<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1998
REGISTRATION NO. 333-42791
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
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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<S> <C> <C>
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, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL 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
WILLIAM A. HINES AMY E. REES
Pillsbury Madison & Sutro LLP ELIZABETH C. HEWITT
P.O. Box 7880 Wilson Sonsini Goodrich & Rosati
San Francisco, California 94120-7880 Professional Corporation
(415) 983-1000 650 Page Mill Road
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. [ ]
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 March 20, 1998
3,600,000 Shares
Nanogen, Inc.
COMMON STOCK
NANOGEN LOGO
------------------------
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 $10 AND $12
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)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total(3)......................... $ $ $
</TABLE>
- ------------
(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 540,000
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 April , 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.
April , 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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<PAGE> 5
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.
</TABLE>
<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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<S> <C>
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.................................................. 43
Certain Transactions........................................ 54
Principal Stockholders...................................... 58
Description of Capital Stock................................ 59
Shares Eligible for Future Sale............................. 62
Underwriters................................................ 64
Legal Matters............................................... 65
Experts..................................................... 65
Additional Information...................................... 66
Index to Financial Statements............................... F-1
</TABLE>
------------------------
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(R) 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, (iii) assumes a two-for-three reverse split of the Company's capital stock
and (iv) reflects the conversion of all of the Company's outstanding shares of
Preferred Stock into 9,254,876 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") integrates 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
4
<PAGE> 8
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.
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....................................... 3,600,000 shares
Common Stock to be outstanding after the offering.......... 17,941,843 shares(1)
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
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(SEPTEMBER 1, 1993) YEARS ENDED DECEMBER 31,
TO DECEMBER 31, --------------------------------------
1993 1994 1995 1996 1997
-------------------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract and grant revenue............ $ -- $ -- $ 318 $ 1,644 $ 2,123
Sponsored research.................... -- -- -- -- 1,243
------- ------- ------- ------- --------
Total revenues..................... -- -- 318 1,644 3,366
Operating expenses:
Research and development.............. 183 1,345 3,356 6,931 11,687
General and administrative............ 225 1,065 1,646 2,427 3,869
------- ------- ------- ------- --------
Total operating expenses........... 408 2,410 5,002 9,358 15,556
Interest income (expense), net.......... -- 34 96 (64) 975
------- ------- ------- ------- --------
Net loss................................ $ (408) $(2,376) $(4,588) $(7,778) $(11,215)
======= ======= ======= ======= ========
Pro forma net loss per share -- basic
and diluted(2)........................ $ (1.10)
========
Number of shares used in computing
pro forma net loss per share -- basic
and diluted(2)..................... 10,158
========
</TABLE>
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<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 19,498 $ 76,426
Working capital............................................. 16,775 73,703
Total assets................................................ 23,215 80,143
Capital lease obligations, less current portion............. 1,193 1,193
Accumulated deficit......................................... (26,365) (26,365)
Total stockholders' equity.................................. 18,599 75,527
</TABLE>
- ---------------
(1) Based on the number of shares outstanding at February 28, 1998. Includes an
aggregate of 1,909,089 shares of Common Stock (based on the assumed initial
public offering price of $11.00 per share) to be issued in the Private
Placement. Excludes 1,514,525 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
521,109 shares of Common Stock as of February 28, 1998. Also excludes
420,703 shares of Common Stock subject to outstanding warrants and 46,993
shares of Preferred Stock subject to outstanding warrants, which will
convert into warrants to purchase 46,993 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 the sale by the Company of (i) 3,600,000 shares of
Common Stock offered hereby at an assumed public offering price of $11.00
per share, and (ii) 1,909,089 shares of Common Stock to be issued in the
Private Placement at an assumed price of $11.00 per share, and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
6
<PAGE> 10
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. When used herein, the words "expects,"
"anticipates," "estimates," "intends," "plans" and similar expressions are
intended to identify forward-looking statements. 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 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 December
31, 1997, had an accumulated deficit of approximately $26.4 million. For the
years ended December 31, 1995, 1996 and 1997, Nanogen had net losses of
approximately $4.6 million, $7.8 million and $11.2 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 and disposable cartridges at a
gross margin sufficient to achieve profitability. The Company intends to
significantly increase its investments in
8
<PAGE> 12
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
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."
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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 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
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<PAGE> 14
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 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
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<PAGE> 15
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 or that such laws and regulations will not have a
material adverse effect upon the Company's business, financial condition and
results of operation.
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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 41.3% 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 3,600,000
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 in the
Private Placement, the remaining 11,076,398 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 71,400
shares will be eligible for immediate sale on the date of this Prospectus, (ii)
approximately 10,969,000 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 1,909,089 shares issued in the Private Placement (assuming an
initial public offering price of
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$11.00 per share) 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. 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."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price will be substantially higher than the net
tangible book value per share of Common Stock. Assuming an initial public
offering price of $11.00 per share, purchasers of shares of Common Stock in this
offering will incur immediate and substantial dilution of $6.76 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 "Dilution."
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. See "Dividend
Policy."
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USE OF PROCEEDS
The proceeds to the Company from the sale of the 3,600,000 shares of Common
Stock being offered by the Company are estimated to be approximately $35.9
million (approximately $41.5 million if the Underwriters' over-allotment option
is exercised in full), assuming an initial public offering price of $11.00 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 $11.00 per share, the Company
plans to sell directly to Becton Dickinson, Hoechst and Elan an aggregate of
1,909,089 shares of its Common Stock for an aggregate purchase price of $21.0
million.
Of the aggregate estimated net proceeds of $56.9 million, the Company
currently expects to use approximately $27.9 million for research and product
development, including internal development, acquisitions, licenses or as part
of commitments for third-party collaborative arrangements; approximately $13.2
million for operational and capital expenditures, including facilities
expansion, manufacturing scale-up and manufacturing and laboratory equipment;
and approximately $5.2 million for establishing regulatory and sales and
marketing capabilities. The Company will use the balance of approximately $10.6
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
December 31, 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 sale of 1,909,089 shares of Common Stock to be issued in the
Private Placement at an assumed price of $11.00 per share and the sale of the
3,600,000 shares of Common Stock being offered hereby at an assumed initial
public offering price of $11.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations, less current portion............. $ 1,193 $ 1,193
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; 12,306,065
shares issued and outstanding, pro forma; 17,815,154
shares issued and outstanding, as adjusted(1).......... 12 18
Additional paid-in capital................................ 47,936 104,858
Notes receivable from stockholders........................ (1,130) (1,130)
Deferred compensation..................................... (1,854) (1,854)
Accumulated deficit....................................... (26,365) (26,365)
-------- --------
Total stockholders' equity............................. 18,599 75,527
-------- --------
Total capitalization.............................. $ 19,792 $ 76,720
======== ========
</TABLE>
- ---------------
(1) Based on the number of shares of Common Stock outstanding at December 31,
1997. Includes 1,543,939 shares of Common Stock purchased through early
exercise of incentive stock options which remain subject to repurchase by
the Company. Excludes (i) 1,508,853 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 416,716 shares of Common Stock as of December 31, 1997, (ii) warrants to
purchase 420,703 shares of Common Stock, and (iii) warrants to purchase
46,000 shares of Preferred Stock, which will convert into warrants for the
purchase of 46,000 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 December 31,
1997 was approximately $18,599,000, or $1.51 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 conversion of all outstanding shares of
the Company's Preferred Stock). After giving effect to the sale of 1,909,089
shares of Common Stock in the Private Placement at a price of $11.00 per share,
the pro forma net tangible book value at December 31, 1997 would have been
approximately $39,599,000 or $2.79 per share. After giving effect to the sale of
the 3,600,000 shares of Common Stock offered by the Company hereby (at an
assumed initial public offering price of $11.00 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 December 31,
1997 would have been approximately $75,527,000 or $4.24 per share. This
represents an immediate increase in such net tangible book value of $1.45 per
share to existing stockholders and an immediate dilution of $6.76 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....................... $11.00
------
Pro forma net tangible book value before offering......... $ 1.51
Increase attributable to the Private Placement............ 1.28
------
Pro forma net tangible book value per share after the
Private Placement...................................... 2.79
Pro forma increase attributable to new investors.......... 1.45
------
Pro forma net tangible book value after offering............ 4.24 4.24
------
Dilution to new investors................................... $ 6.76
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
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 $11.00 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............ 14,215,154 79.8% $ 67,844,060 63.1% $4.77
New investors.................... 3,600,000 20.2 39,600,000 36.9
----------- ----- ------------ -----
Total.................. 17,815,154 100.0% $107,444,060 100.0%
=========== ===== ============ =====
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
option or of any outstanding stock options or warrants. As of February 28, 1998,
there were (i) options to purchase an aggregate of 522,412 shares of Common
Stock at exercise prices ranging from $.02 to $.90 per share, (ii) warrants to
purchase 469,933 shares of Common Stock, and (iii) warrants to purchase 46,933
shares of Preferred Stock, which will convert into warrants for the purchase of
46,933 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, 1997, and the Company's balance sheet data at December 31, 1996 and
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, 1994 and 1995, and the statement of operations data for the
period from inception (September 1, 1993) to December 31, 1993 and for the year
ended December 31, 1994, have been derived from financial statements audited by
Ernst & Young LLP which are not included herein. 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)
TO YEARS ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------
1993 1994 1995 1996 1997
--------------------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract and grant revenue......... $ -- $ -- $ 318 $ 1,644 $ 2,123
Sponsored research................. -- -- -- -- 1,243
------- ------- ------- ------- -----------
Total revenues.................. -- -- 318 1,644 3,366
Operating expenses:
Research and development........... 183 1,345 3,356 6,931 11,687
General and administrative......... 225 1,065 1,646 2,427 3,869
------- ------- ------- ------- -----------
Total operating expenses........ 408 2,410 5,002 9,358 15,556
Interest income (expense), net....... -- 34 96 (64) 975
------- ------- ------- ------- -----------
Net loss............................. $ (408) $(2,376) $(4,588) $(7,778) $ (11,215)
======= ======= ======= ======= ===========
Pro forma net loss per share -- basic
and diluted(1)..................... $ (1.10)
===========
Number of shares used in computing
pro forma net loss per
share -- basic and diluted(1)... 10,158,288
===========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
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 $ 19,498
Working capital (deficit)....................... (264) (22) 3,931 14,853 16,775
Total assets.................................... 118 1,622 6,339 19,090 23,215
Capital lease obligations, less current
portion....................................... -- 347 631 935 1,193
Accumulated deficit............................. (408) (2,784) (7,372) (15,151) (26,365)
Total stockholders' equity (net capital
deficiency)................................... (264) 865 4,950 15,680 18,599
</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 integrates 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 December 31, 1997, had an accumulated
deficit of approximately $26.4 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
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
Revenues. For the year ended December 31, 1997, revenue from contracts,
grants and sponsored research totaled approximately $3.4 million compared to
approximately $1.6 million and approximately $300,000 for the years ended
December 31, 1996 and 1995, respectively. This increase was due to an increase
in the number of active contracts to six during the year ended December 31, 1997
from three and one during the years ended December 31, 1996 and 1995,
respectively. In 1997, the Company received funding from The National Institute
of Standards and Technology -- Advanced Technology Program (ATP II) under a $2.0
million two-year award initiated in May 1997, a one-year grant of $900,000 from
the Bode Technology Group ("Bode") initiated in May 1997, funding from The
National Institute of Justice under a $700,000 one-year award initiated in March
1997, and funding from The Potomac Institute for Policy Studies under an
approximately $128,000 grant initiated in August 1997. 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." In 1996, the Company received funding from The National Institute of
Standards and Technology -- Advanced Technology Program ("ATP I") 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 Bode initiated in March
1996. In 1995, revenue was only recognized under the ATP I award. The Company
had no sponsored research revenue in 1996 or 1995.
Research and Development Expenses. Research and development expenses
increased to approximately $11.7 million during the year ended December 31, 1997
from approximately $6.9 million and $3.4 million in the years ended December 31,
1996 and 1995, respectively. Research and development expenses include salaries,
lab supplies, consulting, travel, facilities and other expenditures relating to
research and product development. The increases from year to year are
attributable to the continued growth of research activities, including hiring of
additional scientific personnel, increased purchases of laboratory supplies and
services to support the increased number of contracts and grants and the
sponsored research program with Becton Dickinson, and expansion of research and
development facilities. 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
were approximately $3.9 million in 1997 compared to approximately $2.4 million
in 1996 and approximately $1.6 million in 1995, 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. The Company had net interest income of
approximately $975,000 in 1997 compared to net interest expense of approximately
$64,000 in 1996 and net interest income of $96,000 in 1995. The significant
increase in 1997 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.
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 December 31, 1997, the Company had received net
proceeds aggregating approximately $44.1 million from these transactions. In
addition, the Company has
22
<PAGE> 26
received proceeds from equipment financing totaling approximately $3.4 million
through December 31, 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 $9.6 million, $6.1
million and $4.2 million for 1997, 1996 and 1995, 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. Pursuant to the terms of a licensing agreement, at December 31,
1997 the Company was committed to expend $5.75 million over the next six years
for the further development of products utilizing technology licensed
thereunder. 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 December 31, 1997, the Company's principal source of liquidity was
approximately $19.5 million in cash and cash equivalents. While the Company
believes that its 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.
In December 1997, the Company entered into an Agreement and Plan of Merger
with Nanotronics. Nanotronics' research, which is currently funded through
government grants with the Department of the Air Force, is exploratory in nature
and at a very early stage. The in-process technology which was acquired as a
result of the Company's purchase of Nanotronics on January 29, 1998 relates
generally to nanotechnology and molecular electronics. Potential applications of
the technology include high density optical storage systems for electronics
applications and self-assembly applications relating to microfabrication and
nanofabrication. Currently, the Company anticipates that funding for Nanotronics
will continue primarily through government grant sources until feasibility is
demonstrated. If technological feasibility is demonstrated, the Company expects
to pursue corporate partnership opportunities. Given the early stage of the
technology and the recency of the acquisition, the Company has not yet
determined which applications may be developed and the extent of its resources
to be committed to each such application.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1997, the Company had federal and California net
operating loss ("NOL") carryforwards of approximately $25.0 million and $6.1
million, respectively, and approximately $820,000 and
23
<PAGE> 27
$502,000 of research and development ("R&D") tax credits available to offset
future federal and state income taxes, respectively. The federal and California
NOL carryforwards, which are subject to alternative minimum tax limitations and
to examination by the tax authorities, will begin expiring in 2006 and 1998,
respectively, unless previously utilized. The federal and California R&D tax
credit carryforwards will begin expiring in 2007 unless previously 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.
YEAR 2000 ISSUES
The Company is currently developing a plan to insure that its systems and
software infrastructure are Year 2000 compliant. Key financial, information and
operational systems will be assessed and plans will be developed to address
required systems modifications. Given the relatively small size of the Company's
systems and the predominantly new hardware, software and operating systems,
management does not anticipate any significant delays in becoming Year 2000
compliant. However, the Company is unable to control whether its current and
future partners' systems are Year 2000 compliant. To the extent that partners
would be unable to order products or pay invoices or suppliers would be unable
to manufacture and ship product, the Company's operations could be affected.
However, management does not believe that Year 2000 changes will have a material
impact on the Company's business, financial condition or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
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 integrates 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 non-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. The Company is aware of certain U.S. and corresponding foreign
patents and applications which are assigned to Affymax Technologies, N.V. and
which relate to certain devices having 1,000 or more groups of oligonucleotides
occupying a total area of less than 1 cm(2) on a substrate. In the event that
the Company proceeds with the development of arrays with more than 1,000 groups
of oligonucleotides, the Company expects to design its devices through, among
other things, the selection of the physical dimensions and methods of binding so
as to avoid infringing these patents. 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
27
<PAGE> 31
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 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
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<PAGE> 32
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 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."
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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 March 1998, the Company entered into an agreement 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 666,666 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 generally allocated in proportion to cash
funding, (ii) profits generally shared equally, and (iii) distributions
allocated 60% to Becton Dickinson Venture and 40% to NanoVenture until
unrecovered partner cash contributions are equalized and thereafter
distributions shared equally. The Master Agreement provides that the Partnership
will pay to Becton Dickinson certain minimum allowances of up to an aggregate of
$8,000,000 which Becton Dickinson will spend on the marketing, sale and
distribution of the Partnership's products, if developed. The Master Agreement
also 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. The December 31,
1997 milestones have been achieved, however there can be no assurance that any
of the June 30, 1998 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.
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<PAGE> 38
Concurrently with the execution of the Master Agreement, Nanogen entered
into a worldwide, royalty-bearing, nonexclusive License Agreement with Becton
Dickinson, without a right to sublicense, 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.
Certain events, including a failure by the Partnership to achieve certain
milestones set forth in the Collaborative Agreement 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
although Nanogen has currently budgeted an aggregate of $3.83 million for
materials costs during the first two years of the agreement. The agreement
contemplates the formation of a joint venture or other joint relationship 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 capital stock outstanding on December 5, 1997
as follows: (i) upon the execution of a definitive research and development
agreement between the parties, a warrant for the purchase of one percent of the
outstanding shares of Company Common Stock (assuming conversion of the Preferred
Stock into Common Stock) on December 5, 1997 (the "Baseline Outstanding Share
Amount") at a 25% premium to market price on the date of execution, (ii) upon
announcement by the parties of entry into the product development phase of the
research and development collaboration, a warrant for the purchase of 1.5% of
the Baseline Outstanding Share Amount at a 50% premium to market price on the
date of such entry and (iii) upon the first commercial sale by the joint venture
or other joint relationship, a warrant to purchase 1.5% of the Baseline
Outstanding Share Amount at a 50% premium to market price on the date of such
sale. The warrants will have five-year maximum terms, provided that with respect
to each such warrant issuance, if at any time subsequent to the issuance of the
warrant the price of the Company's Common Stock exceeds the exercise price by
50% or more, Hoechst must exercise such warrant no later than the end of its
next fiscal year.
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
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<PAGE> 39
$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. 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 31, 1997, the Company had 78 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.
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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 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, four
indications of allowability and 15 additional patent application families
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 U.S. Patent No. 4,787,963 relating
to methods and means of annealing complementary nucleic molecules in exchange
for payment of an initial fee, aggregate payments of $1 million during the
agreement's first two years and the potential payment of certain royalties. 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. The Company is aware of certain
U.S. and
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<PAGE> 41
corresponding foreign patents and applications which are assigned to Affymax
Technologies, N.V. and which relate to certain devices having 1,000 or more
groups of oligonucleotides occupying a total area of less than 1 cm(2) on a
substrate. In the event that the Company proceeds with the development of arrays
with more than 1,000 groups of oligonucleotides, the Company expects to design
its devices through, among other things, the selection of the physical
dimensions and methods of binding so as to avoid infringing these patents. The
Company is aware of certain U.S. and European patents and patent applications
owned by Isis Innovations Ltd. (E.M. Southern) ("Isis Innovations"). The Company
has opposed one such allowed European patent which had broad claims to certain
array technology for analyzing a predetermined polynucleotide sequence. Isis
Innovations' position with respect to the opposed patent is that such claims
relate to what it terms the "diagnostic mode." Those claims have now all been
narrowed to the point that, if such claims are accepted by the European Patent
Office, they would not be infringed by the Company's technology. It is not
possible to determine whether or not such claims will be accepted, additionally
narrowed or canceled in their entirety as a result of the opposition proceeding
or during prosecution or will be allowed and issued as patents. If the claims of
the original European patent survive the opposition or if an application
relating to arrays issues in another country with claims as broad as the
original European patent, the Company could be subject to infringement claims
that could delay or preclude sales of some or all of its anticipated diagnostic
products.
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 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.
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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 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 manufac-
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ture, 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 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.
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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 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.
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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 May 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 31, 1997, the Company had 90 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.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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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, Chief Executive Officer and
Chief Financial Officer
Tina S. Nova, Ph.D.(1).......... 44 President, Chief Operating Officer and Director
W. J. Kitchen, Sc.D............. 55 Senior Vice President, Operations
Harry J. Leonhardt, Esq......... 41 Vice President, General Counsel and Secretary
James P. O'Connell, Ph.D........ 51 Vice President, Research and Product Development
Kieran T. Gallahue.............. 34 Vice President, Strategic Marketing
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
Richard R. Anderson, Ph.D....... 47 Senior Director, Drug Discovery
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 Chief Financial
Officer since December 1997. He previously served as Chief Financial Officer
from September 1993 to October 1997. 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
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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
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.
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.
Kieran T. Gallahue has served as Vice President, Strategic Marketing since
January 1998. From 1995 to 1997, he served as Vice President of the Critical
Care Business Unit for Instrumentation Laboratory ("IL") where he was
responsible for the worldwide strategic sales and marketing, and research and
development efforts for the product line. From 1992 to 1995, he held a variety
of sales and marketing positions within IL. In addition, Mr. Gallahue has held
various marketing positions within Procter & Gamble from 1991 to 1992 and the
General Electric Company from 1985 to 1989. Mr. Gallahue holds an MBA from the
Harvard Business School.
