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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL PERIOD ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 000-23541
NANOGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0489621
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10398 PACIFIC CENTER COURT, SAN DIEGO, CA 92121
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 410-4600
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing sale price of the Common Stock on February
17, 2000, as reported on the Nasdaq National Market was approximately
$959,608,552. Shares of Common Stock held by each executive officer and
director and by each person who owns 10 percent or more of the outstanding
Common Stock have been excluded in such calculation as such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrant's common stock was
19,032,980 as of February 17, 2000.
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NANOGEN, INC.
FORM 10-K
INDEX
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PART I
Item 1. Business.......................................................................... 1
Item 2. Properties........................................................................
Item 3. Legal Proceedings.................................................................
Item 4. Submission of Matters to a Vote of Security Holders...............................
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............
Item 6. Selected Financial Data...........................................................
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.....................................................................
Item 8. Financial Statements and Supplementary Data.......................................
Item 9. Change in and Disagreements with Accountants on Accounting and
and Financial Disclosures.......................................................
PART III
Item 10. Directors and Executive Officers of the Registrant................................
Item 11. Executive Compensation............................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management....................
Item 13. Certain Relationships and Related Transactions....................................
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................
SIGNATURES..........................................................................................
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Business
OVERVIEW
We integrate advanced microelectronics and molecular biology into a core
technology platform with broad and diverse commercial applications in the fields
of genomics and biomedical research, medical diagnostics, drug discovery,
forensics, agriculture, environmental testing and potentially the electronics
and telecommunications industries. The first application we have developed is an
integrated bioassay system, the NanoChip molecular biology workstation,
comprised of two automated instruments and a consumable cartridge. The NanoChip
cartridge incorporating a proprietary microchip provides a flexible tool for the
rapid identification and precision analysis of biological test samples
containing charged molecules.
Through the use of microelectronics, our technology enables the active movement
and concentration of charged molecules, such as DNA, to and from designated
microlocations, or test sites, on our microchips. This electronic concentration
of molecules greatly accelerates molecular binding at each microlocation. In
addition, our technology allows the simultaneous analysis of multiple test
results, or "multiplexing," from a single sample. The open architecture design
of our system enables us to offer microchips with preloaded arrays designed for
specific applications or with arrays that can be customized by the end user. We
believe that our technology platform provides an accurate, versatile and highly
efficient integrated system that will shift bioassay analysis from current
manual and mechanical methods to microelectronic systems, thereby significantly
improving the quality and reducing the overall cost of research and healthcare.
In April of 1998 we completed our initial public offering. Since that time we
have:
- - designed and built production-ready automated instruments for cartridge
loading, processing and analysis;
- - simplified the consumable cartridge design by reducing total parts by 75%;
- - strengthened our development, manufacturing and commercialization
infrastructure;
- - added an additional eight U.S. patents and six foreign patents to our
intellectual property portfolio;
- - validated our technology through the successful completion of three beta
site tests; and
- - expanded collaborations with Aventis and Hitachi for technology development
and manufacturing.
COMMERCIALIZATION PLAN
Successful beta site tests
In February 2000, we announced the completion of our third and final beta site
testing results for the NanoChip molecular biology workstation. These tests were
conducted at three commercial and academic centers: the Mayo Clinic, the
University of Texas Southwestern Medical Center and the Bode Technology Group.
In each case, the results indicated very high levels of accuracy for the
NanoChip system. The SNP studies performed at the Mayo Clinic and the University
of Texas Southwestern Medical Center both reported 100% accuracy, exceeding the
performance of their current "gold standard" techniques. The STR analysis
results from the Bode Technology Group showed greater than 99.5% concordance
with current techniques, results which have been further improved by subsequent
software upgrades.
Commercial launch
We plan to begin commercialization of our NanoChip molecular biology workstation
during the second half of 2000 to a select group of customers in the genomics
and biomedical research fields. The initial applications for the technology will
be for the analysis of DNA including SNPs, PMs and STRs. It is
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anticipated that the analysis of gene expression will be added as an additional
application. Because of the importance of the genomics and biomedical research
markets, we anticipate being directly involved with marketing our first product
line to this non-regulated market segment. Additionally, we expect to distribute
products in Japan through the distribution arm of Hitachi.
COLLABORATIONS
We have established corporate alliances in the areas of drug discovery, high
throughput screening, infectious disease diagnostics and instrument
manufacturing and distribution. In 1998 we entered into a collaboration with
Aventis to develop drug discovery tools. In 1999 we extended our relationship
with Aventis by adding two additional programs focused on developing high
throughput screening and gene expression analysis tools. In early 2000 we formed
a collaboration with Hitachi for the manufacture and further development of the
NanoChip instruments. Hitachi has the right to distribute our instrument system
and related NanoChip consumable cartridges in Japan. Our collaborations permit
integration of our technology with the resources and technology of our partners,
while allowing us to independently pursue diagnostics, drug discovery and
genomics opportunities outside the scope of these collaborations.
MARKET OPPORTUNITY
Background
Bioassays are used extensively throughout the life sciences industry to detect
the presence of certain biochemicals, proteins or genes in a sample. They are
broadly used in genomics and biomedical research applications, genetic analysis,
clinical diagnostics, pharmacogenomics, drug discovery, and law enforcement. For
example, bioassays can be used to:
- - validate genetic sequences generated as part of the Human Genome Project and
related commercial efforts;
- - detect genetic variations such as SNPs;
- - measure the affinity between a chemical compound and a disease target for
drug discovery and development;
- - assist physicians in prescribing the appropriate drug therapy to match the
patient's unique genetic makeup, a process known as pharmacogenomics;
- - measure the presence and quantity of biochemicals in blood to assist
physicians in diagnosing, treating and monitoring pathological conditions
such as heart attack or diabetes; and
- - identify criminals from DNA-bearing forensic evidence.
Bioassays are either developed internally to meet the specific needs of the
laboratory or purchased in the form of an off-the-shelf test kit or customized
service. According to industry reports, the global market for tools used to
develop and perform bioassays is estimated to have been approximately $27.5
billion in 1998.
Market Descriptions
Genomics and biomedical research
Genomics and biomedical research is focused on understanding biological
processes at the molecular level. Through an understanding of such processes,
scientists can better characterize disease, a critical first step in designing
drug therapies. Worldwide genomics efforts, including the Human Genome Project
and other public and private genetic sequencing efforts are actively identifying
and sequencing genes of many
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organisms. As these genes and their nucleotide sequences are identified,
additional research will focus on how the genome, the genetic content of the
cell, controls and influences biological function. Gene expression studies are
often used to identify which of the genes contained within the genome are
regulated during disease or in response to a variety of stimuli. Such studies
also determine how specific mutations in a gene affect the normal expression and
operation of that gene. This basic understanding is leading to the development
of new diagnostic and therapeutic approaches to disease, according to its
genetic profile.
The National Institutes of Health provides over $12 billion annually in funding
to more than 50,000 scientists involved in genomics and biomedical research.
These scientists work in the laboratories of universities and other
not-for-profit research institutions. Pharmaceutical and biotechnology
industries also fund significant amounts of research. According to industry
reports, the global market for bioassays in genomics and biomedical research is
estimated to have been approximately $2.3 billion in 1998 and growing at an
annual rate of 13%. We believe there are a number of industry trends that will
drive this growth, including:
- - Increased demand for SNP studies. Academic and not-for-profit institutions
have played a major role in studying SNPs in the population. The SNP
consortium, a collaboration of academic, not-for-profit research
institutions and pharmaceutical companies, has announced an effort to
identify over 300,000 SNPs, some of which may be correlated with disease. As
a result, we anticipate that demand for SNP detection bioassays will
increase.
- - Increased research and development spending by pharmaceutical companies.
Pharmaceutical companies have a long history of collaborating with academic
institutions to study biological processes at the molecular and cellular
level. As these collaborations increase and diversify in focus, we believe
the number of bioassays performed will rise.
Clinical diagnostics
Bioassays are broadly used in the clinical diagnostics market. These bioassays
are commonly referred to as IN VITRO diagnostics, or IVD, and are used to detect
the presence and quantity of certain substances in body fluids, such as whole
blood, plasma, serum, urine and saliva, as well as cells and tissues.
Applications range from routine blood glucose determinations to the screening
and diagnosis of genetic diseases, infectious diseases and cancer. These
applications are performed in a number of different clinical settings, including
hospital laboratories, commercial laboratories and physicians' offices. There
are more than 150,000 hospital, clinical and physician office laboratories
registered with the Health Care Financing Administration (HCFA) in the United
States.
According to an industry report, the global market for IVD products is estimated
to have been approximately $18 billion in 1998. We believe a number of industry
trends exist that will drive this growth, including:
- - Evolution of pharmacogenomics. There are many studies investigating genetic
variation among individuals, including SNPs, and their linkage to disease.
SNPs represent the smallest possible genetic change, and occur where the DNA
molecules of different persons vary at a single location. The principle
behind pharmacogenomics is that patients react differently to a given drug
because of their unique genetic profile. 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. The long-term goal
of pharmacogenomics is to enable physicians to prescribe the appropriate
medicine for a particular patient that would maximize efficacy and minimize
side effects based on that patient's specific genetic profile. These studies
are principally funded by a consortium of pharmaceutical companies seeking
to correlate the results of an individual's SNP profile with drug response.
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- - An increase in disease targets from the success of drug discovery efforts.
We believe the rise in research and development spending by pharmaceutical
and biotechnology companies will lead to the identification of a greater
number of disease targets. These targets may be assayed during drug
discovery and later developed as IVD products for disease diagnosis and
monitoring. For example, a newly discovered gene may be an integral part of
the disease process itself, and may later serve as a diagnostic marker for
that disease.
- - Evolution of disease specific test panels. Diagnosis and treatment of
diseases have traditionally focused on the discovery of a single causative
agent and a therapy to eradicate that agent. Clinical microbiology
laboratories can take up to several weeks to perform this function using a
variety of techniques from manual cell culturing to various automated and
semi-automated systems. The problem with traditional techniques is that
disease is rarely the result of a single agent and not all patients react to
therapy in the same fashion. In addition, during the time required to
receive results from the clinical lab, the patient is treated using
incomplete and sometimes inaccurate information. Genetically-based disease
specific panels can greatly improve the management of cases of complex
diseases such as childhood leukemia. The patient can be monitored for innate
resistance to infection (by checking for SNPs in the mannose binding protein
gene) while at the same time determining the child's likelihood of having a
serious, even life-threatening, adverse reaction to the powerful drugs used
to treat leukemia. Other markers indicative of inflammation, infection,
treatment success or failure, and residual disease can be added to the panel
as needed. We believe clinical laboratories will demand a system that can
perform all of these tests simultaneously from a single sample in a simple,
cost effective format.
- - Consolidation among the clinical diagnostic companies. As a result of
industry consolidation, clinical diagnostic companies have been
re-engineering the laboratory in order to streamline processes, improve
productivity and lower costs. Attempts to integrate the many instruments
employed by these laboratories have been part of this process. We believe,
however, that clinical laboratories will ultimately prefer a single
instrument that is both flexible and programmable and can perform the
required bioassays.
Drug discovery and development
The bioassays employed by the pharmaceutical industry vary in design and
complexity throughout the drug discovery and development process. Simple
bioassays are used to screen a pharmaceutical company's library of chemical
compounds against disease targets. More complex bioassays are then used in
confirmatory testing as well as in lead optimization. Finally, predictive
toxicity bioassays are used to test the safety of the potential drug. It is
estimated that the preclinical drug discovery process takes an average of six
and one-half years. Consequently, we believe there is a significant demand for
improved tools which accelerate the drug discovery process.
According to industry reports, the global market for tools to develop and
perform bioassays for the drug discovery and development industry is estimated
to have been approximately $7.2 billion in 1998 and is expected to continue to
grow at an annual rate of 14%. There are a number of factors driving this
growth, including:
- - A shift in research and development focus from gene sequencing to functional
genomics and proteomics. Recently, pharmaceutical companies have focused on
the sequence of the human genome, driven by the objectives of the Human
Genome Project as well as various public and private institutions.
Pharmaceutical and biotechnology companies are now focusing a major part of
their research and development efforts on identifying the role those genes
serve in biological processes and how variations in gene sequences may
result in a predisposition for a disease or an adverse reaction to a drug.
These activities are referred to as functional genomics.
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- - Increased research and development spending. According to industry reports,
pharmaceutical and biotechnology companies spent in excess of $48 billion
worldwide in 1998 on drug discovery and development, including bioassay
tools, and are expected to increase spending at an annual rate of 15%. This
is the result of increasing pressure to expand the product pipeline, find
new applications for existing or failed drugs, and shorten the drug
discovery process in order to maximize the benefits of the patent protection
period. As a result, we believe the number of identified disease targets for
drug discovery will rise. According to industry reports, each pharmaceutical
and biotechnology company expects to screen, on average, 27 targets in 2001,
up from 17 in 1999.
DNA forensic analysis
Bioassays are also used to identify individuals by their genetic coding. STRs
are the genetic sequences chosen by the U.S. government as well as foreign
governments to populate their national criminal identification databases. These
databases are intended to provide nationwide tools for identifying repeat
criminals by comparing a given piece of evidence or sample from a suspect with
the sequences stored in the database. This method of identifying criminals from
forensics samples containing DNA is becoming increasingly accepted by law
enforcement in countries such as the United States, the United Kingdom, and
Canada. These tests are currently performed in specialized laboratories by
individuals trained in forensic science. While sales of tools used for forensic
analysis were less than $50 million in 1998, it is anticipated that several
factors could lead to significantly increased levels of growth:
- - The development and population of national and state databases containing
the genetic identities of all convicted criminals. The National Institute of
Justice and other U.S. government agencies have issued contracts for the
development of DNA forensics technology and for forensics sequencing
services to both construct and populate the national CODIS database. Private
and public laboratories currently have large backlogs of criminal DNA
samples to be analyzed and stored. Several states now are pursuing
legislation to require DNA tests on all individuals arrested. The National
Institute of Justice Bureau of Statistics estimates that in the U.S. alone
there are approximately 17 million arrests per year.
- - The use of DNA sequence databases to identify criminals from DNA bearing
forensics samples. Currently, DNA is used primarily as a confirmatory
tool--the law enforcement officer has both a sample and a suspect. The
opportunity in this area is to use the DNA bearing evidence to identify
potential suspects before their identity is known. This is accomplished by
comparing the DNA sequences from a sample of evidence with the known
sequences in the national and state databases. Determining a suspect in this
manner is known as a "cold hit". Even with the limited databases currently
available, law enforcement officials are already beginning to realize the
benefits associated from positive "cold hits."
- - The development of technology allowing DNA forensic testing to occur in
police precincts, particularly by genotyping arrested individuals. Once the
technology is developed to allow for DNA forensic testing to occur in police
precincts, the potential market in the United States for DNA forensic
analysis tools could significantly expand from forensic laboratories to law
enforcement agencies. The U.S. Department of Justice, Bureau of Justice
Statistics estimated that there were 18,769 state and local law enforcement
agencies in the U.S. in 1996 in addition to the 362 public and private
forensic laboratories reported by the Federal Bureau of Investigation.
Current assay development technologies and their limitations
Many bioassay techniques have been developed from a wide variety of different
scientific disciplines for molecular biology and clinical diagnostic
laboratories. The differing needs of the various life sciences laboratories have
led to the development of highly specialized techniques and instrumentation. Due
to this fact, many of these techniques are technically demanding, difficult to
perform, expensive, inflexible and often lack acceptable clinical accuracy. In
addition, technologies well suited or targeted to one market, such
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as the biomedical research or drug discovery markets, often are unable to bridge
the required gap to serve downstream markets such as clinical diagnostics. This
has created inefficiencies in laboratories since they must now purchase multiple
instruments, often from different vendors, to meet their testing needs.
While advances in bioassay technologies have delivered new capabilities, most
remain highly specialized and still lack sufficient flexibility and accuracy to
be used by multiple departments within a life sciences laboratory. Current
bioassay tools were designed for large scale data generation, the automation of
repetitious tasks such as very high throughput discovery and the narrowing of
genetic targets from thousands of genes to a small set of perhaps 1 to 20 genes
that function in a selected biological process. In addition, many of these
systems are not useful in molecular, protein, enzyme, cell biology, and
forensics laboratories. These tools fall primarily into three categories:
high-density arrays; high throughput sequencing and SNP discovery tools; and gel
based methods.
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The table below briefly describes the alternative bioassay technologies
addressing the molecular biology and clinical diagnostic industries and what we
consider to be their comparative advantages and disadvantages.
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Key Technologies Description Markets Served Advantages Disadvantages
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Higher density High density arrays Genomics and biomedical - High throughput screening. - Limited accuracy ~ 80-90%
passive microarrays of molecules research and drug Parallel analysis of - Inflexible design--fixed
attached to a discovery thousands of molecules in a configuration
glass, silicon or single experiment - Single sample per analysis
nylon membrane - High cost per test
surface - Limited chip-to-chip
reproducibility
- Single type of assay per
chip
- Large image data file and
data interpretation task
Lower density passive Low-density arrays Genomics and biomedical - Parallel analysis of - Lack of accuracy
microarrays of molecules research and drug hundreds of molecules in a - Lack of reproducibility
attached to a discovery single experiment - Single sample per analysis
glass, silicon or - Can be inexpensive - Single type of assay per
nylon membrane chip
surface - Large image data file and
data interpretation task
Microfluidics Chips Miniaturized lab Genomics and biomedical - Low required sample volume - Inflexible design--fixed
techniques on a research and drug - Low required reagent volume configuration
chip discovery - Limited ability to perform - High cost per test
Miniature liquid multiple bioassays - Sizing technique which must
handling, simultaneously be validated by other
electrophoretic - Reproducible methods
separations and - Fast time to result
detection
Microtiter, bead, and Plastic trays with Genomics and biomedical - Pervasive hardware - Levels of accuracy ~ 95%
amplification based wells in which research, drug - Low cost chemistries - High sample volumes
assays. assays are discovery, clinical - Varied chemistries - High reagent volumes
Primer extension performed diagnostics and available - Single test per well
assays clinical trials - Ability to perform multiple - DNA methods can be complex
bioassays simultaneously and tedious, requiring
- High batch throughput and highly trained users
parallel processing for
screening
Mass Spectrometry Uses molecular Genomics and biomedical - Very high throughput - Accuracy is limited to the
Assays weight as a research, clinical - Reproducible and accurate preanalytical molecular
detector for trials and drug identifiers
biological discovery - Large sample batches
molecules or tags required to justify setup
time/expense
- Hardware can be expensive
DNA sequencing and Fragments are Genomics and biomedical - Very high throughput - Accuracy ~ 90-95% for SNPs,
analysis by capillary separated by gel research, drug - Reproducible ~ 99% for sequencing
electrophoresis electrophoresis in discovery and forensics - Calls, especially
capillary columns heterozygote calls, can be
and detected as subjective
they elute - Resequencing with
confirmation by alternative
techniques is common
Gels and Blots Separation and Genomics and biomedical - Low equipment costs--many - Labor intensive
identification of research, drug techniques and trained - Low throughput
molecules by discovery, clinical technicians for most - Technique-sensitive, lacks
physical and diagnostics, clinical molecules reproducibility and
chemical trials and forensics - Multiple assays are accuracy
characteristics possible - Wet and sometimes hazardous
chemicals
- Possibly subjective image
analysis
- Sizing techniques which
must be validated by other
technologies
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THE NANOGEN SOLUTION
We believe that our initial product, the NanoChip molecular biology workstation,
provides the accuracy, flexibility and ease-of-use features required to serve a
wide range of genomic and biomedical as well as many other applications. We
intend to promote the Nanogen system as the laboratory standard for molecular
biologists, and the industry standard for accurate, targeted genomics in both
laboratory and non-laboratory settings. The Nanogen system provides the
following key features critical to its function as a universal molecular biology
assay platform:
Accuracy
Accuracy is critical in laboratory analysis. The Nanochip molecular biology
workstation, with its precision electronic addressing and high degree of
stringency, exceeded the accuracy of the current "gold standard" techniques in
the SNP studies conducted at the Mayo Clinic and the University of Texas
Southwestern Medical Center.
Multiple formats
Nanogen's technology is designed to perform from one to 100 distinct assays on a
single sample, or, unlike existing technologies, several user-defined assays on
as many as 100 different samples. Each of the major bioassay formats, the "dot
blot" and the "reverse dot blot," are conveniently handled by the NanoChip
system. For example, the system could perform 100 SNP assays on one sample, or
several SNP assays on 100 samples, each in a fully automated, user-defined
manner. In addition, STR assays are conveniently performed in a hybridization
format on the Nanogen system, with a similar degree of accuracy that the Nanogen
system has demonstrated in other assay formats.
Flexibility/scalability
Nanogen's technology allows great flexibility in customizing test panels.
Specific panels can be modified to include new assays or targets simply by the
use of additional user-defined probe sets. Since as many as eight loaders can be
controlled by one reader, the user can prepare as many as 32 programmed arrays
in several hours. Due to this fact, labor is minimized, and the system can be
efficiently utilized in laboratories of various sizes. Several different assay
types may be combined on the same chip, for example a SNP assay and an STR
assay, and potentially assayed at the same time. The NanoChip system should
handle the flexibility requirements of the most advanced research laboratory,
while maintaining the ease of use and accuracy requirements of the clinical
laboratory. Nanogen's technology is a "bridging technology" that should simplify
the adoption of what were once previously complex genetic tests by the routine
clinical laboratory.
Speed
Nanogen's electronic concentration and hybridization technology greatly
accelerates the analysis process from hours to minutes. This may enable
point-of-care DNA diagnostics in the future, by allowing clinicians to perform
tests and choose appropriate therapy while a patient is still in the physician's
office.
Throughput
Nanogen's technology performs up to 100 tests on a single sample permitting
highly efficient workflow for many biomedical applications in a variety of
laboratory settings. Importantly, the ability to assay as many as 100 samples at
a time allows for much higher throughput than is achievable with competitive
technologies.
Diverse applications
The flexibility of Nanogen's electronic-based technology is applicable to
biological analyses beyond genomics and biomedical research, including
immunoassays, enzyme assays, cell separation and cell receptor studies.
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Ease of use
Nanogen assays are simple to perform. Our fully automated probe loader allows
the simultaneous programming of up to four NanoChip arrays. A loaded cartridge
is inserted and then analyzed on the Nanogen reader. The NanoChip system
includes proprietary software to automate all aspects of assay operation, as
well as provide "real time" data acquisition and analysis. Results are provided
without the need for extensive data interpretation and can be directly
downloaded into a user's laboratory information system.
Cost effectiveness
We have designed the NanoChip system to be the cost-effective solution for most
molecular biology assays. The system is easy to use and may not require highly
skilled operators. Moreover, the custom features of the system allow users to
employ their own reagents in designing arrays for specific purposes. Since the
NanoChip system consumes very small quantities of reagents, generally at very
low concentration, bioassay reagent costs per result, such as DNA, are very low.
Walk-away automation conserves direct labor, while improving the overall
effectiveness of the laboratory operation. In addition, user definability allows
important experiments to be done quickly, both accelerating the discovery
process and simplifying the validation of important targets.
STRATEGY
We intend to research, develop, manufacture and market instruments and
components, independently and in conjunction with highly regarded corporate and
government partners, to facilitate breakthrough genetic analyses. Our NanoChip
molecular biology workstation uniquely bridges the gap between the earliest
scientific research and much later stage clinical practice. Our strategy is to
make our proprietary bioassay technology platform a standard for molecular
identification and analysis across a broad range of applications. Our initial
commercial product will be a bench-top system for use in biomedical research and
genomic applications. The capabilities that are incorporated into this system,
such as electronics-based tools that we believe can provide improved accuracy,
speed and flexibility over current laboratory techniques, will form the core
technology platform that will serve as the basis for expanding into other
biological and non-biological areas.
Continue to pursue genomics and biomedical research applications
Recent market research indicates that while researchers want to use high
throughput devices to discover genes and genetic mutations, they will want to
explore the function and impact of these genes and mutations with a more
targeted technology such as the NanoChip molecular biology workstation. We
intend to pursue the genomics and biomedical research markets by taking
advantage of the open architecture design of our technology that allows end
users to customize microchips to meet their individual research needs and help
drive development of novel applications. We believe that the speed and
flexibility of the "build-your-own-chip" feature will be very attractive to
researchers and will fulfill an unmet need for a powerful, versatile,
programmable, and cost effective analytical tool and help drive further
application development.
Pursue multiple applications
We intend to use substantially the same core hardware and consumable cartridge
platform across a spectrum of applications. By doing this, we believe we can
establish our platform as an industry standard and also reduce development costs
for follow-on applications. This approach should also allow us to achieve
manufacturing economies of scale that may help reduce our per unit cost of goods
sold over time. For our initial commercial market, the biomedical research
market, we do not anticipate the need for Food and Drug Administration or FDA or
other regulatory approval. Over time, it is expected that additional
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features, such as sample-to-answer capabilities and portability at reduced cost,
may broaden the market potential from the research market to markets many times
larger that include drug discovery, diagnostics, forensics, agriculture and
environmental applications. Some of these applications would require FDA or
other regulatory approval.
Develop recurring revenue stream through bench-top and consumable product sales
We intend to sell bench-top instruments which we believe will lead to a
recurring stream of revenue from consumable cartridge sales. We believe that
widespread market penetration of our instruments and the open architecture of
the system will promote sustained demand for our cartridges.
Continue to establish strategic collaborations
We intend to continue to enter into collaborations to expand applications of our
technology platform and to accelerate the commercialization of our products. By
partnering with multinational healthcare and technology companies, we believe
that we can gain broader access to global markets without shifting our resources
from the development of our core technology platform. In addition, as part of
these arrangements, we believe we can better focus our efforts on tailoring our
technology to expanding markets while our collaborative partners contribute
their technology and expertise in areas such as sales, marketing and regulatory
approvals.
OUR PLATFORM TECHNOLOGY
Our proprietary platform technology takes advantage of the fact that most
biological molecules are either positively or negatively charged. Through the
use of microelectronics, this technology enables the active movement and
concentration of electronically charged molecules such as DNA to and from
designated test sites on a semiconductor microchip. These test sites are
arranged in an array on our proprietary microchips. In addition, the technology
allows for the simultaneous analysis of multiple test results, or
"multiplexing," from a single sample. We believe these attributes make our
technology well suited to unraveling complex genetic information. We believe our
proprietary technology has applications for the analysis of unknown charged
biological molecules which are capable of binding specifically to known capture
molecules on a microchip. We have initially focused on DNA-based sample analysis
in developing applications utilizing our platform.
Our 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. Electronically mediated hybridization occurs in
minutes rather than the hours required for passive hybridization techniques.
We believe our technology may be applicable to a number of other analyses, in
addition to DNA applications, including antigen-antibody, enzyme-substrate,
cell-receptor, and cell separation techniques.
Our system can integrate in a single platform the following electronic
operational features:
Electronic addressing
Electronic addressing is the process by which we place 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 group 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
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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 addressed on the microchip. Multiplexed sites can be addressed
simultaneously, allowing for speed and flexibility of array assembly. With the
ability to electronically address capture probes to specific sites, the NanoChip
molecular biology workstation allows end users to build custom arrays through
the placement of specific capture probes on a microchip. These microchip arrays
may provide research professionals with a powerful and versatile tool to process
and analyze molecular information.
Electronic concentration and hybridization
Following electronic addressing, we use electronics to move and concentrate
target molecules to one or more test sites on the microchip. In contrast to the
passive hybridization process, the electronic concentration process has the
advantage of significantly accelerating the rate of hybridization of a given
target molecule with complementary capture probes.
Stringency control
In addition to utilizing conventional thermal and chemical stringency
techniques, the NanoChip molecular biology workstation is capable of utilizing
electronic stringency control when appropriate. Electronic stringency control
can provide a means to quickly and easily remove non-complementary DNA as part
of the hybridization process. Electronic stringency can provide quality control
for the hybridization process and ensures that any bound pairs of DNA are truly
complementary. The precision, control, and accuracy of our platform technology
may permit the detection of single point mutations, single base pair mismatches
or other genetic mutations which have significant implications in a number of
disease states. Electronic control allows rapid and selective stringency
conditions to be applied to individual test sites, which cannot be achieved with
conventional methods. In contrast to conventional approaches, our technology can
also accommodate both short and long single-stranded fragments of DNA on the
same chip. This flexibility reduces the required number of probes and related
test sites on the microchip. Currently marketed DNA arrays are difficult to
control, require more uniformity in the preparation of the sample, and require
greater redundancy to improve accuracy.
Electronic multiplexing
Our electronic multiplexing feature allows the simultaneous analysis of multiple
tests from a single sample or multiple samples to be queried during the
hybridization process. Electronic multiplexing is facilitated by the ability to
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 our
technology provides increased versatility and flexibility over these
conventional methods.
Strand Displacement Amplification
Strand Displacement Amplification, or SDA, is a proprietary target amplification
process whereby very low numbers of diagnostic targets in a test sample are
enzymatically amplified to exponentially higher levels, greatly simplifying
accurate detection of these targets. Because this process does not require
thermal cycling, it is extremely fast, and complex instrumentation is not
required. The Nanogen/Becton Dickinson Partnership was granted rights to Becton
Dickinson's patents relating to SDA in infectious disease diagnostics. In
addition, we were granted rights to use SDA in the fields of IN VITRO human
genetic testing and cancer diagnostics for use outside The Nanogen/Becton
Dickinson Partnership. We believe that SDA may be an important element in the
development of sample-to-answer applications for our technology platform.
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THE NANOCHIP MOLECULAR BIOLOGY WORKSTATION COMPONENTS
The NanoChip molecular biology workstation consists of both a consumable
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 after insertion of
a consumable cartridge containing a test sample into the instrument, all
subsequent steps are handled automatically under computer control. We have also
developed a bench-top microchip loader for those researchers wishing to
electronically address microchips with their own capture probes.
Consumable cartridge
The consumable NanoChip cartridge consists of a proprietary semiconductor
microchip with electrical and fluidic connections to the instrument. We are
finalizing designs for commercially manufacturing our cartridges based on
successful tests with a number of prototype cartridges. We expect that the
consumable cartridge and microchip will be manufactured in high volumes at a low
cost relative to many current technologies.
SEMICONDUCTOR MICROCHIP
Our proprietary microchip utilizes advances in the semiconductor industry and is
designed and constructed using microlithography and fabrication techniques. Our
microchip is coated with a proprietary permeation layer to which capture probes
are attached and is mounted within the consumable cartridge. We have developed
arrays of various sizes utilizing both passive and active CMOS microchips, as
well as flip chip assembly technologies. We expect our initial production of
consumable cartridges to employ 100 different test sites on the microchip.
PERMEATION LAYER
Our proprietary permeation layer, which is critical to the proper functioning of
our system, is the interface between the surface of the microchip and the
biological test environment. The permeation layer isolates the biological
materials from the harsh electrochemical environment near the electrode surface
and provides the chemistry necessary for attachment of capture probes.
CAPTURE PROBES
Capture probes or other capture molecules are electronically addressed to the
desired microlocations and chemically attached to the permeation layer. Because
independent control can be applied at any test site on our microchip, different
capture probes can be addressed on the same microchip, allowing multiple tests
to be processed simultaneously. Our 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.
Our instruments
Our fully integrated NanoChip instrument system consists of four major
subsystems: (1) a freestanding microchip loader to perform electronic addressing
of blank microchips, (2) a highly sensitive, laser-based fluorescence scanner
that detects molecular binding, (3) a fluid handling subsystem that controls
test sample application and washing steps and (4) computer hardware and software
that allow the operator to select assays from a graphical user menu which
controls all microchip operations, tabulates test results and prints test
reports.
MICROCHIP LOADER
For biomedical research applications, our system includes a cartridge/microchip
loader that will allow the user to electronically address their own probes to
test sites on up to four chips simultaneously. For the
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diagnostics market and most other applications, a loader will not be required
because we intend to provide pre-addressed microchips for a specific panel of
tests. Multiple loaders can operate concurrently under the control of one
system.
FLUORESCENT ARRAY SCANNER
The fluorescent scanner component of the system uses pattern recognition
techniques 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 arrays
of 100 test sites in less than two minutes.
FLUIDICS STATION
Within the fluorescent array scanner component of the system, the fluidics
station automates the movement of the reagents and test sample onto the
consumable cartridge. The fluidic subassembly of the instrument includes a panel
of precision syringe pumps, a cartridge-mounted sample assembly and fluidic
connections between the instrument and the consumable cartridge.
COMPUTER HARDWARE AND SOFTWARE SYSTEM
A multi-tasking operating system and microprocessor control all aspects of the
systems operations, 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.
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<TABLE>
<S> <C> <C>
NanoChip Analysis Process
Cartridge
[LOGO] An active microelectronic chip is mounted within
a plastic molded cartridge. The bar-coded
cartridge is delivered in a ready-to-address
format with no genetic sequences pre-attached.
Electronic addressing
Users design and create their own genetic arrays
on the microelectronic chip with Nanogen's
automated system. A microtiter plate containing
up to 96 different genetic sequences is placed
in the loader instrument. The system then
automatically electronically addresses the
microchip to the user-defined arrays.
Electronic hybridization and stringency
Users add the test sample to the cartridge and
insert the cartridge into the reader. The
instrument then automatically performs
electronic hybridization and the appropriate
stringency control. The electronically enhanced
process speeds and improves the genetic
analysis, allowing single-base accuracy.
[LOGO]
Simple-to-read output
Within minutes of inserting the bar-coded
cartridge for analysis, easy-to-read and
interpret output is available. Data can be
automatically downloaded to network systems and
to standard software spreadsheet packages. The
entire electronic addressing and data output
process can be completed rapidly, allowing users
to accelerate their research process by creating
new genetic arrays based on previous
experimental results.
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PRODUCTS AND APPLICATIONS UNDER DEVELOPMENT
Genomics and biomedical research applications
We expect to begin commercialization of the NanoChip molecular biology
workstation, a bench-top molecular analysis system, for use in the genomics and
biomedical research market during the second half of 2000. Unlike the
high-density arrays and sequencing technologies now in the marketplace, our
focus will be on the targeted analysis of data from the genomics
revolution--helping researchers define the function of genes rather than
discover new genes. We believe our technology is well suited for this research,
given the speed, user programmability, multiplexing capability and sensitivity
of our unique platform.
Given that researchers are just beginning to move beyond gene discovery into
this targeted analysis area referred to as functional genomics, the timing of
our anticipated product introduction may be well suited to meet this evolving
market need. An independent market research study by Strategic Directions
International published in December 1999 indicated that the market potential for
DNA microarrays is anticipated to grow rapidly from $200 million in 2000 to
almost $800 million by 2003.
Our initial strategy for entering this market will be to focus on sophisticated
commercial and academic users such as large pharmaceutical companies,
biotechnology companies and research and academic institutions. We intend to
provide technical support and applications specialists to assist these customers
in applying the technology. Our initial product offering is expected to include
features such as the ability to perform assays on SNPs, point mutations and
genetic repeats in a multiplexed format using a variety of different methods. We
plan to further define and develop additional capabilities, such as gene
expression, on-chip amplification and sample processing. As these capabilities
are added, we expect to start expanding our customer base to a wider group that
may ultimately encompass a significant percentage of the biomedical research
labs in the U.S. and other parts of the world.
Diagnostics applications
We anticipate the introduction of array-based diagnostic testing will grow as
effective technologies are introduced and validated. This multi-step process
will allow for both the development of relevant genetic-based tests that may
evolve from biomedical research, and for the awareness and confidence in
array-based technology to extend to medical practitioners. Finally, we
anticipate the need for regulatory approval of certain diagnostic tests. It is
our intention to begin serving the diagnostic market in advance of a regulatory
approved product by providing a flexible tool to be used for clinical research
and for an industry practice referred to as "home brew" or "in-house" testing.
PHARMACOGENOMICS
We believe that the ability of our technology to screen simultaneously for
various DNA sequences and the ability to differentiate between SNPs has
potentially wide applicability to the field of genetic testing in general and
pharmacogenomics in particular.
Our NanoChip molecular biology workstation may provide pharmaceutical and
biotechnology companies with the ability to identify important genetic
variations early in the drug development process. We believe our system may help
stratify patients during clinical trials and identify those receiving the
maximum benefit from treatment. We intend to ultimately develop a small
sample-to-answer, FDA-approved diagnostic test that can be used in a doctor's
office potentially while a patient is waiting. We have a development program
underway to develop a more compact version of our NanoChip instrument system.
INFECTIOUS DISEASES
We believe we have the potential to apply our technology in the field of
infectious disease diagnostics to develop automated tests to replace the manual
and time-intensive procedures used in hospitals and reference
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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. Using
currently available technologies, 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 more
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 in part due to their
inability to identify several organisms simultaneously. Our technology addresses
these shortcomings by allowing the simultaneous analysis of multiple
microorganisms from a single patient sample. We believe our technology and
integrated system may speed the time-to-result for diagnostic tests and patient
treatment and offer our customers the opportunity to lower their costs and
improve productivity by automating all or a significant portion of their
labor-intensive testing.
OTHER GENETIC TESTING APPLICATIONS
As the Human Genome Project opportunity and other public and private genetic
sequencing efforts yield increasing amounts of genetic information, the demand
for genetic predisposition testing will continue to grow. Because many important
genetic diseases are ideally suited to diagnosis in multiplexed arrays, we
believe that our technology platform could contribute significantly to the
expansion of testing in this area. For example, in cancer diagnostics, certain
mutations are indicative of a predisposition to certain types of cancer.
Although many diseases involve multiple mutations, the ability to analyze all
possible mutations has previously been expensive and impracticable. Our
stringency control feature potentially permits rapid and accurate testing for
these single point mutations. While our development efforts in this area with
respect to specific genetic tests are still at an early stage, our core
technology platform for other diagnostic applications may be well suited for
these opportunities.
Drug discovery applications
We believe we have a powerful tool which will clarify 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 takes an
average of six and one-half years. Consequently, we believe there is a
significant demand for improved tools which accelerate the drug discovery
process.
We believe the microelectronic array format and independent test site control of
our system are well suited for applications in drug discovery. In addition, we
believe the use of electronics beyond the array format may provide a valuable
tool for the high throughput screening of compounds. Our electronic technology
is expected to 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. We believe our system may provide an
efficient automated method for drug lead optimization.
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To further advance our efforts in this area, we entered into a research and
development collaboration with Aventis in 1998. This collaboration is focused on
the development of novel electronic combinatorial approaches toward drug
screening and discovery. We expanded our relationship with Aventis in 1999 by
adding two additional projects. Nanogen and Aventis met all of the objectives
for the initial collaboration in 1998 and 1999 and agreed to extend the research
program through 2001.
Forensic applications
STRs are the genetic sequences chosen by the U.S. government and other foreign
governments to populate their national criminal identification databases. These
databases are intended to provide nationwide tools for identifying repeat
criminals by comparing a given piece of evidence or sample from a suspect with
the sequences stored in the database. We believe our NanoChip molecular biology
workstation may be useful in human identity testing.
Non-biological applications
We are applying our core microelectronics biochip technology to potential
applications in non-biological areas which include nanotechnology, data storage
and semiconductor manufacturing. Based on the intrinsic self-assembly and
programmable qualities of DNA, our technology uses electrical current to direct
the heterogeneous integration of a number of molecular and nonmolecular
components onto a microelectronic chip. Presently, there are a number of
academic groups, government research labs, and electronics companies involved in
the development of molecular electronic components, but no one has successfully
developed a way to integrate them into useful devices. Our integrated "host
substrate" or "motherboard" array capability could serve to provide useful new
tools with the ability to take advantage of these valuable components.
Our electronic "pick and place" technology may have several advantages compared
to the more difficult conventional processes. Our technology could facilitate
the movement and assembly of microelectronic components ranging in size from
molecular scale to micron scale, something traditional assembly methods cannot
achieve. Also, using electric field specificity control, we may have the ability
to form novel integrated devices in a more timely and cost-effective fashion.
For example, we are evaluating the use of this platform technology to facilitate
integration of different size components for the development of new photonic or
electronic devices.
COMMERCIALIZATION PLAN
Successful beta site tests
Beta site testing is the process of placing pre-commercial products into
potential customer laboratories, and allowing them to use the system and provide
feedback to the manufacturer regarding product performance and potential
opportunities for improvement. We beta tested our NanoChip molecular biology
workstation during 1999 at three highly visible commercial and academic centers:
the Mayo Clinic, the University of Texas Southwestern Medical Center and the
Bode Technology Group. The Mayo Clinic is a world-renowned clinical research
facility and clinical practice, the University of Texas Southwestern Medical
Center is a university-based genomics center and the Bode Technology Group is a
private forensics laboratory. The Mayo Clinic and the University of Texas
Southwestern Medical Center performed SNP analyses, while the Bode Technology
Group performed an STR analysis. In each case, the researchers at the beta sites
released results of their studies which all indicated a very high level of
accuracy. The Mayo Clinic and the University of Texas Southwestern Medical
School both reported 100% accuracy for the SNP studies performed using the
NanoChip molecular biology workstation, which exceeded the performance of their
current "gold standard" techniques. The STR analysis beta test results at the
Bode Technology Group
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showed greater than 99.5% accuracy for the NanoChip molecular biology
workstation. Additionally, all three sites provided input throughout the beta
testing process that helped us design improvements into the NanoChip molecular
biology workstation.
Commercial launch
We plan to begin commercialization of our NanoChip molecular biology workstation
during the second half of 2000 to a select group of customers in the genomics
and biomedical research field. The initial applications for the technology will
be for the analysis of DNA including SNPs, PMs and STRs. It is anticipated that
the analysis of gene expression will be added as an additional application.
COLLABORATIVE ALLIANCES
We have established collaborative alliances in the areas of infectious disease
diagnostics, drug discovery and genomics as part of our strategy to expand the
applications and accelerate the commercialization of products derived from our
technology. We have expanded our relationship with Aventis by increasing the
number of collaborative research and development projects from one to three. In
January 2000 we entered into a manufacturing, development and distribution
agreement with Hitachi. Because of the importance of the biomedical research and
genomics market as a beachhead, we anticipate being directly involved with
marketing our first product line to this non-regulated market segment.
Additionally, we expect to distribute products in Japan through the distribution
arm of Hitachi.
Aventis
In December 1997, we entered into a Letter Agreement with Aventis for an
exclusive research and development collaboration relating to new drug discovery
tools and immunodiagnostics research. In connection with the Letter Agreement,
we entered into a definitive Collaborative Research and Development Agreement
with an effective date of January 1, 1998. 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. In addition, in September 1999 we expanded our
relationship with Aventis by adding two new research and development programs
focused on gene expression arrays and on an electronics-based high throughput
screening system. We retain full commercialization rights for the products
resulting from these new projects, while Aventis retains the right to use the
technology for internal research and development.
