-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RXV9cbKZK+LSFjU8DYt42UTgYYR7i+Klp2mpm840uy1BgCC3bzarCzleXv0ntBpx YHmTfPMN8bYyzMEqNuQonA== 0000891618-01-501775.txt : 20010827 0000891618-01-501775.hdr.sgml : 20010827 ACCESSION NUMBER: 0000891618-01-501775 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010824 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LYNX THERAPEUTICS INC CENTRAL INDEX KEY: 0000913275 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 943161073 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-22570 FILM NUMBER: 1723354 BUSINESS ADDRESS: STREET 1: 3832 BAY CENTER PL CITY: HAYWARD STATE: CA ZIP: 94545 BUSINESS PHONE: 5106709300 MAIL ADDRESS: STREET 1: 3832 BAY CENTER PLACE CITY: HAYWARD STATE: CA ZIP: 94545 10-K405/A 1 f75239a1e10-k405a.txt FORM 10-K405/A PER END 12-31-2000 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 1 TO FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-22570 LYNX THERAPEUTICS, INC. (Exact Name of Registrant as specified in its charter) DELAWARE 94-3161073 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)
25861 Industrial Blvd., Hayward, CA 94545 (Address of principal executive offices, including zip code) (510) 670-9300 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.01 PAR VALUE PER SHARE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The number of shares of common stock of the Registrant outstanding as of August 6, 2001, was 13,446,554. The aggregate market value of the common stock of the Registrant held by non-affiliates of the Registrant, based upon the closing price of the Common Stock reported on the Nasdaq National Market on August 6, 2001, was $76,694,739.66. ================================================================================ 2 EXPLANATORY NOTE Lynx Therapeutics, Inc. is filing this Amendment No. 1 to Form 10-K to amend and restate certain portions of its Annual Report on Form 10-K. Each of the following sections of the Annual Report is amended and restated in its entirety, and current as of August 24, 2001: - Item 1: Business; - Item 1: Business -- Business Risks; - Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources; - Item 8: Financial Statements, Notes to Consolidated Financial Statements -- Note 3. Collaborative Agreements and Note 12. Subsequent Events (Unaudited); and - Item 14: Exhibits, Financial Statement Schedule and Reports on Form 8-K. The remaining portions of the Annual Report, unless otherwise noted, are current as of March 30, 2001, the initial filing date of the Annual Report. LYNX THERAPEUTICS, INC. FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 TABLE OF CONTENTS PART I Item 1. Business ................................................................................... 1 Item 2. Properties ................................................................................. 20 Item 3. Legal Proceedings .......................................................................... 20 Item 4. Submission of Matters to a Vote of Security Holders ........................................ 20 PART II Item 5. Market for Registrants Common Equity and Related Stockholder Matters ....................... 21 Item 6. Selected Financial Data .................................................................... 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................................................. 23 Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................................. 27 Item 8. Consolidated Financial Statements and Supplementary Data ................................... 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ....... 46 PART III Item 10. Directors and Executive Officers of the Registrant ......................................... 47 Item 11. Executive Compensation ..................................................................... 49 Item 12. Security Ownership of Certain Beneficial Owners and Management ............................. 51 Item 13. Certain Relationships and Related Transactions ............................................. 52 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K ............................. 53 Signatures ........................................................................................... 55
3 PART I ITEM 1. BUSINESS Except for the historical information contained herein, this report contains certain information that is forward-looking in nature. Examples of forward-looking statements include statements regarding Lynx's future financial results, operating results, product successes, business strategies, projected costs, future products, competitive positions and plans and objectives of management for future operations. In some cases, you can identify forward-looking statements by terminology, such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms and other comparable terminology. In addition, statements that refer to expectations or other characterizations of future events or circumstances are forward-looking statements. These statements involve known and unknown risks and uncertainties that may cause Lynx's or its industry's results, levels of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, among others, those discussed under the captions "Business," "Business -- Business Risks" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These and many other factors could affect the future financial and operating results of Lynx. Lynx undertakes no obligation to update any forward-looking statement to reflect events after the date of this report. Lynx, MPSS(TM), Megaclone(TM), Megasort(TM), Megatype(TM), Protein ProFiler(TM) and the Lynx logo are some of Lynx Therapeutics, Inc.'s trademarks and service marks. OVERVIEW We believe that Lynx Therapeutics, Inc. is a leader in the development and application of novel technologies for the discovery of gene expression patterns and genomic variations important to the pharmaceutical, biotechnology and agricultural industries. Gene expression patterns refer to the number of genes and the extent a cell or tissue expresses those genes, and they represent a way to move beyond DNA sequence data to understand the function of genes, the proteins that they encode and the role they play in health and disease. Genomic variations refer to the differences in the genetic sequences in the genomes of different organisms. Megaclone, our unique and proprietary cloning procedure, forms the foundation of these technologies. Megaclone transforms a sample containing millions of DNA molecules into one made up of millions of micro-beads, which are microscopic beads of latex, each of which carries approximately 100,000 copies of one of the DNA molecules in the sample. In contrast to conventional cloning, in which an individual DNA molecule is selected from a sample and amplified into many copies for analysis or identification, we can capture on one set of micro-beads clones of nearly all the DNA sequences that characterize a sample. Once attached to the micro-beads, these clones can be handled and subjected to experiments and analyses all at the same time. Megaclone thereby enables many analyses or characterizations to be conducted that would otherwise be too cumbersome or onerous to conduct using conventional procedures where each clone must be addressed individually. Based on Megaclone, we have developed a suite of applications that have the potential to enhance the pace, scale and quality of genomics and genetics research programs. Lynx's current commercial collaborators and customers are BASF AG, E.I. DuPont de Nemours and Company, Aventis CropScience GmbH, Oxagen Limited, Hybrigenics S.A., Genomics Collaborative Inc., Molecular Engines Laboratories SA, the Institute of Molecular and Cell Biology, Phytera, Inc., Celera Genomics, AstraZeneca, UroGene S.A., GenoMar ASA and AniGenics, Inc. Additionally, Lynx has provided a license for the use of certain of our technologies to Takara Shuzo Co. Ltd. and BASF-LYNX Bioscience AG (BASF-LYNX). Technologies we have developed that leverage the power of Megaclone are: - Massively Parallel Signature Sequencing, or MPSS, which generates simultaneously, from a million or more Megaclone micro-beads, gene sequence information that uniquely identifies a sample's DNA molecules without the need for individual conventional sequencing reactions, and produces a comprehensive quantitative profile of gene expression in cells or tissues; - Megasort, which enables researchers to focus on potential target genes by permitting, from a single experiment, the direct physical isolation of nearly all the genes differentially expressed between samples; and - Megatype, which, when fully developed, should enable a single experiment to yield directly those disease- or trait-associated single nucleotide polymorphisms, also known as SNPs, that differentiate large populations of genomes. SNPs are single nucleotide variations, or differences occurring in a single subunit of DNA or RNA, in the genetic code that occur at every 1,000 bases along the three billion nucleotides in the human genome. Megatype experiments would not require genotyping, which is the process of testing entire individual genomes for the presence or absence of a set of SNPs. We are developing additional applications of these technologies, as well as new technologies aimed at addressing the needs of the pharmaceutical, biotechnology and agricultural industries. For example, we are working on a new separation technology in the area of proteomics, which is the study of the number of proteins and the extent to which they are expressed in cells or tissues, to provide high-resolution analysis of complex mixtures of proteins from cells or tissues of interest. In addition to our and our licensee's work with collaborators and customers, we intend to apply our suite of technologies in selected biological areas to develop products internally to discover and then license or sell gene targets, validated gene targets, genetic associations, genomic maps and other products. For example, we are pursuing projects directed to gene discovery and target validation in immunopathology and, through BASF-LYNX, our joint venture with BASF, central nervous system disorders. 1 4 INDUSTRY BACKGROUND The publication of the first draft sequence of the human genome was a milestone in the history of genetics and genomics. However, the remaining challenge for researchers in industry and academia alike is to explore the multitude of genomic variations and to discover, from the analysis of these differences, the functions of genes and their roles in health and disease. It is this work, post genome-sequencing, that is expected to lead to commercial opportunities and ultimately to the discovery of new therapies for unmet medical needs and to provide the basis for the emerging fields of pharmacogenetics, which is the identification and assessment of genes that are predictive of efficacy and toxicity of drug compounds or that may correlate drug responses to individual genotypes, and individualized patient therapy. Many diseases result from a malfunction of the genetically programmed protective response to insults, such as trauma, infection, stress or an inherited mutant gene. That malfunction may result in inadequate, misguided or exaggerated gene expression, unfolding a complex pathogenic process which may resolve itself, linger chronically or evolve with increasingly destructive effects in a manner quite removed from, and even independent of, the original insult. By analyzing which genes are expressed in a cell or tissue, the level of expression can illustrate which physiological pathways are active in the cell and to what degree. By understanding when and where abnormal gene expression occurs and the changes in expression that a drug can cause, the physiological pathways implicated in disease and drug action can be pinpointed. This knowledge could be used to help discover drug targets, screen drug leads, predict a compound's toxic effects, anticipate pharmacological responses to drug leads and tailor clinical trials to the specific needs of subgroups within a population. By recognizing gene expression patterns, researchers, and ultimately physicians, may also be able to determine which treatments are likely to be effective for a specific condition and which may be ineffective or harmful. Genomic approaches to therapeutics seek to identify genes connected to the origin of a disease. Searches to identify such genes generally are laborious and involve a very large amount of conventional DNA sequencing to identify genes or gene fragments. This knowledge of genes is a first step only. While it may pave the way for the development of better diagnostics, it may not necessarily lead to a successful therapy. For example, while a particular gene, or absence of a gene, may predispose a person to a cancer, an entirely different set of genes is likely to govern the tumor and its metastases. Hence, in addition to understanding the cause of disease, it is important to understand entire networks of genes and their functions in both healthy and diseased states in order to identify the optimal targets for therapy. One approach to genomics research is based on the study of gene expression and regulation of gene expression in cells in differing states or conditions. Gene expression in a cell consists of transcription, the process which converts the genetic information encoded in the double-stranded DNA of a gene into mRNA, and translation, the process which converts the genetic information encoded in mRNA into a specific protein molecule. At any one time, any particular human cell expresses thousands of genes. A different number of copies of each mRNA type will be present in each sample depending upon the particular cell, its function and its environmental conditions at the time. Thus, a cell will contain, at any one time, tens of thousands of different mRNAs, in various quantities, for a total on the order of one million or more mRNA molecules. Elucidating gene function involves not only determining which genes are expressed in a healthy or diseased tissue, but also requires determining which of the altered gene expressions cause a disease rather than result from the disease. In general, only the most abundantly expressed genes are currently accessible using conventional methods. In addition, conventional methods are dependent on separating and cloning double-stranded copies of each individual mRNA, or cDNA, prior to analysis. Thus, by conventional methods, it is impractical to obtain a comprehensive, high-resolution analysis of gene expression across one million or more mRNA molecules in cells of interest to the researcher. Another approach to genomics research is based on the study of human genetic variations. It is well known that the incidence of human diseases and their severity differ in different groups and individuals. There are many common diseases in which several genes play a role in the initiation and development of the pathological process, as well as in the responses of the individual to a therapy. This approach studies gene association with diseases by using a large assembly of specific gene variants called polymorphisms. The most abundant of these are single nucleotide polymorphisms, or SNPs, which are single-base mutations in the genome. A SNP is found, on average, once in every 1,000 bases. This means if any two individuals are compared, their genomes will be found to differ at more than one million places. Genotyping refers to the process of testing individual genomes for the presence or absence of a set of SNPs. If a SNP correlation to a disorder is proven, it would point to those regions of the genome in which the sequences responsible for the disorder may be located. However, to discover such regions, it is currently believed that one would have to test several hundred individual genomes for the presence or absence of tens of thousands, if not more, SNPs. Thus, there is a real need to employ a technology that can quickly and efficiently determine which of these thousands of SNPs are significantly associated with diseases in large populations of patients and thereby provide a relevant set of SNPs for downstream genotyping of individuals. 2 5 OUR SOLUTION We overcome many of the limitations of current technologies by capturing essentially all of the different DNA molecules in a sample on micro-beads using our Megaclone technology and applying our various analytical technologies to conduct relevant comparisons and other analyses of the captured DNA molecules. Thus, our patented Megaclone technology enables an automated, high-throughput analysis of complex mixtures of DNA molecules. Megaclone is a process that uses a proprietary library of approximately 16.7 million short synthetic DNA sequences, called tags, and their complementary anti-tags, to uniquely mark and process each DNA molecule in a sample. Each unique tag is a permanent identifier of the DNA molecule it is attached to, and all of the tagged molecules in a sample are amplified together to create multiple copies of the tagged molecules. We use another proprietary process to generate five micron diameter micro-beads, each of which carries multiple copies of a short anti-tag DNA sequence complementary to one of the 16.7 million tags. Then we collect the amplified tagged DNA molecules onto the micro-beads through hybridization of the tags to the complementary anti-tags. Each micro-bead carries on its surface enough complementary anti-tags to collect approximately 100,000 identical copies of the corresponding tagged DNA molecule. By this process, each tagged DNA molecule in the original sample is converted into a micro-bead carrying about 100,000 copies of the same sequence. Therefore, in a few steps, our Megaclone technology can transform a complex mixture of a million or more individual DNA molecules into a usable format that provides the following benefits: - substantially all the different DNA molecules present in a sample are represented in the final micro-bead collection; - these million or more DNA molecules can be analyzed simultaneously in various applications; and - the need for storing and handling millions of individual DNA clones is eliminated. Megaclone is the foundation for our analytical applications, including MPSS, which provides gene sequence information and high-resolution gene expression information, Megasort, which provides focused sets of differentially expressed genes and potential gene targets, and Megatype, which is expected to provide SNP disease- or trait-association information. OUR BUSINESS STRATEGY We intend to apply our technologies to maximize the value of human, animal and plant genomic information for our licensee, collaborators and customers and ourselves through high-resolution gene expression analysis and in the discovery and characterization of important genetic variations. Now that we have reduced to practice the majority of our technologies, we intend to enlarge our presence in the pharmaceutical, biotechnology, agricultural and other commercially important markets. We believe many drug discovery and development companies now recognize the need for significantly greater resolution and scope in their genomics and genetics research. The primary elements of our business strategy are: - Pursue selected internal programs to capture greater value We intend to use our technologies to discover and develop gene targets, validated gene targets, genetic associations, genomic maps or other products in selected fields. Through these internal programs, we will endeavor to create valuable drug discovery information and related intellectual property that we could license to third parties. If successful, we could realize revenues from licensing our discoveries through licensing fees, milestone payments and royalties or profit-sharing. For example, we have initiated a program directed to the discovery and validation of targets in the field of immunopathology. - Collaborate with others with whom we can create value We will seek to collaborate with companies and research institutions under arrangements in which we provide access to our technologies, and our collaborators provide access to well-defined clinical samples and/or biological expertise. Through these programs, we will endeavor to create valuable drug discovery information and related intellectual property that could be licensed to third parties. If successful, we could realize revenues through a share in any licensing or commercialization by us or our collaborators. 3 6 - Provide high-resolution gene expression information for use in databases We intend to use our technologies, particularly MPSS, to produce high-resolution gene expression information from cells or tissues for inclusion in databases. We believe the distinguishing feature of the information that Lynx could produce is that it represents a comprehensive quantitative profile of gene expression in cells or tissues. Our approach could be either to assemble this information on our own or with a partner in a database format, accessible to others for an access fee and/or continuing subscriptions, or to provide this information to others for inclusion in their existing database products, in return for services fees in producing the information and/or a share of the revenues or profits from the commercialization of the database. - Provide high-resolution gene expression information for the specific programs of others With the assumed accessibility to databases containing high-resolution gene expression information on cells or tissues for comparative purposes, we expect that pharmaceutical, biotechnology, agricultural and other companies will engage us to produce a comprehensive quantitative profile of gene expression in cells or tissues for their specific interests, such as in diseased, abnormal or induced states or conditions. In these arrangements, we could provide information content for each company's specific internal database or programs. In return, we could earn services fees in producing the information and/or a share of the revenues or profits from the commercialization of a product stemming from the use the information by the company. - Continue to grow our genomics discovery services We have generated revenues through agreements for genomics discovery services. We plan to continue to provide such services to pharmaceutical, biotechnology and agricultural companies for use in their discovery, development and commercialization efforts. The revenue sources from these arrangements typically include technology access and services fees. We have provided a license for the use of certain of our technologies to Takara. The license provides Takara with the right in Japan, Korea and China, including Taiwan, to use our technologies exclusively for at least five years, and non-exclusively thereafter, to provide genomics discovery services and to manufacture and sell microarrays (small glass or silicon wafers with tens of thousands of DNA molecules arrayed on the surface for subsequent analysis) containing content identified by our technologies. Takara also receives from us a non-exclusive license right to manufacture and sell such microarrays elsewhere throughout the world. - Develop new technologies and additional applications of our technologies We intend to continue to develop creative solutions to complex biological problems. We currently focus on reducing to commercial practice our Megatype technology in order to extract from large populations those genomic fragments exhibiting SNPs and associate these SNPs with traits or diseases. We may further develop our technology to apply it to individual genotyping, which would determine the relevant SNPs present in an individual. We are also working in the area of proteomics to provide a means of high-resolution analysis of complex mixtures of proteins from cells or tissues. OUR TECHNOLOGIES AND APPLICATIONS We have developed, or are developing, several important analytical applications of our Megaclone technology to better address the need for increased pace, scale and quality of genomics and genetics research programs. Current Applications Massively Parallel Signature Sequencing Technology. Our MPSS technology addresses the need to generate sequence information from millions of DNA fragments. At this extremely large scale, our MPSS approach eliminates the need for individual sequencing reactions and the physical separation of DNA fragments required by conventional sequencing methods. MPSS enables the simultaneous identification of nearly all the DNA molecules in a sample. MPSS uses flow cells which are glass plates that are micromachined, or fabricated to very precise, small dimensions, to create a grooved chamber for immobilizing microbeads in a planar microarray, which is a two-dimensional, dense ordered array of DNA samples. With MPSS, one million or more Megaclone micro-beads are fixed in a single layer array in a flow cell, so solvents and reagents can be washed over the micro-beads in each cycle of the process. Our proprietary protocol elicits from the Megaclone micro-beads sequence-dependent fluorescent responses, which are recorded by a charged coupled device, or CCD, camera after each cycle. The process produces short 16- to 20-base-pair signature, or identifying, sequences, without requiring fragment separation and separate sequencing reactions as in conventional DNA sequencing approaches. We have developed proprietary instrumentation and software to automate the delivery of reagents and solutions used in our sequencing process and to compile, from the images obtained at each cycle, the signature sequences that result from each experiment. 4 7 We believe MPSS has the following advantages over conventional DNA sequencing methods: - it sequences DNA molecules on as many as one million or more Megaclone beads simultaneously; - it eliminates the need for individual sequencing reactions and gels; - it identifies each of the DNA molecules by a unique 16- to 20-base signature sequence; - it produces a comprehensive quantitative profile of gene expression in cells or tissues of interest; and - it identifies even the rarest expressed genes. We currently have over 30 operational proprietary MPSS instruments. We are utilizing MPSS to generate high-resolution expression data in several biological systems for our collaborators and customers and for ourselves. These data are being derived from tissues and samples that have been prioritized by our collaborators and customers, in addition to those identified by our research teams for our internal programs. We will also generate data that can be delivered directly to our customers to identify new genes and otherwise enhance their databases. MPSS delivers gene sequence information and high-resolution gene expression information and could enable the construction of high-resolution gene expression databases from cells or tissues of interest. Megasort Technology. Our Megasort technology provides a method to identify and physically extract essentially all genes that differ in expression level between two samples. The novelty of Megasort is that the identification and extraction are performed in a single assay. Megasort compares two DNA samples, each containing millions of molecules, and extracts those DNA molecules that are present in different proportions in the samples. These could be differentially expressed genes or DNA fragments that are found in one sample but not the other. Because the comparison and sorting require no prior knowledge of the sequences of the genes in either sample, Megasort can be used with samples isolated from tissues or organisms that are not well characterized. Megasort involves hybridizing two probes prepared separately, one from each of the samples to be compared, with a population of Megaclone micro-beads, each of which carries many copies of a single DNA fragment or gene derived from either of the samples. Because each probe is labeled with a different fluorescent marker, we can readily separate by a fluorescence activated cell sorter, also referred to as a FACS, genes or fragments that are under- or over-represented in either sample. Genes or fragments of interest can then be recovered from the sorted micro-beads for further study. Megasort technology uses Megaclone micro-beads as a "fluid" microarray. In a single experiment, Megasort can isolate nearly all the potential target genes that are differentially expressed, and remove those that do not differ between the samples. We believe Megasort has the following advantages over conventional gene microarrays: - it interrogates all the expressed genes, including rarely expressed genes, in the two samples being compared, whether known or not; - it does not require advance knowledge about any of the genes in these samples; and - it extracts, at the end of the experiment, physical DNA clones of those genes that are of interest attached to the micro-beads that were sorted. Megasort delivers focused sets of differentially expressed genes and potential gene targets. Technologies, Applications and Products Under Development Megatype Technology. We believe our Megatype technology will permit the comparison of collected genomes of two populations. It is designed to enable the detection and recovery of DNA fragments with the SNPs that distinguish these two populations. In contrast to other SNP validation methods that require thousands or millions of assays, only a single Megatype experiment should be required for SNP association with disease or other traits. 5 8 Megatype is designed to identify SNPs that are differentially represented in two populations of individuals. We use a proprietary method to select DNA fragments that exhibit a specific class of SNPs in the combined populations and to load the fragments onto micro-beads with our Megaclone technology. Using fluorescently labeled probes, prepared through the same proprietary method, from the two separate populations, micro-beads bearing SNP-containing fragments that are under- or over-represented in either of the two populations are easily separated using the FACS. No prior knowledge of the SNP sequences or where they are located in the genome is required to conduct this analysis. We believe the advantages of Megatype will include: - enabling simultaneous discovery of disease- or trait-associated SNPs without prior knowledge of SNP sequences; - identifying, in a single experiment, the genetic differences that distinguish large populations; - extracting fragments containing over- or under-represented SNPs in different populations; - eliminating the need for millions of individual genotyping assays to determine SNP disease association; and - bypassing the prior need for a comprehensive SNP map. We believe our Megatype technology will deliver information on the disease- or trait-association of SNPs and should provide a cost-effective approach to drug discovery and pharmacogenetics. Proteomics. Proteomics is the study of the entire protein complement in cells. Our proteomics technology aims to provide high-resolution analysis of complex mixtures of proteins from cells or tissues. Based on solution-phase electrophoresis in proprietary micro-channel plates, the approach combines the speed of capillary electrophoresis, the process by which electronically charged molecules are separated by their different mobilities in an electric field, with the resolving power of conventional two-dimensional gel-based techniques. Using this technology, we expect to complement high-resolution gene expression measurements using our MPSS platform with similar high-resolution analysis of a cell's translated proteins. The combined data from these measurements should provide a much more accurate and comprehensive picture of cell and tissue physiology than is available using current techniques. Our goal is to use our proteomics technology to discover drug targets, validate candidate targets and correlate gene expression with protein expression in cells. Genotyping. As a natural extension of our Megatype technology, we may further apply the technology to individual genotyping, which would determine the relevant SNPs present in an individual. This application will attempt to derive more of the downstream value from the scientifically relevant SNPs through the additional enabling of trait selection in crops, and predictive or preventative medicine in humans, thus moving closer to the notion of "personal genomics." Furthermore, we may develop additional assays to help link associated SNPs initially identified by Megatype technology to specific genes responsible for the observed traits. COLLABORATIONS, CUSTOMERS AND LICENSEES Lynx's current commercial collaborators and customers are BASF AG (BASF), E.I. DuPont de Nemours and Company, Aventis CropScience GmbH, Oxagen Limited, Hybrigenics S.A., Genomics Collaborative Inc., Molecular Engines Laboratories S.A., the Institute of Molecular and Cell Biology, Phytera, Inc., Celera Genomics, AstraZeneca, UroGene S.A., GenoMar ASA and AniGenics, Inc. Additionally, Lynx has provided a license for the use of certain of its technologies to Takara Shuzo Co. Ltd. and BASF-LYNX Bioscience AG (BASF-LYNX). BASF In October 1996, as amended in October 1998, Lynx entered into an agreement with BASF to provide them with nonexclusive access to certain of our genomics discovery services. In connection with certain technology development accomplishments, BASF paid us a technology access fee of $4.5 million in the fourth quarter of 1999. BASF's access to Lynx's genomics discovery services is for a minimum of two years and requires BASF to purchase services at a minimum rate of $4.0 million per year. At the end of the initial two-year service period, BASF has the right to carryover for a limited time a certain level of previously unrequested genomics discovery services. BASF paid us $4.0 million in each of the fourth quarters of 1999 and 2000 for genomics discovery services to be performed by us. 6 9 DuPont In October 1998, Lynx entered into a research collaboration agreement with DuPont to apply our technologies on an exclusive basis to the study of certain crops and their protection. Under the terms of the agreement, the Company could receive payments over a five-year period for genomics discovery services, the achievement of specific technology milestones and the delivery of genomic maps of specified crops. An initial payment of $10 million for technology access was received at the execution of the agreement, with additional minimum service fees of $12 million to be received by us over a three-year period that commenced in January 1999. At the end of three years from the effective date of the agreement, DuPont can terminate the agreement either with no further payment obligations to Lynx other than those accrued, or if DuPont chooses to maintain exclusivity with respect to certain crops, with payments for the remaining two years of the agreement. In the fourth quarter of 1999, Lynx achieved a technology milestone under the agreement that resulted in a $5 million payment from DuPont. Aventis CropScience In March 1999, Aventis Pharmaceuticals, formerly Hoechst Marion Roussel, Inc., obtained nonexclusive access to certain of our genomics discovery services for the benefit of its affiliate, Aventis CropScience. Lynx received an initial payment for genomics discovery services to be performed by us for Aventis CropScience. The service period, which was renewed in March 2000, has been extended to September 2001, and is subject to renewal for up to two additional one-year periods. In September 1999, Lynx signed a three-year research collaboration agreement with Aventis CropScience. Aventis CropScience will receive exclusive access to certain of our genomics discovery services for the study of certain plants, which is aimed at developing new crop varieties and other agricultural products. Under the terms of the agreement, Aventis CropScience paid us a technology access fee upon execution of the agreement. Lynx can earn additional fees for the performance of genomics discovery services, the delivery of genomic maps of certain plants and milestone payments and licensing fees related to the discovery of trait-associated SNPs for the subject plants. 10 Takara In November 2000, Lynx entered into a technology licensing agreement with Takara Shuzo Co. Ltd. of Japan. The license provides Takara with the right in Japan, Korea and China, including Taiwan, to use our proprietary Megaclone, Megasort and MPSS technologies exclusively for at least five years, and non-exclusively thereafter, to provide genomics discovery services and to manufacture and sell microarrays containing content identified by our technologies. Takara also receives a non-exclusive license right to manufacture and sell such microarrays elsewhere throughout the world. At the end of three years from the effective date of the agreement, Takara can terminate the agreement with no further payment obligations to Lynx other than those accrued prior to the termination. Under the terms of the agreement, Lynx will receive from Takara payments for technology access fees, royalties on sales of microarrays and revenues from genomics discovery services, the sale to Takara of proprietary reagents used in applying our technologies and purchases of Lynx common stock. BASF-LYNX In June 2001, Lynx extended its technology licensing agreement with BASF-LYNX, a joint venture company established in Heidelberg, Germany, by Lynx and BASF in 1996. The license extends BASF-LYNX's right to use Lynx's proprietary MPSS(TM) and Megasor(TM) technologies non-exclusively in BASF-LYNX's neuroscience, toxicology and microbiology research programs until December 31, 2007. The agreement also uniquely positions BASF-LYNX to apply Lynx's technologies to specific disorders in the neuroscience field. Under the terms of the agreement, Lynx will receive from BASF-LYNX a multi-million dollar technology license fee. Lynx will furnish BASF-LYNX, initially without charge and later for a fee, with Megaclone(TM) technology micro-beads, other reagents and additional MPSS(TM) technology instruments for use in BASF-LYNX's research programs. Separately, Lynx and BASF have agreed to continue their support of BASF-LYNX's growth, including an increase of the capital reserve of BASF-LYNX. Lynx's additional investment in BASF-LYNX will maintain Lynx's ownership interest in BASF-LYNX at more than 40%. BASF-LYNX began operations in 1997 and is employing Lynx's technologies in its neuroscience toxicology and microbiology research programs. Upon the establishment of BASF-LYNX, Lynx contributed access to its technologies to BASF-LYNX in exchange for an initial 49% equity ownership. BASF, by committing to provide research funding to BASF-LYNX of DM50 million) or approximately $23.4 million based on a August 2001 exchange rate) over a five-year period beginning in 1997, received an initial 51% equity ownership in BASF-LYNX. In 1998, BASF agreed to provide an additional $10 million in research funding to BASF-LYNX, of which $4.3 million was paid to Lynx for technology assets related to a CNS program. COMPETITION Competition among entities attempting to identify the genes associated with specific diseases and to develop products based on such discoveries is intense. We face, and will continue to face, competition from pharmaceutical, biotechnology and agricultural companies, such as Affymetrix, Inc., Celera Genomics Group, Incyte Genomics, Inc., Gene Logic, Inc., Genome Therapeutics Corporation and Hyseq, Inc., academic and research institutions and government agencies, both in the United States and abroad. Several entities are attempting to identify and patent randomly sequenced genes and gene fragments, while others are pursuing a gene identification, characterization and product development strategy based on positional cloning. We are aware that certain entities are using a variety of gene expression analysis methodologies, including chip-based systems, to attempt to identify disease-related genes. In addition, numerous pharmaceutical companies are developing genomic research programs, either alone or in partnership with our competitors. Competition among such entities is intense and is expected to increase. In order to successfully compete against existing and future technologies, we will need to demonstrate to potential customers that our technologies and capabilities are superior to those of competitors. Some of our competitors have substantially greater capital resources, research and development staffs, facilities, manufacturing and marketing experience, distribution channels and human resources than us. These competitors may discover, characterize or develop important genes, drug targets or drug leads, drug discovery technologies or drugs in advance of our customers or us or which are more effective than those developed by our collaborators and customers or us. They may also obtain regulatory approvals for their 8 11 drugs more rapidly than our collaborators or customers will, any of which could have a material adverse effect on our business. Moreover, our competitors may obtain patent protection or other intellectual property rights that could limit our rights or our collaborators' and customers' abilities to use our technologies or commercialize therapeutic, diagnostic or agricultural products. We also face competition from these and other entities in gaining access to cells, tissues and nucleic acid samples for use in our discovery programs. INTELLECTUAL PROPERTY We are pursuing a strategy designed to obtain United States and foreign patent protection for our core technologies. Our long-term commercial success will be dependent in part on our ability to obtain commercially valuable patent claims and to protect our intellectual property portfolio. As of December 31, 2000, we owned or controlled 63 issued patents and 117 pending patent applications in the United States and foreign countries relating to our genomics technologies. In addition to acquiring patent protection for our core analysis technologies, as part of our business strategy, we intend to file for patent protection on sets of genes, both known and newly discovered, that have diagnostic or prognostic applications, novel genes that may serve as drug development targets, genetic maps and sets of genetic markers, such as SNPs, that are associated with traits or conditions of medical or economic importance. However, there is substantial uncertainty regarding the availability of such patent protection. Patent law relating to the scope of claims in the technology field in which we operate is still evolving. The degree to which we will be able to protect our technology with patents, therefore, is uncertain. Others may independently develop similar or alternative technologies, duplicate any of our technologies, and, if patents are licensed or issued to us, design around the patented technologies licensed to or developed by us. In addition, we could incur substantial costs in litigation if we are required to defend ourselves in patent suits brought by third parties or if we initiate such suits. With respect to proprietary know-how that is not patentable and for processes for which patents are difficult to enforce, we rely on trade secret protection and confidentiality agreements to protect our interests. We intend to maintain several important aspects of our technology platform as trade secrets. While we require all employees, consultants, collaborators, customers and licensees to enter into confidentiality agreements, we cannot be certain that proprietary information will not be disclosed or that others will not independently develop substantially equivalent proprietary information. RESEARCH AND DEVELOPMENT EXPENDITURES We have devoted our efforts primarily to research and development. Research and development expenses were $19.8 million for the year ended December 31, 2000, $15.5 million for the year ended December 31, 1999 and $13.2 million for the year ended December 31, 1998. SCIENTIFIC ADVISORS Our principal scientific advisor: Sydney Brenner, M.B., D.Phil., is a distinguished Professor at the Salk Institute of Biological Studies in La Jolla, California. From July 1996 to January 2001, Dr. Brenner served as Director and President of The Molecular Sciences Institute, a non-profit research institute in Berkeley, California. Until his retirement in 1996, Dr. Brenner was Honorary Professor of Genetic Medicine, University of Cambridge School of Clinical Medicine, Cambridge, England. Dr. Brenner is known for his work on genetic code and the information transfer from genes to proteins, and for his pioneering research on the genetics and development of the nematode. Dr. Brenner is a Fellow of the Royal Society (1995) and a Foreign Associate of the U.S. National Academy of Sciences (1977) and has received numerous awards of recognition, including the Albert Lasker Medical Research Award (1991), the Genetics Society of America Medal (1987) and the Kyoto Prize (1990). Dr. Brenner is the principal inventor of Lynx's bead-based technologies. EMPLOYEES As of December 31, 2000, we employed 156 full-time employees, of which 128 were engaged in research and development activities and 28 in finance and administrative activities. We believe we have been successful in attracting skilled and experienced scientific personnel; however, competition for such personnel is intense. None of our employees are covered by collective bargaining agreements, and management considers relations with our employees to be good. 9 12 BUSINESS RISKS Lynx's business faces significant risks. These risks include those described below and may include additional risks of which Lynx is not currently aware or which Lynx currently does not believe are material. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. These risks should be read in conjunction with the other information set forth in this report. WE HAVE A HISTORY OF NET LOSSES. WE EXPECT TO CONTINUE TO INCUR NET LOSSES, AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY. We have incurred net losses each year since our inception in 1992, including net losses of approximately $4.3 million in 1998, $6.7 million in 1999 and $13.3 million in 2000. As of June 30, 2001, we had an accumulated deficit of approximately $76.9 million. We expect these losses to continue for at least the next several years. The size of these net losses will depend, in part, on the rate of growth, if any, in our revenues and on the level of our expenses. Our research and development expenditures and general and administrative costs have exceeded our revenues to date, and we expect research and development expenses to increase due to planned spending for ongoing technology development and implementation, as well as new applications. As a result, we will need to generate significant additional revenues to achieve profitability. Even if we do increase our revenues and achieve profitability, we may not be able to sustain profitability. Our ability to generate revenues and achieve profitability depends on many factors, including: - our ability to continue existing customer relationships and enter into additional corporate collaborations and agreements; - our ability to discover genes and targets for drug discovery; - our ability to expand the scope of our research into new areas of pharmaceutical, biotechnology and agricultural research; - our collaborators' ability to develop diagnostic and therapeutic products from our drug discovery targets; and - the successful clinical testing, regulatory approval and commercialization of such products. The time required to reach profitability is highly uncertain. We may not achieve profitability on a sustained basis, if at all. WE WILL NEED ADDITIONAL FUNDS IN THE FUTURE, WHICH MAY NOT BE AVAILABLE TO US. We have invested significant capital in our scientific and business development activities. Our future capital requirements will be substantial as we expand our operations, and will depend on many factors, including: - the progress and scope of our collaborative and independent research and development projects; - payments received under collaborative agreements; - our ability to establish and maintain collaborative arrangements; - the progress of the development and commercialization efforts under our collaborations and corporate agreements; 10 13 - the costs associated with obtaining access to samples and related information; and - the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights. We anticipate that our current cash and cash equivalents, short-term investments and funding to be received from collaborators and customers will enable us to maintain our currently planned operations for at least the next 12 months. Changes to our current operating plan may require us to consume available capital resources significantly sooner than we expect. If our capital resources are insufficient to meet future capital requirements, we will have to raise additional funds. We do not know if we will be able to raise sufficient additional capital on acceptable terms, or at all. If we raise additional capital by issuing equity or convertible debt securities, our existing stockholders may experience substantial dilution. If we fail to obtain adequate funds on reasonable terms, we may have to curtail operations significantly or obtain funds by entering into financing or collaborative agreements on unattractive terms. OUR TECHNOLOGIES ARE NEW AND UNPROVEN AND MAY NOT ALLOW US OR OUR COLLABORATORS TO IDENTIFY GENES OR TARGETS FOR DRUG DISCOVERY. You must evaluate us in light of the uncertainties and complexities affecting an early stage genomics company. Our technologies are new and unproven. The application of these technologies is in too early a stage to determine whether it can be successfully implemented. These technologies assume that information about gene expression and gene sequences may enable scientists to better understand complex biological processes. Our technologies also depend on the successful integration of independent technologies, each of which has its own development risks. Relatively few therapeutic products based on gene discoveries have been successfully developed and commercialized. Our technologies may not enable us or our collaborators to identify genes or targets for drug discovery. To date, neither we nor our collaborators have identified any targets for drug discovery based on our technologies. WE DEPEND ON OUR COLLABORATIONS AND WILL NEED TO FIND ADDITIONAL COLLABORATORS IN THE FUTURE TO DEVELOP AND COMMERCIALIZE DIAGNOSTIC OR THERAPEUTIC PRODUCTS. Our strategy for the development and commercialization of our technologies and potential products includes entering into collaborations, subscription arrangements or licensing arrangements with pharmaceutical, biotechnology and agricultural companies. We do not have the resources to develop or commercialize diagnostic or therapeutic products on our own. If we cannot negotiate additional collaborative arrangements or contracts on acceptable terms, or at all, or such collaborations or relationships are not successful, we may never become profitable. We have derived substantially all of our revenues derived from corporate collaborations and agreements. Revenues from collaborations and related agreements depend upon continuation of the collaborations, the achievement of milestones and royalties derived from future products developed from our research and technologies. To date, we have received a significant portion of our revenues from a small number of collaborators and customers. For the three months ended March 31, 2001, revenues from DuPont, BASF, Takara and Aventis CropScience accounted for 36%, 25%, 19% and 10%, respectively, of our total revenues. For the year ended December 31, 2000, revenues from DuPont, BASF and Aventis CropScience accounted for 51%, 29% and 11 14 11%, respectively, of our total revenues. For the year ended December 31, 1999, revenues from DuPont, Aventis CropScience and BASF accounted for 81%, 13% and 5%, respectively, of our total revenues. For the year ended December 31, 1998, revenues from BASF-LYNX Bioscience AG, BASF and DuPont accounted for 61%, 33% and 5%, respectively, of our total revenues. If we fail to successfully achieve milestones or our collaborators fail to develop successful products, we will not earn the revenues contemplated under such collaborative agreements. If our collaborators or customers do no renew existing agreements, we lose one of these collaborators or customers and we do not attract new collaborators or customers or we are unable to enter into new collaborative agreements on commercially acceptable terms, our revenues may decrease, and our activities may fail to lead to commercialized products. Our dependence on collaborative arrangements with third parties subjects us to a number of risks. We have limited or no control over the resources that our collaborators may choose to devote to our joint efforts. Our collaborators may breach or terminate their agreements with us or fail to perform their obligations thereunder. Further, our collaborators may elect not to develop products arising out of our collaborative arrangements or may fail to devote sufficient resources to the development, manufacture, marketing or sale of such products. While we do not currently compete directly with any of our collaborators, some of our collaborators could become our competitors in the future if they internally develop DNA or protein analysis technologies or if they acquire other genomics or proteomics companies and move into the genomics and proteomics industries. We will not earn the revenues contemplated under our collaborative arrangements, if our collaborators: - - do not develop commercially successful products using our technologies; - - develop competing products; - - preclude us from entering into collaborations with their competitors; - - fail to obtain necessary regulatory approvals; or - - terminate their agreements with us. WE DEPEND ON A SOLE SUPPLIER TO MANUFACTURE FLOW CELLS USED IN OUR MPSS TECHNOLOGY. Flow cells are glass plates that are micromachined, or fabricated to very precise, small dimensions, to create a grooved chamber for immobilizing microbeads in a planar microarray, which is a two-dimensional, dense ordered array of DNA samples. We use flow cells in our Massively Parallel Signature Sequencing, or MPSS, technology. We currently purchase the flow cells used in our MPSS technology from a single supplier, although the flow cells are potentially available from multiple suppliers. While we believe that alternative suppliers for flow cells exist, identifying and qualifying new suppliers could be an expensive and time-consuming process. Our reliance on outside vendors involves several risks, including: - the inability to obtain an adequate supply of required components due to manufacturing capacity constraints, a discontinuance of a product by a third-party manufacturer or other supply constraints; - reduced control over quality and pricing of components; and - delays and long lead times in receiving materials from vendors. 12 15 WE OPERATE IN AN INTENSELY COMPETITIVE INDUSTRY WITH RAPIDLY EVOLVING TECHNOLOGIES, AND OUR COMPETITORS MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAKE OURS OBSOLETE. The biotechnology industry is highly fragmented and is characterized by rapid technological change. In particular, the area of genomics research is a rapidly evolving field. Competition among entities attempting to identify genes associated with specific diseases and to develop products based on such discoveries is intense. Many of our competitors have substantially greater research and product development capabilities and financial, scientific, and marketing resources than we do. We face, and will continue to face, competition from pharmaceutical, biotechnology and agricultural companies, as well as academic research institutions, clinical reference laboratories and government agencies. Some of our competitors, such as Affymetrix, Inc., Celera Genomics Group, Incyte Genomics, Inc., Gene Logic, Inc., Genome Therapeutics Corporation and Hyseq, Inc., may be: - attempting to identify and patent randomly sequenced genes and gene fragments; - pursuing a gene identification, characterization and product development strategy based on positional cloning, which uses disease inheritance patterns to isolate the genes that are linked to the transmission of disease from one generation to the next; and - using a variety of different gene expression analysis methodologies, including the use of chip-based systems, to attempt to identify disease-related genes. In addition, numerous pharmaceutical, biotechnology and agricultural companies are developing genomic research programs, either alone or in partnership with our competitors. Our future success will depend on our ability to maintain a competitive position with respect to technological advances. Rapid technological development by others may make our technologies and future products obsolete. Any products developed through our technologies will compete in highly competitive markets. Our competitors may be more effective at using their technologies to develop commercial products. Further, our competitors may obtain intellectual property rights that would limit the use of our technologies or the commercialization of diagnostic or therapeutic products using our technologies. As a result, our competitors' products or technologies may render our technologies and products, and those of our collaborators, obsolete or noncompetitive. IF WE FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGIES, THIRD PARTIES MAY BE ABLE TO USE OUR TECHNOLOGY, WHICH COULD PREVENT US FROM COMPETING IN THE MARKET. Our success depends in part on our ability to obtain patents and maintain adequate protection of the intellectual property related to our technologies and products. The patent positions of biotechnology companies, including our patent position, are generally uncertain and involve complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the U.S., and many companies have encountered significant problems in protecting and defending 13 16 their proprietary rights in foreign jurisdictions. We have applied and will continue to apply for patents covering our technologies, processes and products as and when we deem appropriate. However, third parties may challenge these applications, or these applications may fail to result in issued patents. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around our patents. In addition, our patents may be challenged or invalidated or fail to provide us with any competitive advantage. We also rely on trade secret protection for our confidential and proprietary information. However, trade secrets are difficult to protect. We protect our proprietary information and processes, in part, with confidentiality agreements with employees, collaborators and consultants. However, third parties may breach these agreements, we may not have adequate remedies for any such breach or our trade secrets may still otherwise become known by our competitors. In addition, our competitors may independently develop substantially equivalent proprietary information. LITIGATION OR THIRD-PARTY CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT COULD REQUIRE US TO SPEND SUBSTANTIAL TIME AND MONEY AND ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR TECHNOLOGIES AND PRODUCTS. Our commercial success depends in part on our ability to avoid infringing patents and proprietary rights of third parties and not breaching any licenses that we have entered into with regard to our technologies. Other parties have filed, and in the future are likely to file, patent applications covering genes, gene fragments, the analysis of gene expression and the manufacture and use of DNA chips or microarrays, which are tiny glass or silicon wafers on which tens of thousands of DNA molecules can be arrayed on the surface for subsequent analysis. We intend to continue to apply for patent protection for methods relating to gene expression and for the individual disease genes and drug discovery targets we discover. If patents covering technologies required by our operations are issued to others, we may have to rely on licenses from third parties, which may not be available on commercially reasonable terms, or at all. Third parties may accuse us of employing their proprietary technology without authorization. In addition, third parties may obtain patents that relate to our technologies and claim that use of such technologies infringes these patents. Regardless of their merit, such claims could require us to incur substantial costs, including the diversion of management and technical personnel, in defending ourselves against any such claims or enforcing our patents. In the event that a successful claim of infringement is brought against us, we may need to pay damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, or at all. Defense of any lawsuit or failure to obtain any of these licenses could adversely affect our ability to develop and commercialize our technologies and products and thus prevent us from achieving profitability. WE HAVE LIMITED EXPERIENCE IN SALES AND MARKETING AND THUS MAY BE UNABLE TO FURTHER COMMERCIALIZE OUR TECHNOLOGIES AND PRODUCTS. 14 17 Our ability to achieve profitability depends on attracting collaborators and customers for our technologies and products. There are a limited number of pharmaceutical, biotechnology and agricultural companies that are potential collaborators and customers for our technologies and products. To market our technologies and products, we must develop a sales and marketing group with the appropriate technical expertise. We may not successfully build such a sales force. If our sales and marketing efforts fail to be successful, our technologies and products may fail to gain market acceptance. OUR SALES CYCLE IS LENGTHY, AND WE MAY SPEND CONSIDERABLE RESOURCES ON UNSUCCESSFUL SALES EFFORTS OR MAY NOT BE ABLE TO ENTER INTO AGREEMENTS ON THE SCHEDULE WE ANTICIPATE. Our ability to obtain collaborators and customers for our technologies and products depends in significant part upon the perception that our technologies and products can help accelerate their drug discovery and genomics efforts. Our sales cycle is typically lengthy because we need to educate our potential collaborators and customers and sell the benefits of our products to a variety of constituencies within such companies. In addition, we may be required to negotiate agreements containing terms unique to each collaborator or customer. We may expend substantial funds and management effort with no assurance that we will successfully sell our technologies and products. Actual and proposed consolidations of pharmaceutical companies have negatively affected, and may in the future negatively affect, the timing and progress of our sales efforts. WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH. We expect to continue to experience significant growth in the number of our employees and the scope of our operations. This growth may place a significant strain on our management and operations. As our operations expand, we expect that we will need to manage additional relationships with various collaborators and customers, suppliers and other third parties. Our ability to manage our operations and growth effectively requires us to continue to improve our operational, financial and management controls, reporting systems and procedures. We may not successfully implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls. THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL COULD IMPAIR THE GROWTH OF OUR BUSINESS. We are highly dependent on the principal members of our management and scientific staff. The loss of any of these persons' services might adversely impact the achievement of our objectives and the continuation of existing collaborations. In addition, recruiting and retaining qualified scientific personnel to perform future research and development work will be critical to our success. There is currently a shortage of skilled executives and employees with technical expertise, and this shortage is likely to continue. As a result, competition for skilled personnel is intense and turnover rates are high. Competition for experienced scientists from numerous companies, academic and other research institutions may limit our ability to attract and retain such personnel. We depend on our President and Chief Executive Officer, Norman J.W. Russell, Ph.D., the loss of whose services could have a material adverse effect on our business. Although 15 18 we have an employment agreement with Dr. Russell in place, currently we do not maintain key person insurance for him or any other key personnel. WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND COSTLY. Our research and development processes involve the controlled use of hazardous materials, including chemicals and radioactive and biological materials. Our operations produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our insurance coverage and our total assets. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development and production efforts. ETHICAL, LEGAL AND SOCIAL ISSUES MAY LIMIT THE PUBLIC ACCEPTANCE OF, AND DEMAND FOR, OUR TECHNOLOGIES AND PRODUCTS. Our collaborators and customers may seek to develop diagnostic products based on genes we discover. The prospect of broadly available gene-based diagnostic tests raises ethical, legal and social issues regarding the appropriate use of gene-based diagnostic testing and the resulting confidential information. It is possible that discrimination by third-party payors, based on the results of such testing, could lead to the increase of premiums by such payors to prohibitive levels, outright cancellation of insurance or unwillingness to provide coverage to individuals showing unfavorable gene expression profiles. Similarly, employers could discriminate against employees with gene expression profiles indicative of the potential for high disease-related costs and lost employment time. Finally, government authorities could, for social or other purposes, limit or prohibit the use of such tests under certain circumstances. These ethical, legal and social concerns about genetic testing and target identification may delay or prevent market acceptance of our technologies and products. Although our technology does not depend on genetic engineering, genetic engineering plays a prominent role in our approach to product development. The subject of genetically modified food has received negative publicity, which has aroused public debate. Adverse publicity has resulted in greater regulation internationally and trade restrictions on imports of genetically altered agricultural products. Claims that genetically engineered products are unsafe for consumption or pose a danger to the environment may influence public attitudes and prevent genetically engineered products from gaining public acceptance. The commercial success of our future products may depend, in part, on public acceptance of the use of genetically engineered products, including drugs and plant and animal products. IF WE DEVELOP PRODUCTS WITH OUR COLLABORATORS, AND IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE COULD FACE SUBSTANTIAL LIABILITIES THAT EXCEED OUR RESOURCES. 16 19 We may be held liable, if any product we develop with our collaborators causes injury or is otherwise found unsuitable during product testing, manufacturing, marketing or sale. Although we have general liability and product liability insurance, this insurance may become prohibitively expensive or may not fully cover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or to otherwise protect us against potential product liability claims could prevent or inhibit our ability to commercialize products developed with our collaborators. HEALTHCARE REFORM AND RESTRICTIONS ON REIMBURSEMENTS MAY LIMIT OUR RETURNS ON DIAGNOSTIC OR THERAPEUTIC PRODUCTS THAT WE MAY DEVELOP WITH OUR COLLABORATORS. If we successfully validate targets for drug discovery, products that we develop with our collaborators based on those targets may include diagnostic or therapeutic products. The ability of our collaborators to commercialize such products may depend, in part, on the extent to which reimbursement for the cost of these products will be available from government health administration authorities, private health insurers and other organizations. In the U.S., third-party payors are increasingly challenging the price of medical products and services. The trend towards managed healthcare in the U.S., legislative healthcare reforms and the growth of organizations such as health maintenance organizations that may control or significantly influence the purchase of healthcare products and services, may result in lower prices for any products our collaborators may develop. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. If adequate third-party coverage is not available in the future, our collaborators may fail to maintain price levels sufficient to realize an appropriate return on their investment in research and product development. OUR FACILITIES ARE LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES; AN EARTHQUAKE OR OTHER CATASTROPHIC DISASTER COULD CAUSE DAMAGE TO OUR FACILITIES AND EQUIPMENT, WHICH COULD REQUIRE US TO CEASE OPERATIONS. Our facilities are located near known earthquake fault zones and are vulnerable to damage from earthquakes. We are also vulnerable to damage from other types of disasters, including fire, floods, power loss, communications failures and similar events. If any disaster were to occur, our ability to operate our business at our facilities would be seriously, or potentially completely, impaired. In addition, the unique nature of our research activities could cause significant delays in our programs and make it difficult for us to recover from a disaster. The insurance we maintain may not be adequate to cover our losses resulting from disasters or other business interruptions. Accordingly, an earthquake or other disaster could materially and adversely harm our ability to conduct business. OUR STOCK PRICE MAY BE EXTREMELY VOLATILE. We believe that the market price of our common stock will remain highly volatile and may fluctuate significantly due to a number of factors. The market prices for securities of many publicly-held, early-stage biotechnology companies have in the past been, and can in the future be expected to be, especially volatile. For example, during the two-year period from June 30, 1999 to 2001, the closing sales price of our common stock as quoted on the Nasdaq National Market fluctuated from a low of $5.01 to a high of $96.875 per share. In addition, the securities 17 20 markets have from time to time experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. The following factors and events may have a significant and adverse impact on the market price of our common stock: - fluctuations in our operating results; - announcements of technological innovations or new commercial products by us or our competitors; - release of reports by securities analysts; - developments or disputes concerning patent or proprietary rights; - developments in our relationships with current or future collaborators or customers; and - general market conditions. Many of these factors are beyond our control. These factors may cause a decrease in the market price of our common stock, regardless of our operating performance. ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY MAKE IT MORE DIFFICULT TO ACQUIRE US OR TO EFFECT A CHANGE IN OUR MANAGEMENT, EVEN THOUGH AN ACQUISITION OR MANAGEMENT CHANGE MAY BE BENEFICIAL TO OUR STOCKHOLDERS. Under our certificate of incorporation, our board of directors has the authority, without further action by the holders of our common stock, to issue 2,000,000 additional shares of preferred stock from time to time in series and with preferences and rights as it may designate. These preferences and rights may be superior to those of the holders of our common stock. For example, the holders of preferred stock may be given a preference in payment upon our liquidation or for the payment or accumulation of dividends before any distributions are made to the holders of common stock. Although we have no present intention to authorize or issue any additional series of preferred stock, any authorization or issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could also have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock or making it more difficult to remove directors and effect a change in management. The preferred stock may have other rights, including economic rights senior to those of our common stock, and, as a result, an issuance of additional preferred stock could lower the market value of our common stock. Provisions of Delaware law may also discourage, delay or prevent someone from acquiring or merging with us. RECENT PRONOUNCEMENTS COULD IMPACT OUR FINANCIAL POSITION AND RESULTS OF OPERATIONS. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective for the year ending December 31, 2001. This statement establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's 18 21 fair value be recognized in earnings unless specific hedge accounting criteria are met. We believe the adoption of SFAS 133 on January 1, 2001 had no material effect on the financial statements, since we currently do not invest in derivative instruments and engage in hedging activities. 19 22 ITEM 2. PROPERTIES In February 1998, we entered into a noncancelable operating lease for facilities space of approximately 111,000 square-feet in two buildings in Hayward, California. Currently, our corporate headquarters, principal research and development facilities and production facilities are located in one of the two buildings. The remaining space will be developed and occupied in phases, depending on our growth. The lease runs through December 2008. We have an option to extend the lease for an additional five-year period, subject to certain conditions. We have leased approximately 37,000 square feet of additional space in one of the buildings for further expansion purposes. In June 1998, Lynx GmbH entered into a noncancelable operating lease for facilities space of approximately 6,300 square-feet in Heidelberg, Germany, to house its operations. The space will be developed and occupied in phases, depending on the growth of the organization. The lease terminates in June 2005. A portion of this space is currently being subleased by BASF-LYNX. In August 1993, we entered into a noncancelable operating lease for another facility that expires on July 31, 2003. In 1998, we entered into an agreement to sublease a portion of this space, and in 1999, through a subsequent agreement, subleased the remaining portion of the facility. The term of the sublease runs through July 2003. Rent from the sublease is sufficient to cover the rent and other operating expenses incurred by Lynx under the terms of the 1993 lease. ITEM 3. LEGAL PROCEEDINGS We are not a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders in the quarter ended December 31, 2000. 20 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On December 30, 1997, we listed our common stock on the Nasdaq National Market. Prior to December 30, 1997, there was no established public trading market for our voting stock. Our common stock trades on the Nasdaq National Market under the symbol LYNX. The following table sets forth, for the periods indicated, the high and low closing sale prices for our common stock as reported by the Nasdaq National Market:
COMMON STOCK PRICE ------------------ HIGH LOW ------ ------ YEAR ENDED DECEMBER 31, 1999 First Quarter ................... $15.00 $ 8.88 Second Quarter .................. 12.69 9.44 Third Quarter ................... 15.75 10.63 Fourth Quarter .................. 37.00 9.13 YEAR ENDED DECEMBER 31, 2000 First Quarter ................... $96.88 $24.06 Second Quarter .................. 47.56 14.25 Third Quarter ................... 48.75 24.00 Fourth Quarter .................. 31.25 7.25
As of March 22, 2001, there were approximately 2,400 stockholders of record of our common stock. On March 22, 2001, the last reported sale price of our common stock was $7.50. We have never declared or paid any cash dividends on our common stock. We currently intend to retain earnings to support the development of our business and do not anticipate paying cash dividends for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors. 21 24 ITEM 6. SELECTED FINANCIAL DATA This section presents our selected consolidated historical financial data. You should read carefully the consolidated financial statements and the notes thereto included in this report and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Consolidated Statement of Operations Data for the years ended December 31, 1998, 1999 and 2000 and the Consolidated Balance Sheet Data as of December 31, 1999 and 2000 have been derived from our audited consolidated financial statements included elsewhere in this report. The Consolidated Statement of Operations Data for the years ended December 31, 1996 and 1997 and the Consolidated Balance Sheet Data as of December 31, 1996, 1997 and 1998 have been derived from our audited financial statements that are not included in this report. Historical results are not necessarily indicative of future results. See the Notes to Consolidated Financial Statements for an explanation of the method used to determine the number of shares used in computing basic and diluted net loss per share.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues: Technology access and services fees ......... $ 1,958 $ 3,875 $ 2,625 $ 7,833 $ 12,389 Collaborative research and other ............ 7,791 707 4,380 5,042 235 -------- -------- -------- -------- -------- Total revenues ...................... 9,749 4,582 7,005 12,875 12,624 Operating costs and expenses: Cost of services fees ....................... -- -- -- 828 3,652 Research and development .................... 12,545 14,226 13,166 15,510 19,761 General and administrative .................. 3,170 1,930 2,141 4,175 6,170 -------- -------- -------- -------- -------- Total operating costs and expenses .. 15,715 16,156 15,307 20,513 29,583 -------- -------- -------- -------- -------- Loss from operations .......................... (5,966) (11,574) (8,302) (7,638) (16,959) Interest and other income, net ................ 585 753 4,106 1,232 4,158 -------- -------- -------- -------- -------- Loss before provision for income taxes ........ (5,381) (10,821) (4,196) (6,406) (12,801) Provision for income taxes .................... 10 -- 151 258 500 -------- -------- -------- -------- -------- Net loss ...................................... $ (5,391) $(10,821) $ (4,347) $ (6,664) $(13,301) ======== ======== ======== ======== ======== Basic and diluted net loss per share .......... $ (2.45) $ (3.09) $ (0.45) $ (0.60) $ (1.17) Shares used in per share computation .......... 2,197 3,501 9,642 11,128 11,388
DECEMBER 31, ----------------------------------------------------------- 1996 1997 1998 1999 2000 ------- ------- ------- ------- ------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments ... $14,082 $24,930 $23,862 $30,786 $18,798 Working capital ..................................... 9,118 21,875 20,834 25,042 10,887 Total assets ........................................ 18,412 29,267 40,334 51,638 39,215 Notes payable -- noncurrent portion ................. -- -- -- 3,471 3,077 Stockholders' equity ................................ $10,732 $25,590 $23,457 $19,646 $ 6,222
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
FISCAL YEAR 2000 QUARTER ENDED ----------------------------------------------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues .................................. $ 3,016 $ 2,834 $ 3,425 $ 3,349 Loss from operations ...................... (3,918) (3,421) (5,177) (4,443) Net loss .................................. (481) (3,167) (4,966) (4,687) Basic and diluted net loss per share ...... $ (0.04) $ (0.28) $ (0.44) $ (0.41)
FISCAL YEAR 1999 QUARTER ENDED ----------------------------------------------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues ...................................... $ 654 $ 961 $ 1,122 $ 10,138 Income (loss) from operations ................. (3,670) (4,602) (4,196) 4,830 Net income (loss) ............................. (3,200) (4,557) (3,950) 5,043 Basic and diluted net income (loss) per share . $ (0.29) $ (0.41) $ (0.36) $ 0.46
22 25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information is dated as of March 30, 2001, the initial filing dated of this Annual Report, except for "Liquidity and Capital Resources," which has been amended and restated as of the date of this Form 10-K/A filing. Investors are directed to our review our additional SEC reports and filings, including our Quarterly Reports on Form 10-Q, for additional information. Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. When used herein, the words "believe," "anticipate," "expect," "estimate" and similar expressions are intended to identify such forward-looking statements. There can be no assurance that these statements will prove to be correct. The Lynx's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section as well as in the section entitled "Item 1. Business -- Business Risks." Lynx undertakes no obligation to update any of the forward-looking statements contained herein to reflect any future events or developments. OVERVIEW We are a leader in the development and application of novel technologies for the discovery of gene expression patterns and genomic variations important to the pharmaceutical, biotechnology and agricultural industries. These technologies are based on Megaclone, our unique and proprietary cloning procedure. Megaclone transforms a sample containing millions of DNA molecules into one made up of millions of micro-beads, each of which carries approximately 100,000 copies of one of the DNA molecules in the sample. Based on Megaclone, we have developed a suite of applications that have the potential to enhance the pace, scale and quality of genomics and genetics research programs. Currently, our principal collaborators and customers are BASF AG, E.I. DuPont de Nemours and Company, Aventis CropScience GmbH, Oxagen Limited Hybrigenics S.A., Genomics Collaborative Inc., Molecular Engines Laboratories SA, the Institute of Molecular and Cell Biology, Phytera, Inc. and Celera Genomics. Additionally, we have provided a license for the use of certain of our technologies to Takara Shuzo Co. Ltd. We have incurred net losses each year since our inception in 1992. As of December 31, 2000, we had an accumulated deficit of approximately $66.7 million. We expect these losses to continue for at least the next several years. The size of these losses will depend, in part, on the rate of growth, if any, in our revenues and on the level of our expenses. Revenues from technology access fees are generally from upfront payments from our collaborators, customers and licensees who are provided access to our technologies for specified periods. We receive service fees from our collaborators and customers for genomics discovery services performed by us on the biological samples they send to us. Collaborative research revenues are payments received under various agreements and include such items as milestone payments. Other revenues include the proceeds from the sale of our technology assets to BASF-LYNX and product sales under one of our former programs. Technology access fees are deferred and recognized as revenue on a straight-line basis over the noncancelable term of the agreement to which they relate. Payments for services and/or materials provided by us are recognized as revenues when earned over the period in which the services are performed and/or materials are delivered, provided no other obligations, refunds or credits to be applied to future work exist. Milestone payments are recognized as revenues upon the achievement of the related milestone and the satisfaction of any related obligations. Revenues from the sales of products, which have been immaterial to date, are recognized upon shipment to the customer. To date, we have received, and expect to continue to receive in the future, a significant portion of our revenues from a small number of collaborators and customers. During 2000, revenues from 3 collaborators and customers accounted for 51%, 29% and 11% of total revenues. During 1999, revenues from 3 collaborators and customers accounted for 81%, 13% and 5% of total revenues. During 1998, revenues from 3 collaborators and customers accounted for 61%, 33% and 5% of total revenues. Revenues in each quarterly and annual period have in the past, and could in the future, fluctuate due to: the timing and amount of any technology access fee and the period over which the revenue is recognized; the level of service fees, which is tied to the number and timing of biological samples received from our collaborators and customers, as well as our performance of the related genomics discovery services on the samples; the timing of achievement of milestones and the amount of related payments to us; and the number, type and timing of new, and the termination of existing, agreements with collaborators and customers. Cost of services fees includes the costs of direct labor, materials and supplies, outside expenses, equipment and overhead incurred by us in performing our genomics discovery services for our collaborators and customers. Research and development expenses include the costs of personnel, materials and supplies, outside expenses, equipment and overhead incurred by us in our technology and application development efforts. We expect research and development expenses to increase substantially due to planned spending for ongoing technology development and implementation, as well as new applications. General and administrative expenses include the costs of personnel, materials and supplies, outside expenses, equipment and overhead incurred by us primarily in our administrative, 23 26 business development, legal and investor relations activities. We expect general and administrative expenses to increase in support of our research and development, commercial and business development efforts. We account for our investment in BASF-LYNX on the equity method, however such investment has a carrying value of zero in the financial statements. As we have no obligation to fund the operations of BASF-LYNX, we have not recognized our share of BASF-LYNX's losses in the accompanying statements of operations. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000 AND 1999 Revenues We had total revenues of $12.6 million for the year ended December 31, 2000, compared to $12.9 million for the year ended December 31, 1999. Revenues for 2000 included technology access fees and service fees of $12.4 million and collaborative research and other revenue of $0.2 million. Revenues for 1999 included technology access and service fees of $7.8 million and collaborative research revenue from a $5.0 million milestone fee. Operating Costs and Expenses Our total operating costs and expenses were $29.6 million for the year ended December 31, 2000, compared to $20.5 million for the year ended December 31, 1999. Cost of services fees were $3.7 million for the year ended December 31, 2000, compared to $0.8 million for the year ended December 31, 1999, and reflect the costs of providing our genomics discovery services. Research and development expenses were $19.8 million in 2000 and $15.5 million in 1999. The increase in research and development expenses in 2000, as compared to 1999, is due primarily to higher personnel-related and facilities expenses and an increase in materials consumed in research and development efforts. Our efforts in 2000 were directed toward the expansion of the commercial applications of our genomics technologies. These activities included new collaborations and other agreements, internal discovery projects and an internal investment in building a store of human genomic information. We also continued our development work on our Megatype and Protein ProFiler technologies. We expect research and development expenses to continue to increase due to planned spending for ongoing technology development and implementation, as well as new applications. General and administrative expenses were $6.2 million for the year ended December 31, 2000, compared to $4.2 million for the year ended December 31, 1999. The increase was primarily due to higher personnel-related expenses and increased costs for outside services. We expect general and administrative expenses to increase in support of our research and development, commercial and business development efforts. Interest and Other Income Net interest income decreased to $0.9 million in the year ended December 31, 2000, from $1.1 million in the year ended December 31, 1999, primarily due to lower average cash, cash equivalents and investment balances during 2000, as compared to 1999, and increased interest expense incurred on equipment-related debt outstanding in 2000. Other income was $3.3 million in the year ended December 31, 2000, and $0.1 million in the year ended December 31, 1999. In 2000, other income was due primarily to a gain of approximately $3.1 million from the receipt of shares of common stock from Inex Pharmaceuticals Corporation, as part of the proceeds related to the March 1998 sale of our former antisense program. In 1999, other income was attributable to a gain on the sale of certain fixed assets no longer used in our operations. Income Taxes The provision for income taxes of approximately $500,000 for 2000 consisted entirely of foreign withholding tax due on a payment received from one of our customers, collaborators and licensees. The provision for income taxes of approximately $258,000 for 1999 consisted entirely of alternative minimum tax. As of December 31, 2000, we had a federal net operating loss carryforward of approximately $38.6 million, which will expire at various dates from 2008 through 2020, if not utilized. We have a state net operating loss carryforward of approximately $5.3 million, which will expire in 2010. 24 27 As of December 31, 2000, we also had federal and California research and development and other tax credit carryforwards of approximately $3.8 million and $1.3 million, respectively. The federal research and development credit will expire at various dates from 2008 through 2020, if not utilized. Utilization of net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in expiration of net operating loss and tax credit carryforwards before full utilization. Utilization of federal and California net operating losses and credit carryforwards incurred prior to February 1994 is limited on an annual basis under the Internal Revenue Code of 1986, as amended, as a result of an ownership change in 1994. YEARS ENDED DECEMBER 31, 1999 AND 1998 Revenues We had total revenues of $12.9 million for the year ended December 31, 1999, compared to $7.0 million for the year ended December 31, 1998. Revenues for 1999 included technology access fees and service fees of $7.8 million and collaborative research revenue from a $5.0 million milestone fee. Revenues for 1998 included technology access fees of $2.6 million and $4.3 million from the sale of our technology assets for certain central nervous system, or CNS, disorders. Operating Costs and Expenses Our total operating costs and expenses were $20.5 million for the year ended December 31, 1999, compared to $15.3 million for the year ended December 31, 1998. Cost of services fees were $0.8 million in 1999 and reflect the costs of providing our genomics discovery services, which commenced in 1999. Research and development expenses were $15.5 million in 1999 and $13.2 million in 1998. The increase in research and development expenses in 1999, as compared to 1998, is due primarily to a higher number of personnel, facilities expansion and activities as we prepared to launch our commercial operations. Our efforts in 1999 focused on initiating production for the commercial application of our genomics technologies and completing the scientific experimentation that led to the successful achievement of technology milestones and achievements under certain of our agreements. We expect research and development expenses to continue to increase substantially due to planned spending for ongoing technology development and implementation, as well as new applications. General and administrative expenses were $4.2 million for the year ended December 31, 1999, compared to $2.1 million for the year ended December 31, 1998. The increase was primarily due to higher personnel-related expenses, outside services costs and facilities expansion. We expect general and administrative expenses to increase in support of our research and development, commercial and business development efforts. Interest and Other Income Net interest income decreased to $1.1 million in the year ended December 31, 1999, from $1.2 million in the year ended December 31, 1998, primarily due to lower average cash, cash equivalents and investment balances during 1999, as compared to 1998, and interest expense incurred on equipment-related debt outstanding in 1999. Other income was $0.1 million in the year ended December 31, 1999, and $2.9 million in the year ended December 31, 1998. In 1998, other income was due primarily to the gain from the sale of the assets associated with our antisense program to Inex Pharmaceuticals Corporation. Income Taxes The provision for income taxes of approximately $258,000 for 1999 and $151,000 for 1998 consisted entirely of alternative minimum tax. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was $9.0 million for the year ended December 31, 2000, as compared to net cash provided by operating activities of $7.8 million for the same period in 1999. This change was primarily due to the change in deferred revenue and a higher net loss in 2000, offset partially by the change in accounts payable and accrued liabilities, the difference in depreciation and amortization of fixed assets and leasehold improvements and the change in accounts receivable. The amount of net cash used in operating activities differed from the 2000 net loss due primarily to the depreciation and amortization of fixed assets and leasehold 25 28 improvements and the collection of accounts receivable. The 1999 net cash provided by operating activities differed from the 1999 net loss due primarily to an increase in deferred revenue and collection of accounts receivable, partially offset by a decrease in current liabilities. Net cash provided by operating activities of $5.7 million for the year ended December 31, 1998, was primarily due to increases in deferred revenue, accounts payable and accrued liabilities, partially offset by an increase in accounts receivable. Net cash used in investing activities of $2.3 million for the year ended December 31, 2000, was due primarily to expenditures for leasehold improvements and purchases of equipment, partially offset by net maturities of short-term investments. Net cash used in investing activities of $10.7 million for the year ended December 31, 1999, was primarily due to net purchases of short-term investments and leasehold improvements and equipment purchases. Net cash provided by investing activities of $1.0 million for the year ended December 31, 1998, was primarily due to net maturities of short-term investments, offset in part by expenditures for leasehold improvements and purchases of equipment. Net cash provided by financing activities in 2000 of $1.1 million was due primarily to issuance of common stock from the exercise of employee stock options. Net cash provided by financing activities in 1999 of $4.8 million resulted primarily from borrowings under an equipment loan arrangement. Net cash provided by financing activities of $0.6 million in the year ended December 31, 1998 resulted from the issuance of common stock. Cash and cash equivalents and short-term investments were $18.8 million at December 31, 2000. Net cash used in operating activities was $10.8 million for the six-month period ended June 30, 2001, as compared to net cash used in operating activities of $5.5 million for the same period in 2000. This change was primarily due to a higher net loss in the 2001 period, the change in accounts payable and the change in deferred revenues, partially offset by the difference between the 2001 loss and the 2000 gain related to the common stock of Inex received from the sale of Lynx's antisense program to Inex, and higher depreciation and amortization expense for fixed assets and leasehold improvements. Net cash used in operating activities of $10.8 million for the six-month period in 2001 differed from the net loss for the same period in 2000 primarily due to the decrease in deferred revenues, offset partially by depreciation and amortization expense. Net cash provided by investing activities of $1.7 million for the six-month period ended June 30, 2001 related primarily to the net maturities of short-term investments, offset partially by expenditures for capital assets. Net cash provided by financing activities of $10.5 million for the six-month period ended June 30, 2001 related primarily to the issuance of common stock pursuant to a common stock purchase agreement between Lynx and certain investors, partially offset by repayment of principal under an equipment loan arrangement. Cash, cash equivalents, short-term investments and marketable securities were $15.8 million at June 30, 2001. In May 2001, we completed a private placement of common stock and warrants to purchase common stock. The financing included the sale of 1,747,248 newly issued shares of common stock at a purchase price of $6.37 per share resulting in net proceeds of approximately $10.5 million, pursuant to a common stock purchase agreement between Lynx and certain investors. In connection with this transaction, we issued warrants to purchase up to 436,808 shares of common stock at an exercise price of $9.2011 per share. We have filed with the Securities and Exchange Commission a resale registration statement related to the privately placed securities. We expect to use the net proceeds from the financing to support ongoing commercial, business development and research and development activities. Our research and development efforts will focus on the continuing development of the Megatype and Protein ProFiler technologies, as well as internal discovery projects. In late 1998, we entered into a financing agreement with a financial institution, Transamerica Business Credit Corporation, under which we drew down $4.8 million during 1999 for the purchase of equipment and certain other capital expenditures. We granted the lender a security interest in all items financed by it under this agreement. Each draw down under the loan has a term of 48 months from the date of the draw down. As of June 30, 2001, the principal balance under loans outstanding under this agreement was approximately $3.8 million. The draw down period under the agreement expired on March 31, 2000. We plan to use available funds for ongoing commercial and research and development activities, working capital and other general corporate purposes and capital expenditures. We expect capital investments during 2001 will be comprised primarily of equipment purchases required in the normal course of business and expenditures for leasehold improvements. We intend to invest our excess cash in investment-grade, interest-bearing securities. We have obtained funding for our operations primarily through sales of preferred and common stock to venture capital investors, institutional investors and collaborators, payments under contractual arrangements with customers, collaborators and licensees and interest income. The cost, timing and amount of funds required for specific uses by us cannot be precisely determined at this time and will be based upon the progress and the scope of our collaborative and independent research and development projects; payments received under customer, collaborative and license agreements; our ability to establish and maintain customer, collaborative and license agreements; costs of protecting intellectual property rights; legal and administrative costs; additional facilities capacity needs and the availability of alternate methods of financing. We expect to incur substantial and increasing research and development expenses and intend to seek additional financing, as needed, through arrangements with customers, collaborators and licensees and equity or debt offerings. We cannot assure you that any additional financing we require will be available on favorable terms, or at all. We believe, at current spending levels, our existing capital resources and interest income thereon, will enable us to maintain our current and planned operations through at least the next 12 months. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board, or "FASB," issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through net income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in the other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the derivative's change in fair value will be immediately recognized in earnings. SFAS 133 is effective for our year ending December 31, 2001. We do not currently hold any derivatives and we do not expect this pronouncement to materially impact results of operations. 26 29 In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," which must be adopted in the fourth quarter of 2000. SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue in financial statements and specifically addresses revenue recognition for non-refundable technology access fees. We believe that our revenue recognition policies prior to adoption of SAB 101 complied with the requirements of SAB 101. In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation", which contains rules designed to clarify the application of APB Opinion No. 25. FIN 44 was effective on July 1, 2000 and adopted by us at that time. The adoption of FIN 44 did not have a material impact on our operating results or financial position. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Short-Term Investments The primary objective of our investment activities is to preserve principal while, at the same time, maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high-quality debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to adverse shifts in interest rates, we invest in short-term securities and maintain an average maturity of less than one year. As a result, we do not believe we are subject to significant interest rate risk. The Company holds an investment in an equity security that is subject to market volatility. The fair value of the equity security recorded at December 31, 2000 and 1999 was $2.6 million and $1.8 million, respectively. Foreign Currency Rate Fluctuations The functional currency for our German subsidiary is the deutsche mark. Our German subsidiary's accounts are translated from the German deutsche mark to the U.S. dollar using the current exchange rate in effect at the balance sheet date, for balance sheet accounts, and using the average exchange rate during the period, for revenues and expense accounts. The effects of translation are recorded as a separate component of stockholders' equity, and to date, have not been material. Our German subsidiary conducts its business in local European currencies. Exchange gains and losses arising from these transactions are recorded using the actual exchange differences on the date of the transaction. We have not taken any action to reduce our exposure to changes in foreign currency exchange rates, such as options or futures contracts, with respect to transactions with our German subsidiary or transactions with our European collaborators and customers. 27 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Ernst & Young LLP, Independent Auditors.................................................... 26 Consolidated Balance Sheets as of December 31, 2000 and 1999......................................... 27 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998........... 28 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998. 29 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998........... 30 Notes to Consolidated Financial Statements........................................................... 31
