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Sample Business ContractsHome: Sample Business Contracts:
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MASTER AGREEMENT
between
BECTON, DICKINSON AND COMPANY
and
NANOGEN, INC.
------------------------
Dated as of October 1, 1997
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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ARTICLE I THE PARTNERSHIP......................................................3
1.1 Exclusive Arrangement...........................................3
1.2 Purpose.........................................................3
1.3 Partnership Agreement...........................................4
ARTICLE II ANCILLARY AGREEMENTS................................................4
2.1 Collaborative Research and Development and License Agreement....4
2.2 Administrative Services.........................................4
2.3 Future Agreements...............................................5
2.4 Cooperation................................................... 11
2.5 Access to Facilities.......................................... 11
2.6 Right of First Offer.......................................... 11
2.7 SDA License Outside the Field................................. 13
2.8 Letter of Intent.............................................. 13
2.9 Confirmation Under Stock Purchase Agreement................... 13
ARTICLE III REPRESENTATIONS AND WARRANTIES; COVENANTS........................ 14
3.1 Representations and Warranties of Becton...................... 14
3.2 Representations and Warranties of Nanogen..................... 15
3.3 Covenants of Becton and Nanogen............................... 17
ARTICLE IV EFFECTIVE DATE AND DELIVERIES..................................... 18
ARTICLE V DISPUTE RESOLUTION................................................. 18
5.1 Dispute Resolution............................................ 18
5.2 Non-binding Mediation......................................... 19
5.3 Statutes of Limitations....................................... 20
5.4 Equitable Relief.............................................. 20
5.5 Expenses of Consultation and Mediation........................ 20
ARTICLE VI TERMINATION....................................................... 21
ARTICLE VII MISCELLANEOUS PROVISIONS......................................... 21
7.1 Brokers' and Finders' Fees.................................... 21
7.2 Expenses...................................................... 21
7.3 Further Assurances............................................ 21
7.4 Entire Agreement.............................................. 22
7.5 Assignment and Binding Effect................................. 22
7.6 Written Amendment; Waiver..................................... 23
7.7 Notices....................................................... 23
7.8 Governing Law; Construction................................... 24
7.9 No Benefit to Others.......................................... 25
</TABLE>
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<TABLE>
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7.10 Counterparts.................................................. 25
7.11 Severability.................................................. 25
7.12 Relationship of the Parties................................... 25
7.13 Publicity..................................................... 25
EXHIBITS
A - General Partnership Agreement
B - Collaborative Research and Development and License Agreement
C - Administrative Services Agreements
D - SDA License Agreement
E - Letter of Intent
F - Officer's Certificate
G - CPR Procedures
</TABLE>
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<PAGE> 4
THIS MASTER AGREEMENT (the "Agreement") is made as of the 1st day of
October, 1997 by and between BECTON, DICKINSON AND COMPANY, a New Jersey
corporation ("Becton"), and NANOGEN, INC., a California corporation ("Nanogen"),
with reference to the following background:
A. Nanogen has developed certain technology related to electronically
addressable microchip oligonucleotide arrays ("Arrays").
B. Becton has developed certain technology related to methods for
creating multiple copies of an oligonucleotide sequence known as Strand
Displacement Amplification ("SDA").
C. On May 5, 1997 Becton and Nanogen entered into (i) a Series D
Preferred Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to
which Becton acquired an equity interest in Nanogen and agreed to purchase
additional shares of stock of Nanogen upon the occurrence of certain events. In
addition, as of May 5, 1997, Becton and Nanogen entered into a Collaborative
Research and Development Agreement (the "Prior R&D Agreement") to perform
research and development activities with the objective of producing
instrument/reagent systems which utilize Arrays ("Products").
D. Becton and Nanogen now desire to form through special purpose
entities a partnership to be named The Nanogen/Becton Dickinson Partnership (the
"Partnership") having the business of developing and commercializing worldwide
the Products and such other products as Becton and Nanogen shall agree. The
Partnership's activities with respect to Products shall be limited to the
"Field," which shall mean in vitro nucleic acid-based diagnostic and monitoring
technology involving tests utilizing Arrays for the detection, identification
and/or determination of susceptibility/resistance of microbial agents (i.e.,
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<PAGE> 5
bacteria, viruses, fungi and parasites), excluding, however, ***.
Notwithstanding the foregoing, the Field shall include *** for a period which
concludes on that date which is three and one-half (3 1/2) years following the
date of this Agreement or one (1) year following the first commercial
introduction of a Product in the Field, whichever shall first occur.
The Partnership, its Partners and their respective Affiliates will:
conduct research and development with respect to the Products solely in the
Field and any other products agreed to by Becton and Nanogen; obtain the
necessary notifications and applications, and amendments and/or supplements
thereto, as required by the Federal Food, Drug and Cosmetic Act, the Public
Health Service Act and the regulations of the U.S. Food and Drug Administration
("FDA") and comparable foreign regulatory authorities with respect to the
Products solely in the Field and any such other products; manufacture the
Products solely in the Field and any such other products after acquisition of
the appropriate approvals and licenses from the FDA and comparable foreign
regulatory authorities, to the extent so required; market and sell the Products
solely in the Field and any such other products worldwide and (5) do any and all
things related or incidental thereto. "Partnership Business" shall mean
collectively the foregoing activities and functions to be performed by the
Partnership, its Partners and their respective Affiliates. "Affiliates" as used
herein shall mean any corporation or other business entity controlled by or in
common control of a party. "Control" as used herein means the ownership directly
or indirectly of fifty percent (50%) or more of the voting stock of a
corporation or fifty percent (50%) or greater interest in the income of such
corporation or other business entity or the ability otherwise of a party to
secure that the affairs of such corporation or other business entity are managed
in accordance with its wishes.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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NOW, THEREFORE, in consideration of the respective covenants,
representations and warranties herein contained, and intending to be legally
bound, the parties agree as follows:
ARTICLE I
THE PARTNERSHIP
1.1 Exclusive Arrangement. The parties shall cause the Partnership to be
formed by their special purpose entities under the laws of the State of
Delaware, of which Becton Dickinson Venture LLC, a Delaware limited liability
company directly wholly-owned by Becton (the "Becton Partner") and NanoVenture
LLC, a Delaware limited liability company directly wholly-owned by Nanogen (the
"Nanogen Partner"), shall be the general partners (collectively, the
"Partners"). The Partnership Business shall be carried on exclusively by the
Partnership, its Partners and their respective Affiliates. Nothing in this
Agreement or in any Exhibit to this Agreement is intended to create, or may be
construed to create, except as specifically set forth herein or in any agreement
specifically referred to herein, any legal or business relationship between
Becton and Nanogen, including, without limitation, the relationship of principal
and agent or partner, the existence of which is hereby expressly denied by each
party.
1.2 Purpose. The purpose of the Partnership shall be to conduct the
Partnership Business.
1.3 Partnership Agreement. Concurrently with the execution of this
Agreement, the Partners shall enter into a General Partnership Agreement in the
form attached hereto as Exhibit A (the "Partnership Agreement").
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ARTICLE II
ANCILLARY AGREEMENTS
2.1 Collaborative Research and Development and License Agreement.
Concurrently with the execution of this Agreement, the Partnership shall enter
into a Collaborative Research and Development and License Agreement with Becton
and Nanogen in the form attached hereto as Exhibit B (the "Research and
Development Agreement") to employ Becton and Nanogen to conduct continuing
research and development activities with respect to the Products in the Field.
Neither Becton nor Nanogen has entered into any outstanding options, licenses or
agreements of any kind relating to the Products in the Field other than as
otherwise specified in the Research and Development Agreement.
2.2 Administrative Services. Concurrently with the execution of this
Agreement, the Partnership shall enter into an Administrative Services Agreement
in the form attached hereto as Exhibit C (the "Administrative Services
Agreement") with Becton. Becton and Nanogen recognize that the Partnership may
in the future require additional administrative services and that, subject to
the terms of the Partnership Agreement, the Partnership shall enter into
additional agreements in substantially the form attached as Exhibit C with
Becton and/or Nanogen to provide such services, shall contract with third
parties for such services or shall undertake to provide those services itself.
2.3 Future Agreements. Becton and Nanogen recognize that, dependent upon
the results of activities conducted under the Research and Development Agreement
and other factors, the Partnership, Becton and Nanogen will in the future enter
into one or more license agreements, manufacturing/supply agreements and sales,
marketing and distribution agreements in furtherance of the Partnership
Business. Becton and Nanogen have agreed on
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the basic terms of certain of those agreements (the "Basic Terms"), and each of
Becton and Nanogen covenants that it will, and each of Becton and Nanogen
covenants that it will cause the Partnership to, negotiate in good faith
definitive versions of such agreements that reflect the Basic Terms, in no event
later than the date which the Partnership Management Committee (as defined in
the Partnership Agreement) determines is sufficiently in advance of the
commencement of the marketing and manufacturing of Products in the Field. Such
agreements and their Basic Terms are as follows:
(a) License Agreements. The Partnership shall enter into separate
License Agreements with each of Becton and Nanogen (each, a "License Agreement"
and collectively, the "License Agreements"). The License Agreements shall
provide for the following:
(i) The Partnership will license to Nanogen or an Affiliate of
Nanogen all intellectual property rights within the Field necessary for
Nanogen or any such Nanogen Affiliate to manufacture SDA reagents, other
reagents, chips/devices, cartridges and probes (collectively the
"Components") for sale to Becton under the Manufacturing and Supply
Agreements (as described below). The Partnership will license to Becton
or an Affiliate of Becton all intellectual property rights within the
Field necessary for Becton or any such Becton Affiliate to (A)
manufacture instruments ("Instruments") to be used with the Components
to be supplied to Becton by Nanogen under the Manufacturing and Supply
Agreements, (B) sell such Components and sell or provide for the use of
Instruments to third parties in the United States, and (C) to sell such
Components and sell or provide for the use of Instruments to
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foreign Affiliates of Becton for sale of such Components and sale or the
provision of the use of such Instruments by such Becton foreign
Affiliates to third parties in markets outside of the United States. The
royalties payable by Nanogen or its Affiliate and Becton or its
Affiliate to the Partnership under their respective License Agreements
shall be determined on an arm's length basis.
(ii) In order to support the commencement of and successful
manufacturing of the Components and the Instruments for each fiscal year
of the Partnership ("Partnership Fiscal Year"), the Partnership will pay
to each party and/or such Affiliates of such party as such party directs
as promptly as possible after the end of each Partnership Fiscal Year a
manufacturing start-up allowance equal to the amount expended by such
party and/or its Affiliates pursuant to the budget agreed to in
accordance with Section 7.2(1) of the Partnership Agreement for such
Partnership Fiscal Year for Component manufacturing start-up ("Component
Manufacturing Start-Up Allowance") and Instrument manufacturing start-up
("Instrument Manufacturing Start-Up Allowance").
(iii) In order to support the commencement of successful
marketing, sale and distribution of the Components and sale or provision
of the use of Instruments, for each Partnership Fiscal Year the
Partnership will pay to Becton and/or such Affiliates of Becton as
Becton directs as promptly as possible after the end of each Partnership
Fiscal Year a promotional and marketing allowance equal to the amount
expended by Becton and/or its
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Affiliates pursuant to the budget agreed to in accordance with section
7.2(1) of the Partnership Agreement for such Partnership Fiscal Year for
marketing, selling and distributing Components and Instruments and the
costs of providing for the use of Instruments ("Marketing Allowance").