As part of our collaboration, we have agreed to issue a warrant for 120,238
shares of common stock to Aventis at an exercise price of $8.75 per share. We
have also agreed to issue to Aventis, upon the achievement of certain
milestones, warrants to purchase up to approximately 360,000 additional shares
of common stock as follows: upon announcement by the parties of entry into the
product development phase of the research and development collaboration, a
warrant for the purchase of approximately 180,000 shares of common stock at a
50 percent premium to the market price on the date of such entry, and upon the
first commercial sale by the joint venture or other joint relationship, a
warrant to purchase an additional 180,000 shares of common stock at a
50 percent premium to the 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 our common stock exceeds the exercise price by 50 percent or more,
Aventis must exercise such warrant no later than the end of its next fiscal
year.
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Hitachi
In January 2000, we executed an agreement with Hitachi for the full-scale
commercial manufacturing and distribution of our Nanogen molecular biology
workstation in specified research markets. Hitachi's Instrument Group will
provide technology and technical support to aid in the manufacturing scale up of
the Nanogen molecular biology workstation's components.
Hitachi will have the right to be the sole distributor of Hitachi-produced
Nanogen molecular biology workstations instruments in Japan. Hitachi will also
have the non-exclusive right to distribute NanoChip cartridges in Japan. We
retain the right to distribute, directly or through others, Hitachi produced
NanoChip molecular biology workstations outside of Japan. In addition, we will
develop and manufacture the NanoChip cartridges for distribution worldwide. The
agreement is non-exclusive and excludes certain clinical markets, and we
continue to have the right to form other manufacturing and distribution
agreements for all markets and for all non-Hitachi produced products.
Becton Dickinson
In connection with Nanogen's joint venture with Becton Dickinson in October
1997, The Nanogen/Becton Dickinson Partnership, or the Partnership, a Delaware
general partnership was established. The Partnership was formed to develop and
commercialize products in the field of IN VITRO nucleic acid-based diagnostic
and monitoring technologies in infectious diseases.
In 1999, Becton Dickinson and Nanogen agreed to discuss a change in the
Partnership's scope and field. Both parties are currently in discussions with
the intention of redefining the Partnership's scope and field to better align it
with the strategic goals of each party. We have received no research funding
from Becton Dickinson since the third quarter of 1999, and are uncertain whether
we will receive any additional research funding from Becton Dickinson.
Concurrently with the execution of the joint venture agreement, we entered into
a worldwide, royalty-bearing, nonexclusive license agreement with Becton
Dickinson, relating to Becton Dickinson's proprietary SDA technology for use by
us outside the Partnership in the fields of IN VITRO human genetic testing and
IN VITRO cancer diagnostics.
Elan
In December 1997, we entered into a nonexclusive research and development
agreement with Elan Pharmaceuticals, plc for the development of genomics and
gene expression research tools. The agreement contemplates that we will develop
products for discrimination of sequence variations such as single nucleotide
polymorphisms, allelic variations, genotyping, and mutation detection. We may
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. In 1999 and 1998, revenues earned by us pursuant to this agreement were
approximately $568,000 and $929,000 respectively. We are uncertain if we will
receive any additional funds from Elan.
RESEARCH GRANTS
We have a number of active research grants and contracts administered by various
governmental agencies. In September 1998, we were awarded (1) a contract by the
Space and Naval Warfare Systems Center San Diego or SSC San Diego for the
Defense Advance Research Projects Agency of $7 million over a five year term and
(2) a grant from the National Institute of Justice or NIJ of approximately
$1 million over a five year term. The contract award which was made by SSC San
Diego for the Defense Advance Research Projects Agency, includes over
$2 million to be paid during the first two years, and options to extend the
program for up to an additional three years that would pay us up to an
additional $4.8 million. The goal of the program is to create an advanced
miniaturized lab for biological warfare defense applications. Under the
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grant awarded by the U.S. Department of Justice, Office of Justice Programs we
are continuing our work in the development of a portable microchip array-based
genetic detector for rapid forensic DNA testing and identification at the crime
scene.
RESEARCH AND PRODUCT DEVELOPMENT
Our research and product development is dedicated to:
- - developing our DNA analysis platform;
- - using this basic technology in 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.
We have project teams focused on technology applications for the research market
and for drug discovery applications for the Aventis collaboration. In addition,
we have various groups supporting activities related to government contracts and
grants for both biologic and non-biologic applications.
PROPRIETARY TECHNOLOGY AND PATENTS
We have twelve issued U.S. patents, seven foreign issued patents and a number of
pending patent applications filed in the U.S. and abroad. In addition to
pursuing patents and patent applications relating to our platform technology, we
may enter into other license arrangements to obtain rights to third-party
intellectual property where appropriate.
Our or our licensors' patent applications may not be issued. Issued patents may
not be found valid if challenged. In addition, intellectual property rights
licensed by us may not be successfully integrated into commercial products.
Others may independently develop similar technologies or duplicate any
technology developed by us. Because of the extensive time required for
development, testing, and regulatory review of a potential product, it is
possible that, before any of our 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 our ability to protect future product development and,
consequently, our business, financial condition and results of operations.
All of our inventions have originated in the U.S. and all patent applications
were originally filed in the U.S. We also seek 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 the
patents are issued and since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, we cannot be certain that
we were the first to make the inventions covered by each of our issued or
pending patent applications or that we were the first to file for protection of
inventions set forth in such patent applications. Our planned or potential
products may be covered by third-party patents or other intellectual property
rights, in which case continued development and marketing of the products would
require a license. Required licenses may not be available to us on acceptable
terms, if at all. If we do not obtain these licenses, we could encounter delays
in product introductions while we attempt to design around the patents, or could
find that the development, manufacture or sale of products requiring these
licenses is foreclosed.
We are aware of U.S. and corresponding foreign patents and applications which
are assigned to Affymax Technologies, N.V., and Affymetrix which relate to
certain devices having 1,000 or more groups of oligonucleotides occupying a
total area of less than 1 cm(2) and 400 different oligonucleotides per cm(2) on
a substrate. In the event that we proceed with the development of arrays with
more than 400 groups of oligonucleotides, we expect to design our devices
through, among other things, the selection of the physical
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dimensions, methods of binding and selection of support materials to avoid
infringing these patents. We may not be able to design around these patents. We
are aware of U.S. and European patents and patent applications owned by Isis
Innovations Ltd. (E. M. Southern). We have opposed one allowed European patent
which had broad claims to array technology for analyzing a predetermined
polynucleotide sequence. Isis Innovations' position with respect to the opposed
patent is that the claims relate to what it terms the "diagnostic mode." Those
claims have now all been narrowed to the point that if the claims are accepted
by the European Patent Office, they would not be infringed by our technology. On
May 5, 1998, The Opposition Division of the European Patent Office issued a
provisional nonbinding opinion that the claims should be revoked. 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, we would be subject to infringement claims that could
delay or preclude sales of some or all of our anticipated diagnostic products.
We are also aware of a U.S. patent and corresponding foreign applications which
are assigned on their face to Massachusetts Institute of Technology, Houston
Advanced Research Center and Baylor College of Medicine. We believe that we have
meritorious positions regarding non-infringement and invalidity. Parties
claiming to have rights under the patent and applications have offered us a
license. No assurance can be made that a license will be available on
commercially acceptable terms, or that we would prevail in any ultimate action.
Litigation may be necessary to defend against or assert claims of infringement,
to enforce patents issued to us, to protect trade secrets or know-how owned by
us 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 our patent applications.
Litigation or interference proceedings could result in substantial costs to and
diversion of our effort, and could have a material adverse effect on our
business, financial condition, and results of operations. Any such efforts may
not be successful.
We may rely on trade secrets to protect our technology. Trade secrets are
difficult to protect. We seek to protect our proprietary technology and
processes by confidentiality agreements with our employees and certain
consultants and contractors. These agreements may be breached, we may not have
adequate remedies for any breach and our trade secrets may otherwise become
known or be independently discovered by competitors. To the extent that our
employees or our consultants or contractors use intellectual property owned by
others in their work for us, disputes may also arise as to the rights in related
or resulting know-how and inventions.
MANUFACTURING
In January 2000 we formed a collaboration with Hitachi for the manufacture of
our NanoChip molecular biology workstation instruments. For the manufacture of
the NanoChip cartridge, we perform many of the proprietary assembly steps
in-house, including deposition of the permeation layer and final electronic
assembly and testing. We believe our technology allows for large-scale microchip
production at a relatively low cost. We believe this scalability and low cost
will help promote the rapid acceptance of our proprietary semiconductor-based
platform technology as an industry standard. However, achieving these
efficiencies will require substantial commercial volumes and there can be no
assurance we will be successful in generating sufficient demand to scale up
manufacturing capacity to levels that will allow our products to be priced
competitively.
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SALES AND MARKETING
We plan to field a focused, direct sales force in the United States and Europe
to coordinate the sale and marketing of our first product, the NanoChip
molecular biology workstation. The sales team will target sites for multi-unit
placements, strategic development of diagnostic content, and value-added
distribution partners for selected market segments.
Hardware service for our Hitachi-made NanoChip molecular biology workstations is
expected to be provided by Hitachi's technical service organization. Hitachi's
wholly-owned distribution partner, Nissei-Sangyo, will sell and service NanoChip
systems and cartridges in Japan.
In San Diego, we will support world-wide field activities with a customer
applications laboratory. This laboratory will be used to assist in early
customer demonstrations, protocol development and training.
COMPETITION
As we develop applications of our technology, we expect to encounter intense
competition from a number of companies that offer products competing in our
targeted applications. We anticipate that our 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 we are successful in
developing products in these areas, we will face competition from established
and development-stage companies.
In many instances, our competitors have substantially greater financial,
technical, research, and other resources and larger, more established marketing,
sales, distribution and service organizations than us. Moreover, competitors may
offer broader product lines and have greater name recognition than us, and may
offer discounts as a competitive tactic. In addition, several development stage
companies are making or developing products that compete with our potential
products. There can be no assurance that our competitors will not succeed in
developing or marketing technologies or products that are more effective or
commercially attractive than our potential products, or that would render our
technologies and products obsolete. Also, we may not have the financial
resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. Our success will depend in
large part on our ability to maintain a competitive position with respect to our
technologies. Rapid technological development by others may also result in
competing products or technologies.
GOVERNMENT REGULATION
For our initial commercial market, the biomedical research market, we do not
anticipate the need for FDA or other regulatory approval. We have not applied
for FDA or other regulatory approvals with respect to any of our products under
development. We anticipate, however, the manufacturing, labeling, distribution
and marketing of some or all of the diagnostic products we may develop and
commercialize in the future will be subject to regulation in the U.S. and in
other countries. In addition to clinical diagnostic markets, we also may pursue
forensic, agricultural, environmental, laboratory and industrial applications
for our products which may be subject to different government regulation.
Aspects of our manufacturing and marketing activities may also be subject to
federal, state and local regulation by various governmental authorities.
In the U.S., the FDA regulates, as medical devices, most diagnostic tests and IN
VITRO reagents that are marketed as finished test kits and equipment. Pursuant
to the Federal Food, Drug, and Cosmetic Act, and the regulations promulgated
thereunder, the FDA regulates the preclinical and clinical testing, design,
manufacture, labeling, distribution and promotion of medical devices. We will
not be able to commence
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marketing or commercial sales in the U.S. of new medical devices under
development that fall within the FDA's jurisdiction until we receive 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 generally 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. Our products will vary significantly in the degree of
regulatory approvals required. We believe that certain of our products for
research, genomics, drug discovery and industrial applications will not require
regulatory approvals or clearance. Some 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 the process 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 requirements, clinical investigations of IN
VITRO diagnostic tests, such as our products and products under development, are
exempt from the investigational device exemption 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 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 IN VITRO diagnostic tests must be labeled for
research use only or investigational use only, and distribution controls must be
established to assure that IVDs distributed for research or clinical
investigation are used only for those purposes.
The FDA may determine that we must adhere to the more costly, lengthy, and
uncertain PMA approval process for our potential products. 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
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application and provide recommendations to the FDA as to the approvability of
the device. We may not 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 a material adverse effect on our business,
financial condition and results of operations.
Manufacturers of medical devices for marketing in the U.S. are required to
adhere to the QSR requirements (formerly Good Manufacturing Practices), which
include testing, control and documentation requirements. Manufacturers must also
comply with Medical Device Reporting 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. FDA enforcement policy
prohibits the marketing of approved medical devices for unapproved uses.
We are subject to routine inspection by the FDA and certain state agencies for
compliance with QSR requirements, medical device reporting requirements and
other applicable regulations. The recently finalized QSR requirements include
design controls that will likely increase the cost of compliance. We may incur
significant costs to comply with laws and regulations in the future and these
laws and regulations may have a material adverse effect upon our business,
financial condition and results of operation.
Any of our customers using our diagnostic devices for clinical use in the U.S.
may be regulated under the Clinical Laboratory Improvement Amendments of 1988 or
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
our diagnostic products. Therefore, CLIA regulations and future administrative
interpretations of CLIA may have a material adverse impact on us by limiting the
potential market for our products.
The Food and Drug Administration Modernization Act of 1997 makes changes to the
device provisions of the FD&C Act or the 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. We cannot predict how or when these
changes will be implemented or what effect the changes will have on the
regulation of our products. There can be no assurance that the new legislation
will not impose additional costs or lengthen review times for our products.
Additionally, our 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.
FACILITIES
We currently lease approximately 45,000 square feet of commercial real estate in
San Diego, California, under a lease expiring in 2005. We have an option to
renew the lease on this facility for two additional five-year terms. The
facility currently houses our administrative offices and research and
development
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laboratories, and is expected to be sufficient to meet our currently anticipated
facilities needs at least through 2000. If required, we believe we will be able
to obtain additional facilities space on commercially reasonable terms.
EMPLOYEES
As of December 31, 1999, we had 142 full-time employees, of whom 50 hold
Ph.D. degrees and 19 hold other advanced degrees. Approximately 90 are
involved in research and development, 26 in operations, manufacturing and
quality assurance, and 26 in finance, legal, marketing and other
administrative functions. Our success will depend in large part upon our
ability to attract and retain employees. We face competition in this regard
from other companies, research and academic institutions, government entities
and other organizations. None of our employees is covered by a collective
bargaining agreement, and we believe that we maintain good relations with our
employees.
FACTORS THAT MAY AFFECT RESULTS
Our products may not be successfully developed, which would harm us and force
us to curtail or cease operations.
We are at an early stage of development. All of our products are under
development. We have not sold any products and do not expect to sell any
products until at the earliest the last half of 2000. Our products may not be
successfully developed or commercialized on a timely basis, or at all. If we
are unable, for technological or other reasons, to complete the development,
introduction or scale-up of manufacturing of our new products, or if our
products do not achieve a significant level of market acceptance, we would be
forced to curtail or cease operations.
Our success will depend upon our ability to overcome significant
technological challenges and successfully introduce our products into the
marketplace. A number of applications envisioned by us need significant
enhancements to our basic technology platform.
Lack of market acceptance of our technology would harm us.
We may not be able to develop commercially viable products. Even if we develop a
product it may not be accepted in the marketplace. If we are unable to achieve
market acceptance, we will not be able to generate sufficient product revenue to
become profitable. Market acceptance will depend on many factors, including our
ability to:
- - convince prospective strategic partners and customers that our technology is
an attractive alternative to other technologies;
- - manufacture products in sufficient quantities with acceptable quality and at
an acceptable cost; and
- - place and service sufficient quantities of our products.
In addition, our technology platform could be harmed by limited funding
available for product and technology acquisitions by our customers, as well as
internal obstacles to customer approvals of purchases of our products.
Commercialization of some of our potential products depends on collaborations
with others. If our collaborators are not successful or if we are unable to
find collaborators in the future, we may not be able to develop these
products.
Our strategy for the research, development and commercialization of some of our
products requires us to enter into contractual arrangements with corporate
collaborators, licensors, licensees and others. Our success depends in part upon
the performance by these collaborators of their responsibilities under these
arrangements. Some collaborators may not perform their obligations as we expect
or we may not derive any revenue from these arrangements.
We have collaborative agreements with several health care companies. We do not
know whether these companies will successfully develop and market any products
under our respective agreements. Moreover, some of our collaborators are also
researching competing technologies targeted by our collaborative
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programs. We may be unsuccessful in entering into other collaborative
arrangements to develop and commercialize our products. In addition, disputes
may arise over ownership rights to intellectual property know-how or
technologies developed with our collaborators.
We currently have agreements with Aventis Research & Technologies, or Aventis,
Becton, Dickinson and Company, or Becton Dickinson, and Elan Corporation plc, or
Elan, that contemplate the commercialization of products resulting from research
and development collaboration agreements between the parties. In addition, we
have a manufacturing and distribution agreement with Hitachi. These
collaborations may not be successful. We have received no funding under our
collaboration with Becton Dickinson since the third quarter 1999 and we may
never receive any additional funds from Becton Dickinson. We have not yet agreed
upon specific program objectives with respect to our research and development
agreement with Elan, and we may never receive any additional funds from Elan.
We have a history of net losses. We expect to continue to incur net losses and
we may not achieve or maintain profitability.
We have not sold any products and do not expect to sell any products until at
the earliest the last half of 2000. From our inception to December 31, 1999, we
have incurred cumulative net losses totaling approximately $72.6 million.
Moreover, our negative cash flow and losses from operations will continue and
increase for the foreseeable future. We may never generate sufficient product
revenue to become profitable. We also expect to have quarter-to-quarter
fluctuations in revenues, expenses and losses, some of which could be
significant.
To develop and sell our products successfully, we will need to increase our
spending levels in research and development, as well as in selling, marketing,
and administration. We will have to incur these increased spending levels before
knowing whether our products can be sold successfully.
We may need additional capital in the future. If additional capital is not
available, we may have to curtail or cease operations.
We may need to raise more money to continue the research and development
necessary to bring our products to market and to establish manufacturing and
marketing capabilities. We may seek additional funds through public and private
stock offerings, arrangements with corporate partners, borrowings under lease
lines of credit or other sources. If we cannot raise more money we will have to
reduce our capital expenditures, scale back our development of new products,
reduce our workforce and license to others products or technologies that we
otherwise would seek to commercialize ourselves. The amount of money we will
need will depend on many factors, including among others:
- - the progress of our research and development programs;
- - the commercial arrangements we may establish;
- - the time and costs involved in:
- scaling up our manufacturing capabilities;
- obtaining necessary regulatory approvals; and
- filing, prosecuting, defending and enforcing patent claims; and
- - the scope and results of our future preclinical studies and clinical trials,
if any.
Additional capital may not be available on terms acceptable to us, or at all.
Any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may include restrictive covenants.
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Competing technologies may adversely affect us.
We expect to encounter intense competition from a number of companies that offer
products in our targeted application areas. We anticipate that our competitors
in these areas will include:
- - health care companies that manufacture laboratory-based tests and analyzers;
- - diagnostic and pharmaceutical companies; and
- - companies developing drug discovery technologies.
If we are successful in developing products in these areas, we will face
competition from established companies and numerous development-stage companies
that continually enter these markets.
In many instances, our competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and service organizations than us. Moreover, these
competitors may offer broader product lines and have greater name recognition
than us 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 our potential
products. Our competitors may succeed in developing, obtaining FDA approval or
marketing technologies or products that are more effective or commercially
attractive than our potential products, or that render our technologies and
potential products obsolete. As these companies develop their technologies, they
may develop proprietary positions which may prevent us from successfully
commercializing products.
Also, we may not have the financial resources, technical expertise or marketing,
distribution or support capabilities to compete successfully in the future.
The uncertainty of patent and proprietary technology protection and our
potential inability to license technology from third parties may adversely
affect us.
Our success will depend in part on obtaining and maintaining meaningful patent
protection on our inventions, technologies and discoveries. Our ability to
compete effectively will depend on our ability to develop and maintain
proprietary aspects of our technology, and to operate without infringing the
proprietary rights of others, or to obtain rights to third-party proprietary
rights, if necessary. Our pending patent applications may not result in the
issuance of patents. Our patent applications may not have priority over others'
applications, and even if issued, our patents may not offer protection against
competitors with similar technologies. Any patents issued to us may be
challenged, invalidated or circumvented and the rights created thereunder may
not afford us a competitive advantage.
Our commercial success also depends in part on us neither infringing valid,
enforceable patents or proprietary rights of third parties, nor breaching any
licenses that may relate to our technologies and products. We are aware of
third-party patents that may relate to our technology. It is possible that we
may unintentionally infringe these patents or other patents or proprietary
rights of third parties. We 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 us or our collaborative partners
claiming damages and seeking to enjoin commercial activities relating to our
products and processes affected by third-party rights may require us or our
collaborative partners to obtain licenses in order to continue to manufacture or
market the affected products and processes. In addition, these actions may
subject us to potential liability for damages. We or our collaborative partners
may not prevail in an action and any license required under a patent may not be
made available on commercially acceptable terms, or at all.
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There are many U.S. and foreign patents and patent applications held by third
parties in our areas of interest, and we believe that there may be significant
litigation in the industry regarding patent and other intellectual property
rights. Litigation could result in substantial costs and the diversion of
management's efforts regardless of the result of the litigation. Additionally,
the defense and prosecution of interference proceedings before the U.S. Patent
and Trademark Office, or USPTO, and related administrative proceedings would
result in substantial expense to us and significant diversion of effort by our
technical and management personnel. We may in the future become subject to USPTO
interference proceedings to determine the priority of inventions. In addition,
laws of some foreign countries do not protect intellectual property to the same
extent as do laws in the U.S., which may subject us to additional difficulties
in protecting our intellectual property in those countries.
We are aware of U.S. and corresponding foreign patents and applications which
are assigned to Affymax Technologies, N.V., and Affymetrix, Inc. which relate to
certain devices having 1,000 or more groups of oligonucleotides occupying a
total area of less than 1 cm(2) and 400 different oligonucleotides per cm(2) on
a substrate. In the event that we proceed with the development of arrays with
more than 400 groups of oligonucleotides, we expect to design our devices
through, among other things, the selection of the physical dimensions, methods
of binding and selection of support materials to avoid infringing these patents.
We may not be able to design around these patents. We are aware of U.S. and
European patents and patent applications owned by Isis Innovations Ltd. (E. M.
Southern). We have opposed one allowed European patent which had broad claims to
array technology for analyzing a predetermined polynucleotide sequence. Isis
Innovations' position with respect to the opposed patent is that the claims
relate to what it terms the "diagnostic mode." Those claims have now all been
narrowed to the point that if the claims are accepted by the European Patent
Office, they would not be infringed by our technology. On May 5, 1998, the
Opposition Division of the European Patent Office issued a provisional
nonbinding opinion that the claims should be revoked. 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, we would be subject to infringement claims that could delay or preclude
sales of some or all of our anticipated diagnostic products. We are also aware
of a U.S. patent and corresponding foreign applications which are assigned on
their face to Massachusetts Institute of Technology, Houston Advanced Research
Center and Baylor College of Medicine. We believe that we have meritorious
positions regarding non-infringement and invalidity. Parties claiming to have
rights under the patent and applications have offered us a license. No assurance
can be made that a license will be available on commercially acceptable terms,
or that we would prevail in any ultimate action.
We also rely upon trade secrets, technical know-how and continuing inventions to
develop and maintain our competitive position. Others may independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets or disclose our technology and we may not be
able to meaningfully protect our trade secrets, or be capable of protecting our
rights to our trade secrets. We seek to protect our technology and patents, in
part, by confidentiality agreements with our employees and contractors. Our
employees may breach their existing Proprietary Information, Inventions, and
Dispute Resolution Agreements and these agreements may not protect our
intellectual property. This could have a material adverse effect on us.
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The regulatory approval process is expensive, time consuming, uncertain and
may prevent us from obtaining required approvals for the commercialization of
our products.
We anticipate that the manufacturing, labeling, distribution and marketing of a
number of any diagnostic products will be subject to regulation in the U.S. and
other countries. These regulations could subject us to several problems such as:
- - failure to obtain necessary regulatory approvals or clearances for our
products on a timely basis, or at all;
- - delays in receipt of or failure to receive approvals or clearances;
- - the loss of previously received approvals or clearances;
- - limitations on intended uses imposed as a condition of approvals or
clearances; or
- - failure to comply with existing or future regulatory requirements.
In the U.S., the Food and Drug Administration, or 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, the FDA regulates the preclinical and clinical testing, design,
efficacy, safety, manufacture, labeling, distribution and promotion of medical
devices. We will not be able to commence marketing or commercial sales in the
U.S. of these products until we receive clearance or approval from the FDA,
which can be a lengthy, expensive and uncertain process. We have not applied for
FDA or other regulatory approvals with respect to any of our products under
development. We may experience difficulties that could delay or prevent the
successful development, introduction and marketing of proposed products.
Regulatory clearance or approval or clearance of any proposed products may not
be granted by the FDA or foreign regulatory authorities on a timely basis, if at
all.
Noncompliance with applicable FDA requirements can result in:
- - 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 the recall, repair, replacement or
refund of the cost of any regulated device manufactured or distributed by us.
Any devices manufactured or distributed by us pursuant to FDA clearance or
approvals are subject to thorough and continuing regulation by the FDA and
certain state agencies.
We depend on suppliers for materials which could impair our ability to
manufacture
our products.
Outside vendors provide key components and raw materials used in the manufacture
of our products. Although we believe that alternative sources for these
components and raw materials are available, any supply interruption in a limited
or sole source component or raw material would harm our ability to manufacture
our products until a new source of supply is identified and qualified. In
addition, an uncorrected defect or supplier's variation in a component or raw
material, either unknown to us or
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incompatible with our manufacturing process, could harm our ability to
manufacture products. We may not be able to find a sufficient alternative
supplier in a reasonable time period, or on commercially reasonable terms, if at
all. If we fail to obtain a supplier for the manufacture of components of our
potential products, we may be forced to curtail or cease operations.
We may not be able to manufacture products on a commercial scale.
We rely on subcontractors to manufacture the limited quantities of microchips
and other components we require for internal and collaborative purposes, as well
as for use in prototype products.
Manufacturing, supply and quality control problems may arise as we, either alone
or with subcontractors, attempt to scale up manufacturing procedures. We may not
be able to scale-up in a timely manner or at a commercially reasonable cost.
Problems could lead to delays or pose a threat to the ultimate commercialization
of our products and cause us to fail.
We or any of our contract manufacturers could encounter manufacturing
difficulties, including:
- - the ability to scale up manufacturing capacity;
- - production yields;
- - quality control and assurance; or
- - shortages of components or qualified personnel.
Our manufacturing facilities and those of our contract manufacturers are or will
be subject to periodic regulatory inspections by the FDA and other federal and
state regulatory agencies and these facilities are subject to Quality System
Regulation, or QSR, requirements of the FDA. If we or our third-party
manufacturers fail to maintain facilities in accordance with QSR regulations,
other international quality standards or other regulatory requirements then the
manufacture process could be suspended or terminated which would harm us.
We have little marketing or sales experience, and if we are unable to develop
our own sales and marketing capability, we may not be successful in
commercializing our products.
In order to market and sell our proprietary products, we will need to develop a
sales force and a marketing group with relevant experience, or make appropriate
arrangements with strategic partners to market and sell these products.
Developing a marketing and sales force is expensive and time consuming and could
delay any product launch. Our inability to successfully employ qualified
marketing and sales personnel and develop our sales and marketing capabilities
will harm our business.
If we fail to manage our growth, our business could be impaired.
We expect to continue to experience growth in the number of our employees and
the scope of our operating and financial systems. This growth has resulted in an
increase in responsibilities for both existing and new management personnel. Our
ability to manage growth effectively will require us to continue to implement
and improve our operational, financial and management information systems and to
recruit, train, motivate and manage our employees. We may not be able to manage
our growth and expansion, which would impair our business.
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We may have significant product liability exposure.
We face an inherent business risk of exposure to product liability and other
claims in the event that our technologies or products are alleged to have caused
harm. These risks are inherent in the testing, manufacturing and marketing of
our products. We may not be able to obtain insurance for such potential
liability on acceptable terms with adequate coverage, or at reasonable costs.
Any potential product liability claims could exceed the amount of our insurance
coverage or may be excluded from coverage under the terms of the policy. Our
insurance, once obtained, may not be renewed at a cost and level of coverage
comparable to that then in effect.
If we lose our key personnel or are unable to attract and retain additional
personnel, we may not be able to pursue collaborations or develop our own
products.
We are highly dependent on the principal members of our scientific,
manufacturing, marketing and management personnel, the loss of whose services
might significantly delay or prevent the achievement of our objectives. We face
competition from other companies, academic institutions, government entities and
other organizations in attracting and retaining personnel.
Health care reform and restrictions on reimbursement may limit our returns on
potential products.
Our ability to earn sufficient returns on our products will depend in part on
the extent to which reimbursement for our products and related treatments will
be available from:
- - government health administration authorities;
- - private health coverage insurers;
- - managed care organizations; and
- - other organizations.
If appropriate reimbursement cannot be obtained, it could prevent us from
successfully commercializing our potential products.
There are efforts by governmental and third party payors to contain or reduce
the costs of health care through various means. We expect that there will
continue to be a number of legislative proposals to implement government
controls. The announcement of proposals or reforms could impair our ability to
raise capital. The adoption of proposals or reforms could impair our business.
Additionally third party payors are increasingly challenging the price of
medical products and services. If purchasers or users of our products are not
able to obtain adequate reimbursement for the cost of using our products, they
may forego or reduce their use. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and whether
adequate third party coverage will be available.
If ethical and other concerns surrounding the use of genetic information
become widespread, we may have less demand for our products.
Genetic testing has raised ethical issues regarding confidentiality and the
appropriate uses of the resulting information. For these reasons, governmental
authorities may call for limits on or regulation of the use of genetic testing
or prohibit testing for genetic predisposition to certain conditions,
particularly for those that have no known cure. Any of these scenarios could
reduce the potential markets for our products, which could seriously harm our
business, financial condition and results of operations.
- --------------------------------------------------------------------------------
<PAGE>
Risk factors
- --------------------------------------------------------------------------------
We use hazardous materials in our business. Any claims relating to improper
handling, storage or disposal of these materials could be time consuming and
costly.
Our research and development processes involve the controlled storage, use and
disposal of hazardous materials including biological hazardous materials and
radioactive compounds. We are subject to federal, state and local regulations
governing the use, manufacture, storage, handling and disposal of materials and
waste products. Although we believe that our safety procedures for handling and
disposing of these hazardous materials comply with the standards prescribed by
law and regulation, the risk of accidental contamination or injury from
hazardous materials cannot be completely eliminated. In the event of an
accident, we could be held liable for any damages that result, and any liability
could exceed the limits or fall outside the coverage of our insurance. We may
not be able to maintain insurance on acceptable terms, or at all. We could be
required to incur significant costs to comply with current or future
environmental laws and regulations.
Our stock price could continue to be highly volatile and you may not be able to
resell your shares at or above the price you paid for them.
The market price of our common stock, like that of many other life sciences
companies, has been highly volatile and is likely to continue to be highly
volatile. The following factors, among others, could have a significant impact
on the market price of our common stock:
- - the results of our premarket studies and clinical trials or those of our
collaborators or competitors or for DNA testing in general;
- - evidence of the safety or efficacy of our potential products or the products
of our competitors;
- - the announcement by us or our competitors of technological innovations or
new products;
- - developments concerning our patents or other proprietary rights or those of
our competitors, including litigation or patent office proceedings;
- - loss of key personnel;
- - governmental regulatory actions;
- - changes or announcements in reimbursement policies;
- - developments with our collaborators;
- - period-to-period fluctuations in our operating results;
- - market conditions for life science stocks in general; and
- - changes in estimates of our performance by securities analysts.
Unknown year 2000 issues could negatively affect us.
Although the date is now past January 1, 2000, and we have not experienced
immediate adverse impact from the transition to the Year 2000, we cannot provide
assurance that we or our suppliers and customers have not been affected in a
manner that is not yet apparent. In addition, some computer programs that were
date sensitive to the Year 2000 may not have been programmed to process the Year
2000 as a leap year, and any negative consequential effects remain unknown. As a
result, we will continue to monitor our Year 2000 compliance and the Year 2000
compliance of our suppliers and customers.
- --------------------------------------------------------------------------------
<PAGE>
Risk factors
- --------------------------------------------------------------------------------
Our anti-takeover provisions could discourage potential takeover attempts and
make attempts by stockholders to change management more difficult.
The approval of two-thirds of our voting stock is required to approve some
transactions and to take some stockholder actions, including the calling of a
special meeting of stockholders and the amendment of any of the anti-takeover
provisions contained in our certificate of incorporation. Further, pursuant to
the terms of our stockholder rights plan adopted in November 1998, we have
distributed a dividend of one right for each outstanding share of common stock.
These rights will cause substantial dilution to the ownership of a person or
group that attempts to acquire us on terms not approved by our board of
directors and may have the effect of deterring hostile takeover attempts.
If we make any acquisitions, we will incur a variety of costs and may never
realize the anticipated benefits.
If appropriate opportunities become available, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions. If we do undertake any transaction of this
sort, the process of integrating an acquired business, technology, service or
product may result in operating difficulties and expenditures and may absorb
significant management attention that would otherwise be available for ongoing
development of our business. Moreover, we may never realize the anticipated
benefits of any acquisition. Future acquisitions could result in potentially
dilutive issuances of equity securities, the incurrence of debt, contingent
liabilities and/or amortization expenses related to goodwill and other
intangible assets, which could adversely affect our results of operations and
financial condition.
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. PROPERTIES
We currently lease an approximately 45,000 square foot facility in San
Diego, California, under a lease expiring in 2005. We have an option to renew
the lease on this facility for two additional five-year terms. The facility
currently houses our administrative offices and research and development
laboratories, and is expected to be sufficient to meet our currently
anticipated facilities needs at least through 2000.
ITEM 3. LEGAL PROCEEDINGS
There is no material litigation pending against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Changes in Securities
On November 17, 1998, our Board of Directors adopted a Stockholder Rights
Plan ("Rights Plan"). Under the terms of the Rights Plan, stockholders of
record as of November 30, 1998 received a dividend of one Preferred Stock
Purchase Right ("Right") for each share of common stock held on that date. If
not earlier terminated or redeemed, the Rights will expire on November 17,
2008 and will be exercisable only if a person or group becomes the beneficial
owner of 15% or more of the Company's common stock (such person or group, a
"15% holder") or commences a tender or exchange offer which would result in
the offeror beneficially owning 15% or more of the Company's common stock,
which is not approved by our Board of Directors. Each Right will entitle
stockholders to buy one one-thousandth of a share of Series A Participating
Preferred Stock of the Company at an exercise price of $50.00, subject to
antidilution adjustments.
<PAGE>
If a person or group accumulates 15% or more of the Company's common
stock, each Right (other than Rights held by the 15% holder) will be adjusted
so that upon exercise the holder will have the right to receive that number
of shares of common stock (or in some circumstances, a combination of
securities and/or assets) having a value of twice the exercise price of the
Right. In addition, if following a 15% acquisition the Company is involved in
certain mergers or other business combinations, each Right (other than Rights
held by a 15% holder) will permit each holder to purchase shares of common
stock of the acquiring entity with a market value of twice the exercise price
of each Right. The Board of Directors will also have the right, following a
15% acquisition, to cause each Right (other than rights held by the 15%
holder) to be exchanged for one share of common stock.
The Board of Directors is entitled to redeem the Rights at $.01 per Right
at any time prior to a 15% acquisition and in certain other specified
situations.
(b) Use of Proceeds
On April 13, 1998, our Registration Statement on Form S-1 (File No.
333-42791) was declared effective by the Securities and Exchange Commission
(the "IPO Registration Statement"). The IPO Registration Statement registered
a total of 3,900,000 shares of common stock, all of which were issued and
sold by us (the "Offering") upon the completion of the Offering in April
1998. The underwriting of the offering was led by a group consisting of
Morgan Stanley Dean Witter, Lehman Brothers and SBC Warburg Dillon Read Inc.
The shares sold by us were sold at an aggregate offering price of $42.9
million, netting proceeds of $38.7 million to us after underwriting fees of
$3.0 million and other offering expenses of $1.2 million. None of these fees
and expenses was paid to any director, officer, or 10% or greater stockholder
of us or an affiliate of any of these persons.
Since the effective date of the IPO Registration Statement, the net
offering proceeds have been applied to the following uses in the following
approximate amounts:
<TABLE>
<S> <C>
Repayment of indebtedness $ 4,177,000
Working capital $ 34,523,000
</TABLE>
As of December 31, 1999, the net offering proceeds have been used in
their entirety and as such, no amounts remain in temporary investments. None
of the payments noted above have been paid to any director, officer, or 10%
or greater stockholder of us or an affiliate of these persons.
(c) Market Information
Our common stock began trading on the National Association of Securities
Dealers Automated Quotation ("Nasdaq") National Market on April 14, 1998,
under the symbol "NGEN." Prior to that date, there was no established trading
market for our common stock. The following table sets forth the range of high
and low sales prices as reported for our common stock by Nasdaq for the
periods indicated:
<TABLE>
<CAPTION>
High Low
------------- -------------
<S> <C> <C>
Year Ended December 31, 1998:
- ----------------------------------------
2nd Quarter (from April 14, 1998) $ 11.250 $ 5.385
3rd Quarter $ 8.385 $ 3.000
4th Quarter $ 5.750 $ 2.885
Year Ended December 31, 1999:
- ----------------------------------------
1st Quarter $ 9.635 $ 3.885
2nd Quarter $ 9.750 $ 6.250
3rd Quarter $ 8.635 $ 5.750
4th Quarter $ 24.500 $ 6.500
</TABLE>
<PAGE>
As of February 15, 2000, there were approximately 195 shareholders of record
of our common stock. We have not paid any cash dividends to date and do not
anticipate any being paid in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to our consolidated
financial statements has been derived from the audited financial statements. The
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our financial
statements and notes thereto appearing elsewhere herein:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Sponsored research $ 5,688 $ 5,461 $ 1,243 $ -- $ --
Contract and grant revenue 2,431 2,172 2,123 1,644 318
-------- -------- -------- ------- -------
Total revenues 8,119 7,633 3,366 1,644 318
Operating expenses:
Research and development 25,260 23,002 11,769 6,931 3,356
General and administrative 9,097 6,420 3,910 2,427 1,646
Acquired in-process technology -- 1,193 -- -- --
-------- -------- -------- ------- -------
Total operating expenses 34,357 30,615 15,679 9,358 5,002
-------- -------- -------- ------- -------
Loss from operations (26,238) (22,982) (12,313) (7,714) (4,684)
Equity in loss of joint venture (996) (610) -- -- --
Interest income (expense), net 2,035 2,650 975 (64) 96
-------- -------- -------- ------- -------
Net loss $(25,199) $(20,942) $(11,338) $(7,778) $(4,588)
========= ========= ======== ======= =======
Net loss per share-- basic and diluted $ (1.39) $ (1.60) $ (8.42) $ (8.08) $ (5.95)
========= ========= ======== ======== =======
Number of shares used in computing net
loss per share-- basic and diluted 18,069 13,097 1,347 963 771
======== ======== ======== ======== =======
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $41,021 $62,245 $19,498 $16,775 $ 4,318
Working capital 33,508 57,701 16,775 14,853 3,931
Total assets 50,785 72,704 23,215 19,090 6,339
Capital lease obligations, less current portion 2,831 4,176 1,193 935 631
Accumulated deficit (72,630) (47,431) (26,489) (15,151) (7,372)
Total stockholders' equity 38,121 61,051 18,599 15,680 4,950
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-K includes forward-looking statements about our business and
results of operations that are subject to risks and uncertainties that could
cause our actual results to vary materially from those reflected in the
forward-looking statements. Words such as "believes," "anticipates," "plans,"
"estimates," "future," "could," "may," "should," "expect," "envision,"
"potentially," variations of such words and similar expressions are intended to
identify such forward-looking statements. Factors that could cause or contribute
to these differences include those discussed previously under the caption
"Factors that May Affect Results" and elsewhere in this Form 10-K. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. We disclaim any intent or obligation to update
these forward-looking statements.
OVERVIEW
We integrate advanced microelectronics and molecular biology into a core
technology platform with broad and diverse commercial applications in the fields
of genomics, biomedical research, medical diagnostics, drug discovery,
forensics, agriculture, environmental testing and potentially the electronics
and telecommunications industries. The first application we have developed is an
integrated bioassay system, the NanoChip molecular biology workstation,
comprised of two automated instruments and a consumable cartridge. The NanoChip
cartridge incorporating a proprietary microchip provides a flexible tool for the
rapid identification and precision analysis of biological test samples
containing charged molecules.
Since commencing operations in 1993, we have applied substantially all of our
resources to our research and development programs. We have incurred losses
since inception and, as of December 31, 1999, had an accumulated deficit of
$72.6 million. We expect to incur significant losses over at least the next few
years as we continue our research and product development efforts and attempt to
commercialize our products.
We plan to introduce our first product into the marketplace in the second half
of 2000. We anticipate our main sources of revenues through at least 2000 will
be payments under our sponsored research agreements, contracts and grants. We
believe our future operating results may be subject to quarterly fluctuations
due to a variety of factors, including the achievement of milestones under our
collaborative agreements, whether and when new products are successfully
developed and introduced by us or our competitors, and market acceptance of
products under development. Payments under sponsored research agreements may be
subject to significant fluctuations in both timing and amount and therefore our
results of operations for any period may not be comparable to the results of
operations for any other period.
RESULTS OF OPERATIONS
Years ended December 31, 1999, 1998, and 1997
Revenue
For the year ended December 31, 1999, revenue from sponsored research totaled
$5.7 million compared to $5.5 million and $1.2 million for the years ended
December 31, 1998 and 1997, respectively. Revenues are recorded under these
arrangements as expenses are incurred. Payments received in advance under these
arrangements are recorded as deferred revenue until the expenses are incurred.
Sponsored research revenue recognized during the years ended December 31, 1999
and 1998 was earned in connection with our joint venture collaboration with
Becton Dickinson, our research and development agreement with Aventis and our
nonexclusive research and development agreement with Elan. We and Becton
Dickinson are considering modifications to the joint venture to take advantage
of potential third party opportunities on technology developed to date, as well
as field changes which would allow the joint venture access to additional
technologies or content in areas more strategically aligned with business
opportunities. Further joint venture funding will be determined based on a final
decision regarding such modifications and field charges. We have received no
funding from Becton Dickinson since the third quarter of 1999, and are uncertain
as to whether we will receive any additional funding from Becton Dickinson.
Nanogen and Aventis have added
- --------------------------------------------------------------------------------
<PAGE>
Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------
two new technology development programs to the existing molecular recognition
array development program. The two new programs will provide a maximum of
$12.0 million in additional funding to us through December 31, 2001, including
an up-front initiation fee of $2.0 million which was received during 1999 and
recorded as deferred revenue. Nanogen and Elan have not yet agreed upon specific
program objectives with respect to their nonexclusive research and development
program. We are uncertain if we will receive any additional funds from Elan.
Sponsored research revenue recognized during the year ended December 31, 1997
was earned in connection with a research agreement with Becton Dickinson
effective in May 1997 which was subsequently superceded by the joint venture
collaboration entered into in October 1997.
