvested
Shares, then the escrowed certificates for such Unvested Shares
(together with any other assets or securities issued with respect
thereto) shall be delivered to the Corporation concurrently with the
payment to the Owner, in cash or cash equivalent (including the
cancellation of any purchase-money indebtedness), of an amount equal to
the aggregate Option Price for such Unvested Shares, and the Owner shall
cease to have any further rights or claims with respect to such Unvested
Shares (or other assets or securities attributable to such Unvested
Shares).
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<PAGE> 53
(ii) Should the Corporation (or its assignees) elect to exercise
its First Refusal Right under Article 6 with respect to any vested
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall, concurrently with the payment of
the paragraph 6.3 purchase price for such Target Shares to the Owner, be
surrendered to the Corporation, and the Owner shall cease to have any
further rights or claims with respect to such Target Shares (or other
assets or securities).
(iii) Should the Corporation (or its assignees) elect not to
exercise its First Refusal Right under Article 6 with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with provisions of paragraph 6.4.
(iv) As the interest of the Optionee in the Unvested Shares (or
any other assets or securities attributable thereto) vests in accordance
with the provisions of Article 5, the certificates for such vested
shares (as well as all other vested assets and securities) shall be
released from escrow and delivered to the Owner in accordance with the
following schedule:
a. The initial release of vested shares (or other vested
assets and securities) from escrow shall be effected within
thirty (30) days following the expiration of the initial twelve
(12)-month period measured from the Grant Date.
b. Subsequent releases of vested shares (or other vested
assets and securities) from escrow shall be effected at
semi-annual intervals thereafter, with the first such semi-annual
release to occur eighteen (18) months after the Grant Date.
c. Upon the Optionee's cessation of Service, any escrowed
Purchased Shares (or other assets or securities) in which the
Optionee is at the time vested shall be promptly released from
escrow.
d. Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article 5, any Purchased Shares (or other assets or securities)
at the time held in escrow hereunder shall promptly be released
to the Owner as fully vested shares or other property.
(v) All Purchased Shares (or other assets or securities) released
from escrow in accordance with the
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<PAGE> 54
provisions of subparagraph (iv) above shall nevertheless remain subject
to (I) the Corporation's First Refusal Right under Article 6 until such
right lapses pursuant to paragraph 6.7, (II) the market stand-off
provisions of paragraph 4.4 until such provisions terminate in
accordance therewith and (III) the Special Purchase Right under Article
8.
8. MARITAL DISSOLUTION OR LEGAL SEPARATION.
8.1 Grant. In connection with the dissolution of the Optionee's marriage
or the legal separation of the Optionee and the Optionee's spouse, the
Corporation shall have the right (the "Special Purchase Right"), exercisable at
any time during the thirty (30)-day period following the Corporation's receipt
of the required Dissolution Notice under paragraph 8.2, to purchase from the
Optionee's spouse, in accordance with the provisions of paragraph 8.3, all or
any portion of the Purchased Shares which would otherwise be awarded to such
spouse in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.2 Notice of Decree or Agreement. The Optionee shall promptly provide
the Secretary of the Corporation with written notice (the "Dissolution Notice")
of (i) the entry of any judicial decree or order resolving the property rights
of the Optionee and the Optionee's spouse in connection with their marital
dissolution or legal separation or (ii) the execution of any contract or
agreement relating to the distribution or division of such property rights. The
Dissolution Notice shall be accompanied by a copy of the actual decree of
dissolution or settlement agreement between the Optionee and the Optionee's
spouse which provides for the award to the spouse of one or more Purchased
Shares in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.3 Exercise of Special Purchase Right. The price at which the Special
Purchase Right shall be exercisable by the Corporation will be the higher of the
Option Price as set forth in Section 1.1 hereof or the fair market value of the
shares as of the date the Special Purchase Right is exercised. The right shall
be exercised by delivery of written notice (the "Purchase Notice") to the
Optionee and the Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date such
purchase is to be effected (such date to be not less than five (5) business
days, nor more than ten (10) business days, after the date of the Purchase
Notice), and the price to be paid for such Purchased Shares. The Optionee (or
the Optionee's spouse, to the extent such spouse has physical possession of the
Purchased Shares) shall, prior to the close of business on the date specified
for the purchase, deliver to the Corporate Secretary
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<PAGE> 55
of the Corporation the certificates representing the shares to be purchased,
each certificate to be properly endorsed for transfer. To the extent any of the
shares to be purchased by the Corporation are at the time held in escrow under
Article 7, the certificates for such shares shall be promptly delivered out of
escrow to the Corporation. The Corporation shall, concurrently with the receipt
of the stock certificates, pay to the Optionee's spouse (in cash or cash
equivalents) an amount equal to the price to be paid for such shares as
specified in the Purchase Notice.
If the Optionee's spouse does not agree with the Corporation's
determination of the fair market value of the shares, then the spouse shall
promptly notify the Corporation in writing of such disagreement and the fair
market value of such shares shall thereupon be determined by an appraiser of
recognized standing selected by the Corporation whose appraisal shall be
determinative of such value. The cost of the appraisal shall be borne entirely
by the Corporation. The closing shall then be held on the fifth business day
following the completion of such appraisal; provided, however, that if the
appraised value is more than fifteen percent (15%) greater than the fair market
value specified for the shares in the Purchase Notice, the Corporation shall
have the right, exercisable prior to the expiration of such five
(5)-business-day period, to rescind the exercise of the Special Purchase Right
and thereby revoke its election to purchase the shares awarded to the spouse.
8.4 Lapse. The Special Purchase Right under this Article 8 shall lapse
and cease to have effect upon the earlier to occur of (i) the first date on
which the First Refusal Right under Article 6 lapses or (ii) the expiration of
the thirty (30)-day exercise period specified in paragraph 8.3, to the extent
the Special Purchase Right is not timely exercised in accordance with such
paragraph.
