S-3

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

HYSEQ, INC.
(Exact name of registrant as specified in its charter)

Nevada	36-3855489
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification Number)

670 Almanor Avenue
Sunnyvale, California 94085
(408) 524-8100
(Address, including zip code, and telephone number, including area code, of
registrant’s principal executive offices)

Ted W. Love
President and Chief Executive Officer
Hyseq, Inc.
670 Almanor Avenue
Sunnyvale, California 94085
(408) 524-8100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copy to:
Alan C. Mendelson, Esq.
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
(650) 463-4693
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

     If the only securities being registered on this Form are pursuant to dividend or interest reinvestment plans, please check the following box. o

     If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. ý

     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

CALCULATION OF REGISTRATION FEE

			Proposed Maximum		Proposed Maximum
Title of Each Class of	Amount to be		Offering Price Per		Aggregate Offering		Amount of
Securities to be Registered	Registered(2)		Share(3)		Price(3)		Registration Fee
Common Stock, par value $0.001 per share(1)		6,948,454	$	2.02	$	14,035,877.08	$	1,291.30

(1)

Each share of common stock being registered hereunder, if issued prior to the termination by the Company of its Stockholders’ Rights Agreement, will include a Preferred Share Purchase Right. Prior to the occurrence of certain events, the Preferred Share Purchase Rights will not be exercisable or evidenced separately from the common stock. The value attributable to the Preferred Share Purchase Rights, if any, is reflected in the value of the common stock.

(2)

Represents the shares of common stock being registered for resale by holders of the Registrant’s securities (the “Selling Stockholders”) pursuant to agreements among the Registrant and the Selling Stockholders as follows: (i) 2,175,075 shares, representing 125% of the number of shares of common stock issuable on June 13, 2002 upon the exchange of a promissory note issued by us for an aggregate principal amount of $4,000,000, plus interest; (ii) 3,741,932 shares, representing the number of shares of common stock held by the Selling Stockholders; and (iii) 1,031,447 shares, representing the number of shares of common stock issuable upon exercise of warrants held by the Selling Stockholders. This registration statement shall also cover any additional shares of common stock, pursuant to Rule 416 under the Securities Act of 1933, as amended, that may become issuable by reason of any stock dividend, stock split, recapitalization or other similar transaction that results in an increase in the number of the outstanding shares of common stock.

(3) Estimated solely for the purpose of computing the registration fee required by Section 6(b) of the Securities Act and computed pursuant to Rule 457(c) under the Securities Act based upon the average of the high and low prices of the common stock on June 12, 2002, as quoted on the Nasdaq National Market. It is not known how many shares will be purchased under this registration statement or at what price shares will be purchased.

     The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. The selling stockholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and the selling stockholder is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JUNE 13, 2002

PROSPECTUS

6,948,454 Shares

Hyseq, Inc.
d/b/a Hyseq Pharmaceuticals, Inc.

COMMON STOCK

These shares of common stock are being offered by the selling stockholders identified in this prospectus. The selling stockholders may sell their shares of common stock in a number of different ways and at varying prices. We provide more information about how the selling stockholders may sell their shares in the section entitled “Plan of Distribution” beginning on page 22.

We are not selling any shares of our common stock under this prospectus and will not receive any proceeds from the sale of these shares.

Our common stock is quoted on the Nasdaq National Market under the symbol “HYSQ.” On June 12, 2002, the last reported sale price for our common stock on the Nasdaq National Market was $2.00 per share.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 1.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

________, 2002

TABLE OF CONTENTS

RISK FACTORS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
ABOUT HYSEQ PHARMACEUTICALS
USE OF PROCEEDS
SELLING STOCKHOLDERS
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
	Item 14. Other expenses of issuance and distribution
	Item 15. Indemnification of directors and officers
	Item 16. Exhibits
	Item 17. Undertakings
SIGNATURES
INDEX TO EXHIBITS
EXHIBIT 4.3
EXHIBIT 4.6
EXHIBIT 4.7
EXHIBIT 4.8
EXHIBIT 4.12
EXHIBIT 5.1
EXHIBIT 23.1
EXHIBIT 23.2

TABLE OF CONTENTS

	Page
Risk Factors		1
Cautionary Statement Regarding Forward-Looking Statements		17
About Hyseq Pharmaceuticals		17
Use of Proceeds		18
Selling Stockholders		18
Plan of Distribution		22
Legal Matters		23
Experts		23
Where You Can Find More Information		23

     You should rely only on the information provided or incorporated by reference in this prospectus or any prospectus supplement. Neither we nor the selling stockholders have authorized anyone to provide you with additional or different information. The selling stockholders are not making an offer of these securities in any jurisdiction where the offer is not permitted. You should assume that the information in this prospectus and any prospectus supplement is accurate only as of the date on the front of the document and that information incorporated by reference in this prospectus or any prospectus supplement is accurate only as of the date of the document incorporated by reference. In this prospectus and any prospectus supplement, unless otherwise indicated, “Hyseq Pharmaceuticals,” “Hyseq,” “we,” “us” and “our” refer to Hyseq, Inc., d/b/a Hyseq Pharmaceuticals, Inc., and its subsidiaries and do not refer to the selling stockholders.

     We own or have rights to use trademarks or trade names that we use in conjunction with the operation of our business. Hyseq is a registered trade and service mark of ours. All other trademarks, service marks and trade names referred to in this prospectus are the property of their respective owners.

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RISK FACTORS

     An investment in our common stock involves a number of risks. You should carefully consider the following information about these risks, as well as the other information appearing in this prospectus, before buying shares of our common stock.

We must be able to continue to secure additional financing

     Our business does not currently generate the cash needed to finance our operations. We will require substantial additional financial resources to conduct the time-consuming and costly research, preclinical development, clinical trials and regulatory approval and marketing activities necessary to commercialize our potential biopharmaceutical products. Also, in pursuing our goal of building a fully integrated biopharmaceutical company, we will need to expand our facilities and hire and train significant numbers of employees to staff these facilities, which will require substantial additional funds. We will need to secure additional financing in order to conduct our research and expand our facilities. However, unanticipated expenses, or unanticipated opportunities that require financial commitments, could give rise to requirements for additional financing sooner than we expect. Financing may be unavailable when we need it or may not be available on acceptable terms. The unavailability of financing may require us to delay, scale back, or eliminate expenditures for our research and development program or our facilities expansion plans. We may also be required to grant rights to third parties to develop and market product candidates that we would prefer to develop and market ourselves. If we were required to grant such rights, the ultimate value of these product candidates to us would be reduced.

     We intend to seek additional funding through collaborations and public or private equity or debt financings. We have financed our operations since inception primarily through the sale of equity securities, and revenue from corporate collaborations. We have not generated royalty revenues from product sales, and do not expect to receive significant revenues from royalties in the foreseeable future, if ever.

     To execute an operating plan that includes facilities expansion and additional staffing, we will need to secure additional financing. Additional financing, however, may not be available on acceptable terms, if at all. For approximately the past eighteen months, the capital markets have been volatile and uncertain. Given the current state of the markets for public and private offerings of securities, we may have difficulty raising the amount of funds, on reasonable terms, necessary to finance our current operating plan. We have implemented a plan to delay, and scale back some of our operating expenditures, including facilities expansion plans, until we obtain additional funding. This plan includes a hiring freeze, a freeze on capital expenditures and a deferral of as many of our contractual financial commitments as possible. If we are unable to obtain additional financing, we may need to look to our Chairman to provide financing, which he has agreed to do. The planned reduction in operating expenditures may have a negative effect on our business. In addition, the perception in the capital markets that we may not be able to raise the amount of financing we desire, or on terms favorable to us, may have a negative effect on the trading price of our stock. Additional equity financings could result in significant dilution of current stockholders equity interests. If sufficient capital is not available, we will delay, reduce the scope of, eliminate or divest one or more of our subsidiaries, discovery, research or development programs or our facilities expansion. Any such action could significantly harm our business, financial condition and results of operations.

     Our future capital requirements and the adequacy of our currently available funds will depend on many factors, including, among others, the following:

• continued scientific progress in our research and development programs, including progress in our research and preclinical studies on our potential therapeutic protein candidates;

• the cost involved in our facilities expansion to support research and development of our potential therapeutic protein candidates;

• our ability and the ability of our subsidiary Callida to attract additional financing on favorable terms;

• the magnitude and scope of our research and development programs, including development of potential therapeutic protein candidates and Callida technology and applications;

• our ability to maintain, and the financial commitments involved in, our existing collaborative and licensing arrangements;

• our ability to establish new corporate relationships with other biotechnology and pharmaceutical companies to share costs and expertise of identifying and developing product candidates;

• the cost of prosecuting and enforcing our intellectual property rights;

• the cost of manufacturing material for preclinical, clinical and commercial purposes;

• progress in our clinical studies of alfimeprase;

• the time and cost involved in obtaining regulatory approvals;

• our need to develop, acquire or license new technologies or products;

• competing technological and market developments;

• future funding commitments to our subsidiary Callida, and our ability to borrow funds from Affymetrix to fund our commitment, under the terms of the Affymetrix settlement;

• our ability to use our common stock to repay our outstanding note to Affymetrix and our line of credit with our Chairman;

• legal and Nasdaq restrictions that impede our ability to raise funds from private placements of our common stock;

• future funding commitments to our collaborators;

• general conditions in the financial markets and in the biotech sector;

• the uncertain condition of the capital markets; and

• other factors not within our control.

Development of our products will take years; our products will require approval before they can be sold

     Because substantially all of our potential products currently are in research or preclinical development, revenues from sales of any products will not occur for at least the next several years, if at all. We cannot be certain that any of our products will be safe and effective or that we will obtain regulatory approvals. In addition, any products that we develop may not be economical to manufacture on a commercial scale. Even if we develop a product that becomes available for commercial sale, we cannot be certain that consumers will accept the product. We cannot predict whether we will be able to develop

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and commercialize any of our protein candidates successfully. If we are unable to do so, our business, results of operations and financial condition will be materially adversely affected.

     We do not yet have products in the commercial markets. All of our potential products are in research or preclinical development. We cannot apply for regulatory approval of our potential products until we have performed additional research and development and testing. We cannot be certain that we, or our strategic partners, will be permitted to undertake clinical testing of our potential products and, if we are successful in initiating clinical trials, we may experience delays in conducting them. Our clinical trials may not demonstrate the safety and efficacy of our potential products, and we may encounter unacceptable side effects or other problems in the clinical trials. Should this occur, we may have to delay or discontinue development of the potential product that causes the problem. After a successful clinical trial, we cannot market products in the United States until we receive regulatory approval. Even if we are able to gain regulatory approval of our products after successful clinical trials and then commercialize and sell those products, we may be unable to manufacture enough products to maintain our business, which could have a negative impact on our financial condition.

The success of our potential products in preclinical studies does not guarantee that these results will be replicated in humans

     Even though some of our therapeutic protein candidates have shown results in preclinical studies, these results may not be replicated in our clinical trials with humans. Human clinical results could be different from our expectations following our preclinical studies. Consequently, there is no assurance that the results in our preclinical studies are predictive of the results that we will see in our clinical trials with humans. Also, while we have demonstrated some evidence that our therapeutic protein candidates have utility in preclinical studies, these results do not mean that the resulting products will be safe and effective in humans. Our therapeutic protein candidates may have undesirable and unintended side effects or other characteristics that may prevent or limit their use.

Our ability to commercialize gene-based products is unproven

     We have not developed any therapeutic or diagnostic products using proteins produced by the genes we have discovered. Before we make any products available to the public, we or our collaboration partners will need to conduct further research and development and complete laboratory testing and animal and human studies. Moreover, with respect to biopharmaceutical products, we or our collaboration partners will need to obtain regulatory approval before releasing any such products. With respect to agricultural products, our collaboration partner may need to obtain regulatory approval before releasing any such products. We have spent, and expect to continue to spend, significant amounts of time and money in determining the function of genes and the proteins they produce, using our own capabilities and those of our collaboration partners. Such determination process constitutes the first step in developing commercial products. We also have spent and will continue to spend significant amounts of time and money in developing processes for manufacturing of our recombinant proteins under pre-clinical development, yet we may not be able to produce sufficient protein for preclinical studies. A commercially viable product may never be developed from our gene discoveries.

     Our development of gene-based products is subject to several risks, including but not limited to:

• the possibility that a product is toxic, ineffective or unreliable;

• failure to obtain regulatory approval for the product;

• the product may be difficult to manufacture on a large scale, or may not be economically feasible to market;

• competitors may develop a superior product; or

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• other persons or companies patents may preclude our marketing of a product.

     Our biopharmaceutical development programs are currently in the research stage or in preclinical development. None of our potential therapeutic protein candidates have advanced to Phase I clinical trials. Our programs may not move beyond their current stages of development. Even if our research does advance, we will need to engage in certain additional preclinical development efforts to determine whether a product is sufficiently safe and efficacious to enter clinical trials. We have little experience with these activities and may not be successful in developing or commercializing products.

     Under our collaboration arrangement with Chiron in the solid tumor cancer field, Chiron maintains responsibility for the development of a product. Under our collaboration arrangement with Kirin Brewery Company, Ltd., Kirin has primary responsibility for clinical development in its territory and we have primary responsibility in our territory. Under our collaboration arrangement with Deltagen, we share responsibility for development of a product. With respect to these arrangements, we run the risk that Chiron or Kirin may not pursue clinical development in a timely or effective manner, if at all, and that Deltagen may not cooperate with us in pursuing clinical development in a timely or effective manner.

     If a product receives approval from the FDA to enter clinical trials, Phases I, II, and III of those trials include multi-phase, multi-center clinical studies to determine the products safety and efficacy prior to marketing. We cannot predict the number or extent of clinical trials that will be required or the length of the period of mandatory patient follow-up that will be imposed. Assuming clinical trials of any product are successful and other data appear satisfactory to us, we or our applicable collaboration partner will submit an application to the FDA and appropriate regulatory bodies in other countries to seek permission to market the product. Typically, the review process at the FDA is not predictable and can take up to several years. Upon completion of such review, the FDA may not approve our or our collaboration partners application or may require us to conduct additional clinical trials or provide other data prior to approval. Furthermore, even if our products or our collaboration partners products receive regulatory approval, delays in the approval process could significantly harm our business, financial condition and results of operations.

     In addition, we may not be able to produce any products in commercial quantities at a reasonable cost or may not be able to market successfully such products. If we do not develop a commercially viable product, then we would suffer significant harm to our business, financial condition and operating results.

The success of our business depends on patents and other proprietary information

     We currently have patents that cover some of our technological discoveries and patent applications that we expect to cover some of our gene, protein and technological discoveries. We have five issued patents relating to our gene and protein discoveries. We will continue to apply for patents for our discoveries. We cannot assure you that any of our currently pending or future applications will issue as patents, or that any patent issued to us will not be challenged, invalidated, circumvented or held unenforceable by way of an interference proceeding or litigation. The patent positions of biotechnology companies involve complex legal and factual questions. Even though we own patents, we cannot be certain that:

	•	our patents will not be challenged;
	•	protection against competitors will be provided by such patents; or
	•	competitors will not independently develop similar products or design around our patents.
We seek patents on:
	•	full-length gene sequences;

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• partial gene sequences;

• proteins produced by those genes;

• antibodies to those proteins;

• diagnostic and therapeutic methods involving such genes, proteins or antibodies; and

• processes, devices and other technology that enhance our ability to develop and/or manufacture gene-based products.

     To obtain a patent, we must identify a utility for the gene or the protein we seek to patent. Identifying a utility may require significant research and development with respect to which we may incur a substantial expense and invest a significant amount of time.

     Patent applications we may apply for with respect to human therapeutics could require us to generate data, which may involve substantial costs. Finally, we cannot predict the timing of the grant of a patent.

     We also rely on trade secret protection for our confidential and proprietary information. Although our policy is to enforce security measures to protect our assets, trade secrets are difficult to protect. We require all employees to enter into confidentiality agreements with us. However:

• competitors may independently develop substantially equivalent proprietary information and techniques;

• competitors may otherwise gain access to our trade secrets;

• persons with whom we have confidentiality agreements may disclose our trade secrets; or

• we may be unable to protect our trade secrets meaningfully.

     Certain of the patent applications protecting our subsidiary Callida’s SBH technology are filed only in the United States. Therefore, Callida currently is not able to prevent others from practicing SBH technology outside of the United States. Furthermore, although we believe Callida intends to defend its patents, it may not prevail in a court case against others who use similar technology.

     Certain of the patent applications protecting our gene-related information are filed only in the United States. Even where we have filed our patents applications internationally, we may choose not to maintain foreign patent protection through failure to enter national phase or failure to pay maintenance annuities.

     We may be required to obtain licenses to patents or other proprietary rights of others. These required licenses may not, however, be made available on terms acceptable to us, or at all. If we do not obtain these licenses, we may not be able to develop, manufacture or sell products, or encounter delays in product market introductions, or incur substantial costs while we attempt to design around existing patents. Any of these obstacles could significantly harm our business, financial condition and operating results.

Our business is difficult to evaluate because we have been focused on our current business strategy for only approximately four years

     We commenced operations in the fourth quarter of 1994. Our initial business focused on gene discovery using our signature by hybridization platform, and applications of our SBH technology

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including the HyChip system. Not only is our operating history relatively short, but we began to transition our business strategy from gene discovery to research and development of potential therapeutic protein candidates in 1998. Accordingly, we have a limited operating history from which you can evaluate our present business and future prospects. As a relatively new entrant to the business of biopharmaceutical research and development, we face risks and uncertainties relating to our ability to implement our business plan successfully. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early state of development, particularly companies in new and rapidly evolving markets such as research and development of gene-based products. If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations, financial condition and prospects will be materially adversely affected.

We lack manufacturing experience and we intend to rely initially on contract manufacturers

     We do not currently have significant manufacturing facilities. We are dependent on contract research and manufacturing organizations, and will be subject to the risks of finalizing contractual arrangements, transferring technology and maintaining relationships with such organizations in order to file an IND with the FDA and proceed with clinical trials for any of our potential therapeutic protein candidates. We are dependent on third-party contract research organizations to conduct certain research, including good laboratory practices toxicology studies in order to gather the data necessary to file an IND with the FDA for any of our potential therapeutic protein candidates. Our potential therapeutic protein candidates have never been manufactured on a commercial scale. Third-party manufacturers may not be able to manufacture such proteins at a cost or in quantities necessary to make them commercially viable. In addition, if any of our potential therapeutic protein candidates enter the clinical trial phase, initially we will be dependent on third-party contract manufacturers to produce the volume of current good manufacturing practices materials needed to complete such trials. We will need to enter into contractual relationships with these or other organizations in order to (i) complete the GLP toxicology and other studies necessary to file an IND with the FDA, and (ii) produce a sufficient volume of cGMP material in order to conduct clinical trials of our potential therapeutic protein candidates. We cannot be certain that we will be able to do so on a timely basis or that we will be able to obtain sufficient quantities of material on commercially reasonable terms. In addition, the failure of any of these relationships with third-party contract organizations may result in a delay of our filing for an IND, or our progress through the clinical trial phase. Any significant delay or interruption would have a material adverse effect on our ability to file an IND with the FDA and/or proceed with the clinical trial phase for any of our potential therapeutic protein candidates.

     Moreover, contract manufacturers that we may use must continually adhere to current cGMP regulations enforced by the FDA through a facilities inspection program. If the facilities of such manufacturers cannot pass a pre-approval plant inspection, the FDA premarket approval of our products will not be granted.

We are dependent upon collaborative arrangements

     As we have transitioned our business from gene discovery to research and development of biopharmaceutical candidates, we have shifted our focus for new collaborative arrangements. We are now focusing on new collaborative arrangements where we would share costs of identifying, developing and marketing product candidates. There can be no assurance that we will be able to negotiate new collaboration arrangements of this type on acceptable terms, or at all.

     Our subsidiary Callida, engaged in the development of SBH technology, is also dependent on the cooperation of its partners in collaborative arrangements and may also need to negotiate new collaborative arrangements in the future.

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     The success of our business is dependent, in significant part, upon our ability to enter into multiple collaboration arrangements and to manage effectively the numerous issues that arise from such collaborations. Management of our relationships with our collaboration partners will require:

• our management team to devote a significant amount of time and effort to the management of these relationships;

• effective allocation of our resources to multiple projects; and

• an ability to obtain and retain management, scientific and other personnel.

     Our need, including the need of our direct and indirect subsidiaries, to manage simultaneously a number of collaboration arrangements may not be successful, and the failure to manage effectively such collaborations would significantly harm our business, financial condition and results of operations.

     The research we perform in our gene discovery collaborative arrangements is at an early stage of product development. The successful development of products under these collaborations is highly dependent on the performance of our collaboration partners. Under our gene discovery collaborative arrangements, our collaboration partners are generally required to (i) undertake and fund certain research and development activities with us, (ii) make payments to us upon achievement of certain scientific milestones and (iii) pay royalties to us when and if they commercially market a product developed from the collaborative arrangement. We do not directly control the amount or timing of resources devoted to development activities by our collaboration partners. We, therefore, face a risk that our collaboration partners may not commit sufficient resources to our research and development programs or the commercialization of our products or may not perform their obligations as expected. If any collaboration partner fails to conduct its activities to be performed under our collaboration arrangement in a timely manner, or at all, our expectations of royalties and milestone payments related to such collaboration arrangement could be delayed or eliminated. Also, our current or future collaboration partners, if any, may independently pursue existing or other development-stage products or alternative technologies in preference to those they are developing in collaboration with us. Further, disputes may arise with respect to ownership of products developed under any such collaboration arrangement. Finally, any of our current collaboration arrangements may be terminated or not renewed by our collaboration partners, and we may not be able to negotiate additional collaboration arrangements in the future on acceptable terms, or at all.

We are dependent on key personnel

     The success of our business is highly dependent on the principal members of our scientific and management staff and including our chairman and senior management team. The loss of the services of any such individual might significantly delay or prevent us from achieving our scientific or business objectives. Competition among biotechnology and biopharmaceutical companies for qualified employees is intense. The ability to retain and attract qualified individuals is critical to our success. We may not be able to attract and retain qualified employees currently or in the future on acceptable terms, or at all. The failure to do so would significantly harm our business, financial condition and results of operations.

Management of growth

     We expect to increase significantly the number of our employees and the scope of our operations. Such growth may place a significant strain on our management and operations. In order to execute our strategy to build a fully integrated biopharmaceutical company, develop therapeutic or diagnostic products, and obtain regulatory approvals, we will need to:

• attract and train skilled employees;

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• attract and retain employees with expertise to ensure that we meet FDA and foreign regulatory requirements for conducting clinical trials;

• expand our facilities for additional research and development laboratories and offices and acquire additional equipment and supplies;

• expand our protein production capacity;

• enter into and manage contractual relationships with contract research and manufacturing organizations; and

• get additional funding.

     Our ability to manage such growth effectively will depend upon our ability to broaden our management team and to attract, hire and retain skilled employees. Our success also will depend on the ability of our officers and key employees to continue to implement and improve our operational, management information and financial control systems and to expand, train and manage our employee base. Inability to manage growth effectively could significantly harm our business, financial condition and operating results.

We must attract and retain qualified employees and consultants

     Our success will depend on our ability to retain our key executive officers and scientific staff to develop our potential products and formulate our research and development strategy. We have programs in place to retain personnel, including programs to create a positive work environment and competitive compensation packages. Because competition for employees in our field is intense, however, we may be unable to retain our existing personnel or attract additional qualified employees. Our success also depends on the continued availability of outside scientific collaborators to perform research and develop processes to advance and augment our internal research efforts. Competition for collaborators is intense. If we do not attract and retain qualified personnel and scientific collaborators, and if we experience significant turnover or difficulties recruiting new employees, our research and development programs could be delayed and we could experience difficulties in generating sufficient revenue to maintain our business.

Future sales of our common stock may depress our stock price

     Sales in the public market of substantial amounts of our common stock could depress prevailing market prices of our common stock. As of May 31, 2002, we had 22,994,366 shares of our common stock outstanding. All of these shares are freely transferable without restriction or further registration under the Securities Act of 1933, as amended, except for shares held by our affiliates and unregistered shares held by non-affiliates. As of May 31, 2002, our affiliates held 4,413,067 shares of our common stock and non-affiliates held 543,027 unregistered shares of our common stock, which are transferable pursuant to Rule 144 as promulgated under the Securities Act of 1933, subject to the volume limitations of Rule 144. Although we do not believe that our affiliates have any present intentions to dispose of any shares of common stock owned by them, there can be no assurance that such intentions will not change in the future. An additional 708,480 shares owned by a Yugoslav entity have been held in a blocked account pursuant to restrictions imposed by the U.S. Department of Treasury arising from the political situation in former Yugoslavia and therefore have not been able to be voted or transferred. We believe that some of these restrictions may have been removed and the remaining restrictions may be removed in the future. There can be no assurance as to how long any such restrictions will remain in effect.

     As of May 31, 2002, warrants to purchase 4,043,360 shares of our common stock were outstanding. In addition, under registration statements on Form S-8 under the Securities Act of 1933, we have registered approximately 5,605,572 shares of our common stock for sale upon the exercise of outstanding options under our 1995 Stock Option Plan, Non-Employee Director Stock Option Plan,

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Scientific Advisory Board/ Consultants Stock Option Plan, and stock option agreements entered into outside of any of our stock option plans and under our Employee Stock Purchase Plan and our Non-Qualified Employee Stock Purchase Plan. Shares of our common stock acquired pursuant to these plans and agreements are available for sale in the open market. In addition, we have reserved approximately 1,268,160 shares of our common stock for issuance upon the exercise of outstanding options under stock option agreements entered into outside of any of our stock option plans. As of May 31, 2002, 317,040 of the 1,268,160 shares of these options were exercisable. Although these shares have not been registered under the Securities Act of 1933, and therefore are restricted securities within the meaning of Rule 144 under the Securities Act of 1933, we intend to register these shares on a registration statement on Form S-8 under the Securities Act of 1933. Certain options or warrants may have exercise prices that are substantially below the prevailing market price of our common stock. The exercise of those options or warrants, and the prompt resale of shares of our common stock received, may result in downward pressure on the price of our common stock. The existence of the currently outstanding warrants and options to purchase our common stock may negatively affect our ability to complete future equity financings at acceptable prices and on acceptable terms.

Our subsidiary Callida Genomics, Inc. may not be able to raise third party financing

     In October 2001, we formed Callida Genomics, Inc. to develop and commercialize our SBH technology. We recognize 90% of Callida’s operating losses in our consolidated results of operations up to the point where Affymetrix’s initial minority interest investment is depleted. Beyond that point, the Company will absorb 100% of the net losses until Callida generates net income. There is no guarantee, however, that Callida will meet its technical milestone and other requirements to obtain additional funding through Affymetrix and Hyseq. There is also no assurance that Callida will be able to obtain any third party financing or that any such financing that Callida obtains will be on favorable terms or that the funding from outside sources will be sufficient to fund Callidas operations. We cannot assure the success of Callida and if Callida is unable to obtain sufficient funding from outside sources, we may abandon their projects or bear the costs of financing Callida ourselves, which will divert our resources from other biopharmaceutical projects.

We have a history of operating losses and may never be profitable

     For the years ended December 31, 2001, 2000 and 1999, we had net losses of $36.5 million, $22.3 million and $18.5 million, respectively. As of December 31, 2001, we had an accumulated deficit of $108.4 million. For the quarter ended March 31, 2002, we had an accumulated deficit of $127.4 million. The process of developing our therapeutic protein candidates will require significant additional research and development, preclinical testing, clinical trials and regulatory approvals. These activities, together with general administrative expenses, are expected to result in operating losses for the foreseeable future. We may never generate profits, and if we do become profitable, we may be unable to sustain or increase profitability on a quarterly or annual basis. As a result, the trading price of our stock could decline.

We may face fluctuations in operating results

     Our operating results may rise or fall significantly as a result of many factors, including:

• the amount of research and development we engage in;

• the progress we make with research and preclinical studies on our therapeutic protein candidates, and the number of candidates in research and preclinical studies;

• our ability to expand our facilities to support our operations;

• our ability to enter into new strategic relationships;

9

• the nature, effectiveness, size, timing or termination of our collaborative arrangements;

• the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;

• the possibility that others may have or obtain patent rights that are superior to ours;

• changes in government regulation; and

• competitors release of successful products into the market.

     Because substantially all of our potential products currently are in research or preclinical development, revenues from sales of any products will not occur for at least the next several years, if at all. We also have a high percentage of fixed costs such as lease obligations. As a result, we may experience fluctuations in our operating results from quarter to quarter and continue to generate losses. Quarterly comparisons of our financial results may not necessarily be meaningful and investors should not rely upon such results as an indication of our future performance.

We face potential volatility of our stock price

     Our common stock has been traded on the Nasdaq National Market since August 1997. The market price of our common stock may fluctuate substantially because of a variety of factors, including:

• volatility and uncertainty in the capital markets in general;

• fluctuations in our results of operations;

• sales of our common stock by existing holders;

• loss of key personnel;

• economic and other external factors;

• announcements by governmental agencies that may have, or may be perceived to have, an impact on our potential products;

• changes in our earnings estimates;

• changes in accounting principles;

• lack of trading volume in our stock;

• fluctuations within the biotechnology sector;

• announcements by competitors; and

• other factors not within our control.

     In addition, the stock market in general, and the market for biotechnology and other life science stocks in particular, has historically been subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. In the past, following periods of volatility in the market price of a company’s securities, class action securities litigation has often been instituted against such a company. Any such litigation instigated against us could result in substantial costs and a

10

diversion of managements attention and resources, which could significantly harm our business, financial condition and operating results.

FDA regulatory approval of our products is uncertain; we face heavy government regulation

     Products such as those proposed to be developed by us or our collaboration partners, typically will be subject to an extensive regulatory process by federal, state and local governmental authorities, including the FDA, and comparable agencies in other countries before we may market and sell such products. In order to obtain regulatory approval of a drug product, we or our collaboration partners must demonstrate to the satisfaction of the applicable regulatory agency, among other things, that such product is safe and effective for its intended uses. In addition, we must show that the manufacturing facilities used to produce the products are in compliance with cGMP requirements. In the event we or our collaboration partners, develop products classified as drugs, we and our collaboration partners will be required to obtain appropriate approvals as well.

     If our subsidiary Callida sells applications of our SBH technology for clinical diagnostics, it will need to comply with appropriate cGMP regulations pertaining to devices. The new Quality System Regulation imposes design controls and makes other significant changes in the requirements applicable to manufacturers. Callida must also demonstrate that a Biologic License Application or New Drug Application for any biological products would be approved by the applicable government agency. In addition, if Callida markets applications of our SBH technology as diagnostic products, they may be considered to be medical devices and Callida or its collaboration partners will be required to show that the diagnostic product is substantially equivalent to a legally marketed product not requiring FDA approval. In addition, Callida must demonstrate that it is capable of manufacturing the product in accordance with the relevant standards. To obtain FDA approval for such products, Callida must submit extensive data to the FDA, including pre-clinical and clinical trial data to prove the safety and efficacy of the device. Clinical trials are normally conducted over a two- to five-year period, but may take longer to complete as a result of many factors, including:

• slower than anticipated patient enrollment;

• difficulty in finding a sufficient number of patients fitting the appropriate inclusion criteria;

• difficulty in acquiring a sufficient supply of clinical trial materials; or

• adverse events occurring during the trials.

     Furthermore, data obtained from preclinical and clinical activities are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval or clearance for a product.

     The process of obtaining FDA and other required regulatory approvals and clearances is lengthy and will require us to expend substantial capital and resources. We may not ultimately be able to obtain the necessary approvals and clearances. Moreover, if and when our products do obtain such approval or clearances, the marketing, distribution and manufacture of such products would remain subject to extensive ongoing regulatory requirements. Failure to comply with applicable regulatory requirements can result in:

• warning letters;

• fines;

• injunctions;

• civil penalties;

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• recall or seizure of products;

• total or partial suspension of production;

• refusal of the government to grant approvals, premarket clearance or premarket approval; or

• withdrawal of approvals and criminal prosecution.

     We also are subject to numerous federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals, the environment and the use and disposal of hazardous substances used in connection with our discovery, research and development work, including radioactive compounds and infectious disease agents. In addition, we cannot predict the extent of government regulations or the impact of new governmental regulations that might significantly harm the discovery, development, production and marketing of our products. We may be required to incur significant costs to comply with current or future laws or regulations and we may be adversely affected by the cost of such compliance.

     If we market therapeutic and diagnostic products outside the United States, such products will be subject to foreign regulatory requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement. Such requirements vary from country to country and are becoming more restrictive throughout the European Community. The process of obtaining foreign regulatory approvals can be lengthy and require the expenditure of substantial capital and resources. We or our collaboration partners may not be successful in obtaining the necessary approvals.

     Any delay or failure by us or our collaboration partners to obtain regulatory approvals for our products:

• would adversely affect our ability to generate product and royalty revenues;

• could impose significant additional costs on us or our collaboration partners;

• could diminish competitive advantages that we may attain; and

• would adversely affect the marketing of our products.

We face intense competition

     The genomics and biopharmaceutical industries are intensely competitive. Our strategy as a biopharmaceutical company is to find the genes of the human genome that are most likely to be involved in a disease condition and to focus on identifying product candidates from the proteins produced by genes. There are a finite number of genes in the human genome, virtually all of which have been or will soon be identified. Our competitors include major pharmaceutical and biotechnology firms, not-for-profit entities and United States and foreign government-financed programs, many of which have substantially greater research and product development capabilities and financial, scientific, marketing and human resources than we do. As a result, they may succeed in identifying genes and determining their functions or developing products earlier than we or our current or future collaboration partners do. They also may obtain patents and regulatory approvals for such products more rapidly than we or our current or future collaboration partners, or develop products that are more effective than those proposed to be developed by us or our collaboration partners. Further, any potential products based on genes we identify ultimately will face competition from other companies developing gene-based products as well as from companies developing other forms of treatment for diseases which may be caused by, or related to, the genes we identify.

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     Many of the companies developing competing products have significantly greater financial resources than we have. Many such companies also have greater expertise than we or our collaboration partners have in discovery, research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and marketing. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to our products. These companies and institutions compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our programs. We will face competition with respect to:

• product efficacy and safety;

• the timing and scope of regulatory approvals;

• availability of resources;

• reimbursement coverage; and

• price and patent position, including potentially dominant patent positions of others.

     There can be no assurance that research and development by others will not render the products that we may develop obsolete or uneconomical, or result in treatments, cures or diagnostics superior to any therapy or diagnostic developed by us or that any therapy we develop will be preferred to any existing or newly developed technologies. While we believe that our technology provides a significant competitive advantage, any one of our competitors may discover and establish a patent position in one or more genes which we designate as a product candidate, before we do. Competition in this field is expected to intensify. Certain of our collaboration partners may now be, or could become, competitors.

     Competition in the area of DNA analysis tools is intense and expected to increase. Technologies in this area are new and rapidly evolving. Other companies also are developing or have developed DNA analysis tools that may compete with applications of Callidas SBH technology. Many of these companies have significantly greater research and development, marketing and financial resources than we do, and therefore represent significant competition.