(iv) The allowances provided for in Sections 2.3(a)(ii) and (iii)
shall be paid by the Partnership for each Partnership Fiscal Year unless
the Partnership Business generates Net Cash Flow for such Partnership
Fiscal Year. Notwithstanding the foregoing provisions of this Section
2.3(a)(iv), the Partnership shall in all events pay the following
minimum allowances to Becton which Becton and/or its Affiliates shall
expend on the promotion, marketing, sale and distribution of Components
and sale or provision of the use of Instruments on behalf of the
Partnership's Business: (x) *** for the Partnership's first amplified
Product in the Field, (y) *** for the Partnership's first non-amplified
Product in the Field and (z) *** for the Partnership's first Product for
testing antibiotic resistance in the Field. For purposes of this Section
2.3(a)(iv), "Net Cash Flow" for a Partnership Fiscal Year shall mean the
excess, if any, of (A) total cash receipts of the Partnership Business
for such Partnership Fiscal Year, exclusive of contributions made to the
Partnership in such Partnership Fiscal Year, over (B) total cash
disbursements of the Partnership Business for such Partnership Fiscal
Year, exclusive of the sum of any Component Manufacturing Start-Up
Allowance, Instrument Manufacturing Start-Up Allowance and Marketing
Allowance paid by the Partnership in such Partnership Fiscal Year.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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(b) Funding of Allowances.
(i) The Becton Partner shall contribute to the Partnership as
provided in Section 8.1(a)(v) of the Partnership Agreement to fund the
Instrument Manufacturing Start-Up Allowance, and the Nanogen Partner
shall contribute to the Partnership as provided in Section 8.1(b)(v) of
the Partnership Agreement to fund the Component Manufacturing Start-Up
Allowance, to be paid to Becton or Nanogen, as the case may be, by the
Partnership pursuant to the applicable License Agreement. Such
contributions shall be consistent with each such allowance.
(ii) The Becton Partner shall contribute to the Partnership as
provided in Section 8.1(a)(v) of the Partnership Agreement to fund the
promotional and marketing allowance to be paid to Becton by the
Partnership pursuant to the License Agreement between the Partnership
and Becton. Such contributions by the Becton Partner shall be consistent
with the Marketing Allowance and in all events shall be in the following
minimum amounts: (x) *** for the Partnership's first amplified Product
in the Field, (y) *** for the Partnership's first non-amplified Product
in the Field and (z) *** for the Partnership's first Product for testing
antibiotic resistance in the Field.
(c) Manufacturing and Supply Agreements. Nanogen and Becton shall enter
into Manufacturing and Supply Agreements for, respectively, the United States
and outside of the United States (collectively, the "Manufacturing and Supply
Agreements"). The Manufacturing and Supply Agreements shall provide for the
following:
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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(i) Nanogen shall supply Components to Becton for sale by Becton
to third parties in the United States, and for sale by Becton to its
Affiliates for sale to third parties outside the United States. The
prices at which, or procedures for determining the prices at which,
Components are to be supplied to Becton under the Manufacturing and
Supply Agreement for the United States shall be established in said
Manufacturing and Supply Agreement in such manner that as a result of
such pricing, the applicable Profit or Loss (as defined in Section
2.3(c)(ii)) relating to the United States market is shared 50% by
Nanogen and 50% by Becton. In the case of the sale of Components and the
sale or provision of use of Instruments by Becton Affiliates outside the
United States, the Profit or Loss relating to foreign markets also shall
be shared 50% by Nanogen and 50% by Becton, and such sharing shall be
achieved by (A) the pricing of Components to Becton under the
Manufacturing and Supply Agreement for outside the United States, (B)
special allocations of Partnership profit, loss, distributions and
contributions or (C) combinations of such pricing and Partnership
allocations, as agreed by Becton and Nanogen as part of the negotiation
of such Manufacturing and Supply Agreement. Becton shall consult in good
faith with Nanogen regarding the prices and amounts of any royalties to
be charged by Becton to its Affiliates for sales of Components and sale
or provision of the use of Instruments *** and the terms of any sales
and any license agreements between Becton and its Affiliates relating to
such sales of Components or sale or provision of the use of such
Instruments; provided,
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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however, that ***, under the Manufacturing and Supply Agreement for ***,
to determine such prices, royalties and terms.
(ii) Under the Manufacturing and Supply Agreements, the
applicable Profit or Loss shall be computed quarterly and any
adjustments to such prices needed to, and payments to be made to,
achieve such sharing of such quarterly applicable Profit or Loss shall
be made promptly after the end of each such fiscal quarter. The
Manufacturing and Supply Agreements each shall define the applicable
"Profit or Loss" in detail and in a manner consistent with the general
principle that applicable Profit or Loss in each case shall be the sum
of (A) the pre-tax net profit earned or loss incurred by Nanogen on the
manufacture and sale of Components to Becton under the applicable
Manufacturing and Supply Agreement, determined after deduction of
royalties payable by Nanogen or its Affiliates under its License
Agreement, (B) the pre-tax net profit earned or loss incurred by Becton
on the manufacture of Instruments and the sale or provision of the use
of Instruments and the sale of Components to third parties in the United
States and to Becton's foreign Affiliates for markets outside the United
States, determined after deduction of royalties payable by Becton or its
Affiliates under its License Agreement; and (C) only in the case of
sales of Components and sale or provision of use of Instruments by
Becton Affiliates outside the United States to third parties outside the
United States, the pre-tax net profit earned or loss incurred by such
Becton foreign Affiliates on such sale or provision of the use of
Instruments and such sale of Components, determined
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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after deduction of any royalties payable by any such Becton Affiliates
in connection therewith.
(d) Scope of Activities. The activities of Becton, Nanogen and their
respective Affiliates pursuant to the Manufacturing and Supply Agreements
described in this Section 2.3 shall be undertaken exclusively within the Field.
2.4 Cooperation. Subject to the terms of the Partnership Agreement,
Becton and Nanogen agree to cause the Becton Partner and the Nanogen Partner,
respectively, to do, all other reasonable acts or things helpful, necessary or
appropriate to maximize the success of the Partnership Business through the
development and commercial exploitation of Products and any other products
agreed to by Becton and Nanogen.
2.5 Access to Facilities. Each of Becton and Nanogen shall be granted
the right, upon reasonable prior notice, to visit the other party's facilities
twice each year during the term of the Partnership for orientation on all
research and development and manufacturing and marketing activities.
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2.6 Right of First Offer.
(a) Nanogen hereby grants to the Becton Partner, acting on behalf
of and for the benefit of the Partnership, rights of first offer to negotiate
licenses to the Partnership in the following fields:
(i) ***
(ii) ***
Upon agreement regarding license terms for one or both of the foregoing
fields, an appropriate change to the definition of "Field" in this Agreement,
the Partnership Agreement and the Research and Development Agreement and
appropriate amendments to incorporate agreed upon license terms shall be made.
(b) The Becton Partner's rights of first offer on behalf of the
Partnership shall be governed by the following procedures.
(i) If during the term of this Agreement Nanogen determines to
offer unrelated third parties a license in either field described in
subparagraph (a) on commercially reasonable terms, Nanogen shall first, prior to
taking any other action with respect to any such third parties, notify the
Becton Partner in writing of its intention to license same. Such written notice
shall include a reasonably detailed description of the proposed field and the
material terms and conditions of such license, including proposed royalty rates
and other financial and commercial terms. Within *** following the Becton
Partner's receipt of such notice, the Becton Partner shall give written notice
to Nanogen of its intention to negotiate such a license on behalf of the
Partnership (the "Notice of Intention"), provided, however, that the Becton
Partner shall not be entitled to negotiate a license for the field of *** unless
Becton or one of its at least 50 percent-owned affiliates is
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 16
then engaged in that business with annual sales revenues in the relevant field
equal to at least ***.
(ii) Following Nanogen's receipt of such a Notice of Intention
from the Becton Partner, the parties shall negotiate in good faith to conclude a
definitive license agreement between the Partnership and Nanogen with respect to
such field. The Becton Partner's negotiating rights with Nanogen shall be
exclusive for a period of ***, subject to earlier termination in the Becton
Partner's discretion.
(iii) If the parties are unable to negotiate a license during the
exclusive negotiating period, thereafter Nanogen in its discretion may negotiate
a license in such field with a third party on terms no less favorable to Nanogen
than those last offered to the Becton Partner on behalf of the Partnership.
2.7 SDA License Outside the Field. Concurrently with the execution of
this Agreement, Becton and Nanogen shall enter into the SDA License Agreement in
the form attached hereto as Exhibit D (the "SDA License Agreement").
2.8 Letter of Intent. Concurrently with the execution of this Agreement,
Becton and Nanogen shall enter into a letter of intent in the form attached
hereto as Exhibit E (the "Letter of Intent") relating to the acquisition by the
Partnership of the assets of *** and of certain intellectual property rights of
***, and related transactions between Becton, Nanogen and the Partnership.
2.9 Confirmation Under Stock Purchase Agreement. Becton and Nanogen
hereby agree and confirm that the Partnership Agreement constitutes a
"partnership or joint venture agreement" as contemplated by the second sentence
of Section 1.3a of the Stock Purchase Agreement which shall remain in full force
and effect.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 17
ARTICLE III
REPRESENTATIONS AND WARRANTIES; COVENANTS
3.1 Representations and Warranties of Becton. Becton represents and
warrants as of the Effective Date that:
(a) Organization, Power and Standing. Becton is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey, and the Becton Partner is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Becton has all necessary corporate power and authority, and the Becton
Partner has all necessary power and authority, to own their respective
properties and to carry on their respective business as now owned and operated
by them.
(b) Authority. Becton has full corporate power and authority to execute
and deliver this Agreement and the Research and Development Agreement, the
Administrative Services Agreement, the SDA License Agreement and the Letter of
Intent (collectively, the "Becton Ancillary Agreements") and to consummate and
perform the transactions contemplated hereby and thereby. The Becton Partner has
full power and authority to execute and deliver the Partnership Agreement and to
consummate and perform the transactions contemplated thereby. The execution and
delivery of this Agreement and the Becton Ancillary Agreements by Becton and the
consummation and performance by Becton of the transactions contemplated hereby
and thereby have been, and the execution and delivery of the Partnership
Agreement by the Becton Partner and the consummation and performance by the
Becton Partner of the transactions contemplated thereby have been, duly and
validly authorized by all necessary corporate or limited liability company
proceedings,
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as applicable; and this Agreement, the Becton Ancillary Agreements and the
Partnership Agreement shall, when executed and delivered on behalf of Becton and
the Becton Partner, as applicable, constitute the valid obligations of Becton
and the Becton Partner, as applicable, and be legally binding upon them in
accordance with their respective terms.
(c) Compliance. No approval or consent of any federal, state, county,
local or other governmental agency or body is required in connection with the
execution, delivery, consummation and performance by Becton of this Agreement or
the Becton Ancillary Agreements or by the Becton Partner of the Partnership
Agreement. The execution, delivery, consummation and performance by Becton of
this Agreement and the Becton Ancillary Agreements, and the execution, delivery,
consummation and performance by the Becton Partner of the Partnership Agreement,
will not conflict with or result in the breach or violation of any term or
provision of, or constitute a default under, the Certificate of Incorporation or
By-Laws of Becton or the operating agreement of the Becton Partner,
respectively, and will not conflict with or result in the breach or violation of
any material term or provision of, or constitute a material default under, any
statute, indenture, mortgage, deed of trust, note agreement or other agreement
or instrument to which Becton or the Becton Partner is a party or by which
Becton or the Becton Partner is bound, or any law, order, writ, injunction,
decree, rule or regulation of any court or any governmental agency or body.