9. GENERAL PROVISIONS.
9.1 Assignment. The Corporation may assign its Repurchase Right under
Article 5, its First Refusal Right under Article 6 and/or its Special Purchase
Right under Article 8 to any person or entity selected by the Corporation's
Board of Directors, including (without limitation) one or more shareholders of
the Corporation.
If the assignee of the Repurchase Right is other than a one hundred
percent (100%) owned subsidiary corporation of the Corporation or the parent
corporation owning one hundred percent (100%) of the Corporation, then such
assignee must make a cash payment to the Corporation, upon the assignment of the
Repurchase Right, in an amount equal to the excess (if any) of (i) the fair
market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Unvested Shares thereunder.
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<PAGE> 56
9.2 Definitions. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation shall be considered to
be a parent corporation of the Corporation, provided each such
corporation in the unbroken chain (other than the Corporation) owns, at
the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
(ii) Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered
to be a subsidiary of the Corporation, provided each such corporation
(other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
9.3 No Employment or Service Contract. Nothing in this Agreement shall
confer upon the Optionee any right to continue in the Service of the Corporation
(or any parent or subsidiary corporation of the Corporation employing or
retaining Optionee) for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any parent or
subsidiary corporation of the Corporation employing or retaining Optionee) or
the Optionee, which rights are hereby expressly reserved by each, to terminate
the Optionee's Service at any time for any reason whatsoever, with or without
cause.
9.4 Notices. Any notice required in connection with (i) the Repurchase
Right, the Special Purchase Right or the First Refusal Right or (ii) the
disposition of any Purchased Shares covered thereby shall be given in writing
and shall be deemed effective upon personal delivery or upon deposit in the
United States mail, registered or certified, postage prepaid and addressed to
the party entitled to such notice at the address indicated below such party's
signature line on this Agreement or at such other address as such party may
designate by ten (10) days advance written notice under this paragraph 9.4 to
all other parties to this Agreement.
9.5 No Waiver. The failure of the Corporation (or its assignees) in any
instance to exercise the Repurchase Right granted under Article 5, or the
failure of the Corporation (or its assignees) in any instance to exercise the
First Refusal Right granted under Article 6, or the failure of the Corporation
(or its assignees) in any instance to exercise the Special Purchase Right
granted under Article 8 shall not constitute a
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<PAGE> 57
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and the Optionee or the Optionee's spouse. No waiver of
any breach or condition of this Agreement shall be deemed to be a waiver of any
other or subsequent breach or condition, whether of like or different nature.
9.6 Cancellation of Shares. If the Corporation (or its assignees) shall
make available, at the time and place and in the amount and form provided in
this Agreement, the consideration for the Purchased Shares to he repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement), and such shares shall be
deemed purchased in accordance with the applicable provisions hereof and the
Corporation (or its assignees) shall be deemed the owner and holder of such
shares, whether or not the certificates therefor have been delivered as required
by this Agreement.
10. MISCELLANEOUS PROVISIONS.
10.1 Optionee Undertaking. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
10.2 Agreement is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof.
10.3 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California, as such laws are
applied to contracts entered into and performed in such State without resort to
that State's conflict-of-laws rules.
10.4 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
10.5 Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this
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<PAGE> 58
Agreement and have agreed in writing to join herein and be bound by the terms
and conditions hereof.
10.6 Power of Attorney. Optionee's spouse hereby appoints Optionee his
or her true and lawful attorney in fact, for him or her and in his or her name,
place and stead, and for his or her use and benefit, to agree to any amendment
or modification of this Agreement and to execute such further instruments and
take such further actions as may reasonably be necessary to carry out the intent
of this Agreement. Optionee's spouse further gives and grants unto Optionee as
his or her attorney in fact full power and authority to do and perform every act
necessary and proper to be done in the exercise of any of the foregoing powers
as fully as he or she might or could do if personally present, with full power
of substitution and revocation, hereby ratifying and confirming all that
Optionee shall lawfully do and cause to be done by virtue of this power of
attorney.
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 59
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
NANOGEN, INC.
By:
---------------------------------
Title:
------------------------------
Address: 10398 Pacific Center Ct.
San Diego, CA 92121
------------------------------------
Optionee
Address:
------------------------------------
------------------------------------
The undersigned spouse of Optionee has read and hereby approves the
foregoing Performance Stock Option Agreement. In consideration of the
Corporation's granting the Optionee the right to acquire the Option Shares in
accordance with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms and provisions of such Agreement.
------------------------------------
Address:
------------------------------------
------------------------------------
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<PAGE> 60
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _________________________ hereby sell(s), assign(s)
and transfer(s) unto Nanogen, Inc. (the "Corporation"),
_____________________________ (_______) shares of the Common Stock of the
Corporation standing in his\her name on the books of the Corporation represented
by Certificate No. __________ and do hereby irrevocably constitute and appoint
_________________________________ as Attorney to transfer the said stock on the
books of the Corporation with full power of substitution in the premises.
Dated:_____________________
Signature
------------------------------------
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Corporation to exercise its
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Optionee.
EXHIBIT I-1
<PAGE> 61
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the
Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address: ___________________________________________________________
Taxpayer Ident. No.:________________________________________________
(2) The property with respect to which the election is being made is ______
shares of the common stock of Nanogen, Inc.
(3) The property was issued on _____________________, 19__.
(4) The taxable year in which the election is being made is the calendar
year 19_.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of annual
and monthly installments over a four (4) year period ending on
_______________________________________________________________.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $_________ per share.
(7) The amount paid for such property is $_________ per share.
(8) A copy of this statement was furnished to Nanogen, Inc. for whom
taxpayer rendered the service underlying the transfer of property.
(9) This statement is executed as of: __________________, 19_.
- ---------------------------------
Spouse (if any)
Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Restricted Stock Issuance
Agreement.
EXHIBIT II-1
<PAGE> 1
EXHIBIT 10.27
January 5, 1994
Tina S. Berger, Ph.D.