We lack marketing experience for biopharmaceuticals

     We currently have no sales, marketing or distribution capability. For the foreseeable future, we intend to rely primarily on our current and future collaboration partners or licensors, if any, to market our products. Such collaboration partners, however, may not have effective sales forces and distribution systems. If we are unable to maintain or establish such relationships and are required to market any of our products directly, we will have to develop our own marketing and sales force with the appropriate technical expertise and with supporting distribution capabilities. We may not be able to maintain or establish such relationships with third parties or develop in-house sales and distribution capabilities. To the extent that we depend on our collaboration partners or third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such collaboration partners or third parties. Such efforts may not be successful.

Our products may not be accepted in the marketplace

     Even if they are approved for marketing, products we develop may never achieve market acceptance. Our products, if successfully developed, will compete with a number of traditional drugs and therapies manufactured and marketed by major pharmaceutical and other biotechnology companies. Our products will also compete with new products currently under development by such companies and

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others. The degree of market acceptance of any products developed by us, alone, or in conjunction with our collaboration partners, will depend on a number of factors, including:

• the establishment and demonstration of the clinical efficacy and safety of the products;

• our products potential advantage over alternative treatment methods; and

• reimbursement policies of government and third-party payors.

     Physicians, patients or the medical community in general may not accept and utilize any of the products that we alone, or in conjunction with our collaboration partners, develop. The lack of such market acceptance would significantly harm our business, financial condition and results of operations.

     We may develop diagnostic testing products in the future. Our success in diagnostics will depend in large part upon our ability to obtain customers and upon the ability of these customers to market genetic tests performed with our technology properly. Genetic tests, including any performed using applications of Callidas SBH technology, may be difficult to interpret and may lead to misinformation or misdiagnosis. Even when a genetic test identifies the existence of a mutation in a person, the test cannot determine with absolute certainty whether the tested individual will develop the disease or condition for which the test is performed. The prospect of broadly available genetic predisposition testing has raised societal and governmental concerns regarding the appropriate use and the confidentiality of information provided by such testing. Government authorities could limit the use of genetic testing or prohibit testing for genetic predisposition to certain conditions. Ethical concerns about genetic testing may adversely affect market acceptance of our technology for diagnostic applications. Impaired market acceptance of our technology could significantly harm our business, financial condition and operating results.

We face uncertainties related to SBH technology applications

     We have developed applications of our SBH technology, currently in our subsidiary, Callida, including the chip component to be used with the HyChip system. As Callida continues development of SBH technology applications, it may discover problems in the functioning of these applications, including the HyChip system. Callida may be unable to improve applications of our SBH technology enough to be able to market them successfully. Further, SBH technology applications compete against other DNA analysis tools and well-established technologies. We cannot predict the outcome of these uncertainties.

We face uncertainty with respect to pricing, third-party reimbursement and health care reform

     Our ability to collect significant royalties from our products may depend on our ability, and the ability of our collaboration partners or customers, to obtain adequate levels of reimbursement from third-party payors such as:

• government health administration authorities;

• private health insurers;

• health maintenance organizations;

• pharmacy benefit management companies; and

• other health care related organizations.

     Currently, third-party payors are increasingly challenging the prices charged for medical products and services, and the overall availability of third-party reimbursement is limited and uncertain for genetic predisposition tests. Third-party payors may deny their insured reimbursement if they determine that a

14

prescribed device or diagnostic test (i) has not received appropriate clearances from the FDA or other government regulators, (ii) is not used in accordance with cost-effective treatment methods as determined by the third-party payor, or (iii) is experimental, unnecessary or inappropriate. If third-party payors routinely deny reimbursement, we may not be able to market our products effectively. We also face the risk that we will have to offer our diagnostic products at low prices as a result of the current trend in the United States towards managed health care through health maintenance organizations. Prices could be driven down by health maintenance organizations which control or significantly influence purchases of health care services and products. Legislative proposals to reform health care or reduce government insurance programs could also adversely affect prices of our products. The cost containment measures that health care providers are instituting and the results of potential health care reforms may prevent us from maintaining prices for our products that are sufficient for us to realize profits and may otherwise significantly harm our business, financial condition and operating results.

We face product liability exposure and potential unavailability of insurance

     We risk financial exposure to product liability claims in the event that the use of products developed by us or our collaboration partners, if any, result in personal injury. We may experience losses due to product liability claims in the future. We have obtained limited product liability insurance coverage. Such coverage, however, may not be adequate or may not continue to be available to us in sufficient amounts or at an acceptable cost, or at all. We may not be able to obtain commercially reasonable product liability insurance for any product approved for marketing. A product liability claim or other claim, product recalls, as well as any claims for uninsured liabilities or in excess of insured liabilities, may significantly harm our business, financial condition and results of operations.

We use hazardous materials

     Our research and development activities involve the controlled use of hazardous materials. Although we believe that our safety procedures for handling and disposing of these materials comply with applicable laws and regulations, we cannot eliminate the risk of accidental contamination or injury from hazardous materials. If a hazardous material accident occurred, we would be liable for any resulting damages. This liability could exceed our financial resources. Additionally, hazardous materials are subject to regulatory oversight. If our access to hazardous materials necessary for our operations is limited by federal, state or local regulatory agencies, we could experience delays in our research and development programs. Paying damages or experiencing delays caused by restricted access to necessary materials could reduce our ability to generate revenues and make it more difficult to fund our operations.

Many corporate actions will be controlled by our officers and directors regardless of the opposition of other stockholders or the desire of other stockholders to pursue an alternative course of action

     If our stockholders ratify the proposals included in our proxy statement for our 2002 annual meeting, our executive officers and directors, including Dr. Rathmann, will, in the aggregate, beneficially own approximately 26.3% of our common stock outstanding as of May 31, 2002, and Dr. Rathmann will beneficially own approximately 23.2% of our common stock outstanding as of May 31, 2002. Even if our stockholders do not ratify the proposals included in our proxy statement for our 2002 annual meeting, our executive officers and directors will, in the aggregate, beneficially own approximately 19.6% of our common stock outstanding as of May 31, 2002, and Dr. Rathmann will beneficially own approximately 16.4% of our common stock outstanding as of May 31, 2002. For purposes of this paragraph, beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. In either case, these stockholders will, if they act together, be able to exercise substantial influence and control over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in our control.

We have implemented anti-takeover provisions that may reduce the market price of our common stock

     Our Amended and Restated By-Laws provide that members of our board of directors serve staggered three-year terms. Our Amended and Restated Articles of Incorporation provide that all stockholder action must be effected at a duly called meeting and not by a consent in writing. The Amended and Restated By-Laws provide, however, that our stockholders may call a special meeting of stockholders only upon a request of stockholders owning at least 50% of our capital stock. These provisions of our Amended and Restated Articles of Incorporation and our Amended and Restated By-Laws could discourage potential acquisition proposals and could delay or prevent a change in control. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by our board of directors. We also intended these provisions to discourage certain types of transactions that may involve an actual or threatened change of control. We designed these provisions to reduce our vulnerability to unsolicited acquisition proposals and to discourage certain tactics that may be used in proxy fights. These provisions, however, could also have the effect of discouraging others from making tender offers for our shares. As a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.

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     We are permitted to issue shares of our preferred stock without stockholder approval upon such terms as our board of directors determines. Therefore, the rights of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of our preferred stock that may be issued in the future. In addition, the issuance of preferred stock could have a dilutive effect on the holdings of our current stockholders.

     On June 5, 1998, our board of directors adopted a rights plan and declared a dividend with respect to each share of our common stock then outstanding. This dividend took the form of a right, which entitles the holders to purchase one-one thousandth of a share of our Series B junior participating preferred stock at a purchase price of $175, subject to adjustment from time to time. These rights have also been issued in connection with each share of our common stock issued after June 15, 1998. The rights are exercisable only if a person or entity or affiliated group of persons or entities acquires, or has announced its intention to acquire, 15% (27.5% in the case of certain approved stockholders) or more of our outstanding common stock. The adoption of the rights plan makes it more difficult for a third party to acquire control of us without the approval of our board of directors.

     Nevada Revised Statutes Sections 78.411 through 78.444 prohibit an interested stockholder, under certain circumstances, from entering into specified combination transactions with a Nevada corporation, unless certain conditions are met. Under the statute, an interested stockholder is a person who beneficially owns, directly or indirectly, 10% or more of a corporations voting stock or an affiliate or associate of a corporation who at any time within the prior three years beneficially owned, directly or indirectly, 10% or more of a corporations voting stock. According to the statute, we may not engage in a combination within three years after an interested stockholder acquires our shares, unless (i) our board of directors approves the combination prior to the interested stockholder becoming an interested stockholder or (ii) holders of a majority of voting power not beneficially owned by the interested stockholder approve the combination at a meeting called no earlier than three years after the date the interested stockholder became an interested stockholder.

     Nevada Revised Statutes Sections 78.378 through 78.3793 further prohibit an acquirer, under certain circumstances, from voting shares of a target corporations stock after crossing certain threshold ownership percentages, unless the acquirer obtains the approval of the target corporations stockholders. This statute only applies to Nevada corporations that do business directly or indirectly in Nevada. We do not intend to do business in Nevada within the meaning of the statute. Therefore, it is unlikely that the statute will apply to us.

     The provisions of our governing documents, our existing agreements and current Nevada law may, collectively:

• lengthen the time required for a person or entity to acquire control of us through a proxy contest for the election of a majority of our board of directors;

• discourage bids for our common stock at a premium over market price; and

• generally deter efforts to obtain control of us.

Risk of natural disasters and power blackouts

     Our facilities are located in Sunnyvale, California. In the event that a fire or other natural disaster (such as an earthquake) prevents us from operating our production line, our business, financial condition and operating results would be materially, adversely affected. Some of our landlords maintain earthquake coverage for our facilities. Although we maintain personal property and business interruption coverage, we do not maintain earthquake coverage for personal property or resulting business interruption.

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     The State of California has experienced natural gas and electricity problems, which have resulted in rolling power blackouts, some of which have affected our facilities. In addition, we, like others, have experienced large fluctuation in our natural gas rates and may experience steep fluctuations in our electric rates. Although we have an auxiliary generator, it is intended for emergency backup in the event of a power outage and is not capable of powering our entire operations. Future power blackouts and/or large increases in our utility costs could harm our business, financial condition and results of operations.

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS

     Some of the statements in the section entitled “Risk Factors” and elsewhere in this prospectus constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words including “anticipate”, “believe”, “intends”, “estimates”, “expect”, “should”, “may”, “potential” and similar expressions. Such statements are based on our management’s current expectations and involve risks and uncertainties. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors discussed in this prospectus, including those set forth in the section entitled “Risk Factors” above.

ABOUT HYSEQ PHARMACEUTICALS

     We are engaged in research and development of novel biopharmaceutical protein-based products for the treatment of human disease from our collection of proprietary genes discovered using our high-throughput signature-by-hybridization platform. We are researching several product candidates to treat a variety of serious diseases and medical conditions. These product candidates target several markets, including cardiovascular disease and oncology. We intend to develop and commercialize these types of product candidates on our own or in collaboration with other biotechnology or pharmaceutical companies.

     We believe our signature-by-hybridization platform, which is related to our proprietary sequencing-by-hybridization (or SBH) technology, gives us a significant advantage in discovering novel, rarely-expressed genes. We believe we possess one of the most important proprietary databases of full-length human gene sequences and have the potential to develop a significant pipeline of product candidates for research and development. Previously, our activities have focused primarily on full-length gene sequencing, patenting, bioinformatics, cloning, and early stage research activities to prioritize potential therapeutic protein candidates. As of May 31, 2002, we had filed patent applications on approximately 10,000 full-length human gene sequences. We are accelerating our research activities to elucidate the role of novel genes in our proprietary database, their encoded proteins and corresponding antibodies. Our database includes chemokines, growth factors, stem cell factors, interferons, integrins, hormones, receptors and other potential protein therapeutics or drug targets. Our focused bioinformatics and screening capabilities have significantly enhanced our understanding of the biological activity of these genes and their corresponding proteins, enabling us to file strategic patent applications that encompass both composition of matter and method of use claims.

     We are primarily focused on discovering and developing therapeutic protein-based products, as we believe that naturally occurring therapeutic proteins have several commercial advantages over small molecule drugs.

     In the near term, we are balancing the risks in developing therapeutics from our full-length gene database by also focusing on an early stage clinical product candidate acquired through collaboration with Amgen, Inc. We entered into this collaboration in January 2002, with the goal of developing and commercializing alfimeprase, a thrombolytic enzyme, for the treatment of peripheral arterial occlusion (or PAO) and other cardiovascular indications. Pre-clinical studies suggest that alfimeprase is a promising agent for dissolving blood clots (clot lysis) and may be well suited for the PAO indication.

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     We were incorporated in Illinois in August 1992 and reincorporated in Nevada in November 1993. We have being doing business as Hyseq Pharmaceuticals, Inc. since October 2001. Our executive offices are located at 670 Almanor Avenue, Sunnyvale, California 94085 and our telephone number is (408) 524-8100. Our World Wide Web address is http://www.hyseq.com. Information contained in our World Wide Web site should not be considered to be part of this prospectus.

USE OF PROCEEDS

     We will not receive any of the proceeds from the sale of the shares of common stock offered by the selling stockholders.

SELLING STOCKHOLDERS

     On April 5, 2002, we sold an aggregate of 3,575,691 shares of our common stock to some of the selling stockholders in a private placement and issued those selling stockholders warrants to purchase an aggregate of 893,927 shares of common stock. In connection with this sale, we agreed to file a registration statement with the SEC covering the resale of the shares, including the shares issuable upon exercise of the warrants.

     On November 13, 2001, Affymetrix, Inc., a Delaware corporation, purchased from us a promissory note in the principal amount of $4,000,000. At any time prior to payment in full of the principal balance of, and all interest accrued on, the promissory note, the promissory note may, at our election, be exchanged, in full or in part, into shares of our common stock. No portion of the promissory note may be exchanged into shares of common stock to the extent that such exchange would cause the holder or any of its affiliates to beneficially own more than 19% of the shares of our common stock outstanding as of the date of exchange. The number of shares of common stock deliverable upon exchange of the promissory note will equal the amount of principal and interest to be exchanged divided by the exchange price. The exchange price of the promissory note is determined by multiplying 90% by the average of the per share closing prices of our common stock for ten consecutive trading days immediately preceding and including the second trading day prior to the date of the exchange. In connection with the purchase and sale of the promissory note, we agreed to file a registration statement with the SEC covering the resale by the holder of the shares of our common stock issuable upon exchange of the promissory note.

     This prospectus also covers 166,241 shares of common stock held by The Donald G. Brungard Living Trust UTD 11/28/92 and an additional 137,520 shares of common stock issuable to Donald G. Brungard or his designee upon the exercise of a warrant issued by us to Donald G. Brungard or his designee dated as of July 15, 1995. We sometimes refer to such stockholders as the Brungard stockholders.

     The promissory note sold to Affymetrix and the warrants issued to the selling stockholders were not and will not be registered under the Securities Act of 1933, as amended.

     The following table sets forth the names of the selling stockholders, the number of shares of our common stock that each selling stockholder beneficially owns as of May 31, 2002 and the number of shares which may be offered pursuant to this prospectus. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Each selling stockholder other than the Brungard stockholders offering shares of common stock to be issued upon the exercise of a warrant may not exercise its warrant if such exercise would result in the selling stockholder owning more than 4.999% of our outstanding shares of common stock (including for such purpose the shares of common stock issuable upon such exercise), unless the less than 4.999% requirement is waived by the selling stockholder holding the warrant (as to itself only) upon not less than 61 days prior notice to us. Other holders of warrants shall be unaffected by any such waiver. In addition, each selling stockholder other than the Brungard stockholders offering shares of common stock to be issued upon the exercise of a

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warrant may not exercise the warrant into shares of our common stock if, after the exercise, such holder, together with any of its affiliates, would beneficially own over 9.999% of the outstanding shares of our common stock. However, the 9.999% limitation would not prevent the holder from acquiring and selling in excess of 9.999% of our common stock through a series of exercises. Percentage ownership is based on 22,994,366 shares of common stock outstanding as of May 31, 2002. Each selling stockholder may sell all, some or none of the common stock being offered.

							Shares Beneficially
	Shares			Shares			Owned Subsequent
	Beneficially			Offered by			to the Offering (1)
	Owned Prior			This
Name of Selling Stockholder	to the Offering			Prospectus(1)			Shares		Percent
Affymetrix, Inc.		—			2,175,075	(2)		—		*
The Donald G. Brungard Living Trust UTD 11/28/92		352,240			166,241			185,999		*
Donald G. Brungard		489,760	(3)		137,520			185,999		*
Cleveland Overseas Ltd.		74,404	(4)		74,404			—		*
BankAmerica Investment Corporation		193,455	(5)		193,455			—		*
Ursus Offshore Ltd.		160,625	(6)		160,625			—		*
Ursus Capital, L.P.		139,375	(7)		139,375			—		*
Sabalon Investments Inc.		104,167	(8)		104,167			—		*
JB Partners		125,000	(9)		125,000			—		*
Smithfield Fiduciary LLC		297,619	(10)		297,619			—		*
CLSP		952,857	(11)		892,857			60,000		*
XMark, L.P.		21,578	(12)		21,578			—		*
XMark, Ltd.		52,828	(13)		52,828			—		*
Brooks Industries of Long Island Inc.		125,000	(14)		125,000			—		*
Vulcan Ventures Inc.		1,544,615	(15)		794,615			750,000		3.3
Narragansett Offshore Ltd.		644,805	(16)		422,269			222,536		*
Narragansett I, L.P.		282,576	(17)		172,969			109,607		*
Cranshire Capital, L.P.		266,667	(18)		148,809			117,858		*
Pine Ridge Financial Inc.		933,334	(19)		744,048			189,286		*

*	Less than 1% of the outstanding shares of common stock.
(1)	Assumes the sale of all shares of common stock offered by this prospectus.
(2)	The shares offered consist of shares of common stock issuable upon exchange of the promissory note issued by us in the principal amount of $4,000,000, plus 7.5% interest per annum, based on a 360-day year. No portion of the promissory note may be exchanged into shares of our common stock to the extent that such exchange would cause the holder or any of its affiliates to beneficially own more than 19% of the shares of our common stock outstanding on the date of the exchange. We are listing in this prospectus 125% of the number of shares into which the promissory note, including accrued interest, would be exchanged if it were exchanged as of June 13, 2002. Therefore, the number of shares set forth herein and which Affymetrix may sell pursuant to this prospectus may exceed the number of shares of common stock that we have calculated pursuant to the preceding sentence.
(3)	The number of shares listed includes 137,520 shares of common stock issuable to Donald G. Brungard or his designee upon the exercise of a warrant issued by us to Donald G. Brungard or his designee dated as of July 15, 1995, and 166,241 shares of common stock held by The Donald G. Brungard Living Trust UTD 11/28/92, of which Donald G. Brungard is trustee.

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(4)	The number of shares listed includes 14,881 shares of common stock issuable to Cleveland Overseas Ltd. upon the exercise of a warrant issued by us to Cleveland Overseas Ltd., and 59,523 shares of common stock held by Cleveland Overseas Ltd.
(5)	The number of shares listed includes 38,691 shares of common stock issuable to BankAmerica Investment Corporation upon the exercise of a warrant issued by us to BankAmerica Investment Corporation, and 154,764 shares of common stock held by BankAmerica Investment Corporation.
(6)	The number of shares listed includes 32,125 shares of common stock issuable to Ursus Offshore Ltd. upon the exercise of a warrant issued by us to Ursus Offshore Ltd., and 128,500 shares of common stock held by Ursus Offshore Ltd.
(7)	The number of shares listed includes 27,875 shares of common stock issuable to Ursus Capital, L.P. upon the exercise of a warrant issued by us to Ursus Capital, L.P., and 111,500 shares of common stock held by Ursus Capital, L.P.
(8)	The number of shares listed includes 20,834 shares of common stock issuable to Sabalon Investments Inc. upon the exercise of a warrant issued by us to Sabalon Investments Inc., and 83,333 shares of common stock held by Sabalon Investments Inc.
(9)	The number of shares listed includes 25,000 shares of common stock issuable to JB Partners upon the exercise of a warrant issued by us to JB Partners, and 100,000 shares of common stock held by JB Partners.
(10)	The number of shares listed includes 59,524 shares of common stock issuable to Smithfield Fiduciary LLC upon the exercise of a warrant issued by us to Smithfield Fiduciary LLC, and 238,095 shares of common stock held by Smithfield Fiduciary LLC.
(11)	The number of shares listed includes: (i) 30,600 shares of common stock issuable to CLSP Overseas Ltd. upon the exercise of a warrant issued by us to CLSP Overseas Ltd., (ii) 122,400 shares of common stock held by CLSP Overseas Ltd., (iii) 13,598 shares of common stock issuable to CLSP SBS-II, L.P. upon the exercise of a warrant issued by us to CLSP SBS-II, L.P., (iv) 54,392 shares of common stock held by CLSP SBS-II, L.P., (v) 27,415 shares of common stock issuable to CLSP SBS-I, L.P. upon the exercise of a warrant issued by us to CLSP SBS-I, L.P., (vi) 109,660 shares of common stock held by CLSP SBS-I, L.P., 13,563 shares of common stock issuable to CLSP II, L.P. upon the exercise of a warrant issued by us to CLSP II, L.P., (vii) 54,252 shares of common stock held by CLSP II, L.P., (viii) 93,396 shares of common stock issuable to CLSP, L.P. upon the exercise of a warrant issued by us to CLSP, L.P. and (ix) 373,581 shares of common stock held by CLSP, L.P.
(12)	The number of shares listed includes 4,316 shares of common stock issuable to XMark, L.P. upon the exercise of a warrant issued by us to XMark, L.P., and 17,262 shares of common stock held by XMark, L.P.
(13)	The number of shares listed includes 10,566 shares of common stock issuable to XMark, Ltd. upon the exercise of a warrant issued by us to XMark, Ltd., and 42,262 shares of common stock held by XMark, Ltd.
(14)	The number of shares listed includes 25,000 shares of common stock issuable to Brooks Industries of Long Island Inc. upon the exercise of a warrant issued by us to Brooks Industries of Long Island Inc., and 100,000 shares of common stock held by Brooks Industries of Long Island Inc.

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(15)	The number of shares listed includes: (i) 250,000 shares of common stock issuable to Vulcan Ventures Inc. upon the exercise of a warrant issued by us to Vulcan Ventures Inc. on August 28, 2001 not being offered by this prospectus, (ii) 158,923 shares of common stock issuable to Vulcan Ventures Inc. upon the exercise of a warrant issued by us to Vulcan Ventures Inc. on April 5, 2002 being offered by this prospectus, (iii) 635,692 shares of common stock held by Vulcan Ventures Inc. being offered by this prospectus and (iv) 500,000 shares of common stock not being offered by this prospectus.
(16)	The number of shares listed includes: (i) 222,536 shares of common stock issuable to Narragansett Offshore, Ltd. upon the exercise of a warrant issued by us to Narragansett Offshore, Ltd. on August 28, 2001 not being offered by this prospectus, (ii) 84,454 shares of common stock issuable to Narragansett Offshore, Ltd. upon the exercise of a warrant issued by us to Narragansett Offshore, Ltd. on April 5, 2002 being offered by this prospectus and (iii) 337,815 shares of common stock held by Narragansett Offshore, Ltd. being offered by this prospectus.
(17)	The number of shares listed includes: (i) 109,607 shares of common stock issuable to Narragansett I, L.P. upon the exercise of a warrant issued by us to Narragansett Offshore, Ltd. on August 28, 2001 not being offered by this prospectus, (ii) 34,594 shares of common stock issuable to Narragansett I, L.P. upon the exercise of a warrant issued by us to Narragansett I, L.P. on April 5, 2002 being offered by this prospectus and (iii) 119,047 shares of common stock held by Narragansett I, L.P. being offered by this prospectus.
(18)	The number of shares listed includes: (i) 117,858 shares of common stock issuable to Cranshire Capital, L.P. upon the exercise of a warrant issued by us to Cranshire Capital, L.P. on August 28, 2001 not being offered by this prospectus, (ii) 29,762 shares of common stock issuable to Cranshire Capital, L.P. upon the exercise of a warrant issued by us to Cranshire Capital, L.P. on April 5, 2002 being offered by this prospectus and (iii) 119,047 shares of common stock held by Cranshire Capital, L.P. being offered by this prospectus.
(19)	The number of shares listed includes: (i) 189,286 shares of common stock issuable to Pine Ridge Financial Inc. upon the exercise of a warrant issued by us to Pine Ridge Financial Inc. on August 28, 2001 not being offered by this prospectus, (ii) 148,810 shares of common stock issuable to Pine Ridge Financial Inc. upon the exercise of a warrant issued by us to Pine Ridge Financial Inc. on April 5, 2002 being offered by this prospectus and (ii) 595,238 shares of common stock held by Pine Ridge Financial Inc. being offered by this prospectus.

     In connection with the issuance of the promissory note to Affymetrix, we granted Affymetrix a non-exclusive license to our array-related patents in the field of non-universal probe arrays, and Affymetrix granted us an internal use license under certain Affymetrix array-related patents for pharmaceutical research. We also entered into a BiotechAccess™ supply agreement with Affymetrix for Affymetrix’ GeneChip® technology. Affymetrix paid us a one-time license fee for the non-exclusive license.

     Except as stated above, we are unaware of any material relationship between the selling stockholders and us in the past three years.

     We are registering the shares of our common stock offered by the selling stockholders (other than the Brungard stockholders) pursuant to contractual registration rights we granted to the selling stockholders. We have filed a registration statement related to the shares offered by this prospectus and, with respect to the shares offered by Affymetrix, we have agreed to use commercially reasonable efforts to keep such registration statement continuously effective under the Securities Act for so long as there shall remain outstanding any shares of common stock issued in exchange for amounts due under the promissory note sold to Affymetrix, except shares that have been effectively registered under the Securities Act and sold in a manner contemplated by the registration statement or that have been

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transferred in compliance with Rule 144 or are transferable pursuant to paragraph (k) of Rule 144, or any principal or interest is outstanding under the promissory notes. With respect to the shares offered by the other selling stockholders (other than the Brungard stockholders), we have agreed to keep the registration statement effective until the earlier of (1) the date on which all the shares have been sold or may be sold without volume restrictions pursuant to Rule 144(k) under the Securities Act, and (2) two years after the registration statement is declared effective.

PLAN OF DISTRIBUTION

     The selling stockholders and any of their pledges, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• short sales;

• broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

• a combination of any such methods of sale; and

• any other method permitted pursuant to applicable law.

     The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

     Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

     The selling stockholders may from time to time pledge or grant a security interest in some or all of the common stock or warrants owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

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     The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for the purposes of this prospectus.

     The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The selling stockholders have informed the Company that they do not have any agreement or understanding, directly or indirectly, with any person to distribute the Common Stock.

     We have advised the selling stockholders that they are required to comply with Regulation M promulgated under the Securities and Exchange Act during such time as they may be engaged in a distribution of the shares. With some exceptions, Regulation M precludes any selling stockholder, any affiliated purchaser and any broker-dealer or other person who participates in such distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security that is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the common stock.

     We are required to pay all fees and expenses incident to the registration of the shares, including $10,000 of fees and disbursements of counsel to the selling stockholders. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

LEGAL MATTERS

     Kummer Kaempfer Bonner & Renshaw of Las Vegas, Nevada will issue an opinion about certain legal matters with respect to the common stock being offered in this prospectus.

EXPERTS

     The consolidated financial statements of Hyseq Inc. and subsidiaries as of December 31, 2001 and 2000 and for the years then ended have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.

     Ernst & Young LLP, independent auditors, have audited our consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 1999, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements are incorporated by reference in reliance on the report of Ernst & Young LLP given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

     We are a reporting company and file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, or the SEC. You may read and copy these reports, proxy statements and other information at the SEC’s public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the public reference rooms. Our SEC filings are also available at the SEC’s Web site at “http://www.sec.gov.” In addition, you can read and copy our SEC filings at the office of the National Association of Securities Dealers, Inc. at 1735 K Street, Washington, D.C. 20006.

     The SEC allows us to “incorporate by reference” information that we file with them, which means that we can disclose important information to you by referring you to those documents. The

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information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. Further, all filings we make under the Securities Exchange Act after the date of the initial registration statement and prior to effectiveness of the registration statement shall be deemed to be incorporated by reference into this prospectus. We incorporate by reference the documents listed below and any future filings we will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:

     1. Our Annual Report on Form 10-K for the year ended December 31, 2001, filed with the SEC on April 1, 2002, as amended on Form 10-K/A filed with the SEC on May 9, 2002;

     2. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, filed with the SEC on May 15, 2002;

     3. Our Current Report on Form 8-K, filed with the SEC on April 9, 2002;

     4. Our Current Report on Form 8-K, filed with the SEC on May 16, 2002; and

     5. The description of our common stock set forth in our Registration Statement on Form 8-A, filed with the SEC on July 23, 1997.

     We will provide to you at no cost a copy of any and all of the information incorporated by reference in this prospectus. You may make a request for copies of this information in writing or by telephone. Requests should be directed to:

Hyseq Pharmaceuticals, Inc.
Attention: Peter S. Garcia
675 Almanor Avenue
Sunnyvale, CA 94085
(408) 524-8100

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other expenses of issuance and distribution

Securities and Exchange Commission Registration Fee		$	1,291.30
Nasdaq National Market Listing Fee		$	17,500.00
Legal Fees and Expenses		$	35,000.00
Accountants’ Fees and Expenses		$	13,000.00
Miscellaneous		$	9,486.75
	Total	$	77,000.00

     The foregoing items, except for the Securities and Exchange Commission Registration Fee, are estimated.

Item 15. Indemnification of directors and officers

     Pursuant to the provisions of Section 78.7502 of the Nevada General Corporation Law, every Nevada corporation has authority to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, except an action by or in the right of the corporation, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with the action, suit or proceeding if such person: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that such person is liable pursuant to NRS 78.138 or did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, or that, with respect to any criminal action or proceeding, such person had reasonable cause to believe that his conduct was unlawful.

     Pursuant to the provisions of Section 78.7502, every Nevada corporation also has the authority to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by such person in connection with the defense or settlement of the action or suit if such person: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. No indemnification shall be made, however, for any claim, issue or matter as to which a person has been adjudged by a court of competent jurisdiction to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the

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court determines that in view of all the circumstances, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

     To the extent any person referred to in the two immediately preceding paragraphs is successful on the merits or otherwise in defense of any action, suit or proceeding, the Nevada General Corporation Law provides that such person must be indemnified by the corporation against expenses including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.

     Section 78.751 of the Nevada General Corporation Law requires the corporation to obtain a determination that any discretionary indemnification is proper under the circumstances. Such a determination must be made by the corporation’s stockholders; its board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; or under certain circumstances, by independent legal counsel. Our Amended and Restated Bylaws provide that we shall indemnify our directors, officers, employees and agents to the fullest extent provided by the Nevada General Corporation Law.

     Section 78.138 of the Nevada General Corporation Law provides that directors and officers are not individually liable to the corporation or its stockholders for any damages as a result of any act or failure to act in his capacity as a director or officer unless it is proven that: (a) his act or failure to act constituted a breach of his fiduciary duties as a director or officer; and (b) his breach of those duties involved intentional misconduct, fraud or a knowing violation of law. Additionally, Our Amended and Restated Articles of Incorporation includes a provision eliminating the personal liability of their directors and officers to the corporation or stockholders for damages resulting from their breach of fiduciary duties, other than any liability for (i) acts or omissions involving intentional misconduct, fraud or a knowing violation of law, or (ii) unlawful distributions.

     We have entered into indemnification agreements with each of our officers and directors in which we agree to indemnify and hold harmless the officer or director to the fullest extent permitted by applicable law in connection with any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation not initiated by the officer or director, by reason of the fact that such person is or was a director, officer, employee, agent or fiduciary of us, or is or was serving at our request as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any and all expenses, judgments, penalties, fines and settlement amounts actually and reasonably incurred by such officer or director or on his or her behalf (including mandatory advancement of expenses), if such person acted in good faith and in a manner which such person believed to be or not opposed to our best interests. The indemnification agreements set forth procedures that apply in the event of a claim for indemnification thereunder.

     We also maintain insurance to protect ourself and our directors, officers, employees and agents against expenses, liabilities and losses incurred by such persons in connection with their service in the foregoing capacities.

Item 16. Exhibits

EXHIBIT NO.	DESCRIPTION OF DOCUMENT
4.1	Amended and Restated Articles of Incorporation of Hyseq, Inc., including Amendment No. 1 and Amendment No. 2 thereto.(1)
4.2	Amendment No. 3 to Amended and Restated Articles of Incorporation of Hyseq, Inc.(2)
4.3	Amended and Restated By-Laws of Hyseq, Inc., as amended on April 26, 2002.
4.4	Specimen Common Stock certificate. (3)

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EXHIBIT NO.	DESCRIPTION OF DOCUMENT
4.5	Rights Agreement, between Hyseq, Inc. and U.S. Stock Transfer, dated June 5, 1998.(3)
4.6	Securities Purchase Agreement, dated as of April 5, 2002, by and among Hyseq, Inc. and the investors party thereto.
4.7	Registration Rights Agreement, dated as of April 5, 2002, by and among Hyseq, Inc. and the investors party thereto.
4.8	Form of Warrant, dated as of April 5, 2002.
4.9	Promissory Note, dated as of November 13, 2001, payable to Affymetrix, Inc.(4)
4.10	Registration Rights Agreement, dated as of November 13, 2001, by and between Hyseq, Inc. and Affymetrix, Inc.(4)
4.11	Pledge and Security Agreement, dated as of November 13, 2001, by and between Hyseq, Inc. and Affymetrix, Inc.(4)
4.12	Warrant for Shares of Common Stock of Hyseq, Inc. Issued to Donald Brungard or His Designee Dated as of July 15, 1995.
5.1	Opinion of Kummer Kaempfer Bonner & Renshaw.
23.1	Consent of KPMG LLP, Independent Auditors.
23.2	Consent of Ernst & Young LLP, Independent Auditors.
23.3	Consent of Kummer Kaempfer Bonner & Renshaw (reference is made to Exhibit 5.1).
24.1	Power of Attorney (see signature page).

(1)	Incorporated by reference to our Registration Statement filed on Form S-1, File No. 333-29091, filed on June 12, 1997.
(2)	Incorporated by reference to our Registration Statement filed on Form S-3, File No. 333-70134, filed on September 25, 2001.
(3)	Incorporated by reference to our Current Report on Form 8-K, File No. 000-22873, filed on July 31, 1998.
(4)	Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed on April 1, 2002.

Item 17. Undertakings

     The undersigned registrant hereby undertakes:

     (1)  To file, during any period in which offers or sales are being made pursuant to this registration statement, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the

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maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

     (2)  That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and

     (3)  To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

     The undersigned registrant hereby undertakes that, for the purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) of Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

     Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the provisions described in Item 15, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement on Form S-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale, State of California, on the 13th day of June, 2002.

HYSEQ, INC. d/b/a Hyseq Pharmaceuticals, Inc.
By:	/s/ Dr. Ted W. Love
	Dr. Ted W. Love President and Chief Executive Officer

POWER OF ATTORNEY

     KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dr. Ted W. Love and Peter S. Garcia, his or her true and lawful agent, proxy and attorney-in-fact, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and in any and all capacities, to (1) act on, sign and file with the SEC any and all amendments (including post-effective amendments) to this registration statement

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together with all schedules and exhibits thereto and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together with all schedules and exhibits thereto, (2) act on, sign and file such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith, (3) act on and file any supplement to any prospectus included in this registration statement or any such amendment or any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (4) take any and all actions which may be necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, hereby approving, ratifying and confirming all that such agent, proxy and attorney-in-fact or any of his substitutes may lawfully do or cause to be done by virtue thereof.

     Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on form S-3 has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Dr. Ted W. Love Dr. Ted W. Love	President, Chief Executive Officer and Director (Principal Executive Officer)	June 13, 2002
/s/ Peter S. Garcia Peter S. Garcia	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	June 13, 2002
/s/ George B. Rathmann George B. Rathmann	Chairman of the Board of Directors	June 13, 2002
/s/ Robert D. Weist Robert D. Weist	Vice Chairman of the Board of Directors	June 13, 2002
/s/ Dr. Raymond F. Baddour	Director	June 13, 2002
Dr. Raymond F. Baddour
/s/ Richard B. Brewer	Director	June 13, 2002
Richard B. Brewer
/s/ Thomas N. McCarter	Director	June 13, 2002
Thomas N. McCarter
/s/ Mary K. Pendergast	Director	June 13, 2002
Mary K. Pendergast
/s/ Dr. Ernst Schweizer	Director	June 13, 2002
Dr. Ernst Schweizer

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INDEX TO EXHIBITS

EXHIBIT NO.	DESCRIPTION OF DOCUMENT
4.1	Amended and Restated Articles of Incorporation of Hyseq, Inc., including Amendment No. 1 and Amendment No. 2 thereto.(1)
4.2	Amendment No. 3 to Amended and Restated Articles of Incorporation of Hyseq, Inc.(2)
4.3	Amended and Restated By-Laws of Hyseq, Inc., as amended on April 26, 2002.
4.4	Specimen Common Stock certificate. (3)
4.5	Rights Agreement, between Hyseq, Inc. and U.S. Stock Transfer, dated June 5, 1998.(3)
4.6	Securities Purchase Agreement, dated as of April 5, 2002, by and among Hyseq, Inc. and the investors party thereto.
4.7	Registration Rights Agreement, dated as of April 5, 2002, by and among Hyseq, Inc. and the investors party thereto.
4.8	Form of Warrant, dated as of April 5, 2002.
4.9	Promissory Note, dated as of November 13, 2001, payable to Affymetrix, Inc.(4)
4.10	Registration Rights Agreement, dated as of November 13, 2001, by and between Hyseq, Inc. and Affymetrix, Inc.(4)
4.11	Pledge and Security Agreement, dated as of November 13, 2001, by and between Hyseq, Inc. and Affymetrix, Inc.(4)
4.12	Warrant for Shares of Common Stock of Hyseq, Inc. Issued to Donald Brungard or His Designee Dated as of July 15, 1995.
5.1	Opinion of Kummer Kaempfer Bonner & Renshaw.
23.1	Consent of KPMG LLP, Independent Auditors.
23.2	Consent of Ernst & Young LLP, Independent Auditors.
23.3	Consent of Kummer Kaempfer Bonner & Renshaw (reference is made to Exhibit 5.1).
24.1	Power of Attorney (see signature page).

(1)	Incorporated by reference to our Registration Statement filed on Form S-1, File No. 333-29091, filed on June 12, 1997.
(2)	Incorporated by reference to our Registration Statement filed on Form S-3, File No. 333-70134, filed on September 25, 2001.
(3)	Incorporated by reference to our Current Report on Form 8-K, File No. 000-22873, filed on July 31, 1998.
(4)	Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed on April 1, 2002.