We fund some of our research and development efforts through contracts and
grants awarded by various federal and state agencies. Revenues are recognized
under these contracts and grants as expenses are incurred.
Continuation of sponsored research agreements, contracts and grants is dependent
upon us achieving specific contractual milestones. The recognition of revenue
under sponsored research agreements, contracts and grants may vary from quarter
to quarter and may result in significant fluctuations in operating results from
year to year.
Research and development expenses
Research and development expenses increased to $25.3 million during the year
ended December 31, 1999 from $23.0 million and $11.8 million for the years ended
December 31, 1998 and 1997, respectively. Research and development expenses
include salaries, lab supplies, consulting, travel, facilities, product design
and prototype development, and other expenditures relating to research and
product development. The increases from year to year are attributable to costs
associated with the development and refinement of engineering prototypes as we
move toward commercialization of our first product. Additionally, the increases
are attributable to the continued growth of research and product development
efforts, including hiring of additional scientific, engineering and operations
personnel, increased purchases of laboratory supplies, equipment and services to
support our sponsored research programs, and expansion of research and
development facilities. Research and development spending may increase over the
next several years as our research and product development efforts continue.
General and administrative expenses
General and administrative expenses totaled $9.1 million in 1999 compared to
$6.4 million in 1998 and $3.9 million in 1997. The year-to-year increases from
1997 through 1999 are primarily due to increased personnel costs as the company
expands its general and administrative organization, legal costs associated with
enhancing and maintaining our intellectual property portfolio, the expansion of
activities related to marketing our potential products, increased costs
associated with operating as a public company, and to additional deferred
compensation expense recognized during the year ended December 31, 1999 compared
to 1998 and 1997. Deferred compensation represents the excess of the fair value
for financial statement presentation purposes over the exercise price for common
stock issuable on exercise of stock options. The increase in 1999 compared to
1998 is also due in part to severance costs related to certain employees.
General and administrative expenses are expected to continue to increase as we
expand our sales and marketing and general and administrative organizations and
as we continue to enhance and maintain our intellectual property portfolio.
Acquired in-process technology
During the first quarter of 1998, we issued 200,000 shares of our Series D
Convertible Preferred Stock at $6.00 per share in exchange for all of the
outstanding shares of Nanotronics, Inc. This Series D Preferred Stock converted
into 132,334 shares of common stock at our initial public offering. The
in-process
- --------------------------------------------------------------------------------
<PAGE>
Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------
technology acquired relates generally to nanotechnology and molecular
electronics. We recorded $1.2 million in expenses relating to acquired
in-process technology during the year ended December 31, 1998.
Interest income (expense), net
We had net interest income of $2.0 million in 1999 compared to net interest
income of $2.7 million and $975,000, in 1998 and 1997, respectively. The
decrease in net interest income for 1999 compared to 1998 can be attributed to
lower cash balances during 1999 compared to 1998, as a result of cash used in
operations. The significant increase in 1998 compared to 1997 was primarily
attributable to larger cash balances resulting from net proceeds received upon
the completion of our initial public offering and concurrent private placement
of equity securities in April 1998. Interest expense increased during 1999
compared to 1998 and 1997, due to greater amounts of equipment under capital
leases in 1999 than in 1998 and 1997.
Equity in loss of joint venture
We recognized a loss of $996,000 and $610,000 for the years ended December 31,
1999 and 1998, respectively, from the joint venture formed in 1997 with Becton
Dickinson, based on the loss allocation described in the joint venture agreement
which states that losses will be allocated in proportion to and not to exceed
cash contributions. There was no loss during 1997 as no cash contributions were
made by us to the joint venture during the year ended December 31, 1997.
Liquidity and capital resources
In April 1998, we completed our initial public offering of common stock
generating net proceeds of $38.7 million. Concurrent with the initial public
offering, we completed a private placement of our equity securities with Becton
Dickinson, Aventis and Elan for net proceeds of $6.0 million, $10.0 million and
$5.0 million, respectively. Prior to our initial public offering, we had
financed our operations primarily through the net proceeds received from private
placements of preferred equity securities totaling $44.1 million.
We fund most of our equipment acquisitions and leasehold improvements through
capital leasing facilities. During 1999, we received proceeds from equipment and
leasehold improvement financing of $881,000, compared to $5.7 million and
$1.2 million of proceeds received during 1998 and 1997, respectively. We
anticipate that we will continue to use capital equipment leasing or debt
facilities to fund most of our equipment acquisitions and leasehold
improvements. As of December 31, 1999, we had $4.4 million of available funding
under our equipment lease lines.
Net cash used in operating activities was $18.6 million, $15.2 million and
$9.8 million for 1999, 1998 and 1997, respectively. Cash used for operations was
primarily related to the costs associated with developing prototypes of our
initial product, the support of our expanding operations, including higher
personnel costs, and legal fees relating to establishing and maintaining our
intellectual property rights.
At December 31, 1999, we had $41.0 million in cash and cash equivalents. We
expect that the proceeds of this offering and our existing capital resources,
combined with anticipated revenues from potential product sales, sponsored
research agreements, contracts and grants will be sufficient to support our
planned operations through at least the next three years. This estimate of the
period for which we expect our available sources of liquidity to be sufficient
to meet our capital requirements is a forward-looking statement that involves
risks and uncertainties, and actual results may differ materially. Our future
liquidity and capital funding requirements will depend on numerous factors
including, but not limited to, the extent to which our products under
development are successfully developed and gain market acceptance, the timing of
regulatory actions regarding our potential products, the costs and timing of
expansion of sales, marketing and manufacturing activities, prosecution and
enforcement of patents important to our business,
- --------------------------------------------------------------------------------
<PAGE>
Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------
the results of clinical trials, competitive developments, and our ability to
maintain existing collaborations and to enter into additional collaborative
arrangements. We have incurred negative cash flow from operations since
inception and do not expect to generate positive cash flow to fund our
operations for at least the next several years. We may need to raise additional
capital to fund our research and development programs, to scale up manufacturing
activities and expand our sales and marketing efforts to support the
commercialization of our products under development. Additional capital may not
be available on terms acceptable to us, or at all. If adequate funds are not
available, we may be required to curtail our operations significantly or to
obtain funds through entering into collaborative agreements or other
arrangements on unfavorable terms. Our failure to raise capital on acceptable
terms when needed could have a material adverse effect on our business,
financial condition or results of operations.
In January 1998, we acquired all of the outstanding capital stock of
Nanotronics. The in-process technology, which was acquired as a result of our
purchase of Nanotronics, 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. Nanotronics'
research is exploratory in nature and at a very early stage. If technological
feasibility is demonstrated, we expect to pursue corporate partnership
opportunities. Given the early stage of the technology, we have not yet
determined which applications may be developed and the extent of our resources
to be committed to each such application.
Net operating loss carryforwards
As of December 31, 1999, we had federal and California net operating loss, or
NOL, carryforwards of $64.3 million and $7.5 million, respectively, and
$2.9 million and $1.6 million of research and development, or R&D, tax credits
available to offset future federal and state income taxes, respectively. The
federal and California NOL carryforwards are subject to alternative minimum tax
limitations and to examination by the tax authorities. The federal tax loss
carryforwards will begin expiring in 2006, unless previously utilized, and the
California tax loss carryforwards will continue to expire in 2000, unless
previously utilized. The federal and California R&D tax credit carryforwards
will begin expiring in 2007 unless previously utilized. We believe that our
initial public offering combined with the concurrent private placement, which
occurred in April 1998, may constitute a "change of ownership" under federal
income tax regulations. As such, we may be limited in the amount of NOLs
incurred prior to our initial public 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, we do not believe such limitations
will have a material impact on our ability to utilize the NOLs. See Note 9 of
Notes to Financial Statements.
Year 2000 compliance
In prior years, we discussed the nature and progress of our plans to become Year
2000 ready. In late 1999, we completed our remediation and testing of systems.
As a result of those planning and implementation efforts, we experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believe those systems successfully
responded to the Year 2000 date change. We expensed less than $150,000 during
1999 in connection with remediating our systems. We are not aware of any
material problems resulting from Year 2000 issues, either with our products
under development, our internal systems, or the products and services of third
parties. We will continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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. These instruments have maturities of three months or less
when acquired. We do not utilize derivative financial instruments, derivative
commodity instruments or
<PAGE>
other market risk sensitive instruments, positions or transactions in any
material fashion. Accordingly, we believe that, while the instruments we hold
are subject to changes in the financial standing of the issuer of such
securities, we are not subject to any material risks arising from changes in
interest rates, foreign currency exchange rates, commodity prices, equity
prices or other market changes that affect market risk sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Index on Page F-1 of the Financial Report included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Howard C. Birndorf...................... 50 Chairman of the Board, Chief Executive
Officer and President
Harry J. Leonhardt, Esq................. 43 Senior Vice President, General Counsel
and Secretary
Clare L. Bromley........................ 50 Senior Vice President, Sales and
Marketing
Michael Moore........................... 64 Senior Vice President, General Manager
Kieran T. Gallahue...................... 36 Senior Vice President, Chief Financial
Officer
James P. O'Connell, Ph.D................ 53 Vice President, Business Development
Michael J. Heller, Ph.D................. 55 Chief Technical Officer
Val Buonaiuto........................... 56 Director
Cam L. Garner........................... 51 Director
David G. Ludvigson...................... 49 Director
Thomas G. Lynch......................... 43 Director
Stelios Papadopoulos.................... 59 Director
</TABLE>
HOWARD C. BIRNDORF, a founder of Nanogen, has served as our Chairman of the
Board and Chief Executive Officer since October 1993 and has held the additional
title of President since January 2000. Mr. Birndorf also served as Chief
Financial Officer from December 1997 to July 1998 and from September 1993 to
October 1997. Mr. Birndorf was a co-founder and Chairman Emeritus of Ligand
Pharmaceuticals, Incorporated, 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, co-founder and Vice
President of Corporate Development at Hybritech, Incorporated, co-founder and
director of IDEC Pharmaceuticals Corporation, and was involved in the formation
of Gensia Pharmaceuticals, Inc. (currently known as Sicor Inc.) where he was a
director. He was a founding director of Neurocrine Biosciences Inc. and served
as a director from 1992 through 1997. From November 1991 to January 1994,
Mr. Birndorf was President of Birndorf Technology Development, an investment and
consulting company. He is a founding director of Graviton, Inc. and a director
of the Cancer Center of the University of California, San Diego. Mr. Birndorf
received a B.A. in biology from Oakland University, an M.S. in Biochemistry from
Wayne State University. Mr. Birndorf received an honorary Doctor of Science
degree from Oakland University.
HARRY J. LEONHARDT, ESQ. has served as our Senior Vice President, General
Counsel and Secretary since July 1999. Mr. Leonhardt served as our Vice
President, General Counsel and Secretary from July 1996 to June 1999. 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.
CLARE L. BROMLEY joined Nanogen in October, 1998 as Senior Vice President,
Marketing and Business Development. In 1999, he became responsible for our sales
and marketing. Prior to joining Nanogen, from November 1995 to October 1998
Mr. Bromley was Senior Vice President, Sales and Marketing for
<PAGE>
Management
- --------------------------------------------------------------------------------
Molecular Dynamics, Inc., or Molecular Dynamics. For 18 years prior to November
1995, he held various postions with Hewlet-Packard in its Chemical Analysis
Group, including Manager of Information, Architecture, Worldwide Bioscience
Sales and Marketing Manager, Global Accounts Marketing Manager, Regional Sales
Manager for Japan and Korea, and Regional Sales Manager for Latin America and
South Africa. Mr.Bromley is a Director of the International Cancer Screening
Laboratory, Inc. and is a member of Lab Ventures, LLC. Mr. Bromley holds a B.S.
in Natural Sciences with a Chemistry concentration from Mercer University.
MICHAEL MOORE has served as our Senior Vice President, General Manager since
December 1999. In 1998, he was Chief Executive Officer, President and a director
of the Topometrix Corporation. From 1993 to 1997 he served as Vice President and
General Manager of Hitachi Instruments, Inc. From 1986 to 1990, he was
President, Chief Operating Officer and director of Fischer Imaging Corporation.
He was Senior Vice President and General Manager of the Instrument Group of
Perkin Elmer from 1981 to 1984. Mr. Moore received a B.S. from Rensselaer
Polytechnic Institute and an M.B.A. from Stanford University.
KIERAN T. GALLAHUE has served as our Senior Vice President, Chief Financial
Officer since February 2000 and prior to that time as Vice President, Chief
Financial Officer since July 1999. He has also 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, or
IL, where he was responsible for the worldwide strategic sales and marketing,
and research and development efforts for this business unit. From 1992 to 1995,
he held a variety of sales and marketing and finance positions within IL. In
addition, Mr. Gallahue held various marketing and financial positions within
Procter & Gamble from 1991 to 1992 and the General Electric Company from 1985 to
1989. Mr. Gallahue holds an M.B.A. from the Harvard Business School.
JAMES P. O'CONNELL, PH.D. has served as our Vice President, Business Development
since January, 2000. He previously served as our Vice President, Science and
Technology from January 1999 to January 2000 and as our Vice President of
Research and Product Development from December 1994 to January 1999. From
August 1988 to December 1994, Dr. O'Connell 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.
VAL BUONAIUTO has been a director of Nanogen since November 1999. Since 1997,
Mr. Buonaiuto has been Senior Advisor to Hitachi Instruments, Inc. He previously
served as President and Chief Executive Officer of Hitachi Instruments,
Incorporated from 1991 to 1997. Mr. Buonaiuto received his B.S. from Western
Connecticut State University.
CAM L. GARNER has been a director of Nanogen since September 1997. Since
May 1990, Mr. Garner has been Chief Executive Officer of Dura
Pharmaceuticals, Inc., or Dura, from 1990 to 1998 he served as President, and
since 1995 he has served as Dura's Chairman of the Board of Directors. 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 DJ Pharmaceuticals, Inc., Cardio Dynamics International, a
manufacturer of medical devices, and Spiros Development Corporation II, Inc., a
developer of pulmonary drug delivery systems. 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 Nanogen since 1996. Since
October 1999, Mr. Ludvigson has been Senior Vice President and Chief Operating
Officer of Matrix Pharmaceuticals, Inc. In addition, since
<PAGE>
Management
- --------------------------------------------------------------------------------
1998 he has also been Chief Financial Officer of Matrix. From February 1996 to
June 1998, Mr. Ludvigson was 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 Nanogen since February 1997. Mr. Lynch is
Executive Vice President, Chief Financial Officer and a director of Elan
Corporation, plc, or Elan, a 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 plc, Axogen
Limited and Warner Chilcott, plc.
STELIOS PAPADOPOULOS has been a director of Nanogen since November 1999.
Mr. Papadopoulos has served as Chief Executive Officer and a director of CN
Biosciences, Inc., or CNBI, an affiliate of Merck KGaA, Darmstadt, Germany,
since January 1993. He has served as Chairman of the Board of CNBI since 1985.
He previously served as President of Fisher Scientific Worldwide, Inc. (now
Fisher Scientific International Inc.) from May 1989 to June 1992. From
October 1987 to May 1989, he was President of Instrumentation Laboratory.
Mr. Papadopoulos received his B.S. in Aeronautical Engineering from Northrop
Institute of Technology.
ITEM 11. EXECUTIVE COMPENSATION
Information is set forth below concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1997, 1998 and 1999 of those persons who were at December 31,
1999 (a) the Chief Executive Officer and (b) the other four most highly
compensated executive officers of the Company whose salary and bonus exceeded
$100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- --------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK UNDERLYING COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($) AWARDS ($) OPTIONS (#) ($) (1)
- ------------------------ ------- ------------- ------------ -------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard C. Birndorf 1999 $320,000 $300,000 -- $362,500 25,000 $810
Chief Executive 1998 300,000 170,000 -- -- -- --
Officer 1997 285,000 75,000 -- -- 437,496 --
Tina S. Nova, Ph.D 1999 $267,500 $78,142 -- $290,000 20,000 $810
President and Chief 1998 250,000 55,000 -- -- -- --
Operating Officer 1997 225,000 60,000 -- -- 160,378 --
(11)
W.J. Kitchen, Sc.D. 1999 $263,760 $132,969 $12,000(3) $108,750 15,000 $102,322(4)
Senior Vice 1998 250,000 143,000 124,798(3) -- -- --
President,
Operations (10) 1997 4,808(2) 6,660(3) -- 233,333 --
Harry J. Leonhardt, Esq. 1999 $235,425 $109,479 -- $217,500 15,000 $540
Senior Vice 1998 210,000 36,000 -- -- -- --
President,
General Counsel and 1997 190,000 60,000(5) $42,138(6) -- 85,200 87,500(7)
Secretary
Kieran T. Gallahue 1999 $235,000 $107,199 $9,750(8) $145,000 15,000 $10,454(9)
Senior Vice 1998 223,421 32,000 120,324(8) -- 133,332 --
President,
Chief Financial
Officer
</TABLE>
(1) Includes calculated imputed income attributed to excess group term life
insurance premiums.
(2) Dr. Kitchen joined the Company in December 1997, and his salary for 1997
reflects a partial month of service.
(3) Amount represents reimbursement of expenses and related income taxes
incurred in relocating to San Diego, including a $12,000 and $9,000 housing
allowance in 1999 and 1998, respectively.
(4) Includes $100,000 of principal debt forgiven pursuant to a promissory note
secured by a deed of trust.
(5) $20,000 of Mr. Leonhardt's bonus in 1997 constitutes a bonus granted to
Mr. Leonhardt in connection with his hiring in July 1996.
(6) Amount represents reimbursement of expenses and related income taxes
incurred in relocating to San Diego.
(7) Amount represents stock compensation relating to stock purchased at lower
than fair market value.
(8) Amount represents reimbursement of expenses and related income taxes
incurred in relocating to San Diego, including a $9,750 and $9,000 housing
allowance in 1999 and 1998, respectively.
(9) Includes $10,000 of principal debt forgiven pursuant to a promissory note
secured by a deed of trust.
<PAGE>
(10) Dr. Kitchen's employment with the Company as Senior Vice President,
Operations terminated effective December 31, 1999.
(11) Dr. Nova's employment with the Company as President and Chief Operating
Officer terminated effective January 31, 2000.
EMPLOYMENT AND SEVERANCE AGREEMENTS
On October 29, 1999, the Company entered into an agreement with Mr. Howard
C. Birndorf relating to his employment as Chairman and Chief Executive Officer
of the Company. The agreement provides for an annual base salary of $320,000 and
a guaranteed bonus of $100,000. The agreement provides for a transaction bonus
in the amount equal to three (3) times 60% of his base salary in the event of a
transaction involving a Change in Control. In addition, Mr. Birndorf is also
entitled to a severance payment equal to six months' salary in the event his
employment with the Company is terminated without cause.
On October 29, 1999, the Company entered into an agreement with Dr. Tina S.
Nova relating to her employment as President and Chief Operating Officer of the
Company. The agreement provides for an annual base salary of $267,000. The
agreement provides for a transaction bonus in the amount equal to three (3)
times 55% of her base salary in the event of a transaction involving a Change in
Control. In addition, Dr. Nova is also entitled to a severance payment equal to
six months' salary in the event her employment with the Company is terminated
without cause.
On October 28, 1997, the Company entered into an agreement with Dr. W.J.
Kitchen relating to his employment as Senior Vice President, Operations of the
Company. The agreement provided for an initial annual base salary of $250,000
(since increased to $263,750) and a guaranteed bonus of $110,000. It also
provided for an additional bonus of up to $40,000 upon the achievement of
certain milestones such that Dr. Kitchen would be provided with a minimum
potential of $400,000 in total compensation per year over his first four
years of employment. In addition, Dr. Kitchen was entitled to purchase
233,333 shares of Company Common Stock at $.90 per share, of which 200,000
shares vest ratably on a monthly basis over four years, except that the
initial 25% of such shares would not vest until Dr. Kitchen's first
anniversary of employment, and the remaining 33,333 vest in equal
installments over six years upon the attainment of certain milestones. The
agreement further provided for a relocation loan of $200,000 which was
forgivable over four years and was secured by a deed of trust. Dr. Kitchen
was also entitled to a severance payment of up to two years salary in the
event his employment is terminated without cause during his first two years
of employment. On December 31, 1999, the Company entered into an severance
agreement and release of claims with W.J. Kitchen relating to his termination
of employment with the Company. The agreement provides for a lump sum payment
and bonus, as well as acceleration of certain unvested option shares.
On October 29, 1999, the Company entered into an agreement with Mr. Harry J.
Leonhardt relating to his employment as Senior Vice President, General Counsel
and Secretary of the Company. The agreement provides for an annual base salary
of $250,000. The agreement provides for a transaction bonus in the amount equal
to three (3) times 50% of his base salary in the event of a transaction
involving a Change in Control. In addition, Mr. Leonhardt is also entitled to a
severance payment equal to six months' salary in the even his employment with
the Company is terminated without cause.
On October 29, 1999, the Company entered into an agreement with Mr. Kieran
T. Gallahue relating to his employment as Senior Vice President, Chief Financial
Officer and Treasurer of the Company. The agreement provides for an annual base
salary of $235,000. The agreement provides for a transaction bonus in the amount
equal to three (3) times 50% of his base salary in the event of a transaction
involving a Change in Control. In addition, Mr. Gallahue is also entitled to a
severance payment equal to six months' salary in the even his employment with
the Company is terminated without cause.
COMPENSATION OF DIRECTORS
Non-Employee Directors receive $1,500 per meeting attended or $500 per
meeting participated in by phone, and are reimbursed for certain expenses
incurred in connection with attendance at Board and Committee meetings. In
addition, continuing non-employee Directors receive automatic grants of options
to purchase 10,000 shares of Common Stock on the date of each annual meeting of
stockholders, which options vest on a quarterly basis (provided
<PAGE>
that no vesting occurs until the optionee has completed at least one year of
service from the date of grant), and new non-employee Directors receive a
similar one-time grant of options to purchase 25,000 shares of the Company's
Common Stock, which options vest in full on the date of the following year's
annual meeting of stockholders. Directors are also eligible to participate in
the Company's 1997 Stock Plan described below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee during 1999 were Cam
Garner and Thomas Lynch. Mr. Lynch is Executive Vice President, Chief Financial
Officer and a director of Elan, an entity with which the Company entered into a
collaborative research and development agreement in December 1997. The Company
received $568,000 and $929,000 in 1999 and 1998, respectively, pursuant to such
agreement. In addition, in April 1998, concurrently with its initial public
offering, the Company sold to Elan an aggregate of 454,545 shares of Common
Stock for aggregate proceeds of approximately $5.0 million.
STOCK OPTIONS
The following tables summarize option grants to and exercises by the
Company's Chief Executive Officer and the Named Executive Officers during fiscal
1999, and the value of the options held by such persons at the end of fiscal
1999. The Company does not grant stock appreciation rights.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1999
INDIVIDUAL GRANTS
------------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE
SECURITIES GRANTED TO AT ASSUMED ANNUAL RATES OF
UNDERLYING EMPLOYEES IN EXERCISE OR STOCK APPRECIATION FOR
OPTIONS FISCAL YEAR BASE PRICE EXPIRATION OPTION TERM (2)
NAME GRANTED (#) 1999 ($/SH) (1) DATE 5% ($) 10%($)
- ------------------ -------------- -------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Howard C. Birndorf 25,000 4.2% $4.50 1/22/2009 $70,751 $179,296
Tina S. Nova, Ph.D 20,000 3.3% $4.50 1/22/2009 $56,601 $143,437
W.J. Kitchen, Sc.D. 15,000 2.5% $4.50 1/22/2009 $42,450 $107,578
Harry J. Leonhardt 15,000 2.5% $4.50 1/22/2009 $42,450 $107,578
Kieran T. Gallahue 15,000 2.5% $4.50 1/22/2009 $42,450 $107,578
</TABLE>
(1) The exercise price on the date of grant was equal to 100% of the fair market
value on the date of grant.
(2) The 5% and 10% assumed rates of appreciation are suggested by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future common stock price. There can be no
assurance that any of the values reflected in the table will be achieved.
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND VALUE OF OPTIONS
AT END OF FISCAL 1999
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
VALUE OPTIONS AT END OF OPTIONS AT END OF
REALIZED- FISCAL 1999 (#) FISCAL 1999 ($)
SHARES ACQUIRED -------------- ------------------------- -------------------------
NAME ON EXERCISE ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------- ------------------ -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Howard C. Birndorf -- -- -- --
Tina S. Nova, Ph.D -- -- -- --
W.J. Kitchen, Sc.D. -- -- -- --
Harry J. Leonhardt -- -- -- --
Kieran T. Gallahue -- -- -- --
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to beneficial
ownership of our common stock as of February 15, 2000 by the following:
- each of our directors and executive officers;
- all of our directors and executive officers as a group; and
- each person or entity who is known by us to beneficially own more than
5% of our common stock.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned Percentage of
Prior to Offering Ownership
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CitiGroup, Inc.(3) .................................. 1,916,083 10.07%
Elan Corporation, plc(4) ............................ 1,287,878 6.77%
Howard C. Birndorf(5)(15) ........................... 1,286,271 6.75%
Hoechst Research and Technology AG(6)................ 1,029,328 5.37%
Val Buonaiuto ....................................... -- *
Cam L. Garner(7) .................................... 27,777 *
David Ludvigson ..................................... 23,194 *
Thomas G. Lynch(4)(7) ............................... 1,326,766 6.96%
Stelios B. Papadopoulos ............................. -- *
Clare L. Bromley(8)(15) ............................. 170,987 *
Kieran T. Gallahue(9)(15) ........................... 165,326 1.36%
W. J. Kitchen(10) ................................... 104,720 *
Harry J. Leonhardt, Esq.(11)(15) .................... 210,153 1.10%
Tina S. Nova(12) .................................... 345,509 1.82%
James P. O'Connell(13)(15) .......................... 255,134 1.34%
All Directors and Executive Officers
as a group (12 persons)(14)(15) .................. 3,915,837 20.29%
</TABLE>
* Less than one percent.
<PAGE>
(1) To Nanogen's knowledge, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.
(2) For purposes of computing the percentage of outstanding shares held by each
person or group of persons named above on a given date, shares which such
person or group has the right to acquire within 60 days after such date are
deemed to be outstanding, but are not deemed to be outstanding for the
purposes of computing the percentage ownership of any other person.
(3) Based upon Form 13G filed with the Securities and Exchange Commission on
February 14, 2000.
(4) Includes 1,287,878 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. Mr.
Lynch disclaims beneficial ownership of all such shares except to the
extent of his pecuniary interest therein.
(5) Includes 20,311 shares issuable upon the exercise of options within 60 days
of February 15, 2000.
(6) Aventis is a subsidiary of Hoegist Research and Technology AG. Includes
120,238 shares issuable upon the exercise of warrants within 60 days of
February 15, 2000.
(7) Includes 16,666 shares issuable to each of Mr. Lynch and Mr. Garner upon
the exercise of options exercisable within 60 days of February 15, 2000,
subject to repurchase of unvested shares.
(8) Includes 152,655 shares issuable upon the exercise of options within 60
days of February 15, 2000, subject to repurchase of unvested shares.
(9) Includes 10,936 shares issuable upon the exercise of options within 60 days
of February 15, 2000.
(10) Mr. Kitchen terminated his employment with the Company effective
December 31, 1999.
(11) Includes 10,937 shares issuable upon the exercise of options within 60 days
of February 15, 2000.
(12) Ms. Nova terminated her employment with the Company effective January 31,
2000.
(13) Includes 40,519 shares issuable upon the exercise of options within 60 days
of February 15, 2000, subject to repurchase of unvested shares.
(14) Includes an aggregate of 268,690 shares issuable upon the exercise of
options exercisable within 60 days of February 15, 2000, subject to
repurchase of unvested shares.
(15) Includes unvested shares subject to repurchase by the Company at February
15, 2000, as follows: Mr. Birndorf, 182,083; Mr. Bromley, 15,000; Mr.
Gallahue, 78,069; Mr. Leonhardt, 54,845; Dr. O'Connell, 47,366.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1995, Howard Birndorf and Tina Nova, Ph.D. each purchased 100,000
shares of Common Stock at $.15 per share. In connection with the purchase of
these shares, the Company loaned $15,000 to each of Mr. Birndorf and Dr. Nova
at an interest rate of 6.7% per annum pursuant to a five-year full recourse
promissory note, which notes are secured by their respective shares
purchased. In August 1996, Mr. Birndorf purchased an additional 183,333
shares and Dr. Nova purchased an additional 50,000 shares of Common Stock at
$.15 per share. In connection with such purchases, the Company loaned
$27,500 and $7,500 to Mr. Birndorf and Dr. Nova, respectively, at an interest
rate of 6.3% per annum pursuant to five-year full recourse promissory notes,
which notes are secured by their respective shares purchased. In connection
with Dr. Nova's severance agreement entered into in January 2000, Dr. Nova
repaid these promissory notes of $22,500 and accrued interest.
In November and December 1997 and March 1998, certain officers and directors
of the Company exercised options to purchase an aggregate of 1,155,837 shares of
the Company's Common Stock. As consideration for such
<PAGE>
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 executive 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 executive officer. In connection with Dr.
Nova's and Mr. Kitchen's severance agreements entered into in January 2000
and December 1999, Dr. Nova and Mr. Kitchen repaid the full recourse
promissory notes of $144,341 and $210,000, respectively, and accrued interest.
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, which bears interest at 6.01% per annum and is secured by a deed of trust,
is forgivable by the Company over four year years. In connection with Mr.
Kitchen's severance agreement dated December 31, 1999, Mr. Kitchen will repay
the unforgiven principal portion plus accrued interest on his loan.
In April 1998, the Company made a relocation loan to Kieran Gallahue of
$40,000 pursuant to a four-year promissory note. The loan, which bears
interest at 6.01% per annum and is secured by a second deed of trust, is also
forgivable by the Company over four years.
As of February 15, 2000, aggregate outstanding indebtedness of directors and
executive officers in favor of the Company was as follows: Mr. Birndorf,
$497,685; Mr. Gallahue, $467,697; and Mr. Leonhardt, $86,321.
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. The
Company received $568,000 and $929,000 in 1999 and 1998, respectively, pursuant
to such agreement.
In November 1998, the Company entered into a Standstill Agreement and
Right of First Negotiation (the "Agreement") with Graviton, Inc.
("Graviton"), granting the Company an exclusive period of time to negotiate a
license to certain technologies licensed to and/or developed by Graviton. In
exchange for the Agreement, the Company advanced to Graviton through a
secured loan the sum of $500,000. In May 1999, the Company advanced to
Graviton through a secured loan an additional $500,000, the proceeds of which
were to be used by Graviton in part to secure additional intellectual
property rights which the Company could license. In December 1999, the
Company entered into a Collaboration and License Agreement with Graviton.
Pursuant to this agreement, the total loans of $1.0 million, plus accrued
interest, were exchanged for license fees. Messr. Birndorf is a director of
and an investor in Graviton. Additionally, Dr. Tina Nova, a former director
and the Company's President and Chief Operating Officer during 1999, is the
spouse of Dr. Michael Nova, the president of Graviton. Together, Messrs.
Birndorf and Nova hold a controlling ownership interest in Graviton.
On July 27, 1999, the Board of Directors authorized the issuance of an
aggregate of 251,000 shares of the Company's common stock to some officers
and key employees at a price per share of par value ($.001). All of these
shares were purchased by the respective officers and key employees and are
subject to repurchase if the officer or key employee leaves the Company prior
to July 26, 2001. Repurchase rights as to certain of the shares lapse upon
the attainment of performance milestones or upon a change in control.
The Company believes that the foregoing transactions were in its best
interests. It is the Company's current policy that all transactions by the
company with officers, directors, 5% stockholders or their affiliates will be
entered into only if such transactions are approved by a majority of the
disinterested directors, and are on terms no less favorable to us than could be
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
Our financial statements are included herein as required under Item 8
of this Annual Report on Form 10-K. See Index on page F-1.
(2) Financial Statement Schedules
Financial statement schedules have been omitted since they are either
not required, not applicable, or the information is otherwise included.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
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)1)
3.(i)2*** Certificate of Designation, as filed with the Delaware Secretary of State on November 23, 1998. (3.(ii)2)
3.(ii)* Amended and Restated Bylaws of the Registrant. (3.(ii)2)
4.1* Form of Common Stock Certificate.
10.1*(A) 1997 Stock Incentive Plan of Nanogen, Inc. ("1997 Plan"). (10.3)
10.2*(A) Form of Incentive Stock Option Agreement under the 1997 Plan. (10.4)
10.3*(A) Form of Nonqualified Stock Option Agreement under the 1997 Plan. (10.5)
10.4*(A) Nanogen, Inc. Employee Stock Purchase Plan. (10.6)
10.5*(A) Form of Indemnification Agreement between the Registrant and its directors and executive officers.
(10.7)
10.6*(+) Agreement between the Registrant and Elan Corporation, plc, dated December 19, 1997. (10.8)
10.7*(+) Agreement between the Registrant and Hoechst AG, dated December 4, 1997. (10.9)
10.8*(+) Agreement between the Registrant and Syntro Corporation, dated of November 24, 1997. (10.10)
10.9*(+) Master Agreement between the Registrant and Becton, Dickinson and Company, dated as of October 1, 1997,
with related attachments. (10.11)
10.10*(+) Exclusive Option Agreement between the Registrant and Billups-Rothenberg, Inc., dated as of September
12, 1997. (10.12)
10.11*(+) Sponsored Research Agreement between the Registrant and Prolinx, Inc., dated as of December 18, 1996.
(10.13)
10.12*(+) Collaborative Research Agreement between the Registrant and the University of Texas Southwestern Medical
Center at Dallas, dated as of August 1, 1995. (10.14)
10.13****(+) Collaborative Research and Development Agreement by and between Aventis Research & Technologies GMBH &
Co. KG and Nanogen, Inc. dated as of September 27, 1999.
10.14* Form of Series B Preferred Stock Purchase Warrant, between the Registrant and certain purchasers of its
Series B Preferred Stock, dated April 11, 1995. (10.17)
10.15* Amended and Restated Investors' Rights Agreement between the Registrant and certain securityholders set
forth therein, dated as of May 5, 1997, as amended. (10.18)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
10.16* Master Lease Agreement between the Registrant and Mellon US
Leasing, dated September 11, 1997. (10.19) 10.17* Lease Agreement
between the Registrant and LMP Properties, Ltd., dated June 29, 1994.(10.20)
10.18* Lease Agreement between the Registrant and Lease Management Services, Inc., dated April 26, 1994, as
amended on December 13, 1994 and June 13, 1996. (10.21)
10.19*(A) 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. (10.22)
10.20*(A) Form of Promissory Note between the Registrant and certain of its executive officers, dated August 22,
1996. (10.23)
10.21*(A) Form of Promissory Note between the Registrant and certain of its executive officers, dated June 30,
1995. (10.24)
10.22*(A) Form of Common Stock Purchase Agreement. (10.25)
10.23*(A) Form of Performance Stock Option Agreement. (10.26)
10.24(A) Agreement between the Registrant and Tina S. Nova, Ph.D., dated October 29, 1999.
10.25*(A) Agreement between the Registrant and W. J. Kitchen, dated October 28, 1997. (10.28)
10.26(A) Agreement between the Registrant and James P. O'Connell, Ph.D., dated October 29, 1999.
10.27(A) Agreement between the Registrant and Harry J. Leonhardt, dated October 29, 1999.
10.28(A) Agreement between the Registrant and Kieran T. Gallahue, dated October 29, 1999.
10.29(A) Agreement between the Registrant and Michael J. Heller, dated October 29, 1999.
10.30(A) Agreement between the Registrant and Howard C. Birndorf, dated October 29, 1999.
10.31(A) Agreement between the Registrant and Clare "Bud" Bromley, dated October 29, 1999.
10.32(A) Agreement between the Registrant and W.J. Kitchen, dated December 31, 1999.
10.33*(A) Secured Promissory Note and Deed of Trust, between the Registrant and W. J. Kitchen, dated March 16,
1998. (10.32)
10.34*(A) Secured Promissory Note and Deed of Trust, between the Registrant and Kieran T. Gallahue, dated April
23, 1998.
10.35*(+) License Agreement between the Registrant and Billups-Rothenberg, Inc., dated as of March 18, 1998.
(10.34)
10.36** Rights Agreement dated as of November 17, 1998, between the Company and BankBoston, N.A.
10.37***(+) Collaborative Research and Development Agreement between the Company and Hoechst Research and
Technology, dated December 3, 1998. (10.34)
10.38 Master Loan and Security Agreement between the Registrant and Transamerica Business Credit Corporation
dated June 14, 1999.
23.1 Consent of Ernst & Young LLP, independent auditors.
27.1 Financial Data Schedule.
</TABLE>
* Incorporated by reference to Registrant's Registration Statement on
Form S-1 (File No. 333-42791). Parenthetical references following the
description of each document relate to the exhibit number under which
such exhibit was initially filed.
** Incorporated by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form 8-A, filed on November 24, 1998.
*** Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998. Parenthetical
references following the description of each document relate to the
exhibit number under which such exhibit was initially filed.
**** Incorporated by reference to Exhibit 10.13 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
<PAGE>
(A) Indicates management compensatory plan or arrangement.
(+) Confidential treatment has been granted for certain portions of these
agreements.
(++)Confidential treatment has been requested for certain portions of this
agreement.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the three months ended
December 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NANOGEN, INC.
Date: February 17, 2000 By:/s/ HOWARD C. BIRNDORF
------------------------------------
Howard C. Birndorf
Chairman of the Board,
Chief Executive Officer and
President
Pursuant to the requirements to the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ HOWARD C. BIRNDORF Chairman of the Board, February 17, 2000
- ------------------------------------ Chief Executive Officer and
Howard C. Birndorf President
(Principal Executive Officer)
/s/ KIERAN T. GALLAHUE Senior Vice President, Chief February 17, 2000
- ------------------------------------ Financial Officer (Principal
Kieran T. Gallahue Financial and Accounting
Officer)
Director February __, 2000
- ------------------------------------
Val Buonaiuto
/s/ CAM L. GARNER Director February 17, 2000
- ------------------------------------
Cam L. Garner
/s/ DAVID G. LUDVIGSON Director February 17, 2000
- ------------------------------------
David G. Ludvigson
Director February __, 2000
- ------------------------------------
Thomas G. Lynch
/s/ STELIOS B. PAPADOPOULOS Director February 17, 2000
- ------------------------------------
Stelios B. Papadopoulos
</TABLE>
<PAGE>
NANOGEN, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................................................ F-2
Consolidated Balance Sheets...................................................................... F-3
Consolidated Statements of Operations............................................................ F-4
Consolidated Statements of Cash Flows............................................................ F-5
Consolidated Statements of Stockholders' Equity.................................................. F-6
Notes to Consolidated Financial Statements.......................................................F-7-F-15
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Nanogen, Inc.
We have audited the accompanying consolidated balance sheets of Nanogen, Inc.,
as of December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 consolidated financial position of Nanogen, Inc. at
December 31, 1999 and 1998 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
San Diego, California
January 28, 2000
F-2
<PAGE>
NANOGEN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41,021 $ 62,245
Receivables and other current assets 2,320 2,933
-------------- --------------
Total current assets 43,341 65,178
Property and equipment, net 6,154 6,980
Acquired technology rights 1,005 --
Restricted cash 219 270
Other assets 66 276
-------------- --------------
$ 50,785 $ 72,704
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 598 $ 1,066
Accrued liabilities 3,726 1,433
Deferred revenue 3,373 3,065
Current portion of capital lease obligations 2,136 1,913
-------------- --------------
Total current liabilities 9,833 7,477
Capital lease obligations, less current portion 2,831 4,176
Commitments
Stockholders' equity:
Convertible preferred stock, $.001 par value, 5,000,000
shares authorized at December 31, 1999 and 1998;
no shares issued and outstanding at December 31,
1999 and 1998 -- --
Common stock, $.001 par value, 50,000,000 shares authorized at
December 31, 1999 and 1998; 18,990,799 and 18,835,461 shares
issued and outstanding at
December 31, 1999 and 1998, respectively 19 19
Additional paid-in capital 113,574 111,489
Deferred compensation (1,473) (1,512)
Notes receivable from officers (1,369) (1,514)
Accumulated deficit (72,630) (47,431)
-------------- --------------
Total stockholders' equity 38,121 61,051
-------------- --------------
$ 50,785 $ 72,704
============== ==============
</TABLE>
See accompanying notes.
F-3
<PAGE>
NANOGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Revenues:
Sponsored research $ 5,688 $ 5,461 $ 1,243
Contract and grant revenue 2,431 2,172 2,123
-------------- ------------- --------------
Total revenues 8,119 7,633 3,366
Operating expenses:
Research and development 25,260 23,002 11,769
General and administrative 9,097 6,420 3,910
Acquired in-process technology -- 1,193 --
-------------- ------------- --------------
Total operating expenses 34,357 30,615 15,679
-------------- ------------- --------------
Loss from operations (26,238) (22,982) (12,313)
Equity in loss of joint venture (996) (610) --
Interest income, net 2,035 2,650 975
-------------- ------------- --------------
Net loss $ (25,199) $ (20,942) $ (11,338)
============== ============= ==============
Net loss per share-- basic and diluted $ (1.39) $ (1.60) $ (8.42)
============== ============= ==============
Number of shares used in computing net loss
per share-- basic and diluted 18,069 13,097 1,347
============== ============= ==============
</TABLE>
See accompanying notes.