4256 Carminito Terviso
Son Diego, CA 92122
Dear Tina:
I am pleased to extend to you an offer to become President, a corporate
officer, and a member of the Board of Directors of Nanogen, Inc., reporting to
me commencing February 1, 1994 or sooner. Your responsibility as President will
include the day-to-day operations of the Company including facilities, hiring,
etc. We will meet in the near future to finalize a formal list of your
responsibilities. The particulars for our offer are as follows:
COMPENSATION
1. Your initial salary will be $170,000 per year.
2. You will be permitted to purchase, or granted an option to purchase, at
your election, 150,000 shares of the Company's common stock at its "fair
market price" (currently $0.005 per share). The purchase or grant will be
subject to your execution of the Company's Restricted Stock Purchase
Agreement or Incentive Stock Option Agreement (which includes a four year
vesting/repurchasing provision), as applicable, and to approval by the
Board of Directors and any regulatory authority. You will be granted an
additional 150,000 shares (at then "fair market price") of the Company's
common stock on a prorated basis as we achieve our first round financing
and milestones. Each additional portion of stock will begin four year
vesting when granted.
<PAGE> 2
Tina S. Berger, Ph.D. - 2 - January 5, 1994
SEVERANCE
1. If you are terminated without cause by the Company during the first year
of your employment, you will be paid an amount equal to one (1) year of
your base salary. If you are terminated without cause after the first year
of your employment, you will be paid an amount equal to six (6) months of
your base salary.
As a regular employee and officer, of Nanogen, you will become eligible to
participate in Company sponsored benefits. If you have any questions related to
these, please feel free to contact me.
Employment at Nanogen is not for a specific term and can be terminated by you or
by the Company at any time for any reason, with or without cause. If you are
terminated for cause, any loan made to you by the Company will become due and
payable immediately.
If you accept this offer, the terms and conditions in this letter shall be the
terms of your employment. Any modifications or additions to these terms would
have to be in writing and signed by you and me.
Your employment pursuant to this offer is contingent upon its formal approval by
the Board and upon your executing a Consent Form and Proprietary Information and
Inventions Agreement which will be forwarded under separate cover.
Tina, all of us at Nanogen are excited about having you join the growing team at
Nanogen. We are very much looking forward to working with you in building an
exciting new company.
Very kind regards, ACCEPTED AND AGREED:
NANOGEN, INC.
/s/ TINA S. BERGER
----------------------------------
Howard C. Birndorf Tina S. Berger, Ph.D.
Chairman and Chief Executive Officer 1/6/94
----------------------------------
Date
<PAGE> 1
EXHIBIT 10.28
[NANOGEN LETTERHEAD]
October 28, 1997
VIA FACSIMILE 847-381-6173
Dr. W. J. Kitchen
18 Lakeside Lane
North Barrington, IL. 60010
Dear W.J.:
Nanogen Incorporated ("Nanogen") is pleased to offer you the position of Senior
Vice President, Operations and the following terms encompass our offer. The
effective date of this position will be as soon as possible, but not later than
January 5, 1998. If you accept this offer, you will be an exempt employee
reporting to me, Nanogen's CEO.
You will be located in our San Diego office, and as Senior Vice President
Operations, will be responsible for directing manufacturing, facilities and
related development activities. You will be expected to devote your full-time
efforts to these responsibilities, and you will be compensated at an annual base
rate of $250,000 per annum payable in equal, semi-monthly increments.
As a Senior Vice President, you will be a participant in Nanogen's Executive
Incentive Compensation Plan. As part of this plan, you will be eligible for a
bonus of $40,000 for 1998. All bonuses are based on annual milestones which
would be mutually agreed upon between you and me, and subject to Board of
Directors' approval. An additional bonus of $110,000 will be guaranteed to
maintain a level that would provide a minimum potential of $400,000 in total
compensation per year over your first four years of employment.
Upon your acceptance of this proposal, you will be entitled to purchase 350,000
shares of Nanogen common stock at fair market value, as determined by Nanogen's
Board. The purchase will be made through the signing of Nanogen's current form
of Stock Purchase Agreement. Of such shares, 300,000 will vest ratably an a
monthly basis over the four-year period starting on your first day of
employment, except that you will not be vested in the initial 25% of such shares
until your first anniversary of employment. The remaining 50,000 of such shares
("Milestone Shares") will vest
<PAGE> 2
Dr. W. J. Kitchen -2- October 28, 1997
in equal annual installments over six years as predetermined annual milestones
are attained. Such milestones will be mutually agreed upon, subject to Board
approval. If the milestones for the year have been attained, then the Milestone
Shares that vest for such year thereafter shall not be subject to repurchase by
Nanogen at the original purchase price. If you resign during the first 12 month
period of your employment, no Milestone Shares will vest. Thereafter, if you
resign during the first half of a calendar year, no Milestone Shares will vest
for such year. If you resign during the second half of a calendar year, you will
vest in a pro rata portion of the Milestone Shares that otherwise would have
vested during such year (based on attainment of the applicable milestones). Such
portion shall be a fraction equal to the number of completed months of work
during such year divided by 12.
You will be eligible to participate in all Company-sponsored benefits upon your
date of hire. At present, these include full medical, dental and vision
insurance coverage for yourself, with the option to include your family with a
minimal contribution. In addition, you will be eligible to participate in our
life and long-term disability insurance as well as our 401(k) plans
(non-employer contributing) as well as our 125 Flexible Benefits Program. A
benefits summary is included for your review.
You will be eligible for relocation benefits consistent with your employment
level at Nanogen as specified by Nanogen's 1997 Executive Relocation Guidelines,
a copy of which is enclosed. In summary, relocation includes full coverage of
the cost of relocating your household to San Diego, and the provision of
temporary housing (up to a maximum of $2,500 per month) for up to nine months.