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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<PAGE> 48
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, Chief Financial Officer and a director of
Elan, a leading drug delivery and biopharmaceutical company headquartered in
Dublin, 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 Research 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
45
<PAGE> 49
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.
Richard A. Anderson, Ph.D. joined the Company in January 1998 as Senior
Director of Drug Discovery. From April 1988 to January of 1998, Dr. Anderson
held technical and managerial positions at Biosite Diagnostics Incorporated
("Biosite"), which he co-founded. While at Biosite, Dr. Anderson served as
Director of Product Development where he led the development of all of Biosite's
current immunodiagnostic products and was a co-inventor on several patents. From
March 1984 to April 1988, Dr. Anderson was employed by Hybritech, Inc. where he
developed several immunodiagnostic products for use in clinical laboratories and
held the position of Scientific Investigator. From July 1981 to February 1984,
Dr. Anderson was a Research Scientist with the Ames Division of Miles
Laboratories where he developed products for clinical laboratories. Dr. Anderson
received a Ph.D. in Physical Chemistry from the University of California, Davis
and from 1979 to 1981 held postdoctoral fellowships in the departments of
chemistry at the University of California, Davis and the University of Chicago.
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 Director of Gene Discovery and
Exploratory Research from July 1995 to August 1997 and was an Associate Director
of Molecular Biology from August 1993 to June 1995. 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
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<PAGE> 50
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").
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 16,666 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.
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<PAGE> 51
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 $100,000, for services rendered in all capacities to
the Company during the fiscal years ended December 31, 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
--------------------------- ---- --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Howard C. Birndorf
Chief Executive Officer and
Chief Financial Officer........ 1997 $285,010 $75,000 $ -- 437,496
1996 270,005 60,000 -- 183,333
Tina S. Nova, Ph.D.
President and Chief Operating
Officer........................ 1997 225,007 60,000 -- 160,379
1996 198,004 39,600 -- 50,000
James P. O'Connell, Ph.D.
Vice President, Research and
Product Development............ 1997 218,007 35,000 -- 106,096
1996 206,004 38,600 19,428(1) 33,333
Harry J. Leonhardt, Esq.
Vice President, General Counsel
and Secretary.................. 1997 190,006 60,000(3) 42,138(1) 85,200
1996 92,503(2) 20,000(3) 20,860(1) 66,666
</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. Mr. Leonhardt's salary for
1997 reflects a partial year of service.
(3) $20,000 of Mr. Leonhardt's bonus in each of 1996 and 1997 constitutes a
bonus granted to Mr. Leonhardt in connection with his hiring in July 1996.
The following tables set forth certain information as of December 31, 1997
and for the fiscal year then ended with respect to stock options granted to and
exercised by the individuals named in the Summary Compensation Table above.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION POTENTIAL REALIZABLE
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4) VALUE AT INITIAL
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------- PUBLIC OFFERING
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE(2) 5%($) 10%($) PRICE($)(5)
---- ----------- -------------- --------- ---------- --------- --------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard C. Birndorf.... 437,496(2) 27.5808% $.90 5/16/07 $247,625 $627,530 $4,418,710
Tina S. Nova, Ph.D.... 160,379(3) 10.1107 .90 5/16/07 90,775 230,043 1,619,828
James P. O'Connell,
Ph.D................ 106,096(3) 6.6885 .90 5/16/07 60,051 152,181 1,071,570
Harry J. Leonhardt,
Esq................. 85,200(3) 5.3712 .90 5/16/07 48,224 122,208 860,520
</TABLE>
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<PAGE> 52
- ---------------
(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 1997 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) 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.
(5) This value assumes (i) an initial public offering price of $11.00 per share,
(ii) that the options are exercised in full and (iii) that the Company's
right of repurchase and any contractual and legal restrictions on the sale
of shares issued upon exercise do not apply.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 1997 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)
------------------------ -------------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
---- ----------------- -------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
Howard C. Birndorf........ 437,496(2) -- --/-- --/--
Tina S. Nova, Ph.D........ 160,379(2) -- --/-- --/--
James P. O'Connell,
Ph.D.................... 106,096(2) -- --/-- --/--
Harry J. Leonhardt,
Esq..................... 85,200(2) -- --/-- --/--
</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
49
<PAGE> 53
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 February 28, 1998, the Company had outstanding options to purchase an
aggregate of 152,147 shares of Common Stock at exercise prices ranging from $.02
to $.90 per share, or a weighted average exercise price per share of $.22 under
the Prior Stock Plans. At the date of adoption of the 1997 Stock Plan of the
Company a total of 342,419 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 2,241,341 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 500,000 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.
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<PAGE> 54
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 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 200,000 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
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<PAGE> 55
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 February 28, 1998, under the 1997 Stock Plan the Company had
outstanding options to purchase an aggregate of 368,962 shares of Common Stock
at an exercise price of $.90 per share. The total number of restricted shares,
stock units, options and SARs available for grant under the 1997 Stock Plan is
650,997 (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 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 100,000 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 1,666 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.
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<PAGE> 56
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.
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.
53
<PAGE> 57
CERTAIN TRANSACTIONS
PREFERRED STOCK AND WARRANT FINANCINGS
The Company issued shares of Preferred Stock and warrants between February
10, 1994 and January 1998 in the following private placement transactions: (i)
an aggregate of 1,559,769 shares of Series A Preferred Stock at $2.25 per share,
(ii) an aggregate of 2,493,725 shares of Series B Preferred Stock at $3.75 per
share, (iii) an aggregate of 4,369,049 shares of Series C Preferred Stock at
$6.00 per share, and (iv) an aggregate of 832,333 shares of Series D Preferred
Stock at $9.00 per share. The Company also issued to purchasers of Series B
Preferred Stock warrants exercisable for an aggregate of 420,703 shares of
Common Stock at an exercise price of $.375 per share (collectively, "Common
Stock Warrants"). Certain purchasers of Series B Preferred Stock also received
warrants exercisable for an aggregate of 40,000 shares of Series B Preferred
Stock at an exercise price of $2.25 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(1)........ 666,666 399,999 92,276 76,079 66,666 20,000
Kleiner Perkins Caufield &
Byers VI (2)........................... 666,666 400,000 92,277 -- 66,666 20,000
Sprout Capital VII, L.P.(3).............. -- 794,666 68,707 -- 132,444 --
Interwest Partners(4).................... -- 666,666 57,677 -- 111,111 --
Howard C. Birndorf....................... 133,333 160,000 25,376 -- 26,666 --
Harry J. Leonhardt, Esq.................. -- 16,666 -- -- 2,778 --
Elan Corporation, plc(5)................. -- -- 833,333 -- --
Oracle Strategic Partners, LP............ -- -- 833,333 -- --
Becton, Dickinson and Company............ -- -- -- 666,666 -- --
Thomas G. Lynch(5)....................... -- -- -- 22,222 -- --
Cam L. Garner............................ 11,111
</TABLE>
- ---------------
(1) Represents (i) 606,060 shares of Series A Preferred Stock, 363,636 shares of
Series B Preferred Stock, 83,888 shares of Series C Preferred Stock, 60,606
Common Stock Warrants and 18,182 Series B Warrants purchased by Enterprise
Partners II, L.P. ("Enterprise Partners"), (ii) 60,606 shares of Series A
Preferred Stock, 36,363 shares of Series B Preferred Stock, 8,388 shares of
Series C Preferred Stock, 6,060 Common Stock Warrants and 1,818 Series B
Warrants purchased by Enterprise Associates II, L.P. ("Enterprise
Associates"), (iii) 6,820 shares of Series D Preferred Stock received by
Enterprise Partners III, L.P. in connection with the Company's purchase of
Nanotronics and (iv) 480 shares of Series D Preferred Stock received by
Enterprise Partners III Associates, L.P. in connection with the Company's
purchase of Nanotronics. 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) 578,000 shares of Series A Preferred Stock, 346,800 shares of
Series B Preferred Stock, 92,277 shares of Series C Preferred Stock, 57,800
Common Stock Warrants and 17,340 Series B Warrants purchased by Kleiner
Perkins Caufield & Byers VI ("KPCB VI"), and (ii) 88,666 shares of Series A
Preferred Stock, 53,200 shares of Series B Preferred Stock, 8,866 Common
Stock Warrants and 2,660 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.
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<PAGE> 58
(3) Represents (i) 61,062 shares of Series B Preferred Stock, 5,279 shares of
Series C Preferred Stock and 10,177 Common Stock Warrants purchased by DLJ
and (ii) 733,604 shares of Series B Preferred Stock, 63,428 shares of Series
C Preferred Stock and 122,267 Common Stock Warrants purchased by Sprout
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) 662,500 shares of Series B Preferred Stock, 57,317 shares of
Series C Preferred Stock and 110,416 Common Stock Warrant Shares purchased
by Interwest Partners V, L.P., and (ii) 4,166 shares of Series B Preferred
Stock, 360 shares of Series C Preferred Stock and 694 Common Stock Warrants
purchased by Interwest Investors V.
(5) Includes 833,333 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 512,224 shares of Common
Stock, including Enterprise Partners, 289,514 shares; Enterprise Associates,
26,319 shares (both Enterprise Partners and Enterprise Associates are entities
affiliated with director Andrew Senyei); and Howard C. Birndorf, a founder of,
Chairman of the Board, Chief Executive Officer and Chief Financial Officer of
the Company, 41,684 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 133,333 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 666,666 shares of the Company's Series A Preferred Stock.
In January 1994, November 1994, May 1996 and December 1997, the Company
entered into agreements with Tina S. Nova, Ph.D., President and Chief Operating
Officer of the Company, James P. O'Connell, Ph.D., Vice President, Research and
Product Development of the Company, Harry J. Leonhardt, Esq., Vice President,
General Counsel and Secretary of the Company, and Kieran T. Gallahue, Vice
President, Strategic Marketing 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. Gallahue'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 100,071 shares of Common Stock for
$751 ($.075 per share), and in June 1995, purchased another 100,000 shares of
Common Stock for $15,000 ($.15 per share) pursuant to the Company's 1995 Stock
Option/Stock Issuance Plan. In connection with the purchase of these 100,000
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
100,000 shares of Common Stock. As of December 31, 1997, 66,666 of these shares
are vested. In August 1996, Mr. Birndorf purchased an additional 183,333 shares
of Common Stock at $.15 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 183,333 shares of Common
Stock. Of the 183,333 shares purchased by Mr. Birndorf, 66,666 shares were
issued pursuant to the Company's 1995 Stock Option/Stock Issuance Plan. The
remaining 116,667 shares are performance-based options which vest based on the
attainment of specified milestones. As of December 31,
55
<PAGE> 59
1997, 222,916 of these shares are vested. In May 1997, Mr. Birndorf was granted
an option to purchase 437,496 shares of Common Stock pursuant to the Company's
1997 Stock Incentive Plan. As of December 31, 1997, 63,800 of these shares were
vested.
In February 1994, Dr. Nova purchased 100,071 shares of Common Stock for
$7,505 ($.075 per share). As of December 31, 1997, 95,902 of these shares were
vested. In June 1995, Dr. Nova purchased another 100,000 shares of Common Stock
for $15,000.00 ($.15 per share) pursuant to the 1995 Stock Option/Stock Issuance
Plan. In connection with the purchase of these 100,000 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 100,000 shares of
Common Stock. As of December 31, 1997, 66,666 of these shares were vested. In
August 1996, Dr. Nova purchased an additional 50,000 shares of Common Stock at
the price of $.15 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 50,000 shares of Common
Stock. Of the 50,000 shares purchased by Dr. Nova, 16,666 shares were issued
pursuant to the Company's 1995 Stock Option/Stock Issuance Plan. The remaining
33,334 shares are performance-based options which have vested based on the
attainment of certain prescribed milestones. As of December 31, 1997, 41,319 of
these shares were vested. In May 1997, Dr. Nova was granted an option to
purchase 160,379 shares of Common Stock pursuant to the Company's 1997 Stock
Incentive Plan. As of December 31, 1997, 23,388 of these shares were 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 400,000 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 20,000
shares of Series B Preferred Stock to each investor exercisable from April 1995
to April 2000 at an exercise price of $2.25 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 336,774 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 666,666 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 and December 1997 and March 1998, certain officers and
directors of the Company exercised options to purchase an aggregate of 1,155,838
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 437,496 shares for $393,747)
and Nova (an aggregate of 160,379 shares for $144,341) and officers Leonhardt
(85,200 shares for $76,680), O'Connell (106,096 shares for $95,486), Kitchen
(233,333 shares for $210,000) and Gallahue (133,333 shares for $400,000). 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.
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<PAGE> 60
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 merged with and into Nanotronics, which was 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, Nanogen issued upon the effective date of the merger an
aggregate of 132,334 shares of its Series D Preferred Stock and a warrant for
the purchase of 993 shares of 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, Chief Financial Officer and a director of Elan. In
March 1998, the Company loaned W.J. Kitchen $200,000 pursuant to a four-year
promissory note in connection with his relocation to San Diego. The loan bears
interest at 6.01% per annum and is secured by a deed of trust.
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.
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 28, 1998 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
Management Partners II, L.P.(1)........................... 1,637,519 13.1% 9.1%
7979 Ivanhoe, Suite 550
La Jolla, CA 92037
Kleiner Perkins Caufield & Byers VI(2)...................... 1,245,609 9.9% 6.9%
2750 Sand Hill Road
Menlo Park, CA 94025
Howard C. Birndorf(3)(13)................................... 1,215,348 9.8% 6.8%
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Entities Affiliated with Sprout Group(4).................... 1,002,497 8.0% 5.5%
3000 Sand Hill Road, Bldg. 4, Suite 270
Menlo Park, CA 94025
Elan Corporation, plc(5).................................... 833,333 6.7% 7.2%
Lincoln House
Dublin 2
Ireland
Oracle Strategic Partners, L.P.............................. 833,333 6.7% 4.6%
712 Fifth Ave., 45th Floor
New York, NY 10019
Entities Affiliated with Interwest Partners(6).............. 835,454 6.7% 4.6%
3000 Sand Hill Road, Bldg. 4, Suite 255
Menlo Park, CA 94025
Becton, Dickinson and Company(7)............................ 666,666 5.4% 6.8%
1 Becton Drive
Franklin Lakes, NJ 07417-1880
Hoechst AG(8)............................................... -- -- 5.1%
D-65926 Frankfurt am Main
Germany
Brook H. Byers(2)........................................... 1,245,609 9.9% 6.9%
Robert E. Curry, Ph.D.(4)................................... 1,002,497 8.0% 5.5%
Cam L. Garner(9)............................................ 27,777 * *
David Ludvigson............................................. 16,666 * *
Thomas G. Lynch(5)(9)....................................... 872,221 7.0% 7.4%
Tina S. Nova, Ph.D.(13)..................................... 410,450 3.3% 2.2%
Andrew E. Senyei, M.D.(1)................................... 1,637,519 13.1% 9.1%
James P. O'Connell, Ph.D.(10)(13)........................... 242,539 1.9% 1.3%
Harry J. Leonhardt, Esq.(11)(13)............................ 171,310 1.4% *
All Directors and Executive Officers as a group (12
persons)(12)(13).......................................... 7,184,602 55.3% 41.3%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Includes (i) 1,406,199 shares held by Enterprise Partners II, L.P. (ii)
137,354 shares held by Enterprise Partners II Associates, L.P. ("Enterprise
Associates"), (iii) 6,820 shares held by Enterprise Partners III, L.P. and
(iv) 480 shares held by Enterprise Partners III Associates, L.P. Also
includes 78,788 shares issuable to Enterprise Partners and 7,878 shares
issuable to Enterprise Associates upon the exercise of outstanding warrants
exercisable within 60 days of February 28, 1998. Andrew E. Senyei, a
director of the 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
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<PAGE> 62
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 86,666 shares issuable to KPCB VI upon the exercise of outstanding
warrants exercisable within 60 days of February 28, 1998. 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 26,666 shares issuable upon the exercise outstanding warrants
exercisable within 60 days of February 28, 1998.
(4) Includes 66,341 shares held by DLJ, 797,032 shares held by Sprout Capital
VII, L.P. ("Sprout Capital") and 5,792 shares held by an affiliate of DLJ.
Also includes 122,267 shares issuable to Sprout Capital, 10,177 shares
issuable to DLJ and 888 shares issuable to an affiliate of DLJ upon the
exercise of outstanding warrants exercisable within 60 days of February 28,
1998. 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 833,333 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
454,545 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 723,983 shares held by Interwest Partners V, L.P. ("Interwest
Partners V") and 360 shares held by its investment affiliate Interwest
Investors V. Also includes 111,111 shares issuable to Interwest Partners V
upon the exercise of outstanding warrants exercisable within 60 days of
February 28, 1998.
(7) Includes 545,454 shares that Becton Dickinson has agreed to purchase
directly from the Company in the Private Placement.
(8) Includes 909,090 shares that Hoechst has agreed to purchase directly from
the Company in the Private Placement.
(9) Includes 16,666 shares issuable to each of Mr. Lynch and Mr. Garner upon
the exercise of options exercisable within 60 days of February 28, 1998,
subject to repurchase of unvested shares.
(10) Includes 33,333 shares issuable upon the exercise of options within 60 days
of February 28, 1998, subject to repurchase of unvested shares, and 444
shares issuable upon the exercise of warrants exercisable within 60 days of
February 28, 1998.
(11) Includes 2,778 shares issuable upon the exercise of outstanding warrants
exercisable within 60 days of February 28, 1998.
(12) Includes an aggregate of 199,998 shares issuable upon the exercise of
options exercisable within 60 days of February 28, 1998, subject to
repurchase of unvested shares, and an aggregate of 336,552 shares issuable
upon the exercise of outstanding warrants exercisable within 60 days of
February 28, 1998.
(13) Includes unvested shares subject to repurchase by the Company at February
28, 1998, as follows: Mr. Birndorf, 415,678 shares; Dr. Nova, 167,462
shares; Dr. O'Connell, 111,204 shares; and Mr. Leonhardt, 109,503 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 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.
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<PAGE> 63
COMMON STOCK
As of February 28, 1998 there were 12,432,754 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 February 28, 1998 the Company had outstanding (i) Common Stock
Warrants exercisable for an aggregate of 420,703 shares of Common Stock at
prices ranging from $.02 to $.38 per share (ii) Series B Warrants exercisable
for an aggregate of 40,000 shares of Series B Preferred Stock (which
automatically convert into warrants for the purchase of 40,000 shares of Common
Stock upon the consummation of this offering) exercisable at $2.25 per share,
(iii) Series C Warrants exercisable for an aggregate of 6,000 shares of Series C
Preferred Stock exercisable at $6.00 per share, and (iv) Series D Warrants
exercisable for an aggregate of 993 shares of Series D Preferred Stock (which
automatically convert into warrants for the purchase of 993 shares of Common
Stock upon the consummation of this offering) exercisable at $7.68 per share.
The Common Stock Warrants and the Series C Warrants will expire upon the
effective date of this offering. The Series B Warrants expire in April 2000 and
the Series D Warrants expire upon the earlier of September 11, 1999 or the third
anniversary of this offering. 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
11,541,560 shares of Common Stock, including (i) shares issued upon conversion
of the Company's Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock and (ii) shares issuable pursuant
to exercise of the Series B Warrants, Series D Warrants and Common Stock
Warrants (collectively, "Registrable Shares"), or their permitted transferees,
are entitled to certain rights with respect to the registration of
60
<PAGE> 64
such shares under the Securities Act of 1933, as amended (the "Securities Act").
The holders of the 1,909,089 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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is BankBoston, N.A.
61
<PAGE> 65
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 17,941,843 shares of Common Stock based on the number of shares
of Preferred Stock and Common Stock outstanding as of December 31, 1997, and
assuming no exercise of the Underwriters over-allotment option. Of these shares,
the 3,600,000 shares of Common Stock being sold hereby, not including the shares
sold in 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 approximately 11,000,000 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 in
the Private Placement, the remaining 11,076,398 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
71,400 shares will be eligible for immediate sale on the date of this
Prospectus, (ii) approximately 10,969,000 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 1,909,089 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 179,418 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.
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
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<PAGE> 66
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 9,632,471
shares of Common Stock (including certain shares issuable upon the exercise of
the Series B Warrants, Series D Warrants and Common Stock Warrants) and the
holders of the 1,909,089 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."
63
<PAGE> 67
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............................................. 3,600,000
=========
</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 540,000 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.
64
<PAGE> 68
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 entered
into an agreement with BRI to exclusively license certain patented technology
for the identification of hereditary hemochromatosis. Pursuant to the terms of
the agreement, 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, 1996 and 1997,
and for each of the three years in the period ended December 31, 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
65
<PAGE> 69
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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.