28 31 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Lynx Therapeutics We have audited the accompanying consolidated balance sheets of Lynx Therapeutics, Inc. as of December 31, 2000 and 1999, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lynx Therapeutics, Inc. at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Palo Alto, California February 2, 2001 29 32 LYNX THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, ----------------------- 2000 1999 -------- -------- ASSETS Current assets: Cash and cash equivalents ............................ $ 7,875 $ 18,050 Short-term investments ............................... 10,923 12,736 Accounts receivable .................................. 1,539 4,045 Other current assets ................................. 2,270 1,379 -------- -------- Total current assets ......................... 22,607 36,210 Property and equipment: Leasehold improvements ............................... 11,527 10,347 Laboratory and other equipment ....................... 13,555 8,025 -------- -------- 25,082 18,372 Less accumulated depreciation and amortization ....... (9,263) (5,494) -------- -------- Net property and equipment ............................. 15,819 12,878 Other non-current assets ............................... 789 2,550 -------- -------- $ 39,215 $ 51,638 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ..................................... $ 1,640 $ 640 Accrued compensation ................................. 614 356 Deferred revenues -- current portion ................. 7,219 8,438 Note payable -- current portion ...................... 1,319 944 Other accrued liabilities ............................ 928 790 -------- -------- Total current liabilities .................... 11,720 11,168 Deferred revenues ...................................... 17,467 16,896 Note payable ........................................... 3,077 3,471 Other non-current liabilities .......................... 729 457 Commitments Stockholders' equity: Preferred stock, $0.01 par value; 2,000,000 shares authorized; no shares issued and outstanding ...... -- -- Common stock, $0.01 par value; 60,000,000 shares authorized, 11,443,702 and 11,219,188 shares issued and outstanding at December 31, 2000 and 75,851 74,606 1999, respectively ............................... Notes receivable from stockholders ................... (263) (293) Deferred compensation ................................ (1,557) (2,444) Accumulated other comprehensive income (loss) ........ (1,157) 1,128 Accumulated deficit .................................. (66,652) (53,351) -------- -------- Total stockholders' equity ................... 6,222 19,646 -------- -------- $ 39,215 $ 51,638 ======== ========
See accompanying notes. 30 33 LYNX THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 -------- -------- -------- Revenues: Technology access and services fees ..... $ 12,389 $ 7,833 $ 2,625 Collaborative research and other ........ 235 5,042 4,380 -------- -------- -------- Total revenues .................. 12,624 12,875 7,005 Operating costs and expenses: Cost of services fees ................... 3,652 828 -- Research and development ................ 19,761 15,510 13,166 General and administrative .............. 6,170 4,175 2,141 -------- -------- -------- Total operating costs and expenses............... 29,583 20,513 15,307 -------- -------- -------- Loss from operations ...................... (16,959) (7,638) (8,302) Interest income, net ...................... 900 1,125 1,241 Other income .............................. 3,258 107 2,865 -------- -------- -------- Loss before provision for income taxes .... (12,801) (6,406) (4,196) Provision for income taxes ................ 500 258 151 -------- -------- -------- Net loss .................................. $(13,301) $ (6,664) $ (4,347) ======== ======== ======== Basic and diluted net loss per share ...... $ (1.17) $ (0.60) $ (0.45) -------- -------- -------- Shares used in per share computation ...... 11,388 11,128 9,642 ======== ======== ========
See accompanying notes. 31 34 LYNX THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PREFERRED STOCK COMMON STOCK ----------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- Balance at December 31, 1997 ................ 495,587 $ 27,189 5,892,353 $ 46,640 Comprehensive loss: Net loss ................................. -- -- -- -- Other comprehensive income (loss) ........ -- Net unrealized gain on securities ............................. -- -- -- -- Comprehensive loss ......................... -- -- -- -- Exercise of stock options for cash and note receivable ...................... -- -- 334,309 744 Repurchase of common stock ................. -- -- (49,717) (108) Conversion of series B, C and D preferred stock to common stock .......... (495,587) (27,189) 4,955,870 27,189 Amortization of deferred compensation, including forfeitures ...... -- -- -- (416) Consulting and service expense related to stock option grants ........... -- -- -- 280 ----------- ----------- ----------- ----------- Balance at December 31, 1998 ................ -- -- 11,132,815 74,329 ----------- ----------- ----------- ----------- Comprehensive loss: Net loss ................................. -- -- -- -- Other comprehensive income (loss) ........ Net unrealized gain on securities ........ -- -- -- -- Comprehensive loss ......................... -- -- -- -- Employee stock purchase plan issuance ...... -- -- 17,379 182 Exercise of stock options for cash and repayment of note receivable .... -- -- 68,994 196 Amortization of deferred compensation, including forfeitures ...... -- -- -- (188) Consulting and service expense related to stock option grants ........... -- -- -- 87 ----------- ----------- ----------- ----------- Balance at December 31, 1999 ................ -- -- 11,219,188 74,606 ----------- ----------- ----------- ----------- Comprehensive loss: Net loss ................................. -- -- -- -- Other comprehensive income (loss) ........ Net unrealized loss on securities ........ -- -- -- -- Comprehensive loss ......................... -- -- -- -- Net exercise of warrants ................... -- -- 29,597 -- Employee stock purchase plan issuance .................................. -- -- 16,532 288 Exercise of stock options for cash and repayment of note receivable .... -- -- 178,385 843 Amortization of deferred compensation, including forfeitures .................... -- -- -- -- Consulting and service expense related to stock option grants ........... -- -- -- 114 ----------- ----------- ----------- ----------- Balance at December 31, 2000 ................ -- $ -- 11,443,702 $ 75,851 =========== =========== =========== ===========
NOTES ACCUMULATED RECEIVABLE OTHER TOTAL FROM DEFERRED COMPREHENSIVE ACCUMULATED STOCKHOLDERS' STOCKHOLDERS COMPENSATION INCOME (LOSS) DEFICIT EQUITY ------------ ------------ ------------- ----------- ------------- Balance at December 31, 1997 ............. $ (460) $ (5,394) $ (45) $ (42,340) $ 25,590 Comprehensive loss: Net loss .............................. -- -- -- (4,347) (4,347) Other comprehensive income (loss) ..... Net unrealized gain on securities .......................... -- -- 38 38 ----------- Comprehensive loss ...................... -- -- -- -- (4,309) Exercise of stock options for cash and note receivable ................... (81) -- -- -- 663 Repurchase of common stock .............. 105 -- -- -- (3) Conversion of series B, C and D preferred stock to common stock ....... -- -- -- -- -- Amortization of deferred compensation, including forfeitures ... -- 1,652 -- -- 1,236 Consulting and service expense related to stock option grants ........ -- -- -- -- 280 ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1998 ............. (436) (3,742) (7) (46,687) 23,457 ----------- ----------- ----------- ----------- ----------- Comprehensive loss: Net loss .............................. -- -- -- (6,664) (6,664) Other comprehensive income (loss) ..... Net unrealized gain on securities ..... -- -- 1,135 -- 1,135 ----------- Comprehensive loss ...................... -- -- -- -- (5,529) Employee stock purchase plan issuance ... -- -- -- -- 182 Exercise of stock options for cash and repayment of note receivable . 143 -- -- -- 339 Amortization of deferred compensation, including forfeitures ... -- 1,298 -- -- 1,110 Consulting and service expense related to stock option grants ........ -- -- -- -- 87 ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1999 ............. (293) (2,444) 1,128 (53,351) 19,646 ----------- ----------- ----------- ----------- ----------- Comprehensive loss: Net loss .............................. -- -- -- (13,301) (13,301) Other comprehensive income (loss) ..... Net unrealized loss on securities ..... -- -- (2,285) -- (2,285) ----------- Comprehensive loss ...................... -- -- -- -- (15,586) Net exercise of warrants ................ -- -- -- -- -- Employee stock purchase plan issuance ............................... -- -- -- -- 288 Exercise of stock options for cash and repayment of note receivable . 30 -- -- -- 873 Amortization of deferred compensation, including forfeitures ................. -- 887 -- -- 887 Consulting and service expense related to stock option grants ........ -- -- -- -- 114 ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2000 ............. $ (263) $ (1,557) $ (1,157) $ (66,652) $ 6,222 =========== =========== =========== =========== ===========
See accompanying notes. 32 35 LYNX THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss ............................................... $(13,301) $ (6,664) $ (4,347) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization of fixed assets and leasehold improvements ............................ 3,769 1,964 1,176 Issuance of stock options to non-employees in exchange for services ............................. 114 87 111 Amortization of deferred compensation ................ 887 1,110 1,236 Gain on sale of antisense business ................... (3,119) -- -- Other ................................................ -- -- (138) CHANGES IN OPERATING ASSETS AND LIABILITIES Accounts receivable .................................. 2,506 1,271 (5,072) Other current assets ................................. (891) (701) (479) Accounts payable ..................................... 1,000 (1,130) 1,579 Accrued liabilities .................................. 396 (3,106) 3,237 Deferred revenues .................................... (648) 14,667 8,375 Other noncurrent liabilities ......................... 272 269 9 -------- -------- -------- Net cash provided by (used in) operating activities .... (9,015) 7,767 5,687 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments .................... (8,097) (22,121) (21,767) Maturities of short-term investments ................... 12,543 17,016 30,245 Leasehold improvements and equipment purchases, net of retirements .......................................... (6,710) (5,205) (7,254) Notes receivable from officers and employees ........... 30 (248) (175) Other assets ........................................... (38) (122) -- -------- -------- -------- Net cash provided by (used in) investing activities .... (2,272) (10,680) 1,049 CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock, net of repurchases ........... 1,131 378 636 Proceeds from equipment loan ........................... 950 4,838 -- Repayment of equipment loan ............................ (969) (423) -- -------- -------- -------- Net cash provided by financing activities .............. 1,112 4,793 636 -------- -------- -------- Net increase (decrease) in cash and cash equivalents ... (10,175) 1,880 7,372 Cash and cash equivalents at beginning of year ......... 18,050 16,170 8,798 -------- -------- -------- Cash and cash equivalents at end of year ............... $ 7,875 $ 18,050 $ 16,170 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Income taxes paid ...................................... $ 110 $ 303 -- ======== ======== ======== Interest paid .......................................... $ 128 $ 174 -- ======== ======== ======== Following are the effects of the non-cash transactions relating to the sale of the antisense business assets sold, net of depreciation .............. -- -- $ 210 ======== ======== ======== Inex stock received ............................... -- -- $ 603 ======== ======== ========
See accompanying notes. 33 36 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION BUSINESS AND BASIS OF PRESENTATION Lynx Therapeutics, Inc. ("Lynx" or the "Company") is a leader in the development and application of novel technologies for the discovery of gene expression patterns and genomic variations important to the pharmaceutical, biotechnology and agricultural industries. These technologies are based on Megaclone, Lynx's unique and proprietary cloning procedure. Megaclone transforms a sample containing millions of DNA molecules into one made up of millions of micro-beads, each of which carries approximately 100,000 copies of one of the DNA molecules in the sample. Based on Megaclone, Lynx has developed a suite of applications that have the potential to enhance the pace, scale and quality of genomics and genetics research programs. Currently, Lynx's principal collaborators and customers are BASF AG, E.I. DuPont de Nemours and Company, Aventis CropScience GmbH, Oxagen Limited Hybrigenics S.A., Genomics Collaborative Inc., Molecular Engines Laboratories SA, the Institute of Molecular and Cell Biology, Phytera, Inc. and Celera Genomics. Additionally, Lynx has provided a license for the use of certain of its technologies to Takara Shuzo Co. Ltd. The Company's consolidated financial statements have been presented on a basis that contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced operating losses since its inception of $66.7 million, including a net loss of $13.3 million in the year ended December 31, 2000, and expects such losses to continue as it proceeds with the development and commercialization of its technology. The Company's cash, cash equivalents and short-term investments were $18.8 million at December 31, 2000. Management believes that its current capital resources along with cash to be generated from its existing collaboration arrangements will be sufficient to enable the Company to meet its projected operating and capital requirements through December 31, 2001. Additionally, Lynx intends to seek additional financing, as needed, through arrangements with customers, collaborators and licensees and equity or debt offerings. There can be no assurance that additional financing, if required, will be available on satisfactory terms or at all. If the Company is unable to secure additional financing, management may need to reevaluate and revise its current operating plans as well as reduce its anticipated level of expenditures. The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiary, Lynx Therapeutics GmbH, formed under the laws of the Federal Republic of Germany. All significant intercompany balances and transactions have been eliminated. Certain amounts in prior periods have been reclassified to conform to the current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all investments in money market mutual funds, commercial paper and corporate bonds and notes with original maturities from the date of purchase of 90 days or less as cash equivalents. Investments with original maturities beyond 90 days are considered to be short-term investments. Equity securities are considered to be short-term investments. The Company's investment policy stipulates that the investment portfolio be maintained with the objectives of preserving principal, maintaining liquidity and maximizing return. The Company determines the appropriate classification of money market mutual funds, commercial paper and corporate bonds and notes at the time of purchase and reevaluates such designation as of each balance sheet date. As of December 31, 2000 and 1999, the Company has classified its entire investment portfolio as available-for-sale. Available-for-sale securities are carried at fair value based on quoted market prices, with the unrealized gains and losses reported as a separate component of stockholders' equity. The cost of investments in this category is adjusted for amortization of premiums and accretion of discounts to maturity, which are included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary, on available-for-sale securities, if any, are included in interest income or expense. The cost of securities sold, if any, is based on the specific identification method. 34 37 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (CONTINUED) The Company invests its excess cash in deposits with major banks and in money market and short-term debt securities of companies with strong credit ratings from a variety of industries. These securities generally mature within 365 days and, therefore, bear minimal interest-rate risk. The Company, by corporate policy, limits the amount of credit exposure to any one issuer and to any one type of investment. PROPERTY AND EQUIPMENT Property and equipment are stated at original cost and are depreciated using the straight-line method over the estimated useful lives of the assets, which is generally three years. Leasehold improvements are amortized over the lesser of the useful life of the asset or the remaining term of the facility lease. REVENUE RECOGNITION Revenues from technology access fees have generally resulted from upfront payments from collaborators, customers and licensees who are provided access to Lynx's technologies for specified periods. The Company receives service fees from collaborators and customers for genomics discovery services performed by Lynx on the biological samples they send to Lynx. Collaborative research revenues are payments received under various agreements and include such items as milestone payments. Milestone payments are recognized pursuant to collaborative agreements upon the achievement of specified technology developments, representing the culmination of the earnings process, for financial accounting purposes. Other revenues include non-contract related revenues, such as the proceeds from the sale of technology assets to BASF-LYNX and product sales under one of Lynx's former programs. Technology access fees are deferred and recognized as revenue on a straight-line basis over the noncancelable term of the agreement to which they relate. Payments for services and/or materials provided by Lynx are recognized as revenues when earned over the period in which the services are performed and/or materials are delivered, provided no other obligations, refunds or credits to be applied to future work exist. Milestone payments are recognized as revenue upon the achievement of the related milestone and the satisfaction of any related obligations. Revenues from the sales of products, which have been immaterial to date, are recognized upon shipment to the customer. During 2000, revenue from 3 collaborators and customers represented 51%, 29% and 11% of total revenues. During 1999, revenue from 3 collaborators and customers represented 81%, 13% and 5% of total revenues. During 1998, revenue from three collaborators and customers represented 61%, 33% and 5% of total revenues. NET LOSS PER SHARE Basic earnings per share ("EPS") is computed by dividing income or loss applicable to common stockholders by the weighted-average number of common shares outstanding for the period, net of certain common shares outstanding which are subject to continued vesting and the Company's right of repurchase. Diluted EPS reflects the potential dilution of securities that could share in the earnings of the Company, to the extent such securities are dilutive. Basic and diluted net loss per share is equivalent for all periods presented herein due to the Company's net loss in all periods. At December 31, 2000, options to purchase approximately 2,457,000 shares of common stock at a weighted-average price of $13.16 per share have been excluded from the calculation of diluted loss per share for 2000 because the effect of inclusion would be antidilutive. The options will be included in the calculation at such time as the effect is no longer antidilutive, as calculated using the treasury stock method. The weighted-average number of shares subject to repurchase for fiscal years 2000, 1999 and 1998 were 16,000, 55,000 and 152,000, respectively. The common shares which are outstanding but are subject to the Company's right of repurchase, which expires ratably over five years, have been excluded from the calculation of basic loss per share. The repurchasable shares will be included in the calculation of basic EPS at such time as the Company's right of repurchase lapses. See Note 7 for additional disclosure regarding common stock and stock options. 35 38 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (CONTINUED) STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. All stock option awards to non-employees are accounted for at the fair value of the consideration received or the fair value of the equity instrument issued, as calculated using the Black-Scholes model, in accordance with FAS 123 and Emerging Issues Task Force Consensus No. 96-18, "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." The option arrangements are subject to periodic remeasurement over their vesting terms. The Company recorded compensation expense related to option grants to non-employees of $114,000 for the year ended December 31, 2000, $87,000 for the year ended December 31, 1999 and $111,000 for the year ended December 31, 1998. SEGMENT REPORTING Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), establishes standards for the way that public business enterprises report information about operating segments in financial statements. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company's business activities include the development of technologies aimed at handling and/or analyzing the DNA molecules or fragments in biological samples. Accordingly, the Company operates in only one business segment. All of the Company's assets and revenues are derived from this activity. Substantially all of the Company's assets are located in the United States. To date, revenues have been derived primarily from contracts with companies located in North America, Europe and Asia, as follows (revenue is attributed to geographic areas based on the location of the customers):
YEAR ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (IN THOUSANDS) North America ...... $ 6,480 $10,440 $ 401 Europe ............. 5,394 2,435 6,542 Asia ............... 750 -- 62 ------- ------- ------- $12,624 $12,875 $ 7,005 ======= ======= =======
INCOME TAXES Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), deferred tax assets and liabilities are determined based on the difference between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. SFAS 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company's historical operating performance and the reported cumulative net losses for the prior three years, the Company has provided a full valuation against its net deferred tax assets as of December 31, 2000 and 1999. The Company intends to evaluate the realizability of the deferred tax assets on a quarterly basis. See Note 8 to the Consolidated Financial Statements. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires Lynx to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through net income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in the other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the derivative's change in fair value will be immediately recognized in 36 39 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (CONTINUED) earnings. SFAS 133 is effective for Lynx's year ending December 31, 2001. Lynx does not currently hold any derivatives and does not expect this pronouncement to materially impact results of operations. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," which must be adopted in the fourth quarter of 2000. SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue in financial statements and specifically addresses revenue recognition for non-refundable technology access fees. Lynx believes that its revenue recognition policies prior to adoption of SAB 101 complied with the requirements of SAB 101. In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation", which contains rules designed to clarify the application of APB Opinion No. 25. FIN 44 was effective on July 1, 2000 and adopted by Lynx at that time. The adoption of FIN 44 did not have a material impact on Lynx's operating results or financial position. 2. INVESTMENTS The following is a summary of available-for-sale securities:
AVAILABLE-FOR-SALE SECURITIES ---------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (IN THOUSANDS) DECEMBER 31, 2000 Equity securities ........... $ 3,791 $ -- $ (1,164) $ 2,627 Money market mutual funds ... 6,951 -- -- 6,951 Corporate bonds and notes ... 8,298 6 -- 8,304 -------- -------- -------- -------- $ 19,040 $ 6 $ (1,164) $ 17,882 ======== ======== ======== ======== DECEMBER 31, 1999 Equity securities ........... $ 603 $ 1,196 $ -- $ 1,799 Money market mutual funds ... 9,624 -- -- 9,624 Commercial paper ............ 10,449 -- (45) 10,404 Corporate bonds and notes ... 8,781 -- (23) 8,758 -------- -------- -------- -------- $ 29,457 $ 1,196 $ (68) $ 30,585 ======== ======== ======== ========
During the years ended December 31, 2000, 1999 and 1998, the Company did not sell any equity securities. As of December 31, 2000, $7.0 million of the marketable securities were classified as cash equivalents and $10.9 million were classified as short-term investments. As of December 31, 1999, $16.1 million of the marketable securities were classified as cash equivalents, $12.7 million were classified as short-term investments and $1.8 million were classified as other non-current assets. All short-term investments have maturities of less than one year. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. 3. COLLABORATORS, CUSTOMERS AND LICENSEES Lynx's current commercial collaborators and customers are BASF AG (BASF), E.I. DuPont de Nemours and Company, Aventis CropScience GmbH, Oxagen Limited, Hybrigenics S.A., Genomics Collaborative Inc., Molecular Engines Laboratories S.A., the Institute of Molecular and Cell Biology, Phytera, Inc., Celera Genomics, AstraZeneca, UroGene S.A., GenoMar ASA and AniGenics, Inc. Additionally, Lynx has provided a license for the use of certain of its technologies to Takara Shuzo Co. Ltd. and BASF-LYNX Bioscience AG (BASF-LYNX). BASF In October 1996, as amended in October 1998, the Company entered into an agreement with BASF to provide them with nonexclusive access to certain of its genomics discovery services. In connection with certain technology development accomplishments, BASF paid Lynx a technology access fee of $4.5 million in the fourth quarter of 1999. BASF's access to Lynx's genomics discovery services is for a minimum of two years and requires BASF to purchase services at a minimum rate of $4.0 million per year. At the end of the initial two-year service period, BASF has the right to carryover for a limited time a certain level of previously unrequested genomics discovery services. BASF paid Lynx $4.0 million in each of the fourth quarters of 1999 and 2000 for genomics discovery services to be performed by Lynx. 37 40 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. COLLABORATORS, CUSTOMERS AND LICENSEES (CONTINUED) DuPont In October 1998, Lynx entered into a research collaboration agreement with DuPont to apply Lynx's technologies on an exclusive basis to the study of certain crops and their protection. Under the terms of the agreement, the Company could receive payments over a five-year period for genomics discovery services, the achievement of specific technology milestones and the delivery of genomic maps of specified crops. An initial payment of $10 million for technology access was received at the execution of the agreement, with additional minimum service fees of $12 million to be received by Lynx over a three-year period which commenced in January 1999. At the end of three years from the effective date of the agreement, Dupont can terminate the agreement with no further payment obligations to Lynx other than those accrued, or if Dupont chooses to maintain exclusivity with respect to certain crops, with payments for the remaining two years of the agreement. In the fourth quarter of 1999, Lynx achieved a technology milestone under the agreement that resulted in a $5 million payment from DuPont. Aventis CropScience In March 1999, Aventis Pharmaceuticals, formerly Hoechst Marion Roussel, Inc., obtained nonexclusive access to certain of Lynx's genomics discovery services for the benefit of its affiliate, Aventis CropScience. Lynx received an initial payment for genomics discovery services to be performed by Lynx for Aventis CropScience. The service period, which was renewed in March 2000, ends on March 31, 2001, and is subject to renewal for up to two additional one-year periods. In September 1999, Lynx signed a three-year research collaboration agreement with Aventis CropScience. Aventis CropScience will receive exclusive access to certain of Lynx's genomics discovery services for the study of certain plants, which is aimed at developing new crop varieties and other agricultural products. Under the terms of the agreement, Aventis CropScience paid Lynx a technology access fee upon execution of the agreement. Lynx can earn additional fees for the performance of genomics discovery services, the delivery of genomic maps of certain plants and milestone payments and licensing fees related to the discovery of trait-associated SNPs for the subject plants. 38 41 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. COLLABORATORS, CUSTOMERS AND LICENSEES (CONTINUED) Takara In November 2000, Lynx entered into a technology licensing agreement with Takara Shuzo Co. Ltd. of Japan. The license provides Takara with the right in Japan, Korea and China, including Taiwan, to use Lynx's proprietary Megaclone, Megasort and MPSS technologies exclusively for at least five years, and non-exclusively thereafter, to provide genomics discovery services and to manufacture and sell microarrays containing content identified by Lynx's technologies. Takara also receives from Lynx a non-exclusive license right to manufacture and sell such microarrays elsewhere throughout the world. At the end of three years from the effective date of the agreement, Takara can terminate the agreement with no further payment obligation to Lynx other than those accrued prior to the termination. Under the terms of the agreement, Lynx will receive from Takara payments for technology access fees, royalties on sales of microarrays and revenues from genomics discovery services, the sale to Takara of proprietary reagents used in applying Lynx's technologies and purchases of Lynx common stock. BASF-LYNX In 1996, Lynx and BASF established BASF-LYNX, a joint venture company in Heidelberg, Germany. BASF-LYNX began operations in 1997 and is employing Lynx's technologies in its neuroscience, toxicology and microbiology research programs. Upon the establishment of BASF-LYNX, Lynx contributed access to its technologies to BASF-LYNX in exchange for an initial 49% equity ownership. BASF, by committing to provide research funding to BASF-LYNX of DM50 million (or approximately $23.4 million based on a August 2001 exchange rate) over a five-year period beginning in 1997, received an initial 51% equity ownership in BASF-LYNX. In 1998, BASF agreed to provide an additional $10 million in research funding to BASF-LYNX, of which $4.3 million was paid to Lynx for technology assets related to a CNS program. In June 2001, Lynx extended its technology licensing agreement with BASF-LYNX (see Note 12). 4. SALE OF THE ANTISENSE BUSINESS In March 1998, Lynx sold its portfolio of phosphorothioate antisense patents and licenses and its therapeutic oligonucleotide manufacturing facility (collectively, the "Antisense Business") to Inex Pharmaceuticals Corporation ("Inex"), a Canadian company. As partial consideration in this transaction, Lynx received $3 million in cash and will receive 1.2 million shares of Inex common stock, in three equal installments, with the first 400,000 shares received in March 1998, and the second 400,000 shares received in March 2000. The third installment of stock is to be received in March 2001. The Inex common stock received by Lynx is subject to certain restrictions on trading for specific periods of time following receipt by Lynx, with the sale restriction on the initial 400,000 shares and second installment of 400,000 shares having expired on March 10, 2000, and March 10, 2001, respectively. Lynx is also entitled to receive royalties on future sales of phosphorothioate antisense products. In addition, Lynx is also entitled to receive royalties under a license to Inex for phosphoroamidate chemistry for certain therapeutic applications in the fields of cancer and inflammation. 39 42 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. SALE OF THE ANTISENSE BUSINESS (CONTINUED) The gain on the sale of the Antisense Business in 1998 is based on the cash and the first installment of the Inex common stock received on the transaction date, net of the book value of the assets transferred to Inex and certain other costs associated with the transaction and incurred by Lynx. Subsequent installments of Inex common stock are recorded at fair value by Lynx in other income when received. As of December 31, 2000, Inex common stock was classified as equity securities in short-term investments. As of December 31, 1999, Inex common stock was classified as equity securities in other non-current assets. 5. LICENSE AGREEMENTS Lynx has entered into various license agreements with companies and academic institutions. Such agreements generally require Lynx to pay annual or semiannual license fees and are generally cancelable upon 60 to 120 days' notice. The expenses associated with licenses were approximately $90,000 and $86,000 for the years ended December 31, 2000 and 1999, respectively. Lynx recorded a credit to expense of approximately $27,000 in the year ended December 31, 1998 for license fees which had been paid, then subsequently included in the sale of the antisense business. 6. NOTES RECEIVABLE FROM OFFICERS In 1999, the Company entered into loan agreements with officers of the Company. The aggregate loans total $360,000, are secured by second mortgages on real property, have interest accruable at the rate of 4.83% to 6.02% per annum and are subject to early repayment under specified circumstances. The principal and interest on the loans will be forgiven, based on the officers' continuous employment over a four-year period, in the following amounts: 50% on the second anniversary dates of employment; and 25% on each of the third and fourth anniversary dates of employment. In August 1998, the Company entered into two loan agreements with an officer of the Company. Each loan is in the amount of $100,000, secured by a second mortgage on real property, with interest accruable at the rate of 5.57% per annum, and subject to early repayment under specified circumstances. The principal and interest on one loan will be forgiven, based on the officer's continuous employment over a four-year period, in the following amounts: 50% on the second anniversary date of employment; and 25% on each of the third and fourth anniversary dates of employment. The second loan is to be repaid by the officer according to the following schedule: 50% of the principal on the third anniversary date of employment; and the remainder of the principal plus accrued interest on the fourth anniversary date of employment. In April 1997, the Company entered into a full-recourse loan agreement with an officer of the Company. A note receivable of $250,000 was issued under a stock purchase agreement for the purchase of 50,000 shares of common stock whereby all the shares issued under the agreement are pledged as collateral. The outstanding principal amount is due and payable in full in April 2002, subject to an obligation to prepay under specified circumstances. Interest is payable upon the expiration or termination of the note and accrues at the rate of 6.49% per annum. 7. STOCKHOLDERS' EQUITY PREFERRED STOCK On March 31, 1998, pursuant to the Amended and Restated Certificate of Designation, dated September 30, 1997, 332,288 shares of Series B preferred stock, 123,299 shares of Series C preferred stock and 40,000 shares of Series D preferred stock converted into 4,955,870 shares of common stock. 40 43 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. STOCKHOLDERS' EQUITY (CONTINUED) COMMON STOCK At December 31, 2000, Lynx has reserved 2,915,213 shares of common stock for issuance upon the exercise of outstanding employee and nonemployee stock options and upon the issuance of shares to be purchased pursuant to the employee stock purchase plan as noted below: Stock option grants outstanding ........ 2,456,533 Shares available for option grants ..... 292,591 Employee stock purchase plan shares .... 166,089 --------- 2,915,213 =========
In October 1997, Lynx issued 2,675,500 shares of common stock, resulting in net proceeds of $25.1 million, pursuant to a common stock purchase agreement between the Company and certain investors. In connection with this transaction, warrants were issued by the Company to purchase 50,000 shares of common stock at an exercise price of $14.00 per share. The warrants were exercised in January 2000. In November 1996, Lynx issued 959,182 shares of common stock in exchange for 737,832 shares of Spectragen, Inc. common stock held by certain officers, employees and one consultant of Spectragen, pursuant to an Agreement of Merger between Lynx and Spectragen. Spectragen was a wholly-owned subsidiary of Lynx at the time of the exchange. A portion of the shares are subject to repurchase rights, which expire ratably over a five-year period. Pursuant to the merger, and in accordance with APB 25, "Accounting for Stock Issued to Employees," Lynx recognized compensation and consultant expense of $2.1 million and recorded approximately $1.4 million in deferred compensation for the difference between the fair market value of the Lynx stock and the deemed fair market value of the Spectragen stock on the day of acquisition. The deferred compensation will be charged ratably to expense as the repurchase rights expire. Also in November 1996, Lynx issued options to purchase 524,355 shares of Lynx common stock in exchange for options to purchase 403,350 Spectragen common stock pursuant to the Agreement of Merger between the Company and Spectragen. In accordance with APB 25, Lynx recognized deferred compensation of $712,000 representing the difference between the exercise price of the options and the fair market value of the Company's common stock on the day of the exchange. The deferred compensation is being charged to expense over the respective vesting period of the grants. 1992 STOCK OPTION PLAN In July 1992, the Board of Directors of the Company (the "Board") adopted, and the stockholders subsequently approved, the Company's 1992 Stock Option Plan (the "1992 Plan"). In May 2000, the stockholders approved an amendment to the 1992 Plan, authorizing the increase in the number of shares authorized for issuance under the 1992 Plan from a total of 4,200,000 shares to 4,800,000 shares and the inclusion of directors (including non-employee directors) of the Company and its affiliates as eligible to participate in the 1992 Plan. In May 1996, the stockholders approved an amendment to the 1992 Plan extending the term of the 1992 Plan until March 2006. Under the 1992 Plan, the exercise price of incentive options granted may not be less than 100% (110% in the case of options granted to a person who owns more than 10% of the total combined voting power of all classes of stock of the Company) of the fair market value of common stock at the date of grant. Nonqualified options may be granted at not less than 85% of fair market value at the date of grant. Options generally vest over a five-year period from the date of grant and have a term of ten years (five years in the case of options granted to a person who owns more than 10% of the total combined voting power of all classes of stock of the Company). In December 1997, the Board of Directors approved the commencement of vesting of certain performance-based stock options that had been granted to certain employees prior to the merger between Spectragen and Lynx. In connection with this action, Lynx recognized deferred compensation of $4.1 million representing the difference between the exercise price of the options and the fair market value of the Company's common stock at the time of the December 1997 approval. The deferred compensation will be charged to expense over the period beginning December 1997, through the end of the five-year vesting period. 41 44 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. STOCKHOLDERS' EQUITY (CONTINUED) The stock option activity under the 1992 Plan was as follows:
OPTIONS OUTSTANDING --------------------------------------------------- AVAILABLE FOR NUMBER OF SHARES WEIGHTED AVERAGE GRANT SUBJECT TO OPTIONS EXERCISE PRICE ------------- ------------------ ---------------- BALANCE AT DECEMBER 31, 1997 ...... 360,808 1,626,254 $ 3.22 Shares authorized ............... 600,000 -- -- Options granted ................. (407,500) 407,500 $ 11.27 Options exercised ............... -- (334,309) $ 2.27 Options canceled ................ 232,533 (269,723) $ 5.30 ---------- ---------- BALANCE AT DECEMBER 31, 1998 ...... 785,841 1,429,722 $ 5.35 Shares authorized ............... 200,000 -- -- Options granted ................. (639,000) 639,000 $ 11.20 Options exercised ............... -- (68,994) $ 2.70 Options canceled ................ 40,246 (57,231) $ 7.10 ---------- ---------- BALANCE AT DECEMBER 31, 1999 ...... 387,087 1,942,497 $ 7.32 Shares authorized ............... 600,000 -- -- Options granted ................. (736,500) 736,500 $ 26.42 Options exercised ............... -- (178,385) $ 4.72 Options canceled ................ 42,004 (44,079) $ 11.31 ---------- ---------- BALANCE AT DECEMBER 31, 2000 ...... 292,591 2,456,533 $ 13.16 ========== ==========
To date, all options granted under the 1992 Plan are nonqualified options. Certain officers and employees of the Company were granted the right to exercise their options prior to vesting, subject to the Company's right of repurchase at the original issue price, which lapses ratably over five years. As of December 31, 2000, 15,609 shares outstanding were subject to repurchase. The options outstanding at December 31, 2000, have been segregated into ranges for additional disclosure as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ------------------------------ OPTIONS WEIGHTED-AVERAGE WEIGHTED- OPTIONS CURRENTLY WEIGHTED- OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE RANGE OF DECEMBER 31, CONTRACTUAL LIFE EXERCISE DECEMBER 31, EXERCISE EXERCISE PRICES 2000 (IN YEARS) PRICE 2000 PRICE - --------------- -------------- ----------------- ---------- ----------------- --------- $ 0.10 - $ 1.00 .... 180,809 3.95 $ 0.89 171,889 $ 0.92 $ 1.54 - $ 1.54 .... 268,622 5.60 $ 1.54 127,307 $ 1.54 $ 2.00 - $ 6.00 .... 298,764 5.30 $ 4.97 257,458 $ 4.99 $ 7.13 - $ 9.38 .... 252,400 7.69 $ 8.69 115,129 $ 8.66 $ 9.44 - $11.13 .... 477,750 8.90 $ 10.85 95,734 $ 10.92 $11.50 - $13.13 .... 282,008 8.66 $ 11.81 81,496 $ 11.83 $13.25 - $15.75 .... 332,180 8.04 $ 15.31 103,710 $ 15.00 $16.00 - $40.50 .... 257,500 9.61 $ 27.35 4,313 $ 32.57 $40.88 - $55.25 .... 26,500 9.42 $ 48.70 0 $ 0.00 $76.75 - $ 76.75 ... 80,000 9.15 $ 76.75 10,832 $ 76.75 --------- --------- $ 0.10 - $ 76.75 ... 2,456,533 7.56 $ 13.16 967,868 $ 7.41 ========= =========
As of December 31, 2000, 1999 and 1998, options to purchase 967,868, 709,433 and 505,522 shares were exercisable under the 1992 plan, respectively. PRO FORMA INFORMATION Pro forma information regarding net loss and net loss per share is required by SFAS 123, and has been determined as if the Company had accounted for its stock options granted subsequent to December 31, 1994 under the fair value method of SFAS 123. The weighted average fair value of options granted in 2000, 1999 and 1998 was $20.38, $7.87 and $6.74 per share, respectively. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model for the single option approach with the following weighted-average assumptions: a risk-free interest rate of 6.0%, 4.97% and 5.5% for 2000, 1999 and 1998, respectively; a weighted-average expected life of five years for 2000 grants, five years for 1999 grants and 5.1 years for 1998 grants; an expected dividend yield of zero for all three years; and a volatility factor of the expected market price of the Company's common stock of 100% for 2000, 86% for 1999 and 64% for 1998. 42 45 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. STOCKHOLDERS' EQUITY (CONTINUED) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock options. Had compensation cost for the Company's stock-based compensation plan been determined based on the fair value at the grant date for awards under the plan consistent with the method of SFAS 123, the Company's net loss and net loss per share would have been increased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, -------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net loss Historical ........................... $ (13,301) $ (6,664) $ (4,347) Pro forma ............................ $ (16,839) $ (7,874) $ (5,610) Net loss per share Historical ........................... $ (1.17) $ (0.60) $ (0.45) Pro Forma ............................ $ (1.48) $ (0.71) $ (0.58)