3.2 Representations and Warranties of Nanogen. Nanogen represents and
warrants as of the Effective Date that:
(a) Organization, Power and Standing. Nanogen is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and the
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Nanogen Partner is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Delaware. Nanogen has all
necessary corporate power and authority, and the Nanogen Partner has all
necessary power and authority, to own their respective properties and to carry
on their respective business as now owned and operated by them.
(b) Authority. Nanogen has full corporate power and authority to execute
and deliver this Agreement and the Research and Development Agreement, the SDA
License Agreement and the Letter of Intent (collectively, the "Nanogen Ancillary
Agreements") and to consummate and perform the transactions contemplated hereby.
The Nanogen Partner will have full power and authority to execute and deliver
the Partnership Agreement and to consummate and perform the transactions
contemplated thereby. The execution and delivery of this Agreement and the
Nanogen Ancillary Agreements by Nanogen and the consummation and performance by
Nanogen of the transactions contemplated hereby and thereby have been, and the
execution and delivery of the Partnership Agreement by the Nanogen Partner and
the consummation and performance by the Nanogen Partner of the transactions
contemplated thereby have been, duly and validly authorized by all necessary
corporate proceedings; and this Agreement, the Nanogen Ancillary Agreements and
the Partnership Agreement shall, when executed and delivered on behalf of
Nanogen and the Nanogen Partner, as applicable, constitute the valid obligations
of Nanogen and the Nanogen Partner, as applicable, and be legally binding upon
them in accordance with their respective terms.
(c) Compliance. No approval or consent of any federal, state, county,
local or other governmental agency or body or any individual, corporation or
other entity is required
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in connection with the execution, delivery, consummation and performance by
Nanogen of this Agreement or the Nanogen Ancillary Agreements or by the Nanogen
Partner of the Partnership Agreement. The execution, delivery, consummation and
performance by Nanogen of this Agreement and the Nanogen Ancillary Agreements,
and the execution, delivery, consummation and performance by the Nanogen Partner
of the Partnership Agreement, will not conflict with or result in the breach or
violation of any term or provision of, or constitute a default under, the
Articles of Incorporation or By-Laws of Nanogen or the operating agreement of
the Nanogen Partner, respectively, and will not conflict with or result in the
breach or violation of any material term or provision of, or constitute a
material default under, any statute, indenture, mortgage, deed of trust, note
agreement or other agreement or instrument to which Nanogen or the Nanogen
Partner is a party or by which Nanogen or the Nanogen Partner is bound, or any
law, order, writ, injunction, decree, rule or regulation of any court or any
governmental agency or body.
3.3 Covenants of Becton and Nanogen. (a) Becton covenants to Nanogen
that Becton will ensure that, at all times during the term of the Partnership,
(i) the Becton Partner will have solely one member and (ii) no election to treat
the Becton Partner as a corporation for United States federal income tax
purposes will be made under section 301.7701-3 of the Income Tax Regulations or
any successor regulation; provided, however, beginning after the ***
of the formation of the Partnership, Becton may cause an increase in the
members of the Becton Partner or make such an election to treat the Becton
Partner as a corporation if Becton obtains the prior written consent of Nanogen.
(b) Nanogen covenants to Becton that Nanogen will ensure that, at all
times during the term of the Partnership, (i) the Nanogen Partner will have
solely one member and
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*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 21
(ii) no election to treat the Nanogen Partner as a corporation for United States
federal income tax purposes will be made under section 301.7701-3 of the Income
Tax Regulations or any successor regulation; provided, however, beginning after
the *** of the formation of the Partnership, Nanogen may cause an increase in
the members of the Nanogen Partner or make such an election to treat the Nanogen
Partner as a corporation if Nanogen obtains the prior written consent of Becton.
(c) Each of Becton and Nanogen covenants that it will comply with, and
be bound by, the provisions of Section 7.2 of the Partnership Agreement
regarding Major Decisions (as defined therein) pertaining to the Partnership
Business.
ARTICLE IV
EFFECTIVE DATE AND DELIVERIES
4.1 This Agreement, the Research and Development Agreement, the
Partnership Agreement, the SDA License Agreement, the Letter of Intent and the
Administrative Services Agreement shall be executed and delivered by the
respective parties to each other party as of, and shall each have an effective
date of, October 1, 1997. Each party (other than the Partnership) shall deliver
to each other party an officer's certificate in the form of Exhibit F attached
hereto.
ARTICLE V
DISPUTE RESOLUTION
5.1 Dispute Resolution. Except as otherwise expressly set forth in this
Agreement or the Partnership Agreement, the parties shall attempt in good faith
to resolve
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any disputes, controversies or claims arising out of or related to (i) this
Agreement, (ii) the Partnership Agreement, (iii) the Research and Development
Agreement, (iv) the SDA License Agreement, (v) the Administrative Services
Agreement, (vi) the Letter of Intent and (vii) any other agreement subsequently
entered into between or among them and the Becton Partner and the Nanogen
Partner, including but not limited to any claim of breach, termination or
invalidity, promptly by negotiations between the Chief Executive Officer of
Nanogen and the President of Becton Dickinson Microbiology Systems or other
executives of the parties who have authority to settle the dispute. Either party
may give the other party written notice of any dispute not resolved in the
normal course of business. Within twenty (20) days after delivery of such
notice, executives of both parties shall discuss by telephone or meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to exchange relevant information and to attempt to resolve the
dispute. If the matter has not been resolved within forty (40) days of the
disputing party's notice, the matter shall be referred to the Board of Directors
of Nanogen and to such executive officer of Becton knowledgeable of the subject
matter thereof as the Chief Executive Officer of Becton in his or discretion
shall nominate for further consideration in an attempt to resolve the matter. If
a negotiator intends to be accompanied at a meeting by an attorney, the other
negotiator shall be given at least three (3) working days' notice of such
intention and may also be accompanied by an attorney. All negotiations pursuant
to this Section 5.1 and pursuant to Section 5.2 are confidential and shall be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence and state rules of evidence.
5.2 Non-binding Mediation. If a matter has not been resolved under the
procedures set forth in Section 5.2 above within sixty (60) days of the
disputing party's
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notice, or if the parties fail to discuss or meet within twenty (20) days, then
within ten (10) days thereafter, either party may, but shall not be obligated
to, initiate nonbinding mediation of the controversy or claim under the Center
for Public Resources Model ADR Procedures for Mediation of Business Disputes
attached hereto as Exhibit G (the "CPR Procedures"). Once the mediation is
initiated by one party, the other party agrees to participate in and conduct
mediation in accordance with the CPR Procedures in good faith and not to pursue
other remedies while such mediation is proceeding. If neither party initiates
mediation within the ten (10) day period, or if the dispute has not been
resolved by such mediation within sixty (60) days following initiation of
mediation, either party may pursue all available remedies.
5.3 Statutes of Limitations. All applicable statutes of limitations and
defenses based upon the passage of time shall be tolled while the negotiation
and mediation procedures set forth in Sections 5.1 and 5.2 are pending. The
parties will take such action, if any, as may be reasonably be required to
effectuate such tolling.
5.4 Equitable Relief. Notwithstanding the foregoing, the remedy at law
for any breach of the provisions of this Agreement or such other agreements may
be inadequate, and, accordingly, an aggrieved party seeking equitable relief or
remedies for such a breach shall have the right and is hereby granted the
privilege, in addition to all other remedies at law or in equity, to proceed
directly in a court of competent jurisdiction to seek temporary or preliminary
equitable relief.
5.5 Expenses of Consultation and Mediation. Each party shall pay its own
costs incurred in attempting to resolve a dispute pursuant to the consultation
and mediation
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procedures set forth in Sections 5.1 and 5.2 without the right to recover such
costs from the other party and shall share equally the cost of mediation.
ARTICLE VI
TERMINATION
6.1 This Agreement shall terminate conterminously with the dissolution
of the Partnership, except that the provisions of Article V shall survive.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Brokers' and Finders' Fees. Each of the parties represents and
warrants to the other party that all negotiations relative to this Agreement
have been carried on by it directly without the intervention of any person,
firm, corporation or entity who or which may be entitled to any brokerage fee,
finders' fee or other commission in respect of the execution of this Agreement
or the consummation of the transactions contemplated hereby, and such party
shall indemnify, defend and hold the other party harmless against any and all
claims, losses, liabilities or expenses which may be asserted against the other
party or any affiliate thereof as a result of such party's or any of its
affiliates' dealings, arrangements or agreements with any such person, firm,
corporation or entity.
7.2 Expenses. Each party to this Agreement shall be responsible for the
fees and expenses incurred by it incidental to the consummation of the
transactions contemplated by this Agreement (including, without limitation, fees
and disbursements of its attorneys and accountants in connection with their
respective services on behalf of each party).
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7.3 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties shall take, or cause to be taken, such action to
execute and deliver, or cause to be executed and delivered, such additional
documents and instruments and to do, or cause to be done, all things necessary,
proper or advisable under the provisions of this Agreement and under applicable
laws to consummate and make effective the transactions contemplated by this
Agreement.
7.4 Entire Agreement. This Agreement, the Partnership Agreement, the
Research and Development Agreement, the Administrative Services Agreement, the
Confidentiality Agreement (as such term is defined in the Partnership
Agreement), the SDA License Agreement and the Letter of Intent set forth the
entire understanding of the parties with respect to the subject matter hereof
and supersede and replace all prior agreements, understandings, writings and
discussions between the parties relating to said subject matter. Any and all
previous agreements and understandings between the parties regarding the subject
matter hereof, whether written or oral, including, without limitation, the Prior
Research and Development Agreement, are superseded by this Agreement. In the
event of any conflict between any term or provision of this Agreement and any of
the foregoing agreements, this Agreement shall control. Nothing contained in
this Agreement shall operate to contravene, amend or modify any term or
provision of the Stock Purchase Agreement, which remains in full force and
effect. The representations and warranties contained in this Agreement shall
survive the execution hereof.
7.5 Assignment and Binding Effect. This Agreement shall not be
assignable by Becton or Nanogen, nor shall any obligations hereunder be
delegated to a third party, without the other party's prior written consent,
which consent shall not be unreasonably
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withheld or delayed. In the event that Becton or Nanogen, as the case may be,
does not respond to a request from the other for consent to an assignment or
delegation within fifteen (15) days following written notice requesting such
consent, such consent shall be deemed to be granted. In addition, a condition to
any assignment or delegation hereunder shall be that the successor in interest
expressly agrees in writing to assume the assigning or delegating party's
obligations hereunder. All of the terms and provisions of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
permitted successors and assigns of the parties. No such assignment shall
release the assigning party from its obligations hereunder. Notwithstanding the
foregoing, the consent of either party shall not be required in connection with
a merger involving the other party or with respect to an assignment of this
Agreement in connection with the acquisition, sale of all or substantially all
of the assets of the other party, change of control or similar transaction.