66
<PAGE> 70
NANOGEN, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets at December 31, 1996 and 1997................ F-3
Statements of Operations for each of the three years in the
period ended December 31, 1997............................ F-4
Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1997............... F-5
Statements of Cash Flows for each of the three years in the
period ended December 31, 1997............................ F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 71
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, 1996 and 1997, and the related statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 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,
1996 and 1997 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
January 16, 1998
except for the last paragraph of Note 4, as to which the date is
January 29, 1998
F-2
<PAGE> 72
NANOGEN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
--------------------------- DECEMBER 31,
1996 1997 1997
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 16,775,228 $ 19,498,293
Grant receivables and other current assets......... 554,018 699,595
------------ ------------
Total current assets................................. 17,329,246 20,197,888
Property and equipment, net.......................... 1,315,540 2,439,941
Restricted cash...................................... 409,267 358,858
Other assets......................................... 36,225 218,376
------------ ------------
$ 19,090,278 $ 23,215,063
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 479,967 $ 597,211
Accrued liabilities................................ 1,422,533 1,008,951
Deferred revenue................................... -- 1,012,186
Current portion of capital lease obligations....... 573,641 804,495
------------ ------------
Total current liabilities............................ 2,476,141 3,422,843
Capital lease obligations, less current portion...... 934,544 1,193,221
Commitments
Stockholders' equity:
Convertible preferred stock, $.001 par value,
15,500,000 shares authorized; 10,785,428 and
13,683,865 shares issued and outstanding at
December 31, 1996 and 1997, respectively
(5,000,000 shares authorized, no shares issued
and outstanding pro forma); liquidation
preference $45,375,393 at December 31, 1997..... 10,785 13,684 $ --
Common stock, $.001 par value, 40,000,000 shares
authorized; 1,832,383 and 3,183,523 shares
issued and outstanding at December 31, 1996 and
1997, respectively (50,000,000 shares
authorized, 12,306,065 shares issued and
outstanding pro forma).......................... 1,832 3,184 12,306
Additional paid-in capital......................... 30,885,668 47,931,338 47,935,900
Deferred compensation.............................. -- (1,854,261) (1,854,261)
Notes receivable from officers..................... (68,127) (1,129,509) (1,129,509)
Accumulated deficit................................ (15,150,565) (26,365,437) (26,365,437)
------------ ------------ ------------
Total stockholders' equity........................... 15,679,593 18,598,999 $ 18,598,999
------------ ------------ ============
$ 19,090,278 $ 23,215,063
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 73
NANOGEN, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Contract and grant revenue........................... $ 317,628 $ 1,644,078 $ 2,122,912
Sponsored research................................... -- -- 1,242,810
----------- ----------- ------------
Total revenues......................................... 317,628 1,644,078 3,365,722
Operating expenses:
Research and development............................. 3,356,167 6,931,535 11,687,137
General and administrative........................... 1,645,526 2,426,923 3,868,679
----------- ----------- ------------
Total operating expenses............................... 5,001,693 9,358,458 15,555,816
----------- ----------- ------------
Loss from operations................................... (4,684,065) (7,714,380) (12,190,094)
Interest income (expense), net......................... 96,256 (63,957) 975,222
----------- ----------- ------------
Net loss............................................... $(4,587,809) $(7,778,337) $(11,214,872)
=========== =========== ============
Pro forma net loss per share -- basic and diluted...... $ (1.10)
============
Number of shares used in computing pro forma net loss
per share -- basic and diluted....................... 10,158,288
============
</TABLE>
See accompanying notes.
F-4
<PAGE> 74
NANOGEN, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
-------------------- ------------------- PAID-IN DEFERRED FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION OFFICERS
---------- ------- --------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994............ 2,339,667 $2,339 918,308 $ 918 $ 3,645,841 $ -- $ --
Issuance of common stock.............. -- -- 217,661 218 24,032 -- --
Repurchase of common stock............ -- -- (4,486) (4) (332) -- --
Issuance of Series B convertible
preferred stock..................... 3,234,800 3,235 -- -- 8,047,313 -- --
Issuance of Series B convertible
preferred stock in connection with
conversion of debt.................. 240,000 240 -- -- 599,760 -- --
Exercise of stock options in exchange
for notes receivable and accrued
interest............................ -- -- 200,000 200 29,800 -- (31,008)
Net loss.............................. -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ----------- -----------
Balance at December 31, 1995............ 5,814,467 5,814 1,331,483 1,332 12,346,414 -- (31,008)
Issuance of common stock.............. -- -- 283,499 283 42,243 -- --
Repurchase of common stock............ -- -- (15,930) (16) (1,567) -- --
Issuance of Series B convertible
preferred stock..................... 240,800 241 -- -- 601,609 -- --
Issuance of Series C convertible
preferred stock..................... 4,225,000 4,225 -- -- 15,842,063 -- --
Issuance of Series C convertible
preferred stock in connection with
conversion of debt.................. 505,161 505 -- -- 2,020,139 -- --
Exercise of stock options in exchange
for notes receivable and accrued
interest............................ -- -- 233,331 233 34,767 -- (37,119)
Net loss.............................. -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ----------- -----------
Balance at December 31, 1996............ 10,785,428 10,785 1,832,383 1,832 30,885,668 -- (68,127)
Issuance of common stock.............. -- -- 207,103 207 129,179 -- --
Repurchase of common stock............ -- -- (30,635) (30) (4,424) -- --
Issuance of Series C preferred
stock at............................ 1,823,437 1,824 -- -- 7,173,892 -- --
Issuance of Series B preferred
stock............................... 25,000 25 -- -- 62,475 -- --
Issuance of Series D preferred
stock............................... 1,050,000 1,050 -- -- 6,286,544 -- --
Deferred compensation related to stock
options............................. -- -- -- -- 2,341,972 (2,341,972) --
Amortization of deferred
compensation........................ -- -- -- -- -- 487,711 --
Exercise of stock options in exchange
for notes receivable and accrued
interest............................ -- -- 1,174,672 1,175 1,056,032 -- (1,061,382)
Net loss.............................. -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ----------- -----------
Balance at December 31, 1997............ 13,683,865 $13,684 3,183,523 $3,184 $47,931,338 $(1,854,261) $(1,129,509)
========== ======= ========= ====== =========== =========== ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
------------ -------------
<S> <C> <C>
Balance at December 31, 1994............ $(2,784,419) $ 864,679
Issuance of common stock.............. -- 24,250
Repurchase of common stock............ -- (336)
Issuance of Series B convertible
preferred stock..................... -- 8,050,548
Issuance of Series B convertible
preferred stock in connection with
conversion of debt.................. -- 600,000
Exercise of stock options in exchange
for notes receivable and accrued
interest............................ -- (1,008)
Net loss.............................. (4,587,809) (4,587,809)
------------ ------------
Balance at December 31, 1995............ (7,372,228) 4,950,324
Issuance of common stock.............. -- 42,526
Repurchase of common stock............ -- (1,583)
Issuance of Series B convertible
preferred stock..................... -- 601,850
Issuance of Series C convertible
preferred stock..................... -- 15,846,288
Issuance of Series C convertible
preferred stock in connection with
conversion of debt.................. -- 2,020,644
Exercise of stock options in exchange
for notes receivable and accrued
interest............................ -- (2,119)
Net loss.............................. (7,778,337) (7,778,337)
------------ ------------
Balance at December 31, 1996............ (15,150,565) 15,679,593
Issuance of common stock.............. -- 129,386
Repurchase of common stock............ -- (4,454)
Issuance of Series C preferred
stock at............................ -- 7,175,716
Issuance of Series B preferred
stock............................... -- 62,500
Issuance of Series D preferred
stock............................... -- 6,287,594
Deferred compensation related to stock
options............................. -- --
Amortization of deferred
compensation........................ -- 487,711
Exercise of stock options in exchange
for notes receivable and accrued
interest............................ -- (4,175)
Net loss.............................. (11,214,872) (11,214,872)
------------ ------------
Balance at December 31, 1997............ $(26,365,437) $ 18,598,999
============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
NANOGEN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(4,587,809) $ (7,778,337) $(11,214,872)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 289,572 351,003 527,381
Interest expense converted into convertible preferred
stock................................................... -- 20,644 --
Amortization of deferred compensation..................... -- -- 487,711
Changes in operating assets and liabilities:
Accounts payable........................................ 10,521 276,329 117,244
Accrued liabilities..................................... 247,231 1,175,302 (413,582)
Unearned revenue........................................ -- -- 1,012,186
Grant receivables and other current assets.............. (189,381) (181,960) (145,577)
----------- ------------ ------------
Net cash used in operating activities....................... (4,229,866) (6,137,019) (9,629,509)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment....................................... 35,797 (114,106) (492,308)
----------- ------------ ------------
Net cash used in investing activities....................... (35,797) (114,106) (492,308)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash............................................. 55,228 55,916 50,409
Principal payments on capital lease obligations............. (355,993) (427,270) (669,943)
Proceeds from capital lease financing....................... -- 593,059 --
Issuance of notes payable to stockholders................... 600,000 2,000,000 --
Issuance of common stock, net of repurchases................ 22,906 38,824 120,757
Issuance of convertible preferred stock, net of issuance
costs..................................................... 8,050,548 16,448,138 13,525,810
Other assets................................................ 4,590 -- (182,151)
----------- ------------ ------------
Net cash provided by financing activities................... 8,377,279 18,708,667 12,844,882
----------- ------------ ------------
Increase in cash and cash equivalents....................... 4,111,616 12,457,542 2,723,065
Cash and cash equivalents at beginning of year.............. 206,070 4,317,686 16,775,228
----------- ------------ ------------
Cash and cash equivalents at end of year.................... $ 4,317,686 $ 16,775,228 $ 19,498,293
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................... $ 125,208 $ 188,273 $ 224,504
=========== ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equipment acquired under capital leases..................... $ 730,100 $ 404,125 $ 1,159,474
=========== ============ ============
Issuance of convertible preferred stock in exchange for
cancellation of debt and related accrued interest......... $ 600,000 $ 2,020,644 $ --
=========== ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 76
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.
At December 31, 1996 and 1997, all of the Company's investments were with
financial institutions and organizations with strong credit ratings with
maturities of ninety days or less when acquired.
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, grant and sponsored research revenue are recorded as the costs
and expenses to perform the research are incurred. Payments received in advance
under these arrangements are recorded as deferred revenue until the expenses are
incurred. Continuation of certain contracts, grants, and research agreements are
dependent upon the company achieving specific contractual milestones.
Contract and grant revenue from one customer amounted to approximately
100%, 70% and 45% of total revenues in 1995, 1996 and 1997, respectively.
Contract and grant revenue from a second customer amounted to 23% and 13% in
1996 and 1997, respectively. Additionally, sponsored research (see Note 6) was
37% of total revenue in 1997.
F-7
<PAGE> 77
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Standards
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 SFAS No. 131
will have a material impact on the Company's financial statements.
Net Loss Per Share
Historical basic net loss per share is computed using the weighted average
number of common shares outstanding during the periods presented. Common
equivalent shares resulting from convertible preferred stock, options to
purchase common stock and warrants to purchase convertible preferred stock are
excluded from the computation.
Historical basic net loss per share information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Basic net loss per share............................... $ (6.11) $ (8.14) $ (8.15)
======= ======= =========
Shares used in computing basic net loss per share...... 750,475 955,942 1,375,953
======= ======= =========
</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 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.
F-8
<PAGE> 78
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 December 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 December 31, 1997 will automatically convert into
9,122,542 common shares. Upon closing of the initial public offering, the
Company will effect a 2-for-3 reverse split. All common stock shares have been
retroactively adjusted to reflect this 2-for-3 reverse split.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Scientific equipment............................... $1,242,172 $ 2,058,766
Office furniture and equipment..................... 706,944 945,938
Leasehold improvements............................. 49,823 646,017
---------- -----------
1,998,939 3,650,721
Less accumulated depreciation and amortization..... (683,399) (1,210,780)
---------- -----------
$1,315,540 $ 2,439,941
========== ===========
</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 27,282 shares of its common stock in 1993 as a nonrefundable license fee.
At December 31, 1997, the Company is committed to expend $5.75 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.
F-9
<PAGE> 79
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS (CONTINUED)
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
$378,440, $442,560, and $460,800 in 1995, 1996, and 1997, respectively.
The Company leases certain equipment under capital lease obligations. Cost
and accumulation amortization of equipment under capital lease were $1,881,974
and $636,082 at December 31, 1996 and $3,364,536 and $1,141,733 at December 31,
1997, respectively.
Annual future minimum obligations for operating and capital leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
OPERATING LEASE
LEASES OBLIGATIONS
---------- -----------
<S> <C> <C>
YEAR ENDING DECEMBER 31:
1998.............................................. $ 561,434 $1,006,136
1999.............................................. 604,881 724,608
2000.............................................. 624,694 500,285
2001.............................................. 639,094 136,855
2002.............................................. 664,495 --
Thereafter........................................ 1,591,253 --
---------- ----------
Total minimum lease payments...................... $4,685,851 2,367,884
==========
Less amount representing interest................. 370,168
----------
Present value of future minimum capital lease
obligations.................................... 1,997,716
Less amounts due in one year...................... 804,495
----------
Long term portion of capital lease obligations.... $1,193,221
==========
</TABLE>
As of December 31, 1997, the Company has approximately $3.1 million of
available funding under equipment lease lines.
4. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
A summary of Convertible Preferred Stock issued and outstanding as of
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
LIQUIDATION
LIQUIDATION PREFERENCE
SHARES PREFERENCE PER SHARE
---------- ----------- ------------
<S> <C> <C> <C>
Series A............................ 2,339,667 $ 3,509,501 $1.50
Series B............................ 3,740,600 9,351,500 $2.50
Series C............................ 6,553,598 26,214,392 $4.00
Series D............................ 1,050,000 6,300,000 $6.00
---------- -----------
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 386,080 shares of common stock
exercisable from February 1997 to September 2000 at an exercise price of $.38
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
F-10
<PAGE> 80
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
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 26,754 shares of common stock
exercisable from February 1997 to September 2001 at an exercise price of $.38
per share.
In 1997, in connection with the sale of Series B Convertible Preferred
Stock, the Company issued warrants to purchase 2,778 shares of common stock
exercisable from August 1997 to August 2002 at an exercise price of $.38 per
share.
The Series A, B, C and D Convertible Preferred Stock are convertible, at
the option of the holder, into 1,559,769, 2,493,725, 4,369,049 and 699,999
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 $6.00 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 9,000 shares of Series C
Convertible Preferred Stock exercisable through the earlier of August 2002 or
upon completion of an initial public offering at an exercise price of not less
than $4.00.
The following table summarizes the warrants outstanding at December 31,
1997:
<TABLE>
<CAPTION>
TITLE OF SECURITIES NUMBER DATE EXERCISE
CALLED FOR BY WARRANTS OF SHARES EXERCISABLE PRICE
---------------------- --------- ----------- --------
<S> <C> <C> <C>
Series B Preferred Stock 40,000 Through April 2000 $2.25
Series C Preferred Stock 6,000 Through August 2002 $6.00
Common Stock 5,091 Through September 1999 $ .02
Common Stock 415,612 Various dates through August 2002 $0.38
-------
466,703
=======
</TABLE>
Stock Option Plans
Under the Company's 1993 Stock Option Plan (the "1993 Plan"), as amended in
April 1995, 654,671 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 333,333 shares of common stock were reserved for issuance. In April
1996, an additional 650,000 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 1,641,341 shares of common stock
F-11
<PAGE> 81
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
were reserved for issuance upon exercise of stock options granted by the
Company. In November 1997, an additional 600,000 shares were reserved for
issuance under the 1997 Plan.
The exercise price of incentive stock options to be granted under the Stock
Option 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 December 31, 1997, 1,092,136 shares are available for future grant
under the Stock Option Plans. The following table summarizes stock option
activity through December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER OF PRICE PER
SHARES SHARE
---------- ---------
<S> <C> <C>
Outstanding at December 31, 1994.................... 91,998 $.08
Granted........................................... 463,528 $.15
Exercised......................................... (417,661) $.13
Cancelled......................................... (23,333) $.15
----------
Outstanding at December 31, 1995.................... 114,532 $.15
Granted........................................... 665,146 $.15
Exercised......................................... (516,830) $.15
Cancelled......................................... (28,973) $.15
----------
Outstanding at December 31, 1996.................... 233,875 $.15
Granted........................................... 1,586,223 $.89
Exercised......................................... (1,381,766) $.86
Cancelled......................................... (21,616) $.53
----------
Outstanding at December 31, 1997.................... 416,716 $.60
==========
</TABLE>
As of December 31, 1997, 884,188 shares issued pursuant to early exercises
of options or issuable under outstanding options were vested. The Company has
the option to repurchase, at the original issue price, the unvested shares
issued pursuant to early exercise of options in the event of termination of
employment or engagement. At December 31, 1997, 1,543,939 shares issued under
the Stock Option Plans were subject to repurchase by the Company.
The Company recognized an aggregate of $2,341,972 through December 31, 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 year ended December 31, 1997 was $487,711. The deferred compensation
expense is being recognized over the vesting period of the options.
F-12
<PAGE> 82
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Following is a further breakdown of the options outstanding as of December
31, 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>
$ .02 4,000 5.67 $.02 4,000 $.02
$ .15 144,411 7.06 $.15 144,411 $.15
$ .38 23,866 9.10 $.38 23,866 $.38
$ .90 244,439 9.69 $.90 244,439 $.90
--------- ---------
$.02-.90 416,716 8.71 $.60 416,716 $.60
========= =========
</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>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Adjusted pro forma net loss.......... $(4,588,195) $(7,780,757) $(11,260,117)
Adjusted pro forma net loss per
share.............................. $(6.11) $(8.14) $(8.18)
</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 3 or fewer years of vesting.
Shares Reserved for Future Issuance
The following shares of common stock are reserved for future issuance at
December 31, 1997:
<TABLE>
<S> <C>
Convertible preferred stock.............................. 9,122,542
Stock options............................................ 1,508,853
Warrants................................................. 466,703
----------
11,098,098
==========
</TABLE>
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 approximately 200,000
shares of its Series D Convertible Preferred Stock at $6.00 per share 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 technological feasibility of the acquired technology has not
been established nor have alternative uses been identified, therefore, the
purchase price of $1.2 million will be allocated primarily to
F-13
<PAGE> 83
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
acquired in-process technology and will be reflected as a charge in the
Company's statement of operations upon closing, which occurred on January 29,
1998.
5. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1996 and 1997 are shown below. A valuation allowance of
$11,279,000, of which $4,783,000 relates to 1997, as of December 31, 1997 has
been recognized to offset the deferred tax assets as realization of such assets
is uncertain.
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 5,477,000 $ 9,120,000
Research and development credits....................... 533,000 1,146,000
Capitalized research expenses.......................... 540,000 1,050,000
Other.................................................. 61,000 114,000
----------- ------------
Total deferred tax assets................................ 6,611,000 11,430,000
Valuation allowance for deferred tax assets.............. (6,496,000) (11,279,000)
----------- ------------
Net deferred tax assets.................................. 115,000 151,000
Deferred tax liabilities:
Depreciation........................................... (115,000) (151,000)
----------- ------------
Net deferred tax assets.................................. $ -- $ --
=========== ============
</TABLE>
At December 31, 1997, the Company has federal and California net operating
loss carryforwards of approximately $25,048,000 and $6,143,000, 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 1998, respectively, unless previously utilized.
The Company also has federal and California research and development tax credit
carryforwards of approximately $820,000 and $502,000, 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 cumulative changes in ownership of more than 50% which occurred during 1995
and 1997. However, the Company does not believe such limitations 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 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, upon the completion of this offering. This purchase will be made
as part of a private placement (the "Private Placement") concurrent with this
offering.
F-14
<PAGE> 84
NANOGEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SPONSORED RESEARCH AGREEMENTS (CONTINUED)
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 31, 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. The
December 31, 1997 milestones have been achieved, however, there can be no
assurance that the June 30, 1998 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, at a price based on a premium to the then current market
price. The warrants will be exercisable for 5 years from the date of grant.
Additionally, Hoechst has agreed to purchase Company common stock worth an
aggregate of $10.0 million at the public offering price, upon 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 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, upon the completion of
this offering. This purchase will be made as part of the Private Placement.
F-15
<PAGE> 85
NANOGEN MICROCHIP EXPERIMENTAL DESIGNS
[Photo of Nanogen Microchips]
The microchip designs illustrated above are representative of various
experimental prototypes designed by Nanogen. Several of these designs are
currently being used to further develop Nanogen's prototype assay system. Future
commercial production designs may differ from those depicted above based upon
advances in materials and design and fabrication techniques and will be driven
by specific product applications.
<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 (numbers do not reflect the proposed two-for-three
reverse split of the Company's capital stock):
(a) In February, March and June, 1994 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 A 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 September 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 January 1998, 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 February 1998, the
Registrant issued 3,555,739 shares of its Common Stock to approximately 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 $1,319,890. 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.