As an additional benefit, when your family moves to San Diego, the Company will
provide you with up to a $200,000 loan at the lowest interest rate allowable by
law to go toward the purchase of your new home. This loan will be forgivable
over four years and secured by Nanogen stock. However, as we agreed, one of your
impact goals will be that over the first three years of your employment you will
secure a corporate partnership with a large electronics company the size of
which will be agreed upon between you and me. If you do not secure this
corporate partnership within three years, $75,000, plus accrued interest, of the
$200,000 loan becomes payable at the end of five years. In addition, for a
period of 24 months from the time at which you purchase a new home in San Diego,
the Company will provide you with a mortgage differential of up to $1,000 per
month. That is, the difference between your current base mortgage and your new
base mortgage, It is understood that you will be responsible for all tax
consequences of these benefits.
The Company also agrees to provide you with a severance package of up to two
years, should your employment be terminated without cause during your first two
years of employment. (For example, should your employment be terminated at the
end of one year of employment, you would receive severance compensation equal to
two year's base salary plus bonus.) For the purpose of this letter, the phrase
"termination without cause' shall mean a termination of your employment by
Nanogen for any reason other than: 1) the repeated and willful failure by you to
<PAGE> 3
Dr. W. J. Kitchen -3- October 28, 1997
perform your reasonably assigned duties on behalf of Nanogen; 2) the repeated
gross negligence by you in carrying out your duties; 3) illegal conduct by you
in carrying out your duties; 4) the repeated refusal by you to comply with the
reasonable and lawful instructions of the Board, except in the case of a
dramatic change in your agreed upon duties and responsibilities; or 5) repeated
and willful actions by you contrary to Nanogen's best interests.
Employment with Nanogen will not be for a specific term and can be terminated by
you or by the Company at any time for any reason, with or without cause and with
of without notice. Any contrary representations, agreements, or promises of any
kind, whether written, oral, expressed or implied which may have been made or
which may be made to you are/will be superseded by this offer. We request that
all Nanogen employees, to the extent possible, give advance notice if they
intend to resign. If you accept the offer, the terms described in this letter
will be the terms of your employment. Any additions or modifications of these
terms must be in writing and signed by you and Nanogen's Chief Executive
Officer.
As an obligation consistent with the offer of employment, you will be required
to sign the enclosed Blood Consent Form, and the Proprietary Information and
Inventions Agreement; and on your first day of employment, to provide the
Company with the legally required proof of your identity and authorization to
work in the United States.
Assuming this letter is acceptable to you, please sign a copy and return it to
me. This offer will terminate unless accepted by October 29, 1997. We are very
excited that you will be joining Nanogen. Myself, Tina, our Board Members and
employees look forward to announcing your appointment.
Sincerely yours,
/s/ HOWARD C. BIRNDOFF
Howard C. Birndorf
Enclosure
I accept this offer under the terms and conditions set forth in this letter.
/s/ DR. W. J. KITCHEN 10-29-97
- ---------------------------------------- ------------------------------------
Dr. W. Kitchen Date
<PAGE> 4
NANOGEN INCORPORATED
RELOCATION GUIDELINES
1997
New, salaried exempt employees are eligible for relocation assistance.
Moving An Employee From One Location To Another
The Company will reimburse certain expenses connected with the movement of
employee households provided the distance test for relocation, as set forth in
the Internal Revenue Code, Section 217(c), is met.
Internal Revenue Service Guidelines
Relocation expenses are tax deductible if the employee's move increases
commuting distance by at least 35 miles. If the employee is not employed prior
to the move, the new location must be at least 35 miles from his/her residence.
Administration of the Program
Administration of the program will be the responsibility of the Director of
Human Resources. Under no circumstances may any company employee allow or imply
reimbursement of a relocation expense not explicitly set forth in this policy,
except as provided below.
ALL OFFERS THAT INCLUDE RELOCATION ASSISTANCE REQUIRE THE PRIOR WRITTEN APPROVAL
OF THE PRESIDENT.
The Company Will Pay For The Following:
The Company will pay for the shipment of normal household goods. This includes
packing, crating, van transportation, unpacking, insurance coverage (replacement
value) and storage charges for up to 90 days. Expenses are limited to those
associated with one pick-up and delivery and one access to storage. In addition,
the employee may ship one automobile whether shipped with household goods or
driven.
The Company will also cover reasonable expenses of disconnecting and connecting
major appliances, if on the moving bill. Expenses of alteration to the dwelling
and extensions of utility lines, etc., are not reimbursable.
The Company will pay for the cost of coach air tickets on the following basis
for use on home finding and final transportation:
- Up to two round-trip tickets for use by either employee or spouse in
home finding or return visits
- One, one-way trip ticket for employee, spouse and members of the
immediate family for final transportation.
The Company will also pay for any reasonable cost of transportation to and from
the airport including the company mileage rate plus tolls and parking.
<PAGE> 5
Nanogen Incorporated
Relocation Guidelines
Page 2
As an alternative to public transportation the employee may use his/her personal
car and be reimbursed at the company mileage rate (reimbursement rate is
currently 31 cents per mile) plus tolls and parking.
Reimbursement For Final Transportation
Reimbursement for final transportation must be based on the most direct route.
In addition to the above, the Company will reimburse the employee for up to 10
days of car rental if needed in the new location for home finding and temporary
establishment.
Home Finding Visit
The Company will pay reasonable lodging at a Company designated hotel and meals
expenses for up to 5 days for the employee and spouse.
Final Move
The Company will pay reasonable lodging and meal expenses for up to 10 days for
the employee, spouse and members of the immediate family.
Executive Benefits
Executive employees are provided with the following additional moving
allowances:
- - Two automobiles - may be moved whether shipped with household goods or
driven.
- - Temporary housing - the Company will arrange for temporary housing for up
to nine months.