F-4
<PAGE>
NANOGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(25,199) $(20,942) $(11,338)
Adjustments to reconcile net loss to net cash used in
operating activities:
Acquisition of in-process technology -- 1,193 --
Equity in loss of joint venture 996 610 --
Net (gain) loss from sale of property and equipment 24 (13) --
Depreciation and amortization 1,709 1,168 527
Amortization of deferred compensation 1,773 2,181 611
Stock-based compensation expense 237 -- --
Interest capitalized on notes receivable from (74) (75) (4)
officers
Changes in operating assets and liabilities:
Accounts payable (468) 469 117
Accrued liabilities 2,293 424 (414)
Deferred revenue 308 2,053 1,012
Receivables and other assets (182) (2,291) (326)
---------- ---------- ---------
Net cash used in operating activities (18,583) (15,223) (9,815)
INVESTING ACTIVITIES:
Purchase of equipment (32) (72) (492)
Proceeds from sale of assets 6 29 --
Investment in joint venture (996) (610) --
---------- ---------- ---------
Net cash used in investing activities (1,022) (653) (492)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in restricted cash 51 89 50
Principal payments on capital lease obligations (2,003) (1,561) (670)
Issuance of common stock 218 60,052 125
Note receivable payments from officers 115 -- --
Issuance of convertible preferred stock, net of
issuance costs -- 43 13,525
---------- ---------- ---------
Net cash provided by (used in) financing activities (1,619) 58,623 13,030
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents (21,224) 42,747 2,723
Cash and cash equivalents at beginning of year 62,245 19,498 16,775
---------- ---------- ---------
Cash and cash equivalents at end of year $ 41,021 $ 62,245 $ 19,498
========== ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 580 $ 466 $ 225
========== ========== =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equipment acquired under capital leases $ 881 $ 5,652 $ 1,159
========== ========== =========
Common stock issued in exchange for notes receivables
from officers $ -- $ 310 $ 1,057
========== ========== =========
Issuance of convertible preferred stock and warrants in
exchange for in-process technology $ -- $ 1,193 $ --
========== ========== =========
Exchange of notes receivable for acquired technology
rights $ 1,005 $ -- $ --
========== ========== =========
Deferred compensation related to stock options and
restricted stock awards, net $ 1,734 $ 1,370 $ 2,934
========== ========== =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NANOGEN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ------------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
--------- -------- -------- ------ ------------ -------------
<S> <C> <C>
Balance at December 31, 1996 10,785 $ 11 1,832 $ 2 $ 30,886 $ --
Issuance of common stock -- -- 207 -- 129 --
Repurchase of common stock -- -- (30) -- (4) --
Issuance of convertible preferred stock 2,899 3 -- -- 13,522 --
Deferred compensation related to stock
options -- -- -- -- 2,934 (2,934)
Amortization of deferred compensation -- -- -- -- -- 611
Exercise of stock options in exchange for
notes receivable and accrued interest -- -- 1,175 1 1,056 --
Net loss -- -- -- -- -- --
--------- -------- -------- ------ ------------ ------------
Balance at December 31, 1997 13,684 14 3,184 3 48,523 (2,323)
Issuance of common stock -- -- 555 1 329 --
Repurchase of common stock -- -- (123) -- (103) --
Issuance of convertible preferred stock 232 -- -- -- 1,236 --
Sale of common stock under initial public
offering, net of expenses -- -- 3,900 4 38,731 --
Sale of common stock in private placement in
conjunction with initial public offering -- -- 1,909 2 20,998 --
Conversion of preferred stock upon the
the completion of initial public offering (13,916) (14) 9,277 9 5 --
Deferred compensation related to stock
options -- -- -- -- 1,370 (1,370)
Amortization of deferred compensation -- -- -- -- -- 2,181
Exercise of stock options in exchange for
notes receivable and accrued interest -- -- 133 -- 400 --
Net loss -- -- -- -- -- --
--------- -------- -------- ------ ------------ ------------
Balance at December 31, 1998 -- -- 18,835 19 111,489 (1,512)
Issuance of common stock -- -- 94 -- 246 --
Repurchase of common stock -- -- (73) -- (114) 86
Cancellation of notes receivable related to
unvested restricted stock -- -- (116) -- (104) --
Restricted stock awards -- -- 251 -- 1,820 (1,820)
Stock-based compensation expense -- -- -- -- 237 --
Amortization of deferred compensation -- -- -- -- -- 1,773
Payments received and accrued interest on
notes receivable from officers -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- -------- -------- ------ ------------ ------------
Balance at December 31, 1999 -- $ -- 18,991 $ 19 $ 113,574 $ (1,473)
========= ======== ======== ====== ============ ============
<CAPTION>
NOTES TOTAL
RECEIVABLE STOCKHOLDERS'
FROM ACCUMULATED EQUITY
OFFICERS DEFICIT (DEFICIT)
----------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ (68) $ (15,151) $ 15,680
Issuance of common stock -- -- 129
Repurchase of common stock -- -- (4)
Issuance of convertible preferred stock -- -- 13,525
Deferred compensation related to stock
options -- -- --
Amortization of deferred compensation -- -- 611
Exercise of stock options in exchange for
notes receivable and accrued interest (1,061) -- (4)
Net loss -- (11,338) (11,338)
----------- ------------ -----------
Balance at December 31, 1997 (1,129) (26,489) 18,599
Issuance of common stock -- -- 330
Repurchase of common stock 90 -- (13)
Issuance of convertible preferred stock -- -- 1,236
Sale of common stock under initial public
offering, net of expenses -- -- 38,735
Sale of common stock in private placement in
conjunction with initial public offering -- -- 21,000
Conversion of preferred stock upon the
the completion of initial public offering -- -- --
Deferred compensation related to stock
options -- -- --
Amortization of deferred compensation -- -- 2,181
Exercise of stock options in exchange for
notes receivable and accrued interest (475) -- (75)
Net loss -- (20,942) (20,942)
----------- ------------ -----------
Balance at December 31, 1998 (1,514) (47,431) 61,051
Issuance of common stock -- -- 246
Repurchase of common stock -- -- (28)
Cancellation of notes receivable related to
unvested restricted stock 104 -- --
Restricted stock awards -- -- --
Stock-based compensation expense -- -- 237
Amortization of deferred compensation -- -- 1,773
Payments received and accrued interest on
notes receivable from officers 41 -- 41
Net loss -- (25,199) (25,199)
----------- ------------ -----------
Balance at December 31, 1999 $ (1,369) $ (72,630) $ 38,121
=========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
NANOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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. In November 1997, the Company
reincorporated in Delaware. The Company was established to develop products
which integrate advanced microelectronics and molecular biology into a
platform technology with broad commercial applications in the fields of
biomedical research, genomics, medical diagnostics, genetic testing and drug
discovery. The Company operates in one business and operating segment.
ACQUISITION OF NANOTRONICS, INC.
In January 1998, the Company consummated an Agreement and Plan of Merger
with Nanotronics, Inc. ("Nanotronics"), pursuant to which a wholly owned
California subsidiary of the Company merged with and into Nanotronics. Upon
the consummation of the merger, the Company issued 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. This Series D
Preferred Stock converted into 132,334 shares of common stock in connection
with the Company's initial public offering. The transaction has been
accounted for using the purchase method. The operations and net assets of
Nanotronics were not material to the Company's financial position or results
of operations, but have been consolidated in the Company's financial
statements since the date of acquisition. The technological feasibility of
the acquired technology has not been established nor have alternative uses
been identified, therefore, the purchase price of approximately $1.2 million
was allocated to acquired in-process technology and has been reflected as a
charge in the Company's statement of operations.
The following unaudited table shows the pro forma amounts as if the
acquisition had occurred on January 1, 1997:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Revenue $ 7,667 $ 3,699
Net loss $ (20,946) $ (11,474)
Net loss per share - basic and diluted $ (1.60) $ (8.52)
</TABLE>
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.
F-7
<PAGE>
All of the Company's investments are with financial institutions and
organizations with strong credit ratings with maturities of three months 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 is reduced by
approximately $50,000 annually, and had a balance of approximately $219,000
at December 31, 1999.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the
estimated useful lives of the assets, generally three to five years, using
the straight-line method. Leasehold improvements are stated at cost and
amortized over the shorter of the estimated useful lives of the assets or the
lease term.
ACQUIRED TECHNOLOGY RIGHTS
Acquired technology rights are recorded at cost and amortized on a
straight-line basis over their estimated useful lives of five years.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, if indicators of impairment exist, the
Company assesses the recoverability of the affected long-lived assets by
determining whether the carrying value of such assets can be recovered
through undiscounted future operating cash flows. If impairment is indicated,
the Company will value the asset at fair value. While the Company's current
and historical operating and cash flow losses are indicators of impairment,
the Company believes the future cash flows to be received from the long-lived
assets will exceed the assets' carrying value, and accordingly the Company
has not recognized any impairment losses through December 31, 1999.
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
13% of total revenues in 1999. Contract and grant revenue from a second
customer amounted to approximately 8%, 10% and 35% of total revenues in 1999,
1998 and 1997, respectively. Additionally, sponsored research (see Note 10)
was 70%, 72% and 37% of total revenue in 1999, 1998 and 1997, respectively.
COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. 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. Comprehensive loss was
not different than net loss for the years ended December 31, 1999 and 1998.
NET LOSS PER SHARE
F-8
<PAGE>
The Company computes net income per share in accordance with SFAS No.
128, "Earnings per Share". Under the provisions of SFAS No. 128, basic net
income per share is computed by dividing the net income available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net income per share is computed by
dividing the net income for the period by the weighted average number of
common shares outstanding during the period and dilutive potential common
shares outstanding. Weighted average common shares outstanding during the
period does not include shares issued pursuant to the exercise of stock
options prior to vesting. Due to the losses incurred by the Company during
the years ended December 31, 1999, 1998 and 1997, common stock equivalents
resulting from the assumed exercise of outstanding stock options and warrants
have been excluded from the computation of diluted net loss per share as
their effect would be anti-dilutive.
STOCK-BASED COMPENSATION
As permitted by SFAS 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 equal to or exceeds the fair value of the
underlying stock on the date of grant, no compensation expense is recognized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
related disclosures at the date of the financial statements, and the amounts
of revenues and expenses reported during the period. Actual results could
differ from those estimates.
INITIAL PUBLIC OFFERING
In April 1998, the Company completed an initial public offering (the
"offering") of 3,900,000 shares of common stock, providing the Company with
net proceeds of approximately $38.7 million. All outstanding shares of
convertible preferred stock outstanding at April 13, 1998 automatically
converted into 9,277,275 common shares upon the closing of the offering.
Concurrently with the offering, the Company completed a private placement
of 1,909,089 shares of its common stock to Becton, Dickinson and Company,
Hoechst AG (through a subsidiary) and Elan Corporation, plc, resulting in net
proceeds to the Company of $6.0 million, $10.0 million and $5.0 million,
respectively.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Scientific equipment $ 3,738 $ 3,130
Manufacturing equipment 42 -
Office furniture and equipment 2,156 2,030
Leasehold improvements 4,200 4,141
---------- -----------
10,136 9,301
Less accumulated depreciation and amortization (3,982) (2,321)
---------- -----------
$ 6,154 $ 6,980
========== ===========
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Accrued compensation and benefits $ 2,034 $ 754
Accrued product development costs 944 -
Other 748 679
----------- -----------
</TABLE>
F-9
<PAGE>
<TABLE>
<S> <C> <C>
$ 3,726 $ 1,433
========== ===========
</TABLE>
4. COMMITMENTS
LICENSING AND RESEARCH AGREEMENTS
The Company is a party to licensing and research agreements with various
entities whereby the Company is obligated to pay certain license fees and
research funding. None of these agreements individually are considered
material. Under some of these agreements, the Company may be required to pay
royalties on future sales in the event that the Company incorporates the
licensed technology in one or more of its potential commercial products.
LEASES
The Company leases its facilities and certain equipment under operating
lease agreements that expire at various dates through 2005. Rent expense was
$577,000, $532,000 and $461,000 in 1999, 1998, and 1997, respectively.
The Company leases certain equipment under capital lease obligations.
Cost and accumulated amortization of equipment under capital lease were
$9,953,000 and $3,872,000 at December 31, 1999 and $9,045,000 and $2,199,000
at December 31, 1998, respectively. Amortization of equipment under capital
lease obligations is included in depreciation expense.
Annual future minimum obligations for operating and capital leases as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL
OPERATING LEASE
LEASES OBLIGATIONS
---------- ------------
<S> <C> <C>
2000 $ 612 $ 2,555
2001 626 1,994
2002 651 660
2003 677 188
2004 705 130
Thereafter 178 --
---------- ----------
Total minimum lease payments $ 3,449 5,527
==========
Less amount representing interest 560
----------
Present value of future minimum capital lease 4,967
obligations
Less amounts due in one year 2,136
----------
Long term portion of capital lease obligations $ 2,831
==========
</TABLE>
As of December 31, 1999, the Company has $4.4 million of available
funding under equipment lease lines.
5. RELATED PARTY TRANSACTIONS
In November 1998, the Company entered into a Standstill Agreement and
Right of First Negotiation (the "Agreement") with Graviton, Inc.
("Graviton"), granting the Company an exclusive period of time to negotiate a
license to certain technologies licensed to and/or developed by Graviton. In
exchange for the Agreement, the Company advanced to Graviton through a
secured loan the sum of $500,000. In May 1999, the Company advanced to
Graviton through a secured loan an additional $500,000, the proceeds of which
were to be used by Graviton in part to secure additional intellectual
property rights which the Company could license. In December 1999, the
Company entered into a Collaboration and License Agreement with Graviton.
Pursuant to this agreement, the total loans of $1.0 million, plus accrued
interest, were exchanged for license fees which are reflected as "acquired
technology rights" in the accompanying balance sheet.
Mr. Birndorf, Chairman of the Board, Chief Executive Officer and
President and a director of the Company, is also a director of and investor
in Graviton. Additionally, Dr. Tina Nova, the Company's President and Chief
Operating Officer during 1998 and 1999, is the spouse of the president of
Graviton, Dr. Michael Nova. Together, Messrs. Birndorf and Nova hold a
controlling ownership interest in Graviton. Given the interrelationship among
the parties, the Company's Board appointed a committee of disinterested Board
members to evaluate this opportunity. After full disclosure of the
above-referenced interrelationships, the Committee determined that it was in
the best interests of the Company to enter into the license agreement which
was executed on December 15, 1999.
F-10
<PAGE>
6. STOCKHOLDERS' EQUITY
WARRANTS
At December 31, 1999, there were outstanding warrants to purchase an
aggregate of 20,000 shares of common stock at an exercise price of $2.25 per
share which expire in April 2000. Pursuant to the research and development
collaboration agreement with Aventis Research and Technologies, an affiliate
of Hoechst AG ("Aventis"), (see note 10), the Company agreed to issue to
Aventis a warrant to purchase 120,238 shares of common stock exercisable
through March 2004 at an exercise price of $8.75 per share.
STOCK OPTION PLANS
Under the Company's 1993 Stock Option 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 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, employees and consultants to the Company.
In August 1997, the Board of Directors adopted the 1997 Stock Incentive
Plan, under which 1,641,341 shares of common stock were reserved for issuance
upon exercise of stock options granted by the Company. In November 1997 and
June 1999, an additional 600,000 shares and 925,000 shares, respectively,
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. Options granted prior to April 13, 1998
(the date of the initial public offering) are generally exercisable
immediately; however, options granted subsequent to the initial public
offering are generally exercisable only as they vest. All shares granted
under the Stock Option Plans 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, 1999, 925,213 shares are available for future grant
under the stock option plans. The following table summarizes stock option
activity through December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER OF PRICE PER PRICE PER
SHARES SHARE SHARE
---------- ------------------ ---------
<S> <C> <C> <C>
Outstanding at December 31, 1996 233,875 $ .02 to $ .15 $ .15
Granted 1,586,223 $ .38 to $ .90 $ .89
Exercised (1,381,766) $ .15 to $ .90 $ .86
Cancelled (21,616) $ .15 to $ .90 $ .53
---------
Outstanding at December 31, 1997 416,716 $ .02 to $ .90 $ .60
Granted 1,344,874 $ 3.00 to $ 10.00 $ 4.48
Exercised (248,479) $ .15 to $ 3.00 $ 1.98
Cancelled (406,910) $ .15 to $ 10.00 $ 6.23
---------
Outstanding at December 31, 1998 1,106,201 $ .02 to $ 5.00 $ 2.94
Granted 849,326 $ .001 to $ 21.875 $ 5.23
Exercised (314,870) $ .001 to $ 4.75 .49
Cancelled (381,389) $ .375 to $ 9.625 $ 3.75
---------
Outstanding at December 31, 1999 1,259,268 $ .02 to $ 21.875 $ 4.86
=========
</TABLE>
The Company has the option to repurchase, at the original issue price,
unvested shares issued pursuant to early exercise of options in the event of
termination of employment or engagement. At December 31, 1999, 651,116 shares
issued under the stock option plans were subject to repurchase by the Company.
F-11
<PAGE>
On September 25, 1998, the Compensation Committee of the Board of
Directors authorized a plan for certain option holders whereby each holder
could have exchanged all of his or her current vested and unvested options on
a one-for-one basis for new options priced at the market value as of
September 25, 1998. An aggregate of 365,463 options at an average price of
$6.69 were exchanged for options with an exercise price of $3.8125 per share.
All of these replacement options vest based on the original grant date.
Generally, the replacement options were not exercisable until September 26,
1999, or under certain circumstances at an earlier date.
All replacement options are included in grants and cancellations in the
above summary of stock option activity.
The Company recognized an aggregate of $6,124,000 through December 31,
1999 as deferred compensation for the excess of the fair value of the common
stock issuable on exercise of such options over the exercise price. The
deferred compensation expense is being recognized over the vesting period of
the options. Compensation expense related to these options was $1,773,000,
$2,181,000 and $611,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Following is a further breakdown of the options outstanding as of
December 31, 1999:
<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 - $ .90 179,764 5.71 $ .36 179,764 $ .36
$3.00 - $3.94 482,652 8.50 $3.64 349,387 $3.57
$4.00 - $4.75 194,048 9.03 $4.39 46,399 $4.38
$5.00 - $6.97 87,029 8.41 $6.50 5,120 $5.73
$7.00 - $7.25 149,550 9.64 $7.08 - $ -
$8.00 - $10.94 144,400 9.68 $9.28 4,000 $9.47
$21.88 21,825 10.00 $21.88 - $ -
-------- -------
$ .02 - $21.88 1,259,268 8.47 $4.86 584,670 $2.71
========= =======
</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 Black-Scholes
valuation model for option pricing with the following assumptions for 1999,
1998, and 1997: a risk-free interest rate of 6.0%, 5.75%, and 6.5%,
respectively, a dividend yield of zero; volatility factors of the expected
market price of the Company's common stock of 70%, 65%, and 65%,
respectively, and a weighted average expected life of the option of five
years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of adjusted pro forma disclosures, the estimated fair value
of the options is amortized to expense over the vesting period. The Company's
adjusted pro forma information is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Adjusted pro forma net loss $ (26,443) $ (21,379) $ (11,383)
Adjusted pro forma net loss per $ (1.46) $ (1.63) $ (8.45)
share
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and
1997 was $5.40, $2.68 and $.24 per share, respectively.
The pro forma effect on net loss for 1999, 1998 and 1997 is not
necessarily indicative of potential pro forma effects on results for future
years.
F-12
<PAGE>
RESTRICTED STOCK AWARDS
On July 27, 1999, the Board of Directors authorized the issuance of an
aggregate of 251,000 shares of the Company's common stock to certain officers
and key employees at a price per share of par value ($.001). All of these
shares were purchased by the respective officers and key employees and are
subject to repurchase if the officer or key employee leaves the Company prior
to July 26, 2001. Repurchase rights as to certain of the shares lapse upon
the attainment of certain performance milestones or upon a change in control.
Deferred compensation aggregating $1,820,000 has been recorded for the excess
of the fair market value of the stock on the date of the award over the
purchase price per share and is being amortized over the restricted period.
These restricted shares have been included in the summary of stock option
activity under the caption STOCK OPTION PLANS above.
EMPLOYEE STOCK PURCHASE PLAN
In November 1997, the Board of Directors approved the Employee Stock
Purchase Plan (the "Purchase Plan"). A total of 300,000 shares of common
stock have been authorized for issuance under the Purchase Plan. The Purchase
Plan permits eligible employees of the Company to purchase shares of common
stock, at semi-annual intervals, through periodic payroll deductions. Payroll
deductions may not exceed 15% of the participant's base salary subject to
certain limitations, and the purchase price will not be less than 85% of the
lower of the fair market value of the stock at either the beginning of the
applicable "offering period" or the last day of the accumulation period. Each
offering period is 24 months long, with new offering periods commencing every
six months, and an accumulation period is six months in duration. During the
years ended December 31, 1999 and 1998, 35,216 and 26,783 shares,
respectively, were issued under the Purchase Plan.
SHARES RESERVED FOR FUTURE ISSUANCE
The following shares of common stock are reserved for future issuance at
December 31, 1999:
<TABLE>
<S> <C>
Stock options 2,184,481
Employee stock purchase plan 238,001
Warrants 140,238
----------
2,562,720
</TABLE>
SHAREHOLDER RIGHTS PLAN
In November 1998, the Company's Board of Directors adopted a Stockholder
Rights plan which provides for a dividend of one Preferred Stock Purchase
Right for each share of common stock to stockholders of record on November
30, 1998. Each Right will entitle stockholders to buy one one-thousandth of a
share of Series A Participating Preferred Stock of the Company at an exercise
price of $50.00, subject to antidilution adjustments. The Rights will become
exercisable only if a person or group becomes the beneficial owner of 15% or
more of the common stock, or commences a tender or exchange offer which would
result in the offeror beneficially owning 15% or more of common stock, which
is not approved by the Company's Board of Directors. The Board of Directors
is entitled to redeem the Rights at $0.01 per Right at any time prior to the
public announcement of the existence of a 15% holder.
7. 401(K) PLAN
The Company has a 401(k) defined contribution savings and retirement plan
(the "Plan"). The Plan is for the benefit of all qualifying employees and
permits employees voluntary contributions up to a maximum of 20% of base
salary (as defined), subject to annual limits. The Board of Directors may, at
its sole discretion, approve Company contributions. No such contributions
have been made as of December 31, 1999.
8. NOTES RECEIVABLE FROM OFFICERS AND EMPLOYEES
The Company has advanced funds aggregating $240,000 to certain officers
in connection with various employment agreements. These agreements provide
for forgiveness of the advances over four-year periods. If an
F-13
<PAGE>
individual terminates the relationship with the Company, the unforgiven
portion of the advances and any accrued interest are due and payable upon
termination. These advances are secured by second trust deeds on the personal
residences of the respective officers. As of December 31, 1999, $110,000 of
these advances has been forgiven, $100,000 has been repaid to the Company in
conjunction with the termination of the respective employee, and $30,000 is
included in other assets. In addition, there are full-recourse notes
receivable from certain officers totaling approximately $1.4 million related
to stock purchase agreements.
9. INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1999 and 1998 are shown below. A valuation
allowance of $29,928,000 has been recognized to offset the deferred tax
assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 22,945 $ 14,846
Research and development credits 3,913 2,350
Capitalized research expenses 2,931 1,981
Other 522 308
----------- ------------
Total deferred tax assets 30,311 19,485
Valuation allowance for deferred tax
assets (29,928) (19,250)
----------- ------------
Net deferred tax assets 383 235
Deferred tax liabilities:
Depreciation (383) (235)
----------- ------------
Net deferred tax assets $ -- $ --
=========== ============
</TABLE>
At December 31, 1999, the Company has federal and California net
operating loss carryforwards of approximately $64,319,000 and $7,534,000,
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 tax loss
carryforwards will begin expiring in 2006 unless previously utilized. The
California tax loss carryforwards will continue to expire in 2000, unless
previously utilized (approximately $1,332,000 expired in 1999). The Company
also has federal and California research and development tax credit
carryforwards of approximately $2,861,000 and $1,619,000, 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.
10. SPONSORED RESEARCH AGREEMENTS
BECTON, DICKINSON AND COMPANY
The Company entered into a Master Agreement with Becton, Dickinson and
Company ("Becton Dickinson") in October 1997 to develop and commercialize
products in the field of IN VITRO nucleic acid-based diagnostic and
monitoring technologies. Pursuant to this Master Agreement, Becton Dickinson
and Nanogen agreed to form The Nanogen/Becton Dickinson Partnership (the
"Partnership"). Pursuant to a General Partnership Agreement, Becton Dickinson
and Nanogen have contributed to the Partnership their respective rights under
a Collaborative Research and Development Agreement established in May 1997,
certain Intellectual Property Licenses and, as of December 31, 1999 cash of
approximately $8.6 million, of which approximately $7.0 million was paid by
Becton Dickinson and approximately $1.6 million was paid by Nanogen. The
amounts paid to the Partnership by Nanogen during the years ended December
31, 1999 and 1998 have been recorded as Nanogen's share of the joint
venture's loss for those periods. The partners are considering modifications
to the joint venture to take advantage of potential third party opportunities
on technology developed to date. The partners are also considering field
changes which would allow the joint venture access to additional technologies
or content in areas more strategically aligned with business opportunities.
Further joint venture funding will be determined based upon a final decision
regarding such modifications and field changes. The Company has received no
research funding from Becton Dickinson since the
F-14
<PAGE>
third quarter of 1999, and it is uncertain whether the Company will receive
any additional funding from Becton Dickinson.
Revenues are recognized under the agreements as expenses are incurred,
and totaled $1.6 million, $2.5 million and $1.2 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
AVENTIS RESEARCH AND TECHNOLOGIES
In December 1997, the Company entered into an agreement with Aventis
Research and Technologies, an affiliate of Hoechst AG ("Aventis"), for an
exclusive research and development collaboration and the establishment of a
joint venture relating to the development of molecular recognition arrays.
Aventis also purchased common stock worth an aggregate of $10.0 million, at
the offering price, in the private placement in April 1998.
In December 1998, the Company entered into a Collaborative Research and
Development Agreement which, among other things, extended the guaranteed term
of the research program from two to three years. As a result of the signing
of this agreement, the Company agreed to issue to Aventis a warrant to
purchase 120,238 shares of common stock exercisable through March 2004 at an
exercise price of $8.75 per share. The Company has also agreed to issue to
Aventis, upon the achievement of certain milestones, warrants to purchase up
to approximately 360,000 additional shares of common stock at a 50 percent
premium to the market price on the date the milestone is achieved. These
warrants will have five-year maximum terms.
In September 1999, the Company announced the expansion of its drug
discovery collaboration with Aventis. Two new technology development programs
were added to the current program and will focus on the development of gene
expression tools utilizing electronic bioarrays and the development of high
throughput screening tools for kinase analyses. In total, the two new
programs will provide a maximum of $12.0 million in additional funding to the
Company through December 31, 2001, including an up-front initiation fee of
$2.0 million which was received in the fourth quarter of 1999 and accounted
for as deferred revenue.
Revenue is recognized under these agreements as expenses are incurred,
and totaled $3.6 million and $2.1 million for the years ended December 31,
1999 and 1998, respectively. Funding received in advance of incurred expenses
is recorded as deferred revenue until the expenses are incurred, and totaled
$3.4 million at December 31, 1999.
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 purchased Company common stock worth an
aggregate of $5.0 million, at the initial public offering price, in the
private placement in April 1998. Nanogen and Elan have not yet agreed upon
specific program objectives with respect to the nonexclusive research and
development program. The Company is uncertain as to whether the Company will
receive any additional funding from Elan.
Revenue is recognized under the agreement as expenses are incurred, and
totaled $568,000 and $929,000 for the years ended December 31, 1999 and 1998,
respectively.
11. CONTRACT AND GRANT REVENUE
In September 1998, the Company was awarded a contract by the Space and
Naval Warfare Systems Center San Diego ("SSC San Diego") for the Defense
Advance Research Projects Agency in an amount that could total in excess of
$7 million over the next five years. The contract award which was made by SSC
San Diego for the Defense Advance Research Projects Agency includes over $2
million to be paid during the first two years, and options to extend the
program for up to an additional three years that would pay the Company up to
an additional $4.8 million. The goal of the program is to create an advanced
miniaturized lab for biological warfare defense applications. Revenue is
recognized under the agreement as expenses are incurred, and totaled $1.1
million and $109,000 for the years ended December 31, 1999 and 1998,
respectively.
F-15
<PAGE>
Exhibit 10.24
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of October 29, 1999, is made by and
between NANOGEN, INC., a Delaware corporation (hereinafter the "Company"), and
TINA S. NOVA, PH.D., (hereinafter "Executive").
RECITALS
WHEREAS, the Company and Executive wish to set forth in this Agreement
the terms and conditions under which Executive will continue to be employed by
the Company; and
WHEREAS, the Company wishes to be assured that Executive will be
available to the Company for an additional three (3) years after July 27, 1999.
NOW, THEREFORE, the Company and Executive, in consideration of the
mutual promises set forth herein, agree as follows:
ARTICLE I.
TERM OF AGREEMENT
A. COMMENCEMENT DATE. The terms of this Agreement shall govern
Executive's employment with the Company from July 27, 1999 ("Commencement Date")
and this Agreement shall expire after a period of three (3) years from the
Commencement Date, unless terminated earlier pursuant to Article 6.
B. RENEWAL. The term of this Agreement shall be automatically renewed
for successive, additional three (3) year terms unless either party delivers
written notice to the other at least ninety (90) days prior to the expiration
date of this Agreement of an intention to terminate this Agreement or to renew
it for a term of less than three (3) years but not less than (1) year. If the
term of this Agreement is renewed for a term of less than three (3) years, then
thereafter the term of this Agreement shall be automatically renewed for
successive, additional identical terms unless either party delivers a written
notice to the other at least ninety (90) days prior to a termination date of
this Agreement of an intention to terminate this Agreement or to renew it for a
different term of not less than one (1) year. Any renewal bonus will be
negotiated as mutually agreed to at the time of any renewal of this Agreement.
If this Agreement is not renewed at the end of any term hereof by the
Company for any reason except death, disability or retirement of Executive,
notwithstanding anything herein elsewhere contained, Executive shall be paid her
salary, as provided for in Section 3.A hereof, and receive the other benefits
applicable under Article 4 hereof, for an additional eighteen months after the
termination date hereof.
-1-
<PAGE>
ARTICLE II.
EMPLOYMENT DUTIES
A. TITLE/RESPONSIBILITIES. Executive hereby accepts employment with the
Company pursuant to the terms and conditions hereof. Executive agrees to serve
the Company in the position of President and Chief Operating Officer. Executive
shall report to the Chief Executive Officer of the Company (the "Chief Executive
Officer"). Executive shall have the powers and duties commensurate with such
position, including but not limited to, hiring personnel necessary (in the
judgment of the Board of Directors) to carry out the responsibilities for such
position.
B. FULL TIME ATTENTION. Executive shall devote her best efforts and her
full business time and attention to the performance of the services customarily
incident to such office and to such other services as the Board may reasonably
request.
C. OTHER ACTIVITIES. Except upon the prior written consent of the Board
of Directors, Executive shall not during the period of employment engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary advantage) that is or may be competitive with, or that might place
her in a competing position to that of the Company or any other corporation or
entity that directly or indirectly controls, is controlled by, or is under
common control with the Company (an "Affiliated Company"), provided that
Executive may own less than two percent of the outstanding securities of any
such publicly traded competing corporation.
D. DIRECTORSHIPS. Executive will be nominated for reelection to the
Company's Board of Directors if the By-Laws so require it. At the pleasure of
the Company's shareholders, Executive agrees to serve as a Director on the
Company's Board of Directors at no additional compensation.
ARTICLE III.
COMPENSATION
A. BASE SALARY. Executive shall receive a Base Salary at an annual rate
of two hundred sixty seven thousand dollars ($267,000), payable in accordance
with the Company's customary payroll practices. The Company's Board of Directors
shall provide Executive with annual performance reviews, and, thereafter,
Executive shall be entitled to such Base Salary as the Board of Directors may
from time to time establish in its sole discretion.
B. ACHIEVEMENT BONUS. The Company shall pay Executive an Achievement
Bonus of up to 55% of Executive's Base Salary annually based upon achievement by
the Company of its corporate goals as established and determined by the Board of
Directors annually and for other achievements by the Company or the Executive
during the year as approved by the Compensation Committee. The Board of
Directors or Compensation Committee, as applicable,
-2-
<PAGE>
shall, in their respective sole discretion, determine whether such corporate or
other goals have been attained or other achievements have occurred.
C. TRANSACTION BONUS. In addition, in the event of a transaction
involving a Change in Control, in a transaction approved by the Company's Board
of Directors, which transaction results in the receipt by the Company's
stockholders of consideration with a value representing, in the sole judgment of
the Board of Directors, a significant premium over the average of the closing
prices per share of the Company's common stock as quoted on the Nasdaq National
Market for 20 trading days ending one day prior to the public announcement of
such transaction (a "Change in Control Transaction"), Executive shall be paid a
Transaction Bonus at the closing of such a transaction in the amount equal to
three (3) times 55% of Executive's Base Salary in effect immediately preceding
the closing of such a transaction. Executive shall also be paid said Transaction
Bonus if the Company enters into a transaction approved by the Board of
Directors which is not a Change in Control Transaction, but which, nonetheless,
involves a significant change in the ownership of the Company or the composition
of the Board of Directors of the Company, or which results in receipt of a
premium for the Company's stockholders (a "Significant Event"). In the event
Executive receives a Transaction Bonus, no Achievement Bonus will be paid to
Executive in the year in which such Transaction Bonus is paid.
If the Company enters into a transaction which is a Change in Control
Transaction, then all of the Executive's stock options granted prior to July 27,
1999 shall become exercisable in full and all of the shares of the common stock
of the Company awarded to Executive under the Company's 1997 Stock Incentive
Plan and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested. If the Company enters into a transaction which is not a
Change in Control Transaction but which is a Significant Event, then the Board
of Directors may, in its sole discretion, determine that all, or a portion, of
the Executive's stock options granted prior to July 27, 1999 shall become
exercisable in full and all, or a portion, of the shares of the common stock of
the Company awarded to Executive under the Company's 1997 Stock Incentive Plan
and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested.
D. WITHHOLDINGS. All compensation and benefits to Executive hereunder
shall be subject to all federal, state, local and other withholdings and similar
taxes and payments required by applicable law.
E. SECTION 280G. Notwithstanding anything in this Agreement to the
contrary, if such Transaction Bonus, together with any other payments and/or
benefits that Executive receives under this Agreement and/or under any other
plan, program or arrangement sponsored by the Company in which Executive
participates, constitutes an "excess parachute payment" within the meaning of
Section 280G of the internal Revenue Code of 1986, as amended, then such
transaction bonus and other payments and/or benefits shall be reduced to the
amount that has the maximum value to the Executive without causing any of such
payment to be non-deductible by the Company under Section 280G.
-3-
<PAGE>
ARTICLE IV.
EXPENSE ALLOWANCES AND FRINGE BENEFITS
A. VACATION. Executive shall be entitled to two (2) weeks, plus one (1)
additional day for each completed year of employment with the Company, of annual
paid vacation during the term of this Agreement.
B. BENEFITS. During the term of this Agreement, the Company shall also
provide Executive with the usual health insurance benefits it generally provides
to its other senior management employees, other than life insurance (which shall
be paid directly by Executive). As Executive becomes eligible in accordance with
criteria to be adopted by the Company, the Company shall provide Executive with
the right to participate in and to receive benefits from accident, disability,
medical, pension, bonus, stock, profit-sharing and savings plans and similar
benefits made available generally to employees of the Company as such plans and
benefits may be adopted by the Company, provided that Executive shall during the
term of this Agreement be entitled to receive at a minimum standard medical and
dental benefits similar to those typically afforded to Chief Executive Officers
in similar sized biotechnology companies, excluding life insurance. The amount
and extent of benefits to which Executive is entitled shall be governed by the
specific benefit plan as it may be amended from time to time.
C. COMPANY LOANS. Upon the closing of a transaction approved by the
Company's Board of Directors involving a Change in Control or a Significant
Event, all amounts outstanding with respect to the Loans made by Company to
Executive and listed on Schedule A hereto, shall be forgiven on a pro rata basis
over a four (4) year period commencing on the Executive's original date of
employment by the Company (including any accrued and unpaid interest).
D. BUSINESS EXPENSE REIMBURSEMENT. During the term of this Agreement,
Executive shall be entitled to receive proper reimbursement for all reasonable
out-of-pocket expenses incurred by her (in accordance with the policies and
procedures established by the Company for its senior executive officers) in
performing services hereunder, provided Executive properly accounts therefor.
ARTICLE V.
CONFIDENTIALITY
A. PROPRIETARY INFORMATION. Executive represents and warrants that she
has executed and delivered to the Company the Company's standard Proprietary
Information and Inventions Agreement in form acceptable to the Company's
counsel.
B. RETURN OF PROPERTY. All documents, records, apparatus, equipment and
other physical property which is furnished to or obtained by Executive in the
course of her employment with the Company shall be and remain the sole property
of the Company.
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Executive agrees that, upon the termination of her employment, she shall return
all such property (whether or not it pertains to Proprietary Information as
defined in the Proprietary Information and Inventions Agreement), and agrees not
to make or retain copies, reproductions or summaries of any such property.
ARTICLE VI.
TERMINATION
A. BY DEATH. The period of employment shall terminate automatically
upon the death of Executive. In such event, the Company shall pay to Executive's
beneficiaries or her estate, as the case may be, any accrued Base Salary, any
bonus compensation to the extent earned, any vested deferred compensation (other
than pension plan or profit-sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Company in which Executive is a participant to the full extent of Executive's
rights under such plans, any accrued vacation pay and any appropriate business
expenses incurred by Executive in connection with her duties hereunder, all to
the date of termination (collectively "Accrued Compensation"), but no other
compensation or reimbursement of any kind, including, without limitation,
severance compensation, and thereafter, the Company's obligations hereunder
shall terminate.
B. BY DISABILITY. If Executive is prevented from properly performing
her duties hereunder by reason of any physical or mental incapacity for a period
of more than 90 days in the aggregate in any 365-day period, then, to the extent
permitted by law, the Company may terminate the employment on the 90th day of
such incapacity. In such event, the Company shall pay to Executive all Accrued
Compensation, and shall continue to pay to Executive the Base Salary until such
time (but not more than 90 days following termination), as Executive shall
become entitled to receive disability insurance payments under the disability
insurance policy maintained by the Company, which disability policy shall
provide for full payment of Executive's Base Salary during the period of
disability, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Nothing in this Section shall affect
Executive's rights under any disability plan in which she is a participant.
C. BY COMPANY FOR CAUSE. The Company may terminate Executive's
employment for Cause (as defined below) without liability at any time with or
without advance notice to Executive. The Company shall pay Executive all Accrued
Compensation, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Termination shall be for "Cause" in the
event of the occurrence of any of the following: (a) any intentional action or
intentional failure to act by Executive which was performed in bad faith and to
the material detriment of the Company; (b) Executive intentionally refuses or
intentionally fails to act in accordance with any lawful and proper direction or
order of the Board; (c) Executive willfully and habitually neglects the duties
of employment; or
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(d) Executive is convicted of a felony crime involving moral turpitude, provided
that in the event that any of the foregoing events is capable of being cured,
the Company shall provide written notice to Executive describing the nature of
such event and Executive shall thereafter have five (5) business days to cure
such event.
D. AT WILL. At any time, the Company may terminate Executive's
employment without liability other than as set forth below, for any reason not
specified in Section 6.C above, by giving thirty (30) days advance written
notice to Executive. If the Company elects to terminate Executive pursuant to
this Section 6.D prior to a Change in Control, the Company shall pay to
Executive all Accrued Compensation and shall continue to pay to Executive as
provided herein Executive's Salary for six (6) months from the date of such
termination as severance compensation. If the Company or its successor elects to
terminate Executive pursuant to this Section after a Change in Control, the
Company (or its successor) shall continue to pay to Executive as provided herein
Executive's Salary for eighteen (18) months from the date of such termination as
severance compensation. In addition, upon any termination under this Section
6.D., all of the Executive's stock options granted prior to July 27, 1999 shall
become exercisable in full and all the shares of the common stock of the Company
awarded to Executive under the Company's 1997 Stock Incentive Plan and the 1993
Stock Option/Stock Issuance Plan prior to July 27, 1999 shall become fully
vested. Upon payment of the severance benefits described herein, all obligations
of the Company (or its successor) shall terminate.
During the period when such severance compensation is being paid to
Executive, Executive shall not (i) engage, directly or indirectly, in any other
business activity that is competitive with, or that places her in a competing
position to that of the Company or any Affiliated Company (provided that
Executive may own less than two percent (2%) of the outstanding securities of
any publicly traded corporation), or (ii) hire, solicit, or attempt to hire on
behalf of herself or any other party any employee or exclusive consultant of the
Company. If the Company terminates this Agreement or the employment of Executive
with the Company other than pursuant to Section 6.A, 6.B or 6.C, then this
Section 6.D shall apply.
E. CONSTRUCTIVE TERMINATION. In the event that the Company shall
materially reduce the powers and duties of employment of Executive resulting in
a material decrease in the responsibilities of Executive which are inconsistent
with Executive acting as President and Chief Operating Officer of the Company,
such action shall be deemed to be a termination of employment of Executive
without cause pursuant to Section 6.D. In the event of a Change in Control of
the Company in which the Company shall become a division or subsidiary of a
larger organization, references to the President and Chief Operating Officer of
the Company shall be deemed to mean the President and Chief Operating Officer of
such division or subsidiary for purposes of this Section 6.E.
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<PAGE>
1. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall have occurred if at any time during the term of Executive's
employment hereunder, any of the following events shall occur:
a. The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power
of the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders
of the Company immediately prior to such merger, consolidation
or other reorganization;
b. A change in the composition of the Board, as a result of which
fewer than one-half of the incumbent directors are directors
who either (1) had been directors of the Company 24 months
prior to such change; or (2) were elected, or nominated for
election, to the Board with the affirmative votes of at least
a majority of the directors who had been directors of the
Company 24 months prior to such change and who were still in
office at the time of the election or nomination; or
c. Any "person" (as such term is used in Section 13(d) and
Section 14 of the Exchange Act) by the acquisition of
securities is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors (the "Base Capital Stock") except
that any change in the relative beneficial ownership of the
Company's securities resulting solely from a reduction in the
aggregate number of outstanding shares of Base Capital Stock ,
and any decrease thereafter in such person's ownership of
securities shall be disregarded until such person increases in
any manner, directly or indirectly, such person's beneficial
ownership of any securities of the Company. Thus, for example,
any person who owns less than 50% of the Company's outstanding
shares, shall cause a Change in Control to occur as of any
subsequent date if such person then acquires an additional
interest in the Company which, when added to the person's
previous holdings, causes the person to hold more than 50% of
the Company's outstanding shares.
The term "Change in Control" shall not include a transaction, the sole
purpose of which is to change the state of the Company's incorporation.
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ARTICLE VII.
GENERAL PROVISIONS
A. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties thereunder shall be
interpreted and enforced under California law without reference to principles of
conflicts of laws. The parties expressly agree that inasmuch as the Company's
headquarters and principal place of business are located in California, it is
appropriate that California law govern this Agreement.
B. ASSIGNMENT; SUCCESSORS; BINDING AGREEMENT.
1. Executive may not assign, pledge or encumber her interest in this
Agreement or any part thereof.
2. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, operation of law or by agreement in
form and substance reasonably satisfactory to Executive, to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
3. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributee, devisees and legatees. If Executive should die
while any amount is at such time payable to her hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legates or other designee or, if there be
no such designee, to her estate.
C. NO WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement shall not be deemed to be a waiver of any subsequent
breach.
D. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
To the Company: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attn: Chief Executive Officer
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To Executive: Tina S. Nova, Ph.D.
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
E. MODIFICATION; WAIVER; ENTIRE AGREEMENT. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by Executive and such officer as may
be specifically designated by the Board of the Company. No waiver by either
party hereto at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
F. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
G. CONTROLLING DOCUMENT. This Agreement supersedes any and all prior
employment agreements between the Company and Executive, but does not supersede
any other agreements between Company and Executive, including but not limited
to, the Nanogen Inc. Restricted Stock Purchase Agreement, any stock option
agreements or common stock purchase agreements entered into pursuant to the
Company's 1997 Stock Incentive Plan and the 1993 Stock Option/Stock Issuance
Plan, and the Nanogen Employees' Handbook and Policies, except as expressly
provided herein. In case of conflict between any of the terms and conditions of
this Agreement and the documents herein referred to, the terms and conditions of
this Agreement shall control.