10.7* Form of Indemnification Agreement between the Registrant and
its directors and executive officers.
</TABLE>
II-2
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
10.8*(+) Agreement between the Registrant and Elan 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(+) License Agreement between the Registrant and
Billups-Rothenberg, Inc., dated as of March 18, 1998.
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 Kieran T. Gallahue,
dated December 18, 1997.
10.32 Secured Promissory Note and Deed of Trust, between the
Registrant and W.J. Kitchen, dated March 16, 1998.
10.33 Series D Preferred Stock Purchase Warrant between the
Registrant and Dominion Fund II, dated January 26, 1998.
11.1 Statement of computation of net loss per share.
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.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** 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 Amendment to 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 20th day of March, 1998.
NANOGEN, INC.
By: *
------------------------------------
Howard C. Birndorf
Chairman of the Board,
Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to 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>
* Chairman of the Board, Chief March 20, 1998
- ----------------------------------- Executive Officer and Chief
Howard C. Birndorf Financial Officer (Principal
Executive Officer and Principal
Financial Officer)
/s/ DANA A. KRZYSTON Controller (Principal Accounting March 20, 1998
- ----------------------------------- Officer)
Dana A. Krzyston
* President and Chief Operating March 20, 1998
- ----------------------------------- Officer, Director
Tina S. Nova, Ph.D.
* Director March 20, 1998
- -----------------------------------
Brook H. Byers
* Director March 20, 1998
- -----------------------------------
Robert E. Curry, Ph.D.
* Director March 20, 1998
- -----------------------------------
Cam L. Garner
* Director March 20, 1998
- -----------------------------------
David Ludvigson
* Director March 20, 1998
- -----------------------------------
Thomas G. Lynch
* Director March 20, 1998
- -----------------------------------
Andrew E. Senyei, M.D.
* /s/ HARRY J. LEONHARDT
- -----------------------------------
Attorney-In-Fact
</TABLE>
II-5
<PAGE> 92
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 Elan 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(+) License Agreement between the Registrant and
Billups-Rothenberg, Inc., dated as of March 18, 1998.
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.
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
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 Kieran T. Gallahue,
dated December 18, 1997.
10.32 Secured Promissory Note and Deed of Trust, between the
Registrant and W.J. Kitchen, dated March 16, 1998.
10.33 Series D Preferred Stock Purchase Warrant between the
Registrant and Dominion Fund II, dated January 26, 1998.
11.1 Statement of computation of net loss per share.
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.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
<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 1% 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 25% 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 50%
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 1 1/2% of the Outstanding Shares at a 50%
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
50% 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
1 1/2% of the Outstanding Shares at a 50% 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 50% 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 10.11
[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>
-i-
<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>
-ii-
<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.,
-1-
<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 three and one-half (3 1/2) years following the
date of this Agreement or one (1) year 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.
-2-
<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").
-3-
<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
-4-
<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
-5-
<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
-6-
<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 50% by
Nanogen and 50% 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 50% by Nanogen and 50% 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 four-year 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 one fiscal year ending prior to January 1, 2005, 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 $700,000 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 $575,000 each, within
five (5) business days following each of September 30, 1997, December
31, 1997, March 31, 1998 and June 30, 1998.
(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 $5,000,000 for use in the Research Program, to be made in four (4)
installments of $1,250,000 each, payable on July 1, 1998, October 1,
1998, January 1, 1999 and April 1, 1999, 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 July 1,
1999 and quarterly thereafter with the last payment to be made on April 1,
2001, the Becton Partner hereby agrees to make quarterly contributions in the
minimum amounts of $1,250,000 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 June 30, 1999 and June 30, 2001, 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 one
third (1/3) 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 $1,000,000
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 one third (1/3) 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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<PAGE> 42
(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.
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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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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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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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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 does
not include a right for Nanogen to grant sublicenses.
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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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. Favored Licensee. 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, have the option to substitute the terms of such third party license
agreement, in totality, effective thirty (30) days after Nanogen notifies
Becton, in writing, that Nanogen desires to make such substitution. The terms
of any such third party license agreement substituted for the terms of this
Agreement, as specified above, shall be implemented prospectively only, and
Nanogen shall not be entitled to a refund, credit or return of any monies paid
or payable to Becton while this Agreement is in effect between the parties.
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 exclusively by, and vest entirely in, Becton.
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 the entire assignable right, title and interest, without further
compensation 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
entire right, title and interest in and to 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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<PAGE> 122
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
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<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)
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<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
----------------------------- ------------------------------
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<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
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<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
EXHIBIT 10.12
[CONFIDENTIAL TREATMENT REQUESTED. CERTAIN PORTIONS OF THIS AGREEMENT HAVE BEEN
MARKED CONFIDENTIAL AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
LICENSE AGREEMENT
THIS LICENSE AGREEMENT dated as of March 18, 1998 (this "Agreement"),
is entered into among Billups-Rothenberg, Inc., a California corporation
("BRI"), having a place of business located at 11555 Sorrento Valley Road,
Suite E, San Diego, California 92121, Barry E. Rothenberg, Ph.D., an
individual ("Dr. Rothenberg"), having an address at 149 12th Street, Del Mar,
California 92014 (BRI and Dr. Rothenberg, collectively, "Licensor"), and
Nanogen, Inc., a Delaware corporation ("Licensee"), having a place of business
located at 10398 Pacific Center Court, San Diego, California 92121.
W I T N E S S E T H:
WHEREAS, Dr. Rothenberg is the inventor of those certain methods to
identify hemochromatosis (the "Methods") claimed in United States Patent No.
5,674,681, issued October 7, 1997, entitled "Methods to Identify
Hemochromatosis."
WHEREAS, Dr. Rothenberg and BRI are joint owners of the United States
and foreign patent rights (including United States Patent No. 5,674,681,
issued October 7, 1997, entitled "Methods to Identify Hemochromatosis") which
claim the Methods, together with certain know-how related thereto.
WHEREAS, Licensee desires to obtain an exclusive worldwide license
under Licensor's rights in such patent rights and know-how, on the terms and
conditions of this Agreement, to develop and commercialize products and
services for use in DNA-based in vitro detection, diagnosis, screening and
monitoring of hereditary hemochromatosis in humans.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms defined in this Article 1
shall have the respective meanings set forth below:
1.1 "Affiliate" shall mean, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by, or is under
common control with, such Person. A Person shall
<PAGE> 2
be regarded as in control of another Person if it owns, or directly or
indirectly controls, at least forty percent (40%) of the voting stock or other
ownership interest of the other Person, or if it directly or indirectly
possesses the power to direct or cause the direction of the management and
policies of the other Person by any means whatsoever.
1.2 "Field" shall mean DNA-based in vitro detection, diagnosis,
screening and monitoring of hereditary hemochromatosis in humans.
1.3 "First Commercial Sale" shall mean, with respect to any Product
or Service, the first sale by Licensee or its Affiliates for use by the general
public of such Product or Service.
1.4 "Licensed Know-How" shall mean all information and data which is
not generally known (including, but not limited to, formulae, procedures,
protocols, techniques and results of experimentation and testing) and which is
necessary for Licensee either (a) to practice the Methods, or (b) to develop,
make, have made, use, offer for sale, sell or import the Research Inventions in
the Field, which is owned by Licensor as of the date hereof or during the term
of the Research Agreement.
1.5 "Licensed Patent Rights" shall mean (a) United States Patent No.
5,674,681, issued October 7, 1997, entitled "Methods to Identify
Hemochromatosis" (the "'681 Patent"); (b) subject to Section 9.4 below, all
United States patent applications filed hereafter that claim Research
Inventions for use in the Field; (c) all foreign counterpart patent
applications thereto; (d) all United States and foreign patents that have
issued or in the future issue from such patent applications, including utility,
model and design patents and certificates of invention; and (e) all
divisionals, continuations, continuations-in-part, reissues, renewals,
extensions or additions to any such patent applications and patents; which are
owned by Licensor.
1.6 "Licensed Technology" shall mean, collectively, the Licensed
Patent Rights and the Licensed Know-How.
1.7 "Net Sales" shall mean, (a) with respect to any Product, the
invoiced sales price of such Product billed by Licensee or its Affiliates to
independent customers (that are not Affiliates), less to the extent included in
the invoiced sales price (i) credits, allowances, discounts and rebates to, and
chargebacks from the account of, such customers for spoiled, damaged,
out-dated, rejected or 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 and other price reductions; (iv)
sales, use, 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; and (b) with
respect to any Service, the invoiced sales price of such
-2-
<PAGE> 3
Service billed by Licensee or its Affiliates to independent customers (that are
not Affiliates), less to the extent included in the invoiced sales price (i)
cash, quantity and trade discounts and other price reductions; and (ii) sales,
use, value-added and other direct taxes incurred.
1.8 "Person" shall mean an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.
1.9 "Product" shall mean any product for use in the Field which (a)
if developed, made, have made, used, offered for sale, sold or imported but for
the license granted by this Agreement would infringe a Valid Claim, (b)
otherwise contains, incorporates, uses or is based on the Methods or the
Research Inventions, or (c) is directed to the detection, diagnosis, screening
and monitoring of a composition which is a Research Invention.
1.10 "Research Agreement" shall mean the Research Agreement dated as
of the date hereof between BRI and Licensee (as amended, modified or restated
from time to time).
1.11 "Research Inventions" shall mean any and all inventions and
discoveries in the Field (including, without limitation, any and all
improvements to the methods set forth in the claims of the '681 Patent, any and
all genes and corresponding mutations thereof responsible for idiopathic
hemochromatosis, and all uses thereof in the Field), which are conceived or
discovered by BRI during the term of, and in the course of performing research
pursuant to, the Research Agreement.
1.12 "Royalty Term" shall mean, with respect to each Product or
Service in each country, (a) if the manufacture, use or sale of such Product or
the performance of such Service in such country was at the time of the First
Commercial Sale in such country covered by a Valid Claim, the term for which
such Valid Claim remains in effect and would be infringed but for the license
granted by this Agreement, or (b) otherwise, ten (10) years from the date of
the First Commercial Sale of such Product or Service in such country.
1.13 "Service" shall mean any service in the Field, the performance
of which (a) if performed but for the license granted by this Agreement would
infringe a Valid Claim, (b) otherwise contains, incorporates, uses or is based
on the Methods or the Research Inventions, or (c) is directed to the detection,
diagnosis, screening and monitoring of a composition which is a Research
Invention.
-3-
<PAGE> 4
1.14 "Sublicense Revenues" shall mean all consideration, including
royalties, received by Licensee or its Affiliates from sublicensees of the
Licensed Technology, other than cash consideration (a) to fund the performance
of the future research or development of Products or Services (at the cost to
Licensee or its Affiliates therefor) or (b) for the issuance of the equity
securities of Licensee or its Affiliates (at the fair market value of such
securities). The fair market value of any non-monetary consideration received
by Licensee or its Affiliates from sublicensees of the Licensed Technology
shall be determined in good faith by the mutual agreement of the parties, or if
no agreement, by the determination of an independent appraisal firm selected by
the mutual agreement of the parties.
1.15 "Third Party" shall mean any Person other than Licensor,
Licensee and their respective Affiliates.
1.16 "Valid Claim" shall mean a claim of an issued and unexpired
patent included within the Licensed Patent Rights, which has not been held
permanently revoked, unenforceable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal, and which has not been admitted to be
invalid or unenforceable through reissue or disclaimer or otherwise.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Mutual Representations and Warranties. Each party hereby
represents and warrants to the other parties as follows:
2.1.1 Corporate Existence. Such party (other than Dr.
Rothenberg) is a corporation duly organized, validly existing and in good
standing under the laws of the state in which it is incorporated.
2.1.2 Authorization and Enforcement of Obligations. Such
party (a) has the requisite power and authority and the legal right to enter
into this Agreement and to perform its obligations hereunder, and (b) has taken
all requisite action on its part to authorize the execution and delivery of
this Agreement and the performance of its obligations hereunder. This
Agreement has been duly executed and delivered on behalf of such party, and
constitutes a legal, valid, binding obligation, enforceable against such party
in accordance with its terms.
2.1.3 No Consents. All necessary consents, approvals and
authorizations of all governmental authorities and other Persons required to be
obtained by such party in connection with this Agreement have been obtained.
-4-
<PAGE> 5
2.1.4 No Conflict. The execution and delivery of this
Agreement and the performance of such party's obligations hereunder (a) do not
conflict with or violate any requirement of applicable laws or regulations, and
(b) do not conflict with, or constitute a default under, any contractual
obligation of it.
2.2 Representations and Warranties by Licensor. Licensor hereby
represents and warrants to Licensee as follows:
2.2.1 Ownership of Licensed Technology. BRI and Dr.
Rothenberg are the sole owner(s) of the Licensed Technology existing as of the
date hereof. As of the date of this Agreement, Licensor has not granted to any
Third Party any license or other interest in the Licensed Technology.
2.2.2 Allocation of Consideration. BRI and Dr. Rothenberg
have mutually agreed upon the allocation between them of all consideration to
the party specified in, and otherwise in accordance with the provisions of,
this Agreement. BRI and Dr. Rothenberg shall defend, indemnify and hold
Licensee harmless from all losses, liabilities, damages and expenses (including
reasonable attorneys' fees and costs) incurred as a result of any claim,
demand, action or proceeding by either of them arising out of or relating to
the allocation between them of any consideration pursuant to this Agreement,
provided that such consideration is paid or otherwise given to the party
specified in, and otherwise in accordance with the provisions of, this
Agreement.
2.3 Representations and Warranties by Dr. Rothenberg. Dr.
Rothenberg hereby represents and warrants to Licensee as follows:
2.3.1 Ownership of BRI Shares. Dr. Rothenberg is the owner
of all the issued and outstanding shares of capital stock of BRI. There are no
outstanding warrants, options or other rights in favor of any Person to acquire
any additional shares of capital stock or other additional equity interest in
BRI.
2.3.2 Investment Intent. Dr. Rothenberg is acquiring the
shares of Common Stock of Licensee pursuant to Section 4.6 hereof for
investment for his own account only and not with a view to, or for resale in
connection with, any "distribution" thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). Dr. Rothenberg
understands that such shares of Common Stock have not been registered under the
Securities Act or registered or qualified under any state securities law in
reliance on specific exemptions therefrom, which exemptions may depend upon,
among other things, the bona fide nature of Dr. Rothenberg's investment intent
as expressed herein.
2.3.3 Investment Experience. Dr. Rothenberg is an individual
and is aware of Licensee's business affairs and financial condition and has
acquired sufficient information about Licensee to reach an informed and
knowledgeable decision to acquire such shares of Common Stock. Dr. Rothenberg
has such
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<PAGE> 6
business and financial experience as is required to give it the capacity to
protect his own interests in connection with the acquisition of such shares of
Common Stock.
2.3.4 Compliance with Securities Laws and Regulations. All
subsequent offers and sales of the shares of Common Stock of Licensee acquired
by Dr. Rothenberg pursuant to Section 4.6 hereof shall be made pursuant to
registration under the Securities Act and qualification under the applicable
state securities laws or pursuant to exemptions from registration and
qualification.
ARTICLE 3
LICENSE GRANT
3.1 Licensed Technology. Licensor hereby grants to Licensee an
exclusive worldwide license under the Licensed Technology (a) to develop, make,
have made, use, offer for sale, sell and import Products for use in the Field,
and (b) to develop, perform, offer for sale and sell Services for use in the
Field.
3.2 Sublicenses. Licensee shall have the right to grant sublicenses
(without the right to grant further sublicenses) under the licenses granted
under Section 3.1. Licensee shall give Licensor a copy of each sublicense
granted under this Agreement promptly after granting such sublicense. Each
sublicense shall be subject to the terms and conditions of this Agreement.
3.3 Availability of the Licensed Technology. Licensor has provided
Licensee with all information available to Licensor as of the date hereof
regarding the Licensed Technology. Thereafter, Licensor shall provide Licensee
with such additional Licensed Technology as is discovered, conceived or
developed after the date hereof, promptly after it becomes available to
Licensor. For a period of two (2) years after the date hereof, Licensor shall
provide technical assistance to Licensee regarding the Licensed Technology at
no cost to Licensee, upon the reasonable request of Licensee, during normal
business hours, not to exceed four (4) days in period of three (3) consecutive
calendar months.
ARTICLE 4
LICENSE FEES, MILESTONES AND ROYALTIES
4.1 Direct Royalties.
4.1.1 Royalty Rate. Except as provided in Sections 4.1.2
through 4.1.7 hereof, and subject to the other terms and conditions hereof, in
partial consideration for the licenses granted to Licensee herein, during the
Royalty Term, Licensee shall pay royalties to Dr. Rothenberg equal to (a) [***]
percent [***] of Net Sales of Products and Services on sales in countries
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 7
where there is a Valid Claim, and (b) equal to [***] percent [***] of Net Sales
of Products and Services on sales in countries where there is not a Valid Claim.
4.1.2 Cartridges and Instruments. If Licensee, its Affiliate
or distributor sells a Product which is a cartridge, reagent or other
consumable item (excluding instrument maintenance reagents and other consumable
items) (collectively, the "Cartridge"), and a Product which is an instrument to
read and process the samples on, in or with Cartridges (the "Instrument"), then
the "Products" for the sole purpose of calculating the royalties owing under
this Section 4.1 shall be only the Cartridges and shall not include the
Instruments; provided, however, that the relative invoiced sales prices of the
Cartridges and the Instruments in relation to each other shall be established
in good faith.
4.1.3 Combination Product. In the event a Product is sold in a
combination with other analyte components, royalty payments on such combination
Product shall be the greater of (a)(i) [***] per combination Product on annual
sales of such combination Product of [***] or less, and (ii) [***] per
combination Product on annual sales in excess of [***] for such combination
Product, or (b) the royalty calculated pursuant to Section 4.1.1 above where Net
Sales are calculated by multiplying Net Sales of such combination Product by the
fraction A/B, where A is the gross selling price of the Product sold without
other analyte, and B is the gross selling price of the combination Product.
4.1.4 Combination Service. In the event a Service is sold in
a combination with a service to detect, diagnose, screen or monitor for the
presence of other analytes, royalty payments on such combination Service shall
be the royalty calculated pursuant to Section 4.1.1 above where Net Sales are
calculated by multiplying Net Sales of such combination Service by the fraction
A/B, where A is the gross selling price of the Service sold without detection,
diagnosis, screening or monitoring for the other analyte, and B is the gross
selling price of the combination Service.
4.1.5 Multiple Patient Sample Product. In the event a Product
is sold for use with multiple patient samples, royalty payments on such multiple
patient sample Product shall be not less than (a) [***] per potential patient
sample on annual sales of such combination Product of [***] or less, and (b)
[***] per potential patient sample on annual sales in excess of [***] for such
multiple patient sample Product.
4.1.6 Third Party Royalties. If Licensee or its Affiliates
obtains a license under the claims of an issued patent of any Third Party that
requires Licensee or its Affiliates to pay
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
-7-
<PAGE> 8
royalties to such Third Party which Licensee or its Affiliate believes necessary
or desirable in order to exercise its rights hereunder to practice the Methods
regarding a Product or Service for use in the Field, then the royalty rate owing
to Dr. Rothenberg under Section 4.1.1 above with respect to sales of such
Product or Service shall be reduced to [***] of Net Sales of such Product or
Service by or on behalf of Licensee or its Affiliates in countries where there
is a Valid Claim, and [***] percent [***] of Net Sales of such Product or
Service by or on behalf of Licensee or its Affiliates in countries where there
is not a Valid Claim.
4.1.7 Credit of Option Fee. The option fee in the amount of
[***] dollars [***], previously paid by Licensee to BRI pursuant to the
Exclusive Option Agreement effective September 12, 1997, between BRI and
Licensee, shall be fully creditable against the minimum royalties due and
payable to Dr. Rothenberg under Section 4.3 below.
4.2 Sublicensee Payments and Royalties. In partial consideration for
the licenses granted to Licensee herein, Licensee shall pay Dr. Rothenberg (a)
if [***] or its Affiliates ("[***]") has exclusive license rights under patent
rights of [***] or its Affiliates related to the HFE gene, [***] percent [***]
of all Sublicense Revenues received by Licensee or its Affiliates from [***] in
connection with the use of the Licensed Technology; (b) except as set forth in
clause (a) above, if the Licensed Technology is sublicensed without a concurrent
sublicense under the patent rights of any Third Party, [***] percent [***] of
all Sublicense Revenues received by Licensee or its Affiliates; and (c) except
as set forth in clause (a) above, if the Licensed Technology is sublicensed with
a concurrent sublicense under the patent rights of any Third Party, [***]
percent [***] of all Sublicense Revenues received by Licensee or its Affiliates.