- - Sale of former house / purchase of new home - real estate commissions up
to 6% of the sales prices and reasonable closing costs will be reimbursed
provided the sale occurs within one year of employment and the employee is
actively employed by the Company during the period.
- - "Gross ups" to income to offset the income tax liability which may be
incurred due to the moving allowances paid by the Company. The Company
will gross up the employee's salary at the lesser of the actual liability
incurred or 50% of taxable moving expenses.
The Company Will Not Cover The Following:
The Company will not cover expenses incurred in shipment of animals, boats,
RV's, trailers, snow mobiles, plants, swing sets, above-ground swimming pools,
construction materials and other items requiring special handling.
<PAGE> 6
Nanogen Incorporated
Relocation Guidelines
Page 3
PRO-RATA REPAYMENT
An employee will be responsible for repaying a pro-rata portion of all
relocation expenses incurred by Nanogen on his/her behalf if the employee
voluntarily terminates employment with the Company within 12 months of hire. The
employee will be required to agree to this provision, in writing, at the time
the offer of employment is accepted (see Attachment "A"). The Company may decide
to waive this provision at its discretion.
REIMBURSEMENT POLICY
The employee should be informed, in writing, of the relocation assistance they
will receive at the time the offer letter is issued. Any questions regarding the
relocation policy should be discussed with the Vice President, Finance or
Director of Human Resources prior to making the offer.
After notification of the new employee's date to begin work, the Director of
Human Resources shall notify the moving company to contact the employee directly
regarding details of the shipment of the employee's household goods.
The employee shall submit an Expense Report with receipts for all relocation
expense reimbursements to the Director of Human Resources for approval.
After approval by the Director of Human Resources and the appropriate department
Vice President, forward the approved Expense Report to Payroll for payment to
the employee.
<PAGE> 7
Nanogen Incorporated
Relocation Guidelines
Page 4
ATTACHMENT "A"
NANOGEN INCORPORATED
AGREEMENT FOR REPAYMENT
OF PRO-RATA MOVING EXPENSES
I, W. J. Kitchen, agree that if I voluntarily terminate my employment within 12
months of my first day of work with Nanogen Incorporated ("Nanogen"), I will
repay to Nanogen, on a pro-rata basis, the actual total costs incurred by
Nanogen to move me and my family (if applicable) to San Diego. The pro-rata
calculation will be based upon the number of days of employment with Nanogen
divided by 365 days times the total costs described below.
1. Movement of household goods and automobile, if shipped.
2. Trip to locate housing.
3. Payments made to travel to my new location for myself, spouse and
family.
4. Temporary housing in San Diego.
5. Real estate commissions and closing costs.
/s/ W. J. KITCHEN 10-29-97
- ------------------------------- ------------------------------
Signature Date
<PAGE> 8
[NANOGEN LETTERHEAD]
December 16, 1997
W. J. Kitchen
5285 Toscana Way #836
San Diego, CA 92124
Dear W. J.:
The purpose of this letter is to document our telephone conversation confirming
your hire date as December 18, 1997. We are pleased that things have worked out
for you to be able to join us here in San Diego so quickly.
Please acknowledge receipt of this letter and your agreement by signing below
and then return this letter to me in the envelope provided. I look forward to
seeing you soon.
Sincerely,
/s/ STEVEN J. NABER
Steven J. Naber
Vice President, Finance and Chief Financial Officer
cc: Howard Birndorf
Human Resources
Agreed and accepted:
/s/ W. J. Kitchen
- ----------------------------------- ------------------------
W. J. Kitchen Date
<PAGE> 1
EXHIBIT 10.29
[NANOGEN LETTERHEAD]
November 15, 1994
PERSONAL AND CONFIDENTIAL
James P. O'Connell, Ph.D.
9 Laurelton Trail
Flemington, NJ 08822
Dear Jim:
Nanogen Incorporated ("Nanogen") is pleased to offer you the position of Vice
President of Research and Product Development, and the following terms encompass
our proposed offer. The effective date of your employment is December 15, 1994.
You will be located in our San Diego offices, and report to Nanogen's President
and Chief Operating Officer, Dr. Tina Nova. As Vice President of Research and
Product Development, your responsibilities will be as described in the attached
Exhibit A. You will be expected to devote your full-time efforts to these
responsibilities, and you will be compensated at an annual base rate of $196,000
per annum payable in equal, semi-monthly increments. On the effective date of
your employment with Nanogen, you will receive a bonus of $30,000. In addition,
you will be guaranteed a bonus of at least $30,000 for the first two years of
your employment at Nanogen.
Upon your acceptance of this proposal, you will be entitled to purchase 100,000
shares of Nanogen common stock at fair market value as determined by Nanogen's
Board. The purchase will be made through the signing of Nanogen's current form
of Stock Issuance Agreement. Purchased shares will vest on a monthly basis over
a four year period, except that you will not be vested in the initial 25% of the
shares until the first anniversary of your employment. Notwithstanding the
foregoing, you will automatically be vested in 50% of any remaining unvested
shares if you are terminated without cause or if you terminate your employment
for good reason (even if such termination occurs before the first anniversary of
your employment). You will automatically be
<PAGE> 2
Dr. James P. O'Connell -2- November 15, 1994
vested in 100% of any remaining unvested shares upon the transfer or sale of all
or substantially all of Nanogen's business or a merger with an unaffiliated
company. Upon the next financing of Nanogen after the commencement of your
employment which will result in a dilution of your ownership interest in
Nanogen, I will agree to make available for purchase by you 50,000 shares of
Nanogen common stock at the then fair market price. These shares will vest from
the time of purchase at the same rate as described above.
You will be eligible for relocation benefits consistent with your employment
level at Nanogen as specified by Nanogen's current 1994 Relocation Guidelines, a
copy of which will be provided to you. Additionally, Nanogen will work with you
to expedite the sale of your house in New Jersey. As we discussed, you will
provide Nanogen with two appraisals on the house and based on the appraisals we
will calculate your current equity. If, to sell the house in a timely fashion,
you significantly reduce the selling price, Nanogen will cover a reasonable
portion of equity loss. Nanogen will also cover the cost of the two appraisals
mentioned above.