7.6 Written Amendment; Waiver. This Agreement may be amended only by a
written instrument executed by the parties hereto. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect its rights at a later time to enforce the same. No waiver by any
party of any condition or term in any one or more instances shall be construed
as a further or continuing waiver of such condition or term or any other
condition or term.
7.7 Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally, by facsimile (upon
receipt of appropriate written confirmation) or sent by registered or certified
mail, return receipt requested, or by overnight courier service, postage prepaid
as follows:
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If to Becton or the Becton Partner, to:
Becton Dickinson Microbiology Systems
7 Loveton Circle
Sparks, MD 21152
Attention: President
With required copies to:
Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, NJ 07417-1880
Attention: General Counsel
If to Nanogen or the Nanogen Partner, to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: Chief Executive Officer
With required copies to:
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Attention: General Counsel
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so received (in case of personal delivery or overnight courier
delivery) or upon refusal to accept delivery of same.
7.8 Governing Law; Construction. This Agreement and all agreements
attached hereto as Exhibits shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its choice of laws
principles, unless any agreement attached hereto as an exhibit shall otherwise
specifically provide. This Agreement shall be construed and interpreted without
application of any principle or rule to the effect that
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ambiguities are to be construed against the party responsible for drafting the
agreement. The headings contained herein are for reference purposes only and
shall not in any way affect the meaning of this Agreement.
7.9 No Benefit to Others. The terms and provisions contained in this
Agreement are for the sole benefit of the parties and their successors and
assigns, and they shall not be construed as conferring and are not intended to
confer any rights on any other persons.
7.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
7.11 Severability. If any provision(s) of this Agreement are or become
invalid, or are ruled illegal by any court of competent jurisdiction, or are
deemed unenforceable under then current applicable law from time to time in
effect during the term hereof, it is the intention of the parties hereto that
the remainder of this Agreement shall not be affected thereby. It is further the
intention of the parties that in lieu of each such provision which is invalid,
illegal, or unenforceable, there be substituted or added as part of this
Agreement, a provision which shall be as similar as possible in economic and
business objectives as intended by the parties to such invalid, illegal, or
unenforceable provision, but which shall be valid, legal, and enforceable, and
shall be mutually agreed by the parties.
7.12 Relationship of the Parties. Nothing contained in this Agreement
shall be deemed to create a partnership between Becton and Nanogen except as set
forth in the Partnership Agreement. No party shall be liable for the act of any
other party unless such act is expressly authorized in writing by all of the
parties hereto.
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7.13 Publicity. No press release or announcement concerning the terms of
this Agreement or the transactions contemplated hereby shall be issued by any
party without the prior consent of the other party, which shall not be
unreasonably withheld, except as such release or announcement may be required by
law, rule or regulation (including applicable federal and state securities laws,
rules and regulations) or legal process, provided that in each case the party
making the release or announcement shall allow the other party reasonable time
to comment on such release or announcement in advance of such issuance.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement as of the day and year first written
above.
BECTON, DICKINSON AND COMPANY
By /s/ Vincent A. Forlenza
----------------------------------------
Vincent A. Forlenza
President - Worldwide
Microbiology Systems
NANOGEN, INC.
By /s/ Howard C. Birndorf
----------------------------------------
Howard C. Birndorf
Chairman and Chief Executive Officer
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EXHIBIT A
GENERAL PARTNERSHIP AGREEMENT
THIS GENERAL PARTNERSHIP AGREEMENT (the "Agreement") is entered into as
of the 1st day of October, 1997, by and between Becton Dickinson Venture LLC, a
Delaware limited liability company (the "Becton Partner"), and NanoVenture LLC,
a Delaware limited liability company (the "Nanogen Partner"). The Becton Partner
and the Nanogen Partner are hereinafter collectively referred to as the
"Partners."
W I T N E S S E T H:
WHEREAS, the parties hereto desire to form a general partnership (the
"Partnership") under the laws of the State of Delaware for the purposes and on
the terms provided herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
expressed, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Definitions. All capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to them in the Research Agreement
(defined below). Unless the context clearly indicates otherwise, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean any corporation or other business entity
controlled by or in common control of a party. "Control" as used herein means
the ownership directly or indirectly of fifty percent (50%) or more of the
voting stock of a corporation or a fifty percent (50%) or greater interest in
the income of such corporation or other business entity or the ability otherwise
of a party to secure that the affairs of such corporation or other business
entity are managed in accordance with its wishes.
"Assumed Tax Rate" means for a taxable year the sum of (a) the highest
marginal federal income tax rate applicable to corporations for such taxable
year plus (b) the result of multiplying (i) the highest marginal California tax
rate for corporations by (ii) the percentage calculated by subtracting the
highest marginal federal income tax rate for such taxable year from one hundred
percent. The Assumed Tax Rate shall be determined with respect to each taxable
year by the Tax Matters Partner with the approval of the other Partners.
"Becton" means Becton, Dickinson and Company, a New Jersey corporation.
"Becton Partner Unrecovered Cash Contributions" shall mean as of any
date the excess of (a) the sum of the amount set forth in Section 8.1(a)(i) and
the amounts contributed by the Becton Partner under Sections 8.1(a)(iii), (iv)
and (v) as of such date over (b) the cumulative amount of Partnership Business
Cash received by Becton, the Becton Partner and any Affiliate of Becton prior to
such date.
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"Becton Partner Excess Unrecovered Cash Contributions" shall mean the
amount, if any, by which any Becton Partner Unrecovered Cash Contributions
exceed the amount of any Nanogen Partner Unrecovered Cash Contributions.
"Becton Intellectual Property License" shall mean the license set forth
in Section 6.1(a) of the Research Agreement.
"Capital Account" means, with respect to each Partner, an account
determined in accordance with the provisions of Section 8.3.
"Code" means the Internal Revenue Code of 1986, as in effect as of the
date hereof and as amended.
"Components" shall have the meaning ascribed to such term in Section 2.3
of the Master Agreement.
"Confidentiality Agreement" means the Confidentiality Agreement entered
into by Becton and Nanogen effective as of February 6, 1997 as amended.
"FDA" means the U.S. Food and Drug Administration.
"Field" shall have the meaning ascribed to such term in the Research
Agreement.
"Master Agreement" means the Master Agreement entered into by Becton and
Nanogen concurrently with the execution of this Agreement.
"Nanogen" means Nanogen, Inc., a California corporation.
"Nanogen Intellectual Property License" shall mean the license set forth
in Section 6.1(b) of the Research Agreement.
"Nanogen Partner Unrecovered Cash Contributions" shall mean as of any
date the excess of (a) the amounts contributed by the Nanogen Partner under
Sections 8.1(b)(iii), (iv) and (v) as of such date over (b) the cumulative
amount of Partnership Business Cash received by Nanogen, the Nanogen Partner and
any Affiliate of Nanogen prior to such date.
"Net Cash Flow" shall have the meaning ascribed to it in Section 2.3 of
the Master Agreement.
"Net Tax Income" shall mean the excess, if any, of the items of income
and gain for each taxable year over the items of deduction, loss and credit
(grossed up at the Assumed Tax Rate for each taxable year to a deduction
equivalent) for each taxable year as shown on the federal
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income tax returns of the Partnership for each taxable year, except that in the
case of property contributed to the capital of the Partnership, items of income,
gain, deduction and loss shall be computed as if the tax basis of such property
at the time of such contribution were equal to its fair market value at such
time.
"Partnership Business" shall have the meaning ascribed to such term in
the Master Agreement.
"Partnership Business Cash" shall mean the aggregate Net Cash Flow
derived from the Partnership Business by the Becton Partner and Becton and its
Affiliates, the Nanogen Partner and Nanogen and its Affiliates and the
Partnership.
"Partnership Interest" means the entire ownership interest of a Partner
in the Partnership at any particular time including, without limitation, the
right of such Partner to participate in the Partnership's profits and losses,
Net Cash Flow, distributions on liquidation of the Partnership and any and all
benefits to which a Partner may be entitled as provided in this Agreement,
together with the obligation of such Partner to comply with all the terms and
provisions of this Agreement.
"Percentage Interest" means as to the Becton Partner, fifty percent, and
as to the Nanogen Partner, fifty percent.
"Person" means an individual, partnership, corporation, association,
joint venture, trust, government or political subdivision thereof, governmental
agency or other entity.
"Prior Research Agreement" means the Collaborative Research and
Development Agreement entered into by Becton and Nanogen as of May 5, 1997,
which is being terminated by the Research Agreement.
"Product" shall have the meaning ascribed to such term in the Research
Agreement.
"Program Inventions" shall have the meaning ascribed to such term in the
Research Agreement.
"Project A" and "Project B" shall have the meanings ascribed to such
terms in the Research Agreement.
"Regulations" means regulations that have been promulgated by the United
States Department of the Treasury under the Code.
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"Research Agreement" means the Collaborative Research and Development
and License Agreement entered into by Becton, Nanogen and the Partnership
concurrently with the execution of this Agreement.
"Research Milestone I" and "Research Milestone II" shall have the
meanings ascribed to such terms in the Research Agreement.
"Research Program" shall have the meaning ascribed to such term in the
Research Agreement.
2. Formation. The parties hereto hereby associate themselves as partners
and hereby form the Partnership as a general partnership under the laws of the
State of Delaware.
3. Name. The name of the Partnership is The Nanogen/Becton Dickinson
Partnership, a Delaware general partnership. The name of the Partnership may be
changed at any time by the Partnership Management Committee of the Partnership.
4. Principal Place of Business. The principal place of business of the
Partnership shall be located at such location as may hereafter be determined
from time to time by the Partnership Management Committee of the Partnership.
5. Business. The business of the Partnership is to conduct the
Partnership Business.
6. Term. The term of the Partnership shall continue until terminated as
provided in Section 10.
7. Management and Control.
7.1 Partnership Management Committee. The Partnership and the
Partnership Business shall be managed by and under the direction of a
Partnership Management Committee which shall consist of six (6) members. The
Becton Partner shall appoint three (3) members and the Nanogen Partner shall
appoint three (3) members. The initial members shall consist of one (1) person
appointed by each Partner with expertise in (a) finance, (b) general management
and (c) research and development. The initial members to be appointed by each of
the Partners are listed on Exhibit A hereto. The Partnership Management
Committee shall be responsible for strategic planning and, among other things,
shall adopt a summary business plan for each fiscal year and a budget for each
fiscal quarter of the Partnership which shall govern the direction of the
Partnership Business.