4.3 Minimum Royalties. Subject to the provisions of Article 10 hereof,
annually commencing on the payment date for royalties owing for the calendar
quarter in which occurred the date of the [***] (if such date occurred within
the first 45 days of such calendar quarter) or the payment date for royalties
owing for the next immediately following calendar quarter (if such date occurred
after the first 45 days of such calendar quarter), Licensee shall pay Dr.
Rothenberg minimum annual royalties in the following amounts:
<TABLE>
<S> <C>
Year One . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ [***]
Year Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ [***]
Year Three . . . . . . . . . . . . . . . . . . . . . . . . . . . $ [***]
Year Four (and thereafter
during the Royalty Term) . . . . . . . . . . . . . . . . . . . $ [***]
</TABLE>
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
-8-
<PAGE> 9
Minimum annual royalties are fully creditable against royalties due and payable
under Section 4.1 for the calendar quarter for which they are payable and for
the three immediately following calendar quarters.
4.4 License Fee.
4.4.1 Upon execution of this Agreement, (a) Licensee shall pay
BRI a non-refundable licensee fee of [***] dollars [***]; (b) Licensee shall pay
Dr. Rothenberg a non-refundable licensee fee of [***]; and (c) Licensee shall
issue to Dr. Rothenberg [***] shares of Licensee's Common Stock, appropriately
legended. Dr. Rothenberg shall in addition have the right, but not the
obligation, to purchase in Licensee's initial public offering of Common Stock
registered under the Securities Act of 1933, as amended, up to four hundred
ninety thousand dollars ($490,000) of Licensee's Common Stock at the price such
shares are initially offered to the public.
4.4.2 Licensee shall be entitled to credit the aggregate amount
of [***] paid to BRI and Dr. Rothenberg under clauses (a) and (b) of Section
4.4.1 above against up to [***] of the amount of each payment owing to Dr.
Rothenberg under Sections 4.1 and 4.2 above until Licensee has taken an
aggregate credit of [***].
4.4.3 Within thirty (30) days after the date (the "Trigger
Date") which the later of (a) the date on which the aggregate Net Sales of
Products and Services by Licensee, its Affiliates and sublicensees equals or
exceeds [***], or (b) the date on which the aggregate credit taken by Licensee
under Section 4.4.2 above equals [***], and on each of the first through third
anniversaries of the Trigger Date, Licensee shall pay to Dr. Rothenberg the sum
of [***] dollars [***]. The total amount payable by Licensee to Dr. Rothenberg
under this Section 4.4.3 shall be [* * *].
4.5 Milestone Payments. Licensee shall pay the following milestone
payments to Dr. Rothenberg upon receipt of applicable regulatory approvals to
market a Product or Service by Licensee, its Affiliates or sublicensees
according to the following schedule:
<TABLE>
<S> <C>
First regulatory approval for
marketing in United States . . . . . . . . . . . . . . . . . . . . . . $ [***]
First regulatory approval for
marketing in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . $ [***]
First regulatory approval
for marketing outside of
United States or Europe . . . . . . . . . . . . . . . . . . . . . . . . $ [***]
</TABLE>
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 10
No milestone payments will be due for any subsequent regulatory approvals for
marketing.
ARTICLE 5
ROYALTY REPORTS AND ACCOUNTING
5.1 Royalty Reports. During the term of this Agreement following the
First Commercial Sale of a Product or Service or the receipt of any Sublicense
Revenues by Licensee or its Affiliate, Licensee shall furnish to Dr. Rothenberg
a quarterly written report showing in reasonably specific detail (a) the gross
sales of each Product and Service sold by Licensee and its Affiliates to
independent customers (that are not Affiliates) during the reporting period and
the calculation of Net Sales from such gross sales; (b) the Sublicense Revenues
received by Licensee or its Affiliates during the reporting period; (c) the
royalties payable, if any, which shall have accrued hereunder based upon such
Net Sales and Sublicense Revenues; and (d) withholding taxes, if any, required
by law to be deducted in respect of such Net Sales and Sublicense Revenues.
With respect to sales of Products and Services invoiced in United States
dollars, the gross sales, Net Sales, Sublicense Revenues and royalties payable
shall be expressed in United States dollars. With respect to sales of Products
and Services invoiced in a currency other than United States dollars, the gross
sales, Net Sales, Sublicense Revenues and royalties payable shall be expressed
in the domestic currency of the party making the sale together with the United
States dollar equivalent of the royalty payable, calculated using the average
closing buying rate for such currency quoted in the continental terms method of
quoting exchange rates (local currency per US$1) by Bank of America NT&SA in
London, England on each of the last business day of each month in the quarter
prior to the date of payment. Reports shall be due on the sixtieth (60th) day
following the close of each quarter. Licensee shall keep complete and accurate
records in sufficient detail to properly reflect all gross sales, Net Sales and
Sublicense Revenues and to enable the royalties payable hereunder to be
determined.
5.2 Audits.
5.2.1 Upon the written request of Dr. Rothenberg and not more
than once in each calendar year, Licensee shall permit an independent certified
public accounting firm selected by Dr. Rothenberg and reasonably acceptable to
Licensee, at Dr. Rothenberg's expense, to have access during normal business
hours to such of the records of Licensee as may be reasonably necessary to
verify the accuracy of the royalty reports hereunder for any year ending not
more than thirty six (36) months prior to the date of such request. The
accounting firm shall disclose to Dr. Rothenberg only whether the reports are
correct or not and the specific details concerning any discrepancies. No other
information shall be shared.
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<PAGE> 11
5.2.2 If such accounting firm concludes that additional
royalties were owed during such period, Licensee shall pay the additional
royalties within thirty (30) days of the date Dr. Rothenberg delivers to
Licensee such accounting firm's written report so concluding. The fees charged
by such accounting firm shall be paid by Dr. Rothenberg; provided, however, if
the audit correctly discloses that the royalties payable by Licensee for the
audited period are more than [***] of the royalties actually paid for such
period, then Licensee shall pay the reasonable fees and expenses charged by such
accounting firm.
5.3 Confidential Financial Information. Dr. Rothenberg shall treat
all financial information subject to review under this Article 5 as
confidential, and shall cause its accounting firm to retain all such financial
information in confidence under Article 8 below.
ARTICLE 6
PAYMENTS
6.1 Payment Terms. Royalties shown to have accrued by each royalty
report provided for under Article 5 above shall be due on the date such royalty
report is due. Payment of royalties in whole or in part may be made in advance
of such due date.
6.2 Exchange Control. If at any time legal restrictions prevent the
prompt remittance of part or all royalties with respect to any country where
the Product is sold, Licensee shall have the right, in its sole discretion, to
make such payments by depositing the amount thereof in local currency to Dr.
Rothenberg's account in a bank or other depository institution in such country.
If the royalty rate specified in this Agreement should exceed the permissible
rate established in any country, the royalty rate for sales in such country
shall be adjusted to the highest legally permissible or government-approved
rate.
6.3 Withholding Taxes. Licensee shall be entitled to deduct the
amount of any withholding taxes, value-added taxes or other taxes, levies or
charges with respect to such amounts, other than United States taxes, payable
by Licensee, its Affiliates or sublicensees, or any taxes required to be
withheld by Licensee, its Affiliates or sublicensees, to the extent Licensee,
its Affiliates or sublicensees pay to the appropriate governmental authority on
behalf of Dr. Rothenberg such taxes, levies or charges. Licensee shall use
reasonable efforts to minimize any such taxes, levies or charges required to be
withheld on behalf of Dr. Rothenberg by Licensee, its Affiliates or
sublicensees. Licensee promptly shall deliver to Dr. Rothenberg proof of
payment of all such taxes, levies and other charges, together with copies of
all communications from or with such governmental authority with respect
thereto.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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ARTICLE 7
DILIGENCE
7.1 Diligence Efforts. Licensee shall use its commercially
reasonable efforts (whether alone or with or through its Affiliates) to conduct
such research, development and preclinical and human clinical trials as
Licensee determines are necessary or desirable to obtain regulatory approval to
manufacture and market such Products and Services as Licensee determines are
commercially feasible, and shall use its commercially reasonable efforts to
obtain regulatory approval to market, and (upon approval) to commence marketing
and market each such Product in such countries as Licensee determines are
commercially feasible.
7.2 Failure to Market an Approved Product. If, [***] from the date
hereof, Licensee or its Affiliate has not commenced marketing a Product (which
has received regulatory approval for marketing in the United States or Europe),
then:
7.2.1 Licensee may terminate this Agreement, in its sole
discretion, upon sixty (60) days prior written notice to Licensor.
7.2.2 In the event Licensee does not exercise its right to
terminate this Agreement pursuant to Section 7.2.1, then at the option of
Licensor, the licenses granted hereunder by Licensor shall become non-exclusive
upon written notice to Licensee thereof, and Licensor and Licensee shall engage
in good faith negotiations toward concluding the terms of a non-exclusive
license agreement with respect to the Licensed Technology. Any such
non-exclusive license shall provide that (a) Licensee shall have no right
thereafter to grant further sublicenses, (b) the royalty provisions of Section
4.2 shall remain unchanged with respect to pre-existing sublicenses, (c)
Licensee shall have no obligation thereafter to pay minimum annual royalties
under Section 4.3, and (d) the other terms and conditions (including the
royalty provisions of Section 4.1) shall be modified in accordance with the
change in scope of the license as the parties mutually agree in good faith.
ARTICLE 8
CONFIDENTIALITY
8.1 Confidential Information. During the term of this Agreement,
and for a period of four (4) years following the expiration or earlier
termination hereof, Licensor and Licensee shall maintain in confidence all
information of the other (including samples) disclosed by the other and
identified as, or acknowledged to be, confidential (the "Confidential
Information"), and shall not use, disclose or grant the use of the Confidential
Information except on a need-to-know basis to those directors,
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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officers, affiliates, employees, permitted licensees, permitted assignees and
agents, consultants, clinical investigators or contractors, to the extent such
disclosure is reasonably necessary in connection with such party's activities
as expressly authorized by this Agreement. To the extent that disclosure is
authorized by this Agreement, prior to disclosure, each party hereto shall
obtain agreement (which may be in the form of its customary employee or
consulting agreement, provided that such agreement is consistent with the
provisions of this Agreement) of any such Person to hold in confidence and not
make use of the Confidential Information for any purpose other than those
permitted by this Agreement. Each party shall notify the others promptly upon
discovery of any unauthorized use or disclosure of the other party's
Confidential Information.
8.2 Permitted Disclosures. The confidentiality obligations
contained in Section 8.1 above shall not apply to the extent that (a) any
receiving party (the "Recipient") is required (i) to disclose information by
law, order or regulation of a governmental agency or a court of competent
jurisdiction, or (ii) to disclose information to any governmental agency for
purposes of obtaining approval to test or market a product, provided in either
case that the Recipient shall provide written notice thereof to the other party
and sufficient opportunity to object to any such disclosure or to request
confidential treatment thereof; or (b) the Recipient can demonstrate that (i)
the disclosed information was public knowledge at the time of such disclosure
to the Recipient, or thereafter became public knowledge, other than as a result
of actions of the Recipient in violation hereof; (ii) the disclosed information
was rightfully known by the Recipient (as shown by its written records) prior
to the date of disclosure to the Recipient by the other party hereunder; (iii)
the disclosed information was disclosed to the Recipient from a source
unrelated to any party to this Agreement and not under a duty of
confidentiality to the other party; or (iv) the disclosed information was
independently developed by the Recipient without use of the Confidential
Information disclosed by the other party. Notwithstanding any other provision
of this Agreement, Licensee may disclose Confidential Information of Licensor
to any Person with whom Licensee has, or is proposing to enter into, a business
relationship, as long as such Person has entered into a confidentiality
agreement with Licensee.
8.3 Terms of this Agreement. Except as otherwise provided in Section
8.2 above, no party shall disclose any terms or conditions of this Agreement to
any Third Party without the prior consent of the other parties.
Notwithstanding the foregoing, prior to execution of this Agreement, the
parties shall agree upon the substance of information that can be used to
describe the terms of this transaction, and the parties may disclose such
information, as modified by mutual agreement from time to time, without the
other parties' consent.
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ARTICLE 9
PATENTS
9.1 Patent Prosecution and Maintenance. Subsequent to the date
hereof, Licensee shall be responsible for and shall control, at its sole cost,
the preparation, filing, prosecution and maintenance of the Licensed Patent
Rights. In doing so, Licensee shall use its reasonable efforts to obtain a
commercially reasonable patent position regarding the Licensed Patent Rights
and shall consider in good faith the interest of Licensor. Licensee (a) shall
give Licensor an opportunity to review and comment on the text of each patent
application subject to this Section 9.1 before filing and supply Licensor with
a copy of such patent application as filed, together with notice of its filing
date and serial number; (b) shall consult with Licensor regarding the
prosecution and maintenance of the Licensed Patent Rights, and shall conduct
such prosecution and maintenance consistent with the reasonable requests of
Licensor with respect thereto; (c) shall inform Licensor promptly of any
material substantive action or proposed action with respect to the Licensed
Patent Rights, shall provide Licensor with advance copies of proposed responses
thereto, and shall implement reasonable requests of Licensor with respect
thereto; (d) shall not abandon or materially narrow the substantive claims of
the Licensed Patent Rights without the prior express written consent of
Licensor; (e) shall provide Licensor with copies of filings, submissions and
correspondence with the applicable patent authorities regarding any material
substantive action or proposed action with respect to the Licensed Patent
Rights; (f) shall inform Licensor promptly of the allowance and issuance of
each patent included in the Licensed Patent Rights, together with the date and
patent number thereof, and provide Licensor with a copy of such patent as
issued; and (g) shall prosecute reexaminations and reissues as reasonably
requested by Licensor. Licensor shall reasonably cooperate with Licensee,
execute such lawful papers and instruments and make all rightful oaths and
declarations as may be necessary in the preparation, prosecution and
maintenance of the Licensed Patent Rights. Licensee shall reimburse Licensor
for all expenses (including reasonable attorneys' fees and costs) incurred by
Licensor for actions taken [***] in the preparation, filing and prosecution
of the Licensed Patent Rights.
9.2 Notification of Infringement. Each party shall notify the other
parties of any infringement known to such party of any Licensed Patent Rights
and shall provide the other parties with the available evidence, if any, of
such infringement.
9.3 Enforcement of Patent Rights. Licensee, at its sole expense,
shall have the right to determine the appropriate course of action to enforce
Licensed Patent Rights or otherwise abate the infringement thereof, to take (or
refrain from taking) appropriate action to enforce Licensed Patent Rights, to
control any litigation or other enforcement action and to enter into, or
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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permit, the settlement of any such litigation or other enforcement action with
respect to Licensed Patent Rights, and shall consider, in good faith, the
interests of Licensor in so doing. If Licensee does not, within [***] of receipt
of notice from Licensor, abate the infringement or file suit to enforce the
Licensed Patent Rights against at least one infringing party in a country,
Licensor shall have the right to take whatever action it deems appropriate to
enforce the Licensed Patent Rights in such country. The party controlling any
such enforcement action shall not settle the action or otherwise consent to an
adverse judgment in such action that diminishes the rights or interests of the
non-controlling party without the prior written consent of the non-controlling
party. All monies recovered upon the final judgment or settlement of any such
suit to enforce the Licensed Patent Rights shall be shared, after reimbursement
of expenses, by Licensor and Licensee in accordance with the allocations set
forth in Section 4.2 above. Notwithstanding the foregoing, Licensor and Licensee
shall reasonably cooperate with each other in the planning and execution of any
action to enforce the Licensed Patent Rights. The controlling party shall
compensate the non-controlling party for all such assistance in enforcing the
Licensed Patent Rights, conducted at the request of the controlling party, at
reasonable consulting rates mutually agreed to by the parties prior to providing
such assistance.
9.4 Licensed Patent Rights on Research Inventions.
Notwithstanding anything to the contrary in this Agreement, if Licensee fails
to file a patent application in the United States or Europe on or before the
fourth anniversary of the termination of the Research Agreement claiming a
Research Invention for use in the Field, then Licensee thereafter shall have no
right or license under Patent Rights which claim such Research Invention.
ARTICLE 10
TERMINATION
10.1 Expiration. Subject to the provisions of Sections 10.2 and 10.3
below, this Agreement shall expire on the expiration of Licensee's obligation
to pay royalties to Dr. Rothenberg under Article 4 above.
10.2 Termination by Licensee. If Licensee determines to abandon in
its entirety the development and commercialization by Licensee (both alone or
with or through its Affiliates and sublicensees of the Licensed Technology) of
products and services for use in the Field principally due to unforeseen social
or political issues, then Licensee may terminate this Agreement, in its sole
discretion, upon sixty (60) days prior written notice to Licensor.
10.3 Termination for Cause. Except as otherwise provided in Article
12, Licensor or Licensee may terminate this Agreement upon
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or after the breach of any material provision of this Agreement by the other if
the other has not cured such breach within sixty (60) days after notice thereof
by the non-breaching party. Notwithstanding the foregoing, if there exists a
good faith dispute between the parties regarding the occurrence (or the
purported cure) of any default, the non-breaching party shall have no right to
terminate this Agreement for a reasonable period of time, not to exceed one
hundred twenty (120) days after written notice to the breaching party under
this Section 10.3 (or such longer period as the parties mutually agree in
writing), provided that during such period the breaching party is diligently
attempting in good faith to resolve such dispute.
10.4 Effect of Expiration or Termination. Upon expiration of this
Agreement under Section 10.1 above, Licensee shall have a paid-up,
non-exclusive license under the Licensed Know-How (a) to develop, make, have,
made, use, offer for sale, sell and import Products for use in the Field, and
(b) to develop, perform, offer for sale and sell Services for use in the Field.
Expiration or termination of this Agreement shall not relieve the parties of
any obligation accruing prior to such expiration or termination, and the
provisions of Articles 8 and 11 shall survive the expiration or termination of
this Agreement.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification.
11.1.1 By Licensee. Licensee shall defend, indemnify and
hold Licensor harmless from all losses, liabilities, damages and expenses
(including reasonable attorneys' fees and costs) incurred as a result of any
claim, demand, action or proceeding by any Third Party arising out of or
relating to (a) any breach of any representation, warranty or covenant of
Licensee under this Agreement; (b) the development, making, using, offering for
sale, selling or importing of Products by Licensee, its Affiliates and
sublicensees; (c) the development, performing, offering for sale or selling of
Services by Licensee, its Affiliates and sublicensees; (d) the use of the
Products or Services by their respective customers; or (e) any other practice
of the Methods or other use of the Licensed Technology by or on behalf of
Licensee, its Affiliates and sublicensees.
11.1.2 By Licensor. Licensor shall defend, indemnify and
hold Licensee harmless from all losses, liabilities, damages and expenses
(including reasonable attorneys' fees and costs) incurred as a result of any
claim, demand, action or proceeding by any Third Party arising out of or
relating to any breach of any representation, warranty or covenant of Licensor
under this Agreement.
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11.2 Procedure. If Licensor or Licensee, as applicable (the
"Indemnitee"), intends to claim indemnification under this Article 11, it
promptly shall notify Licensee or Licensor, as the case may be (the
"Indemnitor"), of any claim, demand, action or proceeding in respect of which
the Indemnitee intends to claim such indemnification. The Indemnitor shall
have the right to participate in, and, to the extent the Indemnitor so desires,
jointly with any other indemnitor similarly noticed, to assume the defense
thereof with counsel selected by the Indemnitor; provided, however, that the
Indemnitee shall have the right to retain its own counsel, at its sole expense,
if representation of the Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
the Indemnitee and any other party represented by such counsel in such
proceedings. The indemnity agreement in this Article 11 shall not apply to
amounts paid in settlement of any claim, demand, action or other proceeding if
such settlement is effected without the consent of the Indemnitor, which
consent shall not be withheld unreasonably. The failure to deliver notice to
the Indemnitor within a reasonable time after the commencement of any such
action or other proceeding, if prejudicial to its ability to defend such action
or other proceeding, shall relieve the Indemnitor of any liability to the
Indemnitee under this Article 11, but the omission so to deliver notice to the
Indemnitor will not relieve it of any liability that it may have to the
Indemnitee otherwise than under this Article 11. The Indemnitee, its employees
and agents shall reasonably cooperate with the Indemnitor and its legal
representatives in the investigation and defense of any claim, demand, action
or other proceeding covered by this indemnification.
11.3 Insurance. Licensee shall maintain insurance with respect to
the development of Products and Services in such amount as Licensee customarily
maintains with respect to the development and commercialization of its similar
products and services. Licensee shall maintain such insurance for so long as
it, its Affiliates or sublicensees continue to develop or commercialize any
Products or Services, and thereafter for so long as Licensee customarily
maintains insurance covering the development and commercialization of its
similar products and services.