You shall be eligible to participate in health insurance coverage and Nanogen
employee benefits and policies provided from time to time to Nanogen senior
management officers. Summaries of these plans and policies will be provided for
your review.
In addition, if, prior to the time that shares of Nanogen stock have been sold
in an initial public offering, Nanogen terminates your employment without cause
(or you terminate your employment for good reason), then the Company will
guarantee to pay you as severance a one time payment equal to one (1) year of
your then-current base level salary. If, after the time that shares of Nanogen
stock have been sold in an initial public offering, Nanogen terminates your
employment without cause (or you terminate your employment for good reason),
then the Company will guarantee to pay you as severance a one time payment equal
to six (6) months of your then-current base level salary.
For purposes of this letter, the phrase "termination without cause" shall mean a
termination of your employment by Nanogen for any reason other than: (1) the
repeated and willful failure by you to perform your reasonably assigned duties
on behalf of Nanogen; (2) the repeated gross negligence by you in carrying out
your duties; (3) illegal conduct by you in carrying out your duties; (4) the
repeated refusal by you to comply with the reasonable and lawful instructions of
the Board; or (5) repeated and willful actions by you contrary to Nanogen's best
interests. For purposes of this letter "termination for good reason" shall mean
a termination by you of your employment with Nanogen on account of the
occurrence of any of the
<PAGE> 3
Dr. James P. O'Connell -3- November 15, 1994
following without your consent which must be considered in good faith by you:
(1) a change in your status, title, position or responsibilities that
represents a material and adverse change in the status, title, position or
responsibilities described in this letter; (2) Nanogen's requiring you to be
based at any place outside metropolitan San Diego, California; (3) a reduction
in your base salary or material reduction of other compensation and benefits;
or (4) the insolvency or the filing of a petition for bankruptcy by Nanogen.
Employment with Nanogen will not be for a specific term and can be terminated
by you or by the Company at any time for any reason, with or without cause. Any
contrary representations which may have been made or which may be made to you
are/will be superseded by this offer. We request that all Nanogen executives,
to the extent possible, give advance notice if they intend to resign. If you
accept the offer, the terms described in this letter will be the terms of your
employment. Any additions or modifications of these terms must be in writing
and signed by you and the Nanogen's Chief Executive Officer.
As an obligation consistent with the offer of employment, you will be required
to sign the enclosed Proprietary Information and Inventions Agreement. The
terms and conditions regarding this letter and the offer of employment shall be
governed by the laws of the State of California.
In compliance with the federal Immigration Reform Act, your employment pursuant
to this offer is contingent on your providing the legally required proof of
your identity and authorization to work in the United States.
Assuming this letter is acceptable to you, please sign a copy and return it to
me. This offer will terminate unless accepted by November 17, 1994. We are very
excited that you will be joining Nanogen. Myself, Tina and our Board members
and employees look forward to announcing your appointment.
Very kind regards,
/s/ HOWARD C. BIRNDORF
- ------------------------------------
Howard C. Birndorf
Chairman and Chief Executive Officer
AGREED AND ACCEPTED:
/s/ JAMES P. O'CONNELL
- -------------------------------
James P. O'Connell, Ph.D.
<PAGE> 4
Nanogen INCORPORATED
CONSENT TO TAKE BLOOD SAMPLES
I, James O'Connell, am over the age of 18 years. I am applying for employment
with Nanogen Incorporated (the "Company"). I understand that if I am offered
employment with the Company, my employment may bring me into contact with
certain pathogens which may be present in serum, blood, tissue, and/or other
samples being held or tested by the Company. I further understand that the
Company has designed biosafety policies intended to minimize the risks of
infection. To prevent unfounded claims against the Company requires, as a
condition of employment, that I provide the Company with a sample of my blood at
this time and on my last day of work at the Company (or as soon afterward as the
Company requests).
I understand that samples will be taken by an independent laboratory and frozen
and maintained by an independent laboratory for such period of time as the
Company deems reasonable and necessary. I understand that neither the Company
nor its agents can guarantee that the integrity of my sample will be maintained
over time.
In consideration for my employment and continued employment with the Company, I
hereby irrevocably and voluntarily consent and authorize the Company to draw
from me the blood sample(s) described above and to maintain my blood sample(s).
I further acknowledge and agree that if any part of this Consent to Take Blood
Samples is deemed to be unenforceable for any reason, the remainder shall be
enforceable to the greatest extent permissible by law.
I UNDERSTAND THAT I WILL BE GIVEN A COPY OF THIS FORM UPON REQUEST.
I HAVE CAREFULLY READ AND VOLUNTARILY AGREE TO THE ABOVE.
/s/ JAMES P. O'CONNELL
- --------------------------------- -------------------------
Signature Date
JAMES P. O'CONNELL
- ---------------------------------
Name (please print)
<PAGE> 1
EXHIBIT 10.30
[NANOGEN LETTERHEAD]
May 24,1996
PERSONAL AND CONFIDENTIAL
Harry J. Leonhardt, Esq.
14 Glen Iris
Dove Canyon, CA 92679
Dear Harry:
Nanogen Incorporated ("Nanogen") is pleased to offer you the position of Vice
President, General Counsel and Secretary, and the following terms encompass our
offer. The effective date of your employment would be no later than July 1,
1996.
You will be located in our San Diego office, and report to Nanogen's Chief
Executive Officer, me. As Vice President, General Counsel and Secretary, you
would be responsible for all legal and intellectual property matters relating to
Nanogen and responsible for all corporate matters with regard your position as
the Secretary of Nanogen. You will be expected to devote your full-time efforts
to these responsibilities, and you will be compensated at an annual base rate of
$185,000 per annum payable in equal, semi-monthly increments. In addition, you
will be guaranteed an annual bonus of $40,000 for the first year of your
employment at Nanogen. Additional bonuses would be based on annual milestones
which would be mutually agreed upon between me and you, subject to Board of
Directors' approval.
