**Exhibit10.21**

 

**SEPARATIONAGREEMENT AND RELEASE OF CLAIMS**

 

THIS SEPARATIONAND RELEASE AGREEMENT (the “Agreement”) is entered into on January 2, 2003, byKIERAN T. GALLAHUE (“Executive”) and NANOGEN, INC., a Delaware corporation (the“Company”).

 

WHEREAS, Executiveand the Company have had a business relationship wherein Executive has been anofficer and employee of the Company; and

 

WHEREAS, Executivewishes to resign from the Company as described herein; and

 

WHEREAS, Executiveand the Company wish to end their relationship with all actual and potentialdisputes between them completely and amicably resolved:

 

NOW, THEREFORE, inconsideration of the mutual covenants contained herein, and in consideration ofthe amounts to be paid by the Company to Executive under this Agreement,amounts which Executive is not otherwise entitled to receive, Executive and theCompany hereby agree as follows:

 

1.             Resignation from Company.  Executive shall resign from the Company andshall no longer be employed as an officer and employee of the Company onJanuary 3, 2003 (“Separation Date”). Executive agrees that at all times he isemployed with the Company, he will fully and faithfully discharge the dutiesand responsibilities of his position with the Company, as requested by theCompany’s Executive Chairman.

 

2.             Extend Exercise Date for CertainStock Options and Restricted Stock. On the Separation Date, all of the incentive stock options, nonqualifiedstock options and restricted stock received by Executive pursuant to either theCompany’s 1997 Stock Incentive Plan, as amended, or the 1993 Stock Option/StockIssuance Plan, as amended (collectively, the “Plans”), shall immediately vestin their entirety.  Notwithstanding theforegoing, Executive’s incentive stock options and nonqualified stock optionsfor an aggregate of 100,000 shares of the Company’s Common Stock with anexercise price of $45.813 shall be exercisable for only up until three monthsafter the Separation Date and thereafter shall not be exercisable.  Such options shall be subject to the U.S.tax laws and depending on such laws and the number of shares that areexercisable by Executive in any given year, incentive stock options may losetheir favorable tax treatment and become nonqualified stock options.  Executive’s incentive stock options andnonqualified stock options for an aggregate 315,000 shares of the Company’sCommon Stock with exercise prices at either $1.901, $4.50, $6.00 or $11.938shall remain exercisable for a period of five (5) years from the SeparationDate, subject to the restrictions described below in Section 5.  Any incentive stock options held byExecutive with an exercise price below the closing price of the Company’sCommon Stock on the Separation Date shall become nonqualified stock options onthe Separation Date and any incentive stock options with an exercise priceabove the closing price of the Company’s Common Stock on the Separation Dateshall remain incentive stock options for up to three (3) months after theSeparation Date

 

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and thereafter shall become nonqualified stock options.  Executive acknowledges and agrees that hemust consult with his own tax advisor or attorney regarding the appropriate taxtreatment for all of his incentive stock options, nonqualified stock optionsand restricted stock options and that he is not depending on any employee ofthe Company to provide such advice.  TheCompany agrees that in the event of a reorganization, merger, acquisition orsimilar transaction, that the Executive’s stock options shall remain as optionsin the new entity (subject to dilution) and Executive shall not be required toexercise such options in order to participate in such reorganization (it beingthe intent of the parties that such options shall remain as options in the newentity); provided, however that this sentence shall not apply to any suchtransaction that is ordered by a Federal or state Court or any such transactionwhich would be prohibited by law or regulation if such options were offered inthe new entity.  The Company herebyrepresents and warrants that: (i) the Company has all necessary power andauthority and has taken all action necessary to enter into this Agreement andto grant the extensions of option exercise set forth in this Section 2; (ii)there is no term, condition or restriction contained in the Plans or in anystock option agreement between the Company and Executive which would adverselyimpact the terms of this Section 2; and (iii) during the time period that Executive’soptions are exercisable, the Company will use its best efforts to maintain aneffective registration statement on Form S-8 (or any successor form) under theSecurities Act of 1933, as amended, with respect to all shares of common stockof the Company subject to options held by Executive.

 

3.             Other Benefits.  From and after the Separation Date,Executive shall not be eligible to participate in any of the Company’s employeebenefit plans (including, without limitation, the 401(k) plan), fringe benefitprograms, and group insurance arrangements, except pursuant to COBRA, the stockoption agreements and stock vesting programs described in Section 2 for theperiods described therein.

 

4.             Tax Liability.  Executive shall be responsible for all taxliability associated with any compensation or other consideration made pursuantto Section 2.

 

5.             Non-Competition.  As consideration for the severancecompensation described in Section 2 and in order to protect the Company’s tradesecret and other “confidential information” of the Company as described belowin Section 7, during a period of six (6) months from the Separation Date,Executive shall not, other than with the prior written consent of the Board ofDirectors of the Company,  engage,directly or indirectly, in any other business activity (whether or not pursuedfor pecuniary advantage) with a company currently commercializing microarraytechnology for use in clinical molecular diagnostics, provided that Executivemay own less than two percent of the outstanding securities of any suchpublicly traded competing corporation. Any violation by Executive of this Section 5 shall result in theimmediate cancellation of the extended exercise period for all optionsdescribed in Section 2 and the Company may thereafter take whatever other legalsteps it deems necessary to enforce this provision and protect the Company’sconfidential information.

 

6.             Nonsolicitation.  During a period of two (2) years after theSeparation Date,

 

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 without written permission fromthe Company, Executive will not directly or indirectly engage, or participatein the solicitations of any employee or consultant of the Company to leave theCompany for any reason or to devote less than all of any such employee’sefforts to the affairs of the Company.

 

7.             Nondisclosure. During theterm of this Agreement and thereafter, Executive shall not, without the priorwritten consent of management, disclose or use for any purpose (except in thecourse of his service under this Agreement and in furtherance of the businessof the Company) confidential information or proprietary data of the Company,except as required by applicable law or legal process; provided, however, that“confidential information” shall not include any information known generally tothe public or ascertainable from public or published information (other than asa result of unauthorized disclosure by Executive) or any information of a typenot otherwise considered confidential by persons engaged in the same businessor a business similar to that conducted by the Company.  Executive agrees to deliver to the Companyat the termination of his service, or at any other time that the Company mayrequest, all memoranda, notes, plans, records, reports and other documents (andcopies thereof) relating to the business of the Company which he may thenpossess or have under his control (with the exception of Executive’s list ofindustry and business contacts, which the Company acknowledges shall be retainedby Executive).  Executive’s obligationsto the Company under the Proprietary Information, Inventions and DisputeResolution Agreement, dated January 23, 1998 by and between the Company andExecutive (the “Proprietary Inventions Agreement”) shall remain in full forceand effect, notwithstanding the release contained herein, except that Section2(f) of the Proprietary Inventions Agreement shall be replaced by Section 6herein.

 

8.             Mutual Release.   Executive acknowledges that the severancepackage described herein is given in exchange for his signing this Agreement,and he is not otherwise entitled to receive such benefits from theCompany.  Executive agrees that theseverance package is in full satisfaction of any claims, liabilities, demandsor causes of action, known or unknown and he hereby releases and foreverdischarges the Company and each of its past and present directors, managers,officers, shareholders, agents, consultants, advisers, employees, attorneys,servants, parents, subsidiaries, employee benefit plans, predecessors,successors and assigns, and each of them separately and collectively (the“Releasees”) from any and all claims, liens, demands, causes of action,obligations, damages and liabilities of any nature whatsoever, known orunknown, that he ever had, now has or may hereafter claim to have against theReleasees.  The release includes, but isnot limited to:

 

(a) any and allclaims relating to mental, physical or emotional injuries sustained frominvasion of privacy, to defamation, to interference with prospective economicadvantage, to intentional or negligent infliction of emotional distress, toExecutive’s employment or nonemployment by the Company, to the termination ofhis employment, to any status, term or condition in such employment, or to anyphysical or mental harm or distress from such employment or from termination ofsuch employment;:

 

(b) any and allclaims under California statutory or decisional law pertaining to

 

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wrongful discharge, discrimination, retaliation or breach of contractor breach of public policy;

 

(c) any and allclaims under the Fair Employment and Housing Act, Title VII of the Civil RightsAct of 1964 or the Americans with Disabilities Act;

 

(d) any and all claimsfor costs, expenses or attorneys’ fees;

 

(e) any claims torehire rights; provided, however, that claims for vested benefits and claimsfor workers’ compensation and unemployment insurance benefits are not waived;and

 

(f) any and allclaims relating to the tax obligation for which Executive may become liable asa result of this Agreement.

 

Execution of thisAgreement does not bar any claims for breach of this Agreement or theProprietary Inventions Agreement. The Company hereby releases and forever dischargesExecutive and each of his predecessors, successors, representatives and assignsfrom any and all claims, liens, demands, causes of action, obligations, damagesand liabilities of any nature whatsoever, known or unknown, that the Companyever had, now has or may hereafter claim to have against Executive, including(but not limited to) such claims as are specified in this Section 8.  This Agreement recognizes the rights andresponsibilities of the Equal Employment Opportunity Commission (“EEOC”) to enforcethe statutes which come under its jurisdiction and is not intended to preventExecutive from participating in any investigation or proceeding conducted bythe EEOC; provided, however, that nothing in this section limits or affects thefinality or the scope of the release provided in this Section 8, the waiverprovided in Section 9 or the agreement to submit claims to final and bindingarbitration.

 

(g) Opportunityto Revoke.  Executive acknowledges that he is aware that he hastwenty-one (21) calendar days to decide whether to enter into this agreementand release of claims, and return this executed agreement to the Company. Executive agrees that he was offered twenty-one (21) calendar days to considerthis agreement and release.  This period is designed to allow Executive toconsult with a financial advisor, accountant, attorney or anyone else whoseadvice Executive needs.  Executive should consult appropriate advisors,including an attorney, during this period.

 

Executive furtheracknowledges that he is aware that he may revoke this agreement and release ofclaims within seven (7) business days after it is signed and received by theCompany.  He further agrees that he is aware that in the event he timelyexercises his right of rescission he will have no rights to the severancepayment or other rights under this Agreement offered by the Company.  Ifthis agreement and release is not revoked in a writing delivered to the Companyin the time period set forth above, any severance payments due will be made onor before January 10, 2003.

 

9.             Waiver.  The parties expressly waive all rights underSection 1542 of the Civil Code

 

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of California which provides:

 

“Ageneral release does not extend to claims which the creditor does not know orsuspect to exist in his favor at the time of executing the release, which ifknown by him must have materially affected his settlement with the debtor.”

 

The parties agree that the possibility that such unknown claims exist wastaken into account in determining the amount of consideration to be paid forthe giving of this Agreement.

 

10.           Covenant Not To Sue.  Each party covenants and agrees that suchparty will never, individually or with any person or in any way, commence or aidin any way, except as required by due legal process, prosecute or cause orpermit to be commenced or prosecuted, any action or other proceeding based uponany claim which is released by Section 8 of this Agreement.  This Agreement shall be deemed breached anda cause of action shall be deemed to have accrued immediately upon thecommencement or prosecution of any action or proceeding contrary to thisAgreement.

 

In the event ofany breach of this Section 10, the non-breaching party shall be entitledto recover not only the amount of judgment which may be awarded against suchreleasee, but also all such other damages, costs and expenses as may beincurred by such releasee, including court costs, attorneys’ fees and all costsand expenses, taxable or otherwise, in preparing the defense of or defendingagainst, or seeking or obtaining an abatement of or injunction against, anyaction or proceeding brought in violation of this Section 10 and inprosecuting any claim, counterclaim or cross-claim based hereon.

 

11.           No Assignment; Authority.  The parties represent and warrant that noother person had or has or claims any interest in the claims referred to inSection 8 above; that they have the sole right and exclusive authority toexecute this Agreement; that they have the sole right to receive theconsideration paid therefor; and that they have not sold, assigned,transferred, conveyed or otherwise disposed of any claim or demand relating toany matter covered by this Agreement.

 

12.           No Admission.  The parties acknowledge that the payment ofconsideration, referred to herein, is made solely for the purpose of purchasingpeace and eliminating possible involvement in protracted litigation based upondisputed claims that the other could make and does not constitute an admissionor concession of any liability on account of any of said claims, liability forwhich is expressly denied by all releasees.

 

13.           Indemnification.  Notwithstanding the termination of hisemployment with the Company, Executive shall continue to be entitled toindemnification in accordance with the Certificate of Incorporation (asamended) and the Bylaws of the Company in effect, as well as any contractualindemnification agreements between Executive and the Company.  Executive shall remain covered under theCompany’s directors and officers insurance policy for as long as any suchpolicy covers any other Company executive with respect to acts occurring priorto

 

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termination of Executive’s service as an officer of the Company.

 

14.       Miscellaneous Provisions.

 

(a)           Notice.  Notices and all other communicationscontemplated by this Agreement shall be in writing and shall be deemed to havebeen duly given when personally delivered or when mailed by U.S. certifiedmail, return receipt requested and postage prepaid.  In the case of Executive, mailed notices shall be addressed tohim at the home address which he most recently communicated to the Company inwriting.  In the case of the Company,mailed notices shall be addressed to its corporate headquarters, and allnotices shall be directed to the attention of its Assistant Secretary.

 

(b)           Waiver.  No provision of this Agreement shall bemodified, waived or discharged unless the modification, waiver or discharge isagreed to in writing and signed by Executive and by an authorized officer ofthe Company.  No waiver by either partyof any breach of, or of compliance with, any condition or provision of thisAgreement by the other party shall be considered a waiver of any othercondition or provision or of the same condition or provision at another time.

 

(c)           Whole Agreement.  No agreements (including any employmentagreement), representations or understandings (whether oral or written andwhether express or implied) which are not expressly set forth in this Agreementhave been made or entered into by either party with respect to the subjectmatter hereof, except that the Proprietary Inventions Agreement shall remain infull force and effect.

 

(d)           Choice of Law.  The validity, interpretation, constructionand performance of this Agreement shall be governed by the laws of the State ofCalifornia (other than choice-of-law provisions).

 

(e)           Arbitration.  Any dispute arising out of or relating tothis Agreement, or the breach termination or validity thereof (including thedetermination of the interpretation or scope of this agreement to arbitrate),shall be resolved first by mediation pursuant to the Employment Mediation Rulesof the American Arbitration Association. If mediation is not successful, then the dispute shall be resolved by asingle neutral arbitrator in binding arbitration administered by the AmericanArbitration Association under its Rules for the Resolution of EmploymentDisputes.  The arbitration shall take placein San Diego, California, and judgment upon the award rendered by thearbitrator may be entered by any court having jurisdiction thereof.  The Company shall bear the costs ofarbitration if Executive prevails.  Ifthe Company prevails, Executive shall pay half the cost of the arbitration or$500.00, whichever is less.  Each partyshall pay its own attorneys’ fees, unless the arbitrator orders otherwise,pursuant to applicable law, except as provided in Section 10.

 

(f)            Consultation with Counsel.   Executive acknowledges that he has beenadvised and had the opportunity to consult legal counsel prior to signing thisAgreement and

 

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that he is entering into this Agreement knowingly and voluntarily.

 

(g)           Severability.  The invalidity or unenforceability of anyprovision of this Agreement shall not affect the validity or enforceability ofany other provision hereof, which shall remain in full force and effect.

 

(h)           Assignment and Successors.  Neither party shall assign any right ordelegate any obligation hereunder without the other party’s written consent,and any purported assignment or delegation by a party hereto without the otherparty’s written consent shall be void. This Agreement shall be binding upon and inure to the benefit of theCompany and its successors and Executive, his heirs, executors, administratorsand legal representatives.

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, inthe case of the Company by its duly authorized officer.

 

 
|   |   | By:                | /s/ KIERAN T. GALLAHUE |   |
|--------|--------|--------------------|------------------------|--------|
|   |   |               | Kieran T. Gallahue     |
|   |   |               |                   |
|   |   | **NANOGEN,  INC.** |
|   |   |               |                   |
|   |   |               |                   |
|   |   | By:                | /s/ HOWARD C. BIRNDORF |   |
|   |   |               | Howard C.  Birndorf    |
|   |   |               | Executive  Chairman    |

 

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