ARTICLE 12
FORCE MAJEURE
No party shall be held liable or responsible to the other parties nor
be deemed to have defaulted under or breached this Agreement for failure or
delay in fulfilling or performing any term of this Agreement to the extent, and
for so long as, such failure or delay is caused by or results from causes
beyond the reasonable control of the affected party including but not limited
to fire, floods, embargoes, war, acts of war (whether war be declared or not),
insurrections, riots, civil commotions, strikes,
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lockouts or other labor disturbances, acts of God or acts, omissions or delays
in acting by any governmental authority or the other parties.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. Any consent, notice or report required or permitted to
be given or made under this Agreement by one of the parties hereto to the other
parties shall be in writing, delivered by any lawful means to the other parties
at the applicable address indicated below, or to such other address as the
addressee shall have last furnished in writing to the addressor and (except as
otherwise provided in this Agreement) shall be effective upon receipt by the
addressee.
If to Licensor: Billups-Rothenberg, Inc.
P.O. Box 977
Del Mar, CA 92014
Attention: Barry E. Rothenberg, Ph.D.
with a copy to: Pillsbury Madison & Sutro LLP
101 West Broadway, Suite 1800
San Diego, CA 92101
Attention: Mark R. Wicker, Esq.
If to Licensee: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: Harry J. Leonhardt, Esq.
with a copy to: Pillsbury Madison & Sutro LLP
235 Montgomery Street, 16th Floor
San Francisco, CA 94104
Attention: Thomas E. Sparks, Jr., Esq.
13.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
regard to the conflicts of law principles thereof.
13.3 Assignment. Licensee shall not assign its rights or obligations
under this Agreement without the prior written consent of Licensor; provided,
however, that Licensee may, without such consent, assign this Agreement and its
rights and obligations hereunder in connection with the transfer or sale of all
or substantially all of its business, or in the event of its merger,
consolidation, change in control or similar transaction. Any permitted
assignee shall assume all obligations of its assignor under this Agreement.
13.4 Waivers and Amendments. No change, modification, extension,
termination or waiver of this Agreement, or any of the
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provisions herein contained, shall be valid unless made in writing and signed
by duly authorized representatives of the parties hereto.
13.5 Entire Agreement. This Agreement and the Research Agreement
embody the entire agreement between the parties and supersede any prior
representations, understandings and agreements between the parties regarding
the subject matter hereof. There are no representations, understandings or
agreements, oral or written, between the parties regarding the subject matter
hereof and thereof that are not fully expressed herein and therein.
13.6 Severability. Any of the provisions of this Agreement which are
determined to be invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability in such
jurisdiction, without rendering invalid or unenforceable the remaining
provisions hereof and without affecting the validity or enforceability of any
of the terms of this Agreement in any other jurisdiction.
13.7 Waiver. The waiver by any party hereto of any right hereunder
or the failure to perform or of a breach by any other party shall not be deemed
a waiver of any other right hereunder or of any other breach or failure by any
other party whether of a similar nature or otherwise.
13.8 Covenant Not to Sue. Licensor covenants not to sue Licensee
based upon any claim that the practice of any of the Methods in the Field
infringes the claims of any patent, or any other intellectual property rights,
owned or controlled by Licensor or its Affiliates as of the date of this
Agreement.
13.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but
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all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
BILLUPS-ROTHENBERG, INC.
By /s/ BARRY E. ROTHENBERG
-------------------------------------
Title President
----------------------------------
/s/ BARRY E. ROTHENBERG
----------------------------------------
BARRY E. ROTHENBERG, Ph.D.
NANOGEN, INC.
By /s/ Harry J. Leonhardt
-------------------------------------
Title Vice President
----------------------------------
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EXHIBIT 10.32
SECURED PROMISSORY NOTE
Loan Amount: $200,000.00 San Diego, California
Interest Rate: 6.01% March 16, 1998
FOR VALUE RECEIVED, the undersigned, W. J. KITCHEN ("Borrower") hereby
promises to pay to the order of NANOGEN INC., a Delaware corporation ("Lender"),
at 10398 Pacific Center Court, San Diego, California, 92121, or such other place
as Lender may designate by written notice to Borrower, in lawful money of the
United States of America, the principal sum of TWO HUNDRED THOUSAND DOLLARS
($200,000.00), with interest, to be repaid as set forth below. Amounts borrowed
hereunder may be repaid prior to the Maturity Date (defined below), but may not
be reborrowed.
1. Payments. The entire principal balance of this Secured Promissory
Note (this "Note"), together with all accrued and unpaid interest thereon, shall
be due and payable on March 15, 2002, unless extended pursuant to Section 6
below (the "Maturity Date"), provided however, that if such day is not a
Business Day (as defined below) then on the next succeeding Business Day.
Interest on the outstanding principal balance hereunder shall accrue at the rate
(the "Interest Rate") of 6.01%. Interest payable on the principal balance of
this Note shall be calculated on the basis of a three hundred and sixty day
year.
2. Purpose of Note. Borrower acknowledges that the purpose of the loan
evidenced by this Note is to provide partial financing for Borrower's purchase
of his principal residence located at 17936 Circa Oriente, Lot 518, Rancho Santa
Fe, California 92067-5387 (the "Property").
3. Prepayment. Borrower may prepay all or any portion of this Note at
any time without penalty, fee or acceleration prior to the Maturity Date of this
Note.
4. Security. Payment of this Note is secured by a certain Deed of Trust
with Assignment of Rents (the "Trust Deed") of even date herewith from Borrower,
as Trustor, to First American Title Insurance Company, as Trustee, in favor of
Lender, as Beneficiary, encumbering the Property as a second priority lien
subject only to Borrower's acquisition financing for the Property. Borrower
acknowledges that the Trust Deed provides as follows:
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In the event that the real property described in this Deed of Trust, or
any part thereof, or any interest therein is sold, agreed to be sold, conveyed,
encumbered, alienated or otherwise transferred by Trustor, whether by operation
of law or otherwise, the Note, irrespective of the maturity date expressed
therein, at the option of Beneficiary and without demand or notice, shall
immediately become due and payable. In the event that Beneficiary does not elect
to declare the Note immediately due and payable, then, unless indicated
otherwise in writing by Beneficiary, Trustor shall nevertheless remain primarily
liable for the obligations hereunder and under the Note and any other instrument
securing the Note. This provision shall apply to each and every sale, transfer,
encumbrance or conveyance, regardless whether or not Beneficiary has consented
to, or waived, Beneficiary's rights hereunder, whether by action or non-action
in connection with any previous sale, transfer or conveyance.
5. Acceleration of Due Date. The entire unpaid principal balance of
this Note, together with all accrued and unpaid interest thereon, shall, at the
election of Lender, become immediately due and payable upon the occurrence of
any of the following, irrespective of the payment schedule set forth in
Paragraph 1 of this Note:
(a) Any failure on the part of Borrower to make any payment under
this Note when the same is due;
(b) Any failure on the part of Borrower to perform or observe any
of his obligations under the Trust Deed or any other deed of trust, mortgage or
security instrument which secures this Note or encumbers the Property as and
when performance is due;
(c) On such date as Borrower's employment relationship with Lender
or any wholly-owned subsidiary of Lender is terminated for Cause (defined
below);
(d) If Borrower shall sell, transfer, convey or further encumber
the Property or any part thereof, or any interest therein, or shall be divested
of his title or any interest therein, either by any transfer, conveyance,
contract of sale or in any manner or way, whether voluntarily or involuntarily,
without the prior written consent of Lender, which shall not be unreasonably
withheld. Consent to one transaction under this Paragraph 5(d) by Lender shall
not constitute a waiver of Lender's right to require consent to future or
successive transactions; or
(e) If at any time Borrower shall admit in writing his inability
to pay his debts as they become due, or shall make any assignment for the
benefit of any creditors, or shall file a petition seeking any reorganization,
arrangement, composition, readjustment or similar release under any present or
future statute, law or regulation, or on the filing or commencement of any
petition, action, case or proceeding, voluntary or involuntary, under any state
or federal law regarding bankruptcy or insolvency.
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6. Reduction in Amounts Due under Note.
(a) Reduction. Subject to all of the other terms and provisions of
this Note, and provided Borrower is not then in default under this Note, the
Trust Deed or any other deed of trust, mortgage or security instrument which
secures this Note or encumbers the Property, effective on the dates set forth
below (each, the "Adjustment Date"), the total outstanding principal
indebtedness under this Note, together with accrued and unpaid interest thereon,
shall be automatically adjusted as follows:
i. Fifty Thousand Dollars ($50,000) of the then-
outstanding principal balance of this Note, plus all accrued and unpaid interest
on such $50,000 principal balance, shall be forgiven on March 15, 1999.
ii. Fifty Thousand Dollars ($50,000) of the then-
outstanding principal balance of this Note, plus all accrued and unpaid interest
on such $50,000 principal balance, shall be forgiven on March 15, 2000.
iii. In the event Borrower is instrumental in procuring a
Significant Transaction (defined below) not later than January 5, 2001
("Significant Transaction Deadline"), which determination shall be made in good
faith by Lender's Board of Directors, Fifty Thousand Dollars ($50,000) of the
then-outstanding principal balance of this Note, plus all accrued and unpaid
interest on such $50,000 principal balance, shall be forgiven on March 15, 2001.
iv. In the event Borrower meets the requirements of
Paragraph 6(a)(iii) above not later than the Significant Transaction Deadline,
the remaining principal balance on this Note of Fifty Thousand Dollars
($50,000), plus all accrued and unpaid interest thereon shall be forgiven on
March 15, 2002.
v. In the event Borrower fails to meet the requirements of
Paragraph 6(a)(iii) above not later than the Significant Transaction Deadline,
Twenty-Five Thousand Dollars ($25,000) of the then-outstanding principal balance
of this Note, plus all accrued and unpaid interest on such $25,000 principal
balance, shall be forgiven on March 15, 2001, and the Maturity Date for the
remaining principal balance on this Note of Seventy-Five Thousand Dollars
($75,000), plus all accrued and unpaid interest thereon, shall be extended to
March 15, 2003.
Each such adjustment in principal and interest shall be effective only upon the
applicable Adjustment Date and any acceleration of this Note or termination of
Borrower's employment relationship with Lender prior to the then-applicable
Adjustment Date shall not entitle Borrower to any proportionate or pro rata
reduction of the then-outstanding principal balance of this Note under this
Paragraph 6(a).
(b) Termination without Cause. In the event Borrower's employment
is terminated for other than Cause during the first twenty-four months of
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Borrower's employment with Lender, the entire principal balance of this Note,
together with all accrued and unpaid interest thereon, then outstanding shall be
forgiven in its entirety as of the date of the occurrence of such event.
(c) Surviving Obligations; Taxes. Any reduction in, or forgiveness
of, the principal amount outstanding under this Note pursuant to the terms of
this Paragraph 6 shall not limit Borrower's obligations to Lender for payment of
any collection costs incurred by Lender pursuant to the terms of this Note or
Borrower's obligation to pay any late charges due pursuant to the terms of this
Note. Borrower acknowledges that he is aware that a reduction or forgiveness of
amounts due to Lender under this Note, as well any waiver by Lender of receipt
of interest charged on the principal amount of this Note, may result in adverse
tax consequences for Borrower. Borrower assumes all risk, cost and
responsibility for such tax consequences and releases Lender from any and all
claims or liabilities arising therefrom.
7. Offset to Compensation. To the fullest extent permitted by law, upon
any termination of Borrower's employment with Lender for Cause, Borrower hereby
authorizes Lender to offset any unpaid principal balance due under this Note
against any amounts owed by Lender to Borrower, including, but not limited to,
any wages, salary, bonuses, accrued vacation or sick pay, and any other
employment or consulting compensation or stock repurchase payments. Lender shall
promptly notify Borrower in writing of any such offset, including an itemization
of the amounts offset and the balance, if any, due and payable pursuant to this
Note.
8. Collection Costs Borne by Borrower. Borrower agrees to pay all costs
and expenses, including without limitation reasonable attorneys' fees, incurred
by Lender in any action brought to enforce the terms of this Note and/or to
collect this Note, and any appeal thereof.
9. Miscellaneous.
(a) No delay or omission on the part of Lender in exercising any
right under this Note or under the Trust Deed or any other security agreement
given to secure this Note shall operate as a waiver of such right or of any
other right under this Note.
(b) In the event of default, under this Note, Borrower shall have
fifteen (15) days from the date of notice of default and demand for payment in
which to cure such default. Such notice may be by written notice mailed to
Borrower at the last address given to Lender by Borrower and shall be deemed
received three (3) days after being mailed by certified, first-class mail,
return receipt requested or the next day mailed by overnight delivery.
(c) Borrower hereby waives presentment for payment, demand, notice
of demand and of dishonor and non-payment of this Note, notice of intention to
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<PAGE> 5
accelerate the maturity of this Note, protest and notice of protest, diligence
in collecting, and the bringing of suit against any other party. The pleading of
any statute of limitations as a defense to any demand against the Borrower, any
endorsers, guarantors and sureties of this Note is expressly waived by each and
all of such parties to the extent permitted by law. Time is of the essence under
this Note. Any payment hereunder shall first be applied to any collection costs,
then against accrued and unpaid interest hereunder and then against the
outstanding principal balance of this Note.
10. Late Charge. If payment of principal or interest under this Note
shall not be made within ten (10) days after the date due, Borrower agrees to
pay, in addition to the unpaid principal or interest, a sum equal to four
percent (4%) of the unpaid principal or interest, which sum Borrower agrees
represents a fair and reasonable estimate, considering all of the circumstances
existing on the date of this Note, of the costs and expenses incident to
handling and collecting such delinquent payment that will be sustained by Lender
due to the failure of Borrower to make timely payment. The parties further agree
that proof of actual damages would be costly and impracticable. Such charge
shall be paid without prejudice to the right of Lender to collect any other
amounts provided to be paid or to declare a default under this Note or under the
Trust Deed referred to in this Note or from exercising any of the other rights
and remedies of Lender.
11. Notices Under Other Obligations. Borrower shall promptly send to
Lender copies of any notices received by Borrower from the holder of any other
deed of trust or mortgage encumbering the Property.
12. Governing Law. The Note shall be governed by the laws of the State
of California and shall be construed in accordance therewith.
13. Definitions.
(a) Business Day. As used in this Note the term "Business Day"
shall mean any day other than a Saturday, Sunday or a legal holiday observed by
employees of the State of California.
(b) Cause. "Cause" shall mean:
i. The repeated and willful failure by Borrower to perform
Borrower's reasonably assigned duties on behalf of Lender;
ii. The repeated gross negligence by Borrower in carrying
out Borrower's reasonably assigned duties on behalf of Lender;
iii. Illegal conduct by Borrower in carrying out Borrower's
reasonably assigned duties on behalf of Lender;
-5-
<PAGE> 6
iv. The repeated and willful refusal by Borrower to comply
with the reasonable and lawful instructions of the Board, except in the case of
a substantial change in Borrower's agreed upon duties and responsibilities;
v. A willful act by Borrower which constitutes misconduct
or fraud and which is injurious to Lender; or
vi. Conviction of, or a plea of "guilty" or "no contest" to,
a felony.
(c) Significant Transaction. "Significant Transaction" shall mean
a transaction between Lender and an electronics company acceptable to Lender and
otherwise in accordance with Lender's requirements therefor pursuant to which
Lender shall have entered into a written agreement, approved in form and content
by Lender's Board of Directors, to receive from such company at least
Twenty-Five Million Dollars ($25,000,000.00), payable over no more than five (5)
years. The fair value in monetary terms of any non-cash consideration paid in
connection with a Significant Transaction and the determination of whether the
total consideration at least equaled Twenty-Five Million ($25,000,000.00) shall
be determined in good faith by Lender's Board of Directors.
14. Successors. This Note shall be binding upon Borrower and the
personal representatives, heirs, successors and assigns of Borrower.
15. Severability. If any part of this Note is determined to be illegal
or unenforceable, all other parts shall remain in full force and effect.
16. Maximum Interest Payable. All agreements between the undersigned and
the holder hereof, whether now existing or hereafter arising and whether written
or oral, are hereby limited so that in no contingency, whether by reason of
acceleration of the maturity hereof or otherwise, shall the interest contracted
for, charged, received, paid or agreed to be paid to the holder hereof exceed
the maximum amount permissible under applicable law. If, from any circumstance
whatsoever, interest would otherwise be payable to the holder hereof in excess
of the maximum lawful amount, the interest payable to the holder hereof shall be
reduced to the maximum amount permitted under applicable law; and if from any
circumstance the holder hereof shall ever receive anything of value deemed
interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excessive interest shall be applied to the reduction of the
principal hereof and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal hereof, such excess shall be
refunded to the undersigned. All interest paid or agreed to be paid to the
holder hereof shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full period until payment in full
of the principal (including the period of any renewal or extension hereof) so
that the interest hereon for such full period shall not exceed the maximum
-6-
<PAGE> 7
amount permitted by applicable law. This paragraph shall control all agreements
between the undersigned and the holder hereof.
/s/ W.J. KITCHEN
-----------------------------
W.J. KITCHEN
I, Maryellen Kitchen, the spouse of Borrower, do hereby consent
to the borrowing by Borrower of the loan evidenced by this Note on the terms and
conditions set forth herein, and to the granting of the Trust Deed referred to
in Paragraph 4 of this Note as security for the obligations of Borrower under
this Note, and to any and all extensions, modifications or amendments to this
Note and the Trust Deed when executed by Borrower.
/s/ MARY ELLEN KITCHEN
----------------------------
MARYELLEN KITCHEN
-7-
<PAGE> 8
Order No.
Escrow No.
Loan No.
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
PILLSBURY MADISON & SUTRO LLP
101 W. BROADWAY, SUITE 1800
SAN DIEGO, CA 92101
ATTN: ELIZABETH A. RYNER, ESQ.
- --------------------------------------------------------------------------------
SPACE ABOVE THIS LINE FOR RECORDER'S USE
DEED OF TRUST WITH ASSIGNMENT OF RENTS
(SHORT FORM)
THIS DEED OF TRUST WITH ASSIGNMENT OF RENTS ("Deed of Trust"), made as of March
16, 1998, by and between W.J. KITCHEN AND MARYELLEN KITCHEN, HUSBAND AND WIFE,
herein collectively called TRUSTOR, whose address is 17936 Circa Oriente, Lot
518, Ranco Santa Fe, California 92067-5387,
FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation, herein called
TRUSTEE, and NANOGEN, INC., a Delaware corporation, herein called BENEFICIARY,
WITNESSETH: That Trustor grants to Trustee in trust, with power of sale, that
property in the County of San Diego, State of California, described as:
See Exhibit A, attached hereto and incorporated herein by this reference.
A. TOGETHER WITH:
All the rights, rights of way, easements, profits, privileges,
tenements, hereditaments and appurtenances, now or hereafter in any way
appertaining and belonging to said real property and any part thereof, including
any other claim at law or in equity, and any after acquired title and reversion
in or to each and every part of all streets, roads, highways and alleys adjacent
to and adjoining the same;
All the rights in and to all buildings and other improvements now or
hereafter located thereon, all water and water rights (whether riparian,
appropriative, or otherwise, and whether or not appurtenant), pumps and pumping
stations used in connection therewith and all shares of stock evidencing the
same, all machinery, equipment and fixtures, including, but not limited to, all
storage tanks and pipe lines, all ovens and furnaces, all gas, electric,
cooking, heating, cooling, air conditioning, refrigeration and plumbing fixtures
and equipment, which have been or may hereafter be attached or affixed in any
manner to any building now or hereafter on said property, or to said property;
and
All rentals, earnings, income, receipts, royalties, revenues, issues
and profits which, after the date hereof, and while any portion of the
indebtedness secured hereby remains unpaid, may accrue from said real property
and any part thereof and from any building or improvement situated thereon, or
which may be received or receivable by Trustor from hiring, letting or leasing
of, or otherwise from the whole or any portion or portions of said real property
or any building or
<PAGE> 9
improvement situated thereon, and all leases thereof; provided, however, that so
long as Trustor shall not be in default hereunder, Trustor shall be entitled to
collect, receive, take, use and enjoy said income, rents, issues and profits and
to administer said leases.
B. FOR THE PURPOSE OF SECURING, in such order of priority as
Beneficiary may determine:
(1) payment of the indebtedness evidenced by a certain Secured
Promissory Note dated of even date herewith executed by W.J. Kitchen
("Borrower") in favor of Beneficiary or order (the "Note") in accordance with
the terms and provisions of said Note and any extensions, renewals,
modifications, amendments thereof or further borrowings thereunder; (2) each and
all other security instruments executed by Borrower and/or Trustor for the
purpose of securing or further securing any obligation hereby secured, or any
part thereof, or for the purpose of supplementing or amending this Deed of Trust
or any instrument secured hereby; (3) payment of all sums to be paid by Trustor
pursuant to the terms hereof; and (4) payment of such further sums as Borrower
or Trustor may thereafter borrow from Beneficiary, when evidenced by instruments
of indebtedness reciting it is so secured. All terms of the Note and other
obligations secured hereby are incorporated herein by this reference.