1998 EMPLOYEE STOCK PURCHASE PLAN In May 1998, the stockholders approved the adoption of the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan authorized the issuance of 200,000 shares of common stock pursuant to purchase rights granted to employees of the Company and is intended to be an "employee stock purchase plan" as defined in Section 423 of the Internal Revenue Code. As of December 31, 2000, a total of 33,911 shares of common stock have been issued to employees at an aggregate purchase price of $470,706 and a weighted average purchase price of $13.88 per share pursuant to offerings under the Purchase Plan, and 166,089 shares remain available for future issuance. Under SFAS 123, the fair value for these purchase options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2000 and 1999, respectively: risk-free interest rate of 6.0% and 4.97%; no dividend yields; volatility factor of the expected market price of the Company's common stock of 100% and 86%; and a weighted average expected life of 0.55 and 0.49 years. The weighted average fair value of those purchase rights granted in 2000 and 1999, respectively, was $7.58 and $5.13. 8. INCOME TAXES The provision for income taxes of $500,000 for 2000 consists of foreign withholding tax due on a payment received from one of Lynx's customers. The provision for income taxes of approximately $258,000 for 1999 and $151,000 for 1998 consists entirely of alternative minimum tax. The reconciliation of income tax expense (benefit) attributable to continuing operations computed at the U.S. federal statutory rates to income tax expense (benefit) for the fiscal years ended December 31, 2000, 1999 and 1998 is as follows (in thousands):
YEAR ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 ------- ------- ------- Tax provision (benefit) at U.S statutory rate .... $(4,352) $(2,178) $(1,427) Alternative minimum tax .......................... -- 258 151 Foreign taxes .................................... 500 -- -- Loss for which no tax benefit is currently recognizable ..................................... 4,352 2,178 1,427 ------- ------- ------- $ 500 $ 258 $ 151 ======= ======= =======
43 46 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows (in thousands):
2000 1999 -------- -------- Deferred tax assets: Net operating loss carryforwards ............... $ 13,427 $ 6,717 Research and development tax credit carryforwards ................................. 5,124 1,816 Alternative minimum tax credit carryforwards ... 218 290 Capitalized research and development expenditures ................................. 1,422 859 Deferred revenues .............................. 9,865 10,124 Reserves and accruals .......................... 741 494 Other, net ..................................... -- 702 Valuation allowance ............................ (30,623) (21,002) -------- -------- Net deferred tax assets .......................... 174 -- Deferred tax liabilities: Other ............................................ 174 -- -------- -------- Net deferred tax assets .......................... $ -- $ -- ======== ========
Realization of deferred tax assets is dependent on future earnings, if any, the timing and the amount of which are uncertain. Accordingly, a valuation allowance, in an amount equal to the net deferred tax assets as of December 31, 2000 and 1999 has been established to reflect these uncertainties. The change in the valuation allowance was a net increase of approximately $9.6 million and $3.6 million for the fiscal years ended December 31, 2000 and 1999, respectively. Approximately $2.0 million of the valuation allowance for deferred tax assets relates to benefits of stock option deductions which, when recognized will be allocated directly to contributed capital. As of December 31, 2000, the Company had a federal net operating loss carryforward of approximately $38.6 million, which will expire at various dates from 2008 through 2020, if not utilized. The Company has a state net operating loss carryforward of approximately $5.3 million, which will expire in 2010. As of December 31, 2000, the Company also had federal and California research and development and other tax credit carryforwards of approximately $3.8 million and $1.3 million, respectively. The federal research and development credit will expire at various dates from 2008 through 2020, if not utilized. Utilization of net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in expiration of net operating loss and tax credit carryforwards before full utilization. Utilization of federal and California net operating losses and credit carryforwards incurred prior to February 1994 is limited on an annual basis under the Internal Revenue Code of 1986, as amended, as a result of an ownership change in 1994. 9. OBLIGATIONS UNDER OPERATING LEASES In August 1993, the Company entered into a noncancelable operating lease for facilities which expires on July 31, 2003. In 1998, the Company entered into an agreement to sublease a portion of this space, and in 1999 through a subsequent agreement, subleased the remaining portion of the facility. The term of the sublease runs through July 2003. Rent from the sublease is sufficient to cover the rent and other operating expenses incurred by Lynx under the terms of the 1993 Lease. In February 1998, the Company entered into a noncancelable operating lease for facilities. The term of the lease commenced on December 15, 1998 and expires on December 14, 2008. Under the terms of the lease, the monthly rental payments are fixed for the first 24 months. Thereafter, the monthly rental payments increase and are subject to annual Consumer Price Index-based adjustments, with minimum and maximum limits. The Company is recognizing rent expense on a straight-line basis over the lease period. The Company has the option to extend the lease for an additional five-year period, subject to certain conditions, with payments to be determined at the time of the exercise of the option. 44 47 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. OBLIGATIONS UNDER OPERATING LEASES (CONTINUED) In June 1998, Lynx GmbH entered into a noncancelable operating lease for facilities space of approximately 6,300 square feet in Heidelberg, Germany, to house its operations. The space will be developed and occupied in phases, depending on the growth of the organization. The lease terminates in June 2005. A portion of such space is currently being subleased by BASF-LYNX. The Company also leases equipment under various operating lease agreements subject to minimum annual lease payments. Minimum annual rental commitments and sublease income under non-cancelable operating leases are as follows (in thousands):
SUBLEASE YEARS ENDING DECEMBER 31: COMMITMENTS INCOME ----------- -------- 2001 ............... $ 2,792 $ 1,117 2002 ............... 2,901 1,144 2003 ............... 2,691 682 2004 ............... 2,432 -- 2005 ............... 2,498 -- Thereafter ......... 7,524 -- ------- ------- $20,838 $ 2,943 ======= =======
Rent expense for facilities and equipment under operating leases was $2,055,000, $1,733,000 and $738,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Rental income for the facility under sublease was $1,127,000, $990,000 and $186,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 10. 401(k) PLAN In October 1992, Lynx adopted a 401(k) Plan covering all of its employees. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to 15% (subject to an annual limit prescribed by the Code as described below) and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require, additional contributions to the 401(k) Plan by Lynx on behalf of all participants in the 401(k) Plan. In the years ended 2000, 1999 and 1998, the Company contributed $74,000, $52,000 and $49,000, respectively. 11. EQUIPMENT FINANCING In 1998, the Company entered into a financing agreement with a financial institution ("Lender") under which Lynx drew down $4.8 million during 1999 for the purchase of equipment and certain other capital expenditures. Lynx granted the lender a security interest in all items financed by the Company under this agreement. Each draw down under the loan has a term of 48 months from the date of the draw down at interest rates ranging from 10.9% to 11.8% The original draw down period under the agreement expired on March 31, 2000. In September 2000, Lynx obtained additional financing of $950,000, under an amendment to the original financing agreement. As of December 31, 2000, the principal balance under loans outstanding under this agreement was approximately $4.4 million. Accumulated depreciation relating to these assets amounted to $2.5 million and $0.7 million for the years ended December 31, 2000 and 1999, respectively. The carrying amounts of the Company's borrowings under its equipment financing approximate their fair values. The fair values are estimated using a discounted cash flow analysis based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Principal payments based on equipment loans outstanding at December 31, 2000 are (in thousands): 2001.............................. $1,319 2002.............................. 1,393 2003.............................. 1,420 2004.............................. 264 ------ $4,396 ======
45 48 LYNX THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. SUBSEQUENT EVENTS (UNAUDITED) Phytera In January 2001, the Company entered into a collaboration with Phytera, Inc. to identify genes from plants involved in the biosynthesis of anti-oxidant polyphenols, naturally occurring compounds with nutraceutical and pharmaceutical activity. Phytera will select plant species from its culture libraries and apply its proprietary ExPAND(R) manipulation technology to regulate the expression of the metabolic pathways and genes responsible for the production of specific anti-oxidant polyphenolic compounds. Lynx will then use its proprietary Megasort technology to identify genes activated after target compounds are induced. Lynx and Phytera intend to validate gene targets and jointly commercialize the genes with other partners in the nutraceutical and pharmaceutical sectors. Celera In March 2001, the Company entered into two agreements with Celera Genomics. The first agreement involves the integration of sets of Lynx's high-resolution gene expression data, derived from normal human tissues analyzed using Lynx's MPSS technology, into Celera's database products for distribution to Celera's customers through the Celera Discovery System (CDS). Under a second agreement, Lynx will apply its MPSS technology to perform additional gene expression analyses various tissues for Celera and to help supplement the Lynx database offering. In June 2001, Lynx extended its technology licensing agreement with BASF-LYNX. The license extends BASF-LYNX's right to use Lynx's proprietary MPSS(TM) and Megasort(TM) technologies non-exclusively in BASF-LYNX's neuroscience, toxicology and microbiology research programs until December 31, 2007. The agreement also uniquely positions BASF-LYNX to apply Lynx's technologies to specific disorders in the neuroscience field. Under the terms of the agreement, Lynx will receive from BASF-LYNX a multi-million dollar technology license fee. Lynx will furnish BASF-LYNX, initially without charge and later for a fee, with Megaclone(TM) technology micro-beads, other reagents and additional MPSS(TM) technology instruments for use in BASF-LYNX's research programs. Separately, Lynx and BASF have agreed to continue their support of BASF-LYNX's growth, including an increase of the capital reserves of BASF-LYNX. Lynx's additional investment in BASF-LYNX will maintain Lynx's ownership interest in BASF-LYNX at more than 40%. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 46 49 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company's executive officers, directors and certain employees, and their ages as of February 15, 2001 are as follows:
NAME AGE POSITION - ---- --- -------- Craig C. Taylor(1)(2)................. 50 Chairman of the Board Norman J. W. Russell, Ph.D............ 48 President, Chief Executive Officer and Director Edward C. Albini...................... 43 Chief Financial Officer and Secretary Stephen C. Macevicz, Ph.D............. 51 Vice President, Intellectual Property William Wong, Ph.D.................... 52 Vice President, Business Development Richard C. Woychik, Ph.D.............. 48 Chief Scientific Officer Sydney Brenner, M.B., D. Phil......... 73 Director and Principal Scientific Advisor William K. Bowes, Jr.(1)(2)........... 74 Director Leroy Hood, M.D., Ph.D................ 62 Director James C. Kitch(1)(2).................. 53 Director
- ------------ (1) Member of the Audit Committee. (2) Member of the Compensation Committee. Craig C. Taylor was elected Chairman of the Board of Directors of Lynx in December 2000 and has served as a director since March 1994, and served as Acting Chief Financial Officer from July 1994 to April 1997. He has been active in venture capital since 1977, when he joined Asset Management Company, a venture capital firm. He is a general partner of AMC Partners 89 L.P., which serves as the general partner of Asset Management Associates 1989 L.P., a private venture capital partnership. He currently serves as a director of Pharmacyclics, Inc., a biotechnology company, and several private companies. Norman J. W. Russell, Ph.D., joined Lynx in October 1999 as President and Chief Executive Officer and was elected to the Board of Directors in December 1999. Prior to joining Lynx, he was Head of Biological Science and Technology at AstraZeneca Pharmaceuticals, a pharmaceutical company. His previous positions in 20 years at Zeneca included Head of Target Discovery, Head of International Genomics and Head of Biotechnology. Dr. Russell earned a Ph.D. in Physiology from Glasgow University, Scotland. Edward C. Albini has served as Chief Financial Officer of Lynx since April 1997. He was elected Secretary in February 1998. From January 1983 to April 1997, Mr. Albini served in various financial management positions with Genentech, Inc., a biotechnology company. His most recent role at Genentech was as the Director of Financial Planning and Analysis. Mr. Albini holds a BS degree in Accounting from Santa Clara University and an MBA degree from the Walter A. Haas School of Business at the University of California, Berkeley. Mr. Albini is also a certified public accountant. Stephen C. Macevicz, Ph.D., joined Lynx in September 1995 as Vice President, Intellectual Property. He was Senior Patent Attorney and chief patent counsel at Applied Biosystems, Inc. from 1992 to August 1995 and, from 1986 to 1992, Patent Counsel at DNAX Research Institute of Molecular and Cellular Biology, a research subsidiary of Schering-Plough Corporation. He received his law degree from the University of California, Berkeley, Boalt Hall, and his Ph.D. in Biophysics from the University of California, Berkeley. William Wong, Ph.D., joined Lynx in January 2001 as Vice President, Business Development. He was Executive Vice President, Business Development at Nexell, a therapeutics company, from 1998 to 2000, Executive Director, Technology and Business Development at Intracel Corp., a biotechnology company, from 1995 to 1998, Sr. Vice President and General Manager at Zynaxis, Inc., a drug delivery and diagnostics company, from 1994 to 1995, and he held various positions at Zynaxis from 1990 to 1994. Dr. Wong received his Ph.D. from the University of Rochester, School of Medicine, Rochester, New York. Richard C. Woychik, Ph.D., joined Lynx in January 2001 as Chief Scientific Officer. Prior to joining Lynx, Dr. Woychik was Senior Director and Head of the Global R&D Molecular Genetics Research Center at Pfizer, a pharmaceutical company, from 1998 to 2000. From 1997 to 1998, Dr. Woychik was a Professor in the Departments of Pediatrics, Genetics and Pharmacology and Vice Chairman for Research in Pediatrics at Case Western Reserve University and from 1987 to 1997, he was a research scientist at the Oak Ridge National Laboratory. Dr. Woychik earned his Ph.D. in Molecular Biology at Case Western Reserve University. 47 50 Sydney Brenner, M.B., D.Phil., has served as a director of Lynx since October 1993. He is a distinguished Professor at the Salk Institute of Biological Studies in La Jolla, California. He served as Director and President of The Molecular Sciences Institute, a non-profit research institute in Berkeley, California from July 1996 to January 2001, when he retired as Director of Research. In September 1996, he retired from his position of Honorary Professor of Genetic Medicine, University of Cambridge Clinical School. From 1986 to his retirement in 1991, Dr. Brenner directed the Medical Research Council Unit of Molecular Genetics. He was a member of the Scripps Research Institute in La Jolla, California, until December 1994. Dr. Brenner is the principal inventor of Lynx's bead-based technologies. William K. Bowes, Jr., has served as a director of Lynx since March 1994. He has been a general partner of U.S. Venture Partners, a venture capital partnership, since 1981. He currently serves as a director of Amgen, Inc., a biotechnology company, AMCC, an integrated circuit company, XOMA Corporation, a biotechnology company, and one U.S. Venture Partners privately owned portfolio company. Leroy Hood, M.D., Ph.D., has served as a director of Lynx since May 2000. In December 1999, he founded the Institute of Systems Biology, a private nonprofit research institute, and currently serves as the President and a director. From 1992 to 1999, he was the Chair of the Molecular Biotechnology Department at the University of Washington and the William Gates III Professor of Biomedical Sciences. Dr. Hood received his M.D. from Johns Hopkins Medical School and Ph.D. from the California Institute of Technology. He has been a member of the National Academy of Sciences and the American Academy of Arts and Sciences since 1982. James C. Kitch has served as a director of Lynx since February 1993 and Secretary of Lynx from February 1992 to December 1997. Since 1979, he has been a partner at Cooley Godward LLP, a law firm, which has provided legal services to Lynx. COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a) Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than ten percent (10%) of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent (10%) stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company, during the calendar year ended December 31, 2000, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent (10%) beneficial owners were complied with. 48 51 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain compensation paid by the Company during the calendar years ended December 31, 2000, 1999 and 1998, to its Chief Executive Officer and the two other most highly compensated executive officers whose compensation exceeded $100,000 (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION OTHER ANNUAL NAME AND PRINCIPAL POSITION YEAR SALARY (1) OPTIONS (#) COMPENSATION - --------------------------- ---- ---------- ----------- ------------ Norman J. W. Russell, Ph.D.(2) ............. 2000 $262,571 -- -- President & Chief Executive Officer ...... 1999 $109,527 200,000 $ 33,212(2) Edward C. Albini ........................... 2000 $196,405 70,000 $ 750(3) Chief Financial Officer .................. 1999 $163,730 -- $ 750(3) 1998 $147,336 50,000 $ 750(3) Stephen C. Macevicz, Ph.D .................. 2000 $191,538 20,000 $ 750(3) Vice President, Intellectual Property .... 1999 $176,549 20,000 $ 750(3) 1998 $167,611 -- $ 750(3)
- ------------ (1) Includes amounts earned but deferred at the election of the Named Executive Officer pursuant to the Company's 401(k) Plan. (2) Dr. Russell joined the Company as President and Chief Executive Officer on October 18, 1999. Prior to this time, Dr. Russell was employed at Lynx Therapeutics GmbH, a wholly-owned subsidiary of the Company, from July 1, 1999. Dr. Russell's compensation received while employed at Lynx GmbH is reflected under Other Annual Compensation. (3) Contributions made by the Company to the Company's 401(k) Plan on behalf of such employee. Except as disclosed above, no compensation characterized as long-term compensation, including restricted stock awards issued at a price below fair market value or long-term incentive plan payouts, was paid by the Company during the year ended December 31, 2000, to any of the Named Executive Officers. STOCK OPTION GRANTS AND EXERCISES The Company grants options to its executive officers under its 1992 Stock Option Plan, as amended. As of February 15, 2001, options to purchase a total of 2,655,290 shares were outstanding under the 1992 Stock Option Plan, as amended, and options to purchase 91,499 shares remained available for grant thereunder. The following table sets forth, for each of the Named Executive Officers in the Summary Compensation Table, certain information regarding options granted during the year ended December 31, 2000. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED INDIVIDUAL GRANTS ANNUAL RATES --------------------------------------------------------------------- OF STOCK PRICE NUMBER OF % OF TOTAL APPRECIATION SECURITIES OPTIONS GRANTED EXERCISE OR FOR OPTION TERM (2) UNDERLYING OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION -------------------------- NAME GRANTED IN FISCAL YEAR (1) ($/SH) DATE 5%($) 10%($) ------------------ ------------------ ----------- ---------- --------- ----------- Edward C. Albini ........... 40,000 5.43% 76.75 02/22/10 1,930,706 4,892,789 30,000 4.07% 15.75 05/26/10 297,153 753,043 Stephen C. Macevicz, Ph.D .. 20,000 2.72% 10.63 12/10/10 133,703 338,830
- ------------ (1) Based on options for an aggregate of 736,500 shares granted to employees of, and consultants to, the Company during the year ended December 31, 2000, including the Named Executive Officer. 49 52 (2) The potential realizable value is calculated based on the term of the option at its time of grant (ten years). It is calculated by assuming that the stock price on the date of grant appreciates at the indicated annual rate, compounded annually for the entire term of the option, and that option is exercised and sold on the last day of the term for the appreciated stock price. The following table sets forth certain information concerning the number of options exercised by the Named Executive Officers during the year ended December 31, 2000, and the number of shares covered by both exercisable and unexercisable stock options held by the Named Executive Officers. Also reported are values for "in-the-money" options that represent the positive spread between the respective exercise prices of outstanding options and the fair market value of the Company's common stock as of December 29, 2000 ($9.00 per share). AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 2000 AND OPTION VALUES
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT SHARES OPTIONS AT YEAR-END YEAR-END (1) ACQUIRED ON VALUE ----------------------------- ---------------------------- NAME EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE EXERCISABLE ----------- ------------ ----------- ------------- ----------- ----------- Norman J. W. Russell, Ph.D. -- -- 56,666 143,334 0 0 Edward C. Albini ......... -- -- 28,333 21,667 0 0 -- -- 6,666 33,334 0 0 -- -- 3,500 26,500 0 0 Stephen C. Macevicz ...... 14,000 238,840 1,000 0 8,000 0 34,666 620,868 4,334 0 38,356 0 -- -- 4,000 16,000 0 0 -- -- 0 20,000 0 0
- ------- (1) Based on the fair market value of the Company's common stock at December 29, 2000 ($9.00), minus the exercise price of the options, multiplied by the number of shares underlying the options. EMPLOYMENT SEVERANCE AND CHANGE OF CONTROL AGREEMENTS In October 1999, the Company entered into an employment agreement with Dr. Norman J. W. Russell, President and Chief Executive Officer, providing for an annual compensation of $255,000 per year and an option to purchase 200,000 shares of common stock at an exercise price of $11.31 per share, subject to a five-year vesting schedule. If Dr. Russell is terminated due to a change in control of the Company, Dr. Russell's shares covered by the option shall accelerate so that fifty percent of the then unvested shares covered by the option shall immediately vest and become exercisable upon the effective date of the change in control. The Company also provided Dr. Russell with a loan in the amount of $250,000 for the sole purpose of the purchase of a house, which loan shall be secured by the property, and is forgivable over a four-year period. COMPENSATION OF DIRECTORS Directors are not compensated by the Company for services as directors. Non-employee directors are eligible to participate in the Company's 1992 Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee was established in March 1994 and is currently composed of three non-employee directors: Messrs. Bowes, Kitch and Taylor. Mr. Taylor served as Acting Chief Financial Officer of the Company from July 1994 to April 1997. There were no officers or employees of the Company who participated in deliberations of the Company's Compensation Committee concerning executive officer compensation during the year ended December 31, 2000. LIMITATIONS OF LIABILITY AND INDEMNIFICATION The Company's Bylaws provide that the Company will indemnify its directors and executive officers and may indemnify its other officers, employees and other agents to the fullest extent permitted by Delaware law. The Company is also empowered under its Bylaws to enter into indemnification agreements with its directors and officers and to purchase insurance on behalf of any person whom it is required or permitted to indemnify. Pursuant to this provision, the Company has entered into indemnity agreements with each of its directors and executive officers. 50 53 In addition, the Company's Certificate of Incorporation provides that, to the fullest extent permitted by Delaware law, the Company's directors will not be liable for monetary damages for breach of the directors' fiduciary duty of care to the Company and its stockholders. This provision in the Certificate of Incorporation does not eliminate the duty of care, and in appropriate circumstances, equitable remedies such as an injunction or other forms of nonmonetary relief would remain available under Delaware law. Each director will continue to be subject to liability for breach of the director's duty of loyalty to the Company, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for acts or omissions that the director believes to be contrary to the best interests of the Company or its stockholders, for any transaction from which the director derived an improper personal benefit, for acts or omissions involving a reckless disregard for the director's duty to the Company or its stockholders when the director was aware or should have been aware of a risk of serious injury to the Company or its stockholders, for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Company or its stockholders, for improper transactions between the director and the Company and for improper distributions to stockholders and loans to directors and officers. This provision also does not affect a director's responsibilities under any other laws such as the federal securities laws or state or federal environmental laws. No pending material litigation or proceeding involving a director, officer, employee or other agent of the Company as to which indemnification is being sought exists, and the Company is not aware of any pending or threatened material litigation that may result in claims for indemnification by any director, officer, employee or other agent. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of the common stock as of February 15, 2001, by (i) each stockholder who is known by the Company to own beneficially more than 5% of the common stock; (ii) each Named Executive Officer of the Company listed on the Summary Compensation Table; (iii) each director of the Company; and (iv) all directors and executive officers of the Company as a group.
COMMON STOCK (1) ----------------------------- NUMBER NAME OF BENEFICIAL OWNER OF SHARES PERCENT --------- --------- Credit Suisse Asset Management, LLC .................... 723,296 6.3% GEO Capital, LLC ....................................... 654,990 5.7% Norman J. W. Russell, Ph.D.(2) ......................... 70,000 ** Edward C. Albini(3) .................................... 95,219 ** Stephen C. Macevicz, Ph.D.(4) .......................... 78,889 ** William K. Bowes, Jr.(5) ............................... 183,496 1.6% Sydney Brenner, M.B., D. Phil.(6) ...................... 329,000 2.9% Leroy Hood, M.D., Ph.D ................................. 6,896 ** James C. Kitch(7) ...................................... 20,620 ** Craig C. Taylor(8) ..................................... 386,434 3.4% All directors and officers as a group (10 persons)(9) .. 1,170,554 9.99%
- ------------ ** Less than one percent. (1) Except as otherwise noted, and subject to community property laws where applicable, each person or entity named in the table has sole voting and investment power with respect to all shares shown as beneficially owned by him, her or it. Percentage of beneficial ownership is based on 11,459,521 shares of common stock outstanding as of February 15, 2001, except as otherwise noted in the footnotes. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options currently exercisable or exercisable within 60 days of February 15, 2001, are deemed outstanding for computing the percentage of the person holding such options but are not deemed outstanding for computing the percentage of beneficial ownership of any other person. (2) Consists of 70,000 shares of common stock issuable upon exercise of stock options held by Dr. Russell that are exercisable within 60 days of February 15, 2001. (3) Includes 44,499 shares of common stock issuable upon exercise of stock options held by Mr. Albini that are exercisable within 60 days of February 15, 2001. 51 54 (4) Includes 12,000 shares of common stock issuable upon exercise of stock options held by Dr. Macevicz that are exercisable within 60 days of February 15, 2001. (5) Includes 35,401 shares of common stock held by Mr. Bowes, 17,606 shares of common stock held by the William K. Bowes Charitable Remainder Trust, of which Mr. Bowes is Trustee, and 8,333 shares of common stock issuable upon exercise of stock options held by Mr. Bowes that are exercisable within 60 days of February 15, 2001. Also includes 122,156 shares of common stock held by entities affiliated with U.S. Venture Partners IV, L.P. or U.S.V.P. IV. Mr. Bowes, a director of Lynx, is a general partner of Presidio Management Group IV, the general partner of U.S.V.P. IV. Mr. Bowes shares the power to vote and control the disposition of shares held by U.S.V.P. IV and, therefore, may be deemed to be the beneficial owner of such shares. Mr. Bowes disclaims beneficial ownership of such shares, except to the extent of his pro-rata interest therein. (6) Includes 99,000 shares of common stock issuable upon exercise of stock options held by Dr. Brenner that are exercisable within 60 days of February 15, 2001. (7) Includes 2,287 shares of common stock, 8,333 shares of common stock issuable upon exercise of stock options held by Mr. Kitch and 10,000 shares of common stock issuable upon the exercise of stock options also held by Mr. Kitch that are exercisable within 60 days of February 15, 2001. Mr. Kitch holds these options for the benefit of Cooley Godward LLP. He shares the power to vote and control the disposition of such shares and, therefore, may be deemed to be the beneficial owner of such shares. Mr. Kitch disclaims beneficial ownership of such shares, except to the extent of his pro-rata interest therein. (8) Includes 13,997 shares of common stock held by Mr. Taylor and 8,333 shares of common stock issuable upon exercise of stock options held by Mr. Taylor. Also includes 364,104 shares of common stock held by Asset Management Associates 1989 L.P. Mr. Taylor, the Chairman of the Board of Lynx, is a general partner of AMC Partners 89, which is the general partner of Asset 1989 L.P. Mr. Taylor shares the power to vote and control the disposition of shares held by Asset 1989 L.P. and, therefore, may be deemed to be the beneficial owner of such shares. Mr. Taylor disclaims beneficial ownership of such shares, except to the extent of his pro-rata interest therein. (9) Includes 486,260 shares of common stock held by entities affiliated with certain directors and 423,796 shares of common stock issuable upon exercise of stock options held by directors and officers that are exercisable within 60 days of February 15, 2001. See Notes 2 through 8 above. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In November 1999, the Company entered into a loan agreement with Norman J. W. Russell, Ph.D., President, Chief Executive Officer and a director of the Company. The loan is in the amount of $250,000, secured by a second mortgage on real property, with interest accruable at the rate of 6.02% per annum, and subject to early repayment under specified circumstances. The principal and interest on the loan will be forgiven, based on the officer's continuous employment over a four-year period, in the following amounts: 50% on the second anniversary date of employment; and 25% on each of the third and fourth anniversary dates of employment. At February 15, 2001, the outstanding principal and accrued interest on the loan was $267,224. In April 1997, the Company entered into a full-recourse loan agreement with Edward C. Albini, an officer of the Company. A note receivable of $250,000 was issued under a stock purchase agreement for the purchase of 50,000 shares of common stock whereby all the shares issued under the agreement are pledged as collateral. The outstanding principal amount is due and payable in full in April 2002, subject to an obligation to prepay under specified circumstances. Interest is payable upon the expiration or termination of the note and accrues at the rate of 6.49% per annum. At February 15, 2001, the outstanding principal and accrued interest on the loan was $293,988. For legal services rendered during the calendar year ended December 31, 2000, the Company paid approximately $307,500 to Cooley Godward LLP, the Company's counsel, of which Mr. Kitch, a director of the Company, is a partner. The Company's Bylaws provide that the Company will indemnify its directors and executive officers and may indemnify its other officers, employees and other agents to the fullest extent permitted by Delaware law. The Company is also empowered under its Bylaws to enter into indemnification agreements with its directors and officers and to purchase insurance on behalf of any person whom it is required or permitted to indemnify. Pursuant to this provision, the Company has entered into indemnity agreements with each of its directors and executive officers. 52 55 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS (1) The following index, Report of Ernst & Young LLP, Independent Auditors, and financial statements set forth on pages 26 through 31 of this report are being filed as part of this report: (i) Report of Ernst & Young LLP, Independent Auditors. (ii) Consolidated Balance Sheets as of December 31, 2000 and 1999. (iii) Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998. (iv) Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998. (v) Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998. (vi) Notes to Consolidated Financial Statements. (2) All schedules are omitted because they are not required, are not applicable, or the information is included in the consolidated financial statement or notes thereto. (3) The following documents are being filed as part of this report:
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 2.1+ Acquisition Agreement, dated as of February 4, 1998, by and between the Company and Inex Pharmaceuticals Corporation, incorporated by reference to the indicated exhibit of the Company's Current Report on Form 8-K filed on March 24, 1998. 3.1 Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to the indicated exhibit of the Company's Form 10-Q for the period ended June 30, 2000. 3.2 Bylaws of the Company, as amended, incorporated by reference to the indicated exhibit of the Company's Form 10-Q for the period ended June 30, 2000. 4.1 Form of Common Stock Certificate, incorporated by reference to Exhibit 4.2 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.1 Form of Indemnity Agreement entered into between the Company and its directors and officers, incorporated by reference to Exhibit 10.7 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.2** The Company's 1992 Stock Option Plan (the "Stock Option Plan"), incorporated by reference to Exhibit 10.8 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.3** Form of Incentive Stock Option Grant under the Stock Option Plan, incorporated by reference to Exhibit 10.9 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.4** Form of Nonstatutory Stock Option Grant under the Stock Option Plan, incorporated by reference to Exhibit 10.10 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.5 Agreement of Assignment and License of Intellectual Property Rights, dated June 30, 1992, by and between the Company and ABI, incorporated by reference to Exhibit 10.11 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.6 Amended and Restated Investor Rights Agreement, dated as of November 1, 1995, incorporated by reference to Exhibit 10.30 of the Company's Form 10-K for the period ended December 31, 1995. 10.7+ Technology Development and Services Agreement, dated as of October 2, 1995, by and among the Company, Hoechst Aktiengesellschaft and its subsidiary, Hoechst Marion Roussel, Inc., incorporated by reference to Exhibit 10.28 of the Company's Form 10-K for the period ended December 31, 1995. 10.7.1+ Amended and Restated First Amendment to Technology Development and Services Agreement, dated May 1, 1998, by and between the Company and Hoechst Marion Roussel, Inc., incorporated by reference to Exhibit 10.36 of the Company's Form 10-Q for the period ended June 30, 1998. 10.7.2*+ Second Amendment to Technology Development and Services Agreement, dated March 1, 1999, by and among the Company, Hoechst Marion Roussel, Inc. and its affiliate Hoechst Schering AgrEvo GmbH. 10.7.3*+ Third Amendment to Technology Development and Services Agreement, dated December 20, 1999, by and among the Company, Aventis Pharmaceutical Inc. and its affiliate Aventis CropScience GmbH. 10.8** Stock Purchase Agreement, dated as of June 13, 1996, by and between Spectragen, Inc. and Sam Eletr. The Stock Purchase Agreement was assumed by the Company pursuant to the Agreement of Merger between the Company and Spectragen, Inc., incorporated by reference to Exhibit 10.25 of the Company's Form 10-K for the period ended December 31, 1996.
53 56
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 1997. 10.9** Stock Purchase Agreement dated as of April 14, 1997, by and between the Company and Edward C. Albini, incorporated by reference to Exhibit 10.32 of the Company's Form 10-K for the period ended December 31, 1997. 10.10 Form of Common Stock Purchase Agreement, dated as of September 28, 1997, by and between the Company and the investors listed therein, incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-3, filed on October 31, 1997 (File No. 333-39171). 10.11 Lease dated as of February 27, 1998, by and between the Company and SimFirst, L.P., Limited Partnership, incorporated by reference to Exhibit 10.35 of the Company's Form 10-Q for the period ended March 31, 1998. 10.12 The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"), incorporated by reference to Exhibit 99.1 of the Company's Form S-8 (File No. 333-59163). 10.13*+ Research Collaboration Agreement, dated as of October 29, 1998, by and between the Company and E.I. Dupont de Nemours and Co. 10.14* Master Loan and Security Agreement, dated as of October 26, 1998, by and between the Company and Transamerica Business Credit Corporation. 10.15* Promissory Note No. 7, dated as of September 29, 2000, issued by the Company to Transamerica Business Credit Corporation. 10.16*+ Collaboration Agreement, dated as of September 30, 1999, by and between the Company and Hoechst Schering AgrEvo GmbH. 10.17** Employment Agreement dated as of October 18, 1999, by and between the Company and Norman John Wilkie Russell, Ph.D., incorporated by reference to Exhibit 10.13 of the Company's Form 10-Q for the period ended September 30, 1999. 10.18*+ Collaboration Agreement, dated as of October 1, 2000, by and between the Company and Takara Shuzo Co., Ltd. 10.19 Securities Purchase Agreement, dated as of May 24, 2001, by and among the Company and the investors listed therein, incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on June 4, 2001. 10.20 Registration Rights Agreement, dated as of May 24, 2001, by and among the Company and the investors listed therein, incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on June 4, 2001. 10.21 Form of Warrant issued by the Company in favor of each investor thereto, incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K, filed on June 4, 2001. 10.22+ Joint Venture Agreement, dated as of June 29, 2001, by and between the Company and BASF Aktiengesellschaft, incorporated by reference to Exhibit 10.18 of the Company's Form 10-Q for the period ended June 30, 2001. 10.23+ Technology License Agreement, dated as of June 1, 2001, by and between the Company and BASF-LYNX Bioscience AG, incorporated by reference to Exhibit 10.19 of the Company's Form 10-Q for the period ended June 30, 2001. 21.1 Subsidiary of the Company. 23.1* Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney. Reference is made to the signature page.
- ------------ * Being filed herewith; all other exhibits previously filed. ** Management contract or compensatory plan or arrangement. (+) Portions of this agreement have been deleted pursuant to our request for confidential treatment. (b) REPORTS ON FORM 8-K Not applicable. 54 57 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 24th day of August 2001. LYNX THERAPEUTICS, INC. By: /s/ NORMAN J.W. RUSSELL, PH.D. -------------------------------------- Norman J.W. Russell, Ph.D. President and Chief Executive Officer POWER OF ATTORNEY Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ NORMAN J.W. RUSSELL President, Chief Executive Officer and August 24, 2001 - ------------------------------- Director (Principal Executive Officer) Norman J.W. Russell * Chairman of the Board August 24, 2001 - ------------------------------- Craig C. Taylor /s/ EDWARD C. ALBINI Chief Financial Officer and Secretary August 24, 2001 - ------------------------------- (Principal Financial and Accounting Officer) Edward C. Albini * Director August 24, 2001 - ------------------------------- William K. Bowes, Jr. /s/ SYDNEY BRENNER Director August 24, 2001 - ------------------------------- Sydney Brenner * Director August 24, 2001 - ------------------------------- James C. Kitch /s/ LEROY HOOD Director August 24, 2001 - ------------------------------- Leroy Hood * Director August 24, 2001 - ------------------------------- David C. U'Prichard
* By: /s/ EDWARD C. ALBINI -------------------------- Edward C. Albini ATTORNEY-IN-FACT 55 58 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 2.1+ Acquisition Agreement, dated as of February 4, 1998, by and between the Company and Inex Pharmaceuticals Corporation, incorporated by reference to the indicated exhibit of the Company's Current Report on Form 8-K filed on March 24, 1998. 3.1 Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to the indicated exhibit of the Company's Form 10-Q for the period ended June 30, 2000. 3.2 Bylaws of the Company, as amended, incorporated by reference to the indicated exhibit of the Company's Form 10-Q for the period ended June 30, 2000. 4.1 Form of Common Stock Certificate, incorporated by reference to Exhibit 4.2 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.1 Form of Indemnity Agreement entered into between the Company and its directors and officers, incorporated by reference to Exhibit 10.7 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.2** The Company's 1992 Stock Option Plan (the "Stock Option Plan"), incorporated by reference to Exhibit 10.8 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.3** Form of Incentive Stock Option Grant under the Stock Option Plan, incorporated by reference to Exhibit 10.9 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.4** Form of Nonstatutory Stock Option Grant under the Stock Option Plan, incorporated by reference to Exhibit 10.10 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.5 Agreement of Assignment and License of Intellectual Property Rights, dated June 30, 1992, by and between the Company and ABI, incorporated by reference to Exhibit 10.11 of the Company's Statement Form 10 (File No. 0-22570), as amended. 10.6 Amended and Restated Investor Rights Agreement, dated as of November 1, 1995, incorporated by reference to Exhibit 10.30 of the Company's Form 10-K for the period ended December 31, 1995. 10.7+ Technology Development and Services Agreement, dated as of October 2, 1995, by and among the Company, Hoechst Aktiengesellschaft and its subsidiary, Hoechst Marion Roussel, Inc., incorporated by reference to Exhibit 10.28 of the Company's Form 10-K for the period ended December 31, 1995. 10.7.1+ Amended and Restated First Amendment to Technology Development and Services Agreement, dated as of May 1, 1998, by and between the Company and Hoechst Marion Roussel, Inc., incorporated by reference to Exhibit 10.36 of the Company's Form 10-Q for the period ended June 30, 1998. 10.7.2*+ Second Amendment to Technology Development and Services Agreement, dated March 1, 1999, by and among the Company, Hoechst Marion Roussel, Inc. and its affiliate Hoechst Schering AgrEvo GmbH. 10.7.3*+ Third Amendment to Technology Development and Services Agreement, dated December 20, 1999, by and among the Company, Aventis Pharmaceutical Inc. and its affiliate Aventis CropScience GmbH. 10.8** Stock Purchase Agreement, dated as of June 13, 1996, by and between Spectragen, Inc. and Sam Eletr. The Stock Purchase Agreement was assumed by the Company pursuant to the Agreement of Merger between the Company and Spectragen, Inc., incorporated by reference to Exhibit 10.25 of the Company's Form 10-K for the period ended December 31, 1996. 10.9** Stock Purchase Agreement dated as of April 14, 1997, by and between the Company and Edward C. Albini, incorporated by reference to Exhibit 10.32 of the Company's Form 10-K for the period ended December 31, 1997. 10.10 Form of Common Stock Purchase Agreement, dated as of September 28, 1997, by and between the Company and the investors listed therein, incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-3, filed on October 31, 1997 (File No. 333-39171). 10.11 Lease dated as of February 27, 1998, by and between the Company and SimFirst, L.P., Limited Partnership, incorporated by reference to Exhibit 10.35 of the Company's Form 10-Q for the period ended March 31, 1998. 10.12 The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"), incorporated by reference to Exhibit 99.1 of the Company's Form S-8 (File No. 333-59163). 10.13*+ Research Collaboration Agreement, dated as of October 29, 1998, by and between the Company and E.I. Dupont de Nemours and Co. 10.14* Master Loan and Security Agreement, dated as of October 26, 1998, by and between the Company and Transamerica Business Credit Corporation. 10.15* Promissory Note No. 7, dated as of September 29, 2000, issued by the Company to Transamerica Business Credit Corporation. 10.16*+ Collaboration Agreement, dated as of September 30, 1999, by and between the Company and Hoechst Schering AgrEvo GmbH. 10.17** Employment Agreement dated as of October 18, 1999, between the Company and Norman John Wilkie Russell, Ph.D., incorporated by reference to Exhibit 10.13 of the Company's Form 10-Q for the period ended September 10.18*+ Collaboration Agreement, dated as of October 1, 2000, by and between the Company and Takara Shuzo Co., Ltd. 10.19 Securities Purchase Agreement, dated as of May 24, 2001, by and among the Company and the investors listed therein, incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on June 4, 2001. 10.20 Registration Rights Agreement, dated as of May 24, 2001, by and among the Company and the investors listed therein, incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on June 4, 2001. 10.21 Form of Warrant issued by the Company in favor of each investor thereto, incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K, filed on June 4, 2001. 10.22+ Joint Venture Agreement, dated as of June 29, 2001, by and between the Company and BASF Aktiengesellschaft, incorporated by reference to Exhibit 10.18 of the Company's Form 10-Q for the period ended June 30, 2001. 10.23+ Technology License Agreement, dated as of June 1, 2001, by and between the Company and BASF-LYNX Bioscience AG, incorporated by reference to Exhibit 10.19 of the Company's Form 10-Q for the period ended June 30, 2001.