II-1 EX-4.3 3 f79368exv4w3.txt EXHIBIT 4.3 Exhibit 4.3 AMENDED AND RESTATED BY-LAWS OF HYSEQ, INC. AS AMENDED ON APRIL 26, 2002 ARTICLE I OFFICES The corporation shall continuously maintain in the State of Nevada, a registered office and a resident agent whose office is identical with such registered office and may have other offices within or without the state. The address of the corporation's registered office in the State of Nevada is Laughlin Associates, Inc., 2533 North Carson Street, Carson City, Nevada 89706. The name of the corporation's resident agent at such address is the Laughlin Associates, Inc. The corporation reserves the power to change its resident agent and registered office at any time. ARTICLE II STOCKHOLDERS SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders entitled, under the Articles of Incorporation, to vote on matters properly to be considered at an annual meeting shall be held not less than thirty (30) days after delivery of the annual report for the purpose of electing directors and for the transaction of such other business, as may come before the meeting. SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be called by the chief executive officer, president, the board of directors, or by holders of Common Stock who hold, in the aggregate, not less than fifty percent (50%) of the outstanding shares of Common Stock for the purpose or purposes stated in the call of the meeting. SECTION 3. PLACE OF MEETINGS. Each meeting of the stockholders for the election of directors shall be held at the offices of the corporation in Carson City, Nevada, unless the board of directors shall by resolution, designate any other place of such meeting. Meetings of stockholders for any other purpose may be held at such place, within or without the State of Nevada, and at such time as shall be determined pursuant to Section 2 of this Article II, and stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 4. NOTICE OF MEETINGS. A written notice of each meeting of stockholders, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at the meeting. Unless otherwise provided by the Laws of the State of Nevada ("Nevada Law"), the notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, and, if mailed, shall be deposited in the United States mail, postage prepaid, both directed to the stockholder at his address as it appears on the records of the corporation. No notice need be given to any person with whom communication is unlawful, nor shall there be any duty to apply for any permit or license to give notice to any such person. SECTION 5. NOMINATIONS AND STOCKHOLDER BUSINESS. (a) Annual Meeting of Stockholders. (i) Nominations of persons for election to the board of directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (A) pursuant to the corporation's notice of meeting, (B) by or at the direction of the board of directors, or (C) by any stockholder of the corporation who was a stockholder of record at the time of giving notice provided for in Section 5(a)(ii), who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5(a)(ii). (ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to Section 5(a)(i)(C), the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the corporation not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (A) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and of the beneficial owner, if any, on whose behalf the proposal is made, and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholders and such beneficial owner. (iii) Notwithstanding anything in the second sentence of Section 5(a)(ii) to the contrary, in the event that the number of directors to be elected to the board of directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased board of directors made by the corporation at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice 2 required by this Section 5(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. (b) Special Meeting of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the board of directors may be made at a special meeting of stockholders at which directors are to be elected (i) pursuant to the corporation's notice of meeting, (ii) by or at the direction of the board of directors, or (iii) provided, that the board of directors has determined that directors shall be elected at such special meeting, by any stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in this Section 5(b), who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 5(b). In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more persons (as the case may be) for election to such position as specified in the corporation's notice of meeting, if the stockholder's notice required by Section 5(a)(i) 5 shall be delivered to the secretary at the principal executive offices of the corporation not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. (c) General. (i) Except as set forth in Section 9 of Article III, only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5. The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 5 and, if any proposed nomination or business is not in compliance with this Section 5, to declare that such defective nomination or proposal be disregarded. (ii) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 5, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 5. Nothing in this Section 5 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. 3 SECTION 6. WAIVER OF NOTICE. Anything herein to the contrary notwithstanding, with respect to any stockholder meeting, any stockholder who in person or by proxy shall have waived in writing notice of the meeting, either before or after such meeting, or who shall attend the meeting in person or by proxy, shall be deemed to have waived notice of such meeting unless he attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 7. QUORUM; MANNER OF ACTING AND ORDER OF BUSINESS. (a) Subject to the provisions of these by-laws, the Articles of Incorporation and Nevada Law as to the vote that is required for a specified action, the presence in person or by proxy of the holders of a majority of the outstanding shares of the corporation entitled to vote at any meeting of stockholders shall constitute a quorum for the transaction of business. The vote of the holders of a majority of the shares of the corporation's stock entitled to vote, present in person or represented by proxy, shall be binding on all stockholders of the corporation, unless the vote of a greater number or voting by classes is required by law or the Articles of Incorporation or these by-laws. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. (b) In the absence of a quorum, stockholders holding a majority of the shares present in person or by proxy and entitled to vote, regardless of whether or not they constitute a quorum, or if no stockholders are present, any officer entitled to preside at or act as secretary of the meeting, may adjourn the meeting to another time and place. Any business which might have been transacted at the original meeting may be transacted at any adjourned meeting at which a quorum is present. No notice of an adjourned meeting need be given if the time and place are announced at the meeting at which the adjournment is taken except that, if adjournment is for more than thirty (30) days or if, after the adjournment, a new record date is fixed for the meeting, notice of the adjourned meeting shall be given pursuant to Section 4 of this Article II. (c) Meetings of the stockholders shall be presided over by the chairman of the board, or in his absence by the chief executive officer, or in his absence by the president, or in his absence by a vice president, or in the absence of the foregoing persons by a chairman designated by the board of directors, or in the absence of such designation by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The order of business at all meetings of the stockholders shall be determined by the chairman. The order of business so determined, however, may be changed by vote of the holders of a majority of the shares present at the meeting in person or represented by proxy. SECTION 8. VOTING; PROXIES. Each stockholder of record on the record date, as determined pursuant to Section 6 of Article VI, shall be entitled to one vote for every share registered in his name. However, all elections of directors shall be by written ballot. Each stockholder entitled to vote at any meeting of stockholders or to express consent to or dissent 4 from corporate action in writing without a meeting may authorize another person to act for him by proxy. No proxy shall be valid after three years from its date of execution, unless the proxy provides for a longer period. SECTION 9. INSPECTORS OF ELECTION. (a) In advance of any meeting of stockholders, the board of directors may appoint inspectors of election to act at each meeting of stockholders and any adjournment thereof. If inspectors of election are not so appointed, the chairman of the meeting may, and upon the request of any stockholder or his proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one or three. If appointed at the meeting upon the request of one or more stockholders or proxies, the vote of the holders of a majority of shares present shall determine whether one or three inspectors are appointed. In any case any person appointed as an inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the directors in advance of the convening of the meeting or at the meeting by the person acting as chairman. (b) The inspectors of election shall determine the outstanding stock of the corporation, the stock represented at the meeting and the existence of a quorum, shall receive votes, ballots, or consents, shall count and tabulate all votes and shall determine the result; and in connection therewith, the inspector shall determine the authority, validity and effect of proxies, hear and determine all challenges and questions, and do such other ministerial acts as may be proper to conduct the election or vote with fairness to all stockholders. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. If no inspectors of election are appointed, the secretary shall pass upon all questions and shall have all other duties specified in this Section 9. (c) Upon request of the chairman of the meeting or any stockholder or his proxy, the inspector(s) of election shall make a report in writing of any challenge or question or other matter determined by him and shall execute a certificate of any fact found in connection therewith. Any such report or certificate shall be filed with the record of the meeting. SECTION 10. NO ACTION WITHOUT A MEETING. No action of the stockholders may be taken by written consent. SECTION 11. REVOCATION OF CONSENT. Any stockholder giving a written consent, or the stockholder's proxyholders, or a transferee of the shares or a personal representative of the stockholder or its respective proxyholder, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the secretary of the corporation. 5 ARTICLE III DIRECTORS SECTION 1. NUMBER, TENURE AND QUALIFICATIONS. (a) The number of directors of the corporation shall consist of not less than two (2) nor more than nine (9) directors, the exact number of directors to be determined from time to time by resolution adopted by the affirmative vote of a majority of the directors. A director shall hold office until the later of (i) the next annual meeting of the stockholders of the corporation immediately following, or (ii) coinciding with the expiration of his term or until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Directors need not be residents of the State of Nevada or stockholders of the corporation. (b) Each director shall serve a term of one, two or three years as is designated at the time of his election provided that no less than one-fourth (1/4) of the directors serving in any year shall be subject to annual reelection. (c) Any director or the entire board of directors may be removed, with cause, by the holders of 66-2/3% of the voting rights of the shares then entitled to vote at an election of directors, unless otherwise provided under Nevada Law or the Articles of Incorporation. SECTION 2. RESIGNATIONS. Any director may resign at any time by giving written notice to the chairman of the board or to the chief executive officer or to the president. SECTION 3. MEETINGS. Meetings of the board of directors may be called by or at the request of the chairman of the board, the chief executive officer, the president or a majority of the directors. The person or persons authorized to call meetings of the board of directors may fix any place as the place for holding any meeting of the board of directors called by them. Meetings of the board of directors may be held within or outside the State of Nevada. SECTION 4. BUSINESS OF MEETINGS. Except as otherwise expressly provided in these by-laws, any and all business may be transacted at any meeting of the board of directors. SECTION 5. NOTICE OF MEETINGS. Notice of any meeting shall be given at least one (1) day previous thereto by prior written notice to each director at his principal place of business. SECTION 6. ATTENDANCE BY TELEPHONE. Directors may participate in meetings of the board of directors by means of conference telephone or similar communications equipment by means of which all directors participating in the meeting can hear one another, and such participation shall constitute presence in person at the meeting. SECTION 7. QUORUM AND MANNER OF ACTING; ADJOURNMENT. A majority of the directors shall constitute a quorum for the transaction of business at any meeting 6 of the board of directors and the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board. SECTION 8. ACTION WITHOUT A MEETING. Any action which could be taken at a meeting of the board of directors may be taken without a meeting if all of the directors consent to the action in writing and the writing or writings are filed with the minutes of proceedings of the board. SECTION 9. FILLING OF VACANCIES. (a) A vacancy or vacancies in the board of directors shall exist when any previously authorized position of director is not then filled by a duly elected director, whether caused by death, resignation or removal. Vacancies caused by reason of death, resignation or removal shall be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (b) Vacancies and newly created directorships resulting from an increase in the authorized number of directors elected by all the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (c) If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the Articles of Incorporation or the by-laws, or may apply to a court of appropriate jurisdiction for a decree summarily ordering an election. SECTION 10. COMPENSATION OF DIRECTORS. The board of directors shall have the authority to fix the compensation of directors, unless otherwise provided in the Articles of Incorporation. SECTION 11. PRESIDING OFFICER. The presiding officer at any meeting of the board of directors shall be the chairman of the board, or in his absence, any other director elected chairman by vote of a majority of the directors present at the meeting. SECTION 12. COMMITTEE. The board of directors, by resolution adopted by a majority of the number of directors fixed by the by-laws or otherwise, may designate one (1) or more committees, each committee to consist of one (1) or more directors of the corporation, which committees, to the extent provided in such resolution, shall have and exercise all of the authority of the board of directors in the management of the corporation, except as otherwise required by law. The board of directors may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. 7 SECTION 13. WAIVER OF NOTICE. Anything herein to the contrary notwithstanding, with respect to any meeting of the board of directors, any director who in person shall have waived in writing notice of the meeting, either before or after such meeting, or who shall attend the meeting in person, shall be deemed to have waived notice of such meeting unless he attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE IV OFFICERS SECTION 1. NUMBER. The officers of the corporation may consist of the chairman of the board, the chief executive officer, the president, one or more vice presidents (the number thereof to be determined by the board of directors), the secretary, the treasurer, the registered agent, and such assistant secretaries and assistant treasurers or any other officers thereunto authorized or elected by the board of directors. Any two or more offices may be held by the same person. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected by the board of directors at their first meeting and thereafter at any subsequent meeting and shall hold their offices for such term as determined by the board of directors. Each officer shall hold office until his successor is duly elected and qualified, or until his death or disability, or until he resigns or is removed from his duties in the manner hereinafter provided. SECTION 3. REMOVAL AND RESIGNATION. Any officer may be removed, either with or without cause, by a majority of the directors, then in office, at any meeting of the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation or removal or any other cause may be filled for the unexpired portion of the term by the board of directors. SECTION 5. CHAIRMAN OF THE BOARD. The chairman of the board of the corporation shall preside at all meetings of the board of directors, and at all stockholders' meetings, whether annual or special, at which he is present and shall exercise such other powers and perform such other duties as the board of directors may from time to time assign to him or as may be prescribed by these by-laws. In the event that the chairman of the board is not present at a directors' meeting the chief executive officer, or in his absence the president of the corporation, shall serve in his place and stead. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation, or a different mode of execution is expressly prescribed by the board of directors or these by-laws, he may execute for the corporation, certificates for its shares, and any contracts, deeds, mortgages, bonds or other instruments which the board of directors have authorized to be executed, and he may accomplish such execution either under or without the seal of the corporation, or either individually with the 8 secretary, any assistant secretary or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. SECTION 6. CHIEF EXECUTIVE OFFICER. Subject to the direction and control of the board of directors, the chief executive officer shall be in charge of the general management and supervision over the property, affairs and business of the corporation. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation, or a different mode of execution is expressly prescribed by the board of directors or these by-laws, he may execute for the corporation, certificates for its shares, and any contracts, deeds, mortgages, bonds or other instruments which the board of directors have authorized to be executed, and he may accomplish such execution either under or without the seal of the corporation, or either individually or with the secretary, any assistant secretary or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. He may vote all securities which the corporation is entitled to vote, except as and to the extent such authority shall be vested in a different officer or agent of the corporation by the board of directors. SECTION 7. PRESIDENT. Subject to the direction and control of the board of directors and the chief executive officer, the president shall be in charge of the general management and supervision over the operating functions of the corporation; he shall see that the resolutions and directions of the board of directors are carried into effect, except in those instances in which that responsibility is specifically assigned to some other person by the board of directors; and in general, he shall discharge all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation, or a different mode of execution is expressly prescribed by the board of directors or these by-laws, he may execute for the corporation, certificates for its shares, and any contracts, deeds, mortgages, bonds or other instruments which the board of directors have authorized to be executed, and he may accomplish such execution either under or without the seal of the corporation, or either individually or with the secretary, any assistant secretary or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. SECTION 8. VICE PRESIDENT. The vice president (or in the event there be more than one vice president, each of the vice presidents), if one shall he elected, shall assist the president in the discharge of his duties, as the president may direct and shall perform such other duties as from time to time may be assigned to him by the president or by the board of directors. In the absence of the president or in the event of his inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated by the board of directors, or by the president if the board of directors have not made such a designation, or in the absence of any designation, then in the order of seniority of tenure as vice president) shall perform the duties of the president, and when so acting, shall have the powers of and be subject to all the restrictions upon the president. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation, or a different mode of execution is expressly prescribed by the board of directors or these by-laws, the 9 vice president (or each of them if there are more than one) may execute for the corporation, certificates for its shares and any contracts, deeds, mortgages, bonds or other instruments which the board of directors have authorized to be executed, and he may accomplish such execution either under or without the seal of the corporation, and either individually or with the secretary, any assistant secretary or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. SECTION 9. TREASURER. The treasurer, if any, shall be the principal accounting and financial officer of the corporation. The treasurer shall: (i) have charge of and be responsible for the maintenance of the adequate books and records for the corporation; (ii) have charge and custody of all funds and securities of the corporation, and be responsible therefor and for the receipt and disbursement thereof; and (iii) perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors may determine. SECTION 10. SECRETARY. The secretary shall: (i) record the minutes of the stockholders and of the board of directors' meetings in one or more books provided for that purpose; (ii) see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; (iii) be custodian of the corporate books and records and of the seal of the corporation; (iv) keep a register of the post-office address of each stockholder which shall be furnished to the secretary by such stockholder; (v) sign with the chairman of the board or the chief executive officer or the president or a vice president or any other officer thereunto authorized by the board of directors, certificates for the shares of the corporation, the issue of which shall have been authorized by the board of directors, and any contracts, deeds, mortgages, bonds or other instruments which the board of directors have authorized to be executed, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors or these by-laws; (vi) have general charge of the stock transfer books of the corporation; (vii) perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors. Consistently with the foregoing, the secretary shall be responsible for the corporation's compliance with Section 78.105 of the Nevada Laws and shall supply to the registered agent, any and all amendments to the corporation's Articles of Incorporation and any and all amendments or changes to its by-laws. In compliance with said Section 78.105, the secretary will also supply to the registered agent, and maintain, a current statement setting out the name of the custodian of the stock ledger or duplicate stock ledger, and the present and complete post office address, including street and number, if any, where such stock ledger or duplicate stock ledger specified in the section is kept. SECTION 11. REGISTERED AGENT. The registered agent shall be in charge of the corporation's registered office in the State of Nevada, upon whom process against the corporation may be served and shall perform all duties required by statute. 10 SECTION 12. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant treasurers and assistant secretaries shall perform such duties as shall be assigned to them by the board of directors. When the secretary is unavailable, any assistant secretary may sign with the chief executive officer, the president, or a vice president, or any other officer thereunto authorized by the board of directors, any contracts, deeds, mortgages, bonds or other instruments according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors or these by-laws. The assistant treasurers shall, respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. SECTION 13. SALARIES. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION l. CONTRACTS. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name, unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued by the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the board of directors may select. ARTICLE VI CERTIFICATES OF STOCK AND THEIR TRANSFER SECTION 1. STOCK RECORD AND CERTIFICATES. Records shall be kept by or on behalf of the corporation, which shall contain the names and addresses of stockholders, the number of shares held by them respectively, and the number of certificates, if any, representing the shares, and in which there shall be recorded all transfers of shares. Every stockholder shall be entitled to a certificate signed by the chairman of the board of directors, or the chief executive officer or the president or a vice president, and by the treasurer or an assistant treasurer, or the 11 secretary or an assistant secretary of the corporation, certifying the class and number of shares owned by him in the corporation, provided that any and all signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or it were such officer, transfer agent or registrar at the date of issue. SECTION 2. TRANSFER AGENTS AND REGISTRARS. The board of directors may, in its discretion, appoint one or more responsible banks or trust companies as the board may deem advisable, from time to time, to act as transfer agents and registrars of shares of the corporation; and, when such appointments shall have been made, no certificate for shares of the corporation shall be valid until countersigned by one of such transfer agents and registered by one of such registrars. SECTION 3. STOCKHOLDERS' ADDRESSES. Every stockholder or transferee shall furnish the secretary or a transfer agent with the address to which notice of meetings and all other notices may be served upon or mailed to such stockholder or transferee, and in default thereof, such stockholder or transferee shall not be entitled to service or mailing of any such notice. SECTION 4. LOST CERTIFICATES. In case any certificate for shares of the corporation is lost, stolen or destroyed, the board of directors, in its discretion, or any transfer agent duly authorized by the board, may authorize the issue of a substitute certificate in place of the certificate so lost, stolen or destroyed. The corporation may require the owner of the lost, stolen or destroyed certificate or his legal representative to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertified shares. SECTION 5. DISTRIBUTIONS TO STOCKHOLDERS. To the extent permitted by Nevada Law and subject to any restrictions contained in the Articles of Incorporation, the directors may declare and pay dividends upon the shares of its capital stock in the manner and upon the terms and conditions provided by Nevada Law and the Articles of Incorporation. SECTION 6. RECORD DATES. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of shares or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date which shall be not more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, and not more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 12 In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the board of directors. In such case, those stockholders, and only those stockholders, who are stockholders of record on the date fixed by the board of directors shall, notwithstanding any subsequent transfer of shares on the books of the corporation, be entitled to notice of and to vote at such meeting of stockholders, or any adjournment thereof, or to express consent to such corporate action in writing without a meeting, or entitled to receive payment of such dividend or other distribution or allotment of rights, or entitled to exercise rights in respect of any such change, conversion or exchange of shares or to participate in any such other lawful action. SECTION 7. TRANSFERS OF SHARES. Shares of the corporation may be transferred by delivery of the certificates therefor, accompanied either by an assignment in writing on the back of the certificates, or by written power of attorney to sell, assign and transfer the same, signed by the record holder thereof; but no transfer shall affect the right of the corporation to pay any distribution upon the shares to the holder of record thereof, or to treat the holder of record as the holder in fact thereof for all purposes, and no transfer shall be valid, except between the parties thereto, until such transfer shall have been made upon the books of the corporation. SECTION 8. REPURCHASE OF SHARES ON OPEN MARKET. The corporation may purchase its shares on the open market and invest its assets in its own shares, provided that in each case the consent of the board of directors shall have been obtained. ARTICLE VII INDEMNIFICATION AND INSURANCE SECTION 1. DEFINITIONS. For the purposes of this Article VII the following definitions shall apply: "Agent" means any person who: (i) is or was a director, officer, employee, or other agent of this corporation; or (ii) is or was serving at the request of this corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise ("enterprise"). "Proceeding" means any threatened, pending or completed action suit or proceeding, whether civil, criminal, administrative, or investigative and whether internal or external to the corporation. "Expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under this Article VII. 13 "Losses" mean the total amount which the agent becomes legally obligated to pay in connection with any proceeding, including judgments, fines, amounts paid in settlement and Expenses. SECTION 2. THIRD PARTY ACTIONS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to, or otherwise becomes involved in, any Proceeding (other than an action by or in the right of the corporation) by reason of the fact that he is or was an Agent of the corporation against Losses actually and reasonably incurred by him in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in such a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal Proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 3. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to, or otherwise becomes involved in, any Proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was an Agent of the corporation against Expenses, including amounts paid in settlement, actually and reasonably incurred by him in connection with the defense or settlement of such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged by a court of competent jurisdiction after exhaustion of all appeals to be liable to the corporation or for amounts paid in settlement to the corporation unless and only to the extent that the court in which such Proceeding was brought shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such Expenses as the court shall deem proper. SECTION 4. SUCCESSFUL DEFENSE. To the extent that an Agent of the corporation has been successful on the merits or otherwise in defense of any Proceeding referred to in Sections 2 and 3 of this Article VII, or in defense of any claim, issue or matter therein, he must be indemnified against Expenses actually and reasonably incurred by him in connection therewith. SECTION 5. DETERMINATION OF CONDUCT. Any indemnification under Sections 2 and 3 of this Article VII, (unless ordered by a court or advanced pursuant to Section 6 of this Article VII) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the Agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 2 and 3 of this Article VII. Such determination shall be made (a) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such Proceeding, or (b) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent 14 legal counsel in a written opinion, or (c) if a majority vote of a quorum consisting of directors who were not parties to the Proceeding so orders, by independent legal counsel in a written opinion, or (d) by the stockholders. SECTION 6. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred by an Agent in connection with a Proceeding shall be paid by the corporation as they are incurred and in advance of the final disposition of such Proceeding upon receipt of an undertaking by or on behalf of such Agent to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation as authorized in this Article VII. SECTION 7. INDEMNITY NOT EXCLUSIVE. The indemnification and advancement of Expenses provided by, or granted pursuant to, the other provisions of this Article VII shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of Expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. SECTION 8. INSURANCE INDEMNIFICATION. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was an Agent of the corporation against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VII. SECTION 9. HEIRS, EXECUTORS AND ADMINISTRATORS. The indemnification and advancement of Expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 10. FURTHER AMENDMENT. Notwithstanding any provision in this Article VII to the contrary, in the event the Nevada Law is either amended to provide, or interpreted by judicial or other binding legal decision to provide, broader indemnification rights than those contained herein, such broader indemnification rights shall be provided to any and all persons entitled to be indemnified pursuant to the Nevada Law the intent of this provision being to permit the corporation to indemnify, to the full extent permitted by Nevada Law, persons whom it may indemnify thereunder. ARTICLE VIII AMENDMENTS The by-laws may be amended by a majority vote of the directors or by an affirmative vote by the holders of 66-2/3% of the voting rights of all classes of stock entitled to vote. The by-laws may contain any provisions for the regulation and management of the affairs of the corporation not inconsistent with Nevada Law or the Articles of Incorporation. 15 EX-4.6 4 f79368exv4w6.txt EXHIBIT 4.6 EXHIBIT 4.6 SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (this "Agreement") is made and entered into as of April 5, 2002, among Hyseq, Inc., a Nevada corporation (the "Company"), and the investors signatory hereto (each a "Purchaser" and collectively the "Purchasers"). WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchasers, and the Purchasers, severally and not jointly, desire to purchase from the Company, certain securities of the Company, as more fully described in this Agreement. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows: ARTICLE I. DEFINITIONS 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings indicated in this Article I: "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. "Closing" means the closing of the purchase and sale of the Securities pursuant to Section 2.1. "Closing Date" means the date of the Closing. "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock of the Company, par value $.001 per share, or such securities into which such stock shall hereafter be classified. "Common Stock Equivalents" means any rights, warrants, options, convertible securities, exchangeable securities or other securities or debt of any kind that may be at any time convertible into, exchangeable for or otherwise give the holder thereof the right to receive shares of Common Stock. "Company Counsel" means Latham & Watkins. "Effective Date" means the date that an Underlying Shares Registration Statement is first declared effective by the Commission. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "Per Unit Purchase Price" means $4.20. "Purchaser Counsel" means Robinson Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York, New York 10104. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of this Agreement, among the Company and the Purchasers, in the form of Exhibit B. "Required Effectiveness Date" means the date on which an Underlying Shares Registration Statement is required to become effective pursuant to the Registration Rights Agreement. "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Securities" means the Shares, Warrants and the Warrant Shares. "Securities Act" means the Securities Act of 1933, as amended. "Selling Securityholder Notice and Questionnaire" means the questionnaire in the form of Exhibit E. "Shares" means the shares of Common Stock, which are being purchased by and issued to the Purchasers at the Closing pursuant to this Agreement. "Strategic Transaction" means a transaction or relationship in which the Company issues shares of Common Stock or Common Stock Equivalents to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives material benefits in addition to the investment of or lending of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to a Person whose primary business is investing in securities. "Subsidiary" means any subsidiary of the Company that is required to be listed in Schedule 3.1(a). "Trading Day" means (a) any day on which the Common Stock is traded on its primary Trading Market, or (b) if the Common Stock is not then listed or quoted on any national 2 securities exchange, market or trading or quotation facility, then a day on which trading occurs on The New York Stock Exchange (or any successor thereto). "Trading Market" means the Nasdaq National Market or any national securities exchange, market or trading or quotation facility on which the Common Stock is then listed or quoted. "Transaction Documents" means this Agreement, the Warrants, the Registration Rights Agreement, the Transfer Agent Instructions and any other documents or agreements executed in connection with the transactions contemplated hereunder. "Transfer Agent Instructions" means instructions to the Company's transfer agent, in the form of Exhibit C. "Underlying Shares Registration Statement" means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Securities by the Purchasers or their assignees. "Unit" means a Share and a Warrant to acquire Warrant Shares. "Warrant" means each Common Stock purchase warrant, in the form of Exhibit A issued to a Purchaser at the Closing. "Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants. ARTICLE II. PURCHASE AND SALE 2.1. Closing. Subject to the terms and conditions set forth in this Agreement, at the Closing, the Company shall issue and sell to the Purchasers, and the Purchasers shall, severally and not jointly, purchase from the Company, the Shares and the Warrants for an aggregate purchase price set forth below each of the Purchaser's name on the signature pages to this Agreement and at the Per Unit Purchase Price. The Closing shall take place at the offices of Purchaser Counsel immediately following satisfaction or waiver of the conditions set forth in Article V of this Agreement or at such other location or time as the parties may agree. 2.2. Closing Deliveries. (a) At the Closing, the Company shall deliver or cause to be delivered to each Purchaser the following: (i) a stock certificate evidencing a number of Shares equal to the quotient obtained by dividing (x) the purchase price indicated below such Purchaser's name on the signature page to this Agreement by (y) the Per Unit Purchase Price, registered in the name of such Purchaser; 3 (ii) a Warrant, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire on the terms set forth therein a number of Warrant Shares equal to one quarter the number of Shares issuable to such Purchaser in accordance with Section 2.2(a)(i); (iii) the legal opinion of Company Counsel, in the form of Exhibit D, addressed to the Purchasers; (iv) a Registration Rights Agreement duly executed by the Company; and (v) Transfer Agent Instructions duly executed by the Company and delivered to and countersigned by the Company's transfer agent. (b) At the Closing, each Purchaser shall deliver or cause to be delivered to the Company the following: (i) the purchase price indicated below such Purchaser's name on the signature page of this Agreement, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose; (ii) a Registration Rights Agreement duly executed by such Purchaser; and (iii) a Selling Securityholder Notice and Questionnaire. ARTICLE III. REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to the Purchasers as of the date hereof: (a) Subsidiaries. The Company has no subsidiaries other than those listed in Schedule 3.1(a). Except as disclosed in Schedule 3.1(a), the Company owns all of the capital stock of each Subsidiary free and clear of any lien, charge, security interest, encumbrance, right of first refusal or other restriction (collectively, "Liens"), and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. If the Company has no subsidiaries, then references in the Transaction Documents to the Subsidiaries will be disregarded. (b) Organization and Qualification. Each of the Company and the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each 4 jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, reasonably be expected to (i) adversely affect the legality, validity or enforceability of any Transaction Document, (ii) have or result in a material adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) adversely impair the Company's ability to perform fully on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a "Material Adverse Effect"). (c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company and no further corporate action is required by the Company. Each of the Transaction Documents has been (or upon delivery will be) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms. (d) No Conflicts. The execution and delivery of the Transaction Documents by the Company, the consummation by the Company of the transactions contemplated thereby and the performance of its obligations under the Transaction Documents do not and will not (i) conflict with or violate any provision of the Company's or any Subsidiary's certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) subject to obtaining the Required Approvals (as defined below), conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect. (e) Filings, Consents and Approvals. Except for the consent required pursuant to Section 4.6 of that certain Securities Purchase Agreement, dated as of August 28, 2001, among the Company and the purchasers party thereto (the "August Transaction Consent"), neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents (including the obtaining of any approval of stockholders pursuant to NASD Rule 4350(i)(1)(D)), other than (i) the filings required under Section 4.7, (ii) the filing with the Commission of the Underlying 5 Shares Registration Statement, (iii) the application(s) to each Trading Market for the listing of the Securities for trading thereon in the time and manner required thereby and (iv) filings under any state blue sky laws (collectively, the "Required Approvals"), (f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens. The Company has reserved from its duly authorized capital stock a sufficient number of shares of Common Stock for issuance of the Shares and the Warrants Shares. (g) Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock of the Company is set forth in Schedule 3.1(g). No securities of the Company are entitled to preemptive or similar rights, and no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities and except as disclosed in Schedule 3.1(g), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. Except as disclosed in Schedule 3.1(g), the issue and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. (h) SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials being collectively referred to herein as the "SEC Reports" and, together with the Schedules to this Agreement, the "Disclosure Materials") on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved ("GAAP"), except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited 6 statements, to normal, immaterial, year-end audit adjustments. All material agreements to which the Company or any Subsidiary is a party or to which the property or assets of the Company or any Subsidiary are subject have been filed as exhibits to the SEC Reports as required under the Exchange Act. (i) Material Changes. Except as disclosed in the SEC Reports, since December 31, 2001, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. (j) Litigation. Except as disclosed in the SEC Reports, since December 31, 2001, there has been no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an "Action") which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. (k) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company. (l) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, could reasonably be expected to result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, 7 product quality and safety and employment and labor matters, except in each case as could not, individually or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect. (m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not, individually or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect ("Material Permits"), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. (n) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and, to the Company's knowledge, enforceable leases of which the Company and the Subsidiaries are in compliance. (o) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports and the failure of which to so have could reasonably be expected to have a Material Adverse Effect (collectively, the "Intellectual Property Rights"). Except as disclosed in the SEC Reports, since December 31, 2001, neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company and except as disclosed in the SEC Reports, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. (p) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are reasonable and customary in the businesses in which the Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost. (q) Transactions With Affiliates and Employees. Except as set forth in SEC Reports or on Schedule 3.1(q), none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the 8 furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. (r) Internal Accounting Controls. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (s) Solvency. Based on the financial condition of the Company as of the Closing Date, (i) the Company's fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company's existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company's assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). (t) Certain Fees. Except as specified in Schedule 3.1(t), no brokerage or finder's fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement. The Company agrees that the Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of any Person for fees of the type contemplated by this Section with respect to the transactions contemplated by this Agreement. (u) Private Placement. Assuming the accuracy of the Purchasers representations, warranties and agreements set forth in Section 3.2(b)-(g), no registration under the Securities Act is required for the offer and sale of Common Stock by the Company to the Purchasers as contemplated hereby. Neither the Company nor any of its Affiliates nor any person acting on the Company's behalf has, directly or indirectly, at any time within the past six months, made any offer or sale of any security or solicitation of any offer to buy any security under circumstances that would eliminate the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and sale of the Securities as contemplated hereby. 9 (v) Form S-3 Eligibility. The Company is eligible to register the resale of its Common Stock by the Purchasers under Form S-3 promulgated under the Securities Act. (w) Listing and Maintenance Requirements. The Company has not, in the two years preceding the date hereof, received notice (written or oral) from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. (x) Registration Rights. Except as described in Schedule 3.1(x), the Company has not granted or agreed to grant to any Person any rights (including "piggy-back" registration rights) to have any securities of the Company registered with the Commission or any other governmental authority that have not been satisfied. (y) Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company's Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation (collectively,"Anti-Takeover Provisions") that is or could reasonably be expected to become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company's issuance of the Securities and the Purchasers' ownership of the Securities. (z) Disclosure. The Company confirms that neither it, nor to its knowledge, any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that constitutes or might constitute material non-public information. The Company understands and confirms that the Purchasers will rely on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 3.2 Representations and Warranties of the Purchasers. Each Purchaser, as of the date hereof, hereby, for itself and for no other Purchaser, represents and warrants to the Company as follows: (a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder. The purchase by such Purchaser of the Securities hereunder has been duly authorized by all necessary action on the part of such Purchaser. Each of this Agreement 10 and the Registration Rights Agreement has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms. (b) Investment Intent. Such Purchaser is acquiring the Securities as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to such Purchaser's right, subject to the provisions of this Agreement and the Registration Rights Agreement, at all times to sell or otherwise dispose of all or any part of such Securities pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws. Nothing contained herein shall be deemed a representation or warranty by such Purchaser to hold Securities for any period of time. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities. (c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, at the date hereof it is, and at the time it exercises any Warrant issued to it it will be an "accredited investor" as defined in Rule 501(a) under the Securities Act. Such Purchaser is not registered as a broker-dealer. (d) Experience of such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. (e) Access to Information. Such Purchaser acknowledges that it has reviewed the Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of such Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser's right to rely on the truth, accuracy and completeness of the Disclosure Materials and the Company's representations and warranties contained in the Transaction Documents. (f) General Solicitation. To the best of its knowledge, such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. 11 (g) Reliance. Such Purchaser understands and acknowledges that (i) the Securities are being offered and sold to it without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and such Purchaser hereby consents to such reliance. (h) No Advice. Such Purchaser understands that nothing in this Agreement or any other materials presented by the Company to such Purchaser in connection with the purchase and sale of the Securities constitutes legal, tax or investment advice. Such Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of Securities. (i) Selling Securityholder Questionnaire. Such Purchaser has supplied all requested information in the signature pages hereto and the Selling Securityholder Notice and Questionnaire and such information is true and correct as of the date hereof and will be true and correct as of the Effective Date. The Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2. ARTICLE IV. OTHER AGREEMENTS OF THE PARTIES 4.1. Transfer Restrictions. (a) Securities may only be disposed of pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with any applicable state securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or to the Company, except as otherwise set forth herein, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. Notwithstanding the foregoing, the Company hereby consents to and agrees to register on the books of the Company and with any transfer agent for the securities of the Company, without any such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of such Purchaser that is exempt from the registration requirements under the Securities Act, provided that the transferee certifies to the Company that it is an "accredited investor" as defined in Rule 501(a) under the Securities Act and that it is acquiring the Securities solely for investment purposes (subject to the qualifications hereof). Such certification may also include any additional information as may be required under the Securities Act and as may be reasonably requested by the Company, to enable the Company to determine that such transfer is exempt from the registration requirements of the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound 12 by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement. (b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1(b) and Section 4.1(c), of the following legend on the Securities: THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement or grant a security interest in some or all of the Securities and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge would not be subject to approval of the Company and no legal opinion of the pledgee, secured party or pledgor shall be required in connection therewith; provided, however, that upon the transfer of such pledged or secured shares, the Company may require an opinion of counsel selected by the pledgor that the transfer of the pledged or secured shares to the pledgee or secured party does not require the registration of such shares under the Securities Act. Further, no notice shall be required of such pledge. At the appropriate Purchaser's expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including the preparation and filing of any required prospectus supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder. (c) None of the Securities shall contain the legend set forth above or any other legend (i) while a registration statement (including any Underlying Shares Registration Statement ) is effective under the Securities Act to cover the resale of such security, or (ii) if Rule 144(k) may be utilized by the seller of such security or (iii) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission) The Company shall cause its counsel to issue the legal opinion included in the Transfer Agent Instructions to the Company's transfer agent on the Effective Date. If all or any portion of a Warrant is exercised at a time when there is an effective registration statement covering the resale of Warrant Shares, such Warrant Shares shall be issued without legends. The Company agrees that following the Effective Date (and pursuant to the last sentence of this paragraph) or at such time as such legend is no longer 13 required under this Section 4.1(b), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Company's transfer agent of a certificate representing Shares or Warrant Shares issued with a restrictive legend, deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section. Notwithstanding anything in this Agreement to the contrary, the Company shall have no obligation to register any transfer of the Securities on its books or with any transfer agent, and no such transfer may be made, unless such transfer is in compliance with this Section 4.1 and the transferor has delivered to the Company a certificate containing information reasonably requested by the Company to that effect. (d) If the Company fails to deliver or cause to be delivered to any Purchaser a certificate representing any Securities by the third Trading Day after the date on which delivery of such certificate is required by Section 4.1(b), the Company shall pay to such Purchaser, in cash, as liquidated damages and not as a penalty (i) with respect to a sale of Securities by the Purchaser, $5,000 for each day after such third Trading Day until such certificate is delivered in accordance with Section 4.1(b) and (ii) other than with respect to a sale of Securities by the Purchaser, $1,000 for each of the first 10 days after such third Trading Day and $5,000 for each day thereafter until such certificate is delivered in accordance with Section 4.1(b). Nothing herein shall limit such Purchaser's right to pursue actual damages for the Company's failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. 4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities will result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligation to issue the Securities pursuant to the Transaction Documents is unconditional and absolute, regardless of the effect of any such dilution. 4.3 Furnishing of Information. As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act and to deliver, upon reasonable request from a Purchaser, a written certification of a duly authorized officer as to whether it has complied with its filing obligations under the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. 4.4 Integration. The Company shall not, and shall use its best efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would (i) eliminate 14 the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and sale of the Securities as contemplated hereby or (ii) cause the offering of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of any applicable shareholder approval provisions including, without limitation, under the rules and regulations of any Trading Market. 4.5 Reservation and Listing of Securities. The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents. The Company shall (i) in the time and manner required by each Trading Market, prepare and file with such Trading Market an additional shares listing application covering the Shares and the Warrant Shares, (ii) take all steps necessary to cause such shares to be approved for listing on each Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing, and (iv) maintain the listing of such shares on each such Trading Market or another eligible securities market. 4.6 Subsequent Placements. (a) Without the prior written consent of the Purchasers, prior to the Effective Date, the Company will not offer or sell any of its Common Stock or Common Stock Equivalents to any Person (other than the issuance of Common Stock upon the exercise of options or warrants outstanding on the date hereof and listed on Schedule 3.1(g)). (b) From the date hereof until the third month after the Effective Date, the Company will not, directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its equity or equity equivalent securities, including without limitation any debt, preferred stock or other instrument or security of it or its Subsidiaries' that is, at any time during its life and under any circumstances, pursuant to its terms, convertible into or exchangeable for Common Stock (any such offer, sale, grant, disposition or announcement being referred to as a "Subsequent Placement"), unless (i) the Company delivers to each of the Purchasers a written notice (the "Subsequent Placement Notice") of its intention to effect such Subsequent Placement, which Subsequent Placement Notice shall describe in reasonable detail the proposed terms of such Subsequent Placement, the amount of proceeds intended to be raised thereunder, the Person with whom such Subsequent Placement is proposed to be effected, and attached to which shall be a term sheet or similar document relating thereto and (ii) such Purchaser shall not have notified the Company by 6:30 p.m. (New York City time) on the fifth Trading Day after its receipt of the Subsequent Placement Notice of its willingness to provide (or to cause its designee to provide), subject to completion of mutually acceptable documentation, financing to the Company on the same terms set forth in the Subsequent Placement Notice. If any Purchaser shall fail to so notify the Company of its willingness to participate in the Subsequent Placement, the Company may effect such Subsequent Placement on the terms and to the Persons set forth in the Subsequent Placement Notice and to those Purchasers that have elected to participate in the Subsequent Placement; provided that the Company must provide the Purchasers with a second Subsequent Placement Notice, and the Purchasers will again have the right of first refusal set forth above in this paragraph (b), if the Subsequent Placement subject to the initial Subsequent Placement Notice is not consummated for any reason on the terms set forth in such Subsequent Placement 15 Notice within 30 days after the date of the initial Subsequent Placement Notice. If all Purchasers indicate a willingness to provide financing in excess of the amount set forth in the Subsequent Placement Notice, then each Purchaser will be entitled to provide financing pursuant to such Subsequent Placement Notice up to an amount equal to such Purchaser's pro rata portion of the aggregate purchase price paid for the Securities under this Agreement, but the Company shall not be required to accept financing from the Purchasers in an amount in excess of the amount set forth in the Subsequent Placement Notice. (c) Prior to the expiration of the 30th Trading Day following the Effective Date, the Company shall not, directly or indirectly, file a registration statement (other than on Form S-8 or pursuant to the Registration Rights Agreement) with the Commission with respect to any securities of the Company. The 30 Trading Day period set forth in this Section 4.6(c) and the three month period set forth in Section 4.6(b) shall be extended for (i) the number of Trading Days during such periods in which trading in the Common Stock is suspended by any Trading Market and (ii) the number of Trading Days after the Effective Date during which (A) the Underlying Shares Registration Statement is not effective or (B) the prospectus included in the Underlying Shares Registration Statement may not be used by the holders thereof for the resale of Registrable Securities thereunder. (d) The restrictions contained in paragraphs (a)-(b) of this Section 4.6 shall not apply to issuances of Common Stock and Common Stock Equivalents: (i) to the Company's employees, officers or directors and the issuance of shares of Common Stock to such employees, officers or directors upon exercise of options granted, pursuant to an employee benefit plan or stock option plan whether now existing or approved by the Company and its stockholders in the future, (ii) to consultants as compensation for services rendered to the Company not to exceed an aggregate value of $500,000, (iii) pursuant to one or more Strategic Transactions, (iv) to Dr. George Rathmann for additional financing provided to the Company by Dr George Rathmann, (v) under a bona fide underwritten public offering (which shall not include equity lines of credit or similar financing structures) which results in net proceeds in excess of US $40 million at a per share price (excluding underwriters commissions and discounts) that is not at a discount to the then-prevailing market price of the Common Stock and (vi) pursuant to the Rights Agreement, dated as of June 5, 1998, by and between the Company and U.S. Stock Transfer Corporation, as the Rights Agent. 4.7 Securities Laws Disclosure; Publicity. The Company shall (i) on the Closing Date, issue a press release acceptable to the Purchasers disclosing the transactions contemplated hereby and (ii) make such other filings and notices in the manner and time required by the Commission. Subject to the limitations contained in Section 4.12, the Company shall, at least two Trading Days prior to the filing or dissemination of any disclosure required by this paragraph, provide a copy thereof to the Purchasers for their review. The Company and the Purchasers shall consult with each other in issuing any press releases or otherwise making public statements or filings and other communications with the Commission or any regulatory agency or Trading Market with respect to the transactions contemplated hereby, and neither party shall issue any such press release or otherwise make any such public statement, filing or other communication without the prior consent of the other, except if such disclosure is required by law or Trading Market rules or regulations, in which case, in the case of public statements made within 8 months after the Closing Date and press releases, the disclosing party shall promptly 16 provide the other party with prior notice thereof. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except to the extent such disclosure (but not any disclosure as to the controlling Persons thereof) is required by law or Trading Market rules or regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure. 4.8 Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company's debt (other than payment of trade payables and accrued expenses in the ordinary course of the Company's business and prior practices), to redeem any Company equity or equity-equivalent securities or to settle any outstanding litigation. 4.9 Indemnification of Purchaser. The Company will indemnify and hold the Purchasers and their directors, officers, shareholders, partners, employees and agents (each, a "Purchaser Party") harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys' fees and costs of investigation (collectively, "Losses") that any such Purchaser Party may suffer or incur as a result of or relating to any misrepresentation, breach or inaccuracy, or any allegation by a third party that, if true, would constitute a breach or inaccuracy, of any of the representations, warranties or covenants made by the Company in this Agreement or any other Transaction Documents. The Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. 4.10 Reimbursement. Subject to the provisions of Section 5(a)(1)and (2) and 5(b)(1)and (2) of the Registration Rights Agreement and other than with respect to gross negligence or wilful misconduct by a Purchaser, if any Purchaser becomes involved in any capacity in any action, proceeding or investigation by or against any Person who has a relationship with the Company (including as a stockholder), solely as a result of such Purchaser's acquisition of the Securities under this Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchasers and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such Affiliate and any such Person. The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement. 17 4.11 Shareholders Rights Plan. No claim will be made or enforced by the Company that any Purchaser is an "Acquiring Person" ( or similar triggering person) under any shareholders rights plan or other Anti-Takeover Provision in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers. The Company will take such affirmative steps as may be required to render inapplicable to the Purchasers all Anti-Takeover Provisions that may otherwise apply to the Purchasers as a result of their acquisition of Securities hereunder. 4.12 Material Non-Public Information. The Company covenants and agrees that neither it nor any other Person acting on its behalf shall provide any of the Purchasers or its agents or counsel with any information that constitutes material non-public information, unless such Purchaser shall have prior thereto agreed to execute a written agreement regarding the confidentiality and use of such information. ARTICLE V. CONDITIONS 5.1 Conditions Precedent to the Obligations of the Purchasers. The obligation of each Purchaser to acquire Securities at the Closing is subject to the satisfaction or waiver by such Purchaser, at or before the Closing, of each of the following conditions: (a) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct in all material respects as of the date when made and as of the Closing as though made on and as of such date (except for representations and warranties that speak of a specific date, which need only be true and correct as of such date). (b) Performance. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents. (d) Adverse Changes. Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably would be expected to have or result in a Material Adverse Effect. (e) Delivery of Items. The Company shall have delivered to Purchaser Counsel all items that it is required to deliver at the Closing under Section 2.2 (a). (f) Consents. The Company shall have received the August Transaction Consent. 18 (g) Compliance Certificate. The Company shall have delivered to or as directed by the Purchasers, an Officer's Certificate, signed by its Chief Executive Officer, dated as of the Closing Date, certifying that the Company has satisfied the conditions set forth in Section 5.1(a)-(f). 5.2 Conditions Precedent to the Obligations of the Company. The obligation of the Company to sell Securities at the Closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the following conditions: (a) Representations and Warranties. The representations and warranties of the Purchasers contained herein shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made on and as of such date. (b) Performance. The Purchasers shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Purchasers at or prior to the Closing. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents. (d) Consents. The Company shall have received the August Transaction Consent. ARTICLE VI. MISCELLANEOUS 6.1 Fees and Expenses. At the Closing, the Company shall reimburse Pine Ridge Financial, Inc. for legal fees and expenses incurred by it in connection with the preparation and negotiation of the Transaction Documents by paying to it (or, at its election, by delivering directly to Purchaser Counsel) $35,000. In lieu of the payments required by the immediately preceding sentence, Pine Ridge Financial, Inc. may retain the amount of such payments instead of delivering such amounts to the Company at the Closing. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the issuance of the Securities. 6.2 Entire Agreement. The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 19 6.3 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows: If to the Company: Hyseq, Inc. 670 Almanor Avenue Sunnyvale, CA 94085 Phone No. : (408) 524-8100 Facsimile No.: (408) 524-8141 Attn: President With a copy to: Latham & Watkins 135 Commonwealth Drive Menlo Park, CA 94025 Facsimile No.: (650) 463-2600 Attn: Alan C. Mendelson If to a Purchaser: To the address set forth under such Purchaser's name on the signature pages hereof; With a copy to : Robinson Silverman Pearce Aronsohn & Berman LLP 1290 Avenue of the Americas New York, NY 10104 Attn: Eric L. Cohen, Esq. Facsimile No.: 212-541-1432 and 212-541-4630 or such other address as may be designated in writing hereafter, in the same manner, by such Person. 6.4 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers who purchased a majority in interest of the Units or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. 6.5 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 20 6.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchasers. Except as set forth in Section 4.1(a), the Purchasers may not assign this Agreement or any of the rights or obligations hereunder without the consent of the Company. 6.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person except as otherwise set forth in Section 4.9 hereof. 6.8 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the "New York Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Agreement), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto (including its affiliates, agents, officers, directors and employees) hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. 6.9 Survival. The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery and exercise of the Securities, as applicable. 6.10 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding 21 obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof. 6.11 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 6.12 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 6.13 Replacement of Stock Certificate. If any stock certificate representing a number of shares of Common Stock issued to a Purchaser pursuant to this Agreement is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for such stock certificate, a New Stock Certificate, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and indemnity, if requested, satisfactory to it. Applicants for a New Stock Certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable charges as the Company may prescribe. 6.14 Independent Nature of Purchasers' Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES FOLLOWS] 22 IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. HYSEQ, INC. By: -------------------------------- Name: Peter S. Garcia Title: Senior Vice President and Chief Financial Officer [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOR PURCHASERS FOLLOW] 23 IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. [PURCHASER] By: -------------------------------- Name: Title: Aggregate Purchase Price: Number of Shares to be acquired: Warrant Shares acquirable under Warrant: Tax ID No: Address for Notice: With a copy to: Robinson Silverman Pearce Aronsohn & Berman LLP 1290 Avenue of the Americas New York, NY 10104 Facsimile No.: (212) 541-4630 and (212) 541-1432 Attn: Eric L. Cohen, Esq. 24 EX-4.7 5 f79368exv4w7.txt EXHIBIT 4.7 EXHIBIT 4.7 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of April 5, 2002, by and among Hyseq, Inc., a Nevada corporation (the "Company"), and the investors signatory hereto (each a "Purchaser" and collectively, the "Purchasers"). This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof among the Company and the Purchasers (the "Purchase Agreement"). The Company and the Purchasers hereby agree as follows: 1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Effectiveness Date" means, with respect to the initial Registration Statement required to be filed hereunder, the earlier of (a) (i) the 90th day following the Closing Date or (ii) the 45th day following the date that the Company receives its first response (written or oral) from the Commission as to the Company's first request for confidential treatment with respect to any exhibits filed pursuant to confidential treatment requests prior to the date the Registration Statement is filed with the Commission (regardless of whether such response of the Commission is a request for additional information), whichever is later and (b) the fifth Trading Day following the date on which the Company is notified by the Commission that such Registration Statement will not be reviewed or is no longer subject to further review and comments, and, with respect to any additional Registration Statements that may be required pursuant to Section 2(c), the earlier of (a) (i) the 90th day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required under such Section or (ii) the 45th day following the date that the Company receives its first response (written or oral) from the Commission as to the Company's first request for confidential treatment with respect to any exhibits filed pursuant to confidential treatment requests prior to the date such additional Registration Statements is filed with the Commission (regardless of whether such response of the Commission is a request for additional information), whichever is later and (b) the fifth Trading Day following the date on which the Company is notified by the Commission that such Registration Statement will not be reviewed or is no longer subject to further review and comments. "Effectiveness Period" shall have the meaning set forth in Section 2(a). "Filing Date" means, with respect to the initial Registration Statement required to be filed hereunder, the 30th day following the Closing Date, and, with respect to any additional Registration Statements that may be required pursuant to Section 2(c), the 30th day following the date on which the Company first knows, or reasonably should have known that such additional Registration Statement is required under such Section. "Holder" or "Holders" means the holder or holders, as the case may be, from time to time of Registrable Securities. "Indemnified Party" shall have the meaning set forth in Section 5(c). "Indemnifying Party" shall have the meaning set forth in Section 5(c). "Losses" shall have the meaning set forth in Section 5(a). "Materially Detrimental" means, in the good faith judgment of the Board of Directors of the Company as set forth in a certificate signed by the President, Chief Financial Officer or General Counsel of the Company, the filing in question would be materially detrimental to the Company by reason of (i) any proceeding before, or material event involving, the Food and Drug Administration, or (ii) any proposal or plan of the Company or any of its Subsidiaries to engage in any sale, acquisition, merger, consolidation, reorganization, tender offer or similar transaction. "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "Prospectus" means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Registrable Securities" means (i) the Shares and (ii) the Warrant Shares, together with any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing. "Registration Statement" means the initial registration statement required to be filed hereunder and any additional registration statements contemplated by Section 2(c), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. "Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. -2- "Rule 424" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. "Shares" means the shares of Common Stock issued to the Purchasers pursuant to the Purchase Agreement. "Special Counsel" means Purchaser Counsel who will be reimbursed by the Company pursuant to Section 4. "Warrants" means the Warrants issued under the Purchase Agreement. "Warrant Shares" means shares of Common Stock issuable upon exercise in full of the Warrants. 2. Registration. (a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith) and shall contain (except if otherwise directed by the Holders) the "Plan of Distribution" attached hereto as Annex A. The Company shall cause such Registration Statement to become effective and remain effective as provided herein. The Company shall use its best efforts to cause each Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to its Effectiveness Date, and shall use its best efforts to keep each Registration Statement continuously effective under the Securities Act until the date which is two years after the date that such Registration Statement is declared effective by the Commission or such earlier date when all Registrable Securities covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Holders (the "Effectiveness Period"). (b) If: (a) a Registration Statement is not filed on or prior to its Filing Date (if the Company files such Registration Statement without affording the Holder the opportunity to review and comment on the same as required by Section 3(a), the Company shall not be deemed to have satisfied clause (a)), or (b) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not subject to further review, or (c) the Company fails to respond to any comments made by the Commission within ten Trading Days after the receipt of such comments, or (d) a Registration Statement filed hereunder is not declared effective by the Commission by its Effectiveness Date, or (e) after a Registration Statement is filed with and declared effective by the Commission, a -3- Registration Statement ceases to be effective as to all Registrable Securities to which it is required to relate at any time prior to the expiration of the Effectiveness Period without being succeeded within ten Trading Days or, if it would be Materially Detrimental, twenty Trading Days, by an amendment to such Registration Statement or by a subsequent registration statement which Registration Statement shall be included within the definition of "Registration Statement" filed with and declared effective by the Commission, (f) an amendment to a Registration Statement is not filed by the Company with the Commission within ten Trading Days or, if it would be Materially Detrimental, twenty Trading Days, of the Commission's notifying the Company that such amendment is required in order for a Registration Statement to be declared effective, (any such failure or breach being referred to as an "Event," and for purposes of clause (a) or (d) the date on which such Event occurs, or for purposes of clause (b) the date on which such five Trading Day period is exceeded, or for purposes of clauses (c), (e) or (f) the date which such ten Trading Day-period or twenty Trading Day period, as the case may be, is exceeded, being referred to as "Event Date"), then: (x) on each such Event Date the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement; and (y) (if the applicable Event has not been cured by the first month anniversary following the Event Date, then on such anniversary date) the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement and on each monthly anniversary thereafter until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 2% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement provided, however, that all periods shall be tolled during delays directly caused by the action or inaction of any Holder, and the Company shall have no liability in respect of any such delay. If the Company fails to pay any liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. (c) File additional Registration Statements if the number of Registrable Securities at any time exceeds 85% of the number of shares of Common Stock then registered in a Registration Statement. 3. Registration Procedures In connection with the Company's registration obligations hereunder, the Company shall: (a) Not less than (1) five Trading Days prior to the filing of a Registration Statement or any related Prospectus, (2) three Trading Days prior to the filing of any pre-effective or post-effective amendment to a Registration Statement or (3) one Trading Day prior to the filing of any supplement to a Registration Statement (other than a prospectus supplement the principal purpose of which is to update the list of selling stockholders), the Company shall, (i) furnish to the Holders and their Special Counsel copies of all such documents proposed to be filed (including documents incorporated or deemed incorporated by reference and -4- not available on the EDGAR system) which documents will be subject to the review of such Holders and their Special Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities and their Special Counsel shall reasonably object. (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible, and in any event within ten Trading Days, to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and, as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to such Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented. (c) Notify the Holders of Registrable Securities to be sold and their Special Counsel as promptly as reasonably possible (and, in the case of (i)(A) below, not less than three Trading Days prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any post-effective amendment to such Registration Statement, or Prospectus so that, in the case of a -5- Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. (e) Furnish to each Holder and their Special Counsel, without charge, (i) at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, and (ii) all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that the Company shall have no obligation to provide any document pursuant to this clause (ii) that is available on the EDGAR system. (f) Subject to the terms of Section 6(d), the Company shall promptly deliver to each Holder and their Special Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (g) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders and their Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or subject the Company to any material tax in any such jurisdiction where it is not then so subject. (h) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request. (i) Upon the occurrence of any event contemplated by Section 3(c)(v), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus -6- or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither such Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (j) Comply with all applicable rules and regulations of the Commission. (k) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if requested by the Commission, the controlling person thereof. 4. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Trading Market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities included in a Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and $10,000 of the fees and disbursements of Special Counsel for the Holders, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. 5. Indemnification (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or in any amendment or supplement thereto arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make -7- the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon: (x) such Holder's failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus or to the extent that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d). In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party -8- and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised in writing by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party); provided, that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all indemnified parties. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnified Party shall reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder). (d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied -9- by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 6. Miscellaneous (a) Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Piggyback on Registrations. Except as and to the extent specified in Schedule 6(b) hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in a Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right to any of its security holders. Except as and to the extent specified in Schedule 6(b) hereto, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person which have not been fully satisfied. (c) Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement. -10- (d) Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. (e) Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered, subject to customary underwriter cutbacks applicable to all holders of registration rights. (f) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (g) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Agreement later than 6:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows: -11- If to the Company: Hyseq, Inc. 670 Almanor Avenue Sunnyvale, CA 94085 Facsimile No.: (408) 524-8141 Attn: President With a copy to: Latham & Watkins 135 Commonwealth Drive Menlo Park, CA 94025 Facsimile No.: (650) 463-2600 Attn: Alan C. Mendelson If to a Purchaser: To the address set forth under such Purchaser's name on the signature pages hereto. With a copy to: Robinson Silverman Pearce Aronsohn & Berman LLP 1290 Avenue of the Americas New York, NY 10104 Facsimile No.: (212) 541-4630 and (212) 541-1432 Attn: Eric L. Cohen, Esq. If to any other Person who is then the registered Holder: To the address of such Holder as it appears in the stock transfer books of the Company or such other address as may be designated in writing hereafter, in the same manner, by such Person. (h) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement. (i) Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. (j) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement -12- (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of this Agreement), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Proceeding venue is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of this Agreement, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding. (k) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. (l) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (m) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (n) Independent Nature of Purchasers' Obligations and Rights. The obligations of each Purchaser hereunder is several and not joint with the obligations of any other Purchaser hereunder, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser shall be entitled to protect and enforce its rights, including without -13- limitation the rights arising out of this Agreement, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES TO FOLLOW] -14- IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. HYSEQ, INC. By: ------------------------------------- Name: Title: [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES OF PURCHASER TO FOLLOW] IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. [PURCHASER] By: ------------------------------------- Name: Title: Address for Notice: [ ] With a copy to: Robinson Silverman Pearce Aronsohn & Berman LLP 1290 Avenue of the Americas New York, NY 10104 Facsimile No.: (212) 541-4630 and (212) 541-1432 Attn: Eric L. Cohen, Esq. Annex A Plan of Distribution The Selling Stockholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling shares: - ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; - block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; - purchases by a broker-dealer as principal and resale by the broker-dealer for its account; - an exchange distribution in accordance with the rules of the applicable exchange; - privately negotiated transactions; - short sales - broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share; - a combination of any such methods of sale; and - any other method permitted pursuant to applicable law. The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. The selling stockholder may from time to time pledge or grant a security interest in some or all of the Shares or common stock or Warrant owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus. The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The Selling Stockholders have informed the Company that it does not have any agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. The Company has advised the Selling Stockholders that they are required to comply with Regulation M promulgated under the Securities and Exchange Act during such time as they may be engaged in a distribution of the shares. With some exceptions, Regulation M precludes any Selling Stockholders, any affiliated purchasers and any broker-dealer or other person who participates in such distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security that is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the common stock. The Company is required to pay all fees and expenses incident to the registration of the shares, including $10,000 of fees and disbursements of counsel to the Selling Stockholders. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. EX-4.8 6 f79368exv4w8.txt EXHIBIT 4.8 EXHIBIT 4.8 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN HYSEQ, INC. WARRANT Warrant No. Date of Original Issuance: April 5, 2002 HYSEQ, Inc., a Nevada corporation (the "COMPANY"), hereby certifies that, for value received, or its registered assigns (the "HOLDER"), is entitled to purchase from the Company up to a total of shares of common stock, $0.001 par value per share (such common stock of the Company, the "COMMON STOCK"), of the Company (each such share, a "WARRANT SHARE" and all such shares, the "WARRANT SHARES") at an exercise price equal to $5.67 per share (as adjusted from time to time as provided in Section 9, the "EXERCISE PRICE"), at any time and from time to time from and after the six month anniversary following the date hereof and through and including April 5, 2007 (the "EXPIRATION DATE"), and subject to the following terms and conditions. 1. Definitions. In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein that are defined in the Purchase Agreement (as defined below) shall have the meanings given to such terms in the Securities Purchase Agreement, dated as of April 5, 2002 among the Company and the Purchasers identified therein (the "PURCHASE AGREEMENT"). 2. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "WARRANT REGISTER"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. 3. Registration of Transfers. The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Company at its address specified herein. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "NEW WARRANT"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant. Notwithstanding the foregoing, this Warrant is subject to the transfer restrictions set forth in Section 4.1 of the Purchase Agreement. 4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the date hereof to and including the Expiration Date. At 6:30 p.m., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value; provided that, if the closing sales price of the Common Stock on the Expiration Date is greater than 102% of the Exercise Price on the Expiration Date, then this Warrant shall be deemed to have been exercised in full (to the extent not previously exercised) on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration Date. 5. Delivery of Warrant Shares. (a) Upon delivery of the Form of Election to Purchase to the Company (with the attached Warrant Shares Exercise Log) at its address for notice set forth in Section 14 and upon payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the Company shall promptly (but in no event later than three Trading Days after the Date of Exercise (as defined herein) issue and deliver to the Holder, a certificate for the Warrant Shares issuable upon such exercise free of restrictive legends unless otherwise required by the Purchase Agreement. Any Person so designated by the Holder in accordance with the terms hereof and of the Purchase Agreement to receive Warrant Shares shall be deemed to have become holder of record of such Warrant Shares as of the Date of Exercise of this Warrant. The Company shall, upon request of the Holder, if available, use its best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions, provided, that, the Company may, but will not be required to change its transfer agent if its current transfer agent cannot deliver Warrant Shares electronically through the Depository Trust Corporation. A "Date of Exercise" means the date on which the Holder shall have delivered to the Company (i) the Form of Election to Purchase attached hereto (with the Warrant Exercise Log attached to it), appropriately completed and duly signed and (ii) payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder to be purchased. (b) If the Company fails to deliver to the Holder a certificate or certificates representing the Warrant Shares pursuant to Section 5(a) no later than the third Trading Day after the Date of Exercise, then the Holder will have the right to rescind such exercise. (c) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder a certificate or certificates representing the Warrant Shares pursuant to Section 5(a) no later than the third Trading Day after the Date of Exercise, and if after such third Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the 2 Holder anticipated receiving upon such exercise (a "BUY-IN"), then the Company shall pay (1) in cash to the Holder the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver pursuant to Section 5(b) to the Holder in connection with the exercise at issue by (B) the closing bid price of the Common Stock at the time of the obligation giving rise to such purchase obligation and (2) deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations under Section 5(b). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with a market price on the date of exercise totaling $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. (d) The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. If the Company breaches its obligations under this Warrant, then, in addition to any other liabilities the Company may have hereunder and under applicable law, the Company shall pay or reimburse the Holder on demand for all costs of collection and enforcement (including reasonable attorneys fees and expenses). 6. Charges, Taxes and Expenses. The Company will pay all documentary stamp taxes attributable to the issuance of Warrant Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. 8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon 3 exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9. (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. (b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (other than in a transaction covered by paragraph (a) or (c) of this Section 9) (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, "DISTRIBUTED PROPERTY"), then in each such case the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted (effective on such record date) to equal the product of such Exercise Price times a fraction of which the denominator shall be such Exercise Price and of which the numerator shall be such Exercise Price less the then fair market value of the Distributed Property distributed in respect of one outstanding share of Common Stock, as determined by the Company's independent certified public accountants that regularly examine the financial statements of the Company (an "APPRAISER"). In such event, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case such fair market value shall be deemed to equal the average of the values determined by each of the Appraiser and such appraiser. As an alternative to the foregoing adjustment to the Exercise Price, at the request of the Holder delivered before the 90th day after such record date, the Company will deliver to such Holder, within five Trading Days after such request (or, if later, on the effective date of such distribution), the Distributed Property that such Holder would have been entitled to receive in respect of the Warrant Shares for which this Warrant could have been exercised immediately prior to such record date. 4 (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "FUNDAMENTAL TRANSACTION"), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "ALTERNATE CONSIDERATION"). The aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder's request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. If any Fundamental Transaction constitutes or results in a Change of Control, then at the request of the Holder delivered before the 90th day after such Fundamental Transaction, the Company (or any such successor or surviving entity) will purchase the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. As used in this Agreement, "CHANGE OF CONTROL" means the occurrence of any of (i) an acquisition after the date hereof by any Person or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of more than 50% of the voting rights or equity interests in the Company, (ii) a replacement of more than one-half of the members of the Company's board of directors over a two-year period from the directors who constituted the Board of Directors at the beginning of such period, which replacement shall not have been approved by the Board of Directors as so constituted at the beginning of such period or (a) by directors whose nomination for election by the stockholders of the Company was approved by such Board of Directors or (b) by directors elected by such Board of Directors or (c) by directors approved in the same manner as (a) or (b) above that were nominated or elected by directors approved as set forth in (a) or (b) above, (iii) a merger or consolidation of the Company or any Subsidiary or a sale of more than 50% of the assets of the Company in one or a series of related transactions, unless following such transactions or series of transactions, the holders of the Company's securities prior to the first such transaction continue 5 to hold at least two-thirds of the voting rights and equity interests in of the surviving entity or acquirer of such assets, or (iv) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i), (ii) or (iii). (d) Subsequent Equity Sales. (i) If, at any time while this Warrant is outstanding, the Company or any Subsidiary issues or sells, as the case may be, additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable by its terms for shares of Common Stock or otherwise by its terms entitling any Person to acquire shares of Common Stock (collectively, "COMMON STOCK EQUIVALENTS"), and the price per share of any Common Stock with respect to such issuance (the "EFFECTIVE PRICE") is less than the closing sales price ("MARKET PRICE") of the Common Stock on the date of closing of this transaction then the Exercise Price shall be reduced to equal the product of (A) the Exercise Price in effect immediately prior to such issuance of Common Stock or Common Stock Equivalents times (B) a fraction, the numerator of which is the sum of (1) the number of shares of Common Stock outstanding or issuable upon the exercise or conversion of outstanding Common Stock Equivalents immediately prior to such issuance, plus (2) the number of shares of Common Stock which the aggregate Effective Price of the Common Stock issued (or deemed to be issued) would purchase at the Exercise Price, and the denominator of which is the aggregate number of shares of Common Stock outstanding or issuable upon the exercise or conversion of outstanding Common Stock Equivalents immediately after such issuance. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "DEEMED NUMBER") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Exercise Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. However, upon termination or expiration of any Common Stock Equivalents the issuance of which resulted in an adjustment to the Exercise Price pursuant to this paragraph, the Exercise Price shall be recomputed to equal the price it would have been had the adjustments in this paragraph been made, at the time of issuance of such Common Stock Equivalents, only with respect to that number of shares of the Common Stock actually issued upon conversion, exercise or exchange of such Common Stock Equivalents and at the Effective Prices actually paid in connection therewith. (ii) If, at any time while this Warrant is outstanding, the Company or any Subsidiary issues or sells, as the case may be, Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "FLOATING PRICE SECURITY"), then for purposes of applying the preceding paragraph in connection with any subsequent exercise, the Effective Price will be determined separately on each Exercise Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of 6 Common Stock on such Exercise Date (regardless of whether any such holder actually acquires any shares on such date). (iii) Notwithstanding the foregoing, no adjustment will be made under this Section 9 in respect of any issuances of Common Stock and Common Stock Equivalents: (i) to the Company's employees, officers or directors and the issuance of shares of Common Stock to such employees, officers or directors upon exercise of options granted, pursuant to an employee benefit plan or stock option plan whether now existing or approved by the Company and its stockholders in the future, (ii) to consultants as compensation for services rendered to the Company not to exceed an aggregate value of $500,000, (iii) pursuant to one or more Strategic Transactions, (iv) to Dr. George Rathmann for additional financing provided to the Company by Dr George Rathmann, (v) under a bona fide underwritten public offering (which shall not include equity lines of credit or similar financing structures) which results in net proceeds in excess of US $40 million at a per share price (excluding underwriters' commissions and discounts) that is not at a discount to the then-prevailing market price of the Common Stock and (vi) pursuant to the Rights Agreement, dated as of June 5, 1998, by and between the Company and U.S. Stock Transfer Corporation, as the Rights Agent. (e) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a)of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, as applicable, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment. (f) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock. (g) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent. (h) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then, except if such notice and the contents thereof shall be deemed to constitute material non- 7 public information, the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction, at least 20 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. Until the exercise of this Warrant or any portion of this Warrant, the Holder shall not have nor exercise any rights by virtue hereof as a stockholder of the Company (including without limitation the right to notification of stockholder meetings or the right to receive any notice or other communication concerning the business and affairs of the Company other than as provided in this Section 9(h)). 10. Payment of Exercise Price. The Holder shall pay the Exercise Price in one of the following manners: (a) Cash Exercise. From the date hereof, until the second anniversary of the closing date, the Holder may deliver immediately available funds; or (b) Cashless Exercise. The Holder may satisfy its obligation to pay the Exercise Price through a "cashless exercise," in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y [(A-B)/A] where: X = the number of Warrant Shares to be issued to the Holder. Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement. 11. Limitation on Exercise. (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% of the total number of issued and 8 outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares issuable in respect of such Exercise Notice does not violate the restrictions contained in this paragraph. This provision shall not restrict the number of shares of Common Stock which a Holder may receive or beneficially own in order to determine the amount of securities or other consideration that such Holder may receive in the event of a merger, sale or other business combination or reclassification involving the Company as contemplated herein. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not less than 61 days' prior notice to the Company. Other Holders shall be unaffected by any such waiver. (b) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 9.999% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares issuable in respect of such Exercise Notice does not violate the restrictions contained in this paragraph. This provision shall not restrict the number of shares of Common Stock which a Holder may receive or beneficially own in order to determine the amount of securities or other consideration that such Holder may receive in the event of a merger, sale or other business combination or reclassification involving the Company as contemplated herein. 12. No Fractional Shares. No fractional shares of Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the closing price of one Warrant Share as reported on the Nasdaq National Market on the date of exercise. 13. Exchange Act Filings. The Holder agrees and acknowledges that it shall have sole responsibility for making any applicable filings with the U.S. Securities and Exchange Commission pursuant to Sections 13 and 16 of the Securities Exchange Act of 1934, as amended, as a result of its acquisition of this Warrant and the Warrant Shares and any future retention or transfer thereof. 14. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this 9 Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Company, to HYSEQ, Inc., 670 Almanor Avenue, Sunnyvale, CA 94085, facsimile: (408) 524-8145, attention: President, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section. 15. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 16. Miscellaneous. (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns. (b) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the "NEW YORK COURTS"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Agreement), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner 10 permitted by law. Each party hereto (including its affiliates, agents, officers, directors and employees) hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. (c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS] 11 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above. HYSEQ, INC. By: ------------------------------------- Name: Peter S. Garcia Title: Senior Vice President and Chief Financial Officer 12 FORM OF ELECTION TO PURCHASE To Hyseq, Inc. In accordance with the Warrant enclosed with this Form of Election to Purchase, the undersigned hereby irrevocably elects to purchase _____________ shares of common stock ("COMMON STOCK"), $.001 par value per share, of Hyseq, Inc. and if such Holder is not utilizing the cashless exercise provisions set forth in this Warrant, encloses herewith $_________ in cash, certified or official bank check or checks, which sum represents the aggregate Exercise Price (as defined in the Warrant) for the number of shares of Common Stock to which this Form of Election to Purchase relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant. By its delivery of this Form of Election To Purchase, the Holder represents and warrants to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934) permitted to be owned under Section 11 of this Warrant to which this notice relates. The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER (Please print name and address) 13 WARRANT SHARES EXERCISE LOG