H. EXECUTIVE ACKNOWLEDGMENT. Executive acknowledges (a) that she has
consulted with or has had the opportunity to consult with independent counsel of
her own choice concerning this Agreement, and has been advised to do so by the
Company, and (b) that she has read and understands the Agreement, is fully aware
of its legal effect, and has entered into it freely based on her own judgment.
I. REMEDIES.
1. INJUNCTIVE RELIEF. The parties agree that the services to be
rendered by Executive hereunder are of a unique nature and that in the event of
any breach or threatened breach of any of the covenants contained herein, the
damage or imminent damage to the value and the goodwill of the Company's
business will be irreparable and extremely difficult to estimate, making any
remedy at law or in damages inadequate. Accordingly, the parties agree that the
Company shall be entitled to injunctive relief against Executive in the event of
any breach or threatened breach of any such provisions by Executive, in addition
to any other relief
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(including damages) available to the Company under this Agreement or under law.
2. EXCLUSIVE. Both parties agree that the remedy specified in Section
7.I.1 above is not exclusive of any other remedy for the breach by Executive of
the terms hereof.
J. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
Executed by the parties as of the day and year first above written.
NANOGEN, INC.
/s/ Howard C. Birndorf
------------------------------------
By Howard C. Birndorf
Chief Executive Officer
EXECUTIVE:
/s/ Tina S. Nova
------------------------------------
Tina S. Nova, Ph.D.
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SCHEDULE A
LISTING OF LOANS
<TABLE>
<CAPTION>
Date of Loan Dollar Amount Interest Rate (%) Term (Years)
<S> <C> <C> <C>
6/30/95 15,000.00 6.72 5
8/22/95 7,500.00 6.36 5
11/7/97 99,999.60 6.01 5
11/7/97 44,341.80 6.01 5
</TABLE>
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Exhibit 10.26
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of October 29, 1999, is made by and
between NANOGEN, INC., a Delaware corporation (hereinafter the "Company"), and
JAMES P. O'CONNELL, PH.D., (hereinafter "Executive").
RECITALS
WHEREAS, the Company and Executive wish to set forth in this Agreement
the terms and conditions under which Executive will continue to be employed by
the Company; and
WHEREAS, the Company wishes to be assured that Executive will be
available to the Company for an additional three (3) years after July 27, 1999.
NOW, THEREFORE, the Company and Executive, in consideration of the
mutual promises set forth herein, agree as follows:
ARTICLE I.
TERM OF AGREEMENT
A. COMMENCEMENT DATE. The terms of this Agreement shall govern
Executive's employment with the Company from July 27, 1999 ("Commencement Date")
and this Agreement shall expire after a period of three (3) years from the
Commencement Date, unless terminated earlier pursuant to Article 6.
B. RENEWAL. The term of this Agreement shall be automatically renewed
for successive, additional three (3) year terms unless either party delivers
written notice to the other at least ninety (90) days prior to the expiration
date of this Agreement of an intention to terminate this Agreement or to renew
it for a term of less than three (3) years but not less than (1) year. If the
term of this Agreement is renewed for a term of less than three (3) years, then
thereafter the term of this Agreement shall be automatically renewed for
successive, additional identical terms unless either party delivers a written
notice to the other at least ninety (90) days prior to a termination date of
this Agreement of an intention to terminate this Agreement or to renew it for a
different term of not less than one (1) year. Any renewal bonus will be
negotiated as mutually agreed to at the time of any renewal of this Agreement.
If this Agreement is not renewed at the end of any term hereof by the
Company for any reason except death, disability or retirement of Executive,
notwithstanding anything herein elsewhere contained, Executive shall be paid his
salary, as provided for in Section 3.A hereof, and receive the other benefits
applicable under Article 4 hereof, for an additional eighteen months after the
termination date hereof.
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ARTICLE II.
EMPLOYMENT DUTIES
A. TITLE/RESPONSIBILITIES. Executive hereby accepts employment with the
Company pursuant to the terms and conditions hereof. Executive agrees to serve
the Company in the position of Vice President, Science and Technology. Executive
shall have the powers and duties commensurate with such position, including but
not limited to, hiring personnel necessary (in the judgment of the Board of
Directors) to carry out the responsibilities for such position.
B. FULL TIME ATTENTION. Executive shall devote his best efforts and his
full business time and attention to the performance of the services customarily
incident to such office and to such other services as the Board may reasonably
request.
C. OTHER ACTIVITIES. Except upon the prior written consent of the Board
of Directors, Executive shall not during the period of employment engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary advantage) that is or may be competitive with, or that might place
him in a competing position to that of the Company or any other corporation or
entity that directly or indirectly controls, is controlled by, or is under
common control with the Company (an "Affiliated Company"), provided that
Executive may own less than two percent of the outstanding securities of any
such publicly traded competing corporation.
ARTICLE III.
COMPENSATION
A. BASE SALARY. Executive shall receive a Base Salary at an annual rate
of two hundred and forth thousand dollars ($240,000), payable in accordance with
the Company's customary payroll practices. The Company's Board of Directors
shall provide Executive with annual performance reviews, and, thereafter,
Executive shall be entitled to such Base Salary as the Board of Directors may
from time to time establish in its sole discretion.
B. ACHIEVEMENT BONUS. The Company shall pay Executive an Achievement
Bonus of up to 50% of Executive's Base Salary annually based upon achievement by
the Company of its corporate goals as established and determined by the Board of
Directors annually and for other achievements by the Company or the Executive
during the year as approved by the Compensation Committee. The Board of
Directors or Compensation Committee, as applicable, shall, in their respective
sole discretion, determine whether such corporate or other goals have been
attained or other achievements have occurred.
C. TRANSACTION BONUS. In addition, in the event of a transaction
involving a Change in Control, in a transaction approved by the Company's Board
of Directors, which transaction results in the receipt by the Company's
stockholders of consideration with a value representing, in the sole judgment of
the Board of Directors, a significant premium over the average of the
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closing prices per share of the Company's common stock as quoted on the Nasdaq
National Market for 20 trading days ending one day prior to the public
announcement of such transaction (a "Change in Control Transaction"), Executive
shall be paid a Transaction Bonus at the closing of such a transaction in the
amount equal to one (1) times 50% of Executive's Base Salary in effect
immediately preceding the closing of such a transaction. Executive shall also be
paid said Transaction Bonus if the Company enters into a transaction approved by
the Board of Directors which is not a Change in Control Transaction, but which,
nonetheless, involves a significant change in the ownership of the Company or
the composition of the Board of Directors of the Company, or which results in
receipt of a premium for the Company's stockholders (a "Significant Event"). In
the event Executive receives a Transaction Bonus, no Achievement Bonus will be
paid to Executive in the year in which such Transaction Bonus is paid.
If the Company enters into a transaction which is a Change in Control
Transaction, then all of the Executive's stock options granted prior to July 27,
1999 shall become exercisable in full and all of the shares of the common stock
of the Company awarded to Executive under the Company's 1997 Stock Incentive
Plan and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested. If the Company enters into a transaction which is not a
Change in Control Transaction but which is a Significant Event, then the Board
of Directors may, in its sole discretion, determine that all, or a portion, of
the Executive's stock options granted prior to July 27, 1999 shall become
exercisable in full and all, or a portion, of the shares of the common stock of
the Company awarded to Executive under the Company's 1997 Stock Incentive Plan
and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested.
D. WITHHOLDINGS. All compensation and benefits to Executive hereunder
shall be subject to all federal, state, local and other withholdings and similar
taxes and payments required by applicable law.
E. SECTION 280G. Notwithstanding anything in this Agreement to the
contrary, if such Transaction Bonus, together with any other payments and/or
benefits that Executive receives under this Agreement and/or under any other
plan, program or arrangement sponsored by the Company in which Executive
participates, constitutes an "excess parachute payment" within the meaning of
Section 280G of the internal Revenue Code of 1986, as amended, then such
transaction bonus and other payments and/or benefits shall be reduced to the
amount that has the maximum value to the Executive without causing any of such
payment to be non-deductible by the Company under Section 280G.
ARTICLE IV.
EXPENSE ALLOWANCES AND FRINGE BENEFITS
A. VACATION. Executive shall be entitled to two (2) weeks, plus one (1)
additional day for each completed year of employment with the Company, of annual
paid vacation during the term of this Agreement.
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B. BENEFITS. During the term of this Agreement, the Company shall also
provide Executive with the usual health insurance benefits it generally provides
to its other senior management employees, other than life insurance (which shall
be paid directly by Executive). As Executive becomes eligible in accordance with
criteria to be adopted by the Company, the Company shall provide Executive with
the right to participate in and to receive benefits from accident, disability,
medical, pension, bonus, stock, profit-sharing and savings plans and similar
benefits made available generally to employees of the Company as such plans and
benefits may be adopted by the Company, provided that Executive shall during the
term of this Agreement be entitled to receive at a minimum standard medical and
dental benefits similar to those typically afforded to Chief Executive Officers
in similar sized biotechnology companies, excluding life insurance. The amount
and extent of benefits to which Executive is entitled shall be governed by the
specific benefit plan as it may be amended from time to time.
C. COMPANY LOANS. Upon the closing of a transaction approved by the
Company's Board of Directors involving a Change in Control or a Significant
Event, all amounts outstanding with respect to the Loans made by Company to
Executive and listed on Schedule A hereto, shall be forgiven on a pro rata basis
over a four (4) year period commencing on the Executive's original date of
employment by the Company (including any accrued and unpaid interest).
D. BUSINESS EXPENSE REIMBURSEMENT. During the term of this Agreement,
Executive shall be entitled to receive proper reimbursement for all reasonable
out-of-pocket expenses incurred by him (in accordance with the policies and
procedures established by the Company for its senior executive officers) in
performing services hereunder, provided Executive properly accounts therefor.
ARTICLE V.
CONFIDENTIALITY
A. PROPRIETARY INFORMATION. Executive represents and warrants that he
has executed and delivered to the Company the Company's standard Proprietary
Information and Inventions Agreement in form acceptable to the Company's
counsel.
B. RETURN OF PROPERTY. All documents, records, apparatus, equipment and
other physical property which is furnished to or obtained by Executive in the
course of his employment with the Company shall be and remain the sole property
of the Company. Executive agrees that, upon the termination of his employment,
he shall return all such property (whether or not it pertains to Proprietary
Information as defined in the Proprietary Information and Inventions Agreement),
and agrees not to make or retain copies, reproductions or summaries of any such
property.
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ARTICLE VI.
TERMINATION
A. BY DEATH. The period of employment shall terminate automatically
upon the death of Executive. In such event, the Company shall pay to Executive's
beneficiaries or his estate, as the case may be, any accrued Base Salary, any
bonus compensation to the extent earned, any vested deferred compensation (other
than pension plan or profit-sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Company in which Executive is a participant to the full extent of Executive's
rights under such plans, any accrued vacation pay and any appropriate business
expenses incurred by Executive in connection with his duties hereunder, all to
the date of termination (collectively "Accrued Compensation"), but no other
compensation or reimbursement of any kind, including, without limitation,
severance compensation, and thereafter, the Company's obligations hereunder
shall terminate.
B. BY DISABILITY. If Executive is prevented from properly performing
his duties hereunder by reason of any physical or mental incapacity for a period
of more than 90 days in the aggregate in any 365-day period, then, to the extent
permitted by law, the Company may terminate the employment on the 90th day of
such incapacity. In such event, the Company shall pay to Executive all Accrued
Compensation, and shall continue to pay to Executive the Base Salary until such
time (but not more than 90 days following termination), as Executive shall
become entitled to receive disability insurance payments under the disability
insurance policy maintained by the Company, which disability policy shall
provide for full payment of Executive's Base Salary during the period of
disability, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Nothing in this Section shall affect
Executive's rights under any disability plan in which he is a participant.
C. BY COMPANY FOR CAUSE. The Company may terminate Executive's
employment for Cause (as defined below) without liability at any time with or
without advance notice to Executive. The Company shall pay Executive all Accrued
Compensation, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Termination shall be for "Cause" in the
event of the occurrence of any of the following: (a) any intentional action or
intentional failure to act by Executive which was performed in bad faith and to
the material detriment of the Company; (b) Executive intentionally refuses or
intentionally fails to act in accordance with any lawful and proper direction or
order of the Board; (c) Executive willfully and habitually neglects the duties
of employment; or (d) Executive is convicted of a felony crime involving moral
turpitude, provided that in the event that any of the foregoing events is
capable of being cured, the Company shall provide written notice to Executive
describing the nature of such event and Executive shall thereafter have five (5)
business days to cure such event.
D. AT WILL. At any time, the Company may terminate Executive's
employment without liability other than as set forth below, for any reason not
specified in Section 6.C
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above, by giving thirty (30) days advance written notice to Executive. If the
Company elects to terminate Executive pursuant to this Section 6.D prior to a
Change in Control, the Company shall pay to Executive all Accrued Compensation
and shall continue to pay to Executive as provided herein Executive's Salary for
six (6) months from the date of such termination as severance compensation. If
the Company or its successor elects to terminate Executive pursuant to this
Section after a Change in Control, the Company (or its successor) shall continue
to pay to Executive as provided herein Executive's Salary for twelve (12) months
from the date of such termination as severance compensation. Upon payment of the
severance benefits described herein, all obligations of the Company (or its
successor) shall terminate.
During the period when such severance compensation is being paid to
Executive, Executive shall not (i) engage, directly or indirectly, in any other
business activity that is competitive with, or that places him in a competing
position to that of the Company or any Affiliated Company (provided that
Executive may own less than two percent (2%) of the outstanding securities of
any publicly traded corporation), or (ii) hire, solicit, or attempt to hire on
behalf of himself or any other party any employee or exclusive consultant of the
Company. If the Company terminates this Agreement or the employment of Executive
with the Company other than pursuant to Section 6.A, 6.B or 6.C, then this
Section 6.D shall apply.
E. CONSTRUCTIVE TERMINATION. In the event that the Company shall
materially reduce the powers and duties of employment of Executive resulting in
a material decrease in the responsibilities of Executive which are inconsistent
with Executive acting as Vice President, Science and Technology of the Company,
such action shall be deemed to be a termination of employment of Executive
without cause pursuant to Section 6.D. In the event of a Change in Control of
the Company in which the Company shall become a division or subsidiary of a
larger organization, references to the Vice President, Science and Technology of
the Company shall be deemed to mean the Vice President, Science and Technology
of such division or subsidiary for purposes of this Section 6.E.
1. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall have occurred if at any time during the term of Executive's
employment hereunder, any of the following events shall occur:
a. The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power
of the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders
of the Company immediately prior to such merger, consolidation
or other reorganization;
b. A change in the composition of the Board, as a result of which
fewer than one-half of the incumbent directors are directors
who either (1) had been directors of the Company 24 months
prior to such change; or (2) were elected, or nominated for
election, to the Board with the affirmative votes of at least
a majority of the
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directors who had been directors of the Company 24 months
prior to such change and who were still in office at the time
of the election or nomination; or
c. Any "person" (as such term is used in Section 13(d) and
Section 14 of the Exchange Act) by the acquisition of
securities is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors (the "Base Capital Stock") except
that any change in the relative beneficial ownership of the
Company's securities resulting solely from a reduction in the
aggregate number of outstanding shares of Base Capital Stock ,
and any decrease thereafter in such person's ownership of
securities shall be disregarded until such person increases in
any manner, directly or indirectly, such person's beneficial
ownership of any securities of the Company. Thus, for example,
any person who owns less than 50% of the Company's outstanding
shares, shall cause a Change in Control to occur as of any
subsequent date if such person then acquires an additional
interest in the Company which, when added to the person's
previous holdings, causes the person to hold more than 50% of
the Company's outstanding shares.
The term "Change in Control" shall not include a transaction, the sole
purpose of which is to change the state of the Company's incorporation.
ARTICLE VII.
GENERAL PROVISIONS
A. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties thereunder shall be
interpreted and enforced under California law without reference to principles of
conflicts of laws. The parties expressly agree that inasmuch as the Company's
headquarters and principal place of business are located in California, it is
appropriate that California law govern this Agreement.
B. ASSIGNMENT; SUCCESSORS; BINDING AGREEMENT.
1. Executive may not assign, pledge or encumber his interest in this
Agreement or any part thereof.
2. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, operation of law or by agreement in
form and substance reasonably satisfactory to Executive, to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
-7-
<PAGE>
3. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributee, devisees and legatees. If Executive should die
while any amount is at such time payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legates or other designee or, if there be
no such designee, to his estate.
C. NO WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement shall not be deemed to be a waiver of any subsequent
breach.
D. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
To the Company: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attn: Chief Executive Officer
To Executive: James P. O'Connell, Ph.D.
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
E. MODIFICATION; WAIVER; ENTIRE AGREEMENT. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by Executive and such officer as may
be specifically designated by the Board of the Company. No waiver by either
party hereto at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
F. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
G. CONTROLLING DOCUMENT. This Agreement supersedes any and all prior
employment agreements between the Company and Executive, but does not supersede
any other agreements between Company and Executive, including but not limited
to, the Nanogen Inc. Restricted Stock Purchase Agreement, any stock option
agreements or common stock
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<PAGE>
purchase agreements entered into pursuant to the Company's 1997 Stock Incentive
Plan and the 1993 Stock Option/Stock Issuance Plan, and the Nanogen Employees'
Handbook and Policies, except as expressly provided herein. In case of conflict
between any of the terms and conditions of this Agreement and the documents
herein referred to, the terms and conditions of this Agreement shall control.
H. EXECUTIVE ACKNOWLEDGMENT. Executive acknowledges (a) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement, and has been advised to do so by the
Company, and (b) that he has read and understands the Agreement, is fully aware
of its legal effect, and has entered into it freely based on his own judgment.
I. REMEDIES.
1. INJUNCTIVE RELIEF. The parties agree that the services to be
rendered by Executive hereunder are of a unique nature and that in the event of
any breach or threatened breach of any of the covenants contained herein, the
damage or imminent damage to the value and the goodwill of the Company's
business will be irreparable and extremely difficult to estimate, making any
remedy at law or in damages inadequate. Accordingly, the parties agree that the
Company shall be entitled to injunctive relief against Executive in the event of
any breach or threatened breach of any such provisions by Executive, in addition
to any other relief (including damages) available to the Company under this
Agreement or under law.
2. EXCLUSIVE. Both parties agree that the remedy specified in Section
7.I.1 above is not exclusive of any other remedy for the breach by Executive of
the terms hereof.
J. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
Executed by the parties as of the day and year first above written.
NANOGEN, INC.
/s/ Howard C. Birndorf
-----------------------------
By Howard C. Birndorf
Chief Executive Officer
EXECUTIVE:
/s/ James P. O'Connell
-----------------------------
James P. O'Connell, Ph.D.
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<PAGE>
SCHEDULE A
LISTING OF LOANS
<TABLE>
<CAPTION>
Date of Loan Dollar Amount Interest Rate (%) Term (Years)
<S> <C> <C> <C>
11/7/97 95,486.40 6.01 5
</TABLE>
-10-
<PAGE>
Exhibit 10.27
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of October 29, 1999, is made by and
between NANOGEN, INC., a Delaware corporation (hereinafter the "Company"), and
HARRY J. LEONHARDT, ESQ., (hereinafter "Executive").
RECITALS
WHEREAS, the Company and Executive wish to set forth in this Agreement
the terms and conditions under which Executive will continue to be employed by
the Company; and
WHEREAS, the Company wishes to be assured that Executive will be
available to the Company for an additional three (3) years after July 27, 1999.
NOW, THEREFORE, the Company and Executive, in consideration of the
mutual promises set forth herein, agree as follows:
ARTICLE I.
TERM OF AGREEMENT
A. COMMENCEMENT DATE. The terms of this Agreement shall govern
Executive's employment with the Company from July 27, 1999 ("Commencement Date")
and this Agreement shall expire after a period of three (3) years from the
Commencement Date, unless terminated earlier pursuant to Article 6.
B. RENEWAL. The term of this Agreement shall be automatically renewed
for successive, additional three (3) year terms unless either party delivers
written notice to the other at least ninety (90) days prior to the expiration
date of this Agreement of an intention to terminate this Agreement or to renew
it for a term of less than three (3) years but not less than (1) year. If the
term of this Agreement is renewed for a term of less than three (3) years, then
thereafter the term of this Agreement shall be automatically renewed for
successive, additional identical terms unless either party delivers a written
notice to the other at least ninety (90) days prior to a termination date of
this Agreement of an intention to terminate this Agreement or to renew it for a
different term of not less than one (1) year. Any renewal bonus will be
negotiated as mutually agreed to at the time of any renewal of this Agreement.
If this Agreement is not renewed at the end of any term hereof by the
Company for any reason except death, disability or retirement of Executive,
notwithstanding anything herein elsewhere contained, Executive shall be paid his
salary, as provided for in Section 3.A hereof, and receive the other benefits
applicable under Article 4 hereof, for an additional eighteen months after the
termination date hereof.
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<PAGE>
ARTICLE II.
EMPLOYMENT DUTIES
A. TITLE/RESPONSIBILITIES. Executive hereby accepts employment with the
Company pursuant to the terms and conditions hereof. Executive agrees to serve
the Company in the position of Senior Vice President, General Counsel and
Secretary. Executive shall report to the Chief Executive Officer of the company
(the "Chief Executive Officer"). Executive shall have the powers and duties
commensurate with such position, including but not limited to, hiring personnel
necessary (in the judgment of the Board of Directors) to carry out the
responsibilities for such position.
B. FULL TIME ATTENTION. Executive shall devote his best efforts and his
full business time and attention to the performance of the services customarily
incident to such office and to such other services as the Board may reasonably
request.
C. OTHER ACTIVITIES. Except upon the prior written consent of the Board
of Directors, Executive shall not during the period of employment engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary advantage) that is or may be competitive with, or that might place
him in a competing position to that of the Company or any other corporation or
entity that directly or indirectly controls, is controlled by, or is under
common control with the Company (an "Affiliated Company"), provided that
Executive may own less than two percent of the outstanding securities of any
such publicly traded competing corporation.
ARTICLE III.
COMPENSATION
A. BASE SALARY. Executive shall receive a Base Salary at an annual rate
of two hundred and fifty thousand dollars ($250,000), payable in accordance with
the Company's customary payroll practices. The Company's Board of Directors
shall provide Executive with annual performance reviews, and, thereafter,
Executive shall be entitled to such Base Salary as the Board of Directors may
from time to time establish in its sole discretion.
B. ACHIEVEMENT BONUS. The Company shall pay Executive an Achievement
Bonus of up to 50% of Executive's Base Salary annually based upon achievement by
the Company of its corporate goals as established and determined by the Board of
Directors annually and for other achievements by the Company or the Executive
during the year as approved by the Compensation Committee. The Board of
Directors or Compensation Committee, as applicable, shall, in their respective
sole discretion, determine whether such corporate or other goals have been
attained or other achievements have occurred.
C. TRANSACTION BONUS. In addition, in the event of a transaction
involving a Change in Control, in a transaction approved by the Company's Board
of Directors, which transaction
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<PAGE>
results in the receipt by the Company's stockholders of consideration with a
value representing, in the sole judgment of the Board of Directors, a
significant premium over the average of the closing prices per share of the
Company's common stock as quoted on the Nasdaq National Market for 20 trading
days ending one day prior to the public announcement of such transaction (a
"Change in Control Transaction"), Executive shall be paid a Transaction Bonus at
the closing of such a transaction in the amount equal to three (3) times 50% of
Executive's Base Salary in effect immediately preceding the closing of such a
transaction. Executive shall also be paid said Transaction Bonus if the Company
enters into a transaction approved by the Board of Directors which is not a
Change in Control Transaction, but which, nonetheless, involves a significant
change in the ownership of the Company or the composition of the Board of
Directors of the Company, or which results in receipt of a premium for the
Company's stockholders (a "Significant Event"). In the event Executive receives
a Transaction Bonus, no Achievement Bonus will be paid to Executive in the year
in which such Transaction Bonus is paid.
If the Company enters into a transaction which is a Change in Control
Transaction, then all of the Executive's stock options granted prior to July 27,
1999 shall become exercisable in full and all of the shares of the common stock
of the Company awarded to Executive under the Company's 1997 Stock Incentive
Plan and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested. If the Company enters into a transaction which is not a
Change in Control Transaction but which is a Significant Event, then the Board
of Directors may, in its sole discretion, determine that all, or a portion, of
the Executive's stock options granted prior to July 27, 1999 shall become
exercisable in full and all, or a portion, of the shares of the common stock of
the Company awarded to Executive under the Company's 1997 Stock Incentive Plan
and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested.
D. WITHHOLDINGS. All compensation and benefits to Executive hereunder
shall be subject to all federal, state, local and other withholdings and similar
taxes and payments required by applicable law.
E. SECTION 280G. Notwithstanding anything in this Agreement to the
contrary, if such Transaction Bonus, together with any other payments and/or
benefits that Executive receives under this Agreement and/or under any other
plan, program or arrangement sponsored by the Company in which Executive
participates, constitutes an "excess parachute payment" within the meaning of
Section 280G of the internal Revenue Code of 1986, as amended, then such
transaction bonus and other payments and/or benefits shall be reduced to the
amount that has the maximum value to the Executive without causing any of such
payment to be non-deductible by the Company under Section 280G.
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<PAGE>
ARTICLE IV.
EXPENSE ALLOWANCES AND FRINGE BENEFITS
A. VACATION. Executive shall be entitled to two (2) weeks, plus one (1)
additional day for each completed year of employment with the Company, of annual
paid vacation during the term of this Agreement.
B. BENEFITS. During the term of this Agreement, the Company shall also
provide Executive with the usual health insurance benefits it generally provides
to its other senior management employees, other than life insurance (which shall
be paid directly by Executive). As Executive becomes eligible in accordance with
criteria to be adopted by the Company, the Company shall provide Executive with
the right to participate in and to receive benefits from accident, disability,
medical, pension, bonus, stock, profit-sharing and savings plans and similar
benefits made available generally to employees of the Company as such plans and
benefits may be adopted by the Company, provided that Executive shall during the
term of this Agreement be entitled to receive at a minimum standard medical and
dental benefits similar to those typically afforded to Chief Executive Officers
in similar sized biotechnology companies, excluding life insurance. The amount
and extent of benefits to which Executive is entitled shall be governed by the
specific benefit plan as it may be amended from time to time.
C. COMPANY LOANS. Upon the closing of a transaction approved by the
Company's Board of Directors involving a Change in Control or a Significant
Event, all amounts outstanding with respect to the Loans made by Company to
Executive and listed on Schedule A hereto, shall be forgiven on a pro rata basis
over a four (4) year period commencing on the Executive's original date of
employment by the Company (including any accrued and unpaid interest).
D. BUSINESS EXPENSE REIMBURSEMENT. During the term of this Agreement,
Executive shall be entitled to receive proper reimbursement for all reasonable
out-of-pocket expenses incurred by him (in accordance with the policies and
procedures established by the Company for its senior executive officers) in
performing services hereunder, provided Executive properly accounts therefor.
ARTICLE V.
CONFIDENTIALITY
A. PROPRIETARY INFORMATION. Executive represents and warrants that he
has executed and delivered to the Company the Company's standard Proprietary
Information and Inventions Agreement in form acceptable to the Company's
counsel.
B. RETURN OF PROPERTY. All documents, records, apparatus, equipment and
other physical property which is furnished to or obtained by Executive in the
course of his employment with the Company shall be and remain the sole property
of the Company.
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<PAGE>
Executive agrees that, upon the termination of his employment, he shall return
all such property (whether or not it pertains to Proprietary Information as
defined in the Proprietary Information and Inventions Agreement), and agrees not
to make or retain copies, reproductions or summaries of any such property.
ARTICLE VI.
TERMINATION
A. BY DEATH. The period of employment shall terminate automatically
upon the death of Executive. In such event, the Company shall pay to Executive's
beneficiaries or his estate, as the case may be, any accrued Base Salary, any
bonus compensation to the extent earned, any vested deferred compensation (other
than pension plan or profit-sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Company in which Executive is a participant to the full extent of Executive's
rights under such plans, any accrued vacation pay and any appropriate business
expenses incurred by Executive in connection with his duties hereunder, all to
the date of termination (collectively "Accrued Compensation"), but no other
compensation or reimbursement of any kind, including, without limitation,
severance compensation, and thereafter, the Company's obligations hereunder
shall terminate.
B. BY DISABILITY. If Executive is prevented from properly performing
his duties hereunder by reason of any physical or mental incapacity for a period
of more than 90 days in the aggregate in any 365-day period, then, to the extent
permitted by law, the Company may terminate the employment on the 90th day of
such incapacity. In such event, the Company shall pay to Executive all Accrued
Compensation, and shall continue to pay to Executive the Base Salary until such
time (but not more than 90 days following termination), as Executive shall
become entitled to receive disability insurance payments under the disability
insurance policy maintained by the Company, which disability policy shall
provide for full payment of Executive's Base Salary during the period of
disability, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Nothing in this Section shall affect
Executive's rights under any disability plan in which he is a participant.
C. BY COMPANY FOR CAUSE. The Company may terminate Executive's
employment for Cause (as defined below) without liability at any time with or
without advance notice to Executive. The Company shall pay Executive all Accrued
Compensation, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Termination shall be for "Cause" in the
event of the occurrence of any of the following: (a) any intentional action or
intentional failure to act by Executive which was performed in bad faith and to
the material detriment of the Company; (b) Executive intentionally refuses or
intentionally fails to act in accordance with any lawful and proper direction or
order of the Board; (c) Executive willfully and habitually neglects the duties
of employment; or
-5-
<PAGE>
(d) Executive is convicted of a felony crime involving moral turpitude, provided
that in the event that any of the foregoing events is capable of being cured,
the Company shall provide written notice to Executive describing the nature of
such event and Executive shall thereafter have five (5) business days to cure
such event.
D. AT WILL. At any time, the Company may terminate Executive's
employment without liability other than as set forth below, for any reason not
specified in Section 6.C above, by giving thirty (30) days advance written
notice to Executive. If the Company elects to terminate Executive pursuant to
this Section 6.D prior to a Change in Control, the Company shall pay to
Executive all Accrued Compensation and shall continue to pay to Executive as
provided herein Executive's Salary for six (6) months from the date of such
termination as severance compensation. If the Company or its successor elects to
terminate Executive pursuant to this Section after a Change in Control, the
Company (or its successor) shall continue to pay to Executive as provided herein
Executive's Salary for twelve (12) months from the date of such termination as
severance compensation. In addition, upon any termination under this Section
6.D., all of the Executive's stock options granted prior to July 27, 1999 shall
become exercisable in full and all the shares of the common stock of the Company
awarded to Executive under the Company's 1997 Stock Incentive Plan and the 1993
Stock Option/Stock Issuance Plan prior to July 27, 1999 shall become fully
vested. Upon payment of the severance benefits described herein, all obligations
of the Company (or its successor) shall terminate.
During the period when such severance compensation is being paid to
Executive, Executive shall not (i) engage, directly or indirectly, in any other
business activity that is competitive with, or that places him in a competing
position to that of the Company or any Affiliated Company (provided that
Executive may own less than two percent (2%) of the outstanding securities of
any publicly traded corporation), or (ii) hire, solicit, or attempt to hire on
behalf of himself or any other party any employee or exclusive consultant of the
Company. If the Company terminates this Agreement or the employment of Executive
with the Company other than pursuant to Section 6.A, 6.B or 6.C, then this
Section 6.D shall apply.
E. CONSTRUCTIVE TERMINATION. In the event that the Company shall
materially reduce the powers and duties of employment of Executive resulting in
a material decrease in the responsibilities of Executive which are inconsistent
with Executive acting as Senior Vice President, General Counsel and Secretary of
the Company, such action shall be deemed to be a termination of employment of
Executive without cause pursuant to Section 6.D. In the event of a Change in
Control of the Company in which the Company shall become a division or
subsidiary of a larger organization, references to the Senior Vice President,
General Counsel and Secretary of the Company shall be deemed to mean the Senior
Vice President, General Counsel and Secretary of such division or subsidiary for
purposes of this Section 6.E.
1. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall have occurred if at any time during the term of Executive's
employment hereunder, any of the following events shall occur:
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<PAGE>
a. The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power
of the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders
of the Company immediately prior to such merger, consolidation
or other reorganization;
b. A change in the composition of the Board, as a result of which
fewer than one-half of the incumbent directors are directors
who either (1) had been directors of the Company 24 months
prior to such change; or (2) were elected, or nominated for
election, to the Board with the affirmative votes of at least
a majority of the directors who had been directors of the
Company 24 months prior to such change and who were still in
office at the time of the election or nomination; or
c. Any "person" (as such term is used in Section 13(d) and
Section 14 of the Exchange Act) by the acquisition of
securities is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors (the "Base Capital Stock") except
that any change in the relative beneficial ownership of the
Company's securities resulting solely from a reduction in the
aggregate number of outstanding shares of Base Capital Stock ,
and any decrease thereafter in such person's ownership of
securities shall be disregarded until such person increases in
any manner, directly or indirectly, such person's beneficial
ownership of any securities of the Company. Thus, for example,
any person who owns less than 50% of the Company's outstanding
shares, shall cause a Change in Control to occur as of any
subsequent date if such person then acquires an additional
interest in the Company which, when added to the person's
previous holdings, causes the person to hold more than 50% of
the Company's outstanding shares.
The term "Change in Control" shall not include a transaction, the sole
purpose of which is to change the state of the Company's incorporation.
ARTICLE VII.
GENERAL PROVISIONS
A. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties thereunder shall be
interpreted and enforced under California law without reference to principles of
conflicts of laws. The parties expressly agree that inasmuch as the Company's
headquarters and principal place of business are located in California, it is
appropriate that California law govern this Agreement.
-7-
<PAGE>
B. ASSIGNMENT; SUCCESSORS; BINDING AGREEMENT.
1. Executive may not assign, pledge or encumber his interest in this
Agreement or any part thereof.
2. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, operation of law or by agreement in
form and substance reasonably satisfactory to Executive, to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
3. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributee, devisees and legatees. If Executive should die
while any amount is at such time payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legates or other designee or, if there be
no such designee, to his estate.
C. NO WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement shall not be deemed to be a waiver of any subsequent
breach.
D. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
To the Company: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attn: Chief Executive Officer
To Executive: Harry J. Leonhardt, Esq.
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
E. MODIFICATION; WAIVER; ENTIRE AGREEMENT. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by Executive and such officer as may
be specifically designated by the Board of the Company. No waiver by either
party hereto at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such
-8-
<PAGE>
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
F. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
G. CONTROLLING DOCUMENT. This Agreement supersedes any and all prior
employment agreements between the Company and Executive, but does not supersede
any other agreements between Company and Executive, including but not limited
to, the Nanogen Inc. Restricted Stock Purchase Agreement, any stock option
agreements or common stock purchase agreements entered into pursuant to the
Company's 1997 Stock Incentive Plan and the 1993 Stock Option/Stock Issuance
Plan, and the Nanogen Employees' Handbook and Policies, except as expressly
provided herein. In case of conflict between any of the terms and conditions of
this Agreement and the documents herein referred to, the terms and conditions of
this Agreement shall control.
H. EXECUTIVE ACKNOWLEDGMENT. Executive acknowledges (a) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement, and has been advised to do so by the
Company, and (b) that he has read and understands the Agreement, is fully aware
of its legal effect, and has entered into it freely based on his own judgment.
I. REMEDIES.
1. INJUNCTIVE RELIEF. The parties agree that the services to be
rendered by Executive hereunder are of a unique nature and that in the event of
any breach or threatened breach of any of the covenants contained herein, the
damage or imminent damage to the value and the goodwill of the Company's
business will be irreparable and extremely difficult to estimate, making any
remedy at law or in damages inadequate. Accordingly, the parties agree that the
Company shall be entitled to injunctive relief against Executive in the event of
any breach or threatened breach of any such provisions by Executive, in addition
to any other relief (including damages) available to the Company under this
Agreement or under law.
2. EXCLUSIVE. Both parties agree that the remedy specified in Section
7.I.1 above is not exclusive of any other remedy for the breach by Executive of
the terms hereof.
J. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
-9-
<PAGE>
Executed by the parties as of the day and year first above written.
NANOGEN, INC.
/s/ Howard C. Birndorf
-----------------------------
By Howard C. Birndorf
Chief Executive Officer
EXECUTIVE:
/s/ Harry J. Leonhardt, Esq.
-----------------------------
Harry J. Leonhardt, Esq.
-10-
<PAGE>
SCHEDULE A
LISTING OF LOANS
<TABLE>
<CAPTION>
Date of Loan Dollar Amount Interest Rate (%) Term (Years)
<S> <C> <C> <C>
11/7/97 76,680.00 6.01 5
</TABLE>
-11-
<PAGE>
Exhibit 10.28
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of October 29, 1999, is made by and
between NANOGEN, INC., a Delaware corporation (hereinafter the "Company"), and
KIERAN GALLAHUE, (hereinafter "Executive").
RECITALS
WHEREAS, the Company and Executive wish to set forth in this Agreement
the terms and conditions under which Executive will continue to be employed by
the Company; and
WHEREAS, the Company wishes to be assured that Executive will be
available to the Company for an additional three (3) years after July 27, 1999.
NOW, THEREFORE, the Company and Executive, in consideration of the
mutual promises set forth herein, agree as follows:
ARTICLE I.
TERM OF AGREEMENT
A. COMMENCEMENT DATE. The terms of this Agreement shall govern
Executive's employment with the Company from July 27, 1999 ("Commencement Date")
and this Agreement shall expire after a period of three (3) years from the
Commencement Date, unless terminated earlier pursuant to Article 6.
B. RENEWAL. The term of this Agreement shall be automatically renewed
for successive, additional three (3) year terms unless either party delivers
written notice to the other at least ninety (90) days prior to the expiration
date of this Agreement of an intention to terminate this Agreement or to renew
it for a term of less than three (3) years but not less than (1) year. If the
term of this Agreement is renewed for a term of less than three (3) years, then
thereafter the term of this Agreement shall be automatically renewed for
successive, additional identical terms unless either party delivers a written
notice to the other at least ninety (90) days prior to a termination date of
this Agreement of an intention to terminate this Agreement or to renew it for a
different term of not less than one (1) year. Any renewal bonus will be
negotiated as mutually agreed to at the time of any renewal of this Agreement.
If this Agreement is not renewed at the end of any term hereof by the
Company for any reason except death, disability or retirement of Executive,
notwithstanding anything herein elsewhere contained, Executive shall be paid his
salary, as provided for in Section 3.A hereof, and receive the other benefits
applicable under Article 4 hereof, for an additional eighteen months after the
termination date hereof.
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ARTICLE II.
EMPLOYMENT DUTIES
A. TITLE/RESPONSIBILITIES. Executive hereby accepts employment with the
Company pursuant to the terms and conditions hereof. Executive agrees to serve
the Company in the position of Vice President, Chief Financial Officer and
Treasurer. Executive shall report to the Chief Executive Officer of the company
(the "Chief Executive Officer"). Executive shall have the powers and duties
commensurate with such position, including but not limited to, hiring personnel
necessary (in the judgment of the Board of Directors) to carry out the
responsibilities for such position.
B. FULL TIME ATTENTION. Executive shall devote his best efforts and his
full business time and attention to the performance of the services customarily
incident to such office and to such other services as the Board may reasonably
request.
C. OTHER ACTIVITIES. Except upon the prior written consent of the Board
of Directors, Executive shall not during the period of employment engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary advantage) that is or may be competitive with, or that might place
him in a competing position to that of the Company or any other corporation or
entity that directly or indirectly controls, is controlled by, or is under
common control with the Company (an "Affiliated Company"), provided that
Executive may own less than two percent of the outstanding securities of any
such publicly traded competing corporation.
ARTICLE III.
COMPENSATION
A. BASE SALARY. Executive shall receive a Base Salary at an annual rate
of two hundred thirty five thousand dollars ($235,000), payable in accordance
with the Company's customary payroll practices. The Company's Board of Directors
shall provide Executive with annual performance reviews, and, thereafter,
Executive shall be entitled to such Base Salary as the Board of Directors may
from time to time establish in its sole discretion.
B. ACHIEVEMENT BONUS. The Company shall pay Executive an Achievement
Bonus of up to 50% of Executive's Base Salary annually based upon achievement by
the Company of its corporate goals as established and determined by the Board of
Directors annually and for other achievements by the Company or the Executive
during the year as approved by the Compensation Committee. The Board of
Directors or Compensation Committee, as applicable, shall, in their respective
sole discretion, determine whether such corporate or other goals have been
attained or other achievements have occurred.
C. TRANSACTION BONUS. In addition, in the event of a transaction
involving a Change in Control, in a transaction approved by the Company's Board
of Directors, which transaction
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results in the receipt by the Company's stockholders of consideration with a
value representing, in the sole judgment of the Board of Directors, a
significant premium over the average of the closing prices per share of the
Company's common stock as quoted on the Nasdaq National Market for 20 trading
days ending one day prior to the public announcement of such transaction (a
"Change in Control Transaction"), Executive shall be paid a Transaction Bonus at
the closing of such a transaction in the amount equal to three (3) times 50% of
Executive's Base Salary in effect immediately preceding the closing of such a
transaction. Executive shall also be paid said Transaction Bonus if the Company
enters into a transaction approved by the Board of Directors which is not a
Change in Control Transaction, but which, nonetheless, involves a significant
change in the ownership of the Company or the composition of the Board of
Directors of the Company, or which results in receipt of a premium for the
Company's stockholders (a "Significant Event"). In the event Executive receives
a Transaction Bonus, no Achievement Bonus will be paid to Executive in the year
in which such Transaction Bonus is paid.
If the Company enters into a transaction which is a Change in Control
Transaction, then all of the Executive's stock options granted prior to July 27,
1999 shall become exercisable in full and all of the shares of the common stock
of the Company awarded to Executive under the Company's 1997 Stock Incentive
Plan and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested. If the Company enters into a transaction which is not a
Change in Control Transaction but which is a Significant Event, then the Board
of Directors may, in its sole discretion, determine that all, or a portion, of
the Executive's stock options granted prior to July 27, 1999 shall become
exercisable in full and all, or a portion, of the shares of the common stock of
the Company awarded to Executive under the Company's 1997 Stock Incentive Plan
and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested.
D. WITHHOLDINGS. All compensation and benefits to Executive hereunder
shall be subject to all federal, state, local and other withholdings and similar
taxes and payments required by applicable law.
E. SECTION 280G. Notwithstanding anything in this Agreement to the
contrary, if such Transaction Bonus, together with any other payments and/or
benefits that Executive receives under this Agreement and/or under any other
plan, program or arrangement sponsored by the Company in which Executive
participates, constitutes an "excess parachute payment" within the meaning of
Section 280G of the internal Revenue Code of 1986, as amended, then such
transaction bonus and other payments and/or benefits shall be reduced to the
amount that has the maximum value to the Executive without causing any of such
payment to be non-deductible by the Company under Section 280G.