56 59
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 30, 1999. 21.1 Subsidiary of the Company. 23.1* Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney. Reference is made to the signature page.
- ------------ * Being filed herewith; all other exhibits previously filed. ** Management contract or compensatory plan or arrangement. + Portions of this agreement have been deleted pursuant to our request for confidential treatment. 57 EX-10.7.2 3 f75239a1ex10-7_2.txt EXHIBIT 10.7.2 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EXHIBIT 10.7.2 SECOND AMENDMENT TO TECHNOLOGY DEVELOPMENT AND SERVICES AGREEMENT This Second Amendment ("Second Amendment") to the Technology Development and Services Agreement dated October 2, 1995, as amended through May 1, 1998 (the "Agreement") is made and entered into as of March 1, 1999 by LYNX THERAPEUTICS, INC., a Delaware corporation, for itself and its wholly-owned subsidiaries, including SPECTRAGEN, INC., (collectively referred to as "Lynx"), Hoechst Marion Roussel, Inc., a Delaware corporation, for itself and its affiliates other than AgrEvo ("HMRI") and Hoechst Schering AgrEvo GmbH, a German corporation and an affiliate of HMRI (referred to as "AgrEvo"). RECITALS WHEREAS, HMRI has the right under the Agreement to secure nonexclusive access to Lynx's library analysis and other subscription services for itself and all of its affiliates in accordance with the terms of the Agreement at any time up to [ * ]; WHEREAS, HMRI and AgrEvo desire to partially exercise such right in order to enable AgrEvo to activate a subscription for Lynx's services for use in its agricultural research programs; WHEREAS, the parties wish to enter into this Second Amendment for the purpose of enabling such partial activation by AgrEvo. NOW THEREFORE, in consideration of the foregoing premises and the covenants and promises contained in this Second Amendment, the parties agree as follows: ARTICLE 1 DEFINITIONS Capitalized terms used in this Second Amendment shall have the meanings ascribed to them in the Agreement unless otherwise defined in or amended by this Second Amendment. 1.1 No amendment is made to Section 1.1. 1.2 No amendment is made to Section 1.2. 1.3 No amendment is made to Section 1.3. 1.4 "Analysis" means (i) the activities of Lynx leading to the generation of a MPSS Library Analysis and/or (ii) any other analysis using Lynx Technology uncovering, for example, 2 differences in gene expression or genomic composition, offered by Lynx to its subscription service customers (including HMRI as described in Article 2). 1.5 "Lynx Technology" means Lynx's proprietary technologies for solid phase cloning on beads of genomic DNA or cDNA and their analytical applications, such as library comparisons using bead-based sorting or signature sequencing on beads, as existing on the date hereof and as developed or improved by Lynx during the term of the Agreement. 1.6 "AgrEvo Field" shall mean the analysis of genomes and gene expression of plants, or of plant pathogens or plant pests, for the purpose of developing and commercializing products solely for use in commercial agricultural applications, including, without limitation, food and feed and other downstream applications. ARTICLE 2 DEVELOPMENT OF MPSS TECHNOLOGY 2.1 No amendment is made to Section 2.1. 2.2 No amendment is made to Section 2.2, but Lynx agrees to provide copies of its reports to HMRI to AgrEvo. 2.3 No amendment is made to Section 2.3. 2.4 PAYMENTS TO LYNX. Lynx acknowledges that Hoechst has paid to Lynx Three Million U.S. Dollars (US$3,000,000), in part, for Lynx's commitment to undertake the development of technologies that may be useful to HMRI. Lynx agrees that no additional payment by HMRI to Lynx shall be required for Lynx's continued development of Lynx Technology. AgrEvo, having determined that such technologies are currently useful to AgrEvo, agrees to pay to Lynx on or before [ * ] a technology access fee of [ * ] in respect of the activation of a subscription for Lynx's Analysis services for use in the AgrEvo Field for the benefit solely of AgrEvo. If Lynx is able to establish to HMRI's satisfaction that the Analysis services offered or to be offered by Lynx to its subscription customers are applicable for HMRI's purposes and fulfill HMRI's needs as determined by HMRI at its sole discretion, then HMRI will pay to Lynx an additional technology access fee to be negotiated but of not more than [ * ] within thirty (30) days of such determination in order to activate a subscription for Lynx's Analysis services for use in any field for the benefit of HMRI and its affiliates other than AgrEvo. 2.5 NOTICE TO HMRI. If Lynx notifies HMRI that it has developed the Lynx Technology to the extent that it is being accessed and used by any subscription service customer other than AgrEvo, HMRI will at its sole discretion determine the usefulness of the technology for HMRI's purposes and decide whether to activate a subscription for the benefit of HMRI and its affiliates other than AgrEvo under the conditions outlined under Section 2.4. A decision by HMRI during the term of this Agreement not to access the technology does not constitute a termination of the Agreement. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2 3 ARTICLE 3 LYNX ANALYSIS SERVICES No amendment is made to Article 3, of which Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.7 and 3.8 will not pertain to AgrEvo, except that AgrEvo will have the benefit of Section 3.5 and new Sections 3.9, 3.10, 3.11 and 3.12 are added as follows: 3.9 AGREVO SUBSCRIPTION. AgrEvo agrees to make a second payment to Lynx of [ * ] on or before [ * ] in order to activate an initial subscription period for AgrEvo consisting of the period ending [ * ]. During such initial subscription period, AgrEvo shall be entitled to receive from Lynx, without further charge, Analyses and the results thereof having an aggregate Value (as hereinafter defined) of [ * ]. In addition, if during the initial subscription period AgrEvo desires to engage Lynx to conduct additional Analyses after the aggregate Value of the Analyses already conducted equals or exceeds [ * ] AgrEvo may request that Lynx provide such additional requested Analyses on a timely basis, subject to its other business commitments and resource allocation, and AgrEvo shall pay Lynx the Value of each such additional Analysis upon delivery of the results thereof to AgrEvo. The "Value" of any single Analysis performed by Lynx for AgrEvo under the Agreement shall be equal to five times Lynx's fully burdened cost of performing such Analysis. AgrEvo may, at its option and upon thirty (30) days prior written notice, elect to extend its subscription on the same terms as set forth herein above for up to three additional subsequent one year periods, by making in respect of each renewal period a payment to Lynx of a [ * ] renewal fee prior to expiration of the then current subscription year. This Agreement shall expire as to AgrEvo at the end of the last subscription period paid for by AgrEvo, unless further extended pursuant to Section 5.1. Analyses will be performed as described hereinafter. AgrEvo will provide to Lynx (a) biological and/or biologically derived sample(s) (e.g. cDNA or genomic DNA) for Analysis, together with an indication of the desired Analysis results, criteria for Analysis and Analysis results, and preferred methods(s) of Analysis. Each particular Analysis will only be performed after Lynx and AgrEvo have jointly agreed in writing on the estimated Value and estimated duration of such Analysis and the form in which the results of such Analysis will be delivered. The results of any given Analysis to be delivered by Lynx to AgrEvo will include any and all information and/or material generated in the course of such Analysis. Results of any given Analysis shall be delivered in the form and at the time agreed upon by the Parties. 3.10 IMPROVEMENTS. Lynx will own any and all improvements to Lynx Technology, including improvements made while performing Analysis services pursuant to this Agreement. AgrEvo may from time to time suggest possible improvements to Lynx Technology that Lynx will consider in good faith. In the event the parties agree to implement and evaluate such improvements, Lynx's fully burdened cost of Analyses performed in the development of such improved Lynx Technology will be charged to AgrEvo without any mark-up. Lynx will own all intellectual property rights in such improvements and may offer such improved Lynx Technology or services based thereon to its other subscription customers and otherwise make use thereof in its business without compensation to AgrEvo. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 3 4 3.11 AGREVO INTELLECTUAL PROPERTY. AgrEvo shall own the entire right, title and interest in any and all material and information provided by AgrEvo (or Affiliates of AgrEvo) to Lynx pursuant to this Agreement (including but not limited to samples, criteria, etc.) and any and all results of Analyses performed pursuant to this Agreement, excluding however improvements to Lynx Technology. Lynx Agrees that it shall treat all such material and information and results owned by AgrEvo as the "Confidential Information" of AgrEvo pursuant to Article 4 hereof. Nevertheless, AgrEvo agrees to give appropriate credit to Lynx in any scientific publication of its research that relies on such results. Only AgrEvo (or its Affiliates) shall have the right to protect any and all of such material, information and results owned by AgrEvo by patents or other intellectual property rights. Upon request of AgrEvo, Lynx will provide reasonable assistance to AgrEvo in connection with filings and procedures to obtain any such intellectual property rights. 3.12 COLLABORATION AGREEMENT. AgrEvo and Lynx currently expect to enter into a separate agreement (the "Collaboration Agreement") pursuant to which the parties, making use of other Lynx technologies, will collaborate in research on certain crops to be specified (but excluding crops that are exclusive to [ * ] under its agreement with Lynx). It is clearly understood, however, that neither Party is obliged to enter into any Collaboration Agreement. The parties agree that any portion of a subscription fee paid by AgrEvo to Lynx pursuant to Section 3.9 that is not utilized in respect of Analysis services under this Agreement may be applied to work by Lynx under the Collaboration Agreement in the same subscription period. ARTICLE 4 CONFIDENTIALITY The provisions of this article of the Agreement are not amended by this Second Amendment and shall apply between Lynx and AgrEvo. ARTICLE 5 TERM AND TERMINATION 5.1 As to AgrEvo, this Agreement shall expire at the end of the initial AgrEvo subscription period provided for in Section 3.9 or, if such initial subscription is renewed under Section 3.9, at the end of the last subscription period to be paid for by AgrEvo. As to HMRI, this Agreement shall expire on [ * ] if HMRI has not by that date notified Lynx of its determination to activate its subscription pursuant to Section 2.4. If such subscription is activated before such date, this Agreement shall expire as to HMRI at the end of the initial HMRI subscription period provided for in Section 3.2 or, if such subscription period is renewed under Section 3.3, at the end of the last subscription period to be paid for by HMRI under Section 3.3. The subscription of AgrEvo may be further extended by agreement with Lynx on the terms of conditions of any such further extension prior to expiration of the last renewal period available under Section 3.9. If the Agreement terminates as to HMRI on [ * ], Lynx agrees that HMRI shall be entitled to a credit of [ * ] with regard to any future technology access fee and any such technology access fee and subscription fee shall be reduced as set forth in this Second Amendment. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 4 5 5.2 Section 5.2 shall be amended by the addition at the end thereof of the following: In the event Lynx is or becomes unable, for any reason whatsoever, to provide Analysis services to AgrEvo (including without limitation as a result of claims by a third party that the provision of such services infringes proprietary rights of such third party), AgrEvo shall have the right to terminate this Agreement pursuant to this Section 5.2. Termination of this Agreement pursuant to this Section 5.2 by one party shall not result in a termination of this Agreement as between the remaining parties (i.e., this Agreement shall remain in effect with respect to AgrEvo and Lynx in the event of termination by HMRI, and vice versa). 5.3 Section 5.3 shall be amended by the addition of the following sentence after the second sentence thereof: With respect to AgrEvo, upon such expiration or termination, Lynx will (i) deliver to AgrEvo any results obtained in Analyses performed for AgrEvo pursuant to this Agreement which have not yet been delivered, and (ii) destroy any copies of results obtained in Analyses performed for AgrEvo pursuant to this Agreement which may be in Lynx's possession at the time of such expiration or termination, except improvements to Lynx Technology, and any material or information provided by AgrEvo to Lynx pursuant to this Agreement. ARTICLE 6 REPRESENTATIONS AND WARRANTIES No amendment is made to Article 6 of the Agreement, except that the following sentence is added to Section 6.1: Lynx further represents and warrants to AgrEvo that the execution and delivery of this Agreement does not, and the performance by Lynx of its obligations hereunder will not, result in any breach of or constitute a default under any other contract, agreement, license or other instrument or obligation to which Lynx is a party or by which Lynx is bound. Lynx agrees to indemnify and hold harmless AgrEvo for any and all damage which may be suffered by AgrEvo as a result of any breach of the foregoing representation and warranty. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 5 6 ARTICLE 7 MISCELLANEOUS The provisions of Article 7 of the Agreement are not amended by this Second Amendment except that all notices to AgrEvo and Lynx pursuant to Article 7.6 of the Agreement shall be delivered to: Hoechst Schering AgrEvo GmbH Lynx Therapeutics, Inc. Miraustrasse 54 25861 Industrial Boulevard D-13509 Berlin, Germany Hayward, CA 94545 Attention: General Counsel Attention: President IN WITNESS WHEREOF, the parties hereto have duly executed this Restated First Amendment as of the date first written above. LYNX THERAPEUTICS, INC. HOECHST SCHERING AGREVO GMBH By: /s/ Sam Eletr By: /s/ Bernard Convent ------------------------------- ---------------------------------- Title: Chief Executive Officer Title: Head R & D, Biotechnology Corp. ---------------------------- ------------------------------- Date: 31 March 1999 ----------------------------- By: /s/ Jurgen Asshauer ---------------------------------- Title: Board Member ------------------------------- Date: 31 March 1999 -------------------------------- HOECHST MARION ROUSSEL, INC. By: /s/ Thomas Hofstaetter ------------------------------- Title: Sr. Vice President, Business Development & Strategic Planning -------------------------------------------------------------- Date: 5/3/99 ----------------------------- [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 6 EX-10.7.3 4 f75239a1ex10-7_3.txt EXHIBIT 10.7.3 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EXHIBIT 10.7.3 THIRD AMENDMENT TO TECHNOLOGY DEVELOPMENT AND SERVICES AGREEMENT This Third Amendment ("Third Amendment") to the Technology Development and Services Agreement dated October 2, 1995, as amended through March 1, 1999 (the "Agreement") is made and entered into as of December 1, 1999 by LYNX THERAPEUTICS, INC., a Delaware corporation, for itself and its wholly-owned subsidiaries, including SPECTRAGEN, INC., (collectively referred to as "Lynx"), Aventis Pharmaceutical Inc., which changed its name from Hoechst Marion Roussel, Inc. as of December 15, 1999, a Delaware corporation for itself and its affiliates other than AgrEvo ("HMRI") and Aventis CropScience GmbH, which is in the process of changing its name from Hoechst Schering AgrEvo GmbH, a German corporation and an affiliate of HMRI (referred to as "AgrEvo"). RECITALS WHEREAS, HMRI has the right under the Agreement to secure nonexclusive access to Lynx's library analysis and other subscription services for itself and all of its affiliates in accordance with the terms of the Agreement at any time up to [*]; WHEREAS, HMRI and Lynx desire to extend the time period during which HMRI may activate its subscription for Lynx's services under the Agreement; WHEREAS, the parties wish to enter into this Third Amendment for the purpose of providing such extension. NOW THEREFORE, in consideration of the foregoing premises and the covenants and promises contained in this Third Amendment, the parties agree to amend Section 5.1 of the Agreement to read as follows: "5.1 As to AgrEvo, this Agreement shall expire at the end of the initial AgrEvo subscription period provided for in Section 3.9 or, if such initial subscription is renewed under Section 3.9, at the end of the last subscription period to be paid for by AgrEvo. As to HMRI, this Agreement shall expire on [*] if HMRI has not by that date notified Lynx of its determination to activate its subscription pursuant to Section 2.4. If such subscription is activated before such date, this Agreement shall expire as to HMRI at the end of the initial HMRI subscription period provided for in Section 3.2 or, if such subscription period is renewed under Section 3.3, at the end of the last subscription period to be paid for by HMRI under Section 3.3. The subscription of AgrEvo may be further extended by agreement with Lynx on the terms of conditions of any such further extension prior to expiration of the last renewal period available under Section 3.9. If the Agreement terminates as to HMRI on [*], Lynx agrees that HMRI shall be entitled to a 2 credit of [*] with regard to any future technology access fee and any such technology access fee and subscription fee shall be reduced as set forth in this Second Amendment." IN WITNESS WHEREOF, the parties hereto have duly executed this Third Amendment as of the date first written above. LYNX THERAPEUTICS, INC. AVENTIS CROSCIENCE GmbH By: /s/ Norman Russell By: /s/ Wm. Winter ------------------------------- ------------------------------------ Title: President and CEO Title: Head of Field Seeds ---------------------------- --------------------------------- Date: 20th December 1999 ---------------------------- By: /s/ Walter Dannigkeit ------------------------------------ Title: Head of Business Line Seeds/Crop Improvement --------------------------------- Date: 6.3.2000 ---------------------------------- AVENTIS PHARMACEUTICALS INC. By: /s/ Frank L. Douglas ------------------------------- Title: Executive Vice President ---------------------------- Date: Dec. 23, 1999 ----------------------------- [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2 EX-10.13 5 f75239a1ex10-13.txt EXHIBIT 10.13 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EXHIBIT 10.13 RESEARCH COLLABORATION AGREEMENT BETWEEN LYNX THERAPEUTICS, INC. AND E.I. DUPONT DE NEMOURS AND CO. OCTOBER 29, 1998 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2 RESEARCH COLLABORATION AGREEMENT THIS RESEARCH COLLABORATION AGREEMENT ("Agreement") dated as of October 29, 1998 (the "Effective Date"), is made by and between LYNX THERAPEUTICS, INC. a Delaware corporation ("Lynx"), and E.I. DUPONT DE NEMOURS AND CO., a Delaware corporation ("DuPont"). Lynx and DuPont are sometimes referred to herein individually as a "Party" and collectively as the "Parties". RECITALS WHEREAS, Lynx owns or controls certain technology and intellectual property rights relating to solid phase cloning on beads of genomic DNA or cDNA and analytical applications thereof, such as bead-based library comparisons, signature sequencing on beads and high resolution physical mapping; and WHEREAS, DuPont is actively researching, developing and commercializing products for agricultural applications; and WHEREAS, the Parties wish to establish a collaboration applying such Lynx technology to the study of certain crop plants, to enable the discovery, development and commercialization of agricultural products applicable to such plants, including without limitation pesticides for the protection of such plant crops as well as other agricultural chemical applications; and WHEREAS, in connection with establishing such collaboration DuPont wishes to obtain and Lynx is willing to grant to DuPont certain license rights to Lynx's technology as described more fully herein, under the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements contained herein, the Parties hereto, intending to be legally bound, agree as follows: ARTICLE 1 DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "AFFILIATE" shall mean any entity that directly or indirectly Owns, is Owned by or is under common Ownership with, a party to this Agreement, where "Own" or "Ownership" means direct or indirect possession of at least fifty percent (50%) of the outstanding voting securities of a corporation or a comparable ownership in any other type of entity, provided, however, that if the law of the jurisdiction in which such entity operates does not allow fifty percent (50%) or greater ownership by a party to this Agreement, such ownership interest shall be at least forty percent (40%). For purposes of this Agreement, Pioneer Hi-Bred International Inc. of Des Moines, Iowa, in which DuPont has a twenty percent (20%) ownership interest, shall be considered a DuPont Affiliate. 1.2 "CO-EXCLUSIVE CROPS" shall mean all varieties, whether known as of the Effective Date or hereafter created, of any of the following: [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 3 1.3 "COLLABORATIVE EFFORT" shall mean research and development undertaken jointly in the Field by the parties based upon plans and projects mutually agreed by the Joint Research Committee. 1.4 "CO-EXCLUSIVE FIELD" shall mean the analysis of genomes and gene expression of Co-Exclusive Crops, for the purpose of developing and commercializing products solely for use in commercial agricultural applications with respect to one or more Co-Exclusive Crops, including but not limited to protection of such Co-Exclusive Crops against pests, improvement of the growth, yield, disease resistance or other characteristics of the Co-Exclusive Crops or for other agricultural purposes and agricultural chemical products relating to the Co-Exclusive Crops. 1.5 "COLLABORATION TERM" shall mean the period commencing on the Effective Date and continuing until the fifth anniversary of the Effective Date, unless earlier terminated or extended under this Agreement. 1.6 "CONFIDENTIAL INFORMATION" shall mean, with respect to a Party, any Information disclosed by such Party to the other Party under this Agreement, except as limited by Section 8.2. 1.7 "[ * ] MAP" shall have the meaning set forth in Section 3.7(a). 1.8 "CROPS" shall mean the Exclusive Crops, the Co-Exclusive Crops and the Non-Exclusive Crops. 1.9 "EXCLUSIVE CROPS" shall mean all varieties, whether known as of the Effective Date or hereafter created, of any of the following: [ * ]. 1.10 "EXCLUSIVE FIELD" shall mean the analysis of genomes and gene expression of Exclusive Crops, for the purpose of developing and commercializing products solely for use in commercial agricultural applications with respect to one or more Exclusive Crops, including but not limited to protection of such Exclusive Crops against pests, improvement of the growth, yield, disease resistance or other characteristics of the Exclusive Crops or for other agricultural purposes and agricultural chemical products relating to the Exclusive Crops. 1.11 "EXPERIMENTS" shall mean those experiments, as further described in Sections 3.2 and 3.3, that are intended to apply the Lynx Technology to commercial research relating to the Crops to enable discovery and development of agricultural products useful for protection of such Crops against pests, improvement of the growth, yield, disease resistance or other characteristics of the Crops of for other agricultural purposes relating to the Crops. 1.12 "FIELD" shall mean the analysis of genomes and gene expression of plants, or of plant pathogens or plant pests, for the purpose of developing and commercializing Products solely for use in commercial agricultural applications with respect to one or more plants, including but not limited to protection of plants against pests, improvement of the growth, yield, disease resistance or other characteristics of plants or for other agricultural purposes and agricultural chemical products relating to plants. 1.13 "HRP MAP" shall have the meaning set forth in Section 3.7(c). [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 4 1.14 "INFORMATION" shall mean information, data, know-how, trade secrets, inventions, developments, results, techniques, procedures, knowledge and/or materials. 1.15 "INSTRUMENT OPTION" shall have the meaning set forth in Section 5.1. 1.16 "JOINT INTELLECTUAL PROPERTY" shall mean all intellectual property rights including but not limited to patents, patent applications, inventions, trade secrets, know-how, trademarks, service marks, trade names, copyrights, formulae, and regulatory registrations/approvals which are associated with inventions or advances developed jointly in the Collaborative Effort. Such Joint Intellectual Property shall not include improvements or enhancements of Lynx Technology, or other developments that relate specifically to bead cloning, sorting, signature sequencing, transform sequencing and other technologies included in Lynx Technology. 1.17 "JOINT RESEARCH COMMITTEE" OR "JRC" shall mean that committee described in Section 2.2 and having the responsibilities set forth in Article 2. 1.18 "LYNX KNOW-HOW" shall mean the Information comprising the Lynx Technology that (a) is disclosed to DuPont by Lynx under this Agreement; and (b) to which Lynx has the right to grant a license or sublicense as provided herein, but excluding the Lynx Patents and any Information generated or developed in the course of performing the Research. 1.19 "LYNX INSTRUMENT" shall mean Lynx's proprietary gene sorting and signature sequencing instrument (or instrumentation) having the capabilities generally described on Exhibit A, as such instrument (or instrumentation) is configured for commercial use as of the time DuPont exercises the option set forth in Section 5.1. 1.20 "LYNX PATENTS" shall mean patents and patent applications that claim inventions related to Lynx Technology or Lynx Know-how. A current list of Lynx Patents is attached as Exhibit B. 1.21 "LYNX REAGENTS" shall mean Lynx's proprietary reagents, including without limitation beads on which have been cloned polynucleotides, necessary or useful for conducting gene sorting and signature sequencing experiments using the Lynx Instrument. The Lynx Reagents in existence as of the Effective Date are set forth on Exhibit C, which shall be amended from time to time as Lynx Reagents are modified or new Lynx Reagents are developed. 1.22 "LYNX TECHNOLOGY" shall mean Lynx's proprietary technologies for solid phase cloning on beads of genomic DNA or cDNA and their analytical applications, such as bead-based library comparisons, signature sequencing on beads and high resolution physical mapping, as existing on the Effective Date and as developed or improved by Lynx during the Agreement. 1.23 "MAP CRITERIA" shall have the meaning set forth in Section 3.7(a). 1.24 "NON-EXCLUSIVE CROPS" shall mean all varieties, whether known as of the Effective Date or hereafter created of any of the following: [ * ]. 1.25 "PRODUCTS" shall mean seed, grain, grain products, or plant material of Exclusive Crops, Co-Exclusive Crops or Non-Exclusive Crops that embodies or results from a genetic trait affecting composition or crop yield potential. Products shall also include chemical or biological substances or microorganisms that beneficially protect, modify, regulate or control crop growth or [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 5 development when applied to the soil, seed, or plant. Further, Products shall also include raw materials, intermediates, proteins, molecules or chemicals for use in non-agricultural markets including biochemical catalysts (enzymes and microorganisms), chemicals for industrial, pharmaceutical, food and consumer applications, and polymer intermediates, polymers and fibers for applications typical of DuPont's coatings and industrial businesses. 1.26 "RESEARCH" shall mean the design and performance of Experiments and other services, to be carried out collaboratively by the Parties under this Agreement. ARTICLE 2 COLLABORATION MANAGEMENT 2.1 OVERVIEW. The Parties intend to manage the collaboration established by this Agreement through a Joint Research Committee, which will be responsible for overseeing the Research to be conducted in the course of the collaboration and for coordinating the activities of the Parties performed in connection therewith. The general description of the JRC's responsibilities contained in this Section 2.1 shall be subject to the specific agreements of the Parties set forth in this Agreement. 2.2 JOINT RESEARCH COMMITTEE. The JRC shall be comprised of two (2) representatives from each Party, each of whom shall be an executive experienced in a relevant aspect of the subject matter of the Research. The Parties shall designate their representatives to the JRC within 10 days of the Effective Date. Members of the JRC shall serve on such terms as shall be determined by the Party designating such person for membership on the JRC. An alternate member designated by a Party may serve temporarily in the absence of a member designated by such Party. Each Party shall designate one of its representatives as Co-Chair of the JRC. Each Co-Chair will be responsible for the agenda and the minutes of alternating meetings of the JRC. Each Party shall bear its own costs for participating in the JRC. The JRC may form and disband subcommittees with appropriate and equal representation from each Party. 2.3 MEETINGS OF THE JOINT RESEARCH COMMITTEE. The JRC shall hold meetings at such times and places as shall be determined by a majority of the entire membership of the JRC. Subject to the foregoing, the JRC may conduct meetings in person or by telephone conference or other means of communication, provided however that any decision made during meeting by telephone conference or other remote means (i.e., not in person) shall be confirmed in a writing signed by each member of the JRC. Each Party may invite other personnel of their company to attend meetings of the JRC in a non-voting capacity, subject to the mutual consent of the Parties. The JRC shall keep minutes of the JRC meetings. 2.4 FUNCTIONS OF THE JOINT RESEARCH COMMITTEE. The JRC shall manage the Research conducted pursuant to the collaboration, as provided in this Section 2.4. The JRC shall: (a) Determine the nature and extent of the Experiments to be conducted in the collaboration and the schedule for performing those Experiments; (b) Coordinate the design of the Experiments so that the Lynx Technology is utilized effectively to achieve DuPont's Research objectives in the Field; [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 6 (c) Evaluate the results of the Experiments and make recommendations for further Experiments or other activity, if appropriate; and (d) Perform such other functions appropriate to further the purposes of the collaboration under this Agreement as mutually determined by the Parties. (e) Develop and approve technical specifications for each type of analysis that can be done with Lynx Technology that will establish the parameters under which ongoing Experiments will be conducted; and (f) Design and schedule Experiments based on proposals by DuPont, that on a reasonable basis provide DuPont with sufficient access to Lynx Technology commensurate with the minimum payments made by DuPont pursuant to Section 4.2(a). 2.5 ACTIONS OF THE JOINT RESEARCH COMMITTEE. Actions by the JRC pursuant to this Agreement shall be taken only with the approval of the representatives of both Parties on the JRC. If the JRC fails to reach agreement on a particular matter before it, such issue shall be referred to the designated officers of the Parties identified in Section 10.2. If such designated officers fail to reach a mutually agreeable resolution, either Party may proceed in accordance with Section 10.3. 2.6 LIMITATIONS ON JOINT RESEARCH COMMITTEE POWERS. The JRC shall have no power to amend this Agreement and shall only have such powers as are specifically delegated to it under this Agreement. ARTICLE 3 RESEARCH COLLABORATION 3.1 GENERAL. The Parties will collaborate on Research in the Field intended to provide genetic, genomic and/or gene expression data and other Information useful to the ultimate discovery and development by DuPont of agricultural products applicable to one or more of the Crops. Such Research will utilize Lynx Technology and will be performed by Lynx and DuPont under the terms of this Agreement. 3.2 DISCLOSURE OF LYNX KNOW-HOW. Promptly following the Effective Date, Lynx shall disclose to DuPont all Lynx Know-how necessary for DuPont to participate in conducting the Research as contemplated by the Parties. DuPont hereby covenants not to use or practice the Lynx Know-how or any patents owned by or licensed to Lynx that contain claims covering the Lynx Technology except as expressly permitted hereunder. 3.3 EXPERIMENTS. Lynx will perform a series of Experiments which are intended to utilize the Lynx Technology to obtain genetic, genomic or gene expression analysis of the Crops for use in discovery and development by DuPont of commercial agricultural products applicable to one or more of the Crops. Initially, Lynx will perform up to [ * ] Experiments using Crop DNA samples or cDNA libraries provided by DuPont to Lynx at DuPont's expense (the "Initial Experiments"). One purpose of such Initial Experiments will be to familiarize DuPont with the Lynx Technology and its application to the study of the Crops via genetic, genomic or gene expression analysis and to adjust the application of the Lynx Technology to such study to maximize the effectiveness of subsequent Experiments. Another purpose of the initial [ * ] Experiments shall be to establish and [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 7 verify, under the supervision of the JRC, performance standards and controls that can be used in connection with future Experiments for purposes of quality assurance. The JRC shall establish a schedule for completing the design and performance of the Experiments, which schedule shall provide for commencement of the Experiments no later than [ * ], and shall jointly commence, via the JRC and consistent with the established schedule, designing the Experiments. Lynx shall begin performing the Experiments consistent with the established schedule. Unless otherwise agreed by the Parties, or unless DuPont exercises the Instrument Option, Lynx shall perform all Experiments at Lynx's facilities. 3.4 LYNX CAPACITY. The Parties anticipate that DuPont will request, and that Lynx shall perform, a quantity of experiments each year sufficient to consume the minimum fees paid by DuPont as set forth in Section 4.2(a). The Parties agree that DuPont may request that Lynx perform such additional quantity of experiments as DuPont may require, provided however that Lynx's obligation to perform such additional experiments shall be subject to the availability of sufficient and appropriate personnel and physical resources of Lynx in light of Lynx's commitments to its other collaboration partners and such other obligations as Lynx may have. 3.5 TECHNOLOGY DEVELOPMENT. The Parties anticipate that, during the course of the collaboration hereunder, Lynx will continue to develop, enhance and expand the Lynx Technology, including improvements to the signature sequencing and genome mapping capabilities of the Lynx Technology. Lynx will bear the cost of such development, enhancement and expansion (provided that it is understood that some of such development, enhancement and expansion work may take place during the conduct of Experiments that are supported, directly or indirectly, by the payments made by DuPont to Lynx hereunder). 3.6 SIGNATURE SEQUENCING. The Parties agree that some of the work undertaken by Lynx in the collaboration shall be oriented towards improving the signature sequencing techniques and capability of the Lynx Technology so that such techniques may be better applied in Experiments in the Field. The Parties have agreed to a set of technical criteria, which are attached as Exhibit D, for demonstrating that the Lynx Technology signature sequencing capability are sufficiently developed to be useful to DuPont for Experiments in the Field. At such time as Lynx demonstrates, to DuPont's reasonable satisfaction, that the Lynx Technology meets the criteria set forth on Exhibit D, DuPont shall pay Lynx the applicable milestone payment set forth in Section 4.4. Lynx will thereafter perform Experiments comprising signature sequencing analyses on samples of Crops provided by DuPont, as coordinated by the JRC. DuPont will compensate Lynx for such work as set forth in Section 4.2. 3.7 HIGH RESOLUTION PHYSICAL MAPPING. The Parties agree that some of the work undertaken by Lynx in the collaboration shall be oriented towards improving the high resolution physical mapping techniques and capability of the Lynx Technology. The Parties have agreed to a set of technical criteria, which are attached as Exhibit E, for demonstrating that the Lynx Technology high resolution physical mapping capability are sufficiently developed to be useful to DuPont for Experiments in the Field. At such time as Lynx demonstrates, to DuPont's reasonable satisfaction, that the Lynx Technology meets the criteria set forth on Exhibit E, DuPont shall pay Lynx the applicable milestone payment set forth in Section 4.4. Lynx will thereafter perform Experiments comprising high resolution physical mapping as provided below. (a) [ * ] MAP. Upon payment of the milestone payment set forth in Section 4.4 (the "Mapping Milestone"), the Parties will collaborate, as coordinated by the JRC, to conduct [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 8 Experiments to construct a physical map of the genome of a variety of [ * ] to be selected by DuPont (the "[ * ] Map"). The map shall meet specified criteria, to be determined by the JRC (the "Map Criteria") within 90 days of payment of the Mapping Milestone. Promptly thereafter, Lynx shall commence and use commercially reasonable efforts, subject to Lynx's other business obligations, to construct the [ * ] Map. Upon completion and delivery of the [ * ] Map meeting the Map Criteria, DuPont shall pay Lynx the applicable milestone payment set forth in Section 4.4. (b) LICENSING. DuPont shall own the [ * ] Map and shall be free to license rights to such [ * ] Map to any third party, provided however, that Lynx shall be entitled to [ * ]. (c) OTHER CROP HIGH RESOLUTION PHYSICAL MAPS. Not later than 180 days after completion and delivery of the [ * ] Map, DuPont shall deliver to Lynx a written order for at least one additional high resolution physical map ("HRP Map") of the genome of a single variety of an Exclusive Crop. Such order shall describe in detail the project and the criteria that such HRP Map should meet. Lynx shall promptly thereafter commence and use commercially reasonable efforts, subject to Lynx's other business obligations, to prepare (using Lynx Technology) and deliver to DuPont such HRP Map. DuPont shall pay Lynx for such HRP Map as set forth in Section 4.3. Thereafter, DuPont may from time to time order additional HRP Maps of Crops, under the foregoing terms, provided that at that time of such order Lynx has not previously agreed to construct and deliver an HRP Map of the particular Crop to a third party. (d) MAP EXCLUSIVITY. So long as DuPont continues to engage Lynx to construct HRP Maps of any Exclusive Crop, Lynx shall not construct any HRP Maps of such Exclusive Crop for any third party, provided however that Lynx may at all times construct HRP Maps of Co-Exclusive Crops or Non-Exclusive Crops for third parties at Lynx's sole discretion. If at any time after the expiration of 180 days after completion and delivery of the [ * ] Map, Lynx receives a bona fide order for the construction of an HRP Map of an Exclusive Crop for which DuPont does not then have an existing HRP Map on order, Lynx shall notify DuPont in writing of such third party order and DuPont shall have 90 days from the date of such notice (the "Order Period") to place an order for an HRP Map of such Exclusive Crop on the terms set forth herein. If DuPont does not place such an order prior to the expiration of the Order Period, or sooner notifies Lynx in writing that it does not desire to place an order, Lynx shall thereafter be free to accept such third party order and such Crop shall thereafter be a Non-Exclusive Crop with respect to HRP Maps only. With regard to DuPont's right to contract for the delivery of HRP Maps of an Exclusive Crop, Lynx hereby agrees that such opportunities shall be part of a serial process in which only one (1) such HRP Map shall be under construction at any time. 3.8 COLLABORATION EXCLUSIVITY. In consideration of the sums to be paid to Lynx and the other terms and conditions of this Agreement, the Parties agree that during the Collaboration Term, Lynx will not knowingly utilize the Lynx Technology in the Exclusive Field to collaborate with any third parties and will not knowingly utilize the Lynx Technology in the Co-Exclusive Field to collaborate with more than one third party. Notwithstanding the foregoing, Lynx shall be free to perform subscription gene sequencing, gene expression analysis and related services for third parties, provided that Lynx notifies such third parties that they may not utilize such Lynx services in the Exclusive Field or the Co-Exclusive Field. Nothing in this Section 3.8 shall be construed to limit the provisions of Section 3.7(d) or to restrict Lynx in any way from being able to perform its obligations under any agreement in effect prior to the date of this Agreement, whether or not such performance would otherwise be in violation of this Section 3.8. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 9 ARTICLE 4 COMPENSATION 4.1 INITIAL SERVICE FEE. On the Effective Date, DuPont shall make a non-refundable, non-creditable payment of $10 million to Lynx in consideration of performance of the first [ * ] Experiments as described in Section 4.2, below. 4.2 EXPERIMENT FEES. Lynx shall perform the first [ * ] Experiments at no further cost to DuPont, provided however, that DuPont delivers the Crop DNA samples and cDNA libraries necessary to conduct such Experiments no later than March 31, 1999. Lynx's fees for all Experiments performed in whole or in part after commencement of the first [ * ] Experiments shall be [ * ]. Fees paid under this Section 4.2 shall be in lieu of royalty payments on DuPont products resulting from such Experiments. (a) MINIMUMS. On January 15, 1999 DuPont shall pay Lynx the sum of [ * ]. Such amount shall be Lynx's minimum fee for its services in designing and performing Experiments during calendar year 1999, and shall be creditable against Lynx's fees set forth in Section 4.2. Thereafter, DuPont shall pay to Lynx $1 million per calendar quarter for design and performance of additional experiments so long as Lynx shall have completed (based on Experiments designed and scheduled by the JRC and on samples timely provided by DuPont) the performance of the Experiments having an aggregate value of [ * ] as established by the JRC, for the previous quarter. Such amounts shall be Lynx's minimum fee for its services each quarter, and shall be creditable against Lynx's fees set forth in Section 4.2. Fees incurred by DuPont in excess of the minimums set forth in this Section 4.2(a) will be invoiced to DuPont separately, and payment of such fees shall be due within 30 days of the date of invoice. 4.3 MAP FEES AND CREDITS. For construction of each HRP Map ordered by DuPont under subsection 3.7(c) (i.e., other than the initial [ * ] Map or an HRP Map ordered pursuant to Section 3.7(d)), DuPont shall pay to Lynx a fee equivalent to [ * ]. If Lynx constructs HRP Maps of any Crops using the Lynx Technology for a third party as permitted under Section 3.7(d), Lynx will pay to DuPont [ * ]. If Lynx constructs HRP Maps of any Crops using the Lynx Technology for DuPont pursuant to Section 3.7(d), DuPont shall pay Lynx a fee equivalent to [ * ]. Fees paid under this Section 4.3 shall be in lieu of royalty payments on DuPont products resulting from such HRP Maps. 4.4 MILESTONES. DuPont shall pay Lynx the following milestone payments within [ * ] after demonstration by Lynx to DuPont of the achievement by Lynx of the relevant milestone:
MILESTONE EVENT AMOUNT Satisfaction by Lynx of $5 million signature sequencing criteria set forth on Exhibit D Satisfaction by Lynx of genome [ * ] mapping criteria set forth on Exhibit E
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 10 [ * ] Completion of [ * ] Map meeting Map Criteria