- -------------------------------------------------------------------------------------------------- Number of Number of Warrant Warrant Shares Shares Available to be Number of Warrant Shares Remaining to be Date Exercised Exercised Exercised - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------

14 FORM OF ASSIGNMENT [To be completed and signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase ____________ shares of Common Stock of HYSEQ, Inc. to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of HYSEQ, Inc. with full power of substitution in the premises. Dated: _______________, ____ --------------------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) --------------------------------------------- Address of Transferee --------------------------------------------- --------------------------------------------- In the presence of: - -------------------------- 15 EX-4.12 7 f79368exv4w12.txt EXHIBIT 4.12 Exhibit 4.12 WARRANT FOR SHARES OF COMMON STOCK OF HYSEQ, INC. ISSUED TO DONALD BRUNGARD OR HIS DESIGNEE DATED AS OF JULY 15, 1995 HYSEQ, INC. THIS SECURITY WAS ORIGINALLY ISSUED AS OF JULY 15, 1995 AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE TRANSFERRED OR SOLD WITHOUT REGISTRATION UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT. THE TRANSFER OF THIS SECURITY IS SUBJECT TO THE CONDITIONS SPECIFIED HEREIN. HYSEQ, INC., a Nevada corporation, hereby certifies that, for value received DONALD BRUNGARD ("Brungard") is entitled, subject to the terms set forth below, to purchase from the Company at any time before 5:00 p.m., Chicago time, on or before July 15, 2002 (the "Expiration Date"), 71,625 fully paid and nonassessable shares of Common Stock, par value $0.001, at a purchase price per share of $8.00 (such purchase price per share as adjusted from time to time as herein provided is referred to herein as the "Purchase Price"). The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Hyseq, Inc., and any corporation which shall succeed or assume the obligations of the Company hereunder. (b) The term "Common Stock" includes (i) the Company's Common Stock, par value $0.001 per share, as authorized on the date hereof, or (ii) any other securities into which or for which any of the securities described in (i) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. 1. Exercise of Warrant. This Warrant may be exercised in full, but not in part, by the holder hereof by surrender of this Warrant, with the form of election to exercise at the end hereof duly executed by such holder, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect. 2. Delivery of Stock Certificates, etc., on Exercise. (a) As soon as practicable after the exercise of this Warrant in full, and in any event within ten (10) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock to which such holder shall be entitled on such exercise, plus, in lieu of any 1 fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then current fair market value of one full share as determined in good faith by the Company's Board of Directors, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 1 or otherwise. (b) The Company agrees that, upon exercise of this Warrant in accordance with the terms hereof (including receipt by the Company of payment of the aggregate Purchase Price), the shares so purchased shall be deemed to be issued to such holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been exercised notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing the shares purchased hereunder shall not then be actually delivered to the holder hereof and the holder of this Warrant shall be deemed for all purposes a shareholder of the Company with respect to such shares as though the certificate for such shares had been issued on the date of such exercise. (c) Certificates for shares purchased hereunder shall be delivered to the holder hereof as promptly as practicable after the date on which this Warrant shall have been exercised. (d) The Company covenants that at all times prior to the Expiration Date there shall be reserved for issuance and delivery upon exercise of this Warrant, sufficient shares of the Company's authorized but unissued Common Stock issuable upon exercise of this Warrant (or such other securities of the Company as may be issuable upon the exercise hereof) and that all shares which may be issued upon the exercise of this Warrant will be duly authorized and will, upon exercise of the rights represented by this Warrant and payment of the Purchase Price, be fully paid and nonassessable and free and clear from all taxes, liens, security interests, charges and other encumbrances or restrictions on sale, except as provided herein or pursuant to applicable law, and free and clear of all preemptive rights. The Company shall take all steps required to assure the par value of the Common Stock does not exceed the Purchase Price in effect from time to time. 3. Adjustment for Dividends in Other Stock, Property etc.; Reclassification, etc. In case at any time or from time to time, the holders of Common Stock shall have received, or (on or after the record date fixed for the determination of shareholders eligible to receive) shall have become entitled to receive, without payment therefor, (a) other or additional stock or other securities or property (other than cash) by way of dividend, or (b) any cash (excluding cash dividends payable solely out of earnings or earned surplus of the Company) , or (c) other or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, then and in each such case the holder of this Warrant, on the exercise hereof as provided in Section 1, shall be entitled to receive the amount of stock and other securities and property 2 (including cash in the cases referred to in subdivisions (b) and (c) of this Section 3) which such holder would hold on the date of such exercise if on the date hereof he had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and all such other or additional stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 3) receivable by him as aforesaid during such period, giving effect to all adjustments called for during such period by Section 4. 4. Adjustments and Termination of Rights. The Purchase Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment from time to time as follows: (a) Merger. If at any time while this Warrant is outstanding and unexpired there shall be a merger or consolidation of the Company with or into another corporation, then, as a part of such merger or consolidation, appropriate provisions shall be made so that the holder hereof shall, in lieu of the securities otherwise receivable on exercise of this Warrant, thereafter be entitled to receive upon exercise of this Warrant, the number of shares of stock or other securities or property (including cash) payable or issuable pursuant to such merger or consolidation, to which a holder of the securities receivable upon the exercise of this Warrant would have been entitled in such merger or consolidation if this Warrant had been exercised immediately before such merger or consolidation. In any such case appropriate adjustment (as determined by the Board of Directors of the Company in good faith) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the holder hereof after such merger or consolidation. (b) Reclassification, etc. Except in situations where adjustments are effected pursuant to Section 4(a) above, if the Company at any time while this Warrant is outstanding and unexpired shall, by subdivision, combination, reclassification, conversion of securities or otherwise, change any of the securities receivable upon the exercise of this Warrant into the same or a different number of securities of any other class or classes, this Warrant shall, in lieu of the securities otherwise receivable upon the exercise of this Warrant, thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities receivable upon the exercise of this Warrant immediately prior to such subdivision, combination, reclassification, conversion or other change. (c) Split, Subdivision or combination of Shares. If the Company at any time while this Warrant is outstanding and unexpired shall split or subdivide its issued and outstanding shares of securities receivable upon the exercise of this Warrant into a larger number of shares of such securities or combine its issued and outstanding shares of securities receivable upon the exercise of this Warrant into a smaller number of shares of such securities, the Purchase Price shall be adjusted to equal the product of (i) the existing Purchase Price immediately prior to any such split, subdivision or combination, and (ii) a fraction, the numerator of which is the number of outstanding shares of securities receivable upon the exercise of this Warrant immediately prior to any such split, subdivision or combination and the denominator of which is the number of outstanding shares of securities receivable upon the exercise of this Warrant immediately after any such split, subdivision or combination. Upon each adjustment in the 3 Purchase Price pursuant to this Section 4 (c) , the number of shares of securities receivable upon the exercise of this Warrant shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of shares of securities receivable upon the exercise hereof immediately prior to such adjustment in the Purchase Price by a fraction (i) the numerator of which shall be the Purchase Price immediately prior to such adjustment, and (ii) the denominator of which shall be the Purchase Price immediately after such adjustment. (d) Issuance of Additional Shares of Common Stock. If the Company at any time while the Warrant remains outstanding and unexpired shall issue or be deemed to have issued any Additional Shares of Common Stock (otherwise than as provided in the foregoing subsections (a) through (c) above) at a price per share less, or for other consideration lower, than the Purchase Price per share in effect immediately prior to such issuance, or without consideration, then upon such issuance the Purchase Price shall be adjusted to that price determined by subtracting from the Purchase Price then in effect the difference between the Purchase Price per share then in effect and the product obtained by multiplying such Purchase Price by a fraction (a) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of shares of Common Stock which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at such Purchase Price, and (b) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of Additional Shares of Common Stock so issued. The provisions of this subsection shall not apply under any of the circumstances for which an adjustment is provided in subsections 4(a), 4(b), or 4(c). As used herein, the term "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company (or deemed to have been issued pursuant to Section 4(e) by the Company), excluding (i) 4,500,000 shares representing issued and outstanding shares of Common Stock and shares of Common Stock into which the Series A Preferred Stock may be converted, (ii) shares of Common Stock issued in transactions described in Section 4(a) through 4(c), (as adjusted for stock dividends, stock splits, combinations, reorganizations, reclassification and other similar events) and (iii) shares of Common Stock issuable upon exercise of Stock Options representing up to a maximum of 450,000 shares of Common Stock. (e) Computation of Consideration. The following provisions will be applicable to the making of adjustments in the Purchase Price pursuant to Section 4(d) above: (i) In the case of an issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any discounts, commissions or other expenses allowed, paid or incurred by the Company. (ii) In the case of an issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as reasonably determined by the Board of Directors of the Company. (iii) In the case of an issuance of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for 4 Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, either (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed for purposes of Section 4(d) to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 4(e)(i) and 4(e)(ii) if any, received by the Company upon the issuance of such options or rights plus the purchase price provided in such options or rights for the Common Stock covered thereby; or (2) The aggregate maximum number of shares of Common stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed for purposes of Section 4(d) to have been issued at the time securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Company for any such securities or such options or rights, plus the additional consideration, if any, to be received by the Company upon the conversion or exchange of such securities or the exercise of such options or rights (the consideration in each case to be determined in the manner provided in Sections 4(e)(i) and 4(e)(ii)). (f) Readjustment. Upon the termination or expiration of any such options or rights, or any rights to convert or exchange any such convertible or exchangeable securities, the Purchase Price shall forthwith be readjusted to such Purchase Price as would have been obtained had the adjustment (which was made upon the issuance of such options, rights or securities) , been made upon the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options or rights or upon the conversion or exchange of such securities. No adjustment to either the Purchase Price or the number of shares to be received upon exercise of this Warrant shall be made for the actual issuance of Common Stock or convertible or exchangeable securities upon the exercise of any such options or rights or the conversion or exchange of such securities. (g) Determination of Fair Market Value of Stock. For the purpose of any computation under this Warrant, the current fair market value per share of stock shall be the average of the current market value of stock, determined for the twenty (20) consecutive trading days prior to the date in question which market value shall be determined as follows: (i) if the stock in question is listed on a national securities exchange or admitted to unlisted trading privileges on such an exchange or, if not so listed or admitted to unlisted trading privileges, quoted on the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), the current market value of each share shall be the last reported sale price per share of stock on such exchange or reported by NASDAQ or if no such sale is made on such day, the mean of the closing bid and asked prices for such day on such exchange or reported by NASDAQ; (ii) if the stock is not listed on a national securities exchange or quoted on NASDAQ or admitted to unlisted trading privileges on a national securities exchange, the current market value of each share shall be an amount determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. 5 (h) Successive Adjustments. The provisions of this Section 4 shall apply to each successive event that would give rise to any adjustment under any such provision. (i) Adjustments. No adjustment in the number of shares of securities receivable upon the exercise of this Warrant or in the Purchase Price shall be required unless such adjustment will require an increase or decrease of at least one percent (1%) in the number of shares of securities receivable upon the exercise of this Warrant or in the Purchase Price, respectively; provided, however, that any adjustments which by reason of this Section 4(i) are not required to be made shall be carried forward and taken into account in any subsequent share or price adjustment. (j) Revoked Actions. In the event that any occurrence that has resulted in an adjustment pursuant to this Section 4 ceases to exist, is revoked or is determined to the satisfaction of the holder hereof to have no dilutive effect, then thereafter no adjustment shall be required under this Section 4 and any adjustment previously made in respect thereof shall be rescinded and annulled. 5. Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant to this Section 5 to a bank or trust company having its principal office in Chicago, Illinois, as trustee for the holder or holders of the Warrants. 6. Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in Sections 4 and 5 this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 7. 6 7. No Dilution or Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of the Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of the Warrant above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise of this Warrant, and (c) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of the Warrant. 8. Notice of Adjustments. Whenever the Purchase Price or number of shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall issue a certificate signed by its Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Purchase Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first class mail, postage prepaid) to the holder hereof. 9. Notices of Record Date, etc. In the event of: (a) any taking by the Company of a record of the holders of any class or securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) any proposed issue or grant by the Company of any shares of stock of any class or any other securities, or any right or option to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities (other than the issue of Common Stock on the exercise of the Warrant), or 7 (e) the Company proposes to take any action described in subsections (a), (b), (c) or (d) of Section 4 that would require an adjustment of the Purchase Price pursuant to Section 4, then and in each such event the Company will mail or cause to be mailed to each holder of a Warrant a notice specifying (i) the date on which any such record is to be taken f or the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least 20 days prior to the date specified in such notice on which any such action is to be taken. 10. Reservation of Stock, etc., Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. 11. Exchange of Warrants. On surrender for exchange of any Warrant, properly endorsed, to the Company, the Company will issue and deliver to or on the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (on payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 12. Replacement of Warrants. On receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant, on delivery of an indemnity agreement or security satisfactory in form and amount of the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. Upon the issuance of any new Warrant hereunder, the Company may require the payment from the holder of such Warrant of a sum sufficient to cover any tax, stamp tax or other governmental charge that may be imposed in relation thereto and any other expenses in connection therewith. 13. Warrant Agent. The Company may, by written notice to each holder of a Warrant, appoint an agent having an office in Chicago, Illinois for the purpose of issuing Common Stock (or other securities) on the exercise of the Warrant pursuant to Section 1, exchanging the Warrant pursuant to Section 11, and replacing the Warrant pursuant to Section 12, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 8 14. Remedies. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms thereof or otherwise. 15. Limitations on Transfer/Restrictive Legends. This Warrant is issued upon the following terms, to all of which each holder or owner hereof by the taking hereof consents and agrees: (a) title to this Warrant may not be transferred except (a) with the prior written consent of the Company, which consent may be withheld in the discretion of the Company, (b) to a transferee who is a member of the immediate family of Brungard; provided further that any all such securities as are issued to the holder of this Warrant upon exercise hereof shall be stamped or otherwise imprinted with a legend in substantially the following form: THIS SECURITY WAS ORIGINALLY ISSUED ON ___________________ AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE TRANSFERRED OR SOLD WITHOUT REGISTRATION UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS; and (b) until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 16. Notices, etc. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 17. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in the accordance with and governed by the laws of the State of Nevada. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. This Warrant is being executed as an instrument under seal. 18. Expiration. The right to exercise this Warrant shall expire on the Expiration Date. Dated: As of July 15, 1995 HYSEQ, INC By: ------------------------------------ Lewis S. Gruber President and Chief Executive Officer 9 (Corporate Seal) ATTEST: Its: ---------------------------------------- 10 [FORM OF ELECTION TO EXERCISE] (To be executed upon exercise of Warrant on the Exercise Date) The undersigned hereby irrevocably elects to exercise the Warrant represented by this Warrant and acquire ___________ Shares and herewith tenders payment for such Shares in the amount of $______________ (in cash, personal check if in an amount less than $1,000 or certified or official bank check) in accordance with the terms hereof. The undersigned requests that a certificate representing such Shares be registered in the name of ______________ whose address is _________________ and that such certificate be delivered to __________________ whose address is _______________________. Any cash payments to be paid in lieu of a fractional Share should be made to ______________________ whose address is _________________ and the check representing payment thereof should be delivered to _____________________________ whose address is ___________________________________. Dated:___________________________, 19_ Name of holder of Warrant: --------------------------------------------- (Please Print) Tax Identification or Social Security Number: -------------------------- Address: --------------------------------------------------------------- Signature: ---------------------------------------------------------- Note: The above signature must correspond with the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatever and if the certificate representing the Shares or any Warrant representing Warrant (s) not exercised is to be register in a name other than that in which this Warrant is registered, or if any cash payment to be paid in lieu of a fractional share is to be made to a person other than the registered holder of this Warrant, the signature of the holder hereof must be guaranteed as provided in the Warrant Agreement. Signature Guaranteed: -------------------------------------------------- 11 (FORM OF ASSIGNMENT) For value received _______________________________ hereby sells, assigns and transfers unto _______________________________________________ the within Warrant Certificate, together with all right, title and interest therein and does hereby irrevocably constitute and appoint __________________________________, attorney, to transfer said Warrant Certificate on the books of the within-named company, with full power of substitution in the premises. Dated:_______________________, 19_ Signature: ---------------------------------------------------------- Note: The above signature must correspond with the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed: -------------------------------------------------- 12 EX-5.1 8 f79368exv5w1.txt EXHIBIT 5.1 Exhibit 5.1 [KUMMER KAEMPFER BONNER AND RENSHAW LETTERHEAD] June 13, 2002 HYSEQ, INC. 670 Almanor Avenue Sunnyvale, California 94085 Ladies and Gentlemen: We have acted as special Nevada counsel for Hyseq, Inc., a Nevada corporation (the "Company"), in connection with the Registration Statement on Form S-3 ("Registration Statement") to be filed by the Company with the Securities and Exchange Commission covering the offer and sale of 6,948,454 shares of the Company's common stock, $0.001 par value per share ("Common Stock"), including (a) 3,741,932 shares of Common Stock to be sold by the selling stockholders named in the Registration Statement, (b) 1,031,447 shares of Common Stock that may be issued upon the exercise of Common Stock warrants, and (c) 2,175,075 shares of Common Stock issuable upon the exchange of a promissory note issued by the Company for an aggregate principal amount of $4,000,000, plus interest. In rendering this opinion, we have examined and relied on the following documents: (i) the Company's Articles of Incorporation, as amended, and Bylaws, as amended, (ii) the resolutions adopted by the Board of Directors of the Company on October 23, 2001, and March 29, 2002 (iii) the Registration Statement, and (iv) such other documents, legal opinions and precedents, corporate and other records of the Company, and certificates of public officials and officers of the Company that we have deemed necessary or appropriate to provide a basis for the opinion. Based upon and subject to the foregoing, in our opinion, the shares of Common Stock of the Company (i) which are being offered and sold by the selling stockholders of the Company pursuant to the Registration Statement, when sold by the selling stockholders in the manner contemplated by the Registration Statement, (ii) issuable upon exercise of the warrants upon payment of the consideration stated in such warrants, and (iii) issuable upon the exchange of a promissory note issued by the Company for an aggregate principal amount of $4,000,000, plus interest, in each case, will be legally issued, fully paid and non-assessable. We consent to the filing of this opinion as an Exhibit to the Registration Statement. Very truly yours, /s/ Kummer Kaempfer Bonner & Renshaw KUMMER KAEMPFER BONNER & RENSHAW EX-23.1 9 f79368exv23w1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF KPMG LLP, INDEPENDENT AUDITORS We consent to the use of our report incorporated by reference herein, and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG LLP San Francisco, California June 12, 2002 EX-23.2 10 f79368exv23w2.txt EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and the related Prospectus of Hyseq, Inc. for the registration of 6,948,454 shares of its common stock and to the incorporation by reference therein of our report dated February 2, 2000, with respect to the consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1999, included in its Annual Report (Form 10-K) for the year ended December 31, 2001, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Palo Alto, California June 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----

EX-4.3

                                                                     Exhibit 4.3


                              AMENDED AND RESTATED
                                     BY-LAWS
                                       OF
                                   HYSEQ, INC.
                          AS AMENDED ON APRIL 26, 2002


                                    ARTICLE I
                                     OFFICES

     The corporation shall continuously maintain in the State of Nevada, a
registered office and a resident agent whose office is identical with such
registered office and may have other offices within or without the state. The
address of the corporation's registered office in the State of Nevada is
Laughlin Associates, Inc., 2533 North Carson Street, Carson City, Nevada 89706.
The name of the corporation's resident agent at such address is the Laughlin
Associates, Inc. The corporation reserves the power to change its resident agent
and registered office at any time.

                                   ARTICLE II
                                  STOCKHOLDERS

     SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders entitled,
under the Articles of Incorporation, to vote on matters properly to be
considered at an annual meeting shall be held not less than thirty (30) days
after delivery of the annual report for the purpose of electing directors and
for the transaction of such other business, as may come before the meeting.


     SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called by the chief executive officer, president, the board of directors, or by
holders of Common Stock who hold, in the aggregate, not less than fifty percent
(50%) of the outstanding shares of Common Stock for the purpose or purposes
stated in the call of the meeting.

     SECTION 3. PLACE OF MEETINGS. Each meeting of the stockholders for the
election of directors shall be held at the offices of the corporation in Carson
City, Nevada, unless the board of directors shall by resolution, designate any
other place of such meeting. Meetings of stockholders for any other purpose may
be held at such place, within or without the State of Nevada, and at such time
as shall be determined pursuant to Section 2 of this Article II, and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.

     SECTION 4. NOTICE OF MEETINGS. A written notice of each meeting of
stockholders, stating the place, date and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given to each stockholder entitled to vote at the meeting. Unless
otherwise provided by the Laws of the State of Nevada ("Nevada Law"), the notice
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting, and, if mailed, shall be deposited in the United States
mail, postage prepaid, both directed to the stockholder at his address as it
appears on the records of the



corporation. No notice need be given to any person with whom communication is
unlawful, nor shall there be any duty to apply for any permit or license to give
notice to any such person.

     SECTION 5. NOMINATIONS AND STOCKHOLDER BUSINESS.

     (a)  Annual Meeting of Stockholders.

          (i)  Nominations of persons for election to the board of directors and
the proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (A) pursuant to the corporation's notice of
meeting, (B) by or at the direction of the board of directors, or (C) by any
stockholder of the corporation who was a stockholder of record at the time of
giving notice provided for in Section 5(a)(ii), who is entitled to vote at the
meeting and who complied with the notice procedures set forth in Section
5(a)(ii).

          (ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to Section 5(a)(i)(C), the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice shall be delivered to the
secretary at the principal executive offices of the corporation not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60 days
from such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made. Such stockholder's notice shall set
forth (A) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected), (B) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made, and (C) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the corporation which are owned beneficially and of record by such
stockholders and such beneficial owner.

          (iii) Notwithstanding anything in the second sentence of Section
5(a)(ii) to the contrary, in the event that the number of directors to be
elected to the board of directors is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased board of directors made by the corporation at least 70 days prior
to the first anniversary of the preceding year's annual meeting, a stockholder's
notice


                                       2

required by this Section 5(a) shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the secretary at the principal executive offices of the
corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the corporation.

     (b)  Special Meeting of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the corporation's notice of meeting. Nominations of persons
for election to the board of directors may be made at a special meeting of
stockholders at which directors are to be elected (i) pursuant to the
corporation's notice of meeting, (ii) by or at the direction of the board of
directors, or (iii) provided, that the board of directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 5(b), who is entitled to vote at the meeting and
who complied with the notice procedures set forth in this Section 5(b). In the
event the corporation calls a special meeting of stockholders for the purpose of
electing one or more persons (as the case may be) for election to such position
as specified in the corporation's notice of meeting, if the stockholder's notice
required by Section 5(a)(i) 5 shall be delivered to the secretary at the
principal executive offices of the corporation not earlier than the 90th day
prior to such special meeting and not later than the close of business on the
later of the 60th day prior to such special meeting or the 10th day following
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the board of directors to be elected at
such meeting.

     (c)  General.

          (i)  Except as set forth in Section 9 of Article III, only such
persons who are nominated in accordance with the procedures set forth in this
Section 5 shall be eligible to serve as directors and only such business shall
be conducted at a meeting of stockholders as shall have been brought before the
meeting in accordance with the procedures set forth in this Section 5. The
presiding officer of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made in accordance with the procedures set forth in this Section 5 and, if
any proposed nomination or business is not in compliance with this Section 5, to
declare that such defective nomination or proposal be disregarded.

          (ii) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.

          (iii) Notwithstanding the foregoing provisions of this Section 5, a
stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 5. Nothing in this Section 5 shall be deemed
to affect any rights of stockholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.

                                       3

     SECTION 6. WAIVER OF NOTICE. Anything herein to the contrary
notwithstanding, with respect to any stockholder meeting, any stockholder who in
person or by proxy shall have waived in writing notice of the meeting, either
before or after such meeting, or who shall attend the meeting in person or by
proxy, shall be deemed to have waived notice of such meeting unless he attends
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

     SECTION 7. QUORUM; MANNER OF ACTING AND ORDER OF BUSINESS.

     (a)  Subject to the provisions of these by-laws, the Articles of
Incorporation and Nevada Law as to the vote that is required for a specified
action, the presence in person or by proxy of the holders of a majority of the
outstanding shares of the corporation entitled to vote at any meeting of
stockholders shall constitute a quorum for the transaction of business. The vote
of the holders of a majority of the shares of the corporation's stock entitled
to vote, present in person or represented by proxy, shall be binding on all
stockholders of the corporation, unless the vote of a greater number or voting
by classes is required by law or the Articles of Incorporation or these by-laws.
The stockholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.

     (b)  In the absence of a quorum, stockholders holding a majority of the
shares present in person or by proxy and entitled to vote, regardless of whether
or not they constitute a quorum, or if no stockholders are present, any officer
entitled to preside at or act as secretary of the meeting, may adjourn the
meeting to another time and place. Any business which might have been transacted
at the original meeting may be transacted at any adjourned meeting at which a
quorum is present. No notice of an adjourned meeting need be given if the time
and place are announced at the meeting at which the adjournment is taken except
that, if adjournment is for more than thirty (30) days or if, after the
adjournment, a new record date is fixed for the meeting, notice of the adjourned
meeting shall be given pursuant to Section 4 of this Article II.

     (c)  Meetings of the stockholders shall be presided over by the chairman of
the board, or in his absence by the chief executive officer, or in his absence
by the president, or in his absence by a vice president, or in the absence of
the foregoing persons by a chairman designated by the board of directors, or in
the absence of such designation by a chairman chosen at the meeting. The
secretary shall act as secretary of the meeting, but in his absence the chairman
of the meeting may appoint any person to act as secretary of the meeting. The
order of business at all meetings of the stockholders shall be determined by the
chairman. The order of business so determined, however, may be changed by vote
of the holders of a majority of the shares present at the meeting in person or
represented by proxy.

     SECTION 8. VOTING; PROXIES. Each stockholder of record on the record date,
as determined pursuant to Section 6 of Article VI, shall be entitled to one vote
for every share registered in his name. However, all elections of directors
shall be by written ballot. Each stockholder entitled to vote at any meeting of
stockholders or to express consent to or dissent


                                       4

from corporate action in writing without a meeting may authorize another person
to act for him by proxy. No proxy shall be valid after three years from its date
of execution, unless the proxy provides for a longer period.

     SECTION 9. INSPECTORS OF ELECTION.

     (a)  In advance of any meeting of stockholders, the board of directors may
appoint inspectors of election to act at each meeting of stockholders and any
adjournment thereof. If inspectors of election are not so appointed, the
chairman of the meeting may, and upon the request of any stockholder or his
proxy shall, appoint inspectors of election at the meeting. The number of
inspectors shall be either one or three. If appointed at the meeting upon the
request of one or more stockholders or proxies, the vote of the holders of a
majority of shares present shall determine whether one or three inspectors are
appointed. In any case any person appointed as an inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
directors in advance of the convening of the meeting or at the meeting by the
person acting as chairman.

     (b)  The inspectors of election shall determine the outstanding stock of
the corporation, the stock represented at the meeting and the existence of a
quorum, shall receive votes, ballots, or consents, shall count and tabulate all
votes and shall determine the result; and in connection therewith, the inspector
shall determine the authority, validity and effect of proxies, hear and
determine all challenges and questions, and do such other ministerial acts as
may be proper to conduct the election or vote with fairness to all stockholders.
If there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. If no inspectors of election are appointed, the secretary shall pass upon
all questions and shall have all other duties specified in this Section 9.

     (c)  Upon request of the chairman of the meeting or any stockholder or his
proxy, the inspector(s) of election shall make a report in writing of any
challenge or question or other matter determined by him and shall execute a
certificate of any fact found in connection therewith. Any such report or
certificate shall be filed with the record of the meeting.

     SECTION 10. NO ACTION WITHOUT A MEETING. No action of the stockholders may
be taken by written consent.

     SECTION 11. REVOCATION OF CONSENT. Any stockholder giving a written
consent, or the stockholder's proxyholders, or a transferee of the shares or a
personal representative of the stockholder or its respective proxyholder, may
revoke the consent by a writing received by the corporation prior to the time
that written consents of the number of shares required to authorize the proposed
action have been filed with the secretary of the corporation, but may not do so
thereafter. Such revocation is effective upon its receipt by the secretary of
the corporation.

                                       5


                                   ARTICLE III
                                    DIRECTORS

     SECTION 1. NUMBER, TENURE AND QUALIFICATIONS.

     (a)  The number of directors of the corporation shall consist of not less
than two (2) nor more than nine (9) directors, the exact number of directors to
be determined from time to time by resolution adopted by the affirmative vote of
a majority of the directors. A director shall hold office until the later of (i)
the next annual meeting of the stockholders of the corporation immediately
following, or (ii) coinciding with the expiration of his term or until his
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Directors need
not be residents of the State of Nevada or stockholders of the corporation.

     (b)  Each director shall serve a term of one, two or three years as is
designated at the time of his election provided that no less than one-fourth
(1/4) of the directors serving in any year shall be subject to annual
reelection.

     (c)  Any director or the entire board of directors may be removed, with
cause, by the holders of 66-2/3% of the voting rights of the shares then
entitled to vote at an election of directors, unless otherwise provided under
Nevada Law or the Articles of Incorporation.

     SECTION 2. RESIGNATIONS. Any director may resign at any time by giving
written notice to the chairman of the board or to the chief executive officer or
to the president.