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ARTICLE IV.
EXPENSE ALLOWANCES AND FRINGE BENEFITS
A. VACATION. Executive shall be entitled to two (2) weeks, plus one (1)
additional day for each completed year of employment with the Company, of annual
paid vacation during the term of this Agreement.
B. BENEFITS. During the term of this Agreement, the Company shall also
provide Executive with the usual health insurance benefits it generally provides
to its other senior management employees, other than life insurance (which shall
be paid directly by Executive). As Executive becomes eligible in accordance with
criteria to be adopted by the Company, the Company shall provide Executive with
the right to participate in and to receive benefits from accident, disability,
medical, pension, bonus, stock, profit-sharing and savings plans and similar
benefits made available generally to employees of the Company as such plans and
benefits may be adopted by the Company, provided that Executive shall during the
term of this Agreement be entitled to receive at a minimum standard medical and
dental benefits similar to those typically afforded to Chief Executive Officers
in similar sized biotechnology companies, excluding life insurance. The amount
and extent of benefits to which Executive is entitled shall be governed by the
specific benefit plan as it may be amended from time to time.
C. COMPANY LOANS. Upon the closing of a transaction approved by the
Company's Board of Directors involving a Change in Control or a Significant
Event, all amounts outstanding with respect to the Loans made by Company to
Executive and listed on Schedule A hereto, shall be forgiven on a pro rata basis
over a four (4) year period commencing on the Executive's original date of
employment by the Company (including any accrued and unpaid interest).
D. BUSINESS EXPENSE REIMBURSEMENT. During the term of this Agreement,
Executive shall be entitled to receive proper reimbursement for all reasonable
out-of-pocket expenses incurred by him (in accordance with the policies and
procedures established by the Company for its senior executive officers) in
performing services hereunder, provided Executive properly accounts therefor.
ARTICLE V.
CONFIDENTIALITY
A. PROPRIETARY INFORMATION. Executive represents and warrants that he
has executed and delivered to the Company the Company's standard Proprietary
Information and Inventions Agreement in form acceptable to the Company's
counsel.
B. RETURN OF PROPERTY. All documents, records, apparatus, equipment and
other physical property which is furnished to or obtained by Executive in the
course of his employment with the Company shall be and remain the sole property
of the Company.
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Executive agrees that, upon the termination of his employment, he shall return
all such property (whether or not it pertains to Proprietary Information as
defined in the Proprietary Information and Inventions Agreement), and agrees not
to make or retain copies, reproductions or summaries of any such property.
ARTICLE VI.
TERMINATION
A. BY DEATH. The period of employment shall terminate automatically
upon the death of Executive. In such event, the Company shall pay to Executive's
beneficiaries or his estate, as the case may be, any accrued Base Salary, any
bonus compensation to the extent earned, any vested deferred compensation (other
than pension plan or profit-sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Company in which Executive is a participant to the full extent of Executive's
rights under such plans, any accrued vacation pay and any appropriate business
expenses incurred by Executive in connection with his duties hereunder, all to
the date of termination (collectively "Accrued Compensation"), but no other
compensation or reimbursement of any kind, including, without limitation,
severance compensation, and thereafter, the Company's obligations hereunder
shall terminate.
B. BY DISABILITY. If Executive is prevented from properly performing
his duties hereunder by reason of any physical or mental incapacity for a period
of more than 90 days in the aggregate in any 365-day period, then, to the extent
permitted by law, the Company may terminate the employment on the 90th day of
such incapacity. In such event, the Company shall pay to Executive all Accrued
Compensation, and shall continue to pay to Executive the Base Salary until such
time (but not more than 90 days following termination), as Executive shall
become entitled to receive disability insurance payments under the disability
insurance policy maintained by the Company, which disability policy shall
provide for full payment of Executive's Base Salary during the period of
disability, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Nothing in this Section shall affect
Executive's rights under any disability plan in which he is a participant.
C. BY COMPANY FOR CAUSE. The Company may terminate Executive's
employment for Cause (as defined below) without liability at any time with or
without advance notice to Executive. The Company shall pay Executive all Accrued
Compensation, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Termination shall be for "Cause" in the
event of the occurrence of any of the following: (a) any intentional action or
intentional failure to act by Executive which was performed in bad faith and to
the material detriment of the Company; (b) Executive intentionally refuses or
intentionally fails to act in accordance with any lawful and proper direction or
order of the Board; (c) Executive willfully and habitually neglects the duties
of employment; or
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(d) Executive is convicted of a felony crime involving moral turpitude, provided
that in the event that any of the foregoing events is capable of being cured,
the Company shall provide written notice to Executive describing the nature of
such event and Executive shall thereafter have five (5) business days to cure
such event.
D. AT WILL. At any time, the Company may terminate Executive's
employment without liability other than as set forth below, for any reason not
specified in Section 6.C above, by giving thirty (30) days advance written
notice to Executive. If the Company elects to terminate Executive pursuant to
this Section 6.D prior to a Change in Control, the Company shall pay to
Executive all Accrued Compensation and shall continue to pay to Executive as
provided herein Executive's Salary for six (6) months from the date of such
termination as severance compensation. If the Company or its successor elects to
terminate Executive pursuant to this Section after a Change in Control, the
Company (or its successor) shall continue to pay to Executive as provided herein
Executive's Salary for twelve (12) months from the date of such termination as
severance compensation. In addition, upon any termination under this Section
6.D., all of the Executive's stock options granted prior to July 27, 1999 shall
become exercisable in full and all the shares of the common stock of the Company
awarded to Executive under the Company's 1997 Stock Incentive Plan and the 1993
Stock Option/Stock Issuance Plan prior to July 27, 1999 shall become fully
vested. Upon payment of the severance benefits described herein, all obligations
of the Company (or its successor) shall terminate.
During the period when such severance compensation is being paid to
Executive, Executive shall not (i) engage, directly or indirectly, in any other
business activity that is competitive with, or that places him in a competing
position to that of the Company or any Affiliated Company (provided that
Executive may own less than two percent (2%) of the outstanding securities of
any publicly traded corporation), or (ii) hire, solicit, or attempt to hire on
behalf of himself or any other party any employee or exclusive consultant of the
Company. If the Company terminates this Agreement or the employment of Executive
with the Company other than pursuant to Section 6.A, 6.B or 6.C, then this
Section 6.D shall apply.
E. CONSTRUCTIVE TERMINATION. In the event that the Company shall
materially reduce the powers and duties of employment of Executive resulting in
a material decrease in the responsibilities of Executive which are inconsistent
with Executive acting as Vice President, Chief Financial Officer and Treasurer
of the Company, such action shall be deemed to be a termination of employment of
Executive without cause pursuant to Section 6.D. In the event of a Change in
Control of the Company in which the Company shall become a division or
subsidiary of a larger organization, references to the Vice President, Chief
Financial Officer and Treasurer of the Company shall be deemed to mean the Vice
President, Chief Financial Officer and Treasurer of such division or subsidiary
for purposes of this Section 6.E.
1. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall have occurred if at any time during the term of Executive's
employment hereunder, any of the following events shall occur:
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a. The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power
of the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders
of the Company immediately prior to such merger, consolidation
or other reorganization;
b. A change in the composition of the Board, as a result of which
fewer than one-half of the incumbent directors are directors
who either (1) had been directors of the Company 24 months
prior to such change; or (2) were elected, or nominated for
election, to the Board with the affirmative votes of at least
a majority of the directors who had been directors of the
Company 24 months prior to such change and who were still in
office at the time of the election or nomination; or
c. Any "person" (as such term is used in Section 13(d) and
Section 14 of the Exchange Act) by the acquisition of
securities is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors (the "Base Capital Stock") except
that any change in the relative beneficial ownership of the
Company's securities resulting solely from a reduction in the
aggregate number of outstanding shares of Base Capital Stock ,
and any decrease thereafter in such person's ownership of
securities shall be disregarded until such person increases in
any manner, directly or indirectly, such person's beneficial
ownership of any securities of the Company. Thus, for example,
any person who owns less than 50% of the Company's outstanding
shares, shall cause a Change in Control to occur as of any
subsequent date if such person then acquires an additional
interest in the Company which, when added to the person's
previous holdings, causes the person to hold more than 50% of
the Company's outstanding shares.
The term "Change in Control" shall not include a transaction, the sole
purpose of which is to change the state of the Company's incorporation.
ARTICLE VII.
GENERAL PROVISIONS
A. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties thereunder shall be
interpreted and enforced under California law without reference to principles of
conflicts of laws. The parties expressly agree that inasmuch as the Company's
headquarters and principal place of business are located in California, it is
appropriate that California law govern this Agreement.
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<PAGE>
B. ASSIGNMENT; SUCCESSORS; BINDING AGREEMENT.
1. Executive may not assign, pledge or encumber his interest in this
Agreement or any part thereof.
2. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, operation of law or by agreement in
form and substance reasonably satisfactory to Executive, to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
3. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributee, devisees and legatees. If Executive should die
while any amount is at such time payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legates or other designee or, if there be
no such designee, to his estate.
C. NO WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement shall not be deemed to be a waiver of any subsequent
breach.
D. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
To the Company: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attn: Chief Executive Officer
To Executive: Kieran Gallahue
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
E. MODIFICATION; WAIVER; ENTIRE AGREEMENT. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by Executive and such officer as may
be specifically designated by the Board of the Company. No waiver by either
party hereto at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such
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other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
F. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
G. CONTROLLING DOCUMENT. This Agreement supersedes any and all prior
employment agreements between the Company and Executive, but does not supersede
any other agreements between Company and Executive, including but not limited
to, the Nanogen Inc. Restricted Stock Purchase Agreement, any stock option
agreements or common stock purchase agreements entered into pursuant to the
Company's 1997 Stock Incentive Plan and the 1993 Stock Option/Stock Issuance
Plan, and the Nanogen Employees' Handbook and Policies, except as expressly
provided herein. In case of conflict between any of the terms and conditions of
this Agreement and the documents herein referred to, the terms and conditions of
this Agreement shall control.
H. EXECUTIVE ACKNOWLEDGMENT. Executive acknowledges (a) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement, and has been advised to do so by the
Company, and (b) that he has read and understands the Agreement, is fully aware
of its legal effect, and has entered into it freely based on his own judgment.
I. REMEDIES.
1. INJUNCTIVE RELIEF. The parties agree that the services to be
rendered by Executive hereunder are of a unique nature and that in the event of
any breach or threatened breach of any of the covenants contained herein, the
damage or imminent damage to the value and the goodwill of the Company's
business will be irreparable and extremely difficult to estimate, making any
remedy at law or in damages inadequate. Accordingly, the parties agree that the
Company shall be entitled to injunctive relief against Executive in the event of
any breach or threatened breach of any such provisions by Executive, in addition
to any other relief (including damages) available to the Company under this
Agreement or under law.
2. EXCLUSIVE. Both parties agree that the remedy specified in Section
7.I.1 above is not exclusive of any other remedy for the breach by Executive of
the terms hereof.
J. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
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Executed by the parties as of the day and year first above written.
NANOGEN, INC.
/s/ Howard C. Birndorf
-----------------------------
By Howard C. Birndorf
Chief Executive Officer
EXECUTIVE:
/s/ Kieran Gallahue
-----------------------------
Kieran Gallahue
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<PAGE>
SCHEDULE A
LISTING OF LOANS
<TABLE>
<CAPTION>
Date of Loan Dollar Amount Interest Rate (%) Term (Years)
<S> <C> <C> <C>
3/7/98 349,825.00 5.61 5
3/7/98 49,975.00 5.61 5
</TABLE>
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<PAGE>
Exhibit 10.29
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of October 29, 1999, is made by and
between NANOGEN, INC., a Delaware corporation (hereinafter the "Company"), and
MICHAEL J. HELLER, PH.D., (hereinafter "Executive").
RECITALS
WHEREAS, the Company and Executive wish to set forth in this Agreement
the terms and conditions under which Executive will continue to be employed by
the Company; and
WHEREAS, the Company wishes to be assured that Executive will be
available to the Company for an additional three (3) years after July 27, 1999.
NOW, THEREFORE, the Company and Executive, in consideration of the
mutual promises set forth herein, agree as follows:
ARTICLE I.
TERM OF AGREEMENT
A. COMMENCEMENT DATE. The terms of this Agreement shall govern
Executive's employment with the Company from July 27, 1999 ("Commencement Date")
and this Agreement shall expire after a period of three (3) years from the
Commencement Date, unless terminated earlier pursuant to Article 6.
B. RENEWAL. The term of this Agreement shall be automatically renewed
for successive, additional three (3) year terms unless either party delivers
written notice to the other at least ninety (90) days prior to the expiration
date of this Agreement of an intention to terminate this Agreement or to renew
it for a term of less than three (3) years but not less than (1) year. If the
term of this Agreement is renewed for a term of less than three (3) years, then
thereafter the term of this Agreement shall be automatically renewed for
successive, additional identical terms unless either party delivers a written
notice to the other at least ninety (90) days prior to a termination date of
this Agreement of an intention to terminate this Agreement or to renew it for a
different term of not less than one (1) year. Any renewal bonus will be
negotiated as mutually agreed to at the time of any renewal of this Agreement.
If this Agreement is not renewed at the end of any term hereof by the
Company for any reason except death, disability or retirement of Executive,
notwithstanding anything herein elsewhere contained, Executive shall be paid his
salary, as provided for in Section 3.A hereof, and receive the other benefits
applicable under Article 4 hereof, for an additional eighteen months after the
termination date hereof.
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ARTICLE II.
EMPLOYMENT DUTIES
A. TITLE/RESPONSIBILITIES. Executive hereby accepts employment with the
Company pursuant to the terms and conditions hereof. Executive agrees to serve
the Company in the position of Chief Technical Officer. Executive shall have the
powers and duties commensurate with such position, including but not limited to,
hiring personnel necessary (in the judgment of the Board of Directors) to carry
out the responsibilities for such position.
B. FULL TIME ATTENTION. Executive shall devote his best efforts and his
full business time and attention to the performance of the services customarily
incident to such office and to such other services as the Board may reasonably
request, provided that Executive may serve in his capacity as adjunct professor
at the bioengineering department at the University of California at San Diego,
provided that such service does not interfere with Executive's ability to render
services hereunder and further provided that Executive agrees that in his
capacity as adjunct professor, he will not participate in any inventions,
know-how, trade secrets or other intellectual property which is or could be
considered competitive to Company's technology or intellectual property.
C. OTHER ACTIVITIES. Except upon the prior written consent of the Board
of Directors, Executive shall not during the period of employment engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary advantage) that is or may be competitive with, or that might place
him in a competing position to that of the Company or any other corporation or
entity that directly or indirectly controls, is controlled by, or is under
common control with the Company (an "Affiliated Company"), provided that
Executive may own less than two percent of the outstanding securities of any
such publicly traded competing corporation.
ARTICLE III.
COMPENSATION
A. BASE SALARY. Executive shall receive a Base Salary at an annual rate
of one hundred seventy seven thousand dollars ($177,000), payable in accordance
with the Company's customary payroll practices. The Company's Board of Directors
shall provide Executive with annual performance reviews, and, thereafter,
Executive shall be entitled to such Base Salary as the Board of Directors may
from time to time establish in its sole discretion.
B. ACHIEVEMENT BONUS. The Company shall pay Executive an Achievement
Bonus of up to 50% of Executive's Base Salary annually based upon achievement by
the Company of its corporate goals as established and determined by the Board of
Directors annually and for other achievements by the Company or the Executive
during the year as approved by the Compensation Committee. The Board of
Directors or Compensation Committee, as applicable,
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shall, in their respective sole discretion, determine whether such corporate or
other goals have been attained or other achievements have occurred.
C. TRANSACTION BONUS. In addition, in the event of a transaction
involving a Change in Control, in a transaction approved by the Company's Board
of Directors, which transaction results in the receipt by the Company's
stockholders of consideration with a value representing, in the sole judgment of
the Board of Directors, a significant premium over the average of the closing
prices per share of the Company's common stock as quoted on the Nasdaq National
Market for 20 trading days ending one day prior to the public announcement of
such transaction (a "Change in Control Transaction"), Executive shall be paid a
Transaction Bonus at the closing of such a transaction in the amount equal to
three (3) times 50% of Executive's Base Salary in effect immediately preceding
the closing of such a transaction. Executive shall also be paid said Transaction
Bonus if the Company enters into a transaction approved by the Board of
Directors which is not a Change in Control Transaction, but which, nonetheless,
involves a significant change in the ownership of the Company or the composition
of the Board of Directors of the Company, or which results in receipt of a
premium for the Company's stockholders (a "Significant Event"). In the event
Executive receives a Transaction Bonus, no Achievement Bonus will be paid to
Executive in the year in which such Transaction Bonus is paid.
If the Company enters into a transaction which is a Change in Control
Transaction, then all of the Executive's stock options granted prior to July 27,
1999 shall become exercisable in full and all of the shares of the common stock
of the Company awarded to Executive under the Company's 1997 Stock Incentive
Plan and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested. If the Company enters into a transaction which is not a
Change in Control Transaction but which is a Significant Event, then the Board
of Directors may, in its sole discretion, determine that all, or a portion, of
the Executive's stock options granted prior to July 27, 1999 shall become
exercisable in full and all, or a portion, of the shares of the common stock of
the Company awarded to Executive under the Company's 1997 Stock Incentive Plan
and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested.
D. WITHHOLDINGS. All compensation and benefits to Executive hereunder
shall be subject to all federal, state, local and other withholdings and similar
taxes and payments required by applicable law.
E. SECTION 280G. Notwithstanding anything in this Agreement to the
contrary, if such Transaction Bonus, together with any other payments and/or
benefits that Executive receives under this Agreement and/or under any other
plan, program or arrangement sponsored by the Company in which Executive
participates, constitutes an "excess parachute payment" within the meaning of
Section 280G of the internal Revenue Code of 1986, as amended, then such
transaction bonus and other payments and/or benefits shall be reduced to the
amount that has the maximum value to the Executive without causing any of such
payment to be non-deductible by the Company under Section 280G.
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ARTICLE IV.
EXPENSE ALLOWANCES AND FRINGE BENEFITS
A. VACATION. Executive shall be entitled to two (2) weeks, plus one (1)
additional day for each completed year of employment with the Company, of annual
paid vacation during the term of this Agreement.
B. BENEFITS. During the term of this Agreement, the Company shall also
provide Executive with the usual health insurance benefits it generally provides
to its other senior management employees, other than life insurance (which shall
be paid directly by Executive). As Executive becomes eligible in accordance with
criteria to be adopted by the Company, the Company shall provide Executive with
the right to participate in and to receive benefits from accident, disability,
medical, pension, bonus, stock, profit-sharing and savings plans and similar
benefits made available generally to employees of the Company as such plans and
benefits may be adopted by the Company, provided that Executive shall during the
term of this Agreement be entitled to receive at a minimum standard medical and
dental benefits similar to those typically afforded to Chief Executive Officers
in similar sized biotechnology companies, excluding life insurance. The amount
and extent of benefits to which Executive is entitled shall be governed by the
specific benefit plan as it may be amended from time to time.
C. COMPANY LOANS. Upon the closing of a transaction approved by the
Company's Board of Directors involving a Change in Control or a Significant
Event, all amounts outstanding with respect to the Loans made by Company to
Executive and listed on Schedule A hereto, shall be forgiven on a pro rata basis
over a four (4) year period commencing on the Executive's original date of
employment by the Company (including any accrued and unpaid interest).
D. BUSINESS EXPENSE REIMBURSEMENT. During the term of this Agreement,
Executive shall be entitled to receive proper reimbursement for all reasonable
out-of-pocket expenses incurred by him (in accordance with the policies and
procedures established by the Company for its senior executive officers) in
performing services hereunder, provided Executive properly accounts therefor.
ARTICLE V.
CONFIDENTIALITY
A. PROPRIETARY INFORMATION. Executive represents and warrants that he
has executed and delivered to the Company the Company's standard Proprietary
Information and Inventions Agreement in form acceptable to the Company's
counsel.
B. RETURN OF PROPERTY. All documents, records, apparatus, equipment and
other physical property which is furnished to or obtained by Executive in the
course of his employment with the Company shall be and remain the sole property
of the Company.
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Executive agrees that, upon the termination of his employment, he shall return
all such property (whether or not it pertains to Proprietary Information as
defined in the Proprietary Information and Inventions Agreement), and agrees not
to make or retain copies, reproductions or summaries of any such property.
ARTICLE VI.
TERMINATION
A. BY DEATH. The period of employment shall terminate automatically
upon the death of Executive. In such event, the Company shall pay to Executive's
beneficiaries or his estate, as the case may be, any accrued Base Salary, any
bonus compensation to the extent earned, any vested deferred compensation (other
than pension plan or profit-sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Company in which Executive is a participant to the full extent of Executive's
rights under such plans, any accrued vacation pay and any appropriate business
expenses incurred by Executive in connection with his duties hereunder, all to
the date of termination (collectively "Accrued Compensation"), but no other
compensation or reimbursement of any kind, including, without limitation,
severance compensation, and thereafter, the Company's obligations hereunder
shall terminate.
B. BY DISABILITY. If Executive is prevented from properly performing
his duties hereunder by reason of any physical or mental incapacity for a period
of more than 90 days in the aggregate in any 365-day period, then, to the extent
permitted by law, the Company may terminate the employment on the 90th day of
such incapacity. In such event, the Company shall pay to Executive all Accrued
Compensation, and shall continue to pay to Executive the Base Salary until such
time (but not more than 90 days following termination), as Executive shall
become entitled to receive disability insurance payments under the disability
insurance policy maintained by the Company, which disability policy shall
provide for full payment of Executive's Base Salary during the period of
disability, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Nothing in this Section shall affect
Executive's rights under any disability plan in which he is a participant.
C. BY COMPANY FOR CAUSE. The Company may terminate Executive's
employment for Cause (as defined below) without liability at any time with or
without advance notice to Executive. The Company shall pay Executive all Accrued
Compensation, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Termination shall be for "Cause" in the
event of the occurrence of any of the following: (a) any intentional action or
intentional failure to act by Executive which was performed in bad faith and to
the material detriment of the Company; (b) Executive intentionally refuses or
intentionally fails to act in accordance with any lawful and proper direction or
order of the Board; (c) Executive willfully and habitually neglects the duties
of employment; or
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(d) Executive is convicted of a felony crime involving moral turpitude, provided
that in the event that any of the foregoing events is capable of being cured,
the Company shall provide written notice to Executive describing the nature of
such event and Executive shall thereafter have five (5) business days to cure
such event.
D. AT WILL. At any time, the Company may terminate Executive's
employment without liability other than as set forth below, for any reason not
specified in Section 6.C above, by giving thirty (30) days advance written
notice to Executive. If the Company elects to terminate Executive pursuant to
this Section 6.D prior to a Change in Control, the Company shall pay to
Executive all Accrued Compensation and shall continue to pay to Executive as
provided herein Executive's Salary for six (6) months from the date of such
termination as severance compensation. If the Company or its successor elects to
terminate Executive pursuant to this Section after a Change in Control, the
Company (or its successor) shall continue to pay to Executive as provided herein
Executive's Salary for twelve (12) months from the date of such termination as
severance compensation. In addition, upon any termination under this Section
6.D., all of the Executive's stock options granted prior to July 27, 1999 shall
become exercisable in full and all the shares of the common stock of the Company
awarded to Executive under the Company's 1997 Stock Incentive Plan and the 1993
Stock Option/Stock Issuance Plan prior to July 27, 1999 shall become fully
vested. Upon payment of the severance benefits described herein, all obligations
of the Company (or its successor) shall terminate.
During the period when such severance compensation is being paid to
Executive, Executive shall not (i) engage, directly or indirectly, in any other
business activity that is competitive with, or that places him in a competing
position to that of the Company or any Affiliated Company (provided that
Executive may own less than two percent (2%) of the outstanding securities of
any publicly traded corporation), or (ii) hire, solicit, or attempt to hire on
behalf of himself or any other party any employee or exclusive consultant of the
Company. If the Company terminates this Agreement or the employment of Executive
with the Company other than pursuant to Section 6.A, 6.B or 6.C, then this
Section 6.D shall apply.
E. CONSTRUCTIVE TERMINATION. In the event that the Company shall
materially reduce the powers and duties of employment of Executive resulting in
a material decrease in the responsibilities of Executive which are inconsistent
with Executive acting as Chief Technical Officer of the Company, such action
shall be deemed to be a termination of employment of Executive without cause
pursuant to Section 6.D. In the event of a Change in Control of the Company in
which the Company shall become a division or subsidiary of a larger
organization, references to the Chief Technical Officer of the Company shall be
deemed to mean the Chief Technical Officer of such division or subsidiary for
purposes of this Section 6.E.
1. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall have occurred if at any time during the term of Executive's
employment hereunder, any of the following events shall occur:
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a. The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power
of the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders
of the Company immediately prior to such merger, consolidation
or other reorganization;
b. A change in the composition of the Board, as a result of which
fewer than one-half of the incumbent directors are directors
who either (1) had been directors of the Company 24 months
prior to such change; or (2) were elected, or nominated for
election, to the Board with the affirmative votes of at least
a majority of the directors who had been directors of the
Company 24 months prior to such change and who were still in
office at the time of the election or nomination; or
c. Any "person" (as such term is used in Section 13(d) and
Section 14 of the Exchange Act) by the acquisition of
securities is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors (the "Base Capital Stock") except
that any change in the relative beneficial ownership of the
Company's securities resulting solely from a reduction in the
aggregate number of outstanding shares of Base Capital Stock ,
and any decrease thereafter in such person's ownership of
securities shall be disregarded until such person increases in
any manner, directly or indirectly, such person's beneficial
ownership of any securities of the Company. Thus, for example,
any person who owns less than 50% of the Company's outstanding
shares, shall cause a Change in Control to occur as of any
subsequent date if such person then acquires an additional
interest in the Company which, when added to the person's
previous holdings, causes the person to hold more than 50% of
the Company's outstanding shares.
The term "Change in Control" shall not include a transaction, the sole
purpose of which is to change the state of the Company's incorporation.
ARTICLE VII.
GENERAL PROVISIONS
A. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties thereunder shall be
interpreted and enforced under California law without reference to principles of
conflicts of laws. The parties expressly agree that inasmuch as the Company's
headquarters and principal place of business are located in California, it is
appropriate that California law govern this Agreement.
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<PAGE>
B. ASSIGNMENT; SUCCESSORS; BINDING AGREEMENT.
1. Executive may not assign, pledge or encumber his interest in this
Agreement or any part thereof.
2. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, operation of law or by agreement in
form and substance reasonably satisfactory to Executive, to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
3. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributee, devisees and legatees. If Executive should die
while any amount is at such time payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legates or other designee or, if there be
no such designee, to his estate.
C. NO WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement shall not be deemed to be a waiver of any subsequent
breach.
D. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
To the Company: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attn: Chief Executive Officer
To Executive: Michael J. Heller, Ph.D.
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
E. MODIFICATION; WAIVER; ENTIRE AGREEMENT. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by Executive and such officer as may
be specifically designated by the Board of the Company. No waiver by either
party hereto at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such
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other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
F. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
G. CONTROLLING DOCUMENT. This Agreement supersedes any and all prior
employment agreements between the Company and Executive, but does not supersede
any other agreements between Company and Executive, including but not limited
to, the Nanogen Inc. Restricted Stock Purchase Agreement, any stock option
agreements or common stock purchase agreements entered into pursuant to the
Company's 1997 Stock Incentive Plan and the 1993 Stock Option/Stock Issuance
Plan, and the Nanogen Employees' Handbook and Policies, except as expressly
provided herein. In case of conflict between any of the terms and conditions of
this Agreement and the documents herein referred to, the terms and conditions of
this Agreement shall control.
H. EXECUTIVE ACKNOWLEDGMENT. Executive acknowledges (a) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement, and has been advised to do so by the
Company, and (b) that he has read and understands the Agreement, is fully aware
of its legal effect, and has entered into it freely based on his own judgment.
I. REMEDIES.
1. INJUNCTIVE RELIEF. The parties agree that the services to be
rendered by Executive hereunder are of a unique nature and that in the event of
any breach or threatened breach of any of the covenants contained herein, the
damage or imminent damage to the value and the goodwill of the Company's
business will be irreparable and extremely difficult to estimate, making any
remedy at law or in damages inadequate. Accordingly, the parties agree that the
Company shall be entitled to injunctive relief against Executive in the event of
any breach or threatened breach of any such provisions by Executive, in addition
to any other relief (including damages) available to the Company under this
Agreement or under law.
2. EXCLUSIVE. Both parties agree that the remedy specified in Section
7.I.1 above is not exclusive of any other remedy for the breach by Executive of
the terms hereof.
J. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
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Executed by the parties as of the day and year first above written.
NANOGEN, INC.
/s/ Howard C. Birndorf
-----------------------------
By Howard C. Birndorf
Chief Executive Officer
EXECUTIVE:
/s/ Michael J. Heller
-----------------------------
Michael J. Heller, Ph.D.
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SCHEDULE A
LISTING OF LOANS
<TABLE>
<CAPTION>
Date of Loan Dollar Amount Interest Rate (%) Term (Years)
<S> <C> <C> <C>
11/7/97 46,952.40 6.01 5
</TABLE>
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Exhibit 10.30
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of October 29, 1999, is made by and
between NANOGEN, INC., a Delaware corporation (hereinafter the "Company"), and
HOWARD C. BIRNDORF, (hereinafter "Executive").
RECITALS
WHEREAS, the Company and Executive wish to set forth in this Agreement
the terms and conditions under which Executive will continue to be employed by
the Company; and
WHEREAS, the Company wishes to be assured that Executive will be
available to the Company for an additional three (3) years after July 27, 1999.
NOW, THEREFORE, the Company and Executive, in consideration of the
mutual promises set forth herein, agree as follows:
ARTICLE I.
TERM OF AGREEMENT
A. COMMENCEMENT DATE. The terms of this Agreement shall govern
Executive's employment with the Company from July 27, 1999 ("Commencement Date")
and this Agreement shall expire after a period of three (3) years from the
Commencement Date, unless terminated earlier pursuant to Article 6.
B. RENEWAL. The term of this Agreement shall be automatically renewed
for successive, additional three (3) year terms unless either party delivers
written notice to the other at least ninety (90) days prior to the expiration
date of this Agreement of an intention to terminate this Agreement or to renew
it for a term of less than three (3) years but not less than (1) year. If the
term of this Agreement is renewed for a term of less than three (3) years, then
thereafter the term of this Agreement shall be automatically renewed for
successive, additional identical terms unless either party delivers a written
notice to the other at least ninety (90) days prior to a termination date of
this Agreement of an intention to terminate this Agreement or to renew it for a
different term of not less than one (1) year. Any renewal bonus will be
negotiated as mutually agreed to at the time of any renewal of this Agreement.
If this Agreement is not renewed at the end of any term hereof by the
Company for any reason except death, disability or retirement of Executive,
notwithstanding anything herein elsewhere contained, Executive shall be paid his
salary, as provided for in Section 3.A hereof, and receive the other benefits
applicable under Article 4 hereof, for an additional eighteen months after the
termination date hereof.
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ARTICLE II.
EMPLOYMENT DUTIES
A. TITLE/RESPONSIBILITIES. Executive hereby accepts employment with the
Company pursuant to the terms and conditions hereof. Executive agrees to serve
the Company in the position of Chairman and Chief Executive Officer. Executive
shall report to the Board of Directors of the Company (the "Board"). Executive
shall have the powers and duties commensurate with such position, including but
not limited to, hiring personnel necessary (in the judgment of the Board of
Directors) to carry out the responsibilities for such position.
B. FULL TIME ATTENTION. Executive shall devote his best efforts and his
full business time and attention to the performance of the services customarily
incident to such office and to such other services as the Board may reasonably
request, provided that Executive may (i) continue to serve as member of the
Board of Directors of Graviton, Inc., provided such service does not interfere
with Executive's ability to render services hereunder, and (ii) may also serve
on the Boards of Directors of a limited number of other companies with the prior
written consent of the Board.
C. OTHER ACTIVITIES. Except upon the prior written consent of the Board
of Directors, Executive shall not during the period of employment engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary advantage) that is or may be competitive with, or that might place
him in a competing position to that of the Company or any other corporation or
entity that directly or indirectly controls, is controlled by, or is under
common control with the Company (an "Affiliated Company"), provided that
Executive may own less than two percent of the outstanding securities of any
such publicly traded competing corporation.
D. DIRECTORSHIPS. Executive will be nominated for reelection to the
Company's Board of Directors if the By-Laws so require it. At the pleasure of
the Company's shareholders, Executive agrees to serve as a Director on the
Company's Board of Directors at no additional compensation.
ARTICLE III.
COMPENSATION
A. BASE SALARY. Executive shall receive a Base Salary at an annual rate
of three hundred twenty thousand dollars ($320,000), payable in accordance with
the Company's customary payroll practices. The Company's Board of Directors
shall provide Executive with annual performance reviews, and, thereafter,
Executive shall be entitled to such Base Salary as the Board of Directors may
from time to time establish in its sole discretion.
B. INCENTIVE BONUSES. The Executive shall receive a Basic Bonus of
$100,000 per year, payable in equal installments not less often than quarterly.
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In addition, the Company shall pay Executive an Achievement Bonus of up
to 60% of Executive's Base Salary annually based upon achievement by the Company
of its corporate goals as established and determined by the Board of Directors
annually and for other achievements by the Company or the Executive during the
year as approved by the Compensation Committee. The Board of Directors or
Compensation Committee, as applicable, shall, in their respective sole
discretion, determine whether such corporate or other goals have been attained
or other achievements have occurred.
C. TRANSACTION BONUS. In addition, in the event of a transaction
involving a Change in Control, in a transaction approved by the Company's Board
of Directors, which transaction results in the receipt by the Company's
stockholders of consideration with a value representing, in the sole judgment of
the Board of Directors, a significant premium over the average of the closing
prices per share of the Company's common stock as quoted on the Nasdaq National
Market for 20 trading days ending one day prior to the public announcement of
such transaction (a "Change in Control Transaction"), Executive shall be paid a
Transaction Bonus at the closing of such a transaction in the amount equal to
three (3) times 60% of Executive's Base Salary in effect immediately preceding
the closing of such a transaction. Executive shall also be paid said Transaction
Bonus if the Company enters into a transaction approved by the Board of
Directors which is not a Change in Control Transaction, but which, nonetheless,
involves a significant change in the ownership of the Company or the composition
of the Board of Directors of the Company, or which results in receipt of a
premium for the Company's stockholders (a "Significant Event"). In the event
Executive receives a Transaction Bonus, no Achievement Bonus will be paid to
Executive in the year in which such Transaction Bonus is paid.
If the Company enters into a transaction which is a Change in Control
Transaction, then all of the Executive's stock options granted prior to July 27,
1999 shall become exercisable in full and all of the shares of the common stock
of the Company awarded to Executive under the Company's 1997 Stock Incentive
Plan and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested. If the Company enters into a transaction which is not a
Change in Control Transaction but which is a Significant Event, then the Board
of Directors may, in its sole discretion, determine that all, or a portion, of
the Executive's stock options granted prior to July 27, 1999 shall become
exercisable in full and all, or a portion, of the shares of the common stock of
the Company awarded to Executive under the Company's 1997 Stock Incentive Plan
and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested.
D. WITHHOLDINGS. All compensation and benefits to Executive hereunder
shall be subject to all federal, state, local and other withholdings and similar
taxes and payments required by applicable law.
E. SECTION 280G. Notwithstanding anything in this Agreement to the
contrary, if such Transaction Bonus, together with any other payments and/or
benefits that Executive receives under this Agreement and/or under any other
plan, program or arrangement sponsored by the Company in which Executive
participates, constitutes an "excess parachute payment"
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within the meaning of Section 280G of the internal Revenue Code of 1986, as
amended, then such transaction bonus and other payments and/or benefits shall be
reduced to the amount that has the maximum value to the Executive without
causing any of such payment to be non-deductible by the Company under Section
280G.
ARTICLE IV.
EXPENSE ALLOWANCES AND FRINGE BENEFITS
A. VACATION. Executive shall be entitled to two (2) weeks, plus one (1)
additional day for each completed year of employment with the Company, of annual
paid vacation during the term of this Agreement.
B. BENEFITS. During the term of this Agreement, the Company shall also
provide Executive with the usual health insurance benefits it generally provides
to its other senior management employees, other than life insurance (which shall
be paid directly by Executive). As Executive becomes eligible in accordance with
criteria to be adopted by the Company, the Company shall provide Executive with
the right to participate in and to receive benefits from accident, disability,
medical, pension, bonus, stock, profit-sharing and savings plans and similar
benefits made available generally to employees of the Company as such plans and
benefits may be adopted by the Company, provided that Executive shall during the
term of this Agreement be entitled to receive at a minimum standard medical and
dental benefits similar to those typically afforded to Chief Executive Officers
in similar sized biotechnology companies, excluding life insurance. The amount
and extent of benefits to which Executive is entitled shall be governed by the
specific benefit plan as it may be amended from time to time.
C. COMPANY LOANS. Upon the closing of a transaction approved by the
Company's Board of Directors involving a Change in Control or a Significant
Event, all amounts outstanding with respect to the Loans made by Company to
Executive and listed on Schedule A hereto, shall be forgiven on a pro rata basis
over a four (4) year period commencing on the Executive's original date of
employment by the Company (including any accrued and unpaid interest).
D. BUSINESS EXPENSE REIMBURSEMENT. During the term of this Agreement,
Executive shall be entitled to receive proper reimbursement for all reasonable
out-of-pocket expenses incurred by him (in accordance with the policies and
procedures established by the Company for its senior executive officers) in
performing services hereunder, provided Executive properly accounts therefor.
ARTICLE V.
CONFIDENTIALITY
A. PROPRIETARY INFORMATION. Executive represents and warrants that he
has executed and delivered to the Company the Company's standard Proprietary
Information and Inventions Agreement in form acceptable to the Company's
counsel.
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B. RETURN OF PROPERTY. All documents, records, apparatus, equipment and
other physical property which is furnished to or obtained by Executive in the
course of his employment with the Company shall be and remain the sole property
of the Company. Executive agrees that, upon the termination of his employment,
he shall return all such property (whether or not it pertains to Proprietary
Information as defined in the Proprietary Information and Inventions Agreement),
and agrees not to make or retain copies, reproductions or summaries of any such
property.
ARTICLE VI.
TERMINATION
A. BY DEATH. The period of employment shall terminate automatically
upon the death of Executive. In such event, the Company shall pay to Executive's
beneficiaries or his estate, as the case may be, any accrued Base Salary, any
bonus compensation to the extent earned, any vested deferred compensation (other
than pension plan or profit-sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Company in which Executive is a participant to the full extent of Executive's
rights under such plans, any accrued vacation pay and any appropriate business
expenses incurred by Executive in connection with his duties hereunder, all to
the date of termination (collectively "Accrued Compensation"), but no other
compensation or reimbursement of any kind, including, without limitation,
severance compensation, and thereafter, the Company's obligations hereunder
shall terminate.
B. BY DISABILITY. If Executive is prevented from properly performing
his duties hereunder by reason of any physical or mental incapacity for a period
of more than 90 days in the aggregate in any 365-day period, then, to the extent
permitted by law, the Company may terminate the employment on the 90th day of
such incapacity. In such event, the Company shall pay to Executive all Accrued
Compensation, and shall continue to pay to Executive the Base Salary until such
time (but not more than 90 days following termination), as Executive shall
become entitled to receive disability insurance payments under the disability
insurance policy maintained by the Company, which disability policy shall
provide for full payment of Executive's Base Salary during the period of
disability, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Nothing in this Section shall affect
Executive's rights under any disability plan in which he is a participant.
C. BY COMPANY FOR CAUSE. The Company may terminate Executive's
employment for Cause (as defined below) without liability at any time with or
without advance notice to Executive. The Company shall pay Executive all Accrued
Compensation, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Termination shall be for "Cause" in the
event of the occurrence of any of the following: (a) any intentional action or
intentional failure to act by Executive which was performed in bad faith and to
the material detriment of the Company; (b) Executive intentionally refuses or
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intentionally fails to act in accordance with any lawful and proper direction or
order of the Board; (c) Executive willfully and habitually neglects the duties
of employment; or (d) Executive is convicted of a felony crime involving moral
turpitude, provided that in the event that any of the foregoing events is
capable of being cured, the Company shall provide written notice to Executive
describing the nature of such event and Executive shall thereafter have five (5)
business days to cure such event.
D. AT WILL. At any time, the Company may terminate Executive's
employment without liability other than as set forth below, for any reason not
specified in Section 6.C above, by giving thirty (30) days advance written
notice to Executive. If the Company elects to terminate Executive pursuant to
this Section 6.D prior to a Change in Control, the Company shall pay to
Executive all Accrued Compensation and shall continue to pay to Executive as
provided herein Executive's Salary for six (6) months from the date of such
termination as severance compensation. If the Company or its successor elects to
terminate Executive pursuant to this Section after a Change in Control, the
Company (or its successor) shall continue to pay to Executive as provided herein
Executive's Salary for twenty-four (24) months from the date of such termination
as severance compensation. In addition, upon any termination under this Section
6.D., all of the Executive's stock options granted prior to July 27, 1999 shall
become exercisable in full and all the shares of the common stock of the Company
awarded to Executive under the Company's 1997 Stock Incentive Plan and the 1993
Stock Option/Stock Issuance Plan prior to July 27, 1999 shall become fully
vested. Upon payment of the severance benefits described herein, all obligations
of the Company (or its successor) shall terminate.
During the period when such severance compensation is being paid to
Executive, Executive shall not (i) engage, directly or indirectly, in any other
business activity that is competitive with, or that places him in a competing
position to that of the Company or any Affiliated Company (provided that
Executive may own less than two percent (2%) of the outstanding securities of
any publicly traded corporation), or (ii) hire, solicit, or attempt to hire on
behalf of himself or any other party any employee or exclusive consultant of the
Company. If the Company terminates this Agreement or the employment of Executive
with the Company other than pursuant to Section 6.A, 6.B or 6.C, then this
Section 6.D shall apply.
E. CONSTRUCTIVE TERMINATION. In the event that the Company shall
materially reduce the powers and duties of employment of Executive resulting in
a material decrease in the responsibilities of Executive which are inconsistent
with Executive acting as Chief Executive Officer of the Company, such action
shall be deemed to be a termination of employment of Executive without cause
pursuant to Section 6.D. In the event of a Change in Control of the Company in
which the Company shall become a division or subsidiary of a larger
organization, references to the Chief Executive Officer of the Company shall be
deemed to mean the Chief Executive Officer of such division or subsidiary for
purposes of this Section 6.E.
1. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall have occurred if at any time during the term of Executive's
employment hereunder, any of the following events shall occur:
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<PAGE>
a. The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power
of the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders
of the Company immediately prior to such merger, consolidation
or other reorganization;
b. A change in the composition of the Board, as a result of which
fewer than one-half of the incumbent directors are directors
who either (1) had been directors of the Company 24 months
prior to such change; or (2) were elected, or nominated for
election, to the Board with the affirmative votes of at least
a majority of the directors who had been directors of the
Company 24 months prior to such change and who were still in
office at the time of the election or nomination; or
c. Any "person" (as such term is used in Section 13(d) and
Section 14 of the Exchange Act) by the acquisition of
securities is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors (the "Base Capital Stock") except
that any change in the relative beneficial ownership of the
Company's securities resulting solely from a reduction in the
aggregate number of outstanding shares of Base Capital Stock ,
and any decrease thereafter in such person's ownership of
securities shall be disregarded until such person increases in
any manner, directly or indirectly, such person's beneficial
ownership of any securities of the Company. Thus, for example,
any person who owns less than 50% of the Company's outstanding
shares, shall cause a Change in Control to occur as of any
subsequent date if such person then acquires an additional
interest in the Company which, when added to the person's
previous holdings, causes the person to hold more than 50% of
the Company's outstanding shares.
The term "Change in Control" shall not include a transaction, the sole
purpose of which is to change the state of the Company's incorporation.
ARTICLE VII.
GENERAL PROVISIONS
A. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties thereunder shall be
interpreted and enforced under California law without reference to principles of
conflicts of laws. The parties expressly agree that inasmuch as the Company's
headquarters and principal place of business are located in California, it is
appropriate that California law govern this Agreement.
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<PAGE>
B. ASSIGNMENT; SUCCESSORS; BINDING AGREEMENT.
1. Executive may not assign, pledge or encumber his interest in this
Agreement or any part thereof.
2. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, operation of law or by agreement in
form and substance reasonably satisfactory to Executive, to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
3. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributee, devisees and legatees. If Executive should die
while any amount is at such time payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legates or other designee or, if there be
no such designee, to his estate.
C. NO WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement shall not be deemed to be a waiver of any subsequent
breach.
D. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
To the Company: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attn: Chief Financial Officer
To Executive: Howard C. Birndorf
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
E. MODIFICATION; WAIVER; ENTIRE AGREEMENT. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by Executive and such officer as may
be specifically designated by the Board of the Company. No waiver by either
party hereto at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the
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same or any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
F. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
G. CONTROLLING DOCUMENT. This Agreement supersedes any and all prior
employment agreements between the Company and Executive, but does not supersede
any other agreements between Company and Executive, including but not limited
to, the Nanogen Inc. Restricted Stock Purchase Agreement, any stock option
agreements or common stock purchase agreements entered into pursuant to the
Company's 1997 Stock Incentive Plan and the 1993 Stock Option/Stock Issuance
Plan, and the Nanogen Employees' Handbook and Policies, except as expressly
provided herein. In case of conflict between any of the terms and conditions of
this Agreement and the documents herein referred to, the terms and conditions of
this Agreement shall control.
H. EXECUTIVE ACKNOWLEDGMENT. Executive acknowledges (a) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement, and has been advised to do so by the
Company, and (b) that he has read and understands the Agreement, is fully aware
of its legal effect, and has entered into it freely based on his own judgment.
I. REMEDIES.
1. INJUNCTIVE RELIEF. The parties agree that the services to be
rendered by Executive hereunder are of a unique nature and that in the event of
any breach or threatened breach of any of the covenants contained herein, the
damage or imminent damage to the value and the goodwill of the Company's
business will be irreparable and extremely difficult to estimate, making any
remedy at law or in damages inadequate. Accordingly, the parties agree that the
Company shall be entitled to injunctive relief against Executive in the event of
any breach or threatened breach of any such provisions by Executive, in addition
to any other relief (including damages) available to the Company under this
Agreement or under law.
2. EXCLUSIVE. Both parties agree that the remedy specified in Section
7.I.1 above is not exclusive of any other remedy for the breach by Executive of
the terms hereof.
J. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
Executed by the parties as of the day and year first above written.
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<PAGE>
NANOGEN, INC.
/s/ Kieran Gallahue
-----------------------------
By Kieran Gallahue
Chief Financial Officer
EXECUTIVE:
/s/ Howard C. Birndorf
-----------------------------
Howard C. Birndorf
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<PAGE>
SCHEDULE A
LISTING OF LOANS
<TABLE>
<CAPTION>
Date of Loan Dollar Amount Interest Rate (%) Term (Years)
<S> <C> <C> <C>
6/30/95 15,000.00 6.72 5
6/22/95 27,500.00 6.36 5
11/7/97 293,747.40 6.01 5
11/7/97 99,999.60 6.01 5
</TABLE>
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<PAGE>
Exhibit 10.31
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of October 29, 1999, is made by and
between NANOGEN, INC., a Delaware corporation (hereinafter the "Company"), and
CLARE BROMLEY, III, (hereinafter "Executive").
RECITALS
WHEREAS, the Company and Executive wish to set forth in this Agreement
the terms and conditions under which Executive will continue to be employed by
the Company; and
WHEREAS, the Company wishes to be assured that Executive will be
available to the Company for an additional three (3) years after July 27, 1999.
NOW, THEREFORE, the Company and Executive, in consideration of the
mutual promises set forth herein, agree as follows:
ARTICLE I.
TERM OF AGREEMENT
A. COMMENCEMENT DATE. The terms of this Agreement shall govern
Executive's employment with the Company from July 27, 1999 ("Commencement Date")
and this Agreement shall expire after a period of three (3) years from the
Commencement Date, unless terminated earlier pursuant to Article 6.
B. RENEWAL. The term of this Agreement shall be automatically renewed
for successive, additional three (3) year terms unless either party delivers
written notice to the other at least ninety (90) days prior to the expiration
date of this Agreement of an intention to terminate this Agreement or to renew
it for a term of less than three (3) years but not less than (1) year. If the
term of this Agreement is renewed for a term of less than three (3) years, then
thereafter the term of this Agreement shall be automatically renewed for
successive, additional identical terms unless either party delivers a written
notice to the other at least ninety (90) days prior to a termination date of
this Agreement of an intention to terminate this Agreement or to renew it for a
different term of not less than one (1) year. Any renewal bonus will be
negotiated as mutually agreed to at the time of any renewal of this Agreement.
If this Agreement is not renewed at the end of any term hereof by the
Company for any reason except death, disability or retirement of Executive,
notwithstanding anything herein elsewhere contained, Executive shall be paid his
salary, as provided for in Section 3.A hereof, and receive the other benefits
applicable under Article 4 hereof, for an additional eighteen months after the
termination date hereof.
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<PAGE>
ARTICLE II.
EMPLOYMENT DUTIES
A. TITLE/RESPONSIBILITIES. Executive hereby accepts employment with the
Company pursuant to the terms and conditions hereof. Executive agrees to serve
the Company in the position of Senior Vice President, Business Development and
Marketing. Executive shall have the powers and duties commensurate with such
position, including but not limited to, hiring personnel necessary (in the
judgment of the Board of Directors) to carry out the responsibilities for such
position.
B. FULL TIME ATTENTION. Executive shall devote his best efforts and his
full business time and attention to the performance of the services customarily
incident to such office and to such other services as the Board may reasonably
request.
C. OTHER ACTIVITIES. Except upon the prior written consent of the Board
of Directors, Executive shall not during the period of employment engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary advantage) that is or may be competitive with, or that might place
him in a competing position to that of the Company or any other corporation or
entity that directly or indirectly controls, is controlled by, or is under
common control with the Company (an "Affiliated Company"), provided that
Executive may own less than two percent of the outstanding securities of any
such publicly traded competing corporation.
ARTICLE III.
COMPENSATION
A. BASE SALARY. Executive shall receive a Base Salary at an annual rate
of two hundred twenty five thousand dollars ($225,000), payable in accordance
with the Company's customary payroll practices. The Company's Board of Directors
shall provide Executive with annual performance reviews, and, thereafter,
Executive shall be entitled to such Base Salary as the Board of Directors may
from time to time establish in its sole discretion.
B. ACHIEVEMENT BONUS. The Company shall pay Executive an Achievement
Bonus of up to 50% of Executive's Base Salary annually based upon achievement by
the Company of its corporate goals as established and determined by the Board of
Directors annually and for other achievements by the Company or the Executive
during the year as approved by the Compensation Committee. The Board of
Directors or Compensation Committee, as applicable, shall, in their respective
sole discretion, determine whether such corporate or other goals have been
attained or other achievements have occurred.
C. TRANSACTION BONUS. In addition, in the event of a transaction
involving a Change in Control, in a transaction approved by the Company's Board
of Directors, which transaction results in the receipt by the Company's
stockholders of consideration with a value representing, in the sole judgment of
the Board of Directors, a significant premium over the average of the
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<PAGE>
closing prices per share of the Company's common stock as quoted on the Nasdaq
National Market for 20 trading days ending one day prior to the public
announcement of such transaction (a "Change in Control Transaction"), Executive
shall be paid a Transaction Bonus at the closing of such a transaction in the
amount equal to one (1) times 50% of Executive's Base Salary in effect
immediately preceding the closing of such a transaction. Executive shall also be
paid said Transaction Bonus if the Company enters into a transaction approved by
the Board of Directors which is not a Change in Control Transaction, but which,
nonetheless, involves a significant change in the ownership of the Company or
the composition of the Board of Directors of the Company, or which results in
receipt of a premium for the Company's stockholders (a "Significant Event"). In
the event Executive receives a Transaction Bonus, no Achievement Bonus will be
paid to Executive in the year in which such Transaction Bonus is paid.
If the Company enters into a transaction which is a Change in Control
Transaction, then all of the Executive's stock options granted prior to July 27,
1999 shall become exercisable in full and all of the shares of the common stock
of the Company awarded to Executive under the Company's 1997 Stock Incentive
Plan and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested. If the Company enters into a transaction which is not a
Change in Control Transaction but which is a Significant Event, then the Board
of Directors may, in its sole discretion, determine that all, or a portion, of
the Executive's stock options granted prior to July 27, 1999 shall become
exercisable in full and all, or a portion, of the shares of the common stock of
the Company awarded to Executive under the Company's 1997 Stock Incentive Plan
and the 1993 Stock Option/Stock Issuance Plan prior to July 27, 1999 shall
become fully vested.
D. WITHHOLDINGS. All compensation and benefits to Executive hereunder
shall be subject to all federal, state, local and other withholdings and similar
taxes and payments required by applicable law.
E. SECTION 280G. Notwithstanding anything in this Agreement to the
contrary, if such Transaction Bonus, together with any other payments and/or
benefits that Executive receives under this Agreement and/or under any other
plan, program or arrangement sponsored by the Company in which Executive
participates, constitutes an "excess parachute payment" within the meaning of
Section 280G of the internal Revenue Code of 1986, as amended, then such
transaction bonus and other payments and/or benefits shall be reduced to the
amount that has the maximum value to the Executive without causing any of such
payment to be non-deductible by the Company under Section 280G.
ARTICLE IV.
EXPENSE ALLOWANCES AND FRINGE BENEFITS
A. VACATION. Executive shall be entitled to two (2) weeks, plus one (1)
additional day for each completed year of employment with the Company, of annual
paid vacation during the term of this Agreement.
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<PAGE>
B. BENEFITS. During the term of this Agreement, the Company shall also
provide Executive with the usual health insurance benefits it generally provides
to its other senior management employees, other than life insurance (which shall
be paid directly by Executive). As Executive becomes eligible in accordance with
criteria to be adopted by the Company, the Company shall provide Executive with
the right to participate in and to receive benefits from accident, disability,
medical, pension, bonus, stock, profit-sharing and savings plans and similar
benefits made available generally to employees of the Company as such plans and
benefits may be adopted by the Company, provided that Executive shall during the
term of this Agreement be entitled to receive at a minimum standard medical and
dental benefits similar to those typically afforded to Chief Executive Officers
in similar sized biotechnology companies, excluding life insurance. The amount
and extent of benefits to which Executive is entitled shall be governed by the
specific benefit plan as it may be amended from time to time.
C. BUSINESS EXPENSE REIMBURSEMENT. During the term of this Agreement,
Executive shall be entitled to receive proper reimbursement for all reasonable
out-of-pocket expenses incurred by him (in accordance with the policies and
procedures established by the Company for its senior executive officers) in
performing services hereunder, provided Executive properly accounts therefor.
ARTICLE V.
CONFIDENTIALITY
A. PROPRIETARY INFORMATION. Executive represents and warrants that he
has executed and delivered to the Company the Company's standard Proprietary
Information and Inventions Agreement in form acceptable to the Company's
counsel.
B. RETURN OF PROPERTY. All documents, records, apparatus, equipment and
other physical property which is furnished to or obtained by Executive in the
course of his employment with the Company shall be and remain the sole property
of the Company. Executive agrees that, upon the termination of his employment,
he shall return all such property (whether or not it pertains to Proprietary
Information as defined in the Proprietary Information and Inventions Agreement),
and agrees not to make or retain copies, reproductions or summaries of any such
property.
ARTICLE VI.
TERMINATION
A. BY DEATH. The period of employment shall terminate automatically
upon the death of Executive. In such event, the Company shall pay to Executive's
beneficiaries or his estate, as the case may be, any accrued Base Salary, any
bonus compensation to the extent earned, any vested deferred compensation (other
than pension plan or profit-sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Company in which Executive is a participant to the full extent of Executive's
rights
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<PAGE>
under such plans, any accrued vacation pay and any appropriate business expenses
incurred by Executive in connection with his duties hereunder, all to the date
of termination (collectively "Accrued Compensation"), but no other compensation
or reimbursement of any kind, including, without limitation, severance
compensation, and thereafter, the Company's obligations hereunder shall
terminate.
B. BY DISABILITY. If Executive is prevented from properly performing
his duties hereunder by reason of any physical or mental incapacity for a period
of more than 90 days in the aggregate in any 365-day period, then, to the extent
permitted by law, the Company may terminate the employment on the 90th day of
such incapacity. In such event, the Company shall pay to Executive all Accrued
Compensation, and shall continue to pay to Executive the Base Salary until such
time (but not more than 90 days following termination), as Executive shall
become entitled to receive disability insurance payments under the disability
insurance policy maintained by the Company, which disability policy shall
provide for full payment of Executive's Base Salary during the period of
disability, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Nothing in this Section shall affect
Executive's rights under any disability plan in which he is a participant.
C. BY COMPANY FOR CAUSE. The Company may terminate Executive's
employment for Cause (as defined below) without liability at any time with or
without advance notice to Executive. The Company shall pay Executive all Accrued
Compensation, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Termination shall be for "Cause" in the
event of the occurrence of any of the following: (a) any intentional action or
intentional failure to act by Executive which was performed in bad faith and to
the material detriment of the Company; (b) Executive intentionally refuses or
intentionally fails to act in accordance with any lawful and proper direction or
order of the Board; (c) Executive willfully and habitually neglects the duties
of employment; or (d) Executive is convicted of a felony crime involving moral
turpitude, provided that in the event that any of the foregoing events is
capable of being cured, the Company shall provide written notice to Executive
describing the nature of such event and Executive shall thereafter have five (5)
business days to cure such event.
D. AT WILL. At any time, the Company may terminate Executive's
employment without liability other than as set forth below, for any reason not
specified in Section 6.C above, by giving thirty (30) days advance written
notice to Executive. If the Company elects to terminate Executive pursuant to
this Section 6.D prior to a Change in Control, the Company shall pay to
Executive all Accrued Compensation and shall continue to pay to Executive as
provided herein Executive's Salary for six (6) months from the date of such
termination as severance compensation. If the Company or its successor elects to
terminate Executive pursuant to this Section after a Change in Control, the
Company (or its successor) shall continue to pay to Executive as provided herein
Executive's Salary for twelve (12) months from the date of such termination as
severance compensation. Upon payment of the severance benefits described herein,
all obligations of the Company (or its successor) shall terminate.
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<PAGE>
During the period when such severance compensation is being paid to
Executive, Executive shall not (i) engage, directly or indirectly, in any other
business activity that is competitive with, or that places him in a competing
position to that of the Company or any Affiliated Company (provided that
Executive may own less than two percent (2%) of the outstanding securities of
any publicly traded corporation), or (ii) hire, solicit, or attempt to hire on
behalf of himself or any other party any employee or exclusive consultant of the
Company. If the Company terminates this Agreement or the employment of Executive
with the Company other than pursuant to Section 6.A, 6.B or 6.C, then this
Section 6.D shall apply.
E. CONSTRUCTIVE TERMINATION. In the event that the Company shall
materially reduce the powers and duties of employment of Executive resulting in
a material decrease in the responsibilities of Executive which are inconsistent
with Executive acting as Senior Vice President, Business Development and
Marketing of the Company, such action shall be deemed to be a termination of
employment of Executive without cause pursuant to Section 6.D. In the event of a
Change in Control of the Company in which the Company shall become a division or
subsidiary of a larger organization, references to the Senior Vice President,
Business Development and Marketing of the Company shall be deemed to mean the
Senior Vice President, Business Development and Marketing of such division or
subsidiary for purposes of this Section 6.E.
1. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall have occurred if at any time during the term of Executive's
employment hereunder, any of the following events shall occur:
a. The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power
of the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders
of the Company immediately prior to such merger, consolidation
or other reorganization;
b. A change in the composition of the Board, as a result of which
fewer than one-half of the incumbent directors are directors
who either (1) had been directors of the Company 24 months
prior to such change; or (2) were elected, or nominated for
election, to the Board with the affirmative votes of at least
a majority of the directors who had been directors of the
Company 24 months prior to such change and who were still in
office at the time of the election or nomination; or
c. Any "person" (as such term is used in Section 13(d) and
Section 14 of the Exchange Act) by the acquisition of
securities is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors (the "Base Capital Stock")
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except that any change in the relative beneficial ownership of
the Company's securities resulting solely from a reduction in
the aggregate number of outstanding shares of Base Capital
Stock , and any decrease thereafter in such person's ownership
of securities shall be disregarded until such person increases
in any manner, directly or indirectly, such person's
beneficial ownership of any securities of the Company. Thus,
for example, any person who owns less than 50% of the
Company's outstanding shares, shall cause a Change in Control
to occur as of any subsequent date if such person then
acquires an additional interest in the Company which, when
added to the person's previous holdings, causes the person to
hold more than 50% of the Company's outstanding shares.
The term "Change in Control" shall not include a transaction, the sole
purpose of which is to change the state of the Company's incorporation.
ARTICLE VII.
GENERAL PROVISIONS
A. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties thereunder shall be
interpreted and enforced under California law without reference to principles of
conflicts of laws. The parties expressly agree that inasmuch as the Company's
headquarters and principal place of business are located in California, it is
appropriate that California law govern this Agreement.
B. ASSIGNMENT; SUCCESSORS; BINDING AGREEMENT.
1. Executive may not assign, pledge or encumber his interest in this
Agreement or any part thereof.
2. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, operation of law or by agreement in
form and substance reasonably satisfactory to Executive, to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
3. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributee, devisees and legatees. If Executive should die
while any amount is at such time payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legates or other designee or, if there be
no such designee, to his estate.
C. NO WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement shall not be deemed to be a waiver of any subsequent
breach.
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<PAGE>
D. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
To the Company: Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attn: Chief Executive Officer
To Executive: Clare Bromley, III
c/o Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
E. MODIFICATION; WAIVER; ENTIRE AGREEMENT. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by Executive and such officer as may
be specifically designated by the Board of the Company. No waiver by either
party hereto at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
F. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
G. CONTROLLING DOCUMENT. This Agreement supersedes any and all prior
employment agreements between the Company and Executive, but does not supersede
any other agreements between Company and Executive, including but not limited
to, the Nanogen Inc. Restricted Stock Purchase Agreement, any stock option
agreements or common stock purchase agreements entered into pursuant to the
Company's 1997 Stock Incentive Plan and the 1993 Stock Option/Stock Issuance
Plan, and the Nanogen Employees' Handbook and Policies, except as expressly
provided herein. In case of conflict between any of the terms and conditions of
this Agreement and the documents herein referred to, the terms and conditions of
this Agreement shall control.
H. EXECUTIVE ACKNOWLEDGMENT. Executive acknowledges (a) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement, and has been advised to do so by the
Company, and (b) that he has
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<PAGE>
read and understands the Agreement, is fully aware of its legal effect, and has
entered into it freely based on his own judgment.
I. REMEDIES.
1. INJUNCTIVE RELIEF. The parties agree that the services to be
rendered by Executive hereunder are of a unique nature and that in the event of
any breach or threatened breach of any of the covenants contained herein, the
damage or imminent damage to the value and the goodwill of the Company's
business will be irreparable and extremely difficult to estimate, making any
remedy at law or in damages inadequate. Accordingly, the parties agree that the
Company shall be entitled to injunctive relief against Executive in the event of
any breach or threatened breach of any such provisions by Executive, in addition
to any other relief (including damages) available to the Company under this
Agreement or under law.
2. EXCLUSIVE. Both parties agree that the remedy specified in Section
7.I.1 above is not exclusive of any other remedy for the breach by Executive of
the terms hereof.
J. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
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<PAGE>
Executed by the parties as of the day and year first above written.
NANOGEN, INC.
/s/ Howard C. Birndorf
-----------------------------
By Howard C. Birndorf
Chief Executive Officer
EXECUTIVE:
/s/ Clare Bromley, III
-----------------------------
Clare Bromley, III
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<PAGE>
Exhibit 10.32
CONFIDENTIAL
SEVERANCE AGREEMENT AND RELEASE OF CLAIMS
THIS AGREEMENT is entered into as of December 31, 1999, by W.J.
Kitchen, Ph.D. ("Kitchen") and NANOGEN, INC., a Delaware corporation (the
"Company").
WHEREAS, Kitchen and Nanogen, Inc. have had a business relationship
wherein Kitchen has been an officer and employee of the Company; and
WHEREAS, Kitchen will no longer be employed as an officer of the
Company effective as of the date of this Agreement (the "severance date"), but
will act as a consultant to the Company for a six-month period commencing on the
severance date; and
WHEREAS, Kitchen and the Company wish to end their relationship with
all actual and potential disputes between them completely and amicably resolved:
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and in consideration of the amounts to be paid by the Company to Kitchen
under this Agreement, which amounts Kitchen is not otherwise entitled to
receive, Kitchen and the Company agree as follows:
1. SEVERANCE PAY.
(a) LUMP SUM PAYMENT. On the severance date, the Company will
pay Kitchen six (6) months severance pay totaling $131,875.
(b) SALARY ADJUSTMENT BONUS. On the severance date, the
Company will pay Kitchen six (6) months salary adjustment bonus totaling
$55,000.
(c) 1999 INCENTIVE BONUS. On the severance date, the Company
will pay Kitchen $32,969 based on performance accomplishments under the
Company's 1999 Incentive Bonus Plan.
(d) OTHER BENEFITS. Kitchen shall not be eligible to
participate in any of the Company's employee benefit plans (including, without
limitation, the 401(k) plan), fringe benefit programs, group insurance
arrangements or similar programs.
(e) TAX LIABILITY. Kitchen shall be responsible for all tax
liability associated with any payments made pursuant to this Section 1.
2. CONSULTING ARRANGEMENT.
(a) In order to aid the Company during the transition to new
management, Kitchen agrees to consult with the Company on a reasonable basis by
phone or in person for a period of
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six (6) months following the severance date at no additional compensation.
However, in the event travel is required in connection with the provision of
such consulting services, Company shall reimburse Kitchen for all reasonable
travel and hotel expenses. It is anticipated that Kitchen will devote such time
to the performance of such services as the Company may reasonably request, with
his consent. The Company recognizes and agrees that Kitchen's consulting
services are not exclusive and he may perform services for other persons;
provided that such services do not breach Employee's Proprietary Information and
Inventions and Dispute Resolution Agreement dated October 29, 1997.
(b). INDEPENDENT CONTRACTOR. In performing services for the
Company pursuant to this consulting arrangement, Kitchen shall act in the
capacity of an independent contractor with respect to the Company and not as an
employee of the Company. For purposes of all employee benefit plans maintained
by the Company, Kitchen shall continue to be treated as an independent
contractor, and shall not be eligible to participate in any of said plans, even
if he is subsequently determined to be a common law employee by the Internal
Revenue Service or other state or federal agency, or by a court. Service
hereunder as a consultant shall not count as service for purposes of vesting any
options or Company stock after the severance date.
3. ACCELERATION OF VESTING OF STOCK OPTIONS AND STOCK . In addition to
the stock options, performance shares, and restricted stock previously granted
or awarded to Kitchen under the Company's stock option and stock incentive plans
which are already vested by their terms on the severance date (108,049 shares),
Kitchen's Incentive Stock Options will become vested and exercisable with
respect to an additional five thousand nine hundred and twenty-three (5,923)
shares and an additional two thousand seven hundred and seventy eight (2,778)
performance shares. In addition, three thousand two hundred and fifty (3,250)
shares of restricted stock shall become vested on the severance date. Any
options which are Incentive Stock Options will cease to qualify for favorable
tax treatment as an Incentive Stock Option to the extent that they are exercised
more than three (3) months after the severance date, but they will continue to
be exercisable as nonqualified stock options under the terms of the applicable
option agreements. Kitchen shall be responsible for all tax liability associated
with this Section 3. Any shares of stock which are not vested on the severance
date will be repurchased by the Company for the price Kitchen paid for the
stock.
4. COMPANY LOANS. One half of the outstanding balance on the Company's
loan to Kitchen dated March 16, 1998 for the purchase of his principal residence
will be forgiven and cancelled on the severance date, and the remaining balance
of $115,933.79 shall become payable in full on April 1, 2000. Kitchen shall be
responsible for all tax liability associated with any loan forgiveness
associated with this Section 4. Any other outstanding indebtedness of Kitchen to
the Company, including Kitchen's full recourse Promissory Note Secured By Stock
Pledge Agreement, dated December 10, 1997, in connection with the purchase of
certain Pledged Shares of Nanogen stock in the amount of $114,612.41, shall be
payable in full on the severance date.
5. NONDISCLOSURE. During the term of this Agreement and thereafter,
Kitchen shall
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not, without the prior written consent of the Board, disclose or use for any
purpose (except in the course of his service under this Agreement and in
furtherance of the business of the Company) confidential information or
proprietary data of the Company, except as required by applicable law or legal
process; provided, however, that "confidential information" shall not include
any information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure by
Kitchen) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Company. Kitchen agrees to deliver to the Company at the termination of his
service, or at any other time that the Company may request, all memoranda,
notes, plans, records, reports and other documents (and copies thereof) relating
to the business of the Company which he may then possess or have under his
control.
6. RELEASE. Kitchen acknowledges that the severance package described
herein is given in exchange for his signing this Release, and he is not
otherwise entitled to receive such benefits from the Company. Kitchen agrees
that the severance package is in full satisfaction of any claims, liabilities,
demands or causes of action, known or unknown and he hereby releases and forever
discharges the Company and each of its past and present directors, managers,
officers, shareholders, agents, consultants, advisers, employees, attorneys,
servants, parents, subsidiaries, employee benefit plans, predecessors,
successors and assigns, and each of them separately and collectively from any
and all claims, liens, demands, causes of action, obligations, damages and
liabilities of any nature whatsoever, known or unknown, that he ever had, now
has or may hereafter claim to have against the Company, including, but not
limited to claims relating to mental, physical or emotional injuries sustained
from invasion of privacy, to defamation, to interference with prospective
economic advantage, to intentional or negligent infliction of emotional
distress, to Kitchen's employment or nonemployment by the Company, to the
termination of his employment, to any status, term or condition in such
employment, or to any physical or mental harm or distress from such employment
or from termination of such employment, including without limitation:
(a) Any and all claims under the federal Age Discrimination in
Employment Act;
(b) Any and all claims under federal or California statutory
or decisional law pertaining to wrongful discharge, discrimination, or
breach of public policy, physical or mental harm or distress; and
(c) Any and all claims relating to the tax obligation for
which Kitchen may become liable as a result of this Release or the
payment of consideration referred to above.
This Release covers only those claims that arose prior to the execution
of this Release. Execution of this Release does not bar any claim that arises
thereafter, including, but not limited to, claims for breach of this Release.
The Company releases Kitchen from any claims it may have against Kitchen,
including (but not limited to) such claims as are specified in this
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CONFIDENTIAL
Section 6. This Release recognizes the rights and responsibilities of the Equal
Employment Opportunity Commission ("EEOC") to enforce the statutes which come
under its jurisdiction and is not intended to prevent Kitchen from filing a
charge or participating in any investigation or proceeding conducted by the
EEOC; provided, however, that nothing in this section limits or affects the
finality or the scope of the release provided in this Section 6, the waiver
provided in Section 7 or the agreement to submit claims to final and binding
arbitration.
7. WAIVER. The parties expressly waive all rights under Section 1542 of
the Civil Code of California which provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
The parties agree that the possibility that such unknown claims exist was taken
into account in determining the amount of consideration to be paid for the
giving of this Release.
8. COVENANT NOT TO SUE. The parties covenant and agree that they will
never, individually or with any person or in any way, commence, aid in any way,
except as required by due legal process, prosecute or cause or permit to be
commenced or prosecuted, any action or other proceeding based upon any claim
which is the subject of this Release. This Release shall be deemed breached and
a cause of action shall be deemed to have accrued immediately upon the
commencement or prosecution of any action or proceeding contrary to this
Release. Kitchen agrees that if he brings an action to challenge the
enforceability of this Release, he will tender to a neutral escrow, as
designated by the Company, all consideration that he received pursuant to this
Agreement.
In the event of any breach of this Section 8, the aggrieved releasee
shall be entitled to recover not only the amount of judgment which may be
awarded against such releasee, but also all such other damages, costs and
expenses as may be incurred by such releasee, including court costs, attorneys'
fees and all costs and expenses, taxable or otherwise, in preparing the defense
of or defending against, or seeking or obtaining an abatement of or injunction
against, any action or proceeding brought in violation of this Section 8 and in
prosecuting any claim, counterclaim or cross-claim based hereon.
9. NO ASSIGNMENT; AUTHORITY. The parties represent and warrant that no
other person had or has or claims any interest in the claims referred to in
Section 6 above; that they have the sole right and exclusive authority to
execute this Release; that they have the sole right to receive the consideration
paid therefor; and that they have not sold, assigned, transferred, conveyed or
otherwise disposed of any claim or demand relating to any matter covered by this
Release.
10. NO ADMISSION. The parties acknowledge that the payment of
consideration,
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referred to herein, is made solely for the purpose of purchasing peace and
eliminating possible involvement in protracted litigation based upon disputed
claims that the other could make and does not constitute an admission or
concession of any liability on account of any of said claims, liability for
which is expressly denied by all releasees.
11. CONFIDENTIALITY. The parties covenant and agree to maintain the
confidentiality of the existence and terms of this Release, including (without
limitation) the nature and payment of consideration referred to in this Release
and to make no voluntary statement, except as may be necessary for the purposes
of audit, taxation returns or other disclosures required by law.
12. MISCELLANEOUS PROVISIONS.
(a) NOTICE. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. certified mail, return
receipt requested and postage prepaid. In the case of Kitchen, mailed notices
shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(b) WAIVER. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by Kitchen and by an authorized officer of the Company. No
waiver by either party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party shall be considered a waiver of
any other condition or provision or of the same condition or provision at
another time.
(c) WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) CHOICE OF LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California (other than their choice-of-law provisions).
(e) ARBITRATION. Any dispute arising out of or relating to
this Agreement, or the breach termination or validity thereof (including the
determination of the interpretation or scope of this agreement to arbitrate),
shall be resolved first by mediation pursuant to the Employment Mediation Rules
of the American Arbitration Association. If mediation is not successful, then
the dispute shall be resolved by a single neutral arbitrator in binding
arbitration administered by the American Arbitration Association under its Rules
for the Resolution of Employment Disputes. The arbitration shall take place in
San Diego, California, shall be governed by the United States Arbitration Act, 9
U.S.C. Section 1-16, and judgment upon the award
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CONFIDENTIAL
rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The Company shall bear the costs of arbitration if Kitchen prevails. If
the Company prevails, Kitchen shall pay half the cost of the arbitration or
$500.00, whichever is less. Each party shall pay its own attorneys' fees, unless
the arbitrator orders otherwise, pursuant to applicable law.
(f) CONSULTATION WITH COUNSEL. Kitchen acknowledges that he
has been advised and had the opportunity to consult legal counsel prior to
signing this Agreement and that he is entering into this Agreement knowingly and
voluntarily.
(g) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(h) ASSIGNMENT AND SUCCESSORS. Neither party shall assign any
right or delegate any obligation hereunder without the other party's written
consent, and any purported assignment or delegation by a party hereto without
the other party's written consent shall be void. This Agreement shall be binding
upon and inure to the benefit of the Company and its successors and Kitchen, his
heirs, executors, administrators and legal representatives.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer.
By: /s/ W. J. Kitchen
------------------------------------
W. J. Kitchen, Ph.D.
NANOGEN, INC.
By: /s/ Harry J. Leonhardt
------------------------------------
Harry J. Leonhardt, Esq.
Senior Vice President, General Counsel
and Secretary
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Exhibit 10.38
Customer No. 1242
MASTER LOAN AND SECURITY AGREEMENT
THIS AGREEMENT dated as of June 14, 1999, is made by Nanogen, Inc. (the
"Borrower"), a Delaware corporation having its principal place of business and
chief executive office at 10398 Pacific Center Court, San Diego, California,
92121 in favor of Transamerica Business Credit Corporation, a Delaware
corporation (the "Lender"), having its principal office at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018.
WHEREAS, the Borrower has requested that the Lender make Loans to it
from time to time; and
WHEREAS, the Lender has agreed to make such Loans on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the promises and to induce the
Lender to extend credit, the Borrower hereby agrees with the Lender as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings,
and shall be equally applicable to both the singular and plural forms of the
terms defined:
AGREEMENT shall mean this Master Loan and Security Agreement together with all
schedules and exhibits hereto, as amended, supplemented, or otherwise modified
from time to time.
APPLICABLE LAW shall mean the laws of the State of Illinois (or any other
jurisdiction whose laws are mandatorily applicable notwithstanding the parties'
choice of Illinois law) or the laws of the United States of America, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.
BUSINESS DAY shall mean any day other than a Saturday, Sunday, or public holiday
or the equivalent for banks in New York City.
CODE shall have the meaning specified in Section 8(d).
COLLATERAL shall have the meaning specified in Section 2.
COLLATERAL ACCESS AGREEMENT shall mean any landlord waiver, mortgagee waiver,
bailee letter, or similar acknowledgement of any warehouseman or processor in
possession, of any Equipment
EFFECTIVE DATE shall mean the date on which all of the conditions specified in
Section 3.3 shall have been satisfied.
EQUIPMENT shall have the meaning specified in Section 2.
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EVENT OF DEFAULT shall mean any event specified in Section 7.
FINANCIAL STATEMENTS shall have the meaning specified in Section 6.1.
GAAP shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time.
LOANS shall mean the loans and financial accommodations made by the Lender to
the Borrower in accordance with the terms of this Agreement and the Notes.
LOAN DOCUMENTS shall mean, collectively, this Agreement, the Notes, and all
other documents, agreements, certificates, instruments, and opinions executed
and delivered in connection herewith and therewith as the same may be modified,
extended, restated, or supplemented from time to time.
MATERIAL ADVERSE CHANGE shall mean, with respect to any Person, a material
adverse change in the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole that would have an impact on the Borrower's ability to repay the
Obligations.
MATERIAL ADVERSE EFFECT shall mean, with respect to any Person, a material
adverse effect on the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole that would have an impact on the Borrower's ability to repay the
Obligations.
NOTE shall mean each Promissory Note made by the Borrower in favor of the
Lender, as amended, supplemented, or otherwise modified from time to time.
OBLIGATIONS shall mean all indebtedness, obligations, and liabilities of the
Borrower under the Notes and under this Agreement, whether on account of
principal, interest, indemnities, fees (including, without limitation, attorneys
fees, remarketing fees, origination fees, collection fees, and all other
professional fees), costs, expenses, taxes, or otherwise.
PERMITTED LIENS shall mean such of the following as to which no enforcement,
collection, execution, levy, or foreclosure proceeding shall have been
commenced: (a) liens for taxes, assessments, and other governmental charges or
levies or the claims or demands of landlords, carriers, warehousemen, mechanics,
laborers, materialmen, and other like Persons arising by operation of Law in the
ordinary course of business for sums which are not yet due and payable, or liens
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP; (b) deposits or pledges to secure the payment of
worker's compensation, unemployment insurance, or other social security benefits
or obligations, public or statutory obligations, surety or appeal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business; (c) licenses, restrictions, or covenants for or on
the use of the Equipment which do not materially impair either the use of the
Equipment in the operation of the business of the Borrower or the value of the
Equipment; and (d) attachment or judgment liens that do not constitute an Event
of Default.
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PERSON shall mean any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, entity, party,
or government (including any division, agency, or department thereof), and the
successors, heirs, and assigns of each.
SCHEDULE shall mean each Schedule In the form of Schedule A hereto delivered by
the Borrower to the Lender from time to time.
SOLVENT means, with respect to any Person, that as of the date as to which such
personal solvency is measured:
(a) it has sufficient capital to conduct its business;
and
(b) it is able generally to meet its debts as they
mature.
TAXES shall have the meaning specified in Section 5.5.
SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. The
Borrower hereby assigns and grants to the Lender a continuing general, first
priority lien on, and security interest in, all the Borrower's right title, and
interest in and to the collateral described in the next sentence (the
"Collateral") to secure the payment and performance of all the Obligations. The
Collateral consists of all equipment set forth on all the Schedules delivered
from time to time under the terms of this Agreement (the "Equipment"), together
with all present and future additions, parts, accessories, attachments,
substitutions, repairs, improvements, and replacements thereof or thereto, and
any and all proceeds thereof, including, without limitation, proceeds of
insurance and all manuals, blueprints, knowhow, warranties, and records in
connection therewith, all rights against suppliers, warrantors, manufacturers,
sellers, or others in connection therewith, and together with all substitutes
for any of the foregoing. Notwithstanding anything contained above to the
contrary, Lender's security interest in the Collateral shall not include any
inventions or knowhow derived by the Borrower or employees, consultants or
agents of the Borrower from the use of the equipment, provided such knowhow or
inventions do not become a part of the Collateral.
SECTION 3. THE CREDIT FACILITY.
SECTION 3.1 BORROWINGS. Each Loan shall be in an
amount not less than $75,000, and in no event shall the sum of the aggregate
Loans made exceed $5,000,000.00. The term of each Loan and the payment amount of
each Loan shall be in accordance with each Note executed by Borrower in favor of
Lender. Each Loan shall be made up of 100% of the Equipment value approved by
Lender in its sole discretion and which Equipment will secure all Loans of
Borrower. Notwithstanding anything herein to the contrary, the Lender shall be
obligated to make the initial Loan and each other Loan only after the Lender, in
its sole discretion, determines that the applicable conditions for borrowing
contained in Sections 3.3 and 3.4 are satisfied. The timing and financial scope
of Lender's obligation to make Loans hereunder are limited as set forth in a
commitment letter executed by Lender and Borrower, dated as of March 5, 1999 and
attached hereto as Exhibit A (the "Commitment Letter").
SECTION 3.2 APPLICATION OF PROCEEDS. The Borrower
shall not directly or indirectly use any proceeds of the Loans, or cause,
assist, suffer, or permit the use of any
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proceeds of the Loans, for any purpose other than for the purchase, acquisition,
installation, or upgrading of Equipment including tenant improvements to the
extent permitted in the Commitment Letter and approved by Lender or the
reimbursement of the Borrower for its purchase, acquisition, installation, or
upgrading of Equipment, including tenant improvements to the extent permitted in
the Commitment Letter and approved by Lender.
SECTION 3.3 CONDITIONS TO INITIAL LOAN.
(a) The obligation of the Lender to make the initial Loan is
subject to the Lender's receipt of the following, each dated the date of the
initial Loan or as of an earlier date acceptable to the Lender, in form and
substance satisfactory to the Lender and its counsel:
(i) completed requests for information (Form UCC-11)
listing all effective Uniform Commercial Code financing
statements naming the Borrower as debtor and all tax lien,
judgment, and litigation searches for the Borrower as the
Lender shall deem necessary or desirable;
(ii) Uniform Commercial Code financing statements
(Form UCC-1) duly executed by the Borrower (naming the Lender
as secured party and the Borrower as debtor and in form
acceptable for filing in all jurisdictions that the Lender
deems necessary or desirable to perfect the security interests
granted to it hereunder) and, if applicable, termination
statements or other releases duly filed in all jurisdictions
that the Lender deems necessary or desirable to perfect and
protect the priority of the security interests granted to it
hereunder in the Equipment related to such initial Loan;
(iii) a Note duly executed by the Borrower evidencing
the amount of such Loan;
(iv) a Collateral Access Agreement duly executed by
the lessor or mortgagee, as the case may be, of each premises
where the Equipment is located, provided that if such
Collateral Access Agreement is obtained prior to the first
draw under the loan, then this condition shall be deemed
satisfied;
(v) certificates of insurance required under Section
5.4 of this Agreement together with loss payee endorsements
for all such policies naming the Lender as lender loss payee
and as an additional insured;
(vi) a certificate of the Secretary or an Assistant
Secretary of the Borrower ("Secretary's Certificate")
certifying (A) that attached to the Secretary's Certificate is
a true, complete, and accurate copy of the resolutions of the
Board of Directors of the Borrower (or a unanimous consent of
directors in lieu thereof) authorizing the execution,
delivery, and performance of this Agreement, the other Loan
Documents, and the transactions contemplated hereby and
thereby, and that such resolutions have not been amended or
modified since the date of such certification and are in full
force and effect; (B) the incumbency, names, and true
signatures of the officers of the Borrower authorized to sign
the Loan Documents to which it is a party; (C) that attached
to the Secretary's Certificate is a true and
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correct copy of the Articles or Certificate of Incorporation
of the Company, as amended, which Articles or Certificate of
Incorporation have not been further modified, repealed or
rescinded and are in full force and effect; (D) that attached
to the Secretary's Certificate of the Borrower is a true and
correct copy of the Bylaws, as amended, which Bylaws of the
Company have not been further modified repealed or rescinded
and are in full force and effect; and (E) that attached to the
Secretary's Certificate of the Borrower is a valid Certificate
of Good Standing issued by the Secretary of the State of the
Borrower's state of incorporation;
(vii) the opinion of counsel for the Borrower
covering such matters incident to the transactions
contemplated by this Agreement as the Lender may reasonably
require; and
(viii) such other agreements and instruments as the
Lender deems necessary in its sole and absolute discretion in
connection with the transactions contemplated hereby, provided
such additional agreements and instruments do not impose any
additional financial covenants on Borrower.
(b) There shall be no pending or, to the knowledge of the
Borrower after due inquiry, threatened litigation in writing, proceeding,
inquiry, or other action (i) seeking an injunction or other restraining order,
damages, or other relief with respect to the transactions contemplated by this
Agreement or the other Loan Documents or thereby or (ii) which affects or could
affect the business, prospects, operations, assets, liabilities, or condition
(financial or otherwise) of the Borrower, except in the case of clause (ii),
where such litigation, proceeding, inquiry, or other action could not be
expected to have a Material Adverse Effect in the judgment at of the Lender.