4.5 PAYMENTS. All amounts paid hereunder shall be made to Lynx in U.S. dollars by bank wire transfer of immediately available funds to such account designated by Lynx. DuPont shall provide notice to the Controller of Lynx at least five (5) days prior to the wire transfer date of the amount of payment, the nature of the payment (with reference to the applicable section of the Agreement) and the date of receipt of good funds. Any payment not made on or before the payment due date shall bear interest to the extent permitted by applicable law, at two percentage points (2%) over the prime rate of interest as reported, from time to time, by Bank of America NT & SA in San Francisco, California, calculated on the number of days such payment is delinquent. ARTICLE 5 INSTRUMENT OPTION 5.1 INSTRUMENT OPTION. DuPont shall have an option to obtain a Lynx Instrument, under the terms in this Section 5.1, for use solely to perform at DuPont's facility gene sorting and signature sequencing experiments in the Field using the applicable Lynx Technology (the "Instrument Option"). The term of the Instrument Option shall commence on the Effective Date and terminate not later than the first anniversary of the signature sequencing milestone set forth in Section 3.6. (the "Instrument Option Term"). If DuPont elects to exercise the Instrument Option, it shall do so by (i) notifying Lynx in writing of its election prior to the expiration of the Instrument Option Term and (ii) paying to Lynx the sum of [ * ]. Upon such exercise, DuPont shall have a nonexclusive, royalty-free license (with no right to sublicense) to use the Lynx Instrument and Lynx Reagents to conduct Research in the Field, and DuPont shall be obligated to purchase the Lynx Reagents as set forth below in Section 5.3. Promptly following the delivery and installation of the Lynx Instrument pursuant to Section 5.2, Lynx shall disclose to DuPont all Lynx Know-how applicable to use of the Lynx Instrument and Lynx Reagents. DuPont hereby covenants not to use or practice the Lynx Know-how or any patents owned by or licensed to Lynx that contain claims covering the Lynx Instrument or Lynx Reagents except as expressly licensed hereunder. 5.2 DELIVERY AND INSTALLATION. Lynx shall deliver and install the then-current version of the Lynx Instrument at DuPont's designated facility within [ * ] of the date of DuPont's notice of exercise of the Instrument Option. Such delivery and installation shall be at Lynx's expense. The Parties acknowledge and agree that the Lynx Instrument contains certain components that are available through vendors other than Lynx. Such components are not included in the purchase price set forth in Section 5.1 and DuPont will be responsible for purchasing such components separately. 5.3 LYNX REAGENTS. If DuPont exercises the Instrument Option, DuPont shall purchase from Lynx, commencing upon installation of the Lynx Instrument and continuing for so long as DuPont retains the right to use the Lynx Instrument (the "Instrument Term"), all Lynx Reagents necessary to use the Lynx Instrument as permitted hereunder, according to the following terms. The purchase price for all such Lynx Reagents purchased by DuPont hereunder shall be [ * ] (the "Lynx Reagent Price"). DuPont shall purchase at least [ * ] of Lynx Reagents, at the applicable Lynx Reagent Price, per year period during the Instrument Term. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 11 (a) MINIMUMS. DuPont shall purchase a minimum of [ * ] in Lynx Reagents annually, payable in advance in quarterly installments. Upon completion of the installation of the Lynx Instrument at the DuPont facility, DuPont shall pay Lynx the first quarterly installment of [ * ], and shall pay the remaining installments quarterly thereafter. Such amounts shall be creditable against Lynx's Reagent Price for Lynx Reagents ordered by DuPont as set forth in Section 5.3. Lynx Reagents ordered by DuPont in excess of the minimums set forth in this Section 5.3(a) will be invoiced to DuPont separately at the applicable Lynx Reagent Price, and payment of such fees shall be due within 30 days of the date of invoice pursuant to Section 4.5. All Lynx Reagents shall be ordered and delivered according to Lynx's standard terms and conditions, subject to the above. 5.4 TERMINATION OF MINIMUM FEE AND CAPACITY OBLIGATIONS. The Parties acknowledge and agree that if DuPont exercises the Instrument Option, DuPont's minimum fee obligation set forth in Section 4.2(a) and Lynx's obligation to maintain sufficient capacity to perform the Experiments set forth in Section 3.3 shall terminate as of the date of DuPont's notice of exercise as set forth in Section 5.1. 5.5 TECHNICAL ASSISTANCE. Lynx shall make available to DuPont, upon reasonable notice and during normal business hours, the reasonable assistance of Lynx's employees who are knowledgeable about the Lynx Instrument in order to facilitate DuPont's efforts to perform experiments in the Field, including gene sorting and signature sequencing experiments, using the Lynx Instrument. Lynx shall provide such assistance for a period of 90 days from the date of delivery of the Lynx Instrument to DuPont, and DuPont shall reimburse Lynx for its reasonable out-of-pocket expenses (including without limitation travel, lodging and meals) incurred in providing such technical assistance. DuPont may, at its election and upon written notice to Lynx, extend its right to receive such technical assistance for such additional periods as the Parties may agree. DuPont shall compensate Lynx for such additional technical assistance at a rate equivalent to Lynx's fully burdened cost of providing such technical assistance. 5.6 OWNERSHIP, MAINTENANCE AND REPAIR. Lynx shall at all times retain full ownership in the entire right, title and interest in and to the Lynx Instrument, subject only to DuPont's limited rights to use such Lynx Instrument as granted herein. DuPont shall at all times use, house, maintain and store the Lynx Instrument in accordance with Lynx's instructions and with all reasonable care, and shall promptly notify Lynx of any malfunction of or damage or wear and tear to the Lynx Instrument. Lynx shall perform periodic maintenance, including necessary repair or replacement, of the Instrument at Lynx's reasonable expense; provided, however, that if any repair or replacement of the Lynx Instrument is necessary due to improper or unauthorized use (including without limitation damage caused by neglect, willful misuse or abuse or improper use) or storage of, or modifications to, the Lynx Instrument, all costs of such repair or replacement, including parts, labor and out-of-pocket expenses incurred by Lynx in making such repair or replacement shall be borne by DuPont. Notwithstanding the foregoing, Lynx will supply replacement flowcells for the Lynx Instrument at cost. 5.7 FIELD OF USE. DuPont hereby covenants not to use the Lynx Instrument or Lynx Reagents for any purpose outside the Field, and will not permit any division, Affiliate, business unit or subsidiary of DuPont to use the Lynx Instrument or Lynx Reagents for any purpose or use outside the Field and in particular, for any human or animal pharmaceutical or medical purpose or use. The Parties agree that in the event of any material breach by DuPont of the provisions of this Section 5.7, in addition to any other remedies that Lynx may have, DuPont shall assign to Lynx all patents, [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 12 know-how, copyrights and other intellectual property rights derived from DuPont's use of the Lynx Instrument or Lynx Reagents outside the Field. ARTICLE 6 INTELLECTUAL PROPERTY 6.1 LYNX TECHNOLOGY. Lynx shall own the Lynx Technology and the Lynx Know-how, and except as expressly permitted under this Agreement, DuPont shall have no right to use or otherwise exploit the Lynx Technology or the Lynx Know-how. Lynx shall have no obligation to enforce its intellectual property rights in the Lynx Technology or the Lynx Know-how by initiation of litigation or otherwise. 6.2 INVENTIONS. (a) Any inventions made by DuPont, its agents or employees during the course of the collaboration under this Agreement or the use of the Lynx Instrument that constitute improvements or enhancements to the Lynx Technology ("Improvement Inventions") shall be disclosed to Lynx promptly. Such Improvement Inventions that are patentable or copyrightable shall be assigned to Lynx, and Lynx grants DuPont a non-exclusive, worldwide, royalty-free, perpetual, irrevocable license to use such Improvement Inventions, and any patents or copyrights secured by Lynx based on such Improvement Inventions, for all fields. The foregoing shall not be construed to grant DuPont rights broader than those expressly granted under Articles 3 and 5 of this Agreement. Any non-patentable, non-copyrightable Improvement Inventions shall be the property of DuPont, and Lynx shall have a non-exclusive, worldwide, royalty-free, perpetual, irrevocable license to use such inventions for all fields. Any inventions made by Lynx, its agents or employees during the course of the collaboration that constitute improvements or enhancements to the Lynx Technology shall be owned by Lynx. (b) Any Joint Intellectual Property shall be jointly owned by Lynx and DuPont, and each shall have the right to practice such Joint Intellectual Property for all research purposes and the right under such Joint Intellectual Property to make, have made, use and sell Products of Non-Exclusive Crops. Lynx hereby grants to DuPont an exclusive, fully paid up license, with the right to sublicense, under Joint Intellectual Property to make, have made, use, and sell Products of Exclusive Crops and Co-Exclusive Crops. 6.3 DATA. DuPont shall own all genomic or gene expression data generated by the Research Experiments conducted under this Agreement, and shall have the sole and exclusive right to utilize such data in the Field. DuPont hereby covenants not to use such data for any purpose or use outside the Field, and will not permit any division, Affiliate, business unit or subsidiary of DuPont to use such data for any purpose or use outside the Field and in particular, for any human or animal pharmaceutical or medical purpose or use. 6.4 INFRINGEMENT OF PATENTS BY THIRD PARTIES. (a) NOTIFICATION. DuPont shall promptly notify Lynx in writing of any alleged or threatened infringement of the Lynx Patents of which it becomes aware, and Lynx shall notify [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 13 DuPont of any such infringement due to activities in the Field. DuPont and Lynx shall promptly notify each other of any alleged or threatened infringement of Joint Intellectual Property. (b) ACTIONS. Lynx shall have the sole and exclusive right, but not the obligation, to bring, at Lynx 's expense and in its sole control, an appropriate action against any person or entity infringing any Lynx Patent directly or contributorily. DuPont shall have the sole and exclusive right, but not the obligation, to bring, at DuPont's expense and in its sole control, an appropriate action against any person or entity infringing any Joint Intellectual Property in the Field for an Exclusive Crop. The Parties agree to cooperate in taking appropriate action against any person or entity infringing Joint Intellectual Property in the Field for a Co-Exclusive Crop or a Non-Exclusive Crop. 6.5 INFRINGEMENT OF THIRD PARTY RIGHTS. In the event that any aspect of the Lynx Technology practiced in the course of the collaboration becomes the subject of a third party claim, the Party against which such third party infringement claim is brought shall defend against such claim at its sole expense. Neither Party shall enter into any settlement that affects the other Party's rights or interests without such other Party's written consent, which consent shall not be unreasonably withheld. ARTICLE 7 TERM AND TERMINATION 7.1 TERM. The term of this Agreement shall commence upon the Effective Date and, unless sooner terminated as provided in this Article 7, expire five (5) years from the Effective Date. The parties may mutually agree to extend the term of the Agreement. 7.2 TERMINATION FOR BREACH. Each Party shall have the right to terminate this Agreement and its obligations hereunder for material breach by the other Party, which breach remains uncured for [ * ] after written notice is provided to the breaching Party, or in the case of an obligation to pay amounts owing under this Agreement, which breach remains uncured for [ * ] after written notice to the breaching Party unless there exists a bona fide dispute as to whether such payments are owing. Notwithstanding any termination under this Section 7.2, any obligation to pay amounts which had accrued or become payable as of the date of termination shall survive termination of this Agreement. 7.3 VOLUNTARY TERMINATION BY DUPONT. At the end of three (3) years from the Effective Date, DuPont shall have three options with regard to operation under the Agreement: (a) it may continue Lynx services and Experiments for the two (2) remaining years of the term of the Agreement at the costs as specified under the Agreement, (b) it may terminate the Experiments and the Agreement (thereby effecting an early termination of the Collaboration Term) with no further obligation by DuPont to make any payments other than those that have accrued or become payable prior to termination, or (c) it may terminate the Experiments but maintain exclusivity with respect to the Exclusive Crops and the Co-Exclusive Crops as provided for in Section 3.8 for the two (2) remaining years of the Collaboration Term at a reduced payment equal to the minimum payments indicated in Section 4.2(a). [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 14 7.4 TERMINATION FOR CHANGE OF CONTROL. This Agreement may be terminated by either Party upon a significant change in majority ownership of the other Party. 7.5 INSOLVENCY OF A PARTY. Should any Party (1) become insolvent or unable to pay its debts as they mature, or (2) make an assignment for the benefit of creditors, or (3) permit or procure the appointment of a receiver for its assets, or (4) become the subject of a bankruptcy, insolvency or similar proceeding, then the solvent Party may at any time thereafter on written notice to the insolvent Party, effective forthwith, cancel this Agreement. Further, each Party must inform the other by thirty (30) days written notice in advance of its intention to tile a voluntary petition in bankruptcy or of another's intention to file an involuntary petition in bankruptcy. A Party's failure to provide such written notice shall be deemed a material, pre-petition incurable breach of this Agreement. 7.6 EFFECT OF TERMINATION. Upon termination of this Agreement, all licenses granted to DuPont under Articles 3 and 5 shall terminate and, if the Instrument Option has been exercised, DuPont shall cooperate with Lynx in all respects to effect the prompt and efficient return to Lynx of the Lynx Instrument. DuPont shall bear the cost of returning the Lynx Instrument to Lynx unless this Agreement is terminated by DuPont under Section 7.2. 7.7 SURVIVAL. Articles 6, 8 ad 10 of this Agreement shall survive termination of this Agreement for any reason (subject to any subsequent dates of termination referred to in such individual Articles). ARTICLE 8 CONFIDENTIALITY 8.1 CONFIDENTIAL INFORMATION; EXCEPTIONS. Each Party will maintain all Confidential Information received by it under this Agreement in trust and confidence and will not disclose any such Confidential Information to any third party or use any such Confidential Information for any purposes other than those necessary or permitted for performance under this Agreement. Each Party may use the other's Confidential Information only to the extent required to accomplish the purposes of this Agreement. Confidential Information shall not be used for any purpose or in any manner that would constitute a violation of any laws or regulations, including without limitation the export control laws of the United States. Confidential Information shall not be reproduced in any form except as required to accomplish the intent of this Agreement. No Confidential Information shall be disclosed to any employee, agent, consultant, Affiliate, or sublicensee who does not have a need for such information. To the extent that disclosure is authorized by this Agreement, the disclosing Party will obtain prior agreement from its employees, agents, consultants, Affiliates or sublicensees to whom disclosure is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement. Each Party will use at least the same standard of care as it uses to protect its own Confidential Information of a similar nature to ensure that such employees, agents, consultants and clinical investigators do not disclose or make any unauthorized use of such Confidential Information, but no less than reasonable care. Each Party will promptly notify the other upon discovery of any unauthorized use or disclosure of the Confidential Information. Neither Party will publicly disclose the terms of this Agreement except as permitted in Section 8.3. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 15 8.2 Confidential Information shall not include any information which: (a) is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party in breach hereof, generally known or available; (b) is known by the receiving Party at the time of receiving such information, as evidenced by its written records; (c) is hereafter furnished to the receiving Party by a third party, as a matter of right and without restriction on disclosure; (d) is independently developed by the receiving Party without any breach of this Agreement; or (e) is the subject of a written permission to disclose provided by the disclosing Party. 8.3 AUTHORIZED DISCLOSURE. Notwithstanding the foregoing, either Party may disclose the material financial terms of the Agreement to bona fide potential corporate partners, to the extent required or contemplated by this Agreement, and to financial underwriters, prospective investors and other Parties with a need to know such information. All such disclosures shall be made only under an obligation of confidentiality. 8.4 EXCEPTIONS. Notwithstanding any other provision of this Agreement, each Party may disclose Confidential Information if such disclosure: (a) is in response to a valid order of a court or other governmental body of the United States or a foreign country, or any political subdivision thereof; provided, however, that the responding Party shall first have given notice to the other Party hereto and shall have made a reasonable effort to obtain a protective order requiring that the Confidential Information so disclosed be used only for the purposes for which the order was issued; (b) is otherwise required by law or regulation, including SEC related documents; (c) is necessary to enforce a Party's rights under this Agreement; or (d) is otherwise necessary to file or prosecute patent applications, prosecute or defend litigation or comply with applicable governmental regulations or otherwise establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary. 8.5 RETURN OF CONFIDENTIAL INFORMATION. In the event this Agreement is terminated, DuPont shall use diligent efforts (including without limitation a diligent search of files and computer storage devices) to return all Confidential Information received by it from Lynx, provided, however, that DuPont may keep one copy of such Confidential Information for legal archival purposes. Access to the copy so retained by DuPont's legal department shall be restricted to counsel and such Confidential Information shall not be used except in the resolution of any claims or disputes arising out of this Agreement. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 16 8.6 PUBLICATIONS. Except as required by law, neither Party shall publish or present, or cause to be published or presented, the results of the Research without the opportunity for prior review by the other Party. Each Party shall provide to the other the opportunity to review any proposed abstracts, manuscripts or presentations which relate to the Research at least thirty (30) days prior to their intended submission for publication and such submitting Party agrees, upon written request from the other Party, not to submit such abstract or manuscript for publication or to make such presentation until the other Party is given a reasonable period of time to seek patent protection for any material in such publication or presentation that it believes is patentable. Notwithstanding the foregoing, neither Party shall publish or present or cause to be published or presented, the Confidential Information of the other Party. ARTICLE 9 REPRESENTATIONS AND WARRANTIES 9.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party hereby represents and warrants: (a) CORPORATE POWER. Such Party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. (b) DUE AUTHORIZATION. Such Party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder. (c) BINDING AGREEMENT. This Agreement is a legal and valid obligation binding upon it and is enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over it. 9.2 NO OTHER REPRESENTATIONS. THE EXPRESS REPRESENTATIONS AND WARRANTIES STATED IN THIS ARTICLE 10 ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ARTICLE 10 DISPUTE RESOLUTION AND GOVERNING LAW 10.1 DISPUTES. The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement which relate to either Party's rights and/or obligations hereunder or thereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 11 if and when a dispute arises under this Agreement. 10.2 INITIAL PROCEDURE. In the event of disputes between the Parties, including disputes among the members of the JRC which such committee is unable to resolve, a Party seeking to [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 17 resolve such dispute will, by written notice to the other, have such dispute referred to their respective executive officers designated below or their successors, for attempted resolution by good faith negotiations within fourteen (14) days after such notice is received. Said designated officers are as follows: For Lynx: Chief Executive Officer For DuPont: Vice President for Global Research Agricultural Products In the event the designated executive officers are not able to resolve such dispute, either Party may at any time after the 14 day period invoke the provisions of Section 10.3 hereinafter. 10.3 ALTERNATIVE DISPUTE RESOLUTION. Following settlement efforts pursuant to Section 10.2, any dispute, controversy or claim arising out of or relating to the validity, construction, enforceability or performance of this Agreement, including disputes relating to alleged breach or to termination of this Agreement under Section 7.2, other than disputes which are expressly prohibited herein from being resolved by this mechanism, shall be settled by binding Alternative Dispute Resolution ("ADR") in the manner described below: (a) ADR REQUEST. If a Party intends to begin an ADR to resolve a dispute, such Party shall provide written notice (the "ADR Request") to counsel for the other Party informing such other Party of such intention and the issues to be resolved. From the date of the ADR Request and until such time as any matter has been finally settled by ADR, the running of the time periods contained in Section 7.2 as to which Party must cure a breach of this Agreement shall be suspended as to the subject matter of the dispute. (b) ADDITIONAL ISSUES. Within ten (10) business days after the receipt of the ADR Request, the other Party may, by written notice to the counsel for the Party initiating ADR, add additional issues to be resolved. (c) NO ADR OF PATENT ISSUES. Disputes regarding the scope, validity and enforceability of patents shall not be subject to this Article 11.3, and shall be submitted to a court of competent jurisdiction. 10.4 ARBITRATION PROCEDURE. The ADR shall be conducted pursuant to the JAMS/ENDISPUTE Rules then in effect, except that notwithstanding those rules, the following provisions shall apply to the ADR hereunder: (a) ARBITRATOR. The arbitration shall be conducted by a panel of three arbitrators (the "Panel"). The Panel shall be selected from a pool of retired independent federal judges to be presented to the Parties by JAMS/ENDISPUTE. Neither Party shall have any ex parte contact with the Panel members. (b) PROCEEDINGS. The time periods set forth in the JAMS/ENDISPUTE rules shall be followed, unless a Party can demonstrate to the Panel that the complexity of the issues or other reasons warrant the extension of one or more of the time tables. In such case, the Panel may extend such time tables, but in no event shall the time tables being extended so that the ADR proceeding extends more than 18 months from its beginning to the Award. In regard to such time [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 18 tables, the Parties (i) acknowledge that the issues that may arise in any dispute involving this Agreement may involve a number of complex matters and (ii) confirm their intention that each Party will have the opportunity to conduct complete discovery with respect to all material issues involved in a dispute within the framework provided above. Within such time frames, each Party shall have the right to conduct discovery in accordance with the Federal Rules of Civil Procedure. The Panel shall not award punitive damages to either Party and the Parties shall be deemed to have waived any right to such damages. The Panel shall, in rendering its decision, apply the substantive law of the State of California, without regard to its conflict of laws provisions, except that the interpretation of and enforcement of this Section 10.3(b) shall be governed by the Federal Arbitration Act. The Panel shall apply the Federal Rules of Evidence to the hearing. The proceeding shall take place in the City of San Francisco. The fees of the Panels and JAMS/ENDISPUTE shall be paid by the losing Party, which shall be designated by the Panel. If the Panel is unable to designate a losing Party, it shall so state and the fees shall be split equally between the Parties. (c) AWARD. The Panel is empowered to award any remedy allowed by law, including money damages, multiple damages, prejudgment interest and attorneys' fee, and to grant final, complete, interim, or interlocutory relief, including injunctive relief but excluding punitive damages. (d) COSTS. Except as set forth in Section 10.4(b), above, each Party shall bear its own legal fees. The Panel shall assess its costs, fees and expenses against the Party losing the ADR unless it believes that neither Party is the clear loser, in which case the Panel shall divide such fees, costs and expenses according to the Panel's sole discretion. (e) CONFIDENTIALITY. The ADR proceeding shall be confidential and the Panel shall issue appropriate protective orders to safeguard each Party's Confidential Information. Except as required by law, no Party shall make (or instruct the Panel to make) any public announcement with respect to the proceedings or decision of the Panel without prior written consent of each other Party. The existence of any dispute submitted to ADR, and the award, shall be kept in confidence by the Parties and the Panel, except as required in connection with the enforcement of such award or as otherwise required by applicable law. 10.5 JUDICIAL ENFORCEMENT. The Parties agree that judgment on any arbitral award issued pursuant to this Article 14 shall be entered in the United States District Court for the Northern District of California or, in the event such court does not have subject matter jurisdiction over the dispute in question, such judgment shall be entered in the Superior Court of the State of California, in the County of San Mateo. 10.6 GOVERNING LAW. This Agreement is made in accordance with and shall be governed and construed under the laws of the State of California, as such laws are applied to contract entered into and to be performed within such state. ARTICLE 11 MISCELLANEOUS 11.1 AGENCY. Neither Party is, nor will be deemed to be, an employee, agent or legal representative of the other Party for any purpose. Neither Party will be entitled to enter into any contracts in the name of, or on behalf of the other Party, nor will a Party be entitled to pledge the [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 19 credit of the other Party in any way or hold itself out as having authority to do so. This Agreement is an arm's-length research and license agreement between the Parties and shall not constitute or be construed as a joint venture. 11.2 ASSIGNMENT. Except as otherwise provided herein, neither this Agreement nor any interest hereunder will be assignable in part or in whole by any Party without the prior written consent of the other; provided, however, that either Party may assign this Agreement to any of its Affiliates or to any successor by merger or sale of all or substantially all of its business assets to which this Agreement relates in a manner such that the assignor will remain liable and responsible for the performance and observance of all its duties and obligations hereunder. This Agreement will be binding upon the successors and permitted assigns of the Parties and the name of a Party herein will be deemed to include the names of such Party's successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. Any assignment which is not in accordance with this Section 11.2 will be void. 11.3 AMENDMENT. No amendment or modification hereof shall be valid or binding upon the Parties unless made in writing and signed by both Parties. 11.4 NOTICES. Any notice or other communication required or permitted to be given to either Party hereto shall be in writing unless otherwise specified and shall be deemed to have been properly given and to be effective on the date of delivery if delivered in person or by facsimile or three (3) days after mailing by registered or certified mail, postage paid, to the other Party at the following address: In the case of Lynx : President Lynx Therapeutics, Inc. 3832 Bay Center Place Hayward, CA 94545 In the case of DuPont: Vice President Global Research & Development DuPont Agricultural Enterprise E. I. duPont de Nemours and Company Barley Mill Plaza 38-1210 P. O. Box 80038 Wilmington, DE 19880-0038 Either Party may change its address for communications by a notice to the other Party in accordance with this Section 11.4. 11.5 FORCE MAJEURE. Any prevention, delay or interruption of performance by any Party under this Agreement shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the Party affected, including but not limited to acts of God, embargoes, governmental restrictions, strikes or other concerted acts of workers, fire, flood, [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 20 earthquake, explosion, riots, wars, civil disorder, rebellion or sabotage. The Party suffering such occurrence shall immediately notify the other Party and any time for performance hereunder shall be extended by the actual time of prevention, delay, or interruption caused by the occurrence. 11.6 EXPORT CONTROL. This Agreement is made subject to any restrictions concerning the export of products or technical information from the United States of America or other countries which may be imposed upon or related to Lynx or DuPont from time to time. Each Party agrees that it will comply with all applicable export laws and regulations in connection with its activities under this Agreement. 11.7 SEVERABILITY. If any term, condition or provision of this Agreement is held to be unenforceable for any reason, it shall, if possible, be interpreted, to achieve the intent of the Parties to this Agreement to the extent possible rather than voided. If not capable of such interpretation, the Parties shall in good faith seek to agree on an alternative provision reflecting the intent of the Parties which is enforceable. In any event, all other terms, conditions and provision of this Agreement shall be deemed valid and enforceable to the full extent. 11.8 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder shall be in addition to, and not in limitation of, all rights, powers and remedies provided at law or in equity, or under any other agreement between the Parties. All of such rights, powers and remedies shall be cumulative, and may be exercised successively or cumulatively. 11.9 WAIVER. No waiver by either Party hereto on any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent or similar breach or default. 11.10 FURTHER ASSURANCES. Each Party agrees to execute acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 11.11 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 11.12 ENTIRE AGREEMENT. This Agreement and all Exhibits referred to herein embody the entire understanding of the Parties with respect to the subject matter hereof and shall supersede all previous communications, representations or understandings, either oral or written, between the Parties relating to the subject matter hereof. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 21 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by their respective officers hereunto duly authorized. LYNX THERAPEUTICS, INC. E.I. DUPONT DE NEMOURS AND CO. By: /s/ Sam Eletr By: /s/ William E. Kirk ------------------------------------ ------------------------------ Its: Chief Executive Officer Its: Senior Vice President ------------------------------------ ---------------------------- [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 22 EXHIBIT A INSTRUMENT COMMERCIAL EQUIPMENT PARTNER WOULD HAVE TO BUY 1. PCR STEP MJ Research DNA Engine (Thermal Cycler) 2. HYBRIDIZATION/LOADING Eppendorf Thermomixer (96 well Vortexer) 3. SORTING Cytomation MoFlo (Facs sorter) 4. FLOW CELL LOADING Nikon TMS Inverted Microscope Sonicating/Heating Water Bath 5. COMPUTER FOR DATA ANALYSIS Sun Ultra 5 Workstation (With approx. 300 Gbytes mass storage) Internal Network (Connects sequencer computer to data analysis computer)
EQUIPMENT SUPPLIED BY LYNX 1. FLOWCELL LOADING Bead Injection Apparatus (Installing the cloned beads Pressure Driven Bead Delivery Apparatus into the reaction/imaging Pressure Pulsing Apparatus vessel) 2. SEQUENCING INSTRUMENT
The sequencer consists of the following modules: Flow Cells for Bead Arrays Optical/Imaging System Fluid Delivery System Control/ Monitoring System Data Collection and Analysis Software A discussion of each module follows: OPTICAL/IMAGING SYSTEM The optical/imaging system is comprised of a modified Olympus B_MAX 60 confocal fluorescent microscope, 75 watt xenon arc lamp, appropriate emission and excitation filters and filter wheels, a Photometrics 6 million pixel CCD camera, a precision X/Y/Z stage, and the flowcell optical/fluid mounting platform. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 23 EXHIBIT A (CONTINUED) INSTRUMENT 2. SEQUENCING INSTRUMENT (CONTINUED): The flowcell is mounted to a leveled, light-tight, precision temperature-controlled (between 10 and 90 degrees C, +/- 0.5 degrees) platform. The platform is mounted to the stage, which provides the "tiling" function. A tile is an image of the bead bed containing approximately 50 thousand beads. It is therefore necessary to image 20 tiles to cover a complete 1 million bead library. Each tile consists of an "address" and "fluorescent" image. The address locates the bead for the entire run. In this way, the integrity of each unique bead's sequence is maintained. The fluorescent image is where the actual sequence data is collected. This is accomplished by automating and timing filter wheel position, stage position, focus, shutters and CCD camera imaging and data flow. FLUID DELIVERY SYSTEM The fluid delivery system is comprised of a 30 well reagent tray, reagent cooler, buffer vessels, zero dead volume valves with "sippers" for each reagent, a precision ultra low flowrate syringe pump, and fluid direction valves. The various enzymes, buffers, and enco-adaptor TM probes are stored in the reagent tray at 4 degrees C. Each reagent has its own dedicated sipper. (This eliminates cross contamination). A reagent delivery is made by opening the appropriate valve, aspirating the desired volume, closing the valve, and dispensing to the flowcell (mounted in the optical platform) at the desired flowrate. The flowrate is adjustable between 1 and 3 microliters per minute, is positive displacement, and therefore impervious to backpressure differential. Typical reagent flow times are between 5 and 30 minutes. The reaction temperature is controlled by a Peltier device which is spring loaded under the flowcell in the optical platform. CONTROL/MONITORING SYSTEM The control/monitoring system is comprised of all the various power supplies, control electronics, transducers, and embedded Pentium computer, running the instrument control software. The instrument is fully automated, and once the reagents and flowcell have been installed, will run unattended. Monitoring vital parameters such as fluorescent lamp function, vacuum, pressure supply, ambient/reagent/ flowcell temperature, and flowcell backpressure allows the instrument to self diagnose problems, and shut down if any problem is deemed to be "fatal," to save reagents and the sample. DATA COLLECTION SYSTEM The data collection system is a Sun Microsystems Sparc 5. This is the "heart" of the instrument. All of the main control, data collection and user interface software resides here. This computer directs the embedded controller, imaging system, data handling and networking to the data analysis computers. All user interaction (control, monitoring, alarms, etc.) is accomplished through a friendly graphical user interface. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 24 EXHIBIT B LYNX PATENTS [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 25 EXHIBIT C REAGENTS LYNX-SUPPLIED REAGENTS 1. COMBI-TAGGED BEADS 2. PLASMIDS Combi-tagged cDNA cloning vectors Encoded cDNA cloning vectors 3. OLIGONUCLEOTIDES Biotin-BsmBI-oligo(dT) PCR F Biotin PCR R FAM Enco-adaptor mix of [ * ] [ * ] probes
COMMERCIAL REAGENTS PARTNER WOULD HAVE TO BUY
Enzymes Concentration 1. CLONETEC Klentaq polymerase 8421-1 1 unit/u1 2. NEB BSmBI #580 10 units/u1 Pac I #547 10 units/u1 T4 DNA polymerase #203 10 units/u1 DpnII #543 10 units/u1 T4 DNA Ligase #202 400 units/u1 Bbv I #173 10 units/u1 Alkaline phosphatase #290 10 units/u1 T4 Polynucleotide Kinase #201 10 units/u1
OTHER REAGENTS 1. PIERCE Ultra-link 53117B 100ml 2. QIAGEN QIA prep 8 miniprep kit 27144 3. INVITROGEN FastTrack 2.0 Kit K1593-02 4. STRATAGENE cDNA synthesis kit 200401 5. PHARMACIA SizeSep(R) 400 column methyl dCTP 27-4225-02 6. DYNAL M-280 strepavidin beads 112.05 or 112.06
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 26 EXHIBIT D SIGNATURE SEQUENCING ASSUMPTIONS FOR SIGNATURE SEQUENCING ANALYSES 1. There are approximately 1,000,000 mRNA molecules per cell. 2. Messages expressed at levels below [ * ] per cell are likely within biological noise. 3. Technology should measure accurately relative abundances of messages expressed at, or above, [ * ] per cell. 4. At least [ * ] are needed for such a measurement to be accurate. 5. [ * ] are sequenced from each bead, with [ * ] being 100% accurate. Therefore, Lynx' signature sequencing shall identify[ * ] sampled from a given mrna library. The [ * ] will be obtained in [ * ] yielding about [ * ] each. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 27 EXHIBIT E MAPPING MILESTONES TECHNOLOGY MILESTONE 1. Successful conversion of cDNA library into library of transformed sequences corresponding to [ * ] sequences derived either by tandem, bipolar, or enzymatic manipulations. 2. Successful loading of [ * ] onto [ * ] and their reading by triplex decoders, such loadings consisting of [ * ]. CROP MAP CRITERIA 1. [ * ] base, ordered, nucleotide sequences, spaced [ * ] apart for low-resolution map (jumps over repetitive sequences). 2. [ * ] base, ordered, nucleotide sequences spaced [ * ] apart for high resolution map. 3. High resolution map assembles genes (ESTs) into clusters (or islands) anchored at multiple sites to the physical/genetic map. 4. Map need not be continuous. It may have multiple break-point islands and seas. 5. For the [ * ] genome, the map would be created both from random sequences and from sets of BAC clones, and would consist of [ * ] covering [ * ] of the genome. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 28 AMENDED EXHIBIT D LYNX-DUPONT RESEARCH COLLABORATION AGREEMENT REVISED SIGNATURE SEQUENCING MILESTONES NOVEMBER 28, 1999 ASSUMPTIONS FOR SIGNATURE SEQUENCING ANALYSES 1. There are approximately 1,000,000 mRNA molecules per cell. 2. Messages expressed at levels below [*] per cell are likely within biological noise. 3. Technology should measure accurately relative abundance of messages expressed at, or above, [*] per cell. 4. At least [*] are needed for such a measurement to be accurate. 5. [*] are sequenced from each bead, with at least [*] being 100% accurate. Therefore Based on the current level of technology, Lynx shall charge DuPont [*] per MPSS experiment for each mRNA or DNA sample submitted by DuPont for MPSS analysis, with the definition of an MPSS experiment as follows: o Delivery of at least [*]. o Each [*] will be [*] with [*]. o The [*] delivered will contain [*]. FRAME DEFINITION: [*] Also, should our cost ever drop below [*] so will your price according to [*]. IN WITNESS WHEREOF, the Parties hereto have executed this amendment to the Agreement by their respective officers hereunto duly authorized. LYNX THERAPEUTICS, INC. E.I. DUPONT DE NEMOURS AND CO. By: /s/ Norman Russell By: /s/ John Pierce ------------------------------ ---------------------------- Its: President and CEO Its: Research Director ----------------------------- --------------------------- [*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. EX-10.14 6 f75239a1ex10-14.txt EXHIBIT 10.14 1 EXHIBIT 10.14 Customer No. 1170 MASTER LOAN AND SECURITY AGREEMENT THIS AGREEMENT dated as of October 26, 1998, is made by Lynx Therapeutics, Inc. (the "Borrower"), a Delaware corporation having its principal place of business and chief executive office at 3832 Bay Center Place, Hayward, California, 94545 in favor of Transamerica Business Credit Corporation, a Delaware corporation (the "Lender"), having its principal office at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018. WHEREAS, the Borrower has requested that the Lender make Loans to it from time to time; and WHEREAS, the Lender has agreed to make such Loans on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and to induce the Lender to extend credit, the Borrower hereby agrees with the Lender as follows: SECTION 1. DEFINITIONS. As used herein, the following terms shall have the following meanings, and shall be equally applicable to both the singular and plural forms of the terms defined: Agreement shall mean this Master Loan and Security Agreement together with all schedules and exhibits hereto, as amended, supplemented, or otherwise modified from time to time. Applicable Law shall mean the laws of the State of Illinois (or any other jurisdiction whose laws are mandatorily applicable notwithstanding the parties' choice of Illinois law) as such laws now exist or may be changed or amended or come into effect in the future. Business Day shall mean any day other than a Saturday, Sunday, or public holiday or the equivalent for banks in New York City. Code shall have the meaning specified in Section 8(d). Collateral shall have the meaning specified in Section 2. Commitment Amount shall mean $5,000,000 and such additional amounts as are set forth in commitment letters executed by the parties from time to time. Effective Date shall mean the date on which all of the conditions specified in Section 3.3 shall have been satisfied. Equipment shall have the meaning specified in Section 2. Event of Default shall mean any event specified in Section 7. Financial Statements shall have the meaning specified in Section 6.1. GAAP shall mean generally accepted accounting principles in the United States of America, as in effect from time to time. Loans shall mean the loans and financial accommodations made by the Lender to the Borrower in accordance with the terms of this Agreement and the Notes. 1. 2 Loan Documents shall mean, collectively, this Agreement, the Notes, and all other documents, agreements, certificates, instruments, and opinions executed and delivered in connection herewith and therewith, as the same may be modified, extended, restated, or supplemented from time to time. Material Adverse Change shall mean, with respect to the Borrower, a material adverse change in the business, operations, results of operations, assets, liabilities, or condition (financial or otherwise) of the Borrower taken as a whole. Material Adverse Effect shall mean, with respect to the Borrower, a material adverse effect on the business, operations, results of operations, assets, liabilities, or condition (financial or otherwise) of the Borrower taken as a whole. Note shall mean each Promissory Note made by the Borrower in favor of the Lender, as amended, supplemented, or otherwise modified from time to time. Obligations shall mean all indebtedness, obligations, and liabilities of the Borrower under the Notes and under this Agreement, whether on account of principal, interest, indemnities, fees (including, without limitation, attorneys' fees, remarketing fees, origination fees, collection fees, and all other professionals' fees), costs, expenses and taxes. Permitted Liens shall mean such of the following as to which no enforcement, collection, execution, levy, or foreclosure proceeding shall have been commenced: (a) liens for taxes, assessments, and other governmental charges or levies or the claims or demands of landlords, carriers, warehousemen, mechanics, laborers, materialmen, and other like Persons arising by operation of law in the ordinary course of business for sums which are not yet due and payable, or liens which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are maintained to the extent required by GAAP; (b) deposits or pledges to secure the payment of worker's compensation, unemployment insurance, or other social security benefits or obligations, public or statutory obligations, surety or appeal bonds, bid or performance bonds, or other obligations of a like nature incurred in the ordinary course of business; (c) licenses, restrictions, or covenants for or on the use of the Equipment which do not materially impair either the use of the Equipment in the operation of the business of the Borrower or the value of the Equipment; (d) attachment or judgment liens that do not constitute an Event of Default; (e) liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (f) liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; and (g) liens, not otherwise permitted, which liens do not in the aggregate exceed $50,000 at any time. Person shall mean any individual, sole proprietorship, partnership, limited liability partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, entity, party, or government (including any division, agency, or department thereof), and the successors, heirs, and assigns of each. Schedule shall mean each Schedule in the form of Schedule A hereto delivered by the Borrower to the Lender from time to time. Solvent means, with respect to any Person, that as of the date as to which such Person's solvency is measured: (a) the fair saleable value of its assets is in excess of the total amount of its liabilities (including contingent liabilities as valued in accordance with GAAP) as they become absolute and matured; (b) it has sufficient capital to conduct its business; and (c) it is able generally to meet its debts as they mature. Surviving Indemnities shall mean any Obligations in the nature of an indemnity or hold harmless obligation by the Borrower in favor of the Lender arising under the Loan Documents which by its terms survives the latest of (a) the 2. 