7.2 Major Decisions. No action shall be taken or sum expended or
obligation incurred by the Partnership, any Partner or any Affiliate of any
Partner with respect to a matter within the scope of any of the "Major
Decisions" affecting the Partnership and/or the Partnership Business,
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unless such Major Decision shall have been approved by a majority vote of the
Partnership Management Committee (except for matters listed in Section *** where
the affirmative vote of seventy-five percent (75%) of the Partnership Management
Committee is required) made in writing. The following are "Major Decisions"
affecting the Partnership and/or the Partnership Business:
(1) adopting and approving a budget for the Partnership Business
for each fiscal year and each fiscal quarter of the Partnership;
(2) adopting and approving a summary business plan for the
Partnership Business for each fiscal year of the Partnership, and
departing in any material respect from the summary business plan adopted
by the Partnership for any fiscal year;
(3) adopting and approving a budget and clinical plan under the
Research Agreement for each fiscal quarter of the Partnership, and
departing in any material respect from such budget and plan;
(4) appointing a Project Manager within thirty (30) days
following the date hereof to manage the day-to-day affairs of the
Partnership;
(5) making any single expenditure or incurring any obligation
with respect to the Partnership Business involving a sum in excess of
$20,000 that is not provided for in the Partnership Business budget for
the fiscal year in which such expenditure is to be made or such
obligation is to be incurred;
(6) hiring of employees of the Partnership;
(7) retention of legal counsel or accountants for the
Partnership;
(8) selecting a firm of certified public accountants and
selecting accounting methods and making other decisions with respect to
the treatment of various transactions for tax purposes;
(9) approving the terms of and entering into a supply,
manufacturing, sales, marketing or distribution agreement with any party
(including the Partners and their Affiliates) relating to Products or
any other products agreed to by the Partners;
(10) entering into any license or sublicense agreement;
(11) determining the insurance program for the Partnership, and
any variations or changes thereto;
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(12) determining the amount, if any, of funds otherwise available
for distribution to be withheld from distribution to the Partners (funds
available for distribution to the Partners are those funds not needed
for the Partnership's working capital purposes);
(13) determining the maximum and minimum working capital
requirements of the Partnership Business;
(14) compromising or paying any claim in excess of *** arising
out of the Partnership Business;
(15) borrowing or lending any money on behalf of the Partnership
or using any of the Partnership's property as security for loans;
(16) admitting additional Partners to the Partnership;
(17) assigning, transferring, pledging, compromising or releasing
any of the Partnership's claims or debts relating to the Partnership
Business, except upon payment in full, or arbitrate or consent to the
arbitration of any such disputes or controversies;
(18) selling or mortgaging any Partnership property or interest
therein or entering into any contract for such purposes;
(19) the assumption by the Partnership of any liability for
another or others by means of endorsement, or becoming guarantor or
surety;
(20) authorizing the confession of judgment against the
Partnership;
(21) designating a Partner as the Tax Matters Partner; and
(22) any other decision or action which, considered prior to the
making of such decision or the taking of such action, would be
reasonably expected to have a substantial or material effect upon the
Partnership and/or the Partnership Business as contrasted with decisions
or actions which would be routine and in the ordinary course of the
Partnership Business, including, but not limited to, a decision to enter
into any business not specifically identified in Section 5.
7.3 Operating Decisions. The Project Manager shall be responsible for
making all decisions affecting the Partnership which are not Major Decisions,
which decisions shall be hereinafter referred to as the "Operating Decisions."
Operating Decisions affecting the Partnership shall include, but shall not be
limited to, decisions with respect to the day to day management and operation of
the business of the Partnership and supervision of the employees
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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of the Partnership, if any. The Project Manager shall report and be accountable
to the Partnership Management Committee.
7.4 Resolution of Differences. (i) In the event that a Major Decision
cannot be reached by the Partnership Management Committee, the matter shall be
referred for further review and resolution solely pursuant to the consultation
and mediation procedures set forth in Article V of the Master Agreement or
through such other procedures as may be agreed upon in writing by the Partners.
In the absence of an agreement between the Partners on a proposed action through
these procedures, the action shall not be taken.
(ii) The parties agree that the procedures set forth in this
Section 7.4 shall be the sole procedures to be followed in any case where a
Major Decision cannot otherwise be reached by the Partnership Management
Committee.
7.5 No Partner May Act for the Partnership. Unless specifically
authorized to act for the Partnership by this Agreement, or by a decision made
pursuant to this Agreement, no Partner shall have any power or authority to act
for the Partnership in any manner. Accordingly, no Partner, unless so
authorized, shall have the power or authority to execute any instrument in the
Partnership's name, or to commit or obligate the Partnership to any liability,
obligation, undertaking, agreement or contract in any other way. Except as
otherwise authorized herein, all documents to be executed on behalf of the
Partnership shall not bind the Partnership or any Partner unless executed by all
of the Partners.
7.6 Representatives of Each Partner. Each Partner shall designate in
writing to the other Partner the names and business addresses of its
representatives who shall be appointed to the Partnership Management Committee.
Any such representative may be replaced by a successor representative by notice
in writing to the Partnership and the other Partner.
7.7 Meetings. The Partnership Management Committee shall meet from time
to time, but at least once every three (3) months during the term of this
Agreement, at a mutually agreed location. Meetings of the Partnership Management
Committee may be called by either Partner at any time, by sending written or
facsimile notice or by giving oral notice (which shall be confirmed in writing
immediately thereafter) to the other Partner at least ten (10) days prior to the
meeting date. A Partner may waive notice of a meeting. Members of the
Partnership Management Committee may participate in meetings by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at the meeting. Members of the
Partnership Management Committee shall have the right to vote at meetings by
proxy. Within five (5) business days following each meeting, the Partnership
Management Committee shall cause to be prepared a written summary of such
meeting.
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7.8 Buyout.
(a) Within forty-five (45) days following the occurrence of any one of
the following events (each a "Buyout Option Event"): (i) if a Partner does not
make contributions to the capital of the Partnership in addition to those
contributions required by Section 8.1 upon a proposal therefor, (ii) if
cumulative Net Sales (as defined below) of Products to third-party end users are
less than *** over a four-year period commencing upon the first sale of the
first Product or (iii) if the Partnership Business does not achieve a profit
(calculated in accordance with generally accepted accounting principles) for at
least one fiscal year ending prior to January 1, 2005, either Partner or an
Affiliate of either Partner will have the right, but not the obligation, to
initiate the buyout procedures (the initiating Partner, the "Offeror") set forth
in this Section 7.8 by delivering written notice thereof (the "Offering Notice")
to the other Partner (the "Offeree") which shall constitute an offer by the
Offeror to purchase the Offeree's Partnership Interest in the Partnership at its
fair market value. For purposes of this Section 7.8(a), "Net Sales" shall mean,
with respect to any Product, the invoiced sales price of such Product billed to
independent customers who are not Affiliates, less to the extent actually
included in the invoiced sales price (i) credits, allowances, discounts and
rebates to, and chargebacks from the account of, such independent customers for
spoiled, damaged, out-dated and returned Product; (ii) actual freight and
insurance costs incurred in transporting such Product in final form to such
customers; (iii) cash, quantity and trade discounts, rebates and other price
reduction programs; (iv) sales, value-added and other direct taxes incurred; and
(v) customs duties, surcharges and other governmental charges incurred in
connection with the exportation or importation of such Product in final form.
(b) Within forty-five (45) days following the date of the Offering
Notice, the Partners shall take all necessary steps to determine the fair market
value of the Partnership and the purchase price of the Partnership Interest as
set forth in subsection (h) below (the "Purchase Price"). The Partners shall set
forth the Purchase Price in a written notice delivered to both Partners (the
"Price Determination Notice").
(c) Within thirty (30) days following the date of the Price
Determination Notice, the Offeree shall elect, at its sole option, by written
notice (the "Election Notice") to the Offeror (A) to sell its Partnership
Interest in the Partnership to the Offeror or (B) to buy the Partnership
Interest of the Offeror at the Purchase Price. Thereafter, the party designated
in the Election Notice as selling its Partnership Interest shall be referred to
as the Selling Party and the party designated in the Election Notice as
purchasing the Partnership Interest shall be referred to as the Purchasing
Party.
(d) The purchase and sale pursuant to this Section 7.8 shall be
accomplished through an escrow established at a title insurance or escrow
company mutually approved by the Selling Party and the Purchasing Party, and
shall be consummated within forty-five (45) days following the effective date of
the Price Determination Notice. The Partners shall execute such further
instructions as the escrow holder and the Purchasing Party reasonably may
require to consummate
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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such escrow, provided such instructions are not inconsistent with the terms of
this Agreement. Closing costs shall be shared equally by the Partners. The
Selling Party shall transfer to the Purchasing Party the entire Partnership
Interest of the Selling Party free and clear of all liens, security interests
and competing claims, and shall deliver to the Purchasing Party such instruments
of transfer and such evidence of due authorization, execution and delivery and
of the absence of such liens, security interests or competing claims as the
Purchasing Party shall reasonably request. At the closing, the Purchasing Party
shall pay the Purchase Price to the Selling Party by a wire transfer of
immediately available funds to a bank account designated by the Selling Party.
(e) The Purchasing Party shall, effective as of the date of the closing
described in paragraph (d) above, indemnify and hold harmless the Selling Party
from and against any and all claims, liabilities, causes of action, liens,
charges and all other matters arising out of or in connection with the
Partnership and the Partnership Business, whether arising prior to or subsequent
to the date of the closing, except for unknown liabilities arising prior to the
date of closing and not taken into account in calculating the Purchase Price and
except for continuing obligations of the Selling Party pursuant to the Research
Agreement. If the Selling Party or any Affiliate of the Selling Party is a
guarantor of any obligations of the Partnership or otherwise liable thereon,
prior to closing the Purchasing Party shall use reasonable best efforts to
obtain a release of each such guaranty or liability in form and content
reasonably acceptable to the Selling Party and its guarantor Affiliates. If such
release cannot be obtained prior to closing, the Purchasing Party shall hold the
Selling Party harmless with respect to such guaranties and liabilities in form
and content reasonably acceptable to the Selling Party and its guarantor
Affiliates.
(f) Either the Purchasing Party or the Selling Party shall have the
right to seek specific performance of this Section 7.8 in a court of competent
jurisdiction, and the other Party shall not plead as a defense that an adequate
remedy at law exists.
(g) Upon the occurrence of a Buyout Option Event, if neither Partner
institutes the buyout provisions set forth in Section 7.8(a), then the
Partnership shall be dissolved pursuant to Section 10.1 unless the Partners
otherwise agree to continue the Partnership.
(h)(i) If required by subsection (b) above, each Partner will select a
qualified appraiser who will determine the fair market value of the Partnership.
The appraisers shall value the Partnership based on the value of the Partnership
Business and, therefore, to the extent that the appraisers utilize historical
financial information in their analysis, they shall take into account not only
the historical net profit or loss of the Partnership for financial reporting
purposes and related cash flows but also the historical Profit or Loss for
financial reporting purposes (as defined in Section 2.3(c)(ii) of the Master
Agreement) and related cash flows. In addition, the appraisers' analysis shall
take into consideration the value of the underlying tangible and intangible
assets and the liabilities of the Partnership Business. To the extent that the
Selling Party or an Affiliate
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<PAGE> 39
of the Selling Party is to perform any service or other function relating to the
Partnership Business subsequent to the buyout, the amounts to be or projected to
be paid for such service or function shall be taken into account by the
appraisers in determining profit, loss and related cash flows projected to be
generated by the Partnership Business subsequent to the buyout. For purposes of
this Section 7.8(h)(i), the Partnership Business for periods subsequent to the
buyout shall mean the same functions and activities encompassing the Partnership
Business as defined in the Master Agreement without regard to whether the
parties described in such definition are the parties performing such functions
or activities after the buyout.