C. ADDITIONAL PROVISIONS:
(1) In the event that the real property (the "Property") described
in this Deed of Trust, or any part thereof, or any interest therein is sold,
agreed to be sold, conveyed, encumbered, alienated or otherwise transferred by
Trustor, whether by operation of law or otherwise, the Note, irrespective of the
maturity date expressed therein, at the option of Beneficiary and without demand
or notice, shall immediately become due and payable. In the event that
Beneficiary does not elect to declare the Note immediately due and payable,
then, unless indicated otherwise in writing by Beneficiary, Trustor shall
nevertheless remain primarily liable for the obligations hereunder and under the
Note and any other instrument securing the Note. This provision shall apply to
each and every sale, transfer, encumbrance or conveyance, regardless of whether
or not Beneficiary has consented to, or waived, Beneficiary's rights hereunder,
whether by action or non-action in connection with any previous sale, transfer
or conveyance.
(2) In the event that an attorney is employed or expenses are
incurred to compel payment under the Note, or any portion of the indebtedness
guaranteed thereby or in connection with any default thereunder or under this
Deed of Trust or the Note, Trustor promises to pay all such expenses and
reasonable attorneys' fees, including, but not limited to, attorneys' fees
incurred in any bankruptcy (including, without limitation, any action for relief
from the automatic stay of any bankruptcy proceeding), judicial or nonjudicial
foreclosure proceeding, receivership, probate or other court proceedings.
(3) Trustor shall, at all times, maintain and keep in full force
insurance covering the improvements located on the Property (the "Improvements")
against all risks of direct physical loss in an amount of not less than 100% of
the full replacement cost (without deduction for depreciation) of the
Improvements as such replacement cost shall be determined from time to time at
the reasonable request of Beneficiary at Trustor's expense by Beneficiary or an
expert selected by Trustor and approved by Beneficiary. Said insurance shall be
in form acceptable to Beneficiary and shall name Beneficiary as the loss payee,
shall contain standard mortgagee protection provisions, and shall provide that
the insurance thereby provided shall be primary and that the insurer will not
seek contribution from any other insurance available to Beneficiary.
(4) If the lien of this Deed of Trust is subordinate to the lien
of any prior deed of trust ("Senior Encumbrance") which encumbrance secures
payment of certain indebtedness ("Senior Indebtedness"), then the following
provisions shall apply:
(a) Trustor covenants and agrees to comply fully with all of
the terms, conditions and provisions of any Senior Encumbrance and any documents
evidencing any Senior Indebtedness at the times and in the manner specified
therein.
(b) In the event of any default under any Senior Encumbrance
or in the payment of any Senior Indebtedness, Beneficiary may, but need not,
make any payment or perform any acts of Trustor under any Senior Encumbrance in
any form or manner deemed expedient by Beneficiary, and may, but need not, make
full or partial payments of principal or interest on any Senior Indebtedness,
and purchase, discharge or settle any Senior Indebtedness or any Senior
Encumbrance; provided, however, that nothing contained herein shall require or
be deemed to require
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Page 2 of 7
<PAGE> 10
Beneficiary or any other holder or holders of the obligations secured hereby to
perform the terms or provisions contained in any Senior Encumbrance or any
document evidencing any Senior Indebtedness required to be performed by Trustor
thereunder. Any and all sums paid pursuant to this Paragraph (4) and all
expenses incurred by Beneficiary, including reasonable attorneys' fees, shall
become additional indebtedness secured hereby and shall become immediately due
and payable without notice and with interest thereon at a rate equal to five
percent (5%) per annum plus the interest rate set forth in the Note, if any,
(such aggregate interest to be subject to any limitations set forth in the Note
with respect to the maximum rate of interest chargeable by Lender on the
principal balance of the Note). The payment by Beneficiary of any sums pursuant
to this Paragraph (4) shall be conclusively presumed, as between Trustor and
Beneficiary, to have been necessary and proper, but shall not in any manner
affect any claim or demands by Trustor against the holder of any Senior
Encumbrance or any third party.
(c) Trustor shall not, without the prior written consent of
Beneficiary, enter into any modification, amendment, agreement or arrangement in
connection with any Senior Indebtedness or any Senior Encumbrance pursuant to
which Trustor is granted any forbearance or indulgence (as to time or amount) in
the payment of any principal, interest or other sums or the performance of any
act or acts required thereunder.
(d) Trustor shall notify Beneficiary promptly of the receipt
of any notice given to Trustor by such holder or holders and shall immediately
forward copies of all such notices to Beneficiary.
(e) Trustor represents and warrants that Trustor shall not
increase the obligations secured by any Senior Encumbrance without the prior
written consent of Beneficiary.
(f) Should for any reason the holder of any Senior
Encumbrance accelerate any portion of any Senior Indebtedness or record a Notice
of Default against the Property, the indebtedness secured hereby and any
interest thereon shall without notice, be immediately due and payable in full.
(5) Hazardous Materials.
(a) Trustor shall keep and maintain the Property, including,
without limitation, the groundwater on or under the Property, in compliance
with, and shall not cause or permit the Property to be in violation of any
federal, state or local laws, ordinances or regulations, now or hereafter in
effect, relating to environmental conditions, industrial hygiene or Hazardous
Materials, as hereinafter defined, on, under or about the Property
(collectively, the "Hazardous Materials Laws").
(b) Trustor shall not use, generate, manufacture, treat,
handle, refine, produce, process, store, discharge, release, dispose of or allow
to exist on, under or about the Property any flammable explosives, radioactive
materials, asbestos, organic compounds known as polychlorinated biphenyls,
chemicals known to cause cancer or reproductive toxicity, pollutants,
contaminants, hazardous wastes, toxic substances or related materials,
including, without limitation, any substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
or "toxic substances" under the Hazardous Materials Laws (collectively,
"Hazardous Materials"). Furthermore, Trustor shall not allow to exist on, under
or about the Property, any underground storage tanks or underground deposits.
(c) Beneficiary shall be entitled, at any reasonable times,
to enter upon and inspect the Property and take any other actions it reasonably
deems necessary to confirm Trustor's compliance with the obligations and
agreements set forth in this Section.
(d) Trustor shall immediately advise Beneficiary in writing
of (i) any and all enforcement, clean up, removal, mitigation or other
governmental or regulatory actions instituted, contemplated or threatened
pursuant to any Hazardous Materials Laws affecting the Property, (ii) all claims
made or threatened by any third party against Trustor or the Property relating
to damage, contribution, cost recovery, compensation, loss or injury resulting
from any Hazardous Materials (the matters set forth in clauses (i) and (ii)
above are hereinafter referred to as "Hazardous Materials Claims"), (iii)
Trustor's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that could cause the Property or
any part thereof to be classified as "border-zone property" under the provisions
of California Health and Safety Code Section 25220, et seq., or any regulation
adopted in accordance therewith or which may support a similar claim or cause of
action under the Hazardous Materials Laws, and (iv) Trustor's discovery of any
occurrence or condition on the Property or any real property adjoining or in the
vicinity of the Property which could subject the Trustor or
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Page 3 of 7
<PAGE> 11
the Property to any restrictions on ownership, occupancy, transferability or use
of the Property under any Hazardous Materials Laws. Beneficiary shall have the
right to join and participate in, as a party if it so elects, any settlements,
remedial actions, legal proceedings or actions initiated in connection with any
Hazardous Materials Claims and to have its reasonable attorneys' fees in
connection therewith paid by Trustor.
(e) If at any time Hazardous Materials are discovered on,
under or about the Property, Trustor, at Trustor's sole cost and expense, shall
inform Beneficiary of such and Trustor's proposed remedial program and remove
such Hazardous Materials from the Property or the groundwater underlying the
Property in accordance with the remedial program approved by Beneficiary and in
accordance with requirements of the appropriate governmental entities. In
addition to all other rights and remedies of Beneficiary hereunder, if such
Hazardous Materials are not removed from the Property or the groundwater
underlying the Property by Trustor within ninety (90) days after Trustor
discovers such Hazardous Materials, Beneficiary, at its sole discretion, may pay
to have same removed and Trustor shall reimburse Beneficiary within five (5)
days of Beneficiary's demand for payment. Trustor shall be solely responsible
for, and shall indemnify and hold harmless Beneficiary, its directors, officers,
employees, agents, successors and assigns from and against, any loss, damage,
demand, claim, cause of action, judgment, action, assessment, penalty, cost,
expense or liability directly or indirectly arising out of or attributable to
the existence, use, generation, manufacture, treatment, holding, handling,
refining, production, processing, storage, migration, release, threatened
release, discharge, emission, disposal, abatement, removal, transportation or
presence of Hazardous Materials on, under or about the Property, including,
without limitation: (i) all foreseeable and unforeseeable consequential damages;
(ii) the costs of any required or necessary repair, cleanup or detoxification of
the Property, and the preparation and implementation of any closure, remedial or
other required plans; and (iii) all reasonable costs and expenses incurred by
Beneficiary in connection with clauses (i) and (ii), including, without
limitation, reasonable attorneys' fees. Notwithstanding Section 2941 of the
California Civil Code, Trustor waives its rights to any damages resulting from a
delayed reconveyance of this Deed of Trust pending the identification and
liquidation of Trustor's liabilities under this Section. The indemnities
provided in this Paragraph shall survive the repayment or any other satisfaction
of the Note. Further, Trustor agrees that the foregoing indemnities are
separate, independent of, and in addition to its undertakings pursuant to this
Deed of Trust and any and all other documents, agreements and undertakings
executed by Trustor in favor of Beneficiary pursuant hereto. Trustor agrees that
a separate action may be brought to enforce the provisions of this
indemnification, which shall in no way be deemed to be an action on the Note,
whether or not Beneficiary would be entitled to a deficiency judgment following
a judicial or non-judicial foreclosure.
(6) Notwithstanding anything to the contrary in this Deed of
Trust, this Deed of Trust shall be nonrecourse to Maryellen Kitchen and shall
extend only to her community property interest in the Property.
(7) This Deed of Trust may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same binding agreement.
(8) These Additional Provisions shall supersede any conflicting
provisions of the fictitious deed of trust described below, which is
incorporated into this Deed of Trust, to the extent of such conflict.
To protect the security of this Deed of Trust, and with respect to the property
above described, Trustor expressly makes each and all of the agreements, and
adopts and agrees to perform and be bound by each and all of the terms and
provisions set forth in subdivision A, and it is mutually agreed that each and
all of the terms and provisions set forth in subdivision B of the fictitious
deed of trust recorded in Orange County August 17, 1964, and in all other
counties August 18, 1964, in the book and at the page of Official Records in the
office of the county recorder of the county where said property is located,
noted below opposite the name of such county, namely:
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Page 4 of 7
<PAGE> 12
<TABLE>
<CAPTION>
COUNTY BOOK PAGE COUNTY BOOK PAGE COUNTY BOOK PAGE COUNTY BOOK PAGE
- ------ ---- ---- ------ ---- ---- ------ ---- ---- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alameda 1288 556 Kings 858 713 Placer 1028 379 Sierra 38 187
Alpine 3 130-31 Lake 437 110 Plumas 166 1307 Siskiyou 506 762
Amador 133 438 Lassen 192 367 Riverside 3778 347 Solano 1287 621
Butte 1330 513 Los Angeles T-3878 874 Sacramento 5039 124 Sonoma 2067 427
Calaveras 185 338 Madera 911 136 San Benito 300 405 Stanislaus 1970 56
Colusa 323 391 Marin 1849 122 San Bernardino 6213 768 Sutter 655 585
Contra Costa 4684 1 Mariposa 90 453 San Francisco A-804 596 Tehama 457 183
Del Norte 101 549 Mendocino 667 99 San Joaquin 2855 283 Trinity 108 595
El Dorado 704 635 Merced 1660 753 San Luis Obispo 1311 137 Tulare 2530 108
Fresno 5052 623 Modoc 191 93 San Mateo 4778 175 Tuolumne 177 160
Glenn 469 76 Mono 69 302 Santa Barbara 2065 881 Venture 2607 237
Humboldt 801 83 Monterey 357 239 Santa Clara 6626 664 Yolo 769 16
Imperial 1189 701 Napa 704 742 Santa Cruz 1638 607 Yuba 398 693
Inyo 165 672 Nevada 363 94 Shasta 800 633
Kern 3756 690 Orange 7182 18 San Diego SERIES 5 Book 1964, Page 149774
</TABLE>
shall inure to and bind the parties hereto, with respect to the property above
described. Said agreements, terms and provisions contained in said subdivisions
A and B, (identical in all counties, and printed on pages 3 and 4 hereof) are by
the within reference thereto, incorporated herein and made a part of this Deed
of Trust for all purposes as fully as if set forth at length herein, and
Beneficiary may charge for a statement regarding the obligation secured hereby,
provided the charge therefor does not exceed the maximum allowed by law.
The undersigned Trustor, requests that a copy of any notice of default and any
notice of sale hereunder be mailed to him at his address hereinbefore set forth.
SIGNATURE OF TRUSTOR
- ------------------------------------------
W.J. KITCHEN
- ------------------------------------------
MARYELLEN KITCHEN
}
STATE OF CALIFORNIA }ss
COUNTY OF ____________________________ }
On _____________________________________________ before me,
_______________________________________________________________________________,
personally appeared ____________________________________________________________
personally known to me ( or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/here/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
Signature __________________________________
(This area for official notarial seal)
(CONTINUED ON NEXT PAGE)
Page 5 of 7
<PAGE> 13
DO NOT RECORD
The following is a copy of Subdivisions A and B of the fictitious Deed of Trust
recorded in each county in California as stated in the foregoing Deed of Trust
and incorporated by reference in said Deed of Trust as being a part thereof as
if set forth at length therein.
A. To protect the security of this Deed of Trust, Trustor agrees:
1) To keep said property in good condition and repair, not to remove or
demolish any building thereon; to complete or restore promptly and in good and
workmanlike manner any building which may be constructed, damaged or destroyed
thereon and to pay when due all claims for labor performed and materials
furnished therefor, to comply with all laws affecting said property or requiring
any alterations or improvements to be made thereon, not to commit or permit
waste thereof; not to commit, suffer or permit any act upon said property in
violation of law; to cultivate, irrigate, fertilize, fumigate, prune and do all
other acts which from the character or use of said property may be reasonably
necessary, the specific enumerations herein not excluding the general.
2) To provide, maintain and deliver to Beneficiary. The amount collected
under any fire or other insurance policy may be applied by Beneficiary upon any
indebtedness secured hereby and in such order as Beneficiary may determine, or
at option of Beneficiary the entire amount so collected or any part thereof may
be released to Trustor. Such application or release shall not cure or waive any
default or notice of default hereunder or invalidate any act done pursuant to
such notice.
3) To appear in and defend any action or proceeding purporting to affect
the security hereof or the rights or powers of Beneficiary or Trustee; and to
pay all costs and expenses, including cost of evidence of title and attorney's
fees in a reasonable sum, in any such action or proceeding in which Beneficiary
or Trustee may appear, and in any suit brought by Beneficiary to foreclose this
Deed.
4) To pay; at least ten days before delinquency all taxes and
assessments affecting said property, including assessments on appurtenant water
stock; when due, all encumbrances, charges and liens, with interest, on said
property or any part thereof, which appear to be prior or superior hereto; all
costs, fees and expenses of this Trust.
Should Trustor fail to make any payment or to do any act as herein
provided, then Beneficiary of Trustee, but without obligation so to do and
without notice to or demand upon Trustor and without releasing Trustor from any
obligation hereof, may; make or do the same is such manner and to such extent as
either may deem necessary to protect the security hereof, Beneficiary or Trustee
being authorized to enter upon said property for such purposes; appear in and
defeat any action purporting to affect the security hereof or the rights or
powers of Beneficiary or Trustee; pay, purchase, contest or compromise any
encumbrance, charge or lien which in the judgment of either appears to be prior
or superior hereto; and, in exercising any such powers, pay necessary expenses,
employ counsel and pay his reasonable fees.
5) To pay immediately and without demand all sums so expended by
Beneficiary or Trustee, with interest from date of expenditure at the amount
allowed by law in effect at the date hereof, and to pay for any statement
provided for by law in effect at the date hereof regarding the obligation
secured hereby any amount demanded by the Beneficiary not to exceed the maximum
allowed by law at the time when said statement is demanded.
B. It is mutually agreed:
1) That any aware in connection with any condemnation for public use of
or injury to said property or any part thereof is hereby assigned and shall be
paid to Beneficiary who may apply or release such moneys received by him in the
same manner and with the same effect as above provided for disposition of
proceeds of fire or other insurance.
2) That by accepting payment of any sum secured hereby after its due
date, Beneficiary does not waive his right either to require prompt payment when
due of all other sums so secured or to declare default for failure so to pay.
3) That at any time or from time to time, without liability therefor and
without notice, upon written request of Beneficiary and presentation of this
Deed and said not for endorsement, and without affecting the personal liability
of any person for payment of the indebtedness secured hereby, Trustee may:
reconvey any part of said property; consent to the making of any map or plat
thereof; join in granting any easement thereon, or join in any extension
agreement or any agreement subordinating the lien or charge hereof.
4) That upon written request of Beneficiary stating that all sums
secured hereby have been paid, and upon surrender of this Deed and said note to
Trustee for cancellation and retention or other disposition as Trustee in its
sole discretion may choose and upon payment of its fees, Trustee shall reconvey,
without warranty, the property then held hereunder. The recitals in such
reconveyance of any matters or facts shall be conclusive proof of the
truthfulness thereof. The Grantee in such reconveyance may be described as "the
person or persons legally entitled thereto".
5) That as additional security, Trustor hereby gives to and confers upon
Beneficiary the right, power and authority, during the continuance of these
Trusts, to collect the rents, issues and profits of said property, reserving
unto Trustor the right, prior to any default by Trustor in payment of any
indebtedness secured hereby or in performance of any agreement hereunder, to
collect and retain such rents, issues and profits as they become due and
payable. Upon any such default, Beneficiary may at any time without notice,
either in person, by agent, or be a receiver to be appointed by a court, and
without regard to the adequacy of any security for the indebtedness hereby
secured, enter upon and take possession of said property or any part thereof, in
his own name sue for or otherwise collect such rents, issues, and profits,
including those past due and unpaid, and apply the same, less costs and expenses
of operation and collection, including reasonable attorney's fees, upon any
indebtedness secured hereby, and in such order as Beneficiary may determine. The
entering upon and taking possession of said property, the collecting of such
rents, issues and profits and the application thereof as aforesaid, shall not
cure or waive any default or notice of default hereunder or invalidate any act
done pursuant to such notice.
6) That upon default by Trustor in payment of any indebtedness secured
hereby or in performance of any agreement hereunder, Beneficiary may declare all
sums secured hereby immediately due and payable by delivery to Trustee of
written declaration of default and demand for sale and of written notice of
default and of election to cause to be sold said property, which notice shall
cause to be filed for record. Beneficiary also shall deposit with Trustee this
Deed, said note and all documents evidencing expenditures secured hereby.
After the lapse of such time as may then be required by law following
the recordation of said notice of default, and notice of said having been given
as then required by law, Trustee, without demand on Trustor, shall sell said
property at the time and place fixed by it in said notice of sale, either as a
whole or in separate parcels, and in such order as it may determine, at public
auction to the highest bidder for case in lawful money of the United States,
payable at time of sale. Trustee may postpone sale of all or any portion of said
property by public announcement at such time and place of sale, and from time to
time thereafter may postpone such sale by public announcement at the time fixed
by the preceding postponement. Trustee shall deliver to such purchaser its deed
conveying the property so sold, but without any covenant or warranty, express or
implied. The recitals in such deed of any matters or facts shall be conclusive
proof of the truthfulness thereof. Any person, including Trustor, Trustee, or
Beneficiary as hereinafter defined, may purchase at such sale.
After deducting all costs, fees and expenses of trustee and of this
Trust, including costs of evidence of title in connection with sale, Trustee
shall apply to proceeds of sale to payment of: all sums expended under the terms
hereof, not then repaid, with accrued interest at the amount allowed by law in
effect at the date hereof; all other sums then secured hereby; and the
remainder, if any, to the person or persons legally entitled thereto.
7) Beneficiary, or any successor in ownership of any indebtedness
secured hereby, may from time to time, by instrument in writing, substitute a
successor or successors to any Trustee named herein or acting hereunder, which
instrument, executed by the Beneficiary and duly acknowledged and recorded in
the office of the recorder of the county or counties where said property is
situated shall be conclusive proof of proper substitution of such successor
Trustee or Trustees, who shall, without conveyance from the Trustee predecessor,
succeed to all its title, estate, rights, powers and duties. Said instrument
must contain the name of the original Trustor, Trustee and Beneficiary
hereunder, the book and page where this Deed is recorded and the name and
address of the new Trustee.