Upon your acceptance of this proposal, you will be entitled to purchase 100,000
shares of Nanogen common stock at fair market value, as determined by Nanogen's
Board. The purchase will be made through the signing of Nanogen's current form
of Stock Purchase Agreement. These shares will vest ratably on a monthly basis
over the four-year period starting on your first day of employment, except that
you will not be vested in the initial 25% of such shares until the first
anniversary of your employment.
You will automatically be vested in 50% of any remaining unvested shares if you
are terminated without cause or if you terminate your employment for good reason
(even if such termination occurs before the first anniversary of your
employment). You will automatically be vested in 100% of any
<PAGE> 2
Harry J. Leonhardt, Esq. -2- May 24,1996
remaining unvested shares upon the transfer or sale of all or substantially all
of Nanogen's business or merger with an unaffiliated company.
In addition, you will be entitled to purchase 25,000 shares of Nanogen Preferred
Stock under the same terms as the Series B Preferred financing which was at
$2.50/share which includes one Common Share warrant at $0.25/share for every six
shares of Preferred purchased.
You will be eligible for relocation benefits consistent with your employment
level at Nanogen as specified by Nanogen's current 1996 Relocation Guidelines, a
copy of which has been provided to you. As we discussed, Nanogen will modify the
Relocation Policy with regard to temporary housing and pay reasonable rent in
San Diego for up to six months, not to exceed $2,500 per month. In addition, we
will increase the cap associated with your move as outlined in the 1996
Relocation Guidelines from $25,000 to $40,000.
You shall be eligible to participate in health insurance coverage and Nanogen
employee benefits and policies provided from time to time to Nanogen senior
management officers. Summaries of these plans and policies will be provided for
your review.
In addition, if, prior to the time that shares of Nanogen stock have been sold
in an initial public offering, Nanogen terminates your employment without cause
(or you terminate your employment for good reason), then Nanogen will guarantee
to pay you as severance a one time payment equal to one (1) year of your
then-current base level salary. If, after the time that shares of Nanogen stock
have been sold in an initial public offering, Nanogen terminates your employment
without cause (or you terminate your employment for good reason), then Nanogen
will guarantee to pay you as severance a one time payment equal to six (6)
months of your then-current base level salary.
For purposes of this letter, the phrase "termination without cause" shall mean a
termination of your employment by Nanogen for any reason other than: (1) the
repeated and willful failure by you to perform your reasonably assigned duties
on behalf of Nanogen; (2) the repeated gross negligence by you in carrying out
your duties; (3) illegal conduct by you in carrying out your duties; (4) the
repeated refusal by you to comply with the reasonable and lawful instructions of
the Board; or (5) repeated and willful actions by you contrary to Nanogen's best
interests. For purposes of this letter "termination for good reason" shall
mean a termination by you of your employment with Nanogen on account of the
occurrence of any of the following without your consent which must be considered
in good faith by you: (1) a change in your status, title, position or
responsibilities that represents a material and adverse change in the status,
title, position or responsibilities described in this letter;
<PAGE> 3
Harry J. Leonhardt, Esq. -3- May 24,1996
(2) Nanogen's requiring you to be based at any place outside metropolitan San
Diego, California; (3) a reduction in your base salary or material reduction of
other compensation and benefits; or (4) the insolvency or the filing of a
petition for bankruptcy by Nanogen.
Employment with Nanogen will not be for a specific term and can be terminated by
you or by Nanogen at any time for any reason, with or without cause and with or
without notice. Any contrary representations, agreements or promises of any
kind, whether written, oral, expressed or implied which may have been made or
which may be made to you are/will be superseded by this offer. We request that
all Nanogen executives, to the extent possible, give advance notice if they
intend to resign. If you accept the offer, the terms described in this letter
will be the terms of your employment. Any additions or modifications of these
terms must be in writing and signed by you and Nanogen's Chief Executive
Officer.
As an obligation consistent with the offer of employment, you will be required
to sign the enclosed Proprietary Information, Inventions and Dispute Resolution
Agreement which is incorporated into this agreement by reference. The terms and
conditions regarding this letter and the offer of employment shall be governed
by the laws of the State of California.
In compliance with the federal Immigration Reform Act, your employment pursuant
to this offer is contingent on your providing the legally required proof of your
identity and authorization to work in the United States.
Assuming this letter is acceptable to you, please sign a copy and return it to
me. This offer will terminate unless accepted by June 1, 1996. We are very
excited that you will be joining Nanogen. Myself, Tina, our Board members and
employees look forward to announcing your appointment.
Very kind regards,
/s/ HOWARD C. BIRNDORF
Howard C. Birndorf
HCB/cg
AGREED AND ACCEPTED:
/s/ HARRY J. LEOHNHARDT
- -----------------------------------
Harry J. Leohnhardt, Esq.
<PAGE> 4
Attachment "A"
NANOGEN INCORPORATED
AGREEMENT FOR REPAYMENT
OF PRO-RATA MOVING EXPENSES
I, Harry J. Leonhardt, agree that if I voluntarily terminate my employment
within 12 months of 7/1/96 , my first day of work with Nanogen Incorporated
("Nanogen"), I will repay to Nanogen, on a pro-rata basis, the actual total
costs incurred by Nanogen to move me and my family (if applicable) to San Diego.
The pro-rata calculation will be based upon the number of days of employment
with Nanogen divided by 365 days times the total costs described below.
1. Movement of household goods.
2. Trip to locate housing.
3. Payments made to travel to my new location for myself, spouse and
family.