     SECTION 3. MEETINGS. Meetings of the board of directors may be called by or
at the request of the chairman of the board, the chief executive officer, the
president or a majority of the directors. The person or persons authorized to
call meetings of the board of directors may fix any place as the place for
holding any meeting of the board of directors called by them. Meetings of the
board of directors may be held within or outside the State of Nevada.

     SECTION 4. BUSINESS OF MEETINGS. Except as otherwise expressly provided in
these by-laws, any and all business may be transacted at any meeting of the
board of directors.

     SECTION 5. NOTICE OF MEETINGS. Notice of any meeting shall be given at
least one (1) day previous thereto by prior written notice to each director at
his principal place of business.

     SECTION 6. ATTENDANCE BY TELEPHONE. Directors may participate in meetings
of the board of directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear one another, and such participation shall constitute presence
in person at the meeting.

     SECTION 7. QUORUM AND MANNER OF ACTING; ADJOURNMENT. A majority of the
directors shall constitute a quorum for the transaction of business at any
meeting

                                       6

of the board of directors and the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the board.

     SECTION 8. ACTION WITHOUT A MEETING. Any action which could be taken at a
meeting of the board of directors may be taken without a meeting if all of the
directors consent to the action in writing and the writing or writings are filed
with the minutes of proceedings of the board.

     SECTION 9. FILLING OF VACANCIES.

     (a)  A vacancy or vacancies in the board of directors shall exist when any
previously authorized position of director is not then filled by a duly elected
director, whether caused by death, resignation or removal. Vacancies caused by
reason of death, resignation or removal shall be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director.

     (b)  Vacancies and newly created directorships resulting from an increase
in the authorized number of directors elected by all the stockholders having the
right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.

     (c)  If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the Articles of Incorporation or the by-laws, or may apply to a court of
appropriate jurisdiction for a decree summarily ordering an election.

     SECTION 10. COMPENSATION OF DIRECTORS. The board of directors shall have
the authority to fix the compensation of directors, unless otherwise provided in
the Articles of Incorporation.

     SECTION 11. PRESIDING OFFICER. The presiding officer at any meeting of the
board of directors shall be the chairman of the board, or in his absence, any
other director elected chairman by vote of a majority of the directors present
at the meeting.

     SECTION 12. COMMITTEE. The board of directors, by resolution adopted by a
majority of the number of directors fixed by the by-laws or otherwise, may
designate one (1) or more committees, each committee to consist of one (1) or
more directors of the corporation, which committees, to the extent provided in
such resolution, shall have and exercise all of the authority of the board of
directors in the management of the corporation, except as otherwise required by
law. The board of directors may designate one (1) or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.

                                       7

     SECTION 13. WAIVER OF NOTICE. Anything herein to the contrary
notwithstanding, with respect to any meeting of the board of directors, any
director who in person shall have waived in writing notice of the meeting,
either before or after such meeting, or who shall attend the meeting in person,
shall be deemed to have waived notice of such meeting unless he attends for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

                                   ARTICLE IV
                                    OFFICERS

     SECTION 1. NUMBER. The officers of the corporation may consist of the
chairman of the board, the chief executive officer, the president, one or more
vice presidents (the number thereof to be determined by the board of directors),
the secretary, the treasurer, the registered agent, and such assistant
secretaries and assistant treasurers or any other officers thereunto authorized
or elected by the board of directors. Any two or more offices may be held by the
same person.

     SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected by the board of directors at their first meeting and thereafter
at any subsequent meeting and shall hold their offices for such term as
determined by the board of directors. Each officer shall hold office until his
successor is duly elected and qualified, or until his death or disability, or
until he resigns or is removed from his duties in the manner hereinafter
provided.

     SECTION 3. REMOVAL AND RESIGNATION. Any officer may be removed, either with
or without cause, by a majority of the directors, then in office, at any meeting
of the board of directors. Any officer may resign at any time by giving written
notice to the corporation. Any such resignation shall take effect at the date of
the receipt of such notice or at any later time specified therein.

     SECTION 4. VACANCIES. A vacancy in any office because of death, resignation
or removal or any other cause may be filled for the unexpired portion of the
term by the board of directors.

     SECTION 5. CHAIRMAN OF THE BOARD. The chairman of the board of the
corporation shall preside at all meetings of the board of directors, and at all
stockholders' meetings, whether annual or special, at which he is present and
shall exercise such other powers and perform such other duties as the board of
directors may from time to time assign to him or as may be prescribed by these
by-laws. In the event that the chairman of the board is not present at a
directors' meeting the chief executive officer, or in his absence the president
of the corporation, shall serve in his place and stead. Except in those
instances in which the authority to execute is expressly delegated to another
officer or agent of the corporation, or a different mode of execution is
expressly prescribed by the board of directors or these by-laws, he may execute
for the corporation, certificates for its shares, and any contracts, deeds,
mortgages, bonds or other instruments which the board of directors have
authorized to be executed, and he may accomplish such execution either under or
without the seal of the corporation, or either individually with the

                                       8

secretary, any assistant secretary or any other officer thereunto authorized by
the board of directors, according to the requirements of the form of the
instrument.

     SECTION 6. CHIEF EXECUTIVE OFFICER. Subject to the direction and control of
the board of directors, the chief executive officer shall be in charge of the
general management and supervision over the property, affairs and business of
the corporation. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation, or a
different mode of execution is expressly prescribed by the board of directors or
these by-laws, he may execute for the corporation, certificates for its shares,
and any contracts, deeds, mortgages, bonds or other instruments which the board
of directors have authorized to be executed, and he may accomplish such
execution either under or without the seal of the corporation, or either
individually or with the secretary, any assistant secretary or any other officer
thereunto authorized by the board of directors, according to the requirements of
the form of the instrument. He may vote all securities which the corporation is
entitled to vote, except as and to the extent such authority shall be vested in
a different officer or agent of the corporation by the board of directors.

     SECTION 7. PRESIDENT. Subject to the direction and control of the board of
directors and the chief executive officer, the president shall be in charge of
the general management and supervision over the operating functions of the
corporation; he shall see that the resolutions and directions of the board of
directors are carried into effect, except in those instances in which that
responsibility is specifically assigned to some other person by the board of
directors; and in general, he shall discharge all duties incident to the office
of president and such other duties as may be prescribed by the board of
directors from time to time. Except in those instances in which the authority to
execute is expressly delegated to another officer or agent of the corporation,
or a different mode of execution is expressly prescribed by the board of
directors or these by-laws, he may execute for the corporation, certificates for
its shares, and any contracts, deeds, mortgages, bonds or other instruments
which the board of directors have authorized to be executed, and he may
accomplish such execution either under or without the seal of the corporation,
or either individually or with the secretary, any assistant secretary or any
other officer thereunto authorized by the board of directors, according to the
requirements of the form of the instrument.

     SECTION 8. VICE PRESIDENT. The vice president (or in the event there be
more than one vice president, each of the vice presidents), if one shall he
elected, shall assist the president in the discharge of his duties, as the
president may direct and shall perform such other duties as from time to time
may be assigned to him by the president or by the board of directors. In the
absence of the president or in the event of his inability or refusal to act, the
vice president (or in the event there be more than one vice president, the vice
presidents in the order designated by the board of directors, or by the
president if the board of directors have not made such a designation, or in the
absence of any designation, then in the order of seniority of tenure as vice
president) shall perform the duties of the president, and when so acting, shall
have the powers of and be subject to all the restrictions upon the president.
Except in those instances in which the authority to execute is expressly
delegated to another officer or agent of the corporation, or a different mode of
execution is expressly prescribed by the board of directors or these by-laws,
the

                                       9

vice president (or each of them if there are more than one) may execute for the
corporation, certificates for its shares and any contracts, deeds, mortgages,
bonds or other instruments which the board of directors have authorized to be
executed, and he may accomplish such execution either under or without the seal
of the corporation, and either individually or with the secretary, any assistant
secretary or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument.

     SECTION 9. TREASURER. The treasurer, if any, shall be the principal
accounting and financial officer of the corporation. The treasurer shall: (i)
have charge of and be responsible for the maintenance of the adequate books and
records for the corporation; (ii) have charge and custody of all funds and
securities of the corporation, and be responsible therefor and for the receipt
and disbursement thereof; and (iii) perform all the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the board of directors. If required by the board
of directors, the treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the board of directors
may determine.

     SECTION 10. SECRETARY. The secretary shall: (i) record the minutes of the
stockholders and of the board of directors' meetings in one or more books
provided for that purpose; (ii) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (iii) be
custodian of the corporate books and records and of the seal of the corporation;
(iv) keep a register of the post-office address of each stockholder which shall
be furnished to the secretary by such stockholder; (v) sign with the chairman of
the board or the chief executive officer or the president or a vice president or
any other officer thereunto authorized by the board of directors, certificates
for the shares of the corporation, the issue of which shall have been authorized
by the board of directors, and any contracts, deeds, mortgages, bonds or other
instruments which the board of directors have authorized to be executed,
according to the requirements of the form of the instrument, except when a
different mode of execution is expressly prescribed by the board of directors or
these by-laws; (vi) have general charge of the stock transfer books of the
corporation; (vii) perform all duties incident to the office of secretary and
such other duties as from time to time may be assigned to him by the president
or by the board of directors. Consistently with the foregoing, the secretary
shall be responsible for the corporation's compliance with Section 78.105 of the
Nevada Laws and shall supply to the registered agent, any and all amendments to
the corporation's Articles of Incorporation and any and all amendments or
changes to its by-laws. In compliance with said Section 78.105, the secretary
will also supply to the registered agent, and maintain, a current statement
setting out the name of the custodian of the stock ledger or duplicate stock
ledger, and the present and complete post office address, including street and
number, if any, where such stock ledger or duplicate stock ledger specified in
the section is kept.

     SECTION 11. REGISTERED AGENT. The registered agent shall be in charge of
the corporation's registered office in the State of Nevada, upon whom process
against the corporation may be served and shall perform all duties required by
statute.

                                       10

     SECTION 12. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant
treasurers and assistant secretaries shall perform such duties as shall be
assigned to them by the board of directors. When the secretary is unavailable,
any assistant secretary may sign with the chief executive officer, the
president, or a vice president, or any other officer thereunto authorized by the
board of directors, any contracts, deeds, mortgages, bonds or other instruments
according to the requirements of the form of the instrument, except when a
different mode of execution is expressly prescribed by the board of directors or
these by-laws. The assistant treasurers shall, respectively, if required by the
board of directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the board of directors shall determine.

     SECTION 13. SALARIES. The salaries of the officers shall be fixed from time
to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.

                                    ARTICLE V
                      CONTRACTS, LOANS, CHECKS AND DEPOSITS

     SECTION l. CONTRACTS. The board of directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation and such authority
may be general or confined to specific instances.

     SECTION 2. LOANS. No loans shall be contracted on behalf of the corporation
and no evidences of indebtedness shall be issued in its name, unless authorized
by a resolution of the board of directors. Such authority may be general or
confined to specific instances.

     SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued by the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
resolution of the board of directors.

     SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as the board of directors may
select.

                                   ARTICLE VI
                    CERTIFICATES OF STOCK AND THEIR TRANSFER

     SECTION 1. STOCK RECORD AND CERTIFICATES. Records shall be kept by or on
behalf of the corporation, which shall contain the names and addresses of
stockholders, the number of shares held by them respectively, and the number of
certificates, if any, representing the shares, and in which there shall be
recorded all transfers of shares. Every stockholder shall be entitled to a
certificate signed by the chairman of the board of directors, or the chief
executive officer or the president or a vice president, and by the treasurer or
an assistant treasurer, or the

                                       11

secretary or an assistant secretary of the corporation, certifying the class and
number of shares owned by him in the corporation, provided that any and all
signatures on a certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he or it were such officer, transfer agent or
registrar at the date of issue.

     SECTION 2. TRANSFER AGENTS AND REGISTRARS. The board of directors may, in
its discretion, appoint one or more responsible banks or trust companies as the
board may deem advisable, from time to time, to act as transfer agents and
registrars of shares of the corporation; and, when such appointments shall have
been made, no certificate for shares of the corporation shall be valid until
countersigned by one of such transfer agents and registered by one of such
registrars.

     SECTION 3. STOCKHOLDERS' ADDRESSES. Every stockholder or transferee shall
furnish the secretary or a transfer agent with the address to which notice of
meetings and all other notices may be served upon or mailed to such stockholder
or transferee, and in default thereof, such stockholder or transferee shall not
be entitled to service or mailing of any such notice.

     SECTION 4. LOST CERTIFICATES. In case any certificate for shares of the
corporation is lost, stolen or destroyed, the board of directors, in its
discretion, or any transfer agent duly authorized by the board, may authorize
the issue of a substitute certificate in place of the certificate so lost,
stolen or destroyed. The corporation may require the owner of the lost, stolen
or destroyed certificate or his legal representative to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertified shares.

     SECTION 5. DISTRIBUTIONS TO STOCKHOLDERS. To the extent permitted by Nevada
Law and subject to any restrictions contained in the Articles of Incorporation,
the directors may declare and pay dividends upon the shares of its capital stock
in the manner and upon the terms and conditions provided by Nevada Law and the
Articles of Incorporation.

     SECTION 6. RECORD DATES. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of shares or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date which shall be not more than sixty (60) nor less than ten (10) days before
the date of any meeting of stockholders, and not more than sixty (60) days prior
to any other action.

     A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.

                                       12

     In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. In such
case, those stockholders, and only those stockholders, who are stockholders of
record on the date fixed by the board of directors shall, notwithstanding any
subsequent transfer of shares on the books of the corporation, be entitled to
notice of and to vote at such meeting of stockholders, or any adjournment
thereof, or to express consent to such corporate action in writing without a
meeting, or entitled to receive payment of such dividend or other distribution
or allotment of rights, or entitled to exercise rights in respect of any such
change, conversion or exchange of shares or to participate in any such other
lawful action.

     SECTION 7. TRANSFERS OF SHARES. Shares of the corporation may be
transferred by delivery of the certificates therefor, accompanied either by an
assignment in writing on the back of the certificates, or by written power of
attorney to sell, assign and transfer the same, signed by the record holder
thereof; but no transfer shall affect the right of the corporation to pay any
distribution upon the shares to the holder of record thereof, or to treat the
holder of record as the holder in fact thereof for all purposes, and no transfer
shall be valid, except between the parties thereto, until such transfer shall
have been made upon the books of the corporation.

     SECTION 8. REPURCHASE OF SHARES ON OPEN MARKET. The corporation may
purchase its shares on the open market and invest its assets in its own shares,
provided that in each case the consent of the board of directors shall have been
obtained.

                                   ARTICLE VII
                          INDEMNIFICATION AND INSURANCE

     SECTION 1. DEFINITIONS. For the purposes of this Article VII the following
definitions shall apply:

     "Agent" means any person who: (i) is or was a director, officer, employee,
or other agent of this corporation; or (ii) is or was serving at the request of
this corporation as a director, officer, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise
("enterprise").

     "Proceeding" means any threatened, pending or completed action suit or
proceeding, whether civil, criminal, administrative, or investigative and
whether internal or external to the corporation.

     "Expenses" includes, without limitation, attorneys' fees and any expenses
of establishing a right to indemnification under this Article VII.

                                       13

     "Losses" mean the total amount which the agent becomes legally obligated to
pay in connection with any proceeding, including judgments, fines, amounts paid
in settlement and Expenses.

     SECTION 2. THIRD PARTY ACTIONS. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to, or otherwise
becomes involved in, any Proceeding (other than an action by or in the right of
the corporation) by reason of the fact that he is or was an Agent of the
corporation against Losses actually and reasonably incurred by him in connection
with such Proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal Proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any Proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in such a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
Proceeding, had reasonable cause to believe that his conduct was unlawful.

     SECTION 3. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to, or otherwise becomes involved in, any Proceeding by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that he
is or was an Agent of the corporation against Expenses, including amounts paid
in settlement, actually and reasonably incurred by him in connection with the
defense or settlement of such Proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged by a
court of competent jurisdiction after exhaustion of all appeals to be liable to
the corporation or for amounts paid in settlement to the corporation unless and
only to the extent that the court in which such Proceeding was brought shall
determine upon application that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such Expenses as
the court shall deem proper.

     SECTION 4. SUCCESSFUL DEFENSE. To the extent that an Agent of the
corporation has been successful on the merits or otherwise in defense of any
Proceeding referred to in Sections 2 and 3 of this Article VII, or in defense of
any claim, issue or matter therein, he must be indemnified against Expenses
actually and reasonably incurred by him in connection therewith.

     SECTION 5. DETERMINATION OF CONDUCT. Any indemnification under Sections 2
and 3 of this Article VII, (unless ordered by a court or advanced pursuant to
Section 6 of this Article VII) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
Agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 2 and 3 of this Article VII. Such determination
shall be made (a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such Proceeding, or (b) if such
a quorum is not obtainable or, even if obtainable, a quorum of disinterested
directors so directs, by independent

                                       14

legal counsel in a written opinion, or (c) if a majority vote of a quorum
consisting of directors who were not parties to the Proceeding so orders, by
independent legal counsel in a written opinion, or (d) by the stockholders.

     SECTION 6. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred by an Agent in
connection with a Proceeding shall be paid by the corporation as they are
incurred and in advance of the final disposition of such Proceeding upon receipt
of an undertaking by or on behalf of such Agent to repay such amount if it shall
ultimately be determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation as authorized in this Article VII.

     SECTION 7. INDEMNITY NOT EXCLUSIVE. The indemnification and advancement of
Expenses provided by, or granted pursuant to, the other provisions of this
Article VII shall not be deemed exclusive of any other rights to which a person
seeking indemnification or advancement of Expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.

     SECTION 8. INSURANCE INDEMNIFICATION. The corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was an
Agent of the corporation against any liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such, whether or
not the corporation would have the power to indemnify him against such liability
under the provisions of this Article VII.

     SECTION 9. HEIRS, EXECUTORS AND ADMINISTRATORS. The indemnification and
advancement of Expenses provided by, or granted pursuant to, this Article VII
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be an Agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.

     SECTION 10. FURTHER AMENDMENT. Notwithstanding any provision in this
Article VII to the contrary, in the event the Nevada Law is either amended to
provide, or interpreted by judicial or other binding legal decision to provide,
broader indemnification rights than those contained herein, such broader
indemnification rights shall be provided to any and all persons entitled to be
indemnified pursuant to the Nevada Law the intent of this provision being to
permit the corporation to indemnify, to the full extent permitted by Nevada Law,
persons whom it may indemnify thereunder.

                                  ARTICLE VIII
                                   AMENDMENTS

     The by-laws may be amended by a majority vote of the directors or by an
affirmative vote by the holders of 66-2/3% of the voting rights of all classes
of stock entitled to vote. The by-laws may contain any provisions for the
regulation and management of the affairs of the corporation not inconsistent
with Nevada Law or the Articles of Incorporation.

                                       15

EX-4.6

                                                                     EXHIBIT 4.6

                         SECURITIES PURCHASE AGREEMENT

      This Securities Purchase Agreement (this "Agreement") is made and entered
into as of April 5, 2002, among Hyseq, Inc., a Nevada corporation (the
"Company"), and the investors signatory hereto (each a "Purchaser" and
collectively the "Purchasers").

      WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to the Purchasers, and the Purchasers, severally and not jointly,
desire to purchase from the Company, certain securities of the Company, as more
fully described in this Agreement.

      NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

      1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated in this Article I:

            "Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 144.
With respect to a Purchaser, any investment fund or managed account that is
managed on a discretionary basis by the same investment manager as such
Purchaser will be deemed to be an Affiliate of such Purchaser.

            "Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.

            "Closing Date" means the date of the Closing.

            "Commission" means the Securities and Exchange Commission.

            "Common Stock" means the common stock of the Company, par value
$.001 per share, or such securities into which such stock shall hereafter be
classified.

            "Common Stock Equivalents" means any rights, warrants, options,
convertible securities, exchangeable securities or other securities or debt of
any kind that may be at any time convertible into, exchangeable for or otherwise
give the holder thereof the right to receive shares of Common Stock.

            "Company Counsel" means Latham & Watkins.

            "Effective Date" means the date that an Underlying Shares
Registration Statement is first declared effective by the Commission.




            "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

            "Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

            "Per Unit Purchase Price" means $4.20.

            "Purchaser Counsel" means Robinson Silverman Pearce Aronsohn &
Berman LLP, 1290 Avenue of the Americas, New York, New York 10104.

            "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and the
Purchasers, in the form of Exhibit B.

            "Required Effectiveness Date" means the date on which an Underlying
Shares Registration Statement is required to become effective pursuant to the
Registration Rights Agreement.

            "Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

            "Securities" means the Shares, Warrants and the Warrant Shares.

            "Securities Act" means the Securities Act of 1933, as amended.

            "Selling Securityholder Notice and Questionnaire" means the
questionnaire in the form of Exhibit E.

            "Shares" means the shares of Common Stock, which are being purchased
by and issued to the Purchasers at the Closing pursuant to this Agreement.

            "Strategic Transaction" means a transaction or relationship in which
the Company issues shares of Common Stock or Common Stock Equivalents to a
Person which is, itself or through its subsidiaries, an operating company in a
business synergistic with the business of the Company and in which the Company
receives material benefits in addition to the investment of or lending of funds,
but shall not include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to a Person whose primary
business is investing in securities.

            "Subsidiary" means any subsidiary of the Company that is required to
be listed in Schedule 3.1(a).

            "Trading Day" means (a) any day on which the Common Stock is traded
on its primary Trading Market, or (b) if the Common Stock is not then listed or
quoted on any national


                                       2


securities exchange, market or trading or quotation facility, then a day on
which trading occurs on The New York Stock Exchange (or any successor thereto).

            "Trading Market" means the Nasdaq National Market or any national
securities exchange, market or trading or quotation facility on which the Common
Stock is then listed or quoted.

            "Transaction Documents" means this Agreement, the Warrants, the
Registration Rights Agreement, the Transfer Agent Instructions and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.

            "Transfer Agent Instructions" means instructions to the Company's
transfer agent, in the form of Exhibit C.

            "Underlying Shares Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement and covering the resale of the Securities by the Purchasers or their
assignees.

            "Unit" means a Share and a Warrant to acquire Warrant Shares.

            "Warrant" means each Common Stock purchase warrant, in the form of
Exhibit A issued to a Purchaser at the Closing.

            "Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.

                                   ARTICLE II.
                                PURCHASE AND SALE

      2.1. Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing, the Company shall issue and sell to the Purchasers,
and the Purchasers shall, severally and not jointly, purchase from the Company,
the Shares and the Warrants for an aggregate purchase price set forth below each
of the Purchaser's name on the signature pages to this Agreement and at the Per
Unit Purchase Price. The Closing shall take place at the offices of Purchaser
Counsel immediately following satisfaction or waiver of the conditions set forth
in Article V of this Agreement or at such other location or time as the parties
may agree.

      2.2. Closing Deliveries.

            (a) At the Closing, the Company shall deliver or cause to be
delivered to each Purchaser the following:

                  (i) a stock certificate evidencing a number of Shares equal to
the quotient obtained by dividing (x) the purchase price indicated below such
Purchaser's name on the signature page to this Agreement by (y) the Per Unit
Purchase Price, registered in the name of such Purchaser;


                                       3


                  (ii) a Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire on the terms
set forth therein a number of Warrant Shares equal to one quarter the number of
Shares issuable to such Purchaser in accordance with Section 2.2(a)(i);

                  (iii) the legal opinion of Company Counsel, in the form of
Exhibit D, addressed to the Purchasers;

                  (iv) a Registration Rights Agreement duly executed by the
Company; and

                  (v) Transfer Agent Instructions duly executed by the Company
and delivered to and countersigned by the Company's transfer agent.

            (b) At the Closing, each Purchaser shall deliver or cause to be
delivered to the Company the following:

                  (i) the purchase price indicated below such Purchaser's name
on the signature page of this Agreement, in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing by the Company for such purpose;

                  (ii) a Registration Rights Agreement duly executed by such
Purchaser; and

                  (iii) a Selling Securityholder Notice and Questionnaire.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

      3.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Purchasers as of the
date hereof:

            (a) Subsidiaries. The Company has no subsidiaries other than those
listed in Schedule 3.1(a). Except as disclosed in Schedule 3.1(a), the Company
owns all of the capital stock of each Subsidiary free and clear of any lien,
charge, security interest, encumbrance, right of first refusal or other
restriction (collectively, "Liens"), and all the issued and outstanding shares
of capital stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights. If the Company has no
subsidiaries, then references in the Transaction Documents to the Subsidiaries
will be disregarded.

            (b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each


                                       4


jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not, individually or in
the aggregate, reasonably be expected to (i) adversely affect the legality,
validity or enforceability of any Transaction Document, (ii) have or result in a
material adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) adversely impair the Company's ability
to perform fully on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse Effect").

            (c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of the Company and no further corporate action is required by the
Company. Each of the Transaction Documents has been (or upon delivery will be)
duly executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.

            (d) No Conflicts. The execution and delivery of the Transaction
Documents by the Company, the consummation by the Company of the transactions
contemplated thereby and the performance of its obligations under the
Transaction Documents do not and will not (i) conflict with or violate any
provision of the Company's or any Subsidiary's certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii)
subject to obtaining the Required Approvals (as defined below), conflict with,
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not, individually or in the aggregate, reasonably be expected to have
or result in a Material Adverse Effect.

            (e) Filings, Consents and Approvals. Except for the consent required
pursuant to Section 4.6 of that certain Securities Purchase Agreement, dated as
of August 28, 2001, among the Company and the purchasers party thereto (the
"August Transaction Consent"), neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents (including the obtaining of any approval of stockholders pursuant to
NASD Rule 4350(i)(1)(D)), other than (i) the filings required under Section 4.7,
(ii) the filing with the Commission of the Underlying


                                       5


Shares Registration Statement, (iii) the application(s) to each Trading Market
for the listing of the Securities for trading thereon in the time and manner
required thereby and (iv) filings under any state blue sky laws (collectively,
the "Required Approvals"),

            (f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the Transaction Documents, will
be duly and validly issued, fully paid and nonassessable, free and clear of all
Liens. The Company has reserved from its duly authorized capital stock a
sufficient number of shares of Common Stock for issuance of the Shares and the
Warrants Shares.

            (g) Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock of the Company is set forth in Schedule
3.1(g). No securities of the Company are entitled to preemptive or similar
rights, and no Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities and except as disclosed in Schedule 3.1(g), there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
Except as disclosed in Schedule 3.1(g), the issue and sale of the Securities
will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.

            (h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law to file such material)
(the foregoing materials being collectively referred to herein as the "SEC
Reports" and, together with the Schedules to this Agreement, the "Disclosure
Materials") on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its consolidated subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited


                                       6


statements, to normal, immaterial, year-end audit adjustments. All material
agreements to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any Subsidiary are subject have been filed
as exhibits to the SEC Reports as required under the Exchange Act.

            (i) Material Changes. Except as disclosed in the SEC Reports, since
December 31, 2001, (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company's financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting or the identity of its
auditors, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock, and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans.

            (j) Litigation. Except as disclosed in the SEC Reports, since
December 31, 2001, there has been no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision,
individually or in the aggregate, have or result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer thereof, is
or has been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company. The SEC
has not issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.

            (k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.

            (l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, could reasonably be expected
to result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute, rule or
regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety,


                                       7


product quality and safety and employment and labor matters, except in each case
as could not, individually or in the aggregate, reasonably be expected to have
or result in a Material Adverse Effect.

            (m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, reasonably
be expected to have or result in a Material Adverse Effect ("Material Permits"),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.

            (n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and, to the Company's knowledge, enforceable leases of
which the Company and the Subsidiaries are in compliance.

            (o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and the failure of which
to so have could reasonably be expected to have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). Except as disclosed in the
SEC Reports, since December 31, 2001, neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
To the knowledge of the Company and except as disclosed in the SEC Reports, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.

            (p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are reasonable and customary in the businesses in which
the Company and the Subsidiaries are engaged. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.

            (q) Transactions With Affiliates and Employees. Except as set forth
in SEC Reports or on Schedule 3.1(q), none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the


                                       8


furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

            (r) Internal Accounting Controls. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

            (s) Solvency. Based on the financial condition of the Company as of
the Closing Date, (i) the Company's fair saleable value of its assets exceeds
the amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company's assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable on or
in respect of its debt).

            (t) Certain Fees. Except as specified in Schedule 3.1(t), no
brokerage or finder's fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Company agrees that the Purchasers shall
have no obligation with respect to any fees or with respect to any claims made
by or on behalf of any Person for fees of the type contemplated by this Section
with respect to the transactions contemplated by this Agreement.

            (u) Private Placement. Assuming the accuracy of the Purchasers
representations, warranties and agreements set forth in Section 3.2(b)-(g), no
registration under the Securities Act is required for the offer and sale of
Common Stock by the Company to the Purchasers as contemplated hereby. Neither
the Company nor any of its Affiliates nor any person acting on the Company's
behalf has, directly or indirectly, at any time within the past six months, made
any offer or sale of any security or solicitation of any offer to buy any
security under circumstances that would eliminate the availability of the
exemption from registration under Regulation D under the Securities Act in
connection with the offer and sale of the Securities as contemplated hereby.


                                       9


            (v) Form S-3 Eligibility. The Company is eligible to register the
resale of its Common Stock by the Purchasers under Form S-3 promulgated under
the Securities Act.

            (w) Listing and Maintenance Requirements. The Company has not, in
the two years preceding the date hereof, received notice (written or oral) from
any Trading Market on which the Common Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.

            (x) Registration Rights. Except as described in Schedule 3.1(x), the
Company has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority that have not
been satisfied.

            (y) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation
(collectively,"Anti-Takeover Provisions") that is or could reasonably be
expected to become applicable to the Purchasers as a result of the Purchasers
and the Company fulfilling their obligations or exercising their rights under
the Transaction Documents, including without limitation the Company's issuance
of the Securities and the Purchasers' ownership of the Securities.

            (z) Disclosure. The Company confirms that neither it, nor to its
knowledge, any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that constitutes or
might constitute material non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct in all material respects and do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.

      3.2 Representations and Warranties of the Purchasers. Each Purchaser, as
of the date hereof, hereby, for itself and for no other Purchaser, represents
and warrants to the Company as follows:

            (a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of this Agreement


                                       10


and the Registration Rights Agreement has been duly executed by such Purchaser,
and when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms.

            (b) Investment Intent. Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Purchaser's right, subject to the provisions of this
Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act or under an exemption from such
registration and in compliance with applicable federal and state securities
laws. Nothing contained herein shall be deemed a representation or warranty by
such Purchaser to hold Securities for any period of time. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business. Such
Purchaser does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.

            (c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, at the date hereof it is, and at the time it exercises any
Warrant issued to it it will be an "accredited investor" as defined in Rule
501(a) under the Securities Act. Such Purchaser is not registered as a
broker-dealer.

            (d) Experience of such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.

            (e) Access to Information. Such Purchaser acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations and
warranties contained in the Transaction Documents.

            (f) General Solicitation. To the best of its knowledge, such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.


                                       11


            (g) Reliance. Such Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.

            (h) No Advice. Such Purchaser understands that nothing in this
Agreement or any other materials presented by the Company to such Purchaser in
connection with the purchase and sale of the Securities constitutes legal, tax
or investment advice. Such Purchaser has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of Securities.

            (i) Selling Securityholder Questionnaire. Such Purchaser has
supplied all requested information in the signature pages hereto and the Selling
Securityholder Notice and Questionnaire and such information is true and correct
as of the date hereof and will be true and correct as of the Effective Date.

      The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.

                                   ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

      4.1. Transfer Restrictions.

            (a) Securities may only be disposed of pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from or in a transaction not subject to the registration
requirements of the Securities Act, and in compliance with any applicable state
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or to the Company, except as
otherwise set forth herein, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. Notwithstanding the foregoing,
the Company hereby consents to and agrees to register on the books of the
Company and with any transfer agent for the securities of the Company, without
any such legal opinion, any transfer of Securities by a Purchaser to an
Affiliate of such Purchaser that is exempt from the registration requirements
under the Securities Act, provided that the transferee certifies to the Company
that it is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and that it is acquiring the Securities solely for investment
purposes (subject to the qualifications hereof). Such certification may also
include any additional information as may be required under the Securities Act
and as may be reasonably requested by the Company, to enable the Company to
determine that such transfer is exempt from the registration requirements of the
Securities Act. As a condition of transfer, any such transferee shall agree in
writing to be bound


                                       12


by the terms of this Agreement and shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement.

            (b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b) and Section 4.1(c), of the following legend on the
Securities:

      THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
      COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
      EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
      EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
      SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
      TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
      THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
      SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
      OTHER LOAN SECURED BY SUCH SECURITIES.

            The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement or grant a security
interest in some or all of the Securities and, if required under the terms of
such arrangement, such Purchaser may transfer pledged or secured Securities to
the pledgees or secured parties. Such a pledge would not be subject to approval
of the Company and no legal opinion of the pledgee, secured party or pledgor
shall be required in connection therewith; provided, however, that upon the
transfer of such pledged or secured shares, the Company may require an opinion
of counsel selected by the pledgor that the transfer of the pledged or secured
shares to the pledgee or secured party does not require the registration of such
shares under the Securities Act. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities, including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.

            (c) None of the Securities shall contain the legend set forth above
or any other legend (i) while a registration statement (including any Underlying
Shares Registration Statement ) is effective under the Securities Act to cover
the resale of such security, or (ii) if Rule 144(k) may be utilized by the
seller of such security or (iii) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission) The Company shall cause
its counsel to issue the legal opinion included in the Transfer Agent
Instructions to the Company's transfer agent on the Effective Date. If all or
any portion of a Warrant is exercised at a time when there is an effective
registration statement covering the resale of Warrant Shares, such Warrant
Shares shall be issued without legends. The Company agrees that following the
Effective Date (and pursuant to the last sentence of this paragraph) or at such
time as such legend is no longer


                                       13


required under this Section 4.1(b), it will, no later than three Trading Days
following the delivery by a Purchaser to the Company or the Company's transfer
agent of a certificate representing Shares or Warrant Shares issued with a
restrictive legend, deliver or cause to be delivered to such Purchaser a
certificate representing such Securities that is free from all restrictive and
other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. Notwithstanding anything in this
Agreement to the contrary, the Company shall have no obligation to register any
transfer of the Securities on its books or with any transfer agent, and no such
transfer may be made, unless such transfer is in compliance with this Section
4.1 and the transferor has delivered to the Company a certificate containing
information reasonably requested by the Company to that effect.

            (d) If the Company fails to deliver or cause to be delivered to any
Purchaser a certificate representing any Securities by the third Trading Day
after the date on which delivery of such certificate is required by Section
4.1(b), the Company shall pay to such Purchaser, in cash, as liquidated damages
and not as a penalty (i) with respect to a sale of Securities by the Purchaser,
$5,000 for each day after such third Trading Day until such certificate is
delivered in accordance with Section 4.1(b) and (ii) other than with respect to
a sale of Securities by the Purchaser, $1,000 for each of the first 10 days
after such third Trading Day and $5,000 for each day thereafter until such
certificate is delivered in accordance with Section 4.1(b). Nothing herein shall
limit such Purchaser's right to pursue actual damages for the Company's failure
to deliver certificates representing any Securities as required by the
Transaction Documents, and such Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.