3 termination of this Agreement; and (b) the payment of all principal, interest, prepayment premiums (if applicable), fees and all other Obligations (not in the nature of an indemnity or hold harmless which is not due and payable at the time of such payment) due at the time of such payment under the Loan Documents. Taxes shall have the meaning specified in Section 5.5. SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. The Borrower hereby assigns and grants to the Lender a continuing first priority lien on, and security interest in, all the Borrowers right, title, and interest in and to the collateral described in the next sentence (the "Collateral") to secure the payment and performance of all the Obligations other than the Surviving Indemnities. The Collateral consists of all equipment financed hereunder and specifically set forth on all the Schedules delivered from time to time under the terms of this Agreement (the "Equipment"), together with all present and future additions, parts, accessories, attachments in which no third party has any rights, substitutions, repairs, improvements, and replacements thereof or thereto, and any and all proceeds thereof, including, without limitation, proceeds of insurance and all manuals, blueprints, know-how, warranties, and records in connection therewith, all rights against suppliers, warrantors, manufacturers, sellers, or others in connection therewith, and together with all substitutes for any of the foregoing. Notwithstanding the foregoing, nothing herein shall be construed as a limitation on the Borrower's ability to license its intellectual property in the ordinary course of business. SECTION 3. THE CREDIT FACILITY. SECTION 3.1 BORROWINGS. Subject to the terms and conditions of this Agreement, Lender hereby agrees to make Loans to Borrower in an amount not to exceed the Commitment Amount. Each Loan shall be in an amount not less than $50,000, and in no event shall the sum of the aggregate Loans made exceed the amount of the Lender's written commitment to the Borrower in effect from time to time. Notwithstanding anything herein to the contrary, the Lender shall be obligated to make the initial Loan and each other Loan only after the Lender, in its sole discretion, determines that the applicable conditions for borrowing contained in Sections 3.3 and 3.4 are satisfied. The timing and financial scope of Lender's obligation to make Loans hereunder are limited as set forth in a commitment letter executed by Lender and Borrower, dated as of August 21, 1998 and attached hereto as Exhibit A (the "Commitment Letter"). SECTION 3.2 APPLICATION OF PROCEEDS. The Borrower shall not directly or indirectly use any proceeds of the Loans, or cause, assist, suffer, or permit the use of any proceeds of the Loans, for any purpose other than for the purchase, acquisition, installation, or upgrading of Equipment or the reimbursement of the Borrower for its purchase, acquisition, installation, or upgrading of Equipment. SECTION 3.3 CONDITIONS TO INITIAL LOAN. (a) The obligation of the Lender to make the initial Loan is subject to the Lender's receipt of the following, each dated the date of the initial Loan or as of an earlier date acceptable to the Lender, in form and substance satisfactory to the Lender and its counsel: (i) completed requests for information (Form UCC-11) listing all effective Uniform Commercial Code financing statements naming the Borrower as debtor and all tax lien, judgment, and litigation searches for the Borrower and performed by Lender as the Lender shall deem necessary or desirable; (ii) Uniform Commercial Code financing statements (Form UCC-1) duly executed by the Borrower (naming the Lender as secured party and the Borrower as debtor and in form acceptable for filing in all jurisdictions that the Lender deems necessary or desirable to perfect the security interests granted to it hereunder) and, if applicable, termination statements or other releases duly filed in all jurisdictions that the Lender deems necessary or desirable to perfect and protect the priority of the security interests granted to it hereunder in the Equipment related to such initial Loan; 3. 4 (iii) a Note duly executed by the Borrower evidencing the amount of such Loan; (iv) certificates of insurance required under Section 5.4 of this Agreement together with loss payee endorsements for all such policies naming the Lender as lender loss payee and as an additional insured as its interests appear; (v) a copy of the resolutions of the Board of Directors of the Borrower (or a unanimous consent of directors in lieu thereof) authorizing the execution, delivery, and performance of this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, attached to which is a certificate of the Secretary or an Assistant Secretary of the Borrower certifying (A) that the copy of the resolutions is true, complete, and accurate, that such resolutions have not been amended or modified since the date of such certification and are in full force and effect and (B) the incumbency, names, and true signatures of the officers of the Borrower authorized to sign the Loan Documents to which it is a party; (vi) the opinion of counsel for the Borrower covering such matters incident to the transactions contemplated by this Agreement as the Lender may reasonably require; and (vii) such other agreements and instruments as the Lender deems necessary in its good faith business judgment in connection with the transactions contemplated hereby. (b) There shall be no pending or, to the knowledge of the Borrower after due inquiry, threatened litigation, proceeding, inquiry, or other action (i) seeking an injunction or other restraining order, damages, or other relief with respect to the transactions contemplated by this Agreement or the other Loan Documents or thereby or (ii) which affects or is reasonably likely to affect the business, prospects, operations, assets, liabilities, or condition (financial or otherwise) of the Borrower, except, in the case of clause (ii), where such litigation, proceeding, inquiry, or other action is reasonably likely to not be expected to have a Material Adverse Effect in the judgment of the Lender. (c) The Borrower shall have paid all fees and expenses required to be paid by it to the Lender as of such date as set forth in this Agreement. (d) The security interests in the Equipment related to the initial Loan granted in favor of the Lender under this Agreement shall have been duly perfected and shall constitute first priority liens. SECTION 3.4 CONDITIONS PRECEDENT TO EACH LOAN. The obligation of the Lender to make each Loan is subject to the satisfaction of the following conditions precedent: (a) the Lender shall have received the documents, agreements, and instruments set forth in Section 3.3(a)(i) through (v) applicable to such Loan, each in form and substance reasonably satisfactory to the Lender and its counsel and each dated the date of such Loan or as of an earlier date acceptable to the Lender; (b) the Lender shall have received a Schedule of the Equipment related to such Loan, in form and substance satisfactory to the Lender and its counsel, and the security interests in such Equipment related to such Loan granted in favor of the Lender under this Agreement shall have been duly perfected and shall constitute first priority liens; (c) all representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such Loan as if then made, other than representations and warranties that expressly relate solely to an earlier date, in which case they shall have been true and correct as of such earlier date; 4. 5 (d) no Event of Default or event which with the giving of notice or the passage of time, or both, would constitute an Event of Default shall have occurred and be continuing or would result from the making of the requested Loan as of the date of such request; and (e) the Borrower shall be deemed to have hereby reaffirmed and ratified all security interests, liens, and other encumbrances heretofore granted by the Borrower to the Lender. SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES. SECTION 4.1 GOOD STANDING; QUALIFIED TO DO BUSINESS. The Borrower (a) is duly organized, validly existing, and in good standing under the laws of the State of its organization, (b) has the power and authority to own its properties and assets and to transact the businesses in which it is presently, or proposes to be, engaged, and (c) is duly qualified and authorized to do business and is in good standing in every jurisdiction in which the failure to be so qualified could have a Material Adverse Effect on (i) the Borrower, (ii) the Borrower's ability to perform its obligations under the Loan Documents, or (iii) the rights of the Lender hereunder. SECTION 4.2 DUE EXECUTION, ETC. The execution, delivery, and performance by the Borrower of each of the Loan Documents to which it is a party are within the powers of the Borrower, do not contravene the organizational documents, if any, of the Borrower, and do not (a) violate any law or regulation, or any order or decree of any court or governmental authority, (b) conflict with or result in a breach of, or constitute a default under, any material indenture, mortgage, or deed of trust or any material lease, agreement, or other instrument binding on the Borrower or any of its properties, or (c) require the consent, authorization by, or approval of or notice to or filing or registration with any governmental authority or other Person. This Agreement is, and each of the other Loan Documents to which the Borrower is or will be a party, when delivered hereunder or thereunder, will be, the legal, valid, and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, or similar laws affecting creditors' rights generally and by general principles of equity. SECTION 4.3 SOLVENCY; NO LIENS. The Borrower is Solvent and will be Solvent upon the completion of all transactions contemplated to occur hereunder (including, without limitation, the Loan to be made on the Effective Date); the security interests granted herein constitute and shall at all times constitute the first and only liens on the Collateral other than Permitted Liens; and the Borrower is, or will be at the time additional Collateral is acquired by it, the absolute owner or licensee of the Collateral with full right to pledge, sell, consign, transfer, and create a security interest therein, free and clear of any and all claims or liens in favor of any other Person other than Permitted Liens. SECTION 4.4 NO JUDGMENTS, LITIGATION. No judgments are outstanding against the Borrower nor is there now pending or, to the best of the Borrower's knowledge after diligent inquiry, threatened any litigation, contested claim, or governmental proceeding by or against the Borrower except judgments and pending or threatened litigation, contested claims, and governmental proceedings which would not, in the aggregate, have a Material Adverse Effect on the Borrower. SECTION 4.5 NO DEFAULTS. The Borrower is not in default or has not received a notice of default under any material contract, lease, or commitment to which it is a party or by which it is bound. The Borrower knows of no dispute regarding any contract, lease, or commitment which could have a Material Adverse Effect on the Borrower. SECTION 4.6 COLLATERAL LOCATIONS. On the date hereof, each item of the Collateral is located at the place of business specified in the applicable Schedule. SECTION 4.7 NO EVENTS OF DEFAULT. No Event of Default has occurred and is continuing nor has any event occurred which, with the giving of notice or the passage of time, or both, would constitute an Event of Default. 5. 6 SECTION 4.8 NO LIMITATION ON LENDER'S RIGHTS. Except as permitted herein, or as set forth in any software license or facility leases, none of the Collateral is subject to contractual obligations that may restrict or inhibit the Lender's rights or abilities to sell or dispose of the Collateral or any part thereof after the occurrence of an Event of Default. SECTION 4.9 PERFECTION AND PRIORITY OF SECURITY INTEREST. This Agreement creates a valid and, upon completion of all required filings of financing statements, perfected first priority security interest in the Collateral subject to Permitted Liens, securing the payment of all the Obligations. SECTION 4.10 MODEL AND SERIAL NUMBERS. The Schedules set forth the true and correct model number and serial number of each item of Equipment that constitutes Collateral. SECTION 4.11 ACCURACY AND COMPLETENESS OF INFORMATION. All data, reports, and information heretofore, contemporaneously, or hereafter furnished by of the Borrower in writing to the Lender or for purposes of or in connection with this Agreement or any other Loan Document, or any transaction contemplated hereby or thereby, are or will be true and accurate in all material respects on the date as of which such data, reports, and information are dated or certified and not incomplete by omitting to state any material fact necessary to make such data, reports, and information not misleading in any material respect at such time. There are no facts now known to the Borrower which individually or in the aggregate is reasonably likely to have a Material Adverse Effect and which have not been specified herein, in the Financial Statements, or in any certificate, opinion, or other written statement previously furnished by the Borrower to the Lender. SECTION 4.12 PRICE OF EQUIPMENT. To the knowledge of Borrower, the cost of each item of Equipment does not exceed the fair and usual price for such type of equipment purchased in like quantity and reflects all discounts, rebates and allowances for the Equipment (including, without limitation, discounts for advertising, prompt payment, testing, or other services) given to the Borrower by the manufacturer or supplier. SECTION 5. COVENANTS OF THE BORROWER. SECTION 5.1 EXISTENCE, ETC. The Borrower shall: (a) retain its existence and its current yearly accounting cycle, (b) maintain in full force and effect all licenses, bonds, franchises, leases, trademarks, patents, contracts, and other rights necessary or desirable to the profitable conduct of its business unless the failure to do so could not reasonably be expected to have a Material Adverse Effect on the Borrower, (c) continue in, and limit its operations to, the same general lines of business as those presently conducted by it, and (d) comply with all applicable laws and regulations of any federal, state, or local governmental authority, except for such laws and regulations the violations of which would not, in the aggregate, have a Material Adverse Effect on the Borrower. SECTION 5.2 NOTICE TO THE LENDER. As soon as possible, and in any event within ten Business Days after the Borrower learns of the following, the Borrower will give written notice to the Lender of (a) any proceeding instituted or threatened to be instituted by or against the Borrower in any federal, state, local, or foreign court or before any commission or other regulatory body (federal, state, local, or foreign) involving a sum, together with the sum involved in all other similar proceedings, in excess of $250,000 in the aggregate, (b) any contract that is terminated or amended and which has had or could reasonably be expected to have a Material Adverse Effect on the Borrower, (c) the occurrence of any Material Adverse Change with respect to the Borrower, and (d) the occurrence of any Event of Default or event or condition which, with notice or lapse of time or both, would constitute an Event of Default, together with a statement of the action which the Borrower has taken or proposes to take with respect thereto. SECTION 5.3 MAINTENANCE OF BOOKS AND RECORDS. The Borrower will maintain books and records pertaining to the Collateral in such detail, form, and scope as the Lender shall require in its commercially reasonable judgment. The Borrower agrees that the Lender or its agents may enter upon the Borrower's premises with reasonable notice and subject to the reasonable security procedures of the Borrower at any time and from time to time during normal business hours, and at any time upon the occurrence and continuance of an Event of Default, for the purpose of inspecting the Collateral and any and all records pertaining thereto. 6. 7 SECTION 5.4 INSURANCE. The Borrower will maintain insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, and covering such risks as are customary for Borrower's line of business and at all times satisfactory to the Lender. All such policies shall be made payable to the Lender, in case of loss, under a standard non-contributory "lender" or "secured party" clause and are to contain such other provisions as the Lender may reasonably require to protect the Lender's interests in the Collateral and to any payments to be made under such policies. Certificates of insurance policies are to be delivered to the Lender, premium prepaid, with the loss payable endorsement in the Lender's favor, and shall provide for not less than thirty days' prior written notice to the Lender, of any material change or cancellation of coverage. In the event that such certificate of insurance does not provide for thirty days' prior written notice to the Lender of any material change in coverage, then Borrower shall be required to provide such notice to Lender. If the Borrower fails to maintain such insurance, the Lender may arrange for (at the Borrower's expense and without any responsibility on the Lender's part for) obtaining the insurance. Unless the Lender shall otherwise agree with the Borrower in writing, the Lender shall have the right, in the name of the Lender or the Borrower, to file claims under any insurance policies, to receive and give acquittance for any payments that may be payable thereunder, and to execute any endorsements, receipts, releases, assignments, reassignments, or other documents that may be necessary to effect the collection, compromise, or settlement of any claims under any such insurance policies. SECTION 5.5 TAXES. The Borrower will pay, when due, all taxes, assessments, claims, and other charges ("Taxes") lawfully levied or assessed against the Borrower or the Collateral other than taxes that are being diligently contested in good faith by the Borrower by appropriate proceedings promptly instituted and for which an adequate reserve is being maintained by the Borrower in accordance with GAAP. If any Taxes remain unpaid after the date fixed for the payment thereof, or if any lien shall be claimed therefor, then, without notice to the Borrower, but on the Borrower's behalf, the Lender may pay such Taxes, and the amount thereof shall be included in the Obligations. SECTION 5.6 BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS; FEES ON COLLATERAL. The Borrower will defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein except Permitted Liens. The Borrower will not permit any notice creating or otherwise relating to liens on the Collateral or any portion thereof to exist or be on file in any public office other than Permitted Liens. The Borrower shall promptly pay, when payable, all transportation, storage, and warehousing charges and license fees, registration fees, assessments, charges, permit fees, and taxes (municipal, state, and federal) which may now or hereafter be imposed upon the ownership, leasing, renting, possession, sale, or use of the Collateral, other than taxes on or measured by the Lender's income and fees, assessments, charges, and taxes which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are maintained to the extent required by GAAP. SECTION 5.7 NO CHANGE OF LOCATION, STRUCTURE, OR IDENTITY. The Borrower will not (a) change the location of its chief executive office or establish any place of business other than those specified herein or (b) move or permit the movement of any item of Collateral from the location specified in the applicable Schedule, except that the Borrower may change its chief executive office and keep Collateral at other locations within the United States provided that the Borrower has delivered to the Lender (i) prompt subsequent written notice thereof and (ii) duly executed financing statements and other agreements and instruments (all in form and substance satisfactory to the Lender) necessary and requested by Lender or, in the opinion of the Lender, desirable to perfect and maintain in favor of the Lender a first priority security interest in the Collateral. Notwithstanding anything to the contrary in the immediately preceding sentence, the Borrower may keep any Collateral consisting of motor vehicles or rolling stock at any location in the United States provided that the Lender's security interest in any such Collateral is conspicuously marked on the certificate of title thereof and the Borrower has complied with the provisions of Section 5.9. SECTION 5.8 USE OF COLLATERAL; LICENSES; REPAIR. The Collateral shall be operated by competent, qualified personnel in connection with the Borrower's business purposes, for the purpose for which the Collateral was designed and in accordance with applicable operating instructions, laws, and government regulations, and the Borrower shall use reasonable precaution to prevent loss or damage to the Collateral from fire and other hazards. The Collateral shall not be used or operated for personal, family, or household purposes. The Borrower shall procure and maintain in effect all orders, licenses, certificates, permits, approvals, and consents required by federal, state, or local laws or by any governmental body, agency, or authority in connection with the delivery, 7. 8 installation, use, and operation of the Collateral. The Borrower shall keep all of the Equipment in a satisfactory state of repair and satisfactory operating condition in accordance with industry standards, and will make all repairs and replacements when and where necessary and practical. The Borrower will not waste or destroy the Equipment or any part thereof, and will not be negligent in the care or use thereof. Except for tenant improvements, the Equipment shall not be annexed or affixed to or become part of any realty without the Lenders prior written consent. SECTION 5.9 FURTHER ASSURANCES. The Borrower will, promptly upon request by the Lender, execute and deliver or use its best efforts to obtain any document required by the Lender (including, without limitation, warehouseman or processor disclaimers, mortgagee waivers, landlord disclaimers, or subordination agreements with respect to the Obligations and the Collateral), give any notices, execute and file any financing statements, mortgages, or other documents (all in form and substance satisfactory to the Lender), mark any chattel paper, deliver any chattel paper or instruments to the Lender, and take any other actions that are necessary or, in the opinion of the Lender, desirable to perfect or continue the perfection and the first priority of the Lender's security interest in the Collateral, to protect the Collateral against the rights, claims, or interests of any Persons, or to effect the purposes of this Agreement. The Borrower hereby authorizes the Lender to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of the Borrower where permitted by law. A carbon, photographic, or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. To the extent required under this Agreement, the Borrower will pay all costs incurred in connection with any of the foregoing. SECTION 5.10 NO DISPOSITION OF COLLATERAL. The Borrower will not in any way hypothecate or create or permit to exist any lien, security interest, charge, or encumbrance on or other interest in any of the Collateral, except for the lien and security interest granted hereby and Permitted Liens which are junior to the lien and security interest of the Lender, and the Borrower will not sell, transfer, assign, pledge, collaterally assign, exchange, or otherwise dispose of any of the Collateral. In the event the Collateral, or any part thereof, is sold, transferred, assigned, exchanged, or otherwise disposed of in violation of these provisions, the security interest of the Lender shall continue in such Collateral or part thereof notwithstanding such sale, transfer, assignment, exchange, or other disposition, and the Borrower will hold the proceeds thereof in a separate account for the benefit of the Lender. Following such a sale, the Borrower will transfer such proceeds to the Lender in kind. SECTION 5.11 NO LIMITATION ON LENDER'S RIGHTS. The Borrower will not enter into any contractual obligations other than software license agreements or, with the prior written consent of the Lender, facility leases, which may restrict or inhibit the Lenders rights or ability to sell or otherwise dispose of the Collateral or any part thereof. SECTION 5.12 PROTECTION OF COLLATERAL. Upon notice to the Borrower (provided that if an Event of Default has occurred and is continuing the Lender need not give any notice), the Lender shall have the right at any time to make any payments and do any other acts the Lender may deem necessary to protect its security interests in the Collateral, including, without limitation, the rights to satisfy, purchase, contest, or compromise any encumbrance, charge, or lien which, in the reasonable judgment of the Lender, appears to be prior to or superior to the security interests granted hereunder, and appear in, and defend any action or proceeding purporting to affect its security interests in, or the value of, any of the Collateral. The Borrower hereby agrees to reimburse the Lender for all payments made and expenses incurred under this Agreement including reasonable fees, expenses, and disbursements of attorneys and paralegals (including the allocated costs of in-house counsel) acting for the Lender, including any of the foregoing payments under, or acts taken to protect its security interests in, any of the Collateral, which amounts shall be secured under this Agreement, and agrees it shall be bound by any payment made or act taken by the Lender hereunder absent the Lenders gross negligence or willful misconduct. The Lender shall have no obligation to make any of the foregoing payments or perform any of the foregoing acts. SECTION 5.13 DELIVERY OF ITEMS. The Borrower will (a) promptly (but in no event later than ten Business Days) after its receipt thereof, deliver to the Lender any documents or certificates of title issued with respect to any property included in the Collateral, and any promissory notes, letters of credit or instruments related to or otherwise in connection with any property included in the Collateral, which in any such case come into the possession of the Borrower, or shall cause the issuer thereof to deliver any of the same directly to the Lender, in 8. 9 each case with any necessary endorsements in favor of the Lender and (b) deliver to the Lender as soon as available copies of any and all press releases and other similar communications issued by the Borrower. SECTION 5.14 SOLVENCY. The Borrower shall be and remain Solvent at all times. SECTION 5.15 FUNDAMENTAL CHANGES. Without prior written consent of the Lender, the Borrower shall not: (a) merge or consolidate into any other Person (Lender's consent shall not be withheld if (i) the Borrower is the survivor of such merger or consolidation and remains in compliance with all the terms and conditions of the Loan Documents or any other survivor of such merger or consolidation assumes all the Obligations, including, without limitation, all of the Borrower's payment obligations, pursuant to assignment documentation acceptable to the Lender in its sole discretion, (ii) in the good faith business judgment of the Lender, the ability of such surviving entity to perform its obligations hereunder is no worse than that of the Borrower immediately before such merger or consolidation, and (iii) such surviving entity delivers Uniform Commercial Code financing statements (Form UCC-1) duly executed by the surviving entity (naming the Lender as secured party and the surviving entity as debtor and in form acceptable for filing in all jurisdictions that the Lender deems necessary or advisable to perfect the security interests granted to it hereunder) and, if applicable, termination statements, or other releases duly filed in all jurisdictions that the Lender deems necessary or advisable to perfect and protect the priority of the security interests granted by the Borrower hereunder), (b) amend or modify its name (unless the Borrower delivers to the Lender thirty days prior to any such proposed amendment or modification written notice of such proposal and within ten days following such amendment or modification delivers executed Uniform Commercial Code financing statements (in form and substance satisfactory to the Lender) reflecting such amendment or modification) or (c) sell or otherwise dispose of all or substantially all of its assets. SECTION 5.16 ADDITIONAL REQUIREMENTS. The Borrower shall take all such further actions and execute all such further documents and instruments as the Lender may reasonably request in order to carry out the provisions of this Agreement. SECTION 6. FINANCIAL STATEMENTS. Until the payment and satisfaction in full of all Obligations, the Borrower shall deliver to the Lender the following financial information: SECTION 6.1 ANNUAL FINANCIAL STATEMENTS. As soon as available, but not later than 120 days after the end of each fiscal year of the Borrower and its consolidated subsidiaries, the consolidated balance sheet, income statement, and statements of cash flows and shareholders equity for the Borrower and its consolidated subsidiaries (the "Financial Statements") for such year, reported on by independent certified public accountants without an adverse qualification; and SECTION 6.2 QUARTERLY FINANCIAL STATEMENTS. As soon as available, but not later than 60 days after the end of each of the first three fiscal quarters in any fiscal year of the Borrower and its consolidated subsidiaries, the Financial Statements for such fiscal quarter, together with a certification duly executed by a responsible officer of the Borrower that such Financial Statements have been prepared in accordance with GAAP and are fairly stated in all material respects (subject to normal year-end audit adjustments). SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an Event of Default hereunder: (a) the Borrower shall fail to pay within two Business Days after notice of failure to pay when due any amount required to be paid by the Borrower under or in connection with any Note and this Agreement; (b) any representation or warranty made or deemed made by the Borrower under or in connection with any Loan Document or any Financial Statement shall prove to have been false or incorrect in any material respect when made; (c) the Borrower shall fail to perform or observe (i) any of the terms, covenants or agreements contained in Sections 5.4, 5.7, 5.10, 5.14, or 5.15 hereof or (ii) any other term, covenant, or agreement 9. 10 contained in any Loan Document (other than the other Events of Default specified in this Section 7) and such failure remains unremedied for the earlier of fifteen days from (A) the date on which the Lender has given the Borrower written notice of such failure and (B) the date on which the Borrower knew of such failure; (d) any material provision of any Loan Document to which the Borrower is a party shall for any reason cease to be valid and binding on the Borrower, or the Borrower shall so state; (e) dissolution, liquidation, winding up, or cessation of the Borrower's business, failure of the Borrower generally to pay its debts as they mature, admission in writing by the Borrower of its inability generally to pay its debts as they mature, or calling of a meeting of the Borrowers creditors for purposes of compromising any of the Borrowers debts; (f) the commencement by or against the Borrower of any bankruptcy, insolvency, arrangement, reorganization, receivership, or similar proceedings under any federal or state law and, in the case of any such involuntary proceeding, such proceeding remains undismissed or unstayed for sixty days following the commencement thereof, or any action by the Borrower is taken authorizing any such proceedings; (g) an assignment for the benefit of creditors is made by the Borrower, whether voluntary or involuntary, the appointment of a trustee, custodian, receiver, or similar official for the Borrower or for any substantial property of the Borrower, or any action by the Borrower authorizing any such proceeding; (h) the Borrower. shall default in (i) the payment of principal or interest on any indebtedness in excess of $250,000 (other than the Obligations) beyond the period of grace, if any, provided in the instrument or agreement under which such indebtedness was created; or (ii) a material respect in the observance or performance of any other agreement or condition relating to any such indebtedness or contained in any instrument or agreement relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is that the Borrower receives a notice of default; or (iii) any loan or other agreement under which the Borrower has received financing from Transamerica Corporation or any of its affiliates; (i) the Borrower suffers or sustains a Material Adverse Change; (j) any tax lien, other than a Permitted Lien, is filed of record against the Borrower and is not bonded or discharged within five Business Days; (k) any judgment which has had or is reasonably likely in the good faith business judgment of the Lender to have a Material Adverse Effect on the Borrower and such judgment shall not be stayed, vacated, bonded, or discharged within sixty days; (l) any covenant, agreement, or obligation made by the Borrower and contained in or evidenced by any of the Loan Documents shall cease to be enforceable, or shall be determined to be unenforceable, in accordance with its terms; the Borrower shall deny or disaffirm the Obligations under any of the Loan Documents or any liens granted in connection therewith; or any liens granted on any of the Collateral in favor of the Lender shall be determined to be void, voidable, or invalid, or shall not be given the priority contemplated by this Agreement; or (m) except in connection with a transaction to which Lender has consented pursuant to Section 5.15 hereof, there is a change, which change results from a single transaction or series of related transactions, but not from the sale of newly issued securities to investors, in more than 35% of the ownership of any equity interests of the Borrower on the date hereof or more than 35% of such interests become subject to any contractual, judicial, or statutory lien, charge, security interest, or encumbrance. SECTION 8. REMEDIES. If any Event of Default shall have occurred and be continuing: (a) The Lender may, without prejudice to any of its other rights under any Loan Document or Applicable Law, with the giving of notice declare all Obligations to be immediately due and payable 10. 11 (except with respect to any Event of Default set forth in Section 7(f) hereof, in which case all Obligations shall automatically become immediately due and payable without necessity of any declaration) without presentment, representation, demand of payment, or protest, which are hereby expressly waived. (b) The Lender may take possession of the Collateral and, for that purpose may enter, with the aid and assistance of any person or persons, any premises where the Collateral or any part hereof is, or may be placed, and remove the same. (c) The obligation of the Lender, if any, to make additional Loans or financial accommodations of any kind to the Borrower shall immediately terminate. (d) The Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein (or in any Loan Document) or otherwise available to it, all the rights and remedies of a secured party under the applicable Uniform Commercial Code (the "Code") whether or not the Code applies to the affected Collateral and also may (i) require the Borrower to, and the Borrower hereby agrees that it will at its expense and upon request of the Lender forthwith, assemble all or part of the Collateral as directed by the Lender and make it available to the Lender at a place to be designated by the Lender that is reasonably convenient to both parties and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender's offices or elsewhere, for cash, on credit, or for future delivery, and upon such other terms as are commercially reasonable. The Borrower agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (e) All cash proceeds received by the Lender in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Lender, be held by the Lender as collateral for, or then or at any time thereafter applied in whole or in part by the Lender against, all or any part of the Obligations in such order as the Lender shall elect. Any surplus of such cash or cash proceeds held by the Lender and remaining after the full and final payment of all the Obligations shall be paid over to the Borrower or to such other Person to which the Lender may be required under applicable law, or directed by a court of competent jurisdiction, to make payment of such surplus. SECTION 9. MISCELLANEOUS PROVISIONS. SECTION 9.1 NOTICES. Except as otherwise provided herein, all notices, approvals, consents, correspondence, or other communications required or desired to be given hereunder shall be given in writing and shall be delivered by overnight courier, hand delivery, or certified or registered mail, postage prepaid, if to the Lender, then to Transamerica Technology Finance Division, 76 Batterson Park Road, Farmington, Connecticut 06032, Attention: Assistant Vice President, Lease Administration, with a copy to the Lender at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal Department, and if to the Borrower, then to Lynx Therapeutics, Inc., 3832 Bay Center Place, Hayward, California 94545, Attention: Chief Financial Officer or such other address as shall be designated by the Borrower or the Lender to the other party in accordance herewith. All such notices and correspondence shall be effective when received. SECTION 9.2 HEADINGS. The headings in this Agreement are for purposes of reference only and shall not affect the meaning or construction of any provision of this Agreement. SECTION 9.3 ASSIGNMENTS. Except in connection with a transaction to which Lender consents under Section 5.15, the Borrower shall not have the right to assign any Note or this Agreement or any interest therein unless the Lender shall have given the Borrower prior written consent and the Borrower and its assignee shall have delivered assignment documentation in form and substance satisfactory to the Lender in its sole discretion. The Lender may assign its rights and delegate its obligations under any Note or this Agreement. 11. 12 SECTION 9.4 AMENDMENTS, WAIVERS, AND CONSENTS. Any amendment or waiver of any provision of this Agreement and any consent to any departure by the Borrower from any provision of this Agreement shall be effective only by a writing signed by the Lender and Borrower and shall bind and benefit the Borrower and the Lender and their respective successors and assigns, subject, in the case of the Borrower, to the first sentence of Section 9.3. SECTION 9.5 INTERPRETATION OF AGREEMENT. Time is of the essence in each provision of this Agreement of which time is an element. All terms not defined herein or in a Note shall have the meaning set forth in the applicable Code, except where the context otherwise requires. To the extent a term or provision of this Agreement conflicts with any Note, or any term or provision thereof, and is not dealt with herein with more specificity, this Agreement shall control with respect to the subject matter of such term or provision. Acceptance of or acquiescence in a course of performance rendered under this Agreement shall not be relevant in determining the meaning of this Agreement even though the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection. SECTION 9.6 CONTINUING SECURITY INTEREST. This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the indefeasible payment in full of the Obligations, (ii) be binding upon the Borrower and its successors and assigns and (iii) inure, together with the rights and remedies of the Lender hereunder, to the benefit of the Lender and its successors, transferees, and assigns. SECTION 9.7 REINSTATEMENT. To the extent permitted by law, this Agreement and the rights and powers granted to the Lender hereunder and under the Loan Documents shall continue to be effective or be reinstated if at any time any amount received by the Lender in respect of the Obligations is rescinded or must otherwise be restored or returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation, or reorganization of the Borrower or upon the appointment of any receiver, intervenor, conservator, trustee, or similar official for the Borrower or any substantial part of its assets, or otherwise, all as though such payments had not been made. SECTION 9.8 SURVIVAL OF PROVISIONS. All representations, warranties, and covenants of the Borrower contained herein shall survive the execution and delivery of this Agreement, and shall terminate only upon the full and final payment and performance by the Borrower of the Obligations secured hereby. SECTION 9.9 INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the Lender and its directors, officers, agents, employees, and counsel from and against any and all costs, expenses, claims, or liability incurred by the Lender or such Person hereunder and under any other Loan Document or in connection herewith or therewith, unless such claim or liability shall be due to willful misconduct or gross negligence on the part of the Lender or such Person. SECTION 9.10 COUNTERPARTS; TELECOPIED SIGNATURES. This Agreement may be executed in counterparts, each of which when so executed and delivered shall be an original, but both of which shall together constitute one and the same instrument. This Agreement and each of the other Loan Documents and any notices given in connection herewith or therewith may be executed and delivered by telecopier or other facsimile transmission all with the same force and effect as if the same was a fully executed and delivered original manual counterpart. SECTION 9.11 SEVERABILITY. In case any provision in or obligation under this Agreement or any Note or any other Loan Document shall be invalid, illegal, or unenforceable in any jurisdiction, the validity, legality, and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 9.12 DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or omission of the Lender to exercise any right or remedy hereunder, whether before or after the happening of any Event of Default, shall impair any such right or shall operate as a waiver thereof or as a waiver of any such Event of Default. No single or partial exercise by the Lender of any right or remedy shall preclude any other or further exercise thereof, or preclude any other right or remedy. 12. 13 SECTION 9.13 ENTIRE AGREEMENT. The Borrower and the Lender agree that this Agreement, the Schedule hereto, and the Commitment Letter are the complete and exclusive statement and agreement between the parties with respect to the subject matter hereof, superseding all proposals and prior agreements, oral or written, and all other communications between the parties with respect to the subject matter hereof. Should there exist any inconsistency between the terms of the Commitment Letter and this Agreement, the terms of this Agreement shall prevail. SECTION 9.14 SETOFF. In addition to and not in limitation of all rights of offset that the Lender may have under Applicable Law, and whether or not the Lender has made any demand or the Obligations of the Borrower have matured, the Lender shall have the right to appropriate and apply to the payment of the Obligations of the Borrower all deposits and other obligations then or thereafter owing by the Lender to or for the credit or the account of the Borrower. SECTION 9.15 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 9.16 GOVERNING LAW. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. SECTION 9.17 VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY, OR OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING, (a) ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (b) THE RIGHT TO INTERPOSE ANY NONCOMPULSORY SETOFF, COUNTERCLAIM, OR CROSS-CLAIM. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS FOR IT SPECIFIED IN SECTION 9.1 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION, SUBJECT IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH RESPECT TO RIGHTS AND REMEDIES. 13. 14 IN WITNESS WHEREOF, the undersigned Borrower has caused this Agreement to be duly executed and delivered by its proper and duly authorized officer as of the date first set forth above. LYNX THERAPEUTICS, INC. By: /s/ Edward C. Albini -------------------------------------------- Name: Edward C. Albini Title: Chief Financial Officer Federal Tax: 94-3161073 Accepted as of the day of October , 1998 - --------- TRANSAMERICA BUSINESS CREDIT CORPORATION By: /s/ Gary P. Moro -------------------------------------------------- Name: Gary P. Moro Title: Vice President 14. EX-10.15 7 f75239a1ex10-15.txt EXHIBIT 10.15 1 EXHIBIT 10.15 PROMISSORY NOTE NO. 7 --------------------- 1170-007 Date: September 29, 2000 FOR VALUE RECEIVED, the undersigned promises to pay to the order of Transamerica Business Credit Corporation or its assigns (the "Payee") at its office located at Riverway 11, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, or at such other place as the Payee or the holder hereof may designate in writing, the principal amount of Nine Hundred Fifty Thousand, One Hundred Twenty and 43/100 Dollars ($950,120.43) received by the undersigned, plus interest, in lawful money of the United States and in immediately available funds. This Note shall be payable on the date hereof and thereafter in 48 consecutive equal monthly installments of Twenty Three Thousand, One Hundred Fifty Five and 39/100 Dollars ($23,155.39) commencing October 1, 2000 and a final installment payable on October 1, 2004 of Ninety Five Thousand, Twelve and 04/100 Dollars ($95,012.04) together with the unpaid balance of the Note. No amount of principal paid or prepaid hereunder may be reborrowed This Note is one of the Notes referred to in the Master Loan and Security Agreement dated as of October 26, 1998 (as amended, supplemented or otherwise modified from time to time, the "Agreement"), between the undersigned and the Payee and is subject and entitled to all provisions and benefits thereof. Capitalized terms used but not defined herein shall have the meanings set forth in the Agreement. If any installment of this Note is not paid within six days after its due date, the undersigned agrees to pay on demand, in addition to the amount of such installment, an amount equal to 4% of such installment, but only to the extent permitted by Applicable Law. The undersigned shall have the right to prepay this Note at any time on or after January 1, 2002, on thirty days' prior written notice to the Payee. On the date of any such prepayment, the undersigned shall pay an amount equal to the present value of the remaining payments (principal and interest) due hereunder discounted at 7% simple interest per annum together with all interest, fees and other amounts payable on the amount so prepaid or in connection therewith to the date of such prepayment. Any prepayments shall be applied to the installments hereof in the inverse order of maturity. Upon the maturity of this Note or the acceleration of the maturity of this Note in accordance with the terms of the Agreement, the entire unpaid principal amount on this Note, together with all interest, fees and other amounts payable hereon or in connection herewith, shall be immediately due and payable without further notice or demand, with interest on all such amounts at a rate not to exceed the lesser of (i) 18% per annum or (ii) the maximum amount allowed by law, from the date of such maturity or acceleration, as the case may be, until all such amounts have been paid. Upon default or the acceleration of the maturity of this Note in accordance with the terms of the Agreement, the entire unpaid principal amount on this Note, together with all interest, fees, prepayment fees and charges in an amount equal to the present value of the remaining payments (principal and interest) due hereunder discounted at 6% simple interest per annum and other amounts payable hereon or in connection herewith, shall be immediately due and payable without further notice or demand, with interest on all such amounts at a rate not to exceed the lawful limit, from the date of such maturity, default or acceleration, as the case may be, until all such amounts have been paid. If any payment on this Note becomes payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day. The undersigned hereby waives diligence, demand, presentment, protest and notice of any kind, and assents to extensions of the time of payment, release, surrender or substitution of security, or forbearance or other indulgence, without notice. The undersigned agrees to pay all amounts under this Note without offset, deduction, claim, counterclaim, defense or recoupment, all of which are hereby waived. The Payee, the undersigned and any other parties to the Loan Documents intend to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof such Persons stipulate 2 and agree that none of the terms and provisions contained in the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by Applicable Law from time to time in effect. Neither the undersigned nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under Applicable Law from time to time in effect, and the provisions of this paragraph shall control over all other provisions of the Loan Documents which may be in conflict or apparent conflict herewith. The Payee expressly disavows any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of any Obligation is accelerated. If (a) the maturity of any Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) the Payee or any other holder of any or all of the Obligations shall other-wise collect amounts which are determined to constitute interest which would otherwise increase the interest on any or all of the Obligations to an amount in excess of that permitted to be charged by Applicable Law then in effect, then all sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Obligations or, at the Payee's or such holder's option, promptly returned to the undersigned upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under Applicable Law, the Payee and the undersigned (and any other payors thereof) shall to the greatest extent permitted under Applicable Law, (i) characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread the total amount of interest through the entire contemplated term of this Note in accordance with the amount outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under Applicable Law in order to lawfully charge the maximum amount of interest permitted under Applicable Law. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the undersigned and the Payee or any holder hereof. The undersigned shall, upon demand, pay to the Payee all costs and expenses incurred by the Payee (including the reasonable fees and disbursements of counsel and other professionals) in connection with the preparation, execution and delivery of this Note and all other Loan Documents (which costs and expenses shall not exceed $5,000 without the consent of the undersigned), and in connection with the administration, modification and amendment of the Loan Documents, and pay to the Payee all costs and expenses (including the fees and disbursements of counsel and other professionals) paid or incurred by the Payee in (A) enforcing or defending its rights under or in respect of this Note or any of the other Loan Documents, (B) collecting any of the liabilities by the undersigned to the Payee or otherwise administering the Loan Documents, (C) foreclosing or otherwise collecting upon any collateral and (D) obtaining any legal, accounting or other advice in connection with any of the foregoing. Of the $50,000 Application Fee paid by the undersigned to the Payee, after application of up to $5,000 to costs and expenses incurred in closing the transaction governed by the Agreement, a portion of the remaining amount (as set forth in the Commitment Letter) shall be applied to the second installment due hereunder. This Note shall be binding upon the successors and assigns of the undersigned and inure to the benefit of the Payee and its successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. 3 THIS NOTE IS BEING DELIVERED TO PAYEE BY THE UNDERSIGNED TO EVIDENCE A LOAN FROM PAYEE TO THE UNDERSIGNED WHICH LOAN IS SECURED BY AMONG OTHER THINGS THE EQUIPMENT DESCRIBED ON SCHEDULE A ATTACHED HERETO. EACH OF THE UNDERSIGNED AND, BY ITS ACCEPTANCE HEREOF, THE PAYEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS NOTE AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. LYNX THERAPEUTICS, INC. By: /s/ Edward C. Albini ------------------------------- Name: Edward C. Albini Title: Chief Financial Officer EX-10.16 8 f75239a1ex10-16.txt EXHIBIT 10.16 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EXHIBIT 10.16 COLLABORATION AGREEMENT BETWEEN LYNX THERAPEUTICS, INC. AND HOECHST SCHERING AGREVO GMBH SEPTEMBER 30, 1999 2 COLLABORATION AGREEMENT THIS COLLABORATION AGREEMENT (the "Agreement") is made and entered into effective as of September 30, 1999 (the "Effective Date"), by and between LYNX THERAPEUTICS, INC., a Delaware corporation ("Lynx"), and HOECHST SCHERING AGREVO GMBH, a German corporation ("AgrEvo"). Lynx and AgrEvo are sometimes referred to herein individually as a "Party" and collectively as the "Parties". RECITALS WHEREAS, Lynx and AgrEvo are Parties to the Technology Development and Services Agreement between Lynx and Hoechst Aktiengesellschaft ("Hoechst") of October 2, 1995, as amended as of March 1, 1999 (the "Services Agreement"), pursuant to which Hoechst has subscribed on a non-exclusive basis to certain analytical services provided by Lynx on the terms set forth therein; WHEREAS, Lynx and AgrEvo are Parties to the Option Agreement between Lynx and AgrEvo of June 10, 1999, pursuant to which Lynx has agreed to negotiate in good faith exclusively with AgrEvo a collaboration agreement based on the terms summarized in Exhibit A thereto during the period ending September 30, 1999; WHEREAS, Lynx and AgrEvo now desire to enter into a collaboration agreement pursuant to which Lynx will develop and apply DNA analysis technologies for the analysis of DNA from certain crop plants to enable the discovery, development and commercialization of Products; and WHEREAS, in connection with establishing such collaboration AgrEvo wishes to obtain and Lynx is willing to grant to AgrEvo certain rights to the results of such analyses as described more fully herein, under the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements contained herein, the Parties hereto, intending to be legally bound, agree as follows: ARTICLE 1 DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "AFFILIATE" shall mean any entity that directly or indirectly Owns, is Owned by or is under common Ownership with, a Party to this Agreement, where "Own" or "Ownership" means direct or indirect possession of at least fifty percent (50%) of the outstanding voting securities of a corporation or a comparable ownership in any other type of entity, provided, however, that if the law of the jurisdiction in which such entity operates does not allow fifty percent (50%) or greater ownership by a Party to this Agreement, such ownership interest shall be at least forty percent (40%). [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 1 3 1.2 "AGREVO KNOW-HOW" shall mean the information on the biologically-derived material provided by AgrEvo to Lynx under this Agreement, which information is Controlled by AgrEvo and which information is reasonably necessary for the interpretation of the Genotyping Results for a particular Crop 1.3 "AGREVO PATENTS" shall mean any Patents that claim inventions made by AgrEvo during the Collaboration Term based on the Genotyping Results (but excluding Patents that are jointly owned pursuant to Section 5.5). 1.4 "CO-EXCLUSIVE CROP" shall mean all plants, parts of plants, seeds and other planting material, whether known as of the Effective Date or hereafter created, of [ * ]. 1.5 "COLLABORATION TERM" shall have the meaning set forth in Section 6.1. 1.6 "CONFIDENTIAL INFORMATION" shall mean, with respect to a Party, any Information disclosed by such Party to the other Party under this Agreement, except as limited by Section 7.2. 1.7 "CONTROL" OR "CONTROLLED" shall mean, with respect to any material, Information or Intellectual Property hereunder, possession by a Party of the ability to grant access to and a license or sublicense as provided herein under such material, information or right without violating the terms of any agreement or other arrangements with any Third Party. 1.8 "CROPS" shall mean the Exclusive Crops and the Co-Exclusive Crop. 1.9 [ * ] shall mean [ * ]. 1.10 "[ * ] MAP" shall mean the high resolution physical map of the genome of corn that has been accepted by [ * ]. 1.11 "EXCLUSIVE CROPS" shall mean all plants, parts of plants, seeds and other planting material, whether known as of the Effective Date or hereafter created, of any of the following: [ * ]. 1.12 "EXPERIMENTS" shall mean all experiments on Crops or model species as agreed to by the Parties performed by Lynx using the Lynx Technology pursuant to this Agreement other than experiments performed in the course of Technology Development Projects or the development of any HRP Map. 1.13 "FIELD" shall mean the analysis of genomes and gene expression of Crops, or of plant pathogens or pests that affect Crops, for the purpose of developing and commercializing Products. 1.14 "FULLY BURDENED COST" OR "FBC" shall mean the actual cost of the work performed by Lynx, including, without limitation, direct labor, direct material and other direct items, and any indirect and overhead costs and expenses allocatable to such work, as determined by Lynx in accordance with United States generally accepted accounting principles consistently applied. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2 4 1.15 "GENOTYPING EXPERIMENTS" shall mean all Experiments performed to identify SNPs associated with a particular characteristic of a Crop in a group of individuals of a Crop that vary with respect to this characteristic. These Experiments will include the extraction of one or more reference sets of SNPs from a group of individuals of a Crop in accordance with the guidelines set forth in Appendix A. 1.16 "GENOTYPING RESULTS" shall mean any Information resulting from the Genotyping Experiments on a Crop. 1.17 "HRP MAP" shall mean a high resolution physical DNA map of the genome of an individual or a group of individuals of a Crop. 1.18 "IMPROVEMENT INVENTIONS" shall mean any inventions constituting improvements or enhancements to the Lynx Technology that are conceived and/or reduced to practice by AgrEvo, its agents or employees or jointly by AgrEvo, its agents or employees and Lynx, its agents or employees in accordance with United States patent law during the Collaboration Term. 1.19 "INFORMATION" shall mean information, data, databases, know-how, trade secrets, inventions, developments, results, quality control information and results, sequences, techniques, procedures, instrument and experimental designs, knowledge and/or specialized reagents and materials, including costs and sources thereof. 1.20 "INTELLECTUAL PROPERTY" shall mean any and all intellectual property rights, including without limitation Patents, trade secrets, trademarks, service marks, trade names, copyrights, plant breeder's rights and regulatory registrations/approvals. 1.21 "JOINT RESEARCH COMMITTEE" OR "JRC" shall mean that committee described in Section 2.2 and having the responsibilities set forth in Article 2. 1.22 "LYNX KNOW-HOW" shall mean any and all Information Controlled by Lynx as of the Effective Date or during the Collaboration Term that is related to Lynx's DNA analysis technologies, including, but not limited to, Lynx's high resolution physical mapping and genotyping technologies and those DNA analysis technologies which are available to Hoechst on a subscription basis under the Services Agreement. 1.23 "LYNX PATENTS" shall mean Patents that claim inventions in Lynx Know-How. 1.24 "LYNX TECHNOLOGY" shall mean the Lynx Patents and the Lynx Know-How. 1.25 "PATENTS" shall mean any patent applications and patents (including inventor's certificates and utility models), both foreign and domestic, including any substitutions, extensions, reissues, reexaminations, renewals, divisions, continuations or continuations-in-part. 1.26 "PRODUCTS" shall mean (1) plants, parts of plants, seeds or other plant material (e.g. plants improved with respect to (a) growth, (b) yield, (c) pest or other pathogen resistance, (d) resistance to chemicals, (e) quality or quantity of certain proteins, starches, oil or other biological or chemical substances, and the like), and (2) any other product useful for the [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 3 5 protection of plants when for example applied to the soil, seed or plant (e.g., biological or chemical products for the protection of plants against pests and/or plant pathogens). 1.27 "SNP" shall mean a fragment of DNA that spans a site which is polymorphic in a population of genomes supplied by AgrEvo. 1.28 "TECHNOLOGY DEVELOPMENT PROJECT" shall mean any research or development project approved by the Parties with the goal of developing novel applications of the Lynx Technology relevant to Crops or model species as agreed to by the Parties. 1.29 "THIRD PARTY" shall mean any party other than AgrEvo or Lynx or an Affiliate of either of them. ARTICLE 2 COLLABORATION MANAGEMENT 2.1 OVERVIEW. The Parties agree to manage the collaboration established by this Agreement through a Joint Research Committee, which will be responsible for overseeing the Experiments, the work on HRP Maps and the Technology Development Projects to be conducted in the course of the collaboration and for coordinating the activities of the Parties performed in connection therewith. The general description of the JRC's responsibilities contained in this Section 2.1 shall be subject to the specific agreements of the Parties set forth in this Agreement. 2.2 JOINT RESEARCH COMMITTEE. The JRC shall be comprised of two (2) representatives from each Party, each of whom shall be an executive experienced in a relevant aspect of the subject matter of the collaboration. The Parties shall designate their representatives to the JRC within ten (10) days of the Effective Date. Members of the JRC shall serve on such terms as shall be determined by the Party designating such person for membership on the JRC. An alternate member designated by a Party may serve temporarily in the absence of a member designated by such Party. Each Party shall designate one of its representatives as Co-Chair of the JRC. Each Co-Chair will be responsible for the agenda and for recording the minutes of alternating meetings of the JRC. Each Party shall bear its own costs for participating in the JRC. The JRC may form and disband subcommittees with appropriate and equal representation from each Party. Each Party may replace any of its representatives to the JRC at any time, and will inform the other Party thereof in writing. 2.3 MEETINGS OF THE JOINT RESEARCH COMMITTEE. The JRC shall hold meetings at such times and places as shall be determined by a majority of the entire membership of the JRC, but no less frequently than every three (3) months. Subject to the foregoing, the JRC may conduct meetings in person or by telephone conference or other means of communication, provided however that any decision made during a meeting held by telephone conference or other remote means (i.e., not in person) shall be confirmed in a writing signed by each member of the JRC. Each Party may invite other personnel of their company to attend meetings of the JRC in a non-voting capacity, subject to the mutual consent of the Parties. No meetings of the JRC can be held unless both Parties are represented. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 4 6 2.4 FUNCTIONS OF THE JOINT RESEARCH COMMITTEE. The JRC shall manage the Experiments, the work on HRP Maps and the Technology Development Projects conducted pursuant to the collaboration, as provided in this Section 2.4. The JRC shall: (a) approve the objective and design of all Experiments to be conducted and the schedule for the performance of those Experiments; (b) review the Genotyping Results and make recommendations for further Genotyping Experiments, if appropriate; (c) review Lynx's progress in the development of its HRP mapping technology and determine and approve the order, timeframes and criteria for HRP Maps as set forth in Section 3.4 based on the guidelines set forth in Appendix A; (d) review and approve the nature, extent, design, performance and schedule of any Technology Development Projects; and (e) perform such other functions as appropriate to further the purposes of the collaboration under this Agreement as mutually determined by the Parties. 2.5 DECISION-MAKING OF THE JOINT RESEARCH COMMITTEE. The representatives of each Party to the JRC shall cumulatively have a single vote by which to approve or disapprove any proposed action, and all actions by the JRC pursuant to this Agreement shall be taken only with the unanimous approval of the JRC. 2.6 LIMITATIONS ON JOINT RESEARCH COMMITTEE POWERS. The JRC shall have no power to amend this Agreement and shall only have such powers as are specifically delegated to it under this Agreement. ARTICLE 3 CONDUCT OF COLLABORATION 3.1 GENERAL. Lynx will apply the Lynx Technology for the benefit of a collaboration between the Parties in the Field directed to the discovery of genetic, genomic and/or gene expression data and other Information related to the Crops, and the model species as agreed to by the Parties, useful to the ultimate discovery, development and commercialization by AgrEvo of Products. Lynx will use commercially reasonable and diligent efforts to perform the Experiments, prepare the HRP Maps and perform any Technology Development Projects, consistent with any schedule established by the JRC. For purposes of this Agreement, "commercially reasonable and diligent efforts" shall mean, unless the Parties agree otherwise in writing, those efforts consistent with the exercise of prudent scientific and business judgment, as applied to other research efforts and to products of similar scientific and commercial potential within Lynx's relevant research programs and product lines. Unless otherwise agreed by the Parties in writing, Lynx shall perform all approved Experiments and Technology Development Projects and shall construct all HRP Maps ordered by AgrEvo at Lynx's facilities. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 5 7 3.2 LYNX CAPACITY. The Parties will approve the performance by Lynx of a certain volume of work hereunder each year, and Lynx will make available sufficient and appropriate personnel and physical resources to perform such work that is approved by the Parties and for which AgrEvo has agreed to provide compensation in accordance with Article 4. The Parties also may approve the performance of additional work as necessary for the purposes of the collaboration; provided, however, that Lynx's obligation to perform such additional work shall be subject to AgrEvo's agreement to provide compensation in accordance with Article 4 for such work and to the availability of sufficient and appropriate personnel and physical resources of Lynx in light of Lynx's commitments to its other collaboration partners and such other obligations as Lynx may have, including its internal business commitments. 3.3 EXPERIMENTS. Upon AgrEvo's agreement to provide compensation for Experiments approved by the JRC pursuant to Section 2.4, Lynx will use commercially reasonable and diligent efforts to perform Experiments on samples of Crops and model species as agreed by the Parties provided by AgrEvo, as specified and coordinated by the JRC, and to keep AgrEvo informed as to the progress of Experiments being performed. AgrEvo will compensate Lynx for such work as set forth in Article 4. Within ten (10) days of the completion of a set of Genotyping Experiments for a particular Crop, Lynx shall deliver the Genotyping Results produced in such Genotyping Experiments to AgrEvo. The results produced in Experiments other than Genotyping Experiments shall be delivered by Lynx to AgrEvo at such times as are otherwise agreed in writing by the Parties. 3.4 HRP MAPS. At an appropriate time to be determined by AgrEvo but not later than thirty (30) days after receipt of confirmation that Lynx has successfully completed the [ * ] Map, the JRC shall meet. If the JRC determines that the [ * ] Map has met the minimum criteria set forth in Appendix A, the Parties will proceed with construction of an HRP Map of the Co-Exclusive Crop to meet criteria therefor to be established by the JRC based on the guidelines set forth in Appendix A. If the [ * ] Map has not met such criteria, the JRC will attempt in good faith to establish criteria to be used in connection with the HRP Map of the Co-Exclusive Crop; provided, however, that if the JRC is unable to agree on such criteria, AgrEvo will have no further right or obligation to order any HRP Map hereunder. Upon the establishment by the JRC of the criteria for the HRP Map of the Co-Exclusive Crop, AgrEvo shall order and Lynx shall construct and deliver to AgrEvo such map in accordance with this Agreement. Following delivery by Lynx of such map, in the event the JRC determines that the HRP Map for the Co-Exclusive Crop does not meet the applicable criteria therefor, AgrEvo will have no obligation to pay Lynx for such HRP Map unless it elects in its discretion not to return such map to Lynx, and AgrEvo will have no further right or obligation to order any other HRP Map under this Agreement. If, on the other hand, the HRP Map for the Co-Exclusive Crop meets the applicable criteria, AgrEvo shall pay Lynx the fee set forth in Section 4.4, and the JRC shall meet within thirty (30) days in order to determine and approve the criteria and the estimated time frame for construction of an HRP Map of one of the Exclusive Crops. Upon the establishment by the JRC of the criteria for such a map, AgrEvo shall then order, and Lynx shall then construct and deliver to AgrEvo, the HRP Map for such Exclusive Crop in accordance with this Agreement. The procedure described above for review of a finished HRP Map and the ordering of the next HRP Map shall be applied repetitively until HRP Maps for all of the Exclusive Crops have been constructed or the last of such maps to be delivered by Lynx does not meet the applicable criteria [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 6 8 therefor. Notwithstanding the foregoing, for the avoidance of doubt, AgrEvo shall not have an obligation to order any HRP Map which map or its equivalent is already in AgrEvo's possession or is publicly available. So long as AgrEvo retains its right to order HRP Maps, Lynx shall not construct any HRP Map of a Crop for any Third Party during the Collaboration Term and for three (3) years thereafter. 3.5 TECHNOLOGY DEVELOPMENT PROJECTS. Either Party may from time to time present possible Technology Development Projects to the JRC for its review and assessment. Upon the recommendation of the JRC and the agreement of the Parties, including AgrEvo's commitment to fund a Technology Development Project on the basis set forth in Section 4.3, Lynx will use commercially reasonable and diligent efforts to perform such Technology Development Project, and will provide the JRC with regular summary reports on the progress thereof. All Information provided by one Party to the other in the framework of proposals for Technology Development Projects shall be treated as Confidential Information. 3.6 COLLABORATION EXCLUSIVITY. In consideration of the sums to be paid to Lynx and the other terms and conditions of this Agreement, the Parties agree that during the Collaboration Term, Lynx will not knowingly utilize the Lynx Technology to collaborate with any Third Parties on Crops, provided that Lynx may do such work with respect to the Co-Exclusive Crop for a single Third Party, currently [ * ]. Notwithstanding the foregoing, Lynx shall be free to perform subscription gene sequencing, gene expression analysis and related services on a non-exclusive basis for Third Parties, provided that Lynx notifies such Third Parties that they may not utilize Lynx subscription services for the analysis of DNA samples from Crops except that a single Third Party (currently [ * ]) may utilize such services for the Co-Exclusive Crop. Moreover, nothing in this Section 3.6 shall be construed to limit or to restrict Lynx in any way from being able to perform its obligations under the agreements in effect prior to the date of this Agreement with [ * ] (Agreement dated October 29, 1998, as amended), BASF AG (agreements dated October 23, 1996 and January 1, 1997, as amended) and Hoechst, whether or not such performance would otherwise be in violation of this Section 3.6. 3.7 CO-EXCLUSIVE CROP. If [ * ]'s rights with respect to the Co-Exclusive Crop expire or terminate prior to the expiration of the Collaboration Term, Lynx will give AgrEvo written notice of such termination or expiration within thirty (30) days thereof and give AgrEvo the opportunity to discuss with Lynx the terms under which Lynx would agree to treat the Co-Exclusive Crop as an Exclusive Crop under this Agreement. 3.8 [ * ]. AgrEvo shall have the right, exercisable by written notice to Lynx given any time prior to September 30, 2001, to delete [ * ] from this Agreement. Effective upon delivery of such notice, [ * ] will no longer be included within the definition of Exclusive Crops (Section 1.11) and AgrEvo will no longer have any right or obligation to order an HRP Map of [ * ] under Section 3.4. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 7 9 ARTICLE 4 COMPENSATION 4.1 ACCESS FEE. Within ten (10) days of the Effective Date, AgrEvo shall pay to Lynx an access fee of [ * ]. 4.2 EXPERIMENTS FEES. Lynx's fees for the performance of Experiments shall be a sum equivalent to [ * ], and shall be due within thirty (30) days of the completion of the applicable Experiment. There will be no annual minimum and any Experiments that could be performed under the existing Services Agreement will be counted toward the applicable minimum requirements of that Agreement. 4.3 TECHNOLOGY DEVELOPMENT PROJECT FEES. Lynx's fees for the performance of work on a Technology Development Project shall be [ * ] and shall be due within thirty (30) days of receipt by AgrEvo of Lynx's invoice for any such work. 4.4 HRP MAP FEES. Within thirty (30) days of confirmation in accordance with Section 3.4 that Lynx has completed and [ * ] has accepted the [ * ] Map and that such map meets the minimum criteria set forth in Appendix A (or, if not, the JRC has agreed on criteria for the HRP Map of the Co-Exclusive Crop pursuant to Section 3.4), AgrEvo shall pay Lynx a mapping technology milestone of [ * ].Within thirty (30) days of confirmation by the JRC that the completed HRP Map for the Co-Exclusive Crop meets the applicable criteria therefor, AgrEvo shall pay Lynx a map purchase fee of [ * ]. On the completion of each additional HRP Map ordered hereunder, AgrEvo shall pay to Lynx a map purchase fee equivalent to [ * ] within thirty (30) days of the JRC's determination that the applicable criteria therefor have been met within a time frame which is in reasonable accordance with the estimated time frame approved by the JRC or, if not, the election by AgrEvo to retain such map. 4.5 MILESTONE. In addition, with respect to each HRP Map, AgrEvo shall pay Lynx [ * ] within [ * ] after [ * ] for the applicable Crop discovered during the performance of the Genotyping Experiments have been located on the HRP Map of that Crop, provided that [ * ] have met the criteria established by the JRC in accordance with the guidelines set forth in Appendix A. The above milestone shall be paid [ * ]. 4.6 TECHNOLOGY LICENSING FEE. If AgrEvo determines in accordance with Sections 5.5(a) and 5.5(b) that it wants to own exclusively any and all Genotyping Results related to a particular Crop, or if AgrEvo determines in accordance with Section 5.5(c) that it wants to use Genotyping Results related to a particular Crop on a non-exclusive basis, then AgrEvo shall pay to Lynx a technology licensing fee equal to [ * ] (the "Technology Licensing Fee"). Once the Technology Licensing Fee has been paid for a particular Crop, AgrEvo shall automatically own in accordance with the provisions of Section 5.5 all the Genotyping Results of all Genotyping Experiments on the same Crop paid for by AgrEvo pursuant to the terms of Section 4.2. 4.7 PAYMENTS. All amounts paid hereunder shall be made to Lynx in U.S. dollars by bank wire transfer of immediately available funds to such account designated by Lynx. Any payment not made on or before the payment due date shall bear interest to the extent permitted by applicable law, at two percentage points (2%) over the prime rate of interest as reported, from [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 8 10 time to time, by Bank of America NT & SA in San Francisco, California, calculated on the number of days such payment is delinquent. 4.8 AUDIT. Lynx agrees to keep, until one (1) year after the end of the Collaboration Term, records in sufficient detail to permit AgrEvo to confirm the accuracy of the calculation of FBC for work performed under this Agreement. Once a year, at the request and the expense of AgrEvo, upon at least ten (10) business days' prior written notice, Lynx shall permit a nationally recognized, independent, certified public accountant, appointed by AgrEvo and acceptable to Lynx, access to these records during regular business hours solely to the extent necessary to verify such calculations, provided that such accountant has entered into a confidentiality agreement with Lynx with terms substantially similar to the confidentiality provisions of this Agreement, limiting the use and disclosure of such information to purposes germane to this section. Any adjustment resulting from any such audit shall be paid by Lynx to AgrEvo or by AgrEvo to Lynx, as applicable, within thirty (30) days after such adjustment is determined. Moreover, if such examination reveals an adjustment to the calculation for the benefit of AgrEvo in an amount equal to [ * ] or more of the FBC amount being examined, Lynx shall pay all costs of such examination. ARTICLE 5 INTELLECTUAL PROPERTY 5.1 LYNX TECHNOLOGY. Lynx shall own the Lynx Technology, and except as expressly permitted under this Agreement, AgrEvo shall have no right to use or otherwise exploit the Lynx Technology. Lynx shall have no obligation to enforce the Lynx Patents by initiation of litigation or otherwise. 5.2 AGREVO KNOW-HOW AND AGREVO PATENTS. AgrEvo shall own the AgrEvo Know-How and the AgrEvo Patents, and except as otherwise provided in this Agreement, Lynx shall have no right to use or otherwise exploit the AgrEvo Know-How and the AgrEvo Patents. AgrEvo shall have no obligation to enforce the AgrEvo Patents by initiation of litigation or otherwise. 5.3 IMPROVEMENT INVENTIONS. Improvement Inventions shall be disclosed to Lynx promptly. Improvement Inventions shall be assigned to Lynx, and Lynx shall grant to AgrEvo a non-exclusive, worldwide, royalty-free, perpetual, irrevocable license to use such Improvement Inventions, and any resulting Patents or copyrights secured by Lynx based on such Improvement Inventions, for all fields. AgrEvo shall make all appropriate assignments and take all other actions reasonably necessary to give effect to the ownership interest of Lynx in Improvement Inventions. Lynx will be entitled, in its sole discretion and at its expense, to prosecute, maintain and protect any Intellectual Property associated with such Improvement Inventions. Lynx also shall have the sole and exclusive right, but not the obligation, to bring an appropriate action against any person or entity infringing any Patents claiming Improvement Inventions, whether such infringement is direct or contributory. Upon Lynx's reasonable request and at Lynx's expense, AgrEvo will provide reasonable assistance to Lynx in obtaining and managing the prosecution, maintenance, protection and enforcement of Intellectual Property associated with Improvement Inventions. The foregoing shall not be construed to grant AgrEvo rights broader [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 9 11 than those expressly granted under this Article 5; specifically, but without prejudice to Section 5.8, the foregoing shall not be construed to grant AgrEvo an implied or express license under or to Lynx Technology Controlled by Lynx as of the Effective Date, or Lynx Technology Controlled by Lynx during the Collaboration Term which is not an Improvement Invention. 5.4 HRP MAPS. All HRP Maps for Crops prepared by Lynx for AgrEvo under this Agreement for which AgrEvo has paid a map purchase fee pursuant to Section 4.4 will be assigned to AgrEvo for any use or purpose, and Lynx shall make all appropriate assignments and take all other actions reasonably necessary to give effect to the ownership interest of AgrEvo in such HRP Maps. AgrEvo will be entitled, in its sole discretion and at its expense, to prosecute, maintain and protect any Intellectual Property associated with such HRP Maps. AgrEvo also shall have the sole and exclusive right, but not the obligation, to bring an appropriate action against any person or entity infringing any Patents claiming such Intellectual Property, whether such infringement is direct or contributory. Upon AgrEvo's reasonable request and at AgrEvo's expense, Lynx will provide reasonable assistance to AgrEvo in obtaining and managing the prosecution, maintenance, protection and enforcement of Intellectual Property associated with such HRP Maps. 5.5 GENOTYPING RESULTS. (a) DECISION PERIOD. Upon receipt by AgrEvo of Genotyping Results for a particular Crop pursuant to Section 3.3 and written notice thereof from Lynx, AgrEvo shall have ninety (90) days (the "Decision Period") to evaluate the Genotyping Results in good faith and determine whether the Genotyping Results are valuable to AgrEvo. If AgrEvo believes the Genotyping Results are valuable, AgrEvo will so notify Lynx in writing and pay Lynx the Technology Licensing Fee prior to the expiration of the Decision Period. If AgrEvo does not believe the Genotyping Results for a particular Crop delivered to date are sufficiently valuable to justify payment of the Technology Licensing Fee and the Decision Period has not expired, AgrEvo may order [ * ] additional Genotyping Experiments for the particular Crop, and the Decision Period will be extended until ninety (90) days after AgrEvo's receipt of the Genotyping Results for the particular Crop from such additional Genotyping Experiments. This process of ordering additional Genotyping Experiments and the resulting extension of the Decision Period may be repeated during the Collaboration Term until the Decision Period has expired without AgrEvo having ordered additional Genotyping Experiments or paid the Technology Licensing Fee. Except as otherwise specified in this Section 5.5, the Parties shall jointly own the Genotyping Results, and each Party shall make all appropriate assignments and take all other actions reasonably necessary to give effect to the ownership interest of the other Party. Prior to and during the Decision Period, neither Party will use such Genotyping Results for any purpose not explicitly permitted under this Agreement or license such Genotyping Results or any Intellectual Property associated with such Genotyping Results to any Third Party, without the written consent of the other Party. In addition, prior to the expiration of the Decision Period, AgrEvo shall have the sole right to prosecute, maintain, protect and enforce any Intellectual Property associated with such Genotyping Results, in the name of both Parties and at its expense. Lynx will provide reasonable assistance to AgrEvo, at AgrEvo's expense, in obtaining and managing the prosecution, protection and enforcement of Intellectual Property associated with such Genotyping Results. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 10 12 (b) EXCLUSIVITY. If AgrEvo pays the Technology Licensing Fee prior to the expiration of the Decision Period, Lynx shall assign to AgrEvo all its rights, title and interest in the Genotyping Results for the particular Crop and any Intellectual Property associated with such Genotying Results for any use or purpose in relation to Products and for any other use or purpose subject to the provisions of Section 5.5(e), and Lynx shall make all appropriate assignments and take all other actions reasonably necessary to give effect to the ownership interest of AgrEvo in the Genotyping Results and any Intellectual Property associated with such Genotying Results. Additionally, Lynx agrees that it will not [ * ]. Also, AgrEvo shall have the sole right to prosecute, maintain, protect and enforce any Intellectual Property associated with such Genotyping Results, at its own discretion, in its name and at its expense. Lynx will provide reasonable assistance to AgrEvo, at AgrEvo's expense, in obtaining and managing the prosecution, protection and enforcement of Intellectual Property associated with such Genotyping Results. (c) OPTION PERIOD. (i) If AgrEvo fails to pay the Technology Licensing Fee prior to the expiration of the Decision Period: (1) Lynx shall have the right to grant non-exclusive licenses to the Genotyping Results to Third Parties to use the Genotyping Results for any purpose and collaborate on a non-exclusive basis with Third Parties with respect to the Genotyping Results for any use or purpose; (2) AgrEvo covenants not to use or disclose the Genotyping Results for any purpose until and unless it pays to Lynx the Technology Licensing Fee prior to the expiration of [ * ] (the "Option Period"); and (3) AgrEvo shall grant to Lynx, upon the expiration of the Decision Period, a non-exclusive, worldwide, royalty-free, perpetual, irrevocable license, with the right to sublicense, under the AgrEvo Patents and AgrEvo Know-How relating to the Genotyping Results solely to research, develop, make, have made, use, sell, offer for sale and import the Genotyping Results and/or any products resulting or derived from, or arising out of, the Genotyping Results. (ii) If AgrEvo pays Lynx the Technology Licensing Fee prior to the expiration of the Option Period, AgrEvo shall have the non-exclusive, worldwide, royalty-free, perpetual, irrevocable right, with the right to grant licenses, to use such Genotyping Results for any use or purpose in relation to Products and for any other use or purpose subject to the provisions of Section 5.5(e). During the Option Period and after any payment by AgrEvo of the Technology Licensing Fee, Lynx shall have the sole and exclusive right to prosecute, maintain, protect and enforce any Intellectual Property associated with the Genotyping Results, in the name and at the equal expense of both Parties, subject to the right of either Party to elect by written notice to the other not to pay its share of the ongoing expenses of any item of Intellectual Property, in which case the electing Party shall assign all rights, title and interest in and to such item of Intellectual Property to the other Party and shall have no further right or license thereto under this Agreement. (iii) If AgrEvo fails to pay the Technology Licensing Fee prior to the expiration of the Option Period: (1) AgrEvo shall (a) assign to Lynx all its rights, title and interest in the Genotyping Results and any Intellectual Property associated with such Genotyping [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 11 13 Results, and (b) make all appropriate assignments and take all other actions reasonably necessary to give effect to the ownership interest of Lynx in the Genotyping Results, and the license set forth in Section 5.5(c)(i)(3) shall continue in accordance with its terms; and (2) Lynx shall have (a) no further obligations to AgrEvo with respect to such Genotyping Results under this Agreement, and (b) the sole and exclusive right to prosecute, maintain, protect and enforce any Intellectual Property associated with the Genotyping Results, in its sole name and at its expense. (d) PROTECTION OF GENOTYPING RESULTS. The Party with the right to prosecute Intellectual Property associated with the Genotyping Results pursuant to Section 5.5 (the "Prosecuting Party"), shall have the sole and exclusive right, but not the obligation, to bring an appropriate action against any person or entity infringing such Intellectual Property, whether such infringement is direct or contributory. The other Party will reasonably cooperate with the Prosecuting Party to prosecute, maintain, protect and enforce such Intellectual Property, at the Prosecuting Party's reasonable request and expense. (e) EXPANDED EXPLOITATION OF GENOTYPING RESULTS. AgrEvo shall only be permitted to use the Genotyping Results for uses or purposes that are not related to Products upon the terms and conditions of a separate agreement to be negotiated in good faith between AgrEvo and Lynx within a period of [ * ] after written notice from AgrEvo to Lynx that AgrEvo intends to start such use, taking into account the respