**Exhibit10.26**

** **

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENTAGREEMENT (this “Agreement”), dated January 24, 2003, is made by and betweenNANOGEN, INC., a Delaware corporation (hereinafter the “Company”), and DAVID L.MACDONALD, (hereinafter “Executive”).

 

WHEREAS, theCompany and Executive wish to set forth in this Agreement the terms andconditions under which Executive will be employed by the Company; and

 

WHEREAS, theCompany wishes to be assured that Executive will be available to the Companyfor an additional three (3) years after January 24, 2003.

 

NOW, THEREFORE,the Company and Executive, in consideration of the mutual promises set forthherein, agree as follows:

 

ARTICLEI.

 

TERMOF AGREEMENT

 

A.            Commencement Date.  The terms of this Agreement shall governExecutive’s employment with the Company from January 24, 2003 (“CommencementDate”) and this Agreement shall expire after a period of three (3) years fromthe Commencement Date, unless terminated earlier pursuant to Article 6.

 

B.            Renewal.  The term of this Agreement shall beautomatically renewed for successive, additional three (3) year terms unlesseither party delivers written notice to the other at least ninety (90) daysprior to the expiration date of this Agreement of an intention to terminate thisAgreement or to renew it for a term of less than three (3) years but not lessthan (1) year.  If the term of thisAgreement is renewed for a term of less than three (3) years, then thereafterthe term of this Agreement shall be automatically renewed for successive,additional identical terms unless either party delivers a written notice to theother at least ninety (90) days prior to a termination date of this Agreementof an intention to terminate this Agreement or to renew it for a different termof not less than one (1) year.  Anyrenewal bonus will be negotiated as mutually agreed to at the time of anyrenewal of this Agreement.

 

If this Agreementis not renewed at the end of any term hereof by the Company for any reasonexcept death, disability or retirement of Executive, notwithstanding anythingherein elsewhere contained, Executive shall be paid his salary, as provided forin Section 3.A hereof, and receive the other benefits applicable underArticle 4 hereof, for an additional six (6) months after the terminationdate hereof.

 

ARTICLEII.

 

EMPLOYMENTDUTIES

 

A.            Title/Responsibilities.  Executive hereby accepts employment with theCompany pursuant to the terms and conditions hereof.  Executive agrees to serve the Company in the position of SeniorVice President of Operations.  Executiveshall have the powers and duties commensurate with such position, including butnot limited to, hiring personnel necessary (in the judgment of the Board ofDirectors) to carry out the responsibilities for such position.

 

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B.            Full Time Attention.  Executive shall devote his best efforts andhis full business time and attention to the performance of the servicescustomarily incident to such office and to such other services as the Board mayreasonably request.

 

C.            Other Activities.  Except upon the prior written consent of theBoard of Directors, Executive shall not during the period of employment engage,directly or indirectly, in any other business activity (whether or not pursuedfor pecuniary advantage) that is or may be competitive with, or that mightplace him in a competing position to that of the Company or any othercorporation or entity that directly or indirectly controls, is controlled by,or is under common control with the Company (an “Affiliated Company”), providedthat Executive may own less than two percent of the outstanding securities ofany such publicly traded competing corporation.

 

ARTICLEIII.

 

COMPENSATION

 

A.            Base Salary.  Executive shall receive a Base Salary at anannual rate of two hundred twenty thousand dollars ($220,000), payable inaccordance with the Company’s customary payroll practices.  The Company’s Board of Directors shallprovide Executive with annual performance reviews, and, thereafter, Executiveshall be entitled to such Base Salary as the Board of Directors may from timeto time establish in its sole discretion.

 

B.            Achievement Bonus.  The Company shall pay Executive anAchievement Bonus of up to 50% of Executive’s Base Salary annually based uponachievement by the Company of its corporate goals as established and determinedby the Board of Directors annually and for other achievements by the Company orthe Executive during the year as approved by the Compensation Committee.  The Board of Directors or CompensationCommittee, as applicable, shall, in their respective sole discretion, determinewhether such corporate or other goals have been attained or other achievementshave occurred.

 

C.            Transaction Bonus.  In addition, in the event of a transactioninvolving a Change in Control, in a transaction approved by the Company’s Boardof Directors, which transaction results in the receipt by the Company’sstockholders of consideration with a value representing, in the sole judgmentof the Board of Directors, a significant premium over the average of theclosing prices per share of the Company’s common stock as quoted on the NasdaqNational Market for 20 trading days ending one day prior to the publicannouncement of such transaction (a “Change in Control Transaction”), Executiveshall be paid a Transaction Bonus at the closing of such a transaction in theamount equal to one (1) times 50% of Executive’s Base Salary in effectimmediately preceding the closing of such a transaction.  Executive shall also be paid saidTransaction Bonus if the Company enters into a transaction approved by theBoard of Directors which is not a Change in Control Transaction, but which,nonetheless, involves a significant change in the ownership of the Company orthe composition of the Board of Directors of the Company, and which results insignificant additional value for the Company’s stockholders, as determined bythe Board of Directors in its sole discretion and as specifically designated asignificant event by the Board of Directors (a “Significant Event”).  In the event Executive receives aTransaction Bonus, no Achievement Bonus will be paid to Executive in the yearin which such Transaction Bonus is paid.

 

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If the Companyenters into a transaction which is a Change in Control Transaction, then all ofthe Executive’s stock options received before the date of the transaction shallbecome exercisable in full and all of the shares of the common stock of theCompany awarded to Executive under the Company’s 1997 Stock Incentive Plan (orany subsequent plan) become fully vested. If the Company enters into a transaction which is not a Change inControl Transaction but which is a Significant Event, then the Board ofDirectors may, in its sole discretion, determine that all, or a portion, of theExecutive’s stock options received before the effective date of the transactionshall become exercisable in full and all, or a portion, of the shares of thecommon stock of the Company awarded to Executive under the Company’s 1997 StockIncentive Plan ( or any subsequent plan) shall become fully vested.

 

D.            Withholdings.  All compensation and benefits to Executivehereunder shall be subject to all federal, state, local and other withholdingsand similar taxes and payments required by applicable law.

 

ARTICLEIV.

 

EXPENSEALLOWANCES AND FRINGE BENEFITS

 

A.            Vacation.  Executive shall be entitled to three (3)weeks, plus one (1) additional day for each completed year of employment withthe Company, of annual paid vacation during the term of this Agreement.

 

B.            Benefits.  During the term of this Agreement, theCompany shall also provide Executive with the usual health insurance benefitsand life insurance it generally provides to its other senior managementemployees.  As Executive becomeseligible in accordance with criteria to be adopted by the Company, the Companyshall provide Executive with the right to participate in and to receivebenefits from accident, disability, medical, pension, bonus, stock,profit-sharing and savings plans and similar benefits made available generallyto employees of the Company as such plans and benefits may be adopted by theCompany, provided that Executive shall during the term of this Agreement beentitled to receive at a minimum standard medical and dental benefits similarto those typically afforded to a Senior Vice President of Operations in similarsized biotech­nology companies.  Theamount and extent of benefits to which Executive is entitled shall be governedby the specific benefit plan as it may be amended from time to time.

 

C.            Business Expense Reimbursement.  During the term of this Agreement, Executiveshall be entitled to receive proper reimbursement for all reasonableout-of-pocket expenses incurred by him (in accordance with the policies andprocedures established by the Company for its senior executive officers) inperforming services hereunder, provided Executive properly accounts therefor.

 

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ARTICLEV.

 

CONFIDENTIALITY

 

A.            Proprietary Information.  Executive represents and warrants that hehas executed and delivered to the Company the Company’s standard ProprietaryInformation, Inventions and Dispute Resolution Agreement in form acceptable tothe Company’s counsel.

 

B.            Return of Property.  All documents, records, apparatus, equipmentand other physical property which is furnished to or obtained by Executive inthe course of his employment with the Company shall be and remain the soleproperty of the Company.  Executiveagrees that, upon the termination of his employment, he shall return all suchproperty (whether or not it pertains to Proprietary Information as defined inthe Proprietary Information, Inventions and Dispute Resolution Agreement), andagrees not to make or retain copies, reproductions or summaries of any suchproperty.

 

ARTICLEVI.

 

TERMINATION

 

A.            By Death.  The period of employment shall terminateautomatically upon the death of Executive. In such event, the Company shall pay to Executive’s beneficiaries or hisestate, as the case may be, any accrued Base Salary, any bonus compensation tothe extent earned, any vested deferred compensation (other than pension plan orprofit-sharing plan benefits which will be paid in accordance with theapplicable plan), any benefits under any plans of the Company in whichExecutive is a participant to the full extent of Executive’s rights under suchplans, any accrued vacation pay and any appropriate business expenses incurredby Executive in connection with his duties hereunder, all to the date oftermination (collectively “Accrued Compensation”), but no other compensation orreimbursement of any kind, including, without limitation, severancecompensation, and thereafter, the Company’s obligations hereunder shallterminate.

 

B.            By Disability.  If Executive is prevented from properlyperforming his duties hereunder by reason of any physical or mental incapacityfor a period of more than 90 days in the aggregate in any 365-day period, then,to the extent permitted by law, the Company may terminate the employment on the90th day of such incapacity.  In suchevent, the Company shall pay to Executive all Accrued Compensation, and shallcontinue to pay to Executive the Base Salary until such time (but not more than90 days following termination), as Executive shall become entitled to receivedisability insurance payments under the disability insurance policy maintainedby the Company, which disability policy shall provide for full payment ofExecutive’s Base Salary during the period of disability, but no othercompensation or reimbursement of any kind, including without limitation,severance compensation, and thereafter the Company’s obligations hereundershall terminate.  Nothing in thisSection shall affect Executive’s rights under any disability plan in which heis a participant.

 

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C.            By Company for Cause.  The Company may terminate Executive’semployment for Cause (as defined below) without liability at any time with orwithout advance notice to Executive. The Company shall pay Executive all Accrued Compensation, but no othercompen­sation or reimbursement of any kind, including without limitation,severance compensation, and thereafter the Company’s obligations hereundershall terminate.  Termination shall befor “Cause” in the event of the occurrence of any of the following:  (a) any intentional action orintentional failure to act by Executive which was performed in bad faith and tothe material detriment of the Company; (b) Executive intentionally refusesor intentionally fails to act in accordance with any lawful and properdirection or order of the Board; (c) gross negligence by Executive incarrying out the duties of employment; or (d) Executive is convicted of afelony crime involving moral turpitude, provided that in the event that any ofthe foregoing events is capable of being cured, the Company shall providewritten notice to Executive describing the nature of such event and Executiveshall thereafter have five (5) business days to cure such event.

 

D.            At Will.  At any time, the Company may terminateExecutive’s employment without liability other than as set forth below, for anyreason not specified in Section 6.C above, by giving thirty (30) days advancewritten notice to Executive.  If theCompany elects to terminate Executive pursuant to this Section 6.D priorto a Change in Control, the Company shall pay to Executive all AccruedCompensation and shall continue to pay to Executive as provided hereinExecutive’s Salary for six (6) months from the date of such termination asseverance compensation.  If the Companyor its successor elects to terminate Executive pursuant to this Section after aChange in Control, the Company (or its successor) shall continue to pay toExecutive as provided herein Executive’s Salary for six (6) months from thedate of such termination as severance compensation. Upon payment of theseverance benefits described herein, all obligations of the Company (or itssuccessor) shall terminate.

 

During the periodwhen such severance compensation is being paid to Executive, Executive shallnot (i) engage, directly or indirectly, in any other business activitythat is competitive with, or that places him in a competing position to that ofthe Company or any Affiliated Company (provided that Executive may own lessthan two percent (2%) of the outstanding securities of any publicly tradedcorporation), or (ii) hire, solicit, or attempt to hire on behalf ofhimself or any other party any employee or exclusive consultant of theCompany.  If the Company terminates thisAgreement or the employment of Executive with the Company other than pursuantto Section 6.A, 6.B or 6.C, then this Section 6.D shall apply.

 

E.             Constructive Termination.  In the event that the Company shallmaterially reduce the powers and duties of employment of Executive resulting ina material decrease in the responsibilities of Executive which are inconsistentwith Executive acting as a Senior Vice President of Operations of the Company,such action shall be deemed to be a termination of employment of Executivewithout cause pursuant to Section 6.D. In the event of a Change in Control of the Company in which the Companyshall become a division or subsidiary of a larger organization, references tothe Senior Vice President of Operations of the Company shall be deemed to meanthe Senior Vice President of Operations of such division or subsidiary forpurposes of this Section 6.E.

 

F.             Change in Control.  For purposes of this Agreement, a “Change inControl” shall have occurred if at any time during the term of Executive’semployment hereunder, any of the following events shall occur:

 

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1.             The consummation of a merger orconsolidation of the Company with or into another entity or any other corporatereorganization, if more than 50% of the combined voting power of the continuingor surviving entity’s securities outstanding immediately after such merger,consolidation or other reorganization is owned by persons who were notstockholders of the Company immediately prior to such merger, consolidation orother reorganization;

 

2.             A change in the composition of theBoard, as a result of which fewer than one-half of the incumbent directors aredirectors who either (1) had been directors of the Company 24 months prior tosuch change; or (2) were elected, or nominated for election, to the Board withthe affirmative votes of at least a majority of the directors who had beendirectors of the Company 24 months prior to such change and who were still inoffice at the time of the election or nomination; or

 

3.             Any “person” (as such term is usedin Section 13(d) and Section 14 of the Exchange Act) by the acquisition ofsecurities is or becomes the beneficial owner, directly or indirectly, ofsecurities of the Company representing 50% or more of the combined voting powerof the Company’s then outstanding securities ordinarily (and apart from rightsaccruing under special circumstances) having the right to vote at elections ofdirectors (the “Base Capital Stock”) except that any change in the relativebeneficial ownership of the Company’s securities resulting solely from areduction in the aggregate number of outstanding shares of Base Capital Stock ,and any decrease thereafter in such person’s ownership of securities shall bedisregarded until such person increases in any manner, directly or indirectly,such person’s beneficial ownership of any securities of the Company. Thus, forexample, any person who owns less than 50% of the Company’s outstanding shares,shall cause a Change in Control to occur as of any subsequent date if suchperson then acquires an additional interest in the Company which, when added tothe person’s previous holdings, causes the person to hold more than 50% of theCompany’s outstanding shares.

 

The term “Changein Control” shall not include a transaction, the sole purpose of which is tochange the state of the Company’s incorporation.

 

ARTICLEVII.

 

GENERALPROVISIONS

 

A.            Governing Law.  The validity, interpretation, construc­tionand performance of this Agreement and the rights of the parties thereundershall be interpreted and enforced under California law without reference toprinciples of conflicts of laws.  Theparties expressly agree that inasmuch as the Company’s headquarters andprincipal place of business are located in California, it is appropriate thatCalifornia law govern this Agreement.

 

B.            Assignment; Successors; BindingAgreement.

 

1.  Executive may not assign, pledge or encumberhis interest in this Agreement or any part thereof.

 

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2.  The Company will require any successor(whether direct or indirect, by purchase, merger, consolidation or otherwise)to all or substantially all of the business and/or assets of the Company,operation of law or by agreement in form and substance reasonably satisfactoryto Executive, to assume and agree to perform this Agreement in the same mannerand to the same extent that the Company would be required to perform it if nosuch succession had taken place.

 

3.  This Agreement shall inure to the benefit ofand be enforceable by Executive’s personal or legal representatives, executors,administrators, successors, heirs, distributee, devisees and legatees.  If Executive should die while any amount isat such time payable to him hereunder, all such amounts, unless otherwiseprovided herein, shall be paid in accordance with the terms of this Agreement toExecutive’s devisee, legates or other designee or, if there be no suchdesignee, to his estate.

 

C.            No Waiver of Breach.  The waiver by any party of the breach of anyprovision of this Agreement shall not be deemed to be a waiver of anysubsequent breach.

 

D.            Notice.  For the purposes of this Agreement, noticesand all other communications provided for in this Agreement shall be in writingand shall be deemed to have been duly given when delivered or mailed bycertified or registered mail, return receipt requested, postage prepaid,addressed to the respective addresses set forth below or to such other addressas either party may have furnished to the other in writing in accordanceherewith, except that notice of change of address shall be effective only uponreceipt.

 
| To the Company: |   | Nanogen, Inc.                        |
|-----------------|--------|--------------------------------------|
|            |   | 10398 Pacific Center Court           |
|            |   | San Diego, CA 92121                  |
|            |   | Attn:  Chief  Executive Officer |
|            |   |                                 |
| To Executive:   |   | David L. Macdonald                   |
|            |   | c/o Nanogen, Inc.                    |
|            |   | 10398 Pacific Center Court           |
|            |   | San Diego, CA 92121                  |

 

E.             Modification; Waiver; EntireAgreement.  No provisions of thisAgreement may be modified, waived or discharged unless such waiver,modification or discharge is agreed to in writing signed by Executive and suchofficer as may be specifically designated by the Board of the Company.  No waiver by either party hereto at any timeof any breach by the other party of, or compliance with, any condition orprovision of this Agreement to be performed by such other party shall be deemeda waiver of similar or dissimilar provisions or conditions at the same or any prioror subsequent time.  No agreements orrepresentations, oral or otherwise, express or implied, with respect to thesubject matter hereof have been made by either party which are not expresslyset forth in this Agreement.

 

F.             Validity.  The invalidity or unenforceability of anyprovision of this Agreement shall not affect the validity or enforceability ofany other provision of this Agreement, which shall remain in full force andeffect.

 

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G.            Controlling Document.  This Agreement supersedes any and all prioremployment agreements or consulting agreements between the Company andExecutive, but does not supersede any other agreements between Company andExecutive, including but not limited to, the Nanogen Inc. Restricted StockPurchase Agreement, any stock option agreements or common stock purchaseagreements entered into pursuant to the Company’s 1997 Stock Incentive Plan,and the Nanogen Employees’ Handbook and Policies, except as expressly providedherein.  In case of conflict between anyof the terms and conditions of this Agreement and the documents herein referredto, the terms and conditions of this Agreement shall control.

 

H.            Executive Acknowledgment.  Executive acknowledges (a) that he hasconsulted with or has had the opportunity to consult with independent counselof his own choice concerning this Agreement, and has been advised to do so bythe Company, and (b) that he has read and understands the Agreement, isfully aware of its legal effect, and has entered into it freely based on hisown judgment.

 

I.              Remedies.

 

1.             Injunctive Relief.  The parties agree that the services to berendered by Executive hereunder are of a unique nature and that in the event ofany breach or threatened breach of any of the covenants contained herein, thedamage or imminent damage to the value and the goodwill of the Company’sbusiness will be irreparable and extremely difficult to estimate, making anyremedy at law or in damages inadequate. Accordingly, the parties agree that the Company shall be entitled toinjunctive relief against Executive in the event of any breach or threatenedbreach of any such provisions by Executive, in addition to any other relief(including damages) available to the Company under this Agreement or under law.

 

2.             Exclusive.  Both parties agree that the remedy specifiedin Section 7.I.1 above is not exclusive of any other remedy for the breachby Executive of the terms hereof.

 

J.             Counterparts.  This Agreement may be executed in one ormore counterparts, all of which taken together shall constitute one and thesame Agreement.

 

Executed by theparties as of the day and year first above written.

 
|   |   | NANOGEN, INC. |                   |
|--------|--------|---------------|------------------------|
|   |   |          |                   |
|   |   |          |                   |   |
|   |   | By:           | /s/ HOWARD C. BIRNDORF |   |
|   |   |          | Howard C.  Birndorf    |   |
|   |   |          | Executive Chairman     |   |
|   |   |          |                   |   |
|   |   |          |                   |   |
|   |   | EXECUTIVE:    |                   |
|   |   |          |                   |
|   |   |          |                   |   |
|   |   | By:           | /s/ DAVID L. MACDONALD |   |
|   |   |          | David L.  Macdonald    |   |

 

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