      4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities will result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligation to issue the Securities
pursuant to the Transaction Documents is unconditional and absolute, regardless
of the effect of any such dilution.

      4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act and to deliver,
upon reasonable request from a Purchaser, a written certification of a duly
authorized officer as to whether it has complied with its filing obligations
under the Exchange Act. As long as any Purchaser owns Securities, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

      4.4 Integration. The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would (i) eliminate


                                       14


the availability of the exemption from registration under Regulation D under the
Securities Act in connection with the offer and sale of the Securities as
contemplated hereby or (ii) cause the offering of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of any applicable shareholder approval provisions including, without limitation,
under the rules and regulations of any Trading Market.

      4.5 Reservation and Listing of Securities. The Company shall maintain a
reserve from its duly authorized shares of Common Stock for issuance pursuant to
the Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents. The Company shall (i) in
the time and manner required by each Trading Market, prepare and file with such
Trading Market an additional shares listing application covering the Shares and
the Warrant Shares, (ii) take all steps necessary to cause such shares to be
approved for listing on each Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) maintain the
listing of such shares on each such Trading Market or another eligible
securities market.

      4.6 Subsequent Placements.

            (a) Without the prior written consent of the Purchasers, prior to
the Effective Date, the Company will not offer or sell any of its Common Stock
or Common Stock Equivalents to any Person (other than the issuance of Common
Stock upon the exercise of options or warrants outstanding on the date hereof
and listed on Schedule 3.1(g)).

            (b) From the date hereof until the third month after the Effective
Date, the Company will not, directly or indirectly, offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or any option to purchase or other disposition of) any of its equity or equity
equivalent securities, including without limitation any debt, preferred stock or
other instrument or security of it or its Subsidiaries' that is, at any time
during its life and under any circumstances, pursuant to its terms, convertible
into or exchangeable for Common Stock (any such offer, sale, grant, disposition
or announcement being referred to as a "Subsequent Placement"), unless (i) the
Company delivers to each of the Purchasers a written notice (the "Subsequent
Placement Notice") of its intention to effect such Subsequent Placement, which
Subsequent Placement Notice shall describe in reasonable detail the proposed
terms of such Subsequent Placement, the amount of proceeds intended to be raised
thereunder, the Person with whom such Subsequent Placement is proposed to be
effected, and attached to which shall be a term sheet or similar document
relating thereto and (ii) such Purchaser shall not have notified the Company by
6:30 p.m. (New York City time) on the fifth Trading Day after its receipt of the
Subsequent Placement Notice of its willingness to provide (or to cause its
designee to provide), subject to completion of mutually acceptable
documentation, financing to the Company on the same terms set forth in the
Subsequent Placement Notice. If any Purchaser shall fail to so notify the
Company of its willingness to participate in the Subsequent Placement, the
Company may effect such Subsequent Placement on the terms and to the Persons set
forth in the Subsequent Placement Notice and to those Purchasers that have
elected to participate in the Subsequent Placement; provided that the Company
must provide the Purchasers with a second Subsequent Placement Notice, and the
Purchasers will again have the right of first refusal set forth above in this
paragraph (b), if the Subsequent Placement subject to the initial Subsequent
Placement Notice is not consummated for any reason on the terms set forth in
such Subsequent Placement


                                       15


Notice within 30 days after the date of the initial Subsequent Placement Notice.
If all Purchasers indicate a willingness to provide financing in excess of the
amount set forth in the Subsequent Placement Notice, then each Purchaser will be
entitled to provide financing pursuant to such Subsequent Placement Notice up to
an amount equal to such Purchaser's pro rata portion of the aggregate purchase
price paid for the Securities under this Agreement, but the Company shall not be
required to accept financing from the Purchasers in an amount in excess of the
amount set forth in the Subsequent Placement Notice.

            (c) Prior to the expiration of the 30th Trading Day following the
Effective Date, the Company shall not, directly or indirectly, file a
registration statement (other than on Form S-8 or pursuant to the Registration
Rights Agreement) with the Commission with respect to any securities of the
Company. The 30 Trading Day period set forth in this Section 4.6(c) and the
three month period set forth in Section 4.6(b) shall be extended for (i) the
number of Trading Days during such periods in which trading in the Common Stock
is suspended by any Trading Market and (ii) the number of Trading Days after the
Effective Date during which (A) the Underlying Shares Registration Statement is
not effective or (B) the prospectus included in the Underlying Shares
Registration Statement may not be used by the holders thereof for the resale of
Registrable Securities thereunder.

            (d) The restrictions contained in paragraphs (a)-(b) of this Section
4.6 shall not apply to issuances of Common Stock and Common Stock Equivalents:
(i) to the Company's employees, officers or directors and the issuance of shares
of Common Stock to such employees, officers or directors upon exercise of
options granted, pursuant to an employee benefit plan or stock option plan
whether now existing or approved by the Company and its stockholders in the
future, (ii) to consultants as compensation for services rendered to the Company
not to exceed an aggregate value of $500,000, (iii) pursuant to one or more
Strategic Transactions, (iv) to Dr. George Rathmann for additional financing
provided to the Company by Dr George Rathmann, (v) under a bona fide
underwritten public offering (which shall not include equity lines of credit or
similar financing structures) which results in net proceeds in excess of US $40
million at a per share price (excluding underwriters commissions and discounts)
that is not at a discount to the then-prevailing market price of the Common
Stock and (vi) pursuant to the Rights Agreement, dated as of June 5, 1998, by
and between the Company and U.S. Stock Transfer Corporation, as the Rights
Agent.

      4.7 Securities Laws Disclosure; Publicity. The Company shall (i) on the
Closing Date, issue a press release acceptable to the Purchasers disclosing the
transactions contemplated hereby and (ii) make such other filings and notices in
the manner and time required by the Commission. Subject to the limitations
contained in Section 4.12, the Company shall, at least two Trading Days prior to
the filing or dissemination of any disclosure required by this paragraph,
provide a copy thereof to the Purchasers for their review. The Company and the
Purchasers shall consult with each other in issuing any press releases or
otherwise making public statements or filings and other communications with the
Commission or any regulatory agency or Trading Market with respect to the
transactions contemplated hereby, and neither party shall issue any such press
release or otherwise make any such public statement, filing or other
communication without the prior consent of the other, except if such disclosure
is required by law or Trading Market rules or regulations, in which case, in the
case of public statements made within 8 months after the Closing Date and press
releases, the disclosing party shall promptly


                                       16


provide the other party with prior notice thereof. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except to the extent such disclosure (but not any disclosure as to
the controlling Persons thereof) is required by law or Trading Market rules or
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure.

      4.8 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables and accrued expenses in the ordinary course of the Company's business
and prior practices), to redeem any Company equity or equity-equivalent
securities or to settle any outstanding litigation.

      4.9 Indemnification of Purchaser. The Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a "Purchaser Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation (collectively, "Losses") that any
such Purchaser Party may suffer or incur as a result of or relating to any
misrepresentation, breach or inaccuracy, or any allegation by a third party
that, if true, would constitute a breach or inaccuracy, of any of the
representations, warranties or covenants made by the Company in this Agreement
or any other Transaction Documents. The Company will reimburse such Purchaser
for its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred.

      4.10 Reimbursement. Subject to the provisions of Section 5(a)(1)and (2)
and 5(b)(1)and (2) of the Registration Rights Agreement and other than with
respect to gross negligence or wilful misconduct by a Purchaser, if any
Purchaser becomes involved in any capacity in any action, proceeding or
investigation by or against any Person who has a relationship with the Company
(including as a stockholder), solely as a result of such Purchaser's acquisition
of the Securities under this Agreement, the Company will reimburse such
Purchaser for its reasonable legal and other expenses (including the cost of any
investigation preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of the Purchasers who are actually named in
such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the
Purchasers and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Purchasers and any such Affiliate and any such Person. The Company
also agrees that neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any Person asserting claims on behalf of or in right of the
Company solely as a result of acquiring the Securities under this Agreement.


                                       17


      4.11 Shareholders Rights Plan. No claim will be made or enforced by the
Company that any Purchaser is an "Acquiring Person" ( or similar triggering
person) under any shareholders rights plan or other Anti-Takeover Provision in
effect or hereafter adopted by the Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Securities under the Transaction Documents or under any other
agreement between the Company and the Purchasers. The Company will take such
affirmative steps as may be required to render inapplicable to the Purchasers
all Anti-Takeover Provisions that may otherwise apply to the Purchasers as a
result of their acquisition of Securities hereunder.

      4.12 Material Non-Public Information. The Company covenants and agrees
that neither it nor any other Person acting on its behalf shall provide any of
the Purchasers or its agents or counsel with any information that constitutes
material non-public information, unless such Purchaser shall have prior thereto
agreed to execute a written agreement regarding the confidentiality and use of
such information.

                                   ARTICLE V.
                                   CONDITIONS

      5.1 Conditions Precedent to the Obligations of the Purchasers. The
obligation of each Purchaser to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser, at or before the Closing, of each
of the following conditions:

            (a) Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
on and as of such date (except for representations and warranties that speak of
a specific date, which need only be true and correct as of such date).

            (b) Performance. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing.

            (c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.

            (d) Adverse Changes. Since the date of execution of this Agreement,
no event or series of events shall have occurred that reasonably would be
expected to have or result in a Material Adverse Effect.

            (e) Delivery of Items. The Company shall have delivered to Purchaser
Counsel all items that it is required to deliver at the Closing under Section
2.2 (a).

            (f) Consents. The Company shall have received the August Transaction
Consent.


                                       18


            (g) Compliance Certificate. The Company shall have delivered to or
as directed by the Purchasers, an Officer's Certificate, signed by its Chief
Executive Officer, dated as of the Closing Date, certifying that the Company has
satisfied the conditions set forth in Section 5.1(a)-(f).

      5.2 Conditions Precedent to the Obligations of the Company. The obligation
of the Company to sell Securities at the Closing is subject to the satisfaction
or waiver by the Company, at or before the Closing, of each of the following
conditions:

            (a) Representations and Warranties. The representations and
warranties of the Purchasers contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date.

            (b) Performance. The Purchasers shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing.

            (c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.

            (d) Consents. The Company shall have received the August Transaction
Consent.

                                   ARTICLE VI.
                                  MISCELLANEOUS

      6.1 Fees and Expenses. At the Closing, the Company shall reimburse Pine
Ridge Financial, Inc. for legal fees and expenses incurred by it in connection
with the preparation and negotiation of the Transaction Documents by paying to
it (or, at its election, by delivering directly to Purchaser Counsel) $35,000.
In lieu of the payments required by the immediately preceding sentence, Pine
Ridge Financial, Inc. may retain the amount of such payments instead of
delivering such amounts to the Company at the Closing. Except as expressly set
forth in the Transaction Documents to the contrary, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of the Securities.

      6.2 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.


                                       19


      6.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:

      If to the Company:      Hyseq, Inc.
                              670 Almanor Avenue
                              Sunnyvale, CA 94085
                              Phone No. : (408) 524-8100
                              Facsimile No.: (408) 524-8141
                              Attn: President

      With a copy to:         Latham & Watkins
                              135 Commonwealth Drive
                              Menlo Park, CA 94025
                              Facsimile No.: (650) 463-2600
                              Attn: Alan C. Mendelson

      If to a Purchaser:      To the address set forth under such Purchaser's
                              name on the signature pages hereof;

      With a copy to :        Robinson Silverman Pearce Aronsohn & Berman LLP
                              1290 Avenue of the Americas
                              New York, NY 10104
                              Attn: Eric L. Cohen, Esq.
                              Facsimile No.: 212-541-1432 and 212-541-4630

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

      6.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and the Purchasers who purchased a majority in interest of the Units
or, in the case of a waiver, by the party against whom enforcement of any such
waiver is sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.

      6.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.


                                       20


      6.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 4.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company.

      6.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person except as otherwise set forth in Section 4.9 hereof.

      6.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the "New York
Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of this
Agreement), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto (including
its affiliates, agents, officers, directors and employees) hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Agreement,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.

      6.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and exercise of the
Securities, as applicable.

      6.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding


                                       21


obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

      6.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

      6.12 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

      6.13 Replacement of Stock Certificate. If any stock certificate
representing a number of shares of Common Stock issued to a Purchaser pursuant
to this Agreement is mutilated, lost, stolen or destroyed, the Company shall
issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for such stock certificate,
a New Stock Certificate, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Stock Certificate under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.

      6.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                            SIGNATURE PAGES FOLLOWS]


                                       22


      IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

                                             HYSEQ, INC.

                                             By:
                                                --------------------------------
                                             Name:  Peter S. Garcia
                                             Title: Senior Vice President and
                                                    Chief Financial Officer


                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGE FOR PURCHASERS FOLLOW]


                                       23


            IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

                                             [PURCHASER]

                                             By:
                                                --------------------------------
                                             Name:
                                             Title:

                             Aggregate Purchase Price:

                             Number of Shares to be acquired:

                             Warrant Shares acquirable under Warrant:

                             Tax ID No:

                             Address for Notice:

                             With a copy to:

                             Robinson Silverman Pearce Aronsohn & Berman LLP
                             1290 Avenue of the Americas
                             New York, NY 10104
                             Facsimile No.: (212) 541-4630 and (212) 541-1432
                             Attn: Eric L. Cohen, Esq.


                                       24

EX-4.7

                                                                     EXHIBIT 4.7

                         REGISTRATION RIGHTS AGREEMENT

            This Registration Rights Agreement (this "Agreement") is made and
entered into as of April 5, 2002, by and among Hyseq, Inc., a Nevada corporation
(the "Company"), and the investors signatory hereto (each a "Purchaser" and
collectively, the "Purchasers").

            This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").

            The Company and the Purchasers hereby agree as follows:

            1. Definitions. Capitalized terms used and not otherwise defined
herein that are defined in the Purchase Agreement shall have the meanings given
such terms in the Purchase Agreement. As used in this Agreement, the following
terms shall have the following meanings:

            "Effectiveness Date" means, with respect to the initial Registration
Statement required to be filed hereunder, the earlier of (a) (i) the 90th day
following the Closing Date or (ii) the 45th day following the date that the
Company receives its first response (written or oral) from the Commission as to
the Company's first request for confidential treatment with respect to any
exhibits filed pursuant to confidential treatment requests prior to the date the
Registration Statement is filed with the Commission (regardless of whether such
response of the Commission is a request for additional information), whichever
is later and (b) the fifth Trading Day following the date on which the Company
is notified by the Commission that such Registration Statement will not be
reviewed or is no longer subject to further review and comments, and, with
respect to any additional Registration Statements that may be required pursuant
to Section 2(c), the earlier of (a) (i) the 90th day following the date on which
the Company first knows, or reasonably should have known, that such additional
Registration Statement is required under such Section or (ii) the 45th day
following the date that the Company receives its first response (written or
oral) from the Commission as to the Company's first request for confidential
treatment with respect to any exhibits filed pursuant to confidential treatment
requests prior to the date such additional Registration Statements is filed with
the Commission (regardless of whether such response of the Commission is a
request for additional information), whichever is later and (b) the fifth
Trading Day following the date on which the Company is notified by the
Commission that such Registration Statement will not be reviewed or is no longer
subject to further review and comments.

            "Effectiveness Period" shall have the meaning set forth in Section
2(a).

            "Filing Date" means, with respect to the initial Registration
Statement required to be filed hereunder, the 30th day following the Closing
Date, and, with respect to any additional Registration Statements that may be
required pursuant to Section 2(c), the 30th day following the date on which the
Company first knows, or reasonably should have known that such additional
Registration Statement is required under such Section.

            "Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.




            "Indemnified Party" shall have the meaning set forth in Section
5(c).

            "Indemnifying Party" shall have the meaning set forth in Section
5(c).

            "Losses" shall have the meaning set forth in Section 5(a).

            "Materially Detrimental" means, in the good faith judgment of the
Board of Directors of the Company as set forth in a certificate signed by the
President, Chief Financial Officer or General Counsel of the Company, the filing
in question would be materially detrimental to the Company by reason of (i) any
proceeding before, or material event involving, the Food and Drug
Administration, or (ii) any proposal or plan of the Company or any of its
Subsidiaries to engage in any sale, acquisition, merger, consolidation,
reorganization, tender offer or similar transaction.

            "Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.

            "Prospectus" means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by a Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

            "Registrable Securities" means (i) the Shares and (ii) the Warrant
Shares, together with any securities issued or issuable upon any stock split,
dividend or other distribution, recapitalization or similar event with respect
to the foregoing.

            "Registration Statement" means the initial registration statement
required to be filed hereunder and any additional registration statements
contemplated by Section 2(c), including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.

            "Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

            "Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.


                                      -2-


            "Rule 424" means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

            "Shares" means the shares of Common Stock issued to the Purchasers
pursuant to the Purchase Agreement.

            "Special Counsel" means Purchaser Counsel who will be reimbursed by
the Company pursuant to Section 4.

            "Warrants" means the Warrants issued under the Purchase Agreement.

            "Warrant Shares" means shares of Common Stock issuable upon exercise
in full of the Warrants.

            2. Registration.

                  (a) On or prior to each Filing Date, the Company shall prepare
and file with the Commission a Registration Statement covering the resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. Each Registration Statement shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith) and shall contain (except if otherwise directed by
the Holders) the "Plan of Distribution" attached hereto as Annex A. The Company
shall cause such Registration Statement to become effective and remain effective
as provided herein. The Company shall use its best efforts to cause each
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to its
Effectiveness Date, and shall use its best efforts to keep each Registration
Statement continuously effective under the Securities Act until the date which
is two years after the date that such Registration Statement is declared
effective by the Commission or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent and the affected Holders (the
"Effectiveness Period").

                  (b) If: (a) a Registration Statement is not filed on or prior
to its Filing Date (if the Company files such Registration Statement without
affording the Holder the opportunity to review and comment on the same as
required by Section 3(a), the Company shall not be deemed to have satisfied
clause (a)), or (b) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 461 promulgated under the Securities Act,
within five Trading Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that a Registration Statement
will not be "reviewed," or not subject to further review, or (c) the Company
fails to respond to any comments made by the Commission within ten Trading Days
after the receipt of such comments, or (d) a Registration Statement filed
hereunder is not declared effective by the Commission by its Effectiveness Date,
or (e) after a Registration Statement is filed with and declared effective by
the Commission, a


                                      -3-


Registration Statement ceases to be effective as to all Registrable Securities
to which it is required to relate at any time prior to the expiration of the
Effectiveness Period without being succeeded within ten Trading Days or, if it
would be Materially Detrimental, twenty Trading Days, by an amendment to such
Registration Statement or by a subsequent registration statement which
Registration Statement shall be included within the definition of "Registration
Statement" filed with and declared effective by the Commission, (f) an amendment
to a Registration Statement is not filed by the Company with the Commission
within ten Trading Days or, if it would be Materially Detrimental, twenty
Trading Days, of the Commission's notifying the Company that such amendment is
required in order for a Registration Statement to be declared effective, (any
such failure or breach being referred to as an "Event," and for purposes of
clause (a) or (d) the date on which such Event occurs, or for purposes of clause
(b) the date on which such five Trading Day period is exceeded, or for purposes
of clauses (c), (e) or (f) the date which such ten Trading Day-period or twenty
Trading Day period, as the case may be, is exceeded, being referred to as "Event
Date"), then: (x) on each such Event Date the Company shall pay to each Holder
an amount in cash, as liquidated damages and not as a penalty, equal to 1% of
the aggregate purchase price paid by such Holder pursuant to the Purchase
Agreement; and (y) (if the applicable Event has not been cured by the first
month anniversary following the Event Date, then on such anniversary date) the
Company shall pay to each Holder an amount in cash, as liquidated damages and
not as a penalty, equal to 1% of the aggregate purchase price paid by such
Holder pursuant to the Purchase Agreement and on each monthly anniversary
thereafter until the applicable Event is cured, the Company shall pay to each
Holder an amount in cash, as liquidated damages and not as a penalty, equal to
2% of the aggregate purchase price paid by such Holder pursuant to the Purchase
Agreement provided, however, that all periods shall be tolled during delays
directly caused by the action or inaction of any Holder, and the Company shall
have no liability in respect of any such delay. If the Company fails to pay any
liquidated damages pursuant to this Section in full within seven days after the
date payable, the Company will pay interest thereon at a rate of 18% per annum
(or such lesser maximum amount that is permitted to be paid by applicable law)
to the Holder, accruing daily from the date such liquidated damages are due
until such amounts, plus all such interest thereon, are paid in full.

                  (c) File additional Registration Statements if the number of
Registrable Securities at any time exceeds 85% of the number of shares of Common
Stock then registered in a Registration Statement.

            3. Registration Procedures

            In connection with the Company's registration obligations hereunder,
the Company shall:

                  (a) Not less than (1) five Trading Days prior to the filing of
a Registration Statement or any related Prospectus, (2) three Trading Days prior
to the filing of any pre-effective or post-effective amendment to a Registration
Statement or (3) one Trading Day prior to the filing of any supplement to a
Registration Statement (other than a prospectus supplement the principal purpose
of which is to update the list of selling stockholders), the Company shall, (i)
furnish to the Holders and their Special Counsel copies of all such documents
proposed to be filed (including documents incorporated or deemed incorporated by
reference and


                                      -4-


not available on the EDGAR system) which documents will be subject to the review
of such Holders and their Special Counsel, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file a Registration Statement or any such
Prospectus or any amendments or supplements thereto to which the Holders of a
majority of the Registrable Securities and their Special Counsel shall
reasonably object.

                  (b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep a
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within ten Trading
Days, to any comments received from the Commission with respect to a
Registration Statement or any amendment thereto and, as promptly as reasonably
possible provide the Holders true and complete copies of all correspondence from
and to the Commission relating to such Registration Statement; and (iv) comply
in all material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by a Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Holders thereof set forth in
such Registration Statement as so amended or in such Prospectus as so
supplemented.

                  (c) Notify the Holders of Registrable Securities to be sold
and their Special Counsel as promptly as reasonably possible (and, in the case
of (i)(A) below, not less than three Trading Days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
Trading Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to a Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders); and (C) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the
Commission or any other Federal or state governmental authority for amendments
or supplements to a Registration Statement or Prospectus or for additional
information; (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement covering any or all of
the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (v) of the occurrence of any
event or passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement made in
such Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any post-effective amendment to such Registration Statement, or
Prospectus so that, in the case of a


                                      -5-


Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

                  (d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

                  (e) Furnish to each Holder and their Special Counsel, without
charge, (i) at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, and (ii) all
documents incorporated or deemed to be incorporated therein by reference, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission; provided, that the Company shall have no
obligation to provide any document pursuant to this clause (ii) that is
available on the EDGAR system.

                  (f) Subject to the terms of Section 6(d), the Company shall
promptly deliver to each Holder and their Special Counsel, without charge, as
many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.

                  (g) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or subject the
Company to any material tax in any such jurisdiction where it is not then so
subject.

                  (h) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may request.

                  (i) Upon the occurrence of any event contemplated by Section
3(c)(v), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to a Registration Statement or a
supplement to the related Prospectus


                                      -6-


or any document incorporated or deemed to be incorporated therein by reference,
and file any other required document so that, as thereafter delivered, neither
such Registration Statement nor such Prospectus will contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

                  (j) Comply with all applicable rules and regulations of the
Commission.

                  (k) The Company may require each selling Holder to furnish to
the Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if requested by the Commission, the
controlling person thereof.

            4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Trading Market on which the Common Stock is then
listed for trading, and (B) in compliance with applicable state securities or
Blue Sky laws), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in a Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and $10,000 of the fees and disbursements of Special
Counsel for the Holders, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.

            5. Indemnification

                  (a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents and employees of each of them, each
Person who controls any such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors,
agents and employees of each such controlling Person, to the fullest extent
permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable costs of
preparation and reasonable attorneys' fees) and expenses (collectively,
"Losses"), as incurred, arising out of or relating to any untrue or alleged
untrue statement of a material fact contained in a Registration Statement, any
Prospectus or in any amendment or supplement thereto arising out of or relating
to any omission or alleged omission of a material fact required to be stated
therein or necessary to make


                                      -7-


the statements therein (in the case of any Prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading, except to
the extent, but only to the extent, that (1) such untrue statements or omissions
are based solely upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in a Registration Statement, such
Prospectus or in any amendment or supplement thereto (it being understood that
the Holder has approved Annex A hereto for this purpose) or (2) in the case of
an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use
by such Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated in Section 6(d).
The Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.

                  (b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon: (x) such Holder's failure
to comply with the prospectus delivery requirements of the Securities Act or (y)
any untrue statement of a material fact contained in any Registration Statement,
any Prospectus, or in any amendment or supplement thereto, or arising solely out
of or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished in writing by such Holder to the
Company specifically for inclusion in such Registration Statement or such
Prospectus or to the extent that (1) such untrue statements or omissions are
based solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in a Registration Statement (it
being understood that the Holder has approved Annex A hereto for this purpose),
such Prospectus or in any amendment or supplement thereto or (2) in the case of
an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use
by such Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated in Section 6(d).
In no event shall the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the net proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation.

                  (c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party


                                      -8-


and the payment of all fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that such failure
shall have proximately and materially adversely prejudiced the Indemnifying
Party.

            An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised in writing by counsel that a conflict of interest is
likely to exist if the same counsel were to represent such Indemnified Party and
the Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party); provided, that the Indemnifying Party shall not be
liable for the fees and expenses of more than one separate firm of attorneys at
any time for all indemnified parties. The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.

            All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten Trading
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnified Party shall reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).

                  (d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied


                                      -9-


by, such Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

            The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.

            The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

            6. Miscellaneous

                  (a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.

                  (b) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in a Registration Statement other than the Registrable
Securities, and the Company shall not after the date hereof enter into any
agreement providing any such right to any of its security holders. Except as and
to the extent specified in Schedule 6(b) hereto, the Company has not previously
entered into any agreement granting any registration rights with respect to any
of its securities to any Person which have not been fully satisfied.

                  (c) Compliance. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
a Registration Statement.


                                      -10-


                  (d) Discontinued Disposition. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a notice from
the Company of the occurrence of any event of the kind described in Section
3(c), such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement or
until it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and, in either case, has received copies
of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.

                  (e) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights.

                  (f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of certain Holders
and that does not directly or indirectly affect the rights of other Holders may
be given by Holders of at least a majority of the Registrable Securities to
which such waiver or consent relates; provided, however, that the provisions of
this sentence may not be amended, modified, or supplemented except in accordance
with the provisions of the immediately preceding sentence.

                  (g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Agreement later than 6:30 p.m. (New York City time) on any
date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as follows:


                                      -11-


        If to the Company:          Hyseq, Inc.
                                    670 Almanor Avenue
                                    Sunnyvale, CA 94085
                                    Facsimile No.: (408) 524-8141
                                    Attn: President

        With a copy to:             Latham & Watkins
                                    135 Commonwealth Drive
                                    Menlo Park, CA 94025
                                    Facsimile No.: (650) 463-2600
                                    Attn: Alan C. Mendelson

        If to a Purchaser:   To the address set forth under such
                             Purchaser's name on the signature pages hereto.

        With a copy to:      Robinson Silverman Pearce Aronsohn & Berman LLP
                             1290 Avenue of the Americas
                             New York, NY  10104
                             Facsimile No.: (212) 541-4630 and (212) 541-1432
                             Attn: Eric L. Cohen, Esq.

        If to any other Person who is then the registered Holder:

                             To the address of such Holder as it appears in the
                             stock transfer books of the Company

            or such other address as may be designated in writing hereafter, in
the same manner, by such Person.

                  (h) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.

                  (i) Execution and Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and, all of which taken together shall constitute one and the
same Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.

                  (j) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement


                                      -12-


(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York, Borough of
Manhattan. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
Borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of this Agreement), and
hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such Proceeding venue is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence a Proceeding to
enforce any provisions of this Agreement, then the prevailing party in such
Proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.

                  (k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.

                  (l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.

                  (m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

                  (n) Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without


                                      -13-


limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                           SIGNATURE PAGES TO FOLLOW]


                                      -14-


            IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.

                                        HYSEQ, INC.

                                        By:
                                           -------------------------------------
                                        Name:
                                        Title:



                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES OF PURCHASER TO FOLLOW]




            IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.

                                        [PURCHASER]


                                        By:
                                           -------------------------------------
                                        Name:
                                        Title:


                                        Address for Notice:
                                        [ ]


                                        With a copy to:


                                        Robinson Silverman Pearce Aronsohn &
                                        Berman LLP
                                        1290 Avenue of the Americas
                                        New York, NY 10104
                                        Facsimile No.: (212) 541-4630 and
                                                       (212) 541-1432
                                        Attn: Eric L. Cohen, Esq.




                                                                         Annex A

                              Plan of Distribution

      The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:

      -     ordinary brokerage transactions and transactions in which the
            broker-dealer solicits purchasers;

      -     block trades in which the broker-dealer will attempt to sell the
            shares as agent but may position and resell a portion of the block
            as principal to facilitate the transaction;

      -     purchases by a broker-dealer as principal and resale by the
            broker-dealer for its account;

      -     an exchange distribution in accordance with the rules of the
            applicable exchange;

      -     privately negotiated transactions;

      -     short sales

      -     broker-dealers may agree with the Selling Stockholders to sell a
            specified number of such shares at a stipulated price per share;

      -     a combination of any such methods of sale; and

      -     any other method permitted pursuant to applicable law.

      The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

      Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

      The selling stockholder may from time to time pledge or grant a security
interest in some or all of the Shares or common stock or Warrant owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.




      The selling stockholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus.

      The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholders have
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.

      The Company has advised the Selling Stockholders that they are required to
comply with Regulation M promulgated under the Securities and Exchange Act
during such time as they may be engaged in a distribution of the shares. With
some exceptions, Regulation M precludes any Selling Stockholders, any affiliated
purchasers and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security that is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the common stock.

      The Company is required to pay all fees and expenses incident to the
registration of the shares, including $10,000 of fees and disbursements of
counsel to the Selling Stockholders. The Company has agreed to indemnify the
Selling Stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.

EX-4.8

                                                                     EXHIBIT 4.8


NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN

                                   HYSEQ, INC.

                                     WARRANT

Warrant No.                            Date of Original Issuance: April 5, 2002

      HYSEQ, Inc., a Nevada corporation (the "COMPANY"), hereby certifies that,
for value received,             or its registered assigns (the "HOLDER"), is
entitled to purchase from the Company up to a total of
shares of common stock, $0.001 par value per share (such common stock of the
Company, the "COMMON STOCK"), of the Company (each such share, a "WARRANT SHARE"
and all such shares, the "WARRANT SHARES") at an exercise price equal to $5.67
per share (as adjusted from time to time as provided in Section 9, the "EXERCISE
PRICE"), at any time and from time to time from and after the six month
anniversary following the date hereof and through and including April 5, 2007
(the "EXPIRATION DATE"), and subject to the following terms and conditions.

      1. Definitions. In addition to the terms defined elsewhere in this
Warrant, capitalized terms that are not otherwise defined herein that are
defined in the Purchase Agreement (as defined below) shall have the meanings
given to such terms in the Securities Purchase Agreement, dated as of April 5,
2002 among the Company and the Purchasers identified therein (the "PURCHASE
AGREEMENT").

      2. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.

      3. Registration of Transfers. The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Transfer Agent or to the Company at its address specified herein. Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "NEW




WARRANT"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant. Notwithstanding the foregoing, this Warrant is subject to the
transfer restrictions set forth in Section 4.1 of the Purchase Agreement.

      4. Exercise and Duration of Warrants. This Warrant shall be exercisable by
the registered Holder at any time and from time to time on or after the date
hereof to and including the Expiration Date. At 6:30 p.m., New York City time on
the Expiration Date, the portion of this Warrant not exercised prior thereto
shall be and become void and of no value; provided that, if the closing sales
price of the Common Stock on the Expiration Date is greater than 102% of the
Exercise Price on the Expiration Date, then this Warrant shall be deemed to have
been exercised in full (to the extent not previously exercised) on a "cashless
exercise" basis at 6:30 P.M. New York City time on the Expiration Date.

      5. Delivery of Warrant Shares.

            (a) Upon delivery of the Form of Election to Purchase to the Company
(with the attached Warrant Shares Exercise Log) at its address for notice set
forth in Section 14 and upon payment of the Exercise Price multiplied by the
number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three Trading Days after the
Date of Exercise (as defined herein) issue and deliver to the Holder, a
certificate for the Warrant Shares issuable upon such exercise free of
restrictive legends unless otherwise required by the Purchase Agreement. Any
Person so designated by the Holder in accordance with the terms hereof and of
the Purchase Agreement to receive Warrant Shares shall be deemed to have become
holder of record of such Warrant Shares as of the Date of Exercise of this
Warrant. The Company shall, upon request of the Holder, if available, use its
best efforts to deliver Warrant Shares hereunder electronically through the
Depository Trust Corporation or another established clearing corporation
performing similar functions, provided, that, the Company may, but will not be
required to change its transfer agent if its current transfer agent cannot
deliver Warrant Shares electronically through the Depository Trust Corporation.

                  A "Date of Exercise" means the date on which the Holder shall
have delivered to the Company (i) the Form of Election to Purchase attached
hereto (with the Warrant Exercise Log attached to it), appropriately completed
and duly signed and (ii) payment of the Exercise Price for the number of Warrant
Shares so indicated by the Holder to be purchased.

            (b) If the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares pursuant to Section 5(a) no later
than the third Trading Day after the Date of Exercise, then the Holder will have
the right to rescind such exercise.

            (c) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder a certificate or certificates
representing the Warrant Shares pursuant to Section 5(a) no later than the third
Trading Day after the Date of Exercise, and if after such third Trading Day the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares
which the


                                       2


Holder anticipated receiving upon such exercise (a "BUY-IN"), then the Company
shall pay (1) in cash to the Holder the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver pursuant to
Section 5(b) to the Holder in connection with the exercise at issue by (B) the
closing bid price of the Common Stock at the time of the obligation giving rise
to such purchase obligation and (2) deliver to the Holder the number of shares
of Common Stock that would have been issued had the Company timely complied with
its exercise and delivery obligations under Section 5(b). For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted exercise of shares of Common Stock with a
market price on the date of exercise totaling $10,000, under clause (A) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In.

            (d) The Company's obligations to issue and deliver Warrant Shares in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other Person, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of Warrant Shares. If the
Company breaches its obligations under this Warrant, then, in addition to any
other liabilities the Company may have hereunder and under applicable law, the
Company shall pay or reimburse the Holder on demand for all costs of collection
and enforcement (including reasonable attorneys fees and expenses).

      6. Charges, Taxes and Expenses. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.

      7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.

      8. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon


                                       3


exercise of this Warrant as herein provided, the number of Warrant Shares which
are then issuable and deliverable upon the exercise of this entire Warrant, free
from preemptive rights or any other contingent purchase rights of persons other
than the Holder (taking into account the adjustments and restrictions of Section
9). The Company covenants that all Warrant Shares so issuable and deliverable
shall, upon issuance and the payment of the applicable Exercise Price in
accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.

      9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.

            (a) Stock Dividends and Splits. If the Company, at any time while
this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.