8) That this Deed applies to, inures to the benefit of, and binds all
parties hereto, their heirs, legatees, devisees, administrators, executors,
successors and assigns. The term Beneficiary shall mean the owner and holder,
including pledgees, of the note secured hereby, whether or not named as
Beneficiary herein. In this Deed, whenever the context so requires the masculine
gender includes the feminine and/or neuter, and the singular number includes the
plural.
9) That Trustee accepts this Trust when this Deed, duly executed and
acknowledged, is made a public record as provided by law. Trustee is not
obligated to notify any party hereto of pending sale under any other Deed of
Trust or of any action or proceeding in which Trustor, Beneficiary or Trustee
shall be a party unless brought by Trustee.
(CONTINUED ON NEXT PAGE)
Page 6 of 7
<PAGE> 14
DO NOT RECORD REQUEST FOR FULL RECONVEYANCE
TO FIRST AMERICAN TITLE INSURANCE COMPANY, TRUSTEE:
The under signed is the legal owner and holder of the note and of all
indebtedness secured by the foregoing Deed of Trust. Said note, together with
all other indebtedness secured by said Deed of Trust, have been fully paid and
satisfied; and you are hereby requested and directed, on payment to you of any
sums owing to you under the terms of said Deed of Trust, to cancel said note
above mentioned, an all other evidences of indebtedness secured by said Deed of
Trust delivered to you herewith, together with the said Deed of Trust, and to
reconvey, without warranty, to the parties designated by the terms of said Deed
of Trust, all the estate now held by you under the same.
Dated ___________________________
---------------------------------
---------------------------------
Please mail Deed of Trust,
Note and Reconveyance to
- --------------------------------------------------------------------------------
DO NOT LOSE OR DESTROY THIS DEED OF TRUST OR THE NOTE WHICH IT SECURES. BOTH
MUST BE DELIVERED TO THE TRUSTEE FOR CANCELLATION BEFORE RECONVEYANCE WILL BE
MADE.
(CONTINUED ON NEXT PAGE)
Page 7 of 7
<PAGE> 15
DEED OF TRUST
WITH POWER OF SALE
First American
Title Insurance
Company
TRUSTEE
<PAGE> 1
EXHIBIT 10.33
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE, TRANSFER
OR OTHER DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL
FOR THE HOLDER, REASONABLY SATISFACTORY OR (iii) RECEIPT OF A NO-ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION
UNDER THE ACT IS NOT REQUIRED.
Shares Issuable Upon Exercise: 1,490
WARRANT TO PURCHASE
SHARES OF SERIES D PREFERRED STOCK
Expires September 11, 1999
THIS CERTIFIES THAT, for value received, Dominion Fund II, a
California limited partnership, is entitled to subscribe for and purchase 1,490
shares (as adjusted pursuant to provisions hereof, the "Shares") of the fully
paid and nonassessable Series D Preferred Stock, $.001 par value per share, of
Nanogen, Inc., a Delaware corporation (the "Company"), at a price per share of
$5.12 (such price and such other price as shall result, from time to time, from
adjustments specified herein is herein referred to as the "Warrant Price"),
subject to the provisions and upon the terms and conditions hereinafter set
forth. As used herein, the term "Preferred Stock" shall mean the Company's
presently authorized Series D Preferred Stock, and any stock into or for which
such Series D Preferred Stock may hereafter be converted or exchanged pursuant
to the Restated Certificate of Incorporation of the Company as from time to
time amended as provided by law and in such Certificate, and the term "Grant
Date" shall mean September 11, 1992, the date on which that certain warrant
(the "Nanotronics Warrant") to purchase shares of the Series A Preferred Stock,
no par value, of Nanotronics, Inc., a California corporation ("Nanotronics"),
was granted to Dominion Ventures, Inc. (as agent for Dominion Fund II, a
California limited partnership) ("Dominion Ventures"). The Nanotronics Warrant
was canceled in exchange for the issuance of this Warrant pursuant to the terms
of that certain Agreement and Plan of Merger, dated as of December 18, 1997, as
amended by an amendment thereto dated as of January 26, 1998, by and among the
Company, Nanotronics and Nanogen Merger Subsidiary, Inc., a California
corporation (which was merged with and into Nanotronics with Nanotronics
surviving as a wholly owned subsidiary of the Company).
1. Term. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from and
after the Grant Date and prior to the earlier of the seventh annual anniversary
date of the Grant Date or the third annual anniversary of the consummation of
the Company's initial public offering of its Common Stock, the aggregate gross
proceeds from which exceed $10,000,000.
-1-
<PAGE> 2
2. Method of Exercise; Net Issue Exercise.
2.1 Method of Exercise; Payment; Issuance of New Warrant. The
purchase right represented by this Warrant may be exercised by the holder
hereof, in whole or in part and from time to time, by either, at the election
of the holder hereof, (a) the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) at the principal
office of the Company and by the payment to the Company, by check, of an amount
equal to the then applicable Warrant Price per share multiplied by the number
of Shares then being purchased or (b) if in connection with a registered public
offering of the Company's securities, the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A-1 duly executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by check or from
the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased. The person or persons
in whose name(s) any certificate(s) representing shares of Preferred Stock
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed
to have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of
the rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in
any event within thirty days of receipt of such notice and, unless this Warrant
has been fully exercised or expired, a new Warrant representing.the portion of
the Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
2.2 Net Issue Exercise.
(a) In lieu of exercising this Warrant, holder may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
Holder a number shares of the Company's Preferred Stock computed using the
following formula:
X = Y(A-B)
------
X
Where X - The number of shares of Preferred Stock to be issued to
Holder.
Y - The number of shares of Preferred Stock purchasable under
this Warrant.
A - The fair market value of one share of the Company's
Preferred Stock.
B - Warrant price (as adjusted to the date of such
calculations).
-2-
<PAGE> 3
(b) For purposes of this Section, fair market value of the
Company's Preferred Stock shall mean the average of the closing bid and asked
prices of the Company's Preferred Stock quoted on the Nasdaq National Market or
the closing price quoted on any exchange on which the Preferred Stock is
listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the ten trading days prior to the date of determination
of fair market value. If the Preferred Stock is not traded on an exchange, the
fair market value shall be the price per share which the Company could obtain
from a willing buyer for shares sold by the Company from authorized but
unissued shares, as such price shall be determined by a qualified appraiser,
mutually agreed upon by the Company and the holder hereof.
3. Stock Fully Paid; Reservation of Shares. All Shares that may
be issued upon the exercise of the rights represented by this Warrant and
Common Stock issuable upon conversion of the Preferred Stock will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by the Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issuance upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of shares of
its Preferred Stock (and Common Stock issuable upon conversion thereof) to
provide for the exercise of the right represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number
and kind of securities purchasable upon the exercise of the Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Reclassification or Merger. In case of any reclassification,
change or conversion of securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination), or in case of any merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is a continuing corporation and which does not result in any reclassification
or change of outstanding securities issuable upon exercise of this Warrant), or
in case of any sale of all or substantially all of the assets of the Company,
the Company, or such successor or purchasing corporation, as the case may be,
shall execute a new Warrant (in form and substance satisfactory to the holder
of this Warrant) providing that the holder of this Warrant shall have the right
to exercise such new Warrant and upon such exercise to receive, in lieu of each
share of Preferred Stock theretofore issuable upon exercise of this Warrant,
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or merger by a holder of one
share of Preferred Stock. Such new Warrant shall provide for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Paragraph 4. The provisions of this subparagraph (a) shall
similarly apply to successive reclassifications, changes, mergers and
transfers.
-3-
<PAGE> 4
(b) Subdivisions or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide
or combine its Preferred Stock, the Warrant Price and the number of Shares
issuable upon exercise hereof shall be proportionately adjusted.
(c) Stock Dividends. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend payable in shares of
Preferred Stock (except any distribution specifically provided for in the
foregoing subparagraphs (a) and (b)), then the Warrant Price shall be adjusted,
from and after the date of determination of stockholders entitled to receive
such dividend or distribution, to that price determined by multiplying the
Warrant Price in effect immediately prior to such date of determination by a
fraction (a) the numerator of which shall be the total number of shares of
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (b) the denominator of which shall be the total number of shares of
Preferred Stock outstanding immediately after such dividend or distribution and
the number of Shares subject to this Warrant shall be proportionately adjusted.
(d) No Impairment. The Company will not, by amendment of its
Restated 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 the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Paragraph 4 and in the taking of all
such actions as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against impairment.
(e) Notices of Record Date. In the event of any taking by
the Company of a record of its stockholders for the purpose of determining
stockholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property,
or to receive any other right, or for the purpose of determining stockholders
who are entitled to vote in connection with any proposed merger or
consolidation of the Company with or into any other corporation, or any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail to the holder of the Warrant, at least twenty
(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.
5. Notice of Adjustments. Whenever the Warrant Price shall be
adjusted pursuant to the provisions hereof, the Company shall within thirty
(30) days of such adjustment deliver a certificate signed by its chief
financial officer to the registered holder(s) hereof setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Warrant
Price after giving effect to such adjustment.
-4-
<PAGE> 5
6. Fractional Shares. No fractional shares of Preferred Stock
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor upon the basis
of the Warrant Price then in effect.
7. Compliance with Securities Act; Disposition of Warrant or
Shares of Preferred Stock.
(a) Compliance with Securities Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, the shares of Preferred Stock to
be issued upon exercise hereof and the Common Stock to be issued upon
conversion of such Preferred Stock are being acquired for investment and that
such holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Preferred Stock to be issued upon exercise hereof (or Common Stock
issued upon conversion of the Preferred Stock) except under circumstances which
will not result in a violation of the Securities Act of 1933, as amended (the
"Act"). This Warrant and all shares of Preferred Stock issued upon exercise of
this Warrant (unless registered under the Act) shall be stamped or imprinted
with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY' THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED.
(b) Disposition of Warrant and Shares. With respect to any offer,
sale or other disposition of this Warrant or any shares of Preferred Stock
acquired pursuant to the exercise of this Warrant (or Common Stock issued upon
conversion of such Preferred Stock) prior to registration of such shares, the
holders hereof and each subsequent holder of the Warrant agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of such holder's counsel, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the
Act as then in effect or any federal or state law then in effect) of this
Warrant or such shares of Preferred Stock or Common Stock and indicating
whether or not under the Act certificates for this Warrant or such shares of
Preferred Stock or Common Stock to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
insure compliance with the Act. Each certificate representing this Warrant or
the shares of Preferred Stock or Common Stock thus transferred (except a
transfer pursuant to Rule 144) shall bear a legend as to the applicable
restrictions on transferability in order to insure compliance with the Act,
unless in the aforesaid opinion of counsel for the holder, such legend is not
required in order to insure compliance with the Act.
-5-
<PAGE> 6
Nothing herein shall restrict the transfer of this Warrant or any portion
hereof by the initial holder hereof to any partnership affiliated with the
initial holder, or to any partner of any such partnership provided such
transfer may be made in compliance with applicable federal and state securities
laws. The Company may issue stop transfer instructions to its transfer agent
in connection with the foregoing restrictions.
8. Rights as Stockholders: Information.
8.1 Stockholder Rights. No holder of the Warrant, as such, shall be
entitled to vote or receive dividends or be deemed the holder of Preferred
Stock or any other securities of the Company which may at any time be issuable
on the exercise thereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to receive notice of meetings, or to receive dividends or subscription
rights or otherwise until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein.
8.2 Financial Statements and Information. The Company shall deliver
to the registered holder hereof (i) as soon as is practicable but in any event
within 90 days after the end of the fiscal year of the Company, a consolidated
balance sheet of the Company as of the end of such year and a consolidated
statement of income, retained earnings and cash flows for such year, which
year-end financial reports shall be in reasonable detail and certified by
independent public accountants of nationally recognized standing selected by
the Company, and (ii) within 45 days after the end of each fiscal quarter other
than the last fiscal quarter, unaudited consolidated statements of income,
retained earnings and cash flows for such quarter and a consolidated balance
sheet as of the end of such quarter. In addition, the Company shall deliver to
the registered holder hereof any other information or data provided to the
stockholders of the Company in their capacity as stockholders. The holder
hereof shall receive and maintain the information furnished pursuant to this
Section 8.2 in confidence. The Company recognizes that the holder intends to
report such information to its affiliates and agrees to such reporting, with
the understanding that the holder hereof shall use reasonable care and judgment
in conveying such information to its affiliates. This right to receive
information is only assignable to affiliates of the original holder of this
Warrant.
The covenants set forth in this Section 8.2 shall terminate
and be of no further force or effect when the Company first becomes subject to
the periodic reporting requirements of Sections 12 (f) or 15 (d) of the
Securities Exchange Act of 1934, as amended.
9. Registration Rights. The Company hereby covenants and agrees
that the holder hereof (or any registered transferee thereof pursuant to
Section 7 hereof), shall be entitled to participate in the registration rights
with respect to the Preferred Stock or Common Stock issuable upon conversion
thereof purchasable by the holder hereof pursuant to the Warrant, in the same
manner and to the same extent as a "Holder" pursuant to the Company's Amended
and Restated Investors' Rights Agreement, dated as of May 5, 1997, as amended
by Amendment No.
-6-
<PAGE> 7
1 thereto, dated as of August 1, 1997, a true and correct copy of which is
attached hereto as Exhibit B (the "Registration Rights"). The holder hereof
shall be deemed a "Holder" and the shares of Preferred Stock issuable upon
exercise of this Warrant and Common Stock upon conversion thereof shall be
deemed "Registrable Securities" as those terms are defined in the Registration
Rights. Anything to the contrary notwithstanding, the holder of this Warrant
may transfer the Registration Rights to any affiliate of the holder hereof.
10. Additional Rights.
10.1 Second Sales. The Company agrees to assist the holder of this
Warrant in obtaining liquidity if opportunities to make secondary sales of the
Company's securities become available. To this end, the Company will promptly
provide the holder of this Warrant with notice of any offer to acquire from the
Company's security holders (other than offers by the Company) more than twenty
percent (20%) of the total voting power of the Company and will cooperate with
the holder in arranging the sale of this Warrant to the person or persons
making such offer. Notwithstanding the foregoing, nothing herein shall be
construed to grant to the holder a right of co-sale in any such event.
10.2 Mergers. Unless the Company provides the holder of this Warrant
with at least 30 days' notice of the proposed transaction, the Company will not
(i) sell, lease, exchange, convey or otherwise dispose of all or substantially
all of its property or business, or (ii) merge into or consolidate with any
other corporation (other than a wholly-owned subsidiary of the Company), or
effect any transaction (including a merger or other reorganization) or series
of related transactions, in which more than 50% of the voting power of the
Company is disposed of. The Company will cooperate with the holder in
arranging the sale of this Warrant in connection with any such transaction.
11. Representations and Warranties. This Warrant is issued and
delivered on the basis of the follows:
(a) This Warrant has been duly authorized and executed by the Company
and when delivered will be the valid and binding obligation of the Company
enforceable in accordance with its terms;
(b) The Shares have been duly authorized and reserved for issuance by
the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the shares of Preferred Stock and the holders are as set forth
in the Company's Restated Certificate of Incorporation, as amended, a true and
complete copy of which has been delivered to the original holder of this
Warrant;
(d) The shares of Common Stock issuable upon conversion of the Shares
have been duly authorized and reserved and, when issued in accordance with the
terms of the Company's
-7-
<PAGE> 8
Restated Certificate of Incorporation, as amended, will be validly issued,
fully paid and nonassessable; and
(e) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Restated Certificate
of Incorporation, as amended, or Bylaws, do not and will not contravene any
law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration with or the taking of
any action in respect of or by, any Federal, state or local government
authority or agency or other person.
12. Amendment of Conversion Rights. During the term of this
Warrant, the Company agrees that it shall not amend its Restated Certificate of
Incorporation, as amended, without the prior written consent of the holder or
holders entitled to purchase a majority of the Shares upon exercise of this
Warrant if as a result of such amendment any of the conversion rights,
including without limitation the conversion price or anti-dilution protection
privileges, of the Preferred Stock would be affected.
13. Modification and Waiver. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of the same is sought.
14. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered, sent by telecopy or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefore on the
signature page of this Warrant.
15. Binding Effect on Successors. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company relating to the Preferred Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the holder hereof. The Company
will, at the time of the exercise of this Warrant, in whole or in part, upon
request of the holder hereof but at the Company's expense, acknowledge in
writing its continuing obligation to the holder hereof in respect of any rights
(including, without limitation, any right to registration of the shares of
Registrable Securities) to which the holder hereof shall continue to be
entitled after such exercise in accordance with this Warrant; provided, that
the failure of the holder hereof to make any such request shall not affect the
continuing obligation of the Company to the holder hereof in respect of such
rights.
-8-
<PAGE> 9
16. Lost Warrants or Stock Certificates. The Company covenants to
the holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver at the holders expense, if any,
a new Warrant or stock certificate, or like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant or stock certificate.
17. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
18. Governing Law. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
LAWS OF THE STATE OF CALIFORNIA.
NANOGEN, INC.
By: /s/ Howard Birndorf
------------------------------------
Name: Howard Birndorf
Title:
10398 Pacific Center Court
San Diego, California 92121
Date: January 29, 1998
-9-
<PAGE> 10
EXHIBIT A
Notice of Exercise
To: Nanogen, Inc.
1. The undersigned hereby elects to purchase __________ shares of
Series D Preferred Stock of Nanogen, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
______________________________
(Name)
______________________________
______________________________
______________________________
(Address)
______________________________
(Telephone)
3. The undersigned represents that the aforesaid shares being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
________________________________________
(Signature)
Typed Name:_____________________________
Address:________________________________
________________________________
________________________________
________________________________
_________________________________
(Date)
A-1
<PAGE> 11
EXHIBIT A-1
Notice of Exercise
To: Nanogen, Inc.
1. Contingent upon and effective immediately prior to the closing
(the "Closing") of the Company's public offering contemplated by the
Registration Statement of Form S-________, filed ____________________, 19___,
the undersigned hereby elects to purchase _________ shares of Series D
Preferred Stock of the Company (or such lesser number of shares as may be sold
on behalf of the undersigned at the Closing) pursuant to the terms of the
attached Warrant.
2. Please deliver to the custodian for the selling stockholders a
stock certificate representing such ____________ shares.
3. The undersigned has instructed the custodian for the selling
stockholders to deliver to the Company $_______________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior
to the Closing.
________________________________________
(Signature)
Typed Name:_____________________________
Address:________________________________
________________________________
________________________________
________________________________
________________________________
(Date)
A-1-1
<PAGE> 1
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years ended December 31,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
HISTORICAL NET LOSS PER SHARE:
Net loss $(4,588) $(7,778) $(11,215)
======= ======= ========
Weighted average common shares
outstanding 1,168 1,502 2,015
Adjustments to reflect unvested
shares subject to repurchase (417) (546) (639)
------- ------- --------
Adjusted shares outstanding 751 956 1,376
======= ======= ========
Historical net loss per share $ (6.11) $ (8.14) $ (8.15)
======= ======= ========
<CAPTION>
Year ended
December 31,
1997
--------
PRO FORMA NET LOSS PER SHARE:
Net loss $(11,215)
========
Adjusted shares outstanding 1,376
Effect of assumed conversion at original
date of issuance of preferred shares 8,782
--------
Adjusted shares outstanding 10,158
========
Pro forma net loss per share $ (1.10)
========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Financial Data" and to the use of our report dated January 16, 1998,
except for the last paragraph of Note 4 as to which the date is January 29,
1998, in Amendment No. 2 to the Registration Statement (Form S-1 No. 333-42791)
and related Prospectus of Nanogen, Inc. for the registration of shares of its
common stock.
ERNST & YOUNG LLP
San Diego, California
March 19, 1998
<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: March 19, 1998 By: /s/ DAVID B. MURPHY
-----------------------------------
David B. Murphy
Partner
LYON & LYON LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 16,775,228 19,498,293
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 17,329,246 20,197,888
<PP&E> 1,998,939 3,650,721
<DEPRECIATION> 683,399 1,210,780
<TOTAL-ASSETS> 19,090,278 23,215,063
<CURRENT-LIABILITIES> 2,476,141 3,422,843
<BONDS> 1,508,185 1,997,716
0 0
10,785 13,684
<COMMON> 1,832 3,184
<OTHER-SE> 15,666,976 18,582,131
<TOTAL-LIABILITY-AND-EQUITY> 19,090,278 23,215,063
<SALES> 0 0
<TOTAL-REVENUES> 1,644,078 3,365,722
<CGS> 0 0
<TOTAL-COSTS> 9,358,458 15,555,816
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 63,957 (975,222)
<INCOME-PRETAX> (7,778,337) (11,214,872)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,778,337) (11,214,872)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,778,337) (11,214,872)
<EPS-PRIMARY> (1.54) (1.10)
<EPS-DILUTED> 0 0
</TABLE>