(ii) If the fair market value of the Partnership determined by the
higher of the two appraisals (the "Higher Initial Appraisal") is not greater
than *** of the fair market value of the Partnership determined by the lower of
the two appraisals (the "Lower Initial Appraisal"), the fair market value of the
Partnership will be the average of the two appraisals; however, if the resulting
value of the Partnership would not fall within this range, the two appraisers
selected by the parties will select a third qualified appraiser to determine the
fair market value of the Partnership. If the Higher Initial Appraisal is greater
than *** but not greater than *** of the Lower Initial Appraisal, then the fair
market value of the Partnership will be equal to the average of the two of the
three appraisals that are closest to one another (or if the highest and lowest
appraisal are equidistant from the middle, then such fair market value will be
equal to the middle appraisal). If the fair market value of the Partnership
determined by the Higher Initial Appraisal is greater than *** of the fair
market value of the Partnership determined by the Lower Initial Appraisal, then
the fair market value of the Partnership will be equal to either the Higher
Initial Appraisal or the Lower Initial Appraisal, whichever is closest to the
third appraisal (or if the Higher Initial Appraisal and the Lower Initial
Appraisal are equidistant from the third appraisal, then such fair market value
will be equal to the third appraisal). Each Partner will pay the cost of the
appraiser it selects. Such parties will split the costs of a third appraiser if
used. The fair market value of the Selling Partner's Partnership Interest shall
be an amount equal to the balance that the Selling Partner would have in its
Capital Account for purposes of Section 10.3(d) if the Partnership were
liquidated at the time that the fair market value of the Partnership was the
value determined under this Section 7.8(h). For purposes of determining such
Capital Account balance, in applying Section 8.3(b), the value of the
Partnership's assets shall be the value of the assets of the Partnership
Business determined under this Section 7.8(h) in determining the fair market
value of the Partnership.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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8. Capital Contributions, Partner Loans and Capital Accounts.
8.1 Contributions by the Partners.
(a) Becton Partner's Contribution.
(i) Concurrently with the execution and delivery of this
Agreement, Becton is contributing to the Partnership on behalf of the Becton
Partner all of Becton's rights to the results of the research undertaken under,
and all of its other rights under, the Prior Research Agreement. The Partners
agree that such contribution has a value of $700,000 which shall be credited to
the Becton Partner's Capital Account.
(ii) Concurrently with the execution and delivery of this
Agreement, Becton is contributing the Becton Intellectual Property License to
the Partnership on behalf of the Becton Partner. The Partners agree that such
contribution does not have an ascertainable value and that no amount shall be
credited to the Becton Partner's Capital Account in respect thereof.
(iii) The Becton Partner hereby agrees to make the following
contributions to the Partnership for use by the Partnership exclusively in the
Research Program:
(A) Four (4) cash contributions of $575,000 each, within
five (5) business days following each of September 30, 1997, December
31, 1997, March 31, 1998 and June 30, 1998.
(B) Upon the successful completion of Research Milestone I
by December 31, 1997, and Research Milestone II by June 30, 1998, for
either Research Project A or Research Project B, cash totaling a minimum
of $5,000,000 for use in the Research Program, to be made in four (4)
installments of $1,250,000 each, payable on July 1, 1998, October 1,
1998, January 1, 1999 and April 1, 1999, unless otherwise agreed upon
by the Partners.
(iv) In addition to and after the amounts that are contributed
under Section 8.1(a)(iii) to fund the Research Program, commencing on July 1,
1999 and quarterly thereafter with the last payment to be made on April 1,
2001, the Becton Partner hereby agrees to make quarterly contributions in the
minimum amounts of $1,250,000 each to fund additional Partnership research.
Each contribution made pursuant to this Section 8.1(a)(iv) shall be conditioned
upon the achievement of certain milestones to be mutually agreed upon by the
Partners thirty (30) days prior to the commencement of the twelve-month periods
ending June 30, 1999 and June 30, 2001, respectively.
(v) In addition to the contributions set forth above in Sections
8.1(a)(iii) and (iv) to fund the Research Program and any additional Partnership
research, the Becton Partner hereby agrees to make cash contributions to the
Partnership in such amounts and at such times as are required for the
Partnership to pay the manufacturing start-up and promotional and marketing
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 41
allowances to be included in the License Agreement between Becton and the
Partnership as described in Section 2.3 of the Master Agreement.
(b) Nanogen Partner's Contribution.
(i) Concurrently with the execution and delivery of this Agreement,
Nanogen is contributing to the Partnership on behalf of the Nanogen Partner all
of Nanogen's rights to the results of the research undertaken under, and all of
its other rights under, the Prior Research Agreement. The Partners agree that
such contribution does not have an ascertainable value and that no amount shall
be credited to the Nanogen Partner's Capital Account in respect thereof.
(ii) Concurrently with the execution and delivery of this Agreement,
Nanogen is contributing the Nanogen Intellectual Property License to the
Partnership on behalf of the Nanogen Partner. The Partners agree that such
contribution does not have an ascertainable value and that no amount shall be
credited to the Nanogen Partner's Capital Account in respect thereof.
(iii) Upon the successful completion of Research Milestone I by
December 31, 1997, and Research Milestone II by June 30, 1998, in both cases for
either Research Project A or Research Project B, the Nanogen Partner hereby
agrees to contribute to the Partnership at the same time or times as the Becton
Partner contributes cash to the Partnership under Section 8.1(a)(iii)(B) cash
for use by the Partnership exclusively in the Research Program equal to one
third (1/3) of the amount of cash contributed by the Becton Partner pursuant to
Section 8.1(a)(iii)(B).
(iv) In addition to and after the amounts that are contributed under
8.1(b)(iii) hereof to fund the Research Program, the Nanogen Partner hereby
agrees to make the following contributions to the Partnership to fund additional
Partnership research:
(A) After the amounts contributed under Sections
8.1(a)(iii) and 8.1(b)(iii) hereof, cash to fund the first $1,000,000
of research costs in excess of those funded pursuant to Sections
8.1(a)(iii) and 8.1(b)(iii).
(B) After the amount contributed under Section
8.1(b)(iv)(A) hereof, at the same time or times as the Becton Partner
contributes cash to the Partnership under Section 8.1(a)(iv) hereof,
cash equal to one third (1/3) of the amount of cash contributed by the
Becton Partner pursuant to Section 8.1(a)(iv).
(v) In addition to the contributions set forth above in Sections
8.1(b)(iii) and (iv) to fund the Research Program and any additional Partnership
research, the Nanogen Partner hereby agrees to make cash contributions to the
Partnership in such amounts and at such times as are required for the
Partnership to pay the manufacturing start-up allowance to be included in the
License Agreement between Nanogen and the Partnership as described in Section
2.3 of the Master Agreement
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*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 42
(c) Limit on Contributions; Partner Loans. Other than the contributions
set forth in Sections 8.1(a) and (b) hereof, neither Partner shall be obligated
to make any contributions to the Partnership. The total amount contributed by
the Partners to the Partnership under Sections 8.1(a)(i), (iii), (iv) and (v)
and Sections 8.1(b)(iii) and (iv) shall not exceed *** unless the Partners
mutually agree otherwise in writing. Either or both Partners may, but neither is
obligated to, make loans to the Partnership to fund any needs of the
Partnership's Business in excess of such amount. Any such loans shall have such
terms and conditions as the Partner making any such loan and the Partnership
agree and such agreement by the Partnership shall be made in accordance with
Section 7.2(15).
8.2 Withdrawal. Except as expressly set forth herein, no Partner shall
be entitled to withdraw any portion of its capital contribution or Capital
Account balance.
8.3 Capital Accounts. A single Capital Account shall be maintained for
each Partner (regardless of the class of interests owned by such Partner and
regardless of the time or manner in which such interests were acquired) in
accordance with the capital accounting rules of section 704(b) of the Code, and
the Regulations thereunder (including particularly Section 1.704-1(b)(2)(iv) of
the Regulations).
(a) In general, under such rules, a Partner's Capital Account shall be:
(i) Increased by (1) the amount of money contributed by the
Partner to the Partnership (including the amount of any Partnership liabilities
that are assumed by such Partner other than in connection with distribution of
Partnership property); (2) the fair market value of property contributed by the
Partner to the Partnership (net of liabilities secured by such contributed
property that the Partnership is considered to assume or take subject to under
section 752 of the Code); and (3) allocations to the Partner of Partnership
income and gain (or item thereof), including income and gain exempt from tax;
(ii) Decreased by (1) the amount of money distributed to the
Partner by the Partnership (including the amount of such Partner's individual
liabilities that are assumed by the Partnership other than in connection with
contribution of property to the Partnership); (2) the fair market value of
property distributed to the Partner by the Partnership (net of liabilities
secured by such distributed property that such Partner is considered to assume
or take subject to under section 752 of the Code); (3) allocations to the
Partner of expenditures of the Partnership not deductible in computing its
taxable income and not properly chargeable to capital account; and (4)
allocations to the Partner of Partnership loss and deduction (or item thereof);
and
(iii) Increased or decreased by any adjustments to such Partner's
tax basis in its Partnership Interest pursuant to section 50(c)(5) of the Code;
and
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*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 43
(iv) Where section 704(c) of the Code applies to Partnership
property or where Partnership property is revalued pursuant to Section
1.704-1(b)(2)(iv)(f) of the Regulations, adjusted in accordance with Section
1.704-1(b)(2)(iv)(g) of the Regulations as to allocations to the Partners of
depreciation, depletion, amortization and gain or loss, as computed for book
purposes with respect to such property.
(b) When Partnership property is revalued pursuant to Section
1.704-1(b)(2)(iv)(f) of Regulations or distributed in kind (whether in
connection with liquidation and dissolution of the Partnership or of a Partner's
Partnership Interest or otherwise), the Capital Accounts of the Partners shall
first be adjusted to reflect the manner in which the unrealized income, gain,
loss and deduction inherent in such property (that has not been reflected in the
Capital Account previously) would be allocated among the Partners if there were
a taxable disposition of such property for the fair market value of such
property (taking into account section 7701(g) of the Code) on the date of
distribution.
(c) The Tax Matters Partner shall direct the Partnership's accountant to
make all necessary adjustments in each Partner's Capital Account as required by
the capital accounting rules of section 704(b) of the Code and the Regulations
thereunder.
(d) If any Partner shall make any loan or loans to the Partnership or
advance money on its behalf, the amount of any such loan or advance shall not be
deemed an increase in or contribution to the Capital Account of the lending
Partner or entitle such lending Partner to any increase in its share of the
distributions from the Partnership.
(e) Any Partner who shall receive a Partnership Interest or whose
Partnership Interest shall be increased by means of a transfer to it of all or
part of the Partnership Interest of another Partner, shall have a Capital
Account that reflects such transfer.
8.4 Use of Partners' Contributions. The contributions made on behalf of
the Becton Partner pursuant to Sections 8.1(a)(i) and (ii) and on behalf of the
Nanogen Partner pursuant to Sections 8.1(b)(i) and (ii) shall be used
exclusively for the Partnership Business. The contributions made by the Becton
Partner pursuant to Section 8.1(a)(iii) and by the Nanogen Partner pursuant to
Section 8.1(b)(iii) shall be used exclusively for the Research Program. The
contributions made by the Becton Partner pursuant to Section 8.1(a)(iv) and by
the Nanogen Partner pursuant to Section 8.1(b)(iv) shall be used exclusively for
any research conducted by the Partnership in connection with the Partnership
Business in addition to that conducted pursuant to the Research Program. Any
contributions made by the Becton Partner pursuant to Section 8.1(a)(v) shall be
used for the payment of other costs and expenses incurred by the Partnership in
carrying on its Business and other liabilities and obligations of the
Partnership.