            (b) Pro Rata Distributions. If the Company, at any time while this
Warrant is outstanding, distributes to all holders of Common Stock (other than
in a transaction covered by paragraph (a) or (c) of this Section 9) (i)
evidences of its indebtedness, (ii) any security (other than a distribution of
Common Stock covered by the preceding paragraph), (iii) rights or warrants to
subscribe for or purchase any security, or (iv) any other asset (in each case,
"DISTRIBUTED PROPERTY"), then in each such case the Exercise Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution shall be adjusted (effective on such
record date) to equal the product of such Exercise Price times a fraction of
which the denominator shall be such Exercise Price and of which the numerator
shall be such Exercise Price less the then fair market value of the Distributed
Property distributed in respect of one outstanding share of Common Stock, as
determined by the Company's independent certified public accountants that
regularly examine the financial statements of the Company (an "APPRAISER"). In
such event, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case such fair market value
shall be deemed to equal the average of the values determined by each of the
Appraiser and such appraiser. As an alternative to the foregoing adjustment to
the Exercise Price, at the request of the Holder delivered before the 90th day
after such record date, the Company will deliver to such Holder, within five
Trading Days after such request (or, if later, on the effective date of such
distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Warrant Shares for which this Warrant
could have been exercised immediately prior to such record date.


                                       4


            (c) Fundamental Transactions. If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a
"FUNDAMENTAL TRANSACTION"), then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "ALTERNATE CONSIDERATION").
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this paragraph (c) and insuring that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. If any Fundamental Transaction
constitutes or results in a Change of Control, then at the request of the Holder
delivered before the 90th day after such Fundamental Transaction, the Company
(or any such successor or surviving entity) will purchase the Warrant from the
Holder for a purchase price, payable in cash within five Trading Days after such
request (or, if later, on the effective date of the Fundamental Transaction),
equal to the Black Scholes value of the remaining unexercised portion of this
Warrant on the date of such request. As used in this Agreement, "CHANGE OF
CONTROL" means the occurrence of any of (i) an acquisition after the date hereof
by any Person or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of more than 50% of the voting rights or equity interests in the
Company, (ii) a replacement of more than one-half of the members of the
Company's board of directors over a two-year period from the directors who
constituted the Board of Directors at the beginning of such period, which
replacement shall not have been approved by the Board of Directors as so
constituted at the beginning of such period or (a) by directors whose nomination
for election by the stockholders of the Company was approved by such Board of
Directors or (b) by directors elected by such Board of Directors or (c) by
directors approved in the same manner as (a) or (b) above that were nominated or
elected by directors approved as set forth in (a) or (b) above, (iii) a merger
or consolidation of the Company or any Subsidiary or a sale of more than 50% of
the assets of the Company in one or a series of related transactions, unless
following such transactions or series of transactions, the holders of the
Company's securities prior to the first such transaction continue


                                       5


to hold at least two-thirds of the voting rights and equity interests in of the
surviving entity or acquirer of such assets, or (iv) the execution by the
Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).

            (d) Subsequent Equity Sales.

                  (i) If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues or sells, as the case may be, additional shares
of Common Stock or rights, warrants, options or other securities or debt
convertible, exercisable or exchangeable by its terms for shares of Common Stock
or otherwise by its terms entitling any Person to acquire shares of Common Stock
(collectively, "COMMON STOCK EQUIVALENTS"), and the price per share of any
Common Stock with respect to such issuance (the "EFFECTIVE PRICE") is less than
the closing sales price ("MARKET PRICE") of the Common Stock on the date of
closing of this transaction then the Exercise Price shall be reduced to equal
the product of (A) the Exercise Price in effect immediately prior to such
issuance of Common Stock or Common Stock Equivalents times (B) a fraction, the
numerator of which is the sum of (1) the number of shares of Common Stock
outstanding or issuable upon the exercise or conversion of outstanding Common
Stock Equivalents immediately prior to such issuance, plus (2) the number of
shares of Common Stock which the aggregate Effective Price of the Common Stock
issued (or deemed to be issued) would purchase at the Exercise Price, and the
denominator of which is the aggregate number of shares of Common Stock
outstanding or issuable upon the exercise or conversion of outstanding Common
Stock Equivalents immediately after such issuance. For purposes of the foregoing
adjustment, in connection with any issuance of any Common Stock Equivalents, (x)
the maximum number of shares of Common Stock potentially issuable at any time
upon conversion, exercise or exchange of such Common Stock Equivalents (the
"DEEMED NUMBER") shall be deemed to be outstanding upon issuance of such Common
Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall
equal the minimum dollar value of consideration payable to the Company to
purchase such Common Stock Equivalents and to convert, exercise or exchange them
into Common Stock, divided by the Deemed Number, and (z) no further adjustment
shall be made to the Exercise Price upon the actual issuance of Common Stock
upon conversion, exercise or exchange of such Common Stock Equivalents. However,
upon termination or expiration of any Common Stock Equivalents the issuance of
which resulted in an adjustment to the Exercise Price pursuant to this
paragraph, the Exercise Price shall be recomputed to equal the price it would
have been had the adjustments in this paragraph been made, at the time of
issuance of such Common Stock Equivalents, only with respect to that number of
shares of the Common Stock actually issued upon conversion, exercise or exchange
of such Common Stock Equivalents and at the Effective Prices actually paid in
connection therewith.

                  (ii) If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues or sells, as the case may be, Common Stock
Equivalents with an Effective Price that floats or resets or otherwise varies or
is subject to adjustment based on market prices of the Common Stock (a "FLOATING
PRICE SECURITY"), then for purposes of applying the preceding paragraph in
connection with any subsequent exercise, the Effective Price will be determined
separately on each Exercise Date and will be deemed to equal the lowest
Effective Price at which any holder of such Floating Price Security is entitled
to acquire shares of


                                       6


Common Stock on such Exercise Date (regardless of whether any such holder
actually acquires any shares on such date).

                  (iii) Notwithstanding the foregoing, no adjustment will be
made under this Section 9 in respect of any issuances of Common Stock and Common
Stock Equivalents: (i) to the Company's employees, officers or directors and the
issuance of shares of Common Stock to such employees, officers or directors upon
exercise of options granted, pursuant to an employee benefit plan or stock
option plan whether now existing or approved by the Company and its stockholders
in the future, (ii) to consultants as compensation for services rendered to the
Company not to exceed an aggregate value of $500,000, (iii) pursuant to one or
more Strategic Transactions, (iv) to Dr. George Rathmann for additional
financing provided to the Company by Dr George Rathmann, (v) under a bona fide
underwritten public offering (which shall not include equity lines of credit or
similar financing structures) which results in net proceeds in excess of US $40
million at a per share price (excluding underwriters' commissions and discounts)
that is not at a discount to the then-prevailing market price of the Common
Stock and (vi) pursuant to the Rights Agreement, dated as of June 5, 1998, by
and between the Company and U.S. Stock Transfer Corporation, as the Rights
Agent.

            (e) Number of Warrant Shares. Simultaneously with any adjustment to
the Exercise Price pursuant to paragraph (a)of this Section, the number of
Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, as applicable, so that after such
adjustment the aggregate Exercise Price payable hereunder for the increased or
decreased number of Warrant Shares shall be the same as the aggregate Exercise
Price in effect immediately prior to such adjustment.

            (f) Calculations. All calculations under this Section 9 shall be
made to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.

            (g) Notice of Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will promptly compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company's Transfer Agent.

            (h) Notice of Corporate Events. If the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then, except if such notice and the contents thereof shall be
deemed to constitute material non-


                                       7


public information, the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction, at least 20 calendar days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice. Until the exercise of this Warrant or any portion
of this Warrant, the Holder shall not have nor exercise any rights by virtue
hereof as a stockholder of the Company (including without limitation the right
to notification of stockholder meetings or the right to receive any notice or
other communication concerning the business and affairs of the Company other
than as provided in this Section 9(h)).

      10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
one of the following manners:

            (a) Cash Exercise. From the date hereof, until the second
anniversary of the closing date, the Holder may deliver immediately available
funds; or

            (b) Cashless Exercise. The Holder may satisfy its obligation to pay
the Exercise Price through a "cashless exercise," in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:

                         X = Y [(A-B)/A]
            where:
                         X = the number of Warrant Shares to be issued to the
                         Holder.

                         Y = the number of Warrant Shares with respect to which
                         this Warrant is being exercised.

                         A = the average of the Closing Prices for the five
                         Trading Days immediately prior to (but not including)
                         the Exercise Date.

                         B = the Exercise Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued pursuant to the Purchase Agreement.

      11. Limitation on Exercise. (a) Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon any exercise of this Warrant (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% of the
total number of issued and


                                       8


outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such exercise). Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Warrant Shares issuable in respect of such Exercise Notice does
not violate the restrictions contained in this paragraph. This provision shall
not restrict the number of shares of Common Stock which a Holder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a merger, sale or
other business combination or reclassification involving the Company as
contemplated herein. The provisions of this Section may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 61 days'
prior notice to the Company. Other Holders shall be unaffected by any such
waiver.

            (b) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by the Holder upon any
exercise of this Warrant (or otherwise in respect hereof) shall be limited to
the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by
such Holder and its Affiliates and any other Persons whose beneficial ownership
of Common Stock would be aggregated with the Holder's for purposes of Section
13(d) of the Exchange Act, does not exceed 9.999% of the total number of issued
and outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such exercise). Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Warrant Shares issuable in respect of such Exercise Notice does
not violate the restrictions contained in this paragraph. This provision shall
not restrict the number of shares of Common Stock which a Holder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a merger, sale or
other business combination or reclassification involving the Company as
contemplated herein.

      12. No Fractional Shares. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any
fractional shares which would, otherwise be issuable, the Company shall pay cash
equal to the product of such fraction multiplied by the closing price of one
Warrant Share as reported on the Nasdaq National Market on the date of exercise.

      13. Exchange Act Filings. The Holder agrees and acknowledges that it shall
have sole responsibility for making any applicable filings with the U.S.
Securities and Exchange Commission pursuant to Sections 13 and 16 of the
Securities Exchange Act of 1934, as amended, as a result of its acquisition of
this Warrant and the Warrant Shares and any future retention or transfer
thereof.

      14. Notices. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this


                                       9


Section on a day that is not a Trading Day or later than 6:30 p.m. (New York
City time) on any Trading Day, (iii) the Trading Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be: (i) if to the Company, to HYSEQ,
Inc., 670 Almanor Avenue, Sunnyvale, CA 94085, facsimile: (408) 524-8145,
attention: President, or (ii) if to the Holder, to the address or facsimile
number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this Section.

      15. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.

      16. Miscellaneous.

            (a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. This Warrant may be amended only
in writing signed by the Company and the Holder and their successors and
assigns.

            (b) All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without
regard to the principles of conflicts of law thereof. Each party agrees that all
legal proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts sitting
in the City of New York, Borough of Manhattan (the "NEW YORK COURTS"). Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of this Agreement), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, or such New York Courts are improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner


                                       10


permitted by law. Each party hereto (including its affiliates, agents, officers,
directors and employees) hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. If either party shall commence an action or proceeding to
enforce any provisions of this Agreement, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.

            (c) The headings herein are for convenience only, do not constitute
a part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.

            (d) In case any one or more of the provisions of this Warrant shall
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Warrant shall not in any way be
affected or impaired thereby and the parties will attempt in good faith to agree
upon a valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
                             SIGNATURE PAGE FOLLOWS]


                                       11


      IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.


                                        HYSEQ, INC.


                                        By:
                                           -------------------------------------
                                        Name: Peter S. Garcia
                                        Title: Senior Vice President and Chief
                                               Financial Officer


                                       12


                          FORM OF ELECTION TO PURCHASE

To Hyseq, Inc.

      In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock ("COMMON STOCK"), $.001 par value per share, of Hyseq,
Inc. and if such Holder is not utilizing the cashless exercise provisions set
forth in this Warrant, encloses herewith $_________ in cash, certified or
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.

      By its delivery of this Form of Election To Purchase, the Holder
represents and warrants to the Company that in giving effect to the exercise
evidenced hereby the Holder will not beneficially own in excess of the number of
shares of Common Stock (determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934) permitted to be owned under Section 11 of this
Warrant to which this notice relates.

      The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of

                                             PLEASE INSERT SOCIAL SECURITY OR
                                             TAX IDENTIFICATION NUMBER


                         (Please print name and address)


                                       13


                           WARRANT SHARES EXERCISE LOG



- --------------------------------------------------------------------------------------------------
                                                                                   Number of
                  Number of Warrant                                                Warrant Shares
                  Shares Available to be          Number of Warrant Shares         Remaining to be
Date              Exercised                       Exercised                        Exercised
- --------------------------------------------------------------------------------------------------
                                                                          














- --------------------------------------------------------------------------------------------------



                                       14


                               FORM OF ASSIGNMENT

      [To be completed and signed only upon transfer of Warrant]

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of HYSEQ, Inc. to which
the within Warrant relates and appoints ________________ attorney to transfer
said right on the books of HYSEQ, Inc. with full power of substitution in the
premises.

Dated:  _______________, ____


                                   ---------------------------------------------
                                   (Signature must conform in all respects to
                                   name of holder as specified on the face of
                                   the Warrant)


                                   ---------------------------------------------
                                   Address of Transferee

                                   ---------------------------------------------

                                   ---------------------------------------------



In the presence of:


- --------------------------


                                       15

EX-4.12

                                                                    Exhibit 4.12


                                   WARRANT FOR

                             SHARES OF COMMON STOCK

                                       OF

                                   HYSEQ, INC.

                                    ISSUED TO

                         DONALD BRUNGARD OR HIS DESIGNEE

                            DATED AS OF JULY 15, 1995

                                   HYSEQ, INC.


         THIS SECURITY WAS ORIGINALLY ISSUED AS OF JULY 15, 1995 AND HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE
TRANSFERRED OR SOLD WITHOUT REGISTRATION UNDER SUCH ACT OR AN EXEMPTION FROM
SUCH REGISTRATION REQUIREMENT. THE TRANSFER OF THIS SECURITY IS SUBJECT TO THE
CONDITIONS SPECIFIED HEREIN.

         HYSEQ, INC., a Nevada corporation, hereby certifies that, for value
received DONALD BRUNGARD ("Brungard") is entitled, subject to the terms set
forth below, to purchase from the Company at any time before 5:00 p.m., Chicago
time, on or before July 15, 2002 (the "Expiration Date"), 71,625 fully paid and
nonassessable shares of Common Stock, par value $0.001, at a purchase price per
share of $8.00 (such purchase price per share as adjusted from time to time as
herein provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.

         As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:

                  (a) The term "Company" shall include Hyseq, Inc., and any
         corporation which shall succeed or assume the obligations of the
         Company hereunder.

                  (b) The term "Common Stock" includes (i) the Company's Common
         Stock, par value $0.001 per share, as authorized on the date hereof, or
         (ii) any other securities into which or for which any of the securities
         described in (i) may be converted or exchanged pursuant to a plan of
         recapitalization, reorganization, merger, sale of assets or otherwise.

         1. Exercise of Warrant. This Warrant may be exercised in full, but not
in part, by the holder hereof by surrender of this Warrant, with the form of
election to exercise at the end hereof duly executed by such holder, to the
Company at its principal office, accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, in the amount
obtained by multiplying the number of shares of Common Stock for which this
Warrant is then exercisable by the Purchase Price then in effect.

         2. Delivery of Stock Certificates, etc., on Exercise.

            (a) As soon as practicable after the exercise of this Warrant in
full, and in any event within ten (10) days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the holder hereof, or as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which such holder shall be entitled on
such exercise, plus, in lieu of any

                                       1

fractional share to which such holder would otherwise be entitled, cash equal to
such fraction multiplied by the then current fair market value of one full share
as determined in good faith by the Company's Board of Directors, together with
any other stock or other securities and property (including cash, where
applicable) to which such holder is entitled upon such exercise pursuant to
Section 1 or otherwise.

            (b) The Company agrees that, upon exercise of this Warrant in
accordance with the terms hereof (including receipt by the Company of payment of
the aggregate Purchase Price), the shares so purchased shall be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing the shares purchased hereunder shall
not then be actually delivered to the holder hereof and the holder of this
Warrant shall be deemed for all purposes a shareholder of the Company with
respect to such shares as though the certificate for such shares had been issued
on the date of such exercise.

            (c) Certificates for shares purchased hereunder shall be delivered
to the holder hereof as promptly as practicable after the date on which this
Warrant shall have been exercised.

            (d) The Company covenants that at all times prior to the Expiration
Date there shall be reserved for issuance and delivery upon exercise of this
Warrant, sufficient shares of the Company's authorized but unissued Common Stock
issuable upon exercise of this Warrant (or such other securities of the Company
as may be issuable upon the exercise hereof) and that all shares which may be
issued upon the exercise of this Warrant will be duly authorized and will, upon
exercise of the rights represented by this Warrant and payment of the Purchase
Price, be fully paid and nonassessable and free and clear from all taxes, liens,
security interests, charges and other encumbrances or restrictions on sale,
except as provided herein or pursuant to applicable law, and free and clear of
all preemptive rights. The Company shall take all steps required to assure the
par value of the Common Stock does not exceed the Purchase Price in effect from
time to time.

         3. Adjustment for Dividends in Other Stock, Property etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Common Stock shall have received, or (on or after the record date fixed for the
determination of shareholders eligible to receive) shall have become entitled to
receive, without payment therefor,

                  (a) other or additional stock or other securities or property
         (other than cash) by way of dividend, or

                  (b) any cash (excluding cash dividends payable solely out of
         earnings or earned surplus of the Company) , or

                  (c) other or additional stock or other securities or property
         (including cash) by way of spin-off, split-up, reclassification,
         recapitalization, combination of shares or similar corporate
         rearrangement,

then and in each such case the holder of this Warrant, on the exercise hereof as
provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property

                                       2

(including cash in the cases referred to in subdivisions (b) and (c) of this
Section 3) which such holder would hold on the date of such exercise if on the
date hereof he had been the holder of record of the number of shares of Common
Stock called for on the face of this Warrant and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and all such other or additional stock and other securities and
property (including cash in the cases referred to in subdivisions (b) and (c) of
this Section 3) receivable by him as aforesaid during such period, giving effect
to all adjustments called for during such period by Section 4.

         4. Adjustments and Termination of Rights. The Purchase Price and the
number of shares of Common Stock purchasable hereunder are subject to adjustment
from time to time as follows:

            (a) Merger. If at any time while this Warrant is outstanding and
unexpired there shall be a merger or consolidation of the Company with or into
another corporation, then, as a part of such merger or consolidation,
appropriate provisions shall be made so that the holder hereof shall, in lieu of
the securities otherwise receivable on exercise of this Warrant, thereafter be
entitled to receive upon exercise of this Warrant, the number of shares of stock
or other securities or property (including cash) payable or issuable pursuant to
such merger or consolidation, to which a holder of the securities receivable
upon the exercise of this Warrant would have been entitled in such merger or
consolidation if this Warrant had been exercised immediately before such merger
or consolidation. In any such case appropriate adjustment (as determined by the
Board of Directors of the Company in good faith) shall be made in the
application of the provisions of this Warrant with respect to the rights and
interests of the holder hereof after such merger or consolidation.

            (b) Reclassification, etc. Except in situations where adjustments
are effected pursuant to Section 4(a) above, if the Company at any time while
this Warrant is outstanding and unexpired shall, by subdivision, combination,
reclassification, conversion of securities or otherwise, change any of the
securities receivable upon the exercise of this Warrant into the same or a
different number of securities of any other class or classes, this Warrant
shall, in lieu of the securities otherwise receivable upon the exercise of this
Warrant, thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities receivable upon the exercise of this Warrant immediately prior
to such subdivision, combination, reclassification, conversion or other change.

            (c) Split, Subdivision or combination of Shares. If the Company at
any time while this Warrant is outstanding and unexpired shall split or
subdivide its issued and outstanding shares of securities receivable upon the
exercise of this Warrant into a larger number of shares of such securities or
combine its issued and outstanding shares of securities receivable upon the
exercise of this Warrant into a smaller number of shares of such securities, the
Purchase Price shall be adjusted to equal the product of (i) the existing
Purchase Price immediately prior to any such split, subdivision or combination,
and (ii) a fraction, the numerator of which is the number of outstanding shares
of securities receivable upon the exercise of this Warrant immediately prior to
any such split, subdivision or combination and the denominator of which is the
number of outstanding shares of securities receivable upon the exercise of this
Warrant immediately after any such split, subdivision or combination. Upon each
adjustment in the

                                       3

Purchase Price pursuant to this Section 4 (c) , the number of shares of
securities receivable upon the exercise of this Warrant shall be adjusted, to
the nearest whole share, to the product obtained by multiplying the number of
shares of securities receivable upon the exercise hereof immediately prior to
such adjustment in the Purchase Price by a fraction (i) the numerator of which
shall be the Purchase Price immediately prior to such adjustment, and (ii) the
denominator of which shall be the Purchase Price immediately after such
adjustment.

            (d) Issuance of Additional Shares of Common Stock. If the Company at
any time while the Warrant remains outstanding and unexpired shall issue or be
deemed to have issued any Additional Shares of Common Stock (otherwise than as
provided in the foregoing subsections (a) through (c) above) at a price per
share less, or for other consideration lower, than the Purchase Price per share
in effect immediately prior to such issuance, or without consideration, then
upon such issuance the Purchase Price shall be adjusted to that price determined
by subtracting from the Purchase Price then in effect the difference between the
Purchase Price per share then in effect and the product obtained by multiplying
such Purchase Price by a fraction (a) the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of shares of Common Stock
which the aggregate consideration for the total number of such Additional Shares
of Common Stock so issued would purchase at such Purchase Price, and (b) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such Additional Shares of Common Stock plus
the number of Additional Shares of Common Stock so issued. The provisions of
this subsection shall not apply under any of the circumstances for which an
adjustment is provided in subsections 4(a), 4(b), or 4(c).

         As used herein, the term "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued by the Company (or deemed to have been issued
pursuant to Section 4(e) by the Company), excluding (i) 4,500,000 shares
representing issued and outstanding shares of Common Stock and shares of Common
Stock into which the Series A Preferred Stock may be converted, (ii) shares of
Common Stock issued in transactions described in Section 4(a) through 4(c), (as
adjusted for stock dividends, stock splits, combinations, reorganizations,
reclassification and other similar events) and (iii) shares of Common Stock
issuable upon exercise of Stock Options representing up to a maximum of 450,000
shares of Common Stock.

            (e) Computation of Consideration. The following provisions will be
applicable to the making of adjustments in the Purchase Price pursuant to
Section 4(d) above:

                (i) In the case of an issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any discounts, commissions or other expenses allowed, paid or incurred
by the Company.

                (ii) In the case of an issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as reasonably
determined by the Board of Directors of the Company.

                (iii) In the case of an issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for

                                       4

Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, either

                  (1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed for purposes of Section 4(d) to have been issued at
the time such options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in Sections 4(e)(i) and
4(e)(ii) if any, received by the Company upon the issuance of such options or
rights plus the purchase price provided in such options or rights for the Common
Stock covered thereby; or

                  (2) The aggregate maximum number of shares of Common stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed for purposes of Section 4(d) to
have been issued at the time securities were issued or such options or rights
were issued and for a consideration equal to the consideration, if any, received
by the Company for any such securities or such options or rights, plus the
additional consideration, if any, to be received by the Company upon the
conversion or exchange of such securities or the exercise of such options or
rights (the consideration in each case to be determined in the manner provided
in Sections 4(e)(i) and 4(e)(ii)).

            (f) Readjustment. Upon the termination or expiration of any such
options or rights, or any rights to convert or exchange any such convertible or
exchangeable securities, the Purchase Price shall forthwith be readjusted to
such Purchase Price as would have been obtained had the adjustment (which was
made upon the issuance of such options, rights or securities) , been made upon
the basis of the issuance of only the number of shares of Common Stock actually
issued upon the exercise of such options or rights or upon the conversion or
exchange of such securities. No adjustment to either the Purchase Price or the
number of shares to be received upon exercise of this Warrant shall be made for
the actual issuance of Common Stock or convertible or exchangeable securities
upon the exercise of any such options or rights or the conversion or exchange of
such securities.

            (g) Determination of Fair Market Value of Stock. For the purpose of
any computation under this Warrant, the current fair market value per share of
stock shall be the average of the current market value of stock, determined for
the twenty (20) consecutive trading days prior to the date in question which
market value shall be determined as follows: (i) if the stock in question is
listed on a national securities exchange or admitted to unlisted trading
privileges on such an exchange or, if not so listed or admitted to unlisted
trading privileges, quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), the current market value of each share
shall be the last reported sale price per share of stock on such exchange or
reported by NASDAQ or if no such sale is made on such day, the mean of the
closing bid and asked prices for such day on such exchange or reported by
NASDAQ; (ii) if the stock is not listed on a national securities exchange or
quoted on NASDAQ or admitted to unlisted trading privileges on a national
securities exchange, the current market value of each share shall be an amount
determined in such reasonable manner as may be prescribed by the Board of
Directors of the Company.

                                       5

            (h) Successive Adjustments. The provisions of this Section 4 shall
apply to each successive event that would give rise to any adjustment under any
such provision.

            (i) Adjustments. No adjustment in the number of shares of securities
receivable upon the exercise of this Warrant or in the Purchase Price shall be
required unless such adjustment will require an increase or decrease of at least
one percent (1%) in the number of shares of securities receivable upon the
exercise of this Warrant or in the Purchase Price, respectively; provided,
however, that any adjustments which by reason of this Section 4(i) are not
required to be made shall be carried forward and taken into account in any
subsequent share or price adjustment.

            (j) Revoked Actions. In the event that any occurrence that has
resulted in an adjustment pursuant to this Section 4 ceases to exist, is revoked
or is determined to the satisfaction of the holder hereof to have no dilutive
effect, then thereafter no adjustment shall be required under this Section 4 and
any adjustment previously made in respect thereof shall be rescinded and
annulled.

         5. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 5 to a bank or trust company having
its principal office in Chicago, Illinois, as trustee for the holder or holders
of the Warrants.

         6. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
Sections 4 and 5 this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 7.

                                       6

         7. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of the
Warrant against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (a) will not increase the par value of any shares of
stock receivable on the exercise of the Warrant above the amount payable
therefor on such exercise, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock upon the exercise of this Warrant, and (c)
will not transfer all or substantially all of its properties and assets to any
other person (corporate or otherwise), or consolidate with or merge into any
other person or permit any such person to consolidate with or merge into the
Company (if the Company is not surviving person), unless such other person shall
expressly assume in writing and will be bound by all the terms of the Warrant.

         8. Notice of Adjustments. Whenever the Purchase Price or number of
shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated and the
Purchase Price and number of shares purchasable hereunder after giving effect to
such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the holder hereof.

         9. Notices of Record Date, etc. In the event of:

                  (a) any taking by the Company of a record of the holders of
         any class or securities for the purpose of determining the holders
         thereof who are entitled to receive any dividend or other distribution,
         or any right to subscribe for, purchase or otherwise acquire any shares
         of stock of any class or any other securities or property, or to
         receive any other right, or to receive any other right, or

                  (b) any capital reorganization of the Company, any
         reclassification or recapitalization of the capital stock of the
         Company or any transfer of all or substantially all the assets of the
         Company to or consolidation or merger of the Company with or into any
         other person, or

                  (c) any voluntary or involuntary dissolution, liquidation or
         winding-up of the Company, or

                  (d) any proposed issue or grant by the Company of any shares
         of stock of any class or any other securities, or any right or option
         to subscribe for, purchase or otherwise acquire any shares of stock of
         any class or any other securities (other than the issue of Common Stock
         on the exercise of the Warrant), or

                                       7

                  (e) the Company proposes to take any action described in
         subsections (a), (b), (c) or (d) of Section 4 that would require an
         adjustment of the Purchase Price pursuant to Section 4,

then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken f or the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up, and
(iii) the amount and character of any stock or other securities, or rights or
options with respect thereto, proposed to be issued or granted the date of such
proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall be mailed at
least 20 days prior to the date specified in such notice on which any such
action is to be taken.

         10. Reservation of Stock, etc., Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrant.

         11. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company will issue and deliver to or on
the order of the holder thereof a new Warrant or Warrants of like tenor, in the
name of such holder or as such holder (on payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face or
faces of the Warrant or Warrants so surrendered.

         12. Replacement of Warrants. On receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of any Warrant and, in the
case of any such loss, theft or destruction of any Warrant, on delivery of an
indemnity agreement or security satisfactory in form and amount of the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor. Upon the issuance of any new Warrant hereunder, the
Company may require the payment from the holder of such Warrant of a sum
sufficient to cover any tax, stamp tax or other governmental charge that may be
imposed in relation thereto and any other expenses in connection therewith.

         13. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent having an office in Chicago, Illinois for the
purpose of issuing Common Stock (or other securities) on the exercise of the
Warrant pursuant to Section 1, exchanging the Warrant pursuant to Section 11,
and replacing the Warrant pursuant to Section 12, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.

                                       8

         14. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
thereof or otherwise.

         15. Limitations on Transfer/Restrictive Legends. This Warrant is issued
upon the following terms, to all of which each holder or owner hereof by the
taking hereof consents and agrees:

                  (a) title to this Warrant may not be transferred except (a)
         with the prior written consent of the Company, which consent may be
         withheld in the discretion of the Company, (b) to a transferee who is a
         member of the immediate family of Brungard; provided further that any
         all such securities as are issued to the holder of this Warrant upon
         exercise hereof shall be stamped or otherwise imprinted with a legend
         in substantially the following form: THIS SECURITY WAS ORIGINALLY
         ISSUED ON ___________________ AND HAS NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE TRANSFERRED OR SOLD
         WITHOUT REGISTRATION UNDER SUCH ACT OR AN EXEMPTION FROM SUCH
         REGISTRATION REQUIREMENTS; and

                  (b) until this Warrant is transferred on the books of the
         Company, the Company may treat the registered holder hereof as the
         absolute owner hereof for all purposes, notwithstanding any notice to
         the contrary.

         16. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.

         17. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in the accordance with
and governed by the laws of the State of Nevada. The headings in this Warrant
are for purposes of reference only, and shall not limit or otherwise affect any
of the terms hereof. This Warrant is being executed as an instrument under seal.

         18. Expiration. The right to exercise this Warrant shall expire on the
Expiration Date.

Dated:  As of July 15, 1995              HYSEQ, INC

                                         By:
                                            ------------------------------------
                                              Lewis S. Gruber
                                              President and Chief
                                                  Executive Officer

                                       9


(Corporate Seal)

ATTEST:


Its:
    ----------------------------------------

                                       10

                         [FORM OF ELECTION TO EXERCISE]


(To be executed upon exercise of Warrant on the Exercise Date)

         The undersigned hereby irrevocably elects to exercise the Warrant
represented by this Warrant and acquire ___________ Shares and herewith tenders
payment for such Shares in the amount of $______________ (in cash, personal
check if in an amount less than $1,000 or certified or official bank check) in
accordance with the terms hereof. The undersigned requests that a certificate
representing such Shares be registered in the name of ______________ whose
address is _________________ and that such certificate be delivered to
__________________ whose address is _______________________. Any cash payments
to be paid in lieu of a fractional Share should be made to
______________________ whose address is _________________ and the check
representing payment thereof should be delivered to
_____________________________ whose address is
___________________________________.

         Dated:___________________________, 19_

         Name of holder of Warrant:
                                   ---------------------------------------------
                                                 (Please Print)

         Tax Identification or Social Security Number:
                                                      --------------------------

         Address:
                 ---------------------------------------------------------------

         Signature:
                      ----------------------------------------------------------

                      Note:    The above signature must correspond with the
                               name as written upon the face of this
                               Warrant in every particular, without
                               alteration or enlargement or any change
                               whatever and if the certificate representing
                               the Shares or any Warrant representing
                               Warrant (s) not exercised is to be register
                               in a name other than that in which this
                               Warrant is registered, or if any cash
                               payment to be paid in lieu of a fractional
                               share is to be made to a person other than
                               the registered holder of this Warrant, the
                               signature of the holder hereof must be
                               guaranteed as provided in the Warrant
                               Agreement.

         Signature Guaranteed:
                              --------------------------------------------------

                                       11

                              (FORM OF ASSIGNMENT)


         For value received _______________________________ hereby sells,
assigns and transfers unto _______________________________________________ the
within Warrant Certificate, together with all right, title and interest therein
and does hereby irrevocably constitute and appoint
__________________________________, attorney, to transfer said Warrant
Certificate on the books of the within-named company, with full power of
substitution in the premises.

Dated:_______________________, 19_



         Signature:
                      ----------------------------------------------------------

                      Note:    The above signature must correspond with the
                               name as written upon the face of this
                               Warrant in every particular, without
                               alteration or enlargement or any change
                               whatever.

         Signature Guaranteed:
                              --------------------------------------------------

                                       12

EX-5.1

                                                                     Exhibit 5.1
                [KUMMER KAEMPFER BONNER AND RENSHAW LETTERHEAD]




                                 June 13, 2002



HYSEQ, INC.
670 Almanor Avenue
Sunnyvale, California  94085

Ladies and Gentlemen:

         We have acted as special Nevada counsel for Hyseq, Inc., a Nevada
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 ("Registration Statement") to be filed by the Company with the
Securities and Exchange Commission covering the offer and sale of 6,948,454
shares of the Company's common stock, $0.001 par value per share ("Common
Stock"), including (a) 3,741,932 shares of Common Stock to be sold by the
selling stockholders named in the Registration Statement, (b) 1,031,447 shares
of Common Stock that may be issued upon the exercise of Common Stock warrants,
and (c) 2,175,075 shares of Common Stock issuable upon the exchange of a
promissory note issued by the Company for an aggregate principal amount of
$4,000,000, plus interest.

         In rendering this opinion, we have examined and relied on the following
documents: (i) the Company's Articles of Incorporation, as amended, and Bylaws,
as amended, (ii) the resolutions adopted by the Board of Directors of the
Company on October 23, 2001, and March 29, 2002 (iii) the Registration
Statement, and (iv) such other documents, legal opinions and precedents,
corporate and other records of the Company, and certificates of public officials
and officers of the Company that we have deemed necessary or appropriate to
provide a basis for the opinion.

         Based upon and subject to the foregoing, in our opinion, the shares of
Common Stock of the Company (i) which are being offered and sold by the selling
stockholders of the Company pursuant to the Registration Statement, when sold by
the selling stockholders in the manner contemplated by the Registration
Statement, (ii) issuable upon exercise of the warrants upon payment of the
consideration stated in such warrants, and (iii) issuable upon the exchange of a
promissory note issued by the Company for an aggregate principal amount of
$4,000,000, plus interest, in each case, will be legally issued, fully paid and
non-assessable.

         We consent to the filing of this opinion as an Exhibit to the
Registration Statement.

                                            Very truly yours,

                                            /s/ Kummer Kaempfer Bonner & Renshaw

                                            KUMMER KAEMPFER BONNER & RENSHAW

EX-23.1

                                                                    Exhibit 23.1


                   CONSENT OF KPMG LLP, INDEPENDENT AUDITORS

We consent to the use of our report incorporated by reference herein, and to
the reference to our firm under the heading "Experts" in the prospectus.


                                         /s/ KPMG LLP


San Francisco, California
June 12, 2002

EX-23.2

                                                                    EXHIBIT 23.2

               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and the related Prospectus of Hyseq, Inc. for
the registration of 6,948,454 shares of its common stock and to the
incorporation by reference therein of our report dated February 2, 2000, with
respect to the consolidated statements of operations, stockholders' equity and
cash flows for the year ended December 31, 1999, included in its Annual Report
(Form 10-K) for the year ended December 31, 2001, filed with the Securities and
Exchange Commission.

                                             /s/ ERNST & YOUNG LLP

Palo Alto, California
June 12, 2002