4. Temporary housing in San Diego.
<PAGE> 1
EXHIBIT 10.31
[NANOGEN LETTERHEAD]
September 24, 1997
Steven J. Naber
11 Fair Elms
Laguna Niguel, CA 92677
Dear Steve:
Nanogen Incorporated ("Nanogen") is pleased to offer you the position of Vice
President Finance/Chief Financial Officer, with Nanogen Incorporated and the
following terms encompass our offer. The effective date of this position will be
as soon as possible, but hopefully not later than October 20, 1997. If you
accept this offer, you will be an exempt employee reporting to me, Nanogen's
CEO.
You will be located in our San Diego office, and as Vice President Finance/CFO,
will be responsible for directing financial operations for Nanogen, including
our initial stock offering and related activities. You will be expected to
devote your full-time efforts to these responsibilities, and you will be
compensated at an annual base rate of $165,000 per annum payable in equal,
semi-monthly increments.
As a Vice President, you will be a participant in Nanogen's Executive Incentive
Compensation Plan. As part of this plan, you will be grandfathered into the 1997
incentive plan and eligible for a bonus of up to $20,000 for 1997, and $40,000
for 1998. All bonuses are based on annual milestones which would be mutually
agreed upon between you and me, and subject to Board of Directors' approval.
Upon your acceptance of this proposal, you will be entitled to purchase 150,000
shares of Nanogen common stock at fair market value, as determined by Nanogen's
Board, upon the terms contained in the Company's Stock Purchase Agreement which
includes a four-year vesting/repurchasing provision.
You will be eligible to participate in all Company-sponsored benefits upon your
date of hire. At present, these include full medical, dental and vision
insurance coverage for yourself, with the option to include your family with a
minimal contribution. In addition, you will be eligible to participate in our
life and long-term disability insurance as well as our 401(k) plans
(non-employer contributing) as well as our 125 Flexible Benefits Program. A
benefits summary is included for your review.
<PAGE> 2
Steven J. Naber
September 24, 1997
Page 2
Should you choose to relocate your household from Orange County to San Diego
during your first nine months of employment, you will be eligible for relocation
benefits consistent with your employment level at Nanogen. A copy of Nanogen's
1997 Executive Relocation Guidelines are provided to you herewith. In addition
to the relocation benefits contained in the guidelines, Nanogen is willing to
offer to cover the cost of temporary housing (to be arranged by Nanogen) during
your first nine months of employment, up to a monthly cap of $3,000.
The Company also agrees to provide you with six months of severance pay, should
your employment be terminated without cause: a) during your first year of
employment, or b) before the time in which shares of Nanogen common stock have
been sold in an initial public offering, if this has not taken place during your
first year of employment. For the purpose of this letter, the phrase
"termination without cause" shall mean a termination of your employment by
Nanogen for any reason other than: 1) the repeated and willful failure by you to
perform your reasonably assigned duties on behalf of Nanogen; 2) the repeated
gross negligence by you in carrying out your duties; 3) illegal conduct by you
in carrying out your duties; 4) the repeated refusal by you to comply with the
reasonable and lawful instructions of the Board; or 5) repeated and willful
actions by you contrary to Nanogen's best interests.
Employment with Nanogen will not be for a specific term and can be terminated by
you or by the Company at any time for any reason, with or without cause and with
or without notice. Any contrary representations, agreements, or promises of any
kind, whether written, oral, expressed or implied which may have been made or
which may be made to you are/will be superseded by this offer. We request that
all Nanogen employees, to the extent possible, give advance notice if they
intend to resign. If you accept the offer, the terms described in this letter
will be the terms of your employment. Any additions or modifications of these
terms must be in writing and signed by you and Nanogen's Chief Executive
Officer.
As an obligation consistent with the offer of employment, you will be required
to sign the enclosed Blood Consent Form, and the Proprietary Information and
Inventions Agreement; and on your first day of employment, to provide the
Company with the legally required proof of your identity and authorization to
work in the United States.
Assuming this letter is acceptable to you, please sign a copy and return it to
me. This offer will terminate unless accepted by October 6, 1997. We are very
excited that you
<PAGE> 3
Steven J. Naber
September 24, 1997
Page 3
will be joining Nanogen. Myself, Tina, our Board Members and employees look
forward to announcing your appointment.
Sincerely yours,
/s/ HOWARD C. BIRNDORF
Howard C. Birndorf
Enclosures
I accept this offer under the terms and conditions set forth in this letter.
/s/ STEVEN J. NABER 9-26-97
- --------------------------------- ---------------------------
Steven J. Naber Date
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated December 19, 1997,
in the Registration Statement (Form S-1) and related Prospectus of Nanogen, Inc.
for the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
December 19, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF COUNSEL
Lyon & Lyon consents to the reference to it under the caption EXPERTS in
the Registration Statement and related Prospectus of Nanogen, Inc. for the
registration of Nanogen's common stock.
Date: December 16, 1997 By: /s/ DAVID B. MURPHY
-----------------------------------
David B. Murphy
Partner
LYON & LYON LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 16,775,228 21,988,118
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 17,329,246 22,881,651
<PP&E> 1,998,939 3,254,911
<DEPRECIATION> 683,399 1,050,372
<TOTAL-ASSETS> 19,090,278 25,476,366
<CURRENT-LIABILITIES> 2,476,141 2,266,880
<BONDS> 1,508,185 1,768,359
0 0
10,785 13,684
<COMMON> 2,749 2,816
<OTHER-SE> 15,666,059 22,140,673
<TOTAL-LIABILITY-AND-EQUITY> 19,090,278 25,476,366
<SALES> 0 0
<TOTAL-REVENUES> 1,644,078 2,366,711
<CGS> 0 0
<TOTAL-COSTS> 9,358,458 10,294,468
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 63,957 (750,212)
<INCOME-PRETAX> (7,778,337) (7,177,545)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,778,337) (7,177,545)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,778,337) (7,177,545)
<EPS-PRIMARY> (.58) (.51)
<EPS-DILUTED> 0 0
</TABLE>