9. Profits and Losses and Distributions.
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9.1 Partner's Distributive Share. A Partner's distributive share of the
Partnership's total income, gain, loss, deduction or credit (or items thereof),
which total shall be as shown on the annual federal income tax return prepared
by the Partnership's accountants or as finally determined by the Internal
Revenue Service or the courts, and as modified by the capital account
maintenance rules of section 704(b) of the Code and the Regulations thereunder
as implemented by Section 8.3, as applicable, shall be determined as provided in
this Section 9.
(a) Except as otherwise provided in Sections 9(c) through 9(l):
(i) Items of Partnership loss or deduction incurred in a
Partnership taxable year in connection with the Research Program or any
additional research conducted by the Partnership in connection with the
Partnership Business shall be allocated among the Partners in proportion to and
up to the amount of cash that the Becton Partner contributes pursuant to
Sections 8.1(a)(iii) and (iv) and the Nanogen Partner contributes to the
Partnership pursuant to Sections 8.1(b)(iii) and (iv) to fund such Research
Program or additional research.
(ii) All items of Partnership loss or deduction for any
Partnership taxable year that are funded by the Becton Partner pursuant to
Section 8.1(a)(v) shall be allocated solely to the Becton Partner and that are
funded by the Nanogen Partner pursuant to Section 8.1(b)(v) shall be allocated
solely to the Nanogen Partner.
(iii) Items of Partnership income, gain, deduction and loss that
are not allocated under Sections 9.1(a)(i) and (ii) shall be allocated among the
Partners proportionately in accordance with their respective Percentage
Interests.
Notwithstanding the foregoing provisions of this Section 9.1(a), items of
deduction and loss shall not be allocated to any Partner to the extent it would
create a deficit balance in excess of such Partner's obligation to restore its
Capital Account balance, computed in accordance with the rules of Section
1.704-1(b)(2)(ii)(d) of the Regulations (including such Partner's share of
Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain as provided
in Sections 1.704-2(g) and 1.704-2(i)(5) of the Regulations). Any items of
deduction and loss which cannot be allocated to a Partner because of the
limitation set forth in the preceding sentence shall be allocated first to the
other Partner to the extent such other Partner would not be subject to such
limitation, and second any remaining amount to the Partners in the manner
required by the Code and the Regulations.
(b) Solely for tax purposes, in determining each Partner's allocable
share of the taxable income or loss of the Partnership, depreciation, depletion,
amortization and gain or loss with respect to any contributed property, or with
respect to revalued property where Partnership property is revalued pursuant to
Section 1.704-1(b)(2)(iv)(f) of the Regulations, shall be allocated to the
Partners under the traditional method as provided in Section 1.704-3(b) of the
Regulations.
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<PAGE> 45
(c) Minimum Gain Chargeback. Notwithstanding anything to the contrary in
this Section 9, if there is a net decrease in Partnership Minimum Gain or
Partner Nonrecourse Debt Minimum Gain (as such terms are defined in Sections
1.704-2(b) and 1.704-2(i)(2), respectively, of the Regulations) during a
Partnership taxable year, then each Partner shall be allocated items of
Partnership income and gain for such year (and, if necessary, for subsequent
years), to the extent required by, and in the manner provided in, Section
1.704-2 of the Regulations. This provision is intended to be a "minimum gain
chargeback" within the meaning of Sections 1.704-2(f) and 1.704-2(i)(4) of the
Regulations and shall be interpreted and implemented as therein provided.
(d) Qualified Income Offset. Subject to the provisions of Section
9.1(c), but otherwise notwithstanding anything to the contrary in this Section
9, if any Partner's Capital Account has a deficit balance in excess of such
Partner's obligation to restore its Capital Account balance, computed in
accordance with the rules of Section 1.704-l(b)(2)(ii)(d) of the Regulations
(including such Partner's share of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain as provided in Sections 1.704-2(g) and
1.704-2(i)(5) of the Regulations), then sufficient amounts of income and gain
(consisting of a pro rata portion of each item of Partnership income, including
gross income, and gain for such year) shall be allocated to such Partner in an
amount and manner sufficient to eliminate such deficit as quickly as possible.
This provision is intended to be a "qualified income offset" within the meaning
of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted and
implemented as therein provided.
(e) Subject to the provisions of section 704(c) of the Code and Sections
9.1(b) through (d), gain recognized (or deemed recognized under the provisions
hereof) upon the sale or other disposition of Partnership property, which is
treated as depreciation recapture, shall be allocated to the Partner who was
entitled to deduct such depreciation.
(f) Except as otherwise provided in Section 9.1(j), if and to the extent
any Partner is deemed to recognize income as a result of any loans described
herein pursuant to the rules of sections 1272, 1273, 1274, 1274A, 7872, 482 or
483 of the Code, or any similar provision now or hereafter in effect, any
corresponding resulting deduction of the Partnership shall be allocated to the
Partner who is charged with the income. Subject to the provisions of section
704(c) of the Code and Sections 9.1(b) through (d), if and to the extent the
Partnership is deemed to recognize income as a result of any loans to a Partner
described herein pursuant to the rules of
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sections 1272, 1273, 1274, 1274A, 7872, 482 or 483 of the Code, or any similar
provision now or hereafter in effect, such income shall be allocated to such
Partner.
(g) Except as otherwise required by law, tax credits shall be allocated
among the Partners in proportion to the amounts of contributions made to the
Partnership by each Partner that were used by the Partnership to fund any
expenditures giving rise to such tax credit, or if no expenditure gave rise to
the tax credit, pro rata in accordance with the manner in which Partnership
profits are allocated to the Partners under Section 9(a)(iii) as of the time the
credit property is placed in service or if no property is involved, as of the
time the credit is earned. Recapture of any tax credit required by the Code
shall be allocated to the Partners in the same proportion in which such tax
credit was allocated.
(h) Except as provided in Sections 9.1(f) and (g) or as otherwise
required by law, if the Partnership Interests of the Partners are changed herein
during any taxable year, all items to be allocated to the Partners for such
entire taxable year shall be prorated on the basis of the portion of such
taxable year which precedes each such change and the portion of such taxable
year on and after each such change according to the number of days in each such
portion, and the items so allocated for each such portion shall be allocated to
the Partners in the manner in which such items are allocated as provided in this
Section 9 during each such portion of the taxable year in question.
(i) Any special allocation of income or gain pursuant to Section 9.1(d)
shall be taken into account in computing subsequent allocations of income and
gain pursuant to this Section 9 so that the net amount of all such allocations
to each Partner shall, to the extent possible, be equal to the net amount that
would have been allocated to each such Partner pursuant to the provisions of
this Section 9 if such special allocations of income or gain under Section
9.1(d) had not occurred.
(j) (i) Items of deduction and loss attributable to recourse liabilities
of the Partnership (within the meaning of section 1.752-1(a)(1) of the
Regulations but excluding Partner nonrecourse debt within the meaning of Section
1.704-2(b)(4) of the Regulations) shall be allocated among the Partners in
accordance with the ratio in which the Partners share the economic risk of loss
(within the meaning of section 1.752-2 of the Regulations) for such liabilities.
(ii) Items of deduction and loss attributable to Partner nonrecourse
debt within the meaning of Section 1.704-2(b)(4) of the Regulations shall be
allocated to the Partners bearing the economic risk of loss with respect to such
debt in accordance with Section 1.704-2(i) of the Regulations.
(iii) Items of deduction and loss attributable to Partnership
nonrecourse liabilities within the meaning of Section 1.704-2(b)(1) of the
Regulations shall be allocated among the Partners proportionately in accordance
with their Partnership interests.
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<PAGE> 47
(k) Subject to the provisions of Sections 9.1(c) through (j), items of
income and gain shall be allocated to the Partners in the following priority:
(i) First, to those Partners who have had items of loss or
deduction allocated to them under Section 9.1(j)(i), in the amount of, and
proportionate to, the amount of such items of loss or deduction.
(ii) Second, if allocations of items of Partnership deduction and
loss have been made to the Partners under Sections 9.1(a)(i) and (ii), then in
the amount of, and proportionate to, the amount of such items of loss and
deduction.
(iii) Third, the balance among the Partners in proportion to
their respective Percentage Interests.
(1) Notwithstanding Section 9.1(a) and Section 9.1(k), but subject to
the provisions of Section 9.1(c) through (j), gain or loss which is recognized
(or deemed to be recognized) upon the sale, exchange or other disposition of all
or substantially all the assets of the Partnership or of any partnership in
which the Partnership holds an interest (whether directly or indirectly) or upon
the dissolution of the Partnership or any partnership in which the Partnership
holds an interest (whether directly or indirectly) and any unrealized gain or
loss to be allocated to the Partners' Capital Accounts under Section 8.3,
including without limitation Section 8.3(b), upon a distribution of Partnership
property to a Partner in connection with the liquidation of the Partnership or a
Partner's Partnership Interest shall be allocated in the following priority:
(i) Any such gain shall be allocated to the Partners having
deficit balances in their Capital Accounts (computed after giving effect to all
contributions, distributions, allocations and other Capital Account adjustments
for all taxable years, including the year during which such liquidation or
dissolution occurs and including such Partner's share of Partnership Minimum
Gain and Partner Nonrecourse Debt Minimum Gain as provided in Sections
1.704-2(g) and 1.704-2(i)(5) of the Regulations), to the extent of, and in
proportion to, those deficits; and
(ii) Any such gain in excess of any amount of gain allocated
under Section 9.1(l)(i) hereof and any such loss shall be allocated to the
Partners so as to make, as nearly as possible:
(1) First, the balance in the Becton Partner's Capital
Account (computed in the same manner as provided parenthetically in
Section 9.1(l)(i)) at least equal to any Becton Partner Excess
Unrecovered Cash Contributions.
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<PAGE> 48
(2) Second, the balance in excess of the Becton Partner
Excess Unrecovered Cash Contributions in the Becton Partner's Capital
Account, computed in the same manner as provided parenthetically in
Section 9.1(l)(i), equal to 50 percent of, and the balance in the
Nanogen Partner's Capital Account, computed in such manner, equal to 50
percent of, the sum of the amount by which the balances in the Partners'
Capital Accounts, computed in such manner, exceed the Becton Partner
Excess Unrecovered Cash Contributions.
9.2 Distributions.
(a) Subject to Section 9.2(d), prior to dissolution of the Partnership,
the Partnership shall distribute Net Cash Flow of the Partnership no later than
sixty (60) days following the close of each fiscal year, in an amount equal to
the aggregate excess, if any, for all taxable years of (i) the sum of the
results for each taxable year of multiplying the Net Tax Income for each taxable
year by the Assumed Tax Rate applicable to each tax year over (ii) the sum of
amounts previously distributed pursuant to Sections 9.2(a) and (b).
Distributions pursuant to this Section 9.2(a) shall be made to the Partners
ratably in the proportions in which the aggregate Net Tax Income for such
taxable years has been allocated to them for federal income tax purposes
pursuant to Section 9.1.
(b) Subject to the mandatory distributions set forth in Section 9.2(a)
and Section 9.2(d), prior to dissolution of the Partnership, the Partnership
shall distribute Net Cash Flow of the Partnership to the Partners, as soon as is
practical following the end of each fiscal quarter, as follows:
(i) To the Partners in such amounts so that, to the extent
possible, the Becton Partner has received 60 percent, and the Nanogen Partner
has received 40 percent, of the Partnership Business Cash for such quarter
until the Becton Partner Unrecovered Cash Contributions are equal to the Nanogen
Partner Unrecovered Cash Contributions; and
(ii) Thereafter, in proportion to the Partners' Percentage
Interests.
(c) Except as otherwise provided herein, no Partner shall have a
priority over any other Partner as to return of its contributions to the
Partnership or as to income.
(d) Any other provision of this Agreement to the contrary
notwithstanding, no distribution shall be made which would render the
Partnership insolvent or which is prohibited by the terms of any Partnership
indebtedness.
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10. Dissolution and Liquidation.
10.1 Dissolution. The Partnership shall be dissolved, and its business
wound up, upon the happening of any of the following events:
(a) the Partners mutually agree in writing to dissolve the
Partnership;
(b) the termination of the Research Agreement as provided in
sections 8.1 (b), (f) or (g) or section 8.2;
(c) the sale of all, or substantially all, of the Partnership's
assets and the collection of all of the proceeds of such sale;
(d) the insolvency or bankruptcy of the Partnership;
(e) the transfer of all of a Partner's Partnership Interest to the
other Partner;
(f) the bankruptcy, insolvency or dissolution of any Partner; or
(g) the failure of the parties to initiate the buyout procedure set
forth in Section 7.8 within forty-five (45) days following the occurrence of a
Buyout Option Event.
A Partner shall be deemed bankrupt or insolvent if it shall (a) commence
a case under any bankruptcy law or otherwise seek protection from creditors
generally under any bankruptcy, insolvency, moratorium or similar law, (b) have
a case or proceeding commenced against it under any of such laws which remains
undismissed or unstayed for a period of ninety (90) days after it receives
notice or otherwise becomes aware of such case or proceeding, (c) suffer the
entry of a decree or order appointing, or otherwise consent in any manner to the
appointment of, a receiver, liquidator, assignee, custodian, trustee or similar
official of such Partner or for any material portion of such Partner's property
or (d) make a general assignment for the benefit of creditors.
10.2 Winding-up. Upon the occurrence of an event of dissolution, the
Partnership shall be wound up and liquidated. The Partnership Management
Committee or, if there is no Partnership Management Committee, a liquidator
appointed by mutual agreement of the Partners shall proceed with the dissolution
and the final distribution. In the dissolution, the Partnership Management
Committee or such liquidator shall use its best efforts to reduce to cash and
cash equivalent items such assets of the Partnership as the Partnership
Management Committee or such liquidator shall deem it advisable to sell, subject
to obtaining fair value for such assets and any tax or other legal
considerations. A reasonable time shall be allowed for the orderly winding up of
the business and affairs of the Partnership and the liquidation of its assets in
order to minimize any losses otherwise attendant upon such a winding up,
provided that the liquidation is carried
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out in conformity with the requirements of this Section 10.2 and section
1.704-1(b)(2)(ii)(b)(2) and (3) of the Regulations.
10.3 Order of Dissolution. In settling accounts after dissolution, the
assets of the Partnership shall be distributed as expeditiously as possible in
the following order not later than the end of the taxable year of the
liquidation (i.e., the date upon which the Partnership ceases to be a going
concern as provided in section 1.704-1(b)(2)(ii)(g) of the Regulations), or if
later, within ninety (90) days following the date of such liquidation:
(a) To creditors, including the Partners to the extent of any unpaid
expenses or any outstanding loan or advance made in accordance with this
Agreement;
(b) To the payment of the costs of winding up the affairs of,
liquidating and dissolving the Partnership including, without limitation,
expenses of selling assets of the Partnership, discharging the liabilities of
the Partnership, distributing the assets of the Partnership and terminating the
Partnership in accordance with Section 10.2;
(c) To the establishment of reasonable reserves to provide for
obligations to creditors;
(d) Thereafter, to the Partners in proportion to, and in return of,
their respective Capital Accounts determined after having reflected in such
Capital Accounts all adjustments, including adjustments for the taxable year of
the Partnership during which the liquidation occurs, as are required by this
Agreement and by section 1.704-1(b) of the Regulations, such adjustments to be
made within the time specified in such Regulations.
10.4 Orderly Methods of Liquidating Payments. Notwithstanding anything
to the contrary in this Section 10, if required to maximize the proceeds of
liquidation, the Partnership Management Committee (or the liquidator chosen in
accordance with Section 10.2) may, with the consent of the Partners, implement
the distribution provisions of Section 10.3 by transfer, on behalf of the
Partners, of the assets of the Partnership to a liquidating trustee or trustees.
11. Transfer of Partnership Interest of Partners.
11.1 Conditions to Transfer of Partnership Interest of Partners. No
Partner may assign, pledge or otherwise transfer its Partnership Interest in the
Partnership except in compliance with the provisions of this Section 11 and any
transfer not in accordance with this Section 11 shall be null and void. In
addition, neither the Partnership nor the Partners shall be bound by any such
assignment or transfer until the Partnership receives the following:
(a) a counterpart of the instrument of assignment, executed and
acknowledged by the parties thereto;
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(b) an opinion of counsel reasonably satisfactory to counsel for the
Partnership that such transfer is exempt from the registration requirements of
the Securities Act of 1933 and applicable state securities laws; and
(c) an agreement of the transferee to be bound by the terms and
conditions of this Agreement in form and substance satisfactory to the
Partnership Management Committee.
11.2 Restrictions on Transfer of Partnership Interest.
(a) Either Partner may transfer any or all of its Partnership Interest
in the Partnership to any wholly-owned, direct or indirect, subsidiary thereof.
(b) Either Partner may transfer all, but not less than all, of its
respective Partnership Interest in the Partnership to a third person, only upon
satisfaction of the following conditions and in accordance with the following
provisions:
(i) The Partnership Interest to be sold shall have been first
offered for sale by the transferring Partner (for purposes of this Section 11.2,
the "Selling Partner") to the non-transferring Partner (for purposes of this
Section 11.2, the "Buying Partner") by written offer setting forth the price and
the terms and conditions of the proposed sale to a third person and the name and
address of the prospective purchaser. The offer shall provide that the Buying
Partner may purchase the Partnership Interest of the Selling Partner at the same
price and on the same terms and conditions as the proposed sale described in the
offer.
(ii) *** following the receipt of such offer, the Buying Partner
may elect to purchase the Partnership Interest of the Selling Partner and shall
give notice of acceptance of the offer to the Buying Partner. Such notice shall
specify a date, time and place for the closing, which shall not be more than ***
days following the date of notice of acceptance of the Offer.
(iii) Within *** following the receipt of such offer, the Buying
Partner may consent to the sale of the Partnership Interest of the Selling
Partner to the third person named in the offer at the same price and on the same
terms and conditions as the proposed sale described in the offer and shall give
notice of such consent to the Selling Partner.
(iv) In the event that the Buying Partner has not given notice of
its election pursuant to this Section 11.2(b) to the Selling Partner within ***
following the receipt of such offer, the Buying Partner shall be deemed to have
consented to the sale of the Partnership Interest of the Selling Partner to the
third person named in the offer at the same price and on the same terms and
conditions as the proposed sale described in the offer.
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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(v) If the sale to a third person contemplated by Sections
11.2(b)(iii) and 11.2(b)(iv) is not completed within *** notice to the Selling
Partner of the consent or deemed consent, as the case may be, of the Buying
Partner to such sale, the Selling Partner shall no longer be free to sell its
Partnership Interest pursuant hereto and must again comply with the procedures
set forth in this Section 11.2(b) prior to transferring its Partnership Interest
to a third person.
(c) Notwithstanding the foregoing, the Partners may agree in writing to
permit the transfer of any or all of their Partnership Interests upon the terms
and conditions set forth in such written agreement between the Partners. The
Partners may also transfer their Partnership Interests to each other upon such
terms and conditions as the Partners may agree.
11.3 Section 754 Election. In the event of a transfer of all or part of
the Partnership Interest of a Partner, at the request of the party purchasing
such Partnership Interest or portion thereof, the Partnership Management
Committee shall cause the Partnership to elect, pursuant to Section 754 of the
Code, or the corresponding provisions of subsequent law, to adjust the basis of
Partnership property as provided in Section 734 and 743 of the Code.
12. Confidentiality; Covenants Against Competition.
(a) Confidential Information. The parties hereto agree that the terms
and provisions of the Confidentiality Agreement shall remain in full force and
effect. The Partnership and the Partners hereby agree to be bound by the terms
and provisions thereof.
(b) Covenant Not to Compete. (i) Except as provided below, during the
term of the Partnership, a Partner and its Affiliates (other than individuals)
shall not, unless acting with the consent of all of the Partners or in
accordance with paragraph (ii) below, directly or indirectly, participate in the
ownership, management, operation, control or financing of, or be connected as an
investor, partner, officer, director, principal, agent, representative,
consultant, or otherwise with, or use or permit its name to be used in
connection with, any business or other enterprise in competition with the
Partnership Business worldwide.
(ii) If during the term of the Partnership a Partner or an
Affiliate of the Partner desires to pursue a business, venture or other
opportunity that would be competitive with the Partnership Business, it must
first offer such business, venture or other opportunity to the Partnership by
written notice to the Partnership Management Committee in as much detail as is
available, but in no event less that reasonable detail. The Partnership
Management Committee, acting through the members of the Partner who did not
submit such opportunity, shall respond within twenty (20) days thereafter to the
submitting Partner whether the Partnership elects to accept such offer. If such
offer is accepted, the funding for the new opportunity shall be mutually agreed
by the Partners. If the offer is declined or if the Partnership Management
***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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Committee does not respond within the prescribed period, the submitting Partner
is free to pursue such opportunity without limitation.
13. Dispute Resolution. All disputes, controversies or claims arising
out of or related to (i) the interpretation or enforcement of this Agreement or
(ii) any breach, termination or claim of invalidity of this Agreement (excluding
in both (i) and (ii), however, any deadlock of the Partners or the Partnership
Management Committee relating to decisions regarding the business or conduct of
the Partnership as described in Section 7, which shall be handled as described
in Section 7.4) shall be governed by the terms and provisions of the Article V
of the Master Agreement.
14. Accounting and Records.
14.1 Fiscal and Taxable Year. The fiscal year and the taxable year of
the Partnership shall be the year ended September 30th or such other year as is
required by the Code and the Regulations as the taxable year of the Partnership.
14.2 Records. The Partnership shall keep, or cause to be kept, accurate
and complete records of all transactions of the Partnership in accordance with
principles and practices generally accepted for the accrual method of
accounting.
14.3 Availability for Inspection. All of the Partnership's books of
account shall at all times be maintained at the principal place of business of
the Partnership and shall be open during regular business hours for inspection
and examination by the Partners for any purpose reasonably related to the
Partnership Business.
14.4 Tax Returns; Statements of Capital Accounts. Becton shall use its
best efforts to prepare, or cause to be prepared, on behalf of the Partnership
and to distribute to the Partners no later than 30 days prior to the due date as
extended for each taxable year, for review, comment and approval within 14
business days after receipt, and then timely file, (i) Partnership income tax
returns (and related Partner information returns) reporting the taxable income
or loss and items thereof of the Partnership Business and such other tax
information relating to the Partnership and the Partnership Business as is
required to be set forth on such |