(c) The Borrower shall have paid all fees and expenses
required to be paid by it to the Lender as of such date.
(d) The security interests in the Equipment related to the
Loans granted in favor of the Lender under this Agreement shall be upon filing
UCC-1 Financing Statements be duly perfected and shall constitute first priority
liens.
SECTION 3.4 CONDITIONS PRECEDENT TO EACH LOAN. The
obligation of the Lender to make each Loan is subject to the satisfaction of the
following conditions precedent:
(a) the Lender shall have received the documents, agreements,
and instruments set forth in Section 3.3(a)(i) through (v) applicable to such
Loan, each in form and substance satisfactory to the Lender and its counsel and
each dated the date of such Loan or as of an earlier date acceptable to the
Lender;
(b) the Lender shall have received a Schedule of the Equipment
related to such Loan, in form and substance satisfactory to the Lender and its
counsel, and the security interests in such Equipment related to such Loan
granted in favor of the Lender under this Agreement shall have been duly
perfected and shall constitute first priority liens;
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(c) all representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct on and as of
the date of such Loan as if then made, other than representations and warranties
that expressly relate solely to an earlier date, in which case they shall have
been materially true and correct as of such earlier date;
(d) no Event of Default or event which with the giving of
notice or the passage of time, or both, would constitute an Event of Default
shall have occurred and be continuing or would result from the making of the
requested Loan as of the date of such request; and
(e) the Borrower shall be deemed to have hereby reaffirmed and
ratified all security interests, liens, and other encumbrances heretofore
granted by the Borrower to the Lender in connection with its Obligations.
SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
SECTION 4.1 GOOD STANDING; QUALIFIED TO DO BUSINESS.
The Borrower (a) is duly organized, validly existing, and in good standing under
the laws of the State of its organization, (b) has the power and authority to
own its properties and assets and to transact the businesses in which it is
presently, or proposes to be, engaged, and (c) is duly qualified and authorized
to do business and is in good standing in every jurisdiction in which the
failure to be so qualified could have a Material Adverse Effect on (i) the
Borrower, (ii) the Borrower's ability to perform its obligations under the Loan
Documents, or (iii) the rights of the Lender hereunder.
SECTION 4.2 DUE EXECUTION, ETC. The execution,
delivery, and performance by the Borrower of each of the Loan Documents to which
it is a party are within the powers of the Borrower, do not contravene the
organizational documents, if any, of the Borrower, and do not (a) violate any
law or regulation, or any order or decree of any court or governmental
authority, (b) conflict with or result in a breach of, or constitute a default
under, any material indenture, mortgage, or deed of trust or any material lease,
agreement, or other instrument binding on the Borrower or any of its properties,
or (c) require the consent authorization by, or approval of or notice to or
filing or registration with any governmental authority or other Person. This
Agreement is, and each of the other Loan Documents to which the Borrower is or
will be a party, when delivered hereunder or thereunder, will be, the legal,
valid, and binding obligation of the Borrower enforceable against the Borrower
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, or similar laws affecting creditors' rights generally
and by general principles of equity.
SECTION 4.3 SOLVENCY; NO LIENS. The Borrower is
Solvent and will be Solvent upon the completion of all transactions contemplated
to occur hereunder (including, without limitation, the Loan to be made on the
Effective Date); the security interests granted herein constitute and shall at
all times constitute the first and only liens on the Collateral other than
Permitted Liens; and the Borrower is, or will be at the time additional
Collateral is acquired by it, the absolute owner of the Collateral with full
right to pledge, sell, consign, transfer, and create a security interest
therein, free and clear of any and all claims or liens in favor of any other
Person other than Permitted Liens.
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SECTION 4.4 NO JUDGMENTS, LITIGATION. Except as shown
on the Schedule of Exceptions attached hereto as Exhibit B; as such schedules
may be amended from time to time, no judgments are outstanding against the
Borrower nor is there now pending or, to the best of the Borrower knowledge
after diligent inquiry, threatened in writing any litigation, contested claim,
or governmental proceeding by or against the Borrower except judgments and
pending or threatened litigation, contested claims, and governmental proceedings
which would not, in the aggregate, have a Material Adverse Effect on the
Borrower.
SECTION 4.5 NO DEFAULTS. The Borrower is not in
default or has not received a notice of default under any material contract
lease, or commitment to which it is a party or by which it is bound, except as
set forth in the Schedule of Exceptions. The Borrower knows of no dispute
regarding any contract, lease, or commitment which could have a Material Adverse
Effect on the Borrower.
SECTION 4.6 COLLATERAL LOCATIONS. On the date hereof,
each item of the Collateral is located at the place of business specified in the
applicable Schedule, except for relocations to vendors and others as may be
permitted, in advance, by the Lender.
SECTION 4.7 NO EVENTS OF DEFAULT. No Event of Default
has occurred and is continuing nor has any event occurred which, with the giving
of notice or the passage of time, or both, would constitute an Event of Default.
SECTION 4.8 NO LIMITATION ON LENDER'S RIGHTS. Except
as permitted herein, none of the Collateral is subject to contractual
obligations that may restrict or inhibit the Lender's rights or abilities to
sell or dispose of the Collateral or any part thereof after the occurrence of an
Event of Default.
SECTION 4.9 PERFECTION AND PRIORITY OF SECURITY
INTEREST. This Agreement creates a valid and, upon the Borrower's acquisition of
Equipment and completion of all required filings of financing statements,
perfected first priority and exclusive security interest in the Collateral,
securing the payment of all the Obligations, except Permitted Liens.
SECTION 4.10 MODEL AND SERIAL NUMBERS. The Schedules
set forth the true and correct serial number of each item of Equipment that
constitutes Collateral.
SECTION 4.11 ACCURACY AND COMPLETENESS OF
INFORMATION. All data, reports, and information heretofore, contemporaneously,
or hereafter furnished by or on behalf of the Borrower in writing to the Lender
or for purposes of or in connection with this Agreement or any other Loan
Documents or any transaction contemplated hereby or thereby, are or will be true
and accurate in all material respects on the date as of which such data,
reports, and information are dated or certified and not incomplete by omitting
to state any material fact necessary to make such data, reports, and information
not misleading at such time. There are no facts now known to the Borrower which
individually or in the aggregate would reasonably be expected to have a Material
Adverse Effect and which have not been specified herein, in the Financial
Statements, or in any certificate, opinion, or other written statement
previously furnished by the Borrower to the Lender.
SECTION 4.12 PRICE OF EQUIPMENT. The cost of each
item of Equipment does not exceed the fair and usual price for such type of
equipment purchased in like quantity and
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reflects all discounts, rebates and allowances for the Equipment (including,
without limitation, discounts for advertising, prompt payment, testing, or other
services) given to the Borrower by the manufacturer, supplier, or any other
person.
SECTION 5. COVENANTS OF THE BORROWER.
SECTION 5.1 EXISTENCE, ETC. The Borrower shall: (a)
maintain a yearly accounting cycle, (b) maintain in full force and effect all
material licenses, bonds, franchises, leases, trademarks, patents, contracts,
and other rights necessary or desirable to the conduct of its business unless
the failure to do so could not reasonably be expected to have a Material Adverse
Effect on the Borrower, (c) continue in, and limit its operations to,
substantially the same general lines of business as those presently conducted by
it and (d) materially comply with all applicable laws and regulations of any
federal, state, or local governmental authority, except for such laws and
regulations the violation of which would not, in the aggregate, have a Material
Adverse Effect on the Borrower.
SECTION 5.2 NOTICE TO THE LENDER. As soon as
possible, and in any event within ten days after the Borrower learns of the
following, the Borrower will give written notice to the Lender of (a) any
proceeding instituted or threatened to be instituted by or against the Borrower
in any federal, state, local, or foreign court or before any commission or other
regulatory body (federal, state, local, or foreign) involving a sum, together
with the sum involved in all other similar proceedings, in excess of $150,000 in
the aggregate, (b) any contract that is terminated or amended and which has had
or could reasonably be expected to have a Material Adverse Effect on the
Borrower, (c) the occurrence of any Material Adverse Change with respect to the
Borrower, and (d) the occurrence of any Event of Default or event or condition
which, with notice or lapse of time or both, would constitute an Event of
Default, together with a statement of the action which the Borrower has taken or
proposes to take with respect thereto.
SECTION 5.3 MAINTENANCE OF BOOKS AND RECORDS. The
Borrower will maintain books and records pertaining to the Collateral in such
detail, form, and scope as the Lender shall require in its commercially
reasonable judgment. The Borrower agrees that the Lender or its agents may upon
48 hours prior notice, unless there is an Event of Default in which case no
prior notice shall be required enter upon the Borrower's premises during normal
business hours, and at any time upon the occurrence and continuance of an Event
of Default, for the purpose of inspecting the Collateral and any and all records
pertaining thereto. A representative of the Borrower may accompany the Lender
during any such inspection.
SECTION 5.4 INSURANCE. The Borrower will maintain
insurance on the Collateral under such policies of insurance, with such
insurance companies, in such amounts, and covering such risks as are at all
times satisfactory to the Lender. All such policies shall be made payable to the
Lender, in case of loss, under a standard noncontributory "lender" or "secured
party" clause and are to contain such other provisions as the Lender may
reasonably require to protect the Lender's interests in the Collateral and to
any payments to be made under such policies. Certificates of insurance policies
are to be delivered to the Lender, premium paid (which may be payable in
installments), with the loss payable endorsement in the Lender's favor, and
shall provide for not less than thirty days' prior written notice to the Lender,
of any cancellation of coverage. The Borrower and Borrower's insurance company
shall not alter in any way the insurance required
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by Lender, as described herein or in the insurance schedule attached hereto,
without the written consent of Lender. If the Borrower fails to maintain such
insurance, the Lender may arrange: for (at the Borrower's expense and without
any responsibility on the Lender's part for) obtaining the insurance. Unless the
Lender shall otherwise agree with the Borrower in writing, the Lender shall have
the sole right, in the name of the Lender or the Borrower, to the claims under
any insurance policies, to receive and give acquittance for any payments that
may be payable thereunder, and to execute any endorsements, receipts, releases,
assignments, reassignments, or other documents that may be necessary to effect
the collection, compromise, or settlement of any claims under any such insurance
policies, provided Borrower has not made such claims as requested by Lender and
provided Borrower has provided Lender adequate assurances, as determined by
Lender in its sole discretion, that the value of Lender's Collateral has not
been affected.
SECTION 5.5 TAXES. The Borrower will pay, when due,
all taxes, assessments, claims, and other charges ("Taxes") lawfully levied or
assessed against the Borrower or the Collateral other than Taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by the
Borrower in accordance with GAAP. If any Taxes remain unpaid after the date
fixed for the payment thereof, or if any lien shall be claimed therefor, then,
without notice to the Borrower, but on the Borrower's behalf, the Lender may pay
such Taxes, and the amount thereof shall be included in the Obligations, except
to the extent such Taxes are being diligently contested in good faith by the
Borrower by appropriate proceedings promptly instituted and for which an
adequate reserve is being maintained by the Borrower in accordance with GAAP.
SECTION 5.6 BORROWER TO DEFEND COLLATERAL AGAINST
CLAIMS; FEES ON COLLATERAL. The Borrower will defend the Collateral against all
claims and demands of all Persons at any time claiming the same or any interest
therein. The Borrower will not permit any notice creating or otherwise relating
to liens on the Collateral or any portion thereof to exist or be on file in any
public office other than Permitted Liens. The Borrower shall promptly pay, when
payable, all transportation, storage, and warehousing charges and license fees,
registration fees, assessments, changes, permit fees, and taxes (municipal,
state, or federal) which may now or hereafter be imposed upon the ownership,
leasing, renting, possession, sale, or use of the Collateral, other than taxes
on or measured by the Lender's income and fees, assessments, charges, and taxes
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP.
SECTION 5.7 NO CHANGE OF LOCATION, STRUCTURE, OR
IDENTITY. The Borrower will not (a) change the location of its chief executive
office or establish any place of business other than those specified herein or
(b) move or permit the movement of any item of Collateral from the location
specified in the applicable Schedule, except that the Borrower may change its
chief executive office and keep Collateral at other locations within the United
States provided that the Borrower has delivered to the Lender (i) prior written
notice thereof and (ii) duly executed financing statements and other agreements
and instruments (all in form and substance satisfactory to the Lender) necessary
or, in the opinion of the Lender, desirable to perfect and maintain in favor of
the Lender a first priority security interest in the Collateral. Notwithstanding
anything to the contrary in the immediately preceding sentence, the Borrower may
keep any Collateral consisting of motor vehicles or rolling stock at any
location in the United States provided
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that the Lender's security interest in any such Collateral is conspicuously
marked on the certificate of title thereof and the Borrower has complied with
the provisions of Section 5.9.
SECTION 5.8 USE OF COLLATERAL; LICENSES; REPAIR. The
Collateral shall be operated by competent qualified personnel in connection with
the Borrower's business purposes, for the purpose for which the Collateral was
designed and in accordance with applicable operating instructions, laws, and
government regulations, and the Borrower shall use every reasonable precaution
to prevent loss or damage to the Collateral from fire and other hazards. The
Collateral shall not be used or operated for personal, family, or household
purposes. The Borrower shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals, and consents required by federal,
state, or local laws or by any governmental body, agency, or authority in
connection with the delivery, installation, use, and operation of the
Collateral. The Borrower shall keep all of the Equipment in a satisfactory state
of repair and satisfactory operating condition in accordance with industry
standards, and will make all repairs and replacements when and where necessary
and practical. The Borrower will not waste or destroy the Equipment or any part
thereof, and will not be negligent in the care or use thereof. All Equipment
shall not be annexed or affixed to or become put of any realty without the
Lender's prior written consent except that any tenant improvements, which shall
be approved by Lender prior to funding may be annexed or affixed to or become
part of the realty.
SECTION 5.9 FURTHER ASSURANCES. The Borrower will,
promptly upon request by the Lender, execute and deliver or use its best efforts
to obtain any document required by the Lender (including, without limitation,
warehouseman or processor disclaimers, mortgagee waiver, landlord disclaimers,
or subordination agreements with respect to the Obligations and the Collateral),
give any notices, execute and file any financing statements, mortgages, or other
documents (all in form and substance satisfactory to the Lender), mark any
chattel paper, deliver any chattel paper or instruments to the Lender, and take
any other actions that are necessary or, in the opinion of the Lender, desirable
to perfect or continue the perfection and the first priority of the Lender's
security interest in the Collateral, to protect the Collateral against the
rights, claims, or interests of any Persons, or to effect the purposes of this
Agreement. The Borrower hereby authorizes the Lender, as Lender shall deem
necessary in its good faith business judgment as necessary to protect its
security interest hereunder, to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part of the
Collateral without the signature of the Borrow or where permitted by law. A
carbon, photographic, or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law. To the extent required under this
Agreement, the Borrower will pay all costs incurred in connection with any of
the foregoing.
SECTION 5.10 NO DISPOSITION OF COLLATERAL. The
Borrower will not in any way hypothecate or create or permit to exist any lien,
security interest, charge, or encumbrance on or other interest in any of the
Collateral, except for the lien and security interest granted hereby and
Permitted Liens which are junior to the lien and security interest of the
Lender, and the Borrower will not sell, transfer, assign, pledge, collaterally
assign, exchange, or otherwise dispose of any of the Collateral, except Borrower
may dispose of the Collateral provided (1) it is in the ordinary course of
business; (2) new collateral of at least equal value approved by Lender shall be
substituted for the collateral disposed of by Borrower ("Substituted
Collateral"); and (3) that Borrower executes any and all documents and,
instruments necessary to insure that Lender has a
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perfected first security interest in the Substituted Collateral. In the event
the Collateral, or any part thereof, is sold, transferred assigned, exchanged,
or otherwise disposed of in violation of these provisions, the security interest
of the Lender shall continue in such Collateral or part thereof notwithstanding
such sale, transfer, assignment, exchange, or other disposition, and the
Borrower will hold the proceeds thereof in a separate account for the benefit of
the Lender. Following such a sale, the Borrower will transfer such proceeds to
the Lender in kind.
SECTION 5.11 NO LIMITATION ON LENDER'S RIGHTS. The
Borrower will not enter into any contractual obligations which may restrict or
inhibit the Lender's rights or ability to sell or otherwise dispose of the
Collateral or any part thereof.
SECTION 5.12 PROTECTION OF COLLATERAL. Upon notice to
the Borrower (provided that if an Event of Default has occurred and is
continuing the Lender need not give any notice), the Lender shall have the right
at any time to make any payments and do any other acts the Lender may deem
necessary to protect its security interests in the Collateral, including,
without limitation, the rights to satisfy, purchase, contest, or compromise any
encumbrance, charge, or lien which, in the reasonable judgment of the Lender,
appears to be prior to or superior to the security interests granted hereunder,
and appear in, and defend any action or proceeding purporting to affect its
security interests in, or the value of, any of the Collateral. The Borrower
hereby agrees to reimburse the Lender for all payments made and expenses
incurred under this Agreement including fees, expenses, and disbursements of
attorneys and paralegals (including the allocated costs of in-house counsel)
acting for the Lender, including any of the foregoing payments under, or acts
taken to protect its security interests in, any of the Collateral, which amounts
shall be secured under this Agreement, and agrees it shall be bound by any
payment made or act taken by the Lender hereunder absent the Lender's gross
negligence or willful misconduct. The Lender shall have no obligation to make
any of the foregoing payments or perform any of the foregoing acts.
SECTION 5.13 DELIVERY OF ITEMS. The Borrower will (a)
promptly (but in no event later than three Business Days) after its receipt
thereof, deliver to the Lender any documents or certificates of title issued
with respect to any property included in the Collateral, and any promissory
notes, letters of credit or instruments related to or otherwise in connection
with any property included in the Collateral, which in any such case come into
the possession of the Borrower, or shall cause the issuer thereof to deliver any
of the same directly to the Lender, in each case with any necessary endorsements
in favor of the Lender and (b) deliver to the Lender by facsimile as soon as
available copies of any and all press releases and other similar communications
issued by the Borrower.
SECTION 5.14 SOLVENCY. The Borrower shall be and
remain Solvent at all times.
SECTION 5.15 FUNDAMENTAL CHANGES. The Borrower shall
not (a) amend or modify its name, unless the Borrower delivers to the Lender
thirty days prior to any such proposed amendment or modification written notice
of such amendment or modification and within ten days before such amendment or
modification delivers executed Uniform Commercial Code financing statements (in
form and substance satisfactory to the Lender) or (b) merge or consolidate with
any other entity or make any material change in its capital structure (excluding
issuance of new securities for new proceeds), in each case without the Lender's
prior written consent which
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shall not be unreasonably withheld or delayed or (c) permit a change, which
change results from, a single transaction or series of related transactions, but
specifically excluding (1) sales in the public market over a period of more than
20 days and (2) sale of newly issued securities to investors, in more than 45%
of the ownership of any equity interests of the Borrower on the date hereof or
more than 45% of such interests become subject to any contractual, judicial, or
statutory lien, charge, security interest or encumbrance. In the event that
Lender declines to consent to any transaction described in (b) or (c) of this
Section 5.15 or an Event of Default has occurred pursuant to Section 7 (g), and
Borrower proceeds with such transaction, Borrower shall within five (5) Business
Days from consummation of the transaction, prepay the Notes by paying an amount
equal to the present value of the remaining payments (principal and interest)
due thereunder discounted at 8% simple interest per annum, together with all
interest fees and other amounts payable on the amount so prepaid or in
connection therewith to the date of such prepayment. For purposes of Section 7
below, Borrower shall only be deemed to have failed to observe its Obligations
and been in default under this Section 5.15 if Borrower fails to make such
prepayment within the five (5) Business Day period set forth above.
SECTION 5.16 ADDITIONAL REQUIREMENTS. The Borrower
shall take all such further actions and execute all such further documents and
instruments as the Lender may reasonably request to protects its rights under
this Agreement.
SECTION 6. FINANCIAL STATEMENTS. Until the payment and
satisfaction in full of all Obligations, the Borrower shall deliver to the
Lender the following financial information:
SECTION 6.1 ANNUAL FINANCIAL STATEMENTS. As soon as
available, but not later than 120 days after the end of each fiscal year of the
Borrower and its consolidated subsidiaries, the consolidated balance sheet,
income statement, and statements of cash flows and shareholders equity for the
Borrower and its consolidated subsidiaries (the "Financial Statements") for such
year, audited by independent certified public accountants; and
SECTION 6.2 QUARTERLY FINANCIAL STATEMENTS. As soon
as available, but not later than 60 days after the end of each of the first
three fiscal quarters in any fiscal year of the Borrower and its consolidated
subsidiaries, the Financial Statements for such fiscal quarter, together with a
certification duly executed by a responsible officer of the Borrower that such
Financial Statements have been prepared in accordance with GAAP and are fairly
stated in all material respects (subject to normal year-end audit adjustments).
SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the
following events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to pay within two days of notice
of nonpayment any amount required to be paid by the Borrower under or in
connection with any Note and this Agreement,
(b) any material representation or warranty made or deemed
made by the Borrower under or in connection with any Loan Document or any
Financial Statement shall prove to have been false or incorrect in any material
respect when made;
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(c) the Borrower shall fail to perform or observe (i) any of
the terms, covenants or agreements contained in Sections 5.4, 5.7, 5.10, 5.14,
or 5.15 hereof or (ii) any other term, covenant, or agreement contained in any
Loan Document (other than the other Events of Default specified in this Section
7) and such failure remains unremedied for the earlier of fifteen days from (A)
the date on which the Lender has given the Borrower written notice of such
failure or (B) the date on which the Borrower knew of such failure;
(d) dissolution, liquidation, winding up, or cessation of the
Borrower's business, failure of the Borrower generally to pay its debts in
accordance with Borrower's customary practice, admission in writing by the
Borrower of its inability generally to pay its debts as they mature, or calling
of a meeting of the Borrower's creditors for purposes of compromising any of the
Borrower's debts;
(e) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership, or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
sixty days following the commencement thereof, or any action by the Borrower is
taken authorizing any such proceedings;
(f) an assignment for the benefit of creditors is made by the
Borrower, whether voluntary or involuntary, the appointment of a trustee,
custodian, receiver, or similar official for the Borrower or for any substantial
property of the Borrower, or any action by the Borrower authorizing any such
proceeding;
(g) the Borrower shall default in (i) the payment of principal
or interest on any indebtedness in excess of $200,000 (other than the
Obligations) beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness was created; or (ii) the observance or
performance of any other agreement or condition relating to any such
indebtedness or contained in any instrument or agreement relating thereto, or
any other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of such
indebtedness to cause, with the giving of notice if required, such indebtedness
to become due prior to its stated maturity and such default affects Borrower's
ability to repay the Obligations to Lender as determined by Lender in its
reasonable business judgment; or. (iii) any loan or other agreement under which
the Borrower has received financing from Transamerica Corporation or any of its
affiliates and provided Borrower does not cure such default described in this
Paragraph 7 (g) as provided in Section 5.15;
(h) the Borrower suffers or sustains a Material Adverse
Change;
(i) any tax lien, other than a Permitted Lien, is filed of
record against the Borrower and is not bonded or discharged within five Business
Days;
(j) any judgment which has had or could reasonably be expected
to have a Material Adverse Effect on the Borrower and such judgment shall not be
stayed, vacated, bonded, or discharged within sixty days;
(k) any material covenant, agreement or obligation, as
determined in the sole discretion of the Lender, made by the Borrower and
contained in or evidenced by any of the Loan
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Documents shall cease to be enforceable, or shall be determined to be
unenforceable, in accordance with its terms; the Borrower shall deny or
disaffirm the Obligations under any of the Loan Documents or any liens granted
in connection therewith; or any liens granted on any of the Collateral in favor
of the Lender shall be determined to be void, voidable, or invalid, or shall not
be given the priority contemplated by this Agreement, provided any such instance
materially affects Lender's security interest or ability to be repaid; or
SECTION 8. REMEDIES. If any Event of Default shall have
occurred and be continuing:
(a) The Lender may, without prejudice to any of its other
rights under any Loan Document or Applicable Law, declare all Obligations to be
immediately due and payable (except with respect to any Event of Default set
forth in Section 7(f) hereof, in which case all Obligations shall automatically
become immediately due and payable without necessity of any declaration) without
presentment, representation, demand of payment or protest, which are hereby
expressly waived.
(b) The Lender after the fifth day following an Event of
Default which has not been cured as provided above in this Section may take
possession of the Collateral and, for that purpose may enter, with the aid and
assistance of any person or persons, any premises where the Collateral or any
part hereof is, or may be placed, and remove the same.
(c) The obligation of the Lender, if any, to make additional
Loans or financial accommodations of any kind to the Borrower shall immediately
terminate.
(d) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein (or in any Loan
Document) or otherwise available to it, all the rights and remedies of a secured
party under the applicable Uniform Commercial Code (the "Code") whether or not
the Code applies to the affected Collateral and also may (i) require the
Borrower to, and the Borrower hereby agrees that it will at its expense and upon
request of the Lender forthwith, assemble all or part of the Collateral as
directed by the Lender and make it available to the Lender at a place to be
designated by the Lender that is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Lender's
offices or elsewhere, for cash, on credit, or for future delivery, and upon such
other terms as the Lender may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at least ten days
notice to the Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Lender may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(e) All cash proceeds received by the Lender in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for, or then or at any time thereafter applied in whole or in part by
the Lender against all or any part of the Obligations in such order as the
Lender shall elect. Any
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surplus of such cash or cash proceeds held by the Lender and remaining after the
full, and final payment of all the Obligations shall be paid over to the
Borrower or to such other Person to which the Lender may be required under
applicable law, or directed by a court of competent jurisdiction, to make
payment of such Surplus.
SECTION 9. MISCELLANEOUS PROVISIONS.
SECTION 9.1 NOTICES. Except as otherwise provided
herein, all notices, approvals, consents, correspondence, or other
communications required or desired to be given hereunder shall be given in
writing and shall be delivered by overnight courier, hand delivery, or certified
or registered mail postage prepaid, if to the Lender, then to Transamerica
Technology Finance Division, 76 Batterson Park Road, Farmington, Connecticut
06032, Attention: Assistant Vice President Lease Administration, with a copy to
the Lender at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont,
Illinois 60018, Attention: Legal Department, and if to the Borrower, then to
Nanogen, Inc., 10398 Pacific Center Court, San Diego, California 92121,
Attention: Chief Financial Officer and General Counsel and a copy to Pillsbury
Madison & Sutro LLP, 11975 El Camino Real, Suite 200, San Diego, CA 92130-2593,
Attention: Eric A. Kremer, Esq. or such other address as shall be designated by
the Borrower or the Lender to the other party in accordance herewith. All such
notices and correspondence shall be effective when received.
SECTION 9.2 HEADINGS. The headings in the Agreement
are for purposes of reference only and shall not affect the meaning or
construction of any provision of this Agreement.
SECTION 9.3 ASSIGNMENTS. The Borrower shall not have
the right to assign any Note or this Agreement or any interest therein unless
the Lender shall have given the Borrower prior written consent and the Borrower
and its assignee shall have delivered assignment documentation in form and
substance satisfactory to the Lender in its sole discretion. The Lender may
assign its rights and delegate its obligations under any Note or this Agreement.
SECTION 9.4 AMENDMENTS, WAIVERS, AND CONSENTS. Any
amendment or waiver of any provision of this Agreement and any consent to any
departure by the Borrower from any provision of this Agreement shall be
effective only by a writing signed by the Lender and shall bind and benefit the
Borrower and the Lender and their respective successors and assigns, subject, in
the case of the Borrower, to the first sentence of Section 9.3. Any amendment of
any provision of this Agreement shall be effective only be a writing signed by;
the Lender and Borrower.
SECTION 9.5 INTERPRETATION OF AGREEMENT. Time is of
the essence in each provision of this Agreement of which time is an element. All
terms not defined herein or in a Note shall have the meaning set forth in the
applicable Code, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with any Note, or any term or
provision thereof, and is not dealt with herein with more specificity, this
Agreement shall control with respect to the subject matter of such term or
provision. Acceptance of or acquiescence in a course of performance rendered
under this Agreement shall not be relevant in determining the meaning of this
Agreement even though the accepting or acquiescing party had knowledge of the
nature of the performance and opportunity for objection.
-15-
<PAGE>
SECTION 9.6 CONTINUING SECURITY INTEREST. This
Agreement shall, create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the indefeasible payment in full
of the Obligations, (ii) be binding upon the Borrower and its successors and
assigns and (iii) inure, together with the rights and remedies of the Lender
hereunder, to the benefit of the Lender and its successors, transferees, and
assigns.
SECTION 9.7 REINSTATEMENT. To the extent permitted by
law, this Agreement and the rights and powers granted to the Lender hereunder
and under the Loan Documents shall continue to be effective or be reinstated if
at any time any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation, or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee, or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
SECTION 9.8 SURVIVAL OF PROVISIONS. All
representations, warranties, and covenants of the Borrower contained herein
shall survive the execution and delivery of this Agreement and shall terminate
only upon the full and final payment and performance by the Borrower of the
Obligations secured hereby.
SECTION 9.9 INDEMNIFICATION. The Borrower agrees to
indemnify and hold harmless the Lender and its directors, officers, agents,
employees, and counsel from and against any and all costs, expenses, claims, or
liability incurred by the Lender or such Person hereunder and under any other
Loan Document or in connection herewith or therewith, unless such claim or
liability shall be due to willful misconduct or gross negligence on the part of
the Lender or such Person.
SECTION 9.10 COUNTERPARTS; TELECOPIED SIGNATURES.
This Agreement may be executed in counterparts, each of which when so executed
and delivered shall be an original, but both of which shall together constitute
one and the same instrument. This Agreement and each of the other Loan Documents
and any notices given in connection herewith or therewith may be executed and
delivered by telecopier or other facsimile transmission all with the same form
and effect as if the same was a fully executed and delivered original manual
counterpart,
SECTION 9.11 SEVERABILITY. In case any provision in
or obligation under this Agreement or any Note or any other Loan Document shall
be invalid, illegal, or unenforceable in any jurisdiction, the validity,
legality, and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 9.12 DELAYS; PARTIAL EXERCISE OF REMEDIES. No
delay or omission of the Lender to exercise any right or remedy hereunder,
whether before or after the happening of any Event of Default, shall impair any
such right or shall operate as a waiver thereof or as a waiver of any such Event
of Default. No single or partial exercise by the Lender of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.
-16-
<PAGE>
SECTION 9.13 ENTIRE AGREEMENT. The Borrower and the
Lender agree that this Agreement, the Schedule hereto, and the Commitment Letter
are the complete and exclusive statement and agreement between the parties with
respect to the subject matter hereof, superseding all proposals and prior
agreements, oral or written, and all other communications between the parties
with respect to the subject matter hereof. Should there exist any inconsistency
between the terms of the Commitment Letter and this Agreement, the terms of this
Agreement shall prevail.
SECTION 9.14 SETOFF. In addition to and not in
limitation of all rights of offset that the Lender may have under Applicable
Law, and whether or not the Lender has made any demand or the Obligations of the
Borrower have matured, the Lender shall have the right to appropriate and apply
to the payment of the Obligations or the Borrower all, deposits and other
obligations then or thereafter owing by the Lender to or for the credit of the
account of the Borrower.
SECTION 9.15 WAIVER OF JURY TRIAL. THE BORROWER AND
THE LENDER IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY
OTHER LOAN DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 9.16 GOVERNING LAW. THE VALIDITY,
INTERPRETATION, AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN, ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SECTION 9.17 VENUE; SERVICE OF PROCESS. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY,
OR OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND,
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER. HEREBY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN
CONNECTION WITH ANY SUCH ACTION OR PROCEEDING, (a) ANY OBJECTION, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (b) THE RIGHT
TO INTERPOSE ANY NONCOMPULSORY SETOFF, COUNTERCLAIM, OR CROSSCLAIM. THE BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS
FOR IT SPECIFIED IN SECTION 9.1 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER
-17-
<PAGE>
JURISDICTION, SUBJECT IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH RESPECT TO
RIGHTS AND REMEDIES.
SECTION 9.18 The Lender agrees to promptly execute
and file such financing statement terminations and/or releases as may be
necessary upon satisfaction of the Obligations and as to any Collateral disposed
of by the Borrower as described in Section 5.10.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Agreement
to be duly executed and delivered by its proper and duly authorized officer as
of the date first set forth above.
NANOGEN, INC.
By: /s/ Daniel Burgess
------------------------------------
Name: Daniel Burgess
Title: Vice President, Finance
Chief Financial Officer
Federal Tax ID: 33-0489621
Accepted as of the 14 day
of June 1999
By: /s/ Gary P. Moro
---------------------------------
Name: Gary P. Moro
Title: Vice President
-18-
<PAGE>
March 5, 1999
Mr. Dan Burgess
Chief Financial Officer
Nanogen, Inc.
10398 Pacific Center Court
San Diego, California 92121
Dean Dan:
Transamerica Business Credit Corporation - Technology Finance Division
("Lender") is pleased to offer financing for the Equipment described in this
letter to Nanogen, Inc. ("Borrower"). This Commitment supersedes all prior
correspondence, proposals, and oral or other communications relating to
financing arrangements between Borrower and lender, and is subject to the terms
and conditions set forth below.
The outline of this offer is as follows:
LENDER: Transamerica Business Credit Corporation - Technology
Finance Division and/or its affiliates, successOrs or
assigns.
BORROWER: Nanogen, Inc.
EQUIPMENT COST: Not to exceed $5,000,000 in the aggregate.
EQUIPMENT: Scientific laboratory and test equipment, computer
equipment, and furniture. Up to $1,000,000 may be
used to finance tenant improvements. All Equipment is
subject to approval by Lender prior to funding.
COLLATERAL: Lender shall receive a perfected first priority
security interest in the Equipment described above,
including, without limitation, all additions,
improvements, repairs, appurtenances, accessions,
substitutions and attachments, and all cash and
non-cash proceeds (including insurance proceeds) of
the foregoing (the "Collateral").
LOCATION OF COLLATERAL: San Diego, California
EXPECTED FUNDING DATE: Through December 31, 1999.
LOAN TERM: Each Loan Term will commence upon delivery of the
equipment or upon each delivery of items of equipment
having an aggregate cost of not less than $75,000,
and will continue through 60 months from the first
day of the month next following or coincident with
commencement of that Loan Term.
-1-
<PAGE>
PAYMENT TERMS: For 60 Month Equipment, Monthly Payments equal to
2.06864% of original principal amount of each Loan
will be payable monthly in advance. The first Monthly
Payment will be due and payable on or before
commencement of each Loan Term.
BALLOON PAYMENT: At the end of each Loan Term, the Borrower will be
obligated to make one final Balloon Payment equal to
5% of the original principal amount of each Loan,
plus any other amounts then due and owing to Lender.
ADJUSTMENT TO
PAYMENT TERMS: Lender shall adjust the rates set forth above as of
the date each Loan Term commences commensurate to the
change in the weekly average of the interest rates of
five-year U.S. Treasury Securities (as published in
the Wall Street Journal) from the week ending
December 25, 1998 to the week preceding the
commencement of that Loan Term. As of the date each
Loan Term commences, the Monthly Payment will be
fixed for that entire Loan Term. A schedule of the
actual Monthly Payments will be provided by the
Lender following commencement of each Loan Term.
INTERIM PAYMENT: An Interim Payment will accrue from the date each
Loan Term commences until the next following first
day of a month (unless the Loan Term commences on the
first day of a month). The Interim Payment will be
interest only calculated based on the interest rate
applicable for the respective note as determined by
the interest calculated above.
INSURANCE: Prior to any delivery of equipment, the Borrower will
furnish a insurance certificate acceptable to the
Lender covering the Collateral including primary, all
risk (excluding flood and earthquake coverage),
physical damage, property damage and bodily injury
with appropriate loss payee and additional insured
endorsements in favor of the Lender.
CONDITIONS PRECEDENT
TO LENDING: Each Loan will be subject to the following:
1. No material adverse change in the
financial condition, operations or
prospects of the Borrower prior to
funding. The Lender reserves the
right to rescind any unused portion
of its commitment in the event of a
material adverse change in the
financial condition, operation or
prospects of the Borrower.
-2-
<PAGE>
2. Completion of the documentation and
final terms of the proposed
financing satisfactory to Lender and
Lender's counsel.
3. Results of all due diligence,
including lien, judgment and tax
search and other matters Lender may
request shall be satisfactory to
Lender and Lender's counsel.
4. Receipt of Lender of duly executed
loan documentation in form and
substance satisfactory to lender and
its counsel.
5. Lender shall receive a valid and
perfected first priority lien and
security interest in the Equipment
and lender shall have received
satisfactory evidence that there are
no liens on the Equipment except as
expressly permitted herein.
ADDITIONAL COVENANTS: There will be no actual or threatened conflict with,
or material violation of, any regulatory statute,
standard or rule relating to the Borrower, its
present or future operations, or the Equipment.
Borrower will be required to provide quarterly
financial information. All information supplied by
the Borrower will be correct and will not omit any
statement necessary to make the information supplied
not be misleading. There will be no material breach
of the representations and warranties of the Borrower
in the Loan.
EXPENSES: All costs and expenses incurred by the Lender in
connection with the underwriting and closing the
Loans will be paid by the Borrower whether or not any
Loans are consummated and funds are advanced by the
Lender. Such expenses shall be limited to $5,000
without the consent of the Borrower.
LAW: This letter and the proposed Loan are intended to be
governed by and construed in accordance with Illinois
law without regard to its conflict of law provisions.
INDEMNITY: Borrower agrees to indemnify and to hold harmless
Lender, and its officers, directors and employees
against all claims, damages, liabilities and expenses
which may be incurred by or asserted against any such
person in connection with or arising out of this
letter and the transactions contemplated hereby,
other than claims, damages, liability, and expense
resulting from such person's gross negligence or
willful misconduct.
CONFIDENTIALITY: This letter is delivered to you with the
understanding that neither it nor its substance shall
be disclosed publicly or privately to any third
person except those who are in a confidential
relationship to
-3-
<PAGE>
you (such as your legal counsel and accountants), or
where the same is required by law and then only on
the basis that it not be further disclosed, which
conditions Borrower and its agents agree to be bound
by upon acceptance of this letter.
Without limiting the generality of the foregoing,
none of such persons shall use or refer to lender or
to any affiliate name in any disclosures made in
connection with any of the transactions without
Lender's prior written consent.
Upon completion of the initial takedown by Borrower,
the Borrower will no longer be required to obtain
Lender's prior written consent to disclose the
transaction contemplated hereby. In addition, the
Borrower agrees to provide camera ready artwork of
typestyles and logos of the Borrower for use in
promotional material by the Lender.
CONDITIONS OF ACCEPTANCE: This Commitment Letter is intended to be a summary of
the most important elements of the agreement to enter
into a loan transaction with Borrower, and it is
subject to all requirements and conditions contained
in Loan documentation proposed by Lender or its
counsel in the course of closing the Loans described
herein. Not every provision that imposes duties,
obligations, burdens, or limitations on Borrower is
contained herein, but shall be contained in the final
Loan documentation satisfactory to Lender and its
counsel.
EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY SUIT, ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATED TO THIS LETTER OR THE TRANSACTION
DESCRIBED IN THIS LETTER.
APPLICATION FEE: The $20,000 Application Fee previously paid will be
first applied to the reasonable costs and expenses of
the Lender in connection with the transaction (capped
at $5,000), and any remainder shall be applied pro
rata (based on the amount of each funding to the
total amount of this commitment) to the second
month's payment due under each Loan.
COMMITMENT EXPIRATION: This commitment shall expire on March 10, 1999 unless
prior thereto either extended in writing by the
Lender or accepted as provided below by the Borrower.
-4-
<PAGE>
Should you have any questions, please call me. If you wish to accept this
Commitment, please so indicate by signing and returning the enclosed duplicate
copy of this letter to me by March 10, 1999.
Yours truly,
TRANSAMERICA BUSINESS CREDIT
CORP - TECHNOLOGY FINANCE
DIVISION
By /s/ Robert D. Pomeroy, Jr.
------------------------------
Robert D. Pomeroy, Jr.
Executive Vice President
Accepted this 9th the day of March, 1999
NANOGEN, INC.
By /s/ Daniel Burgess
------------------------------
Name: Daniel Burgess
Title Vice President, Finance
-5-
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
This Schedule of exceptions (this "Schedule") is being delivered to
Transamerica Business Credit Corporation, a Delaware corporation ("Lender"), by
Nanogen, Inc., a Delaware corporation ("Borrower"), pursuant to the terms of
that certain Master Loan and Security Agreement dated June 14, 1999 between
Lender and Borrower (the "Agreement") (to which this Schedule is attached as
EXHIBIT "B").
Terms with initial letters capitalized and not otherwise defined herein
have their respective meanings as set forth in the Agreement.
The section numbers in this Schedule correspond to the section numbers
in the Agreement; however, any information disclosed herein under any section
number shall be deemed to be disclosed and incorporated into any other section
number under the Agreement where such disclosure would be appropriate.
The disclosure of any matter or document in this Schedule shall not
imply any representation, warranty or undertaking not expressly given in the
Agreement nor shall such disclosure be taken as extending the scope of any
representation, warranty or undertaking set forth in the Agreement.
SECTION 4.4
Borrower is in a dispute with its landlord, Killroy Realty Corporation
("Landlord"), involving certain repairs to Borrower's leased premises. Borrower
has asserted a claim against Landlord that Landlord is responsible for the cost
of certain repairs. No action has been filed by Borrower in this matter, and
Borrower and Landlord are currently discussing a settlement of the dispute.
However, if a settlement is not reached, this dispute might result in
litigation.
Borrower has received letters from the owners of patents suggesting
that Borrower consider entering into license agreements. Borrower has not
received any correspondence from any such owner expressly stating that Borrower
is violating any valid patent rights.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-83993, No. 333-50217 and No. 333-50381) pertaining to the
Employee Stock Purchase Plan and the 1993 Stock Option Plan, 1995 Stock
Option/Issuance Plan, and 1997 Stock Incentive Plan of Nanogen, Inc., of our
report dated January 28, 2000, with respect to the consolidated financial
statements of Nanogen, Inc., included in the Annual Report (Form 10-K) for
the year ended December 31, 1999.
ERNST & YOUNG LLP
San Diego, California
February 17, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 41,021
<SECURITIES> 0
<RECEIVABLES> 2,320
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,341
<PP&E> 10,136
<DEPRECIATION> (3,982)
<TOTAL-ASSETS> 50,785
<CURRENT-LIABILITIES> 9,833
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 38,102
<TOTAL-LIABILITY-AND-EQUITY> 50,785
<SALES> 0
<TOTAL-REVENUES> 8,119
<CGS> 0
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<OTHER-EXPENSES> 35,353
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<INTEREST-EXPENSE> (2,035)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,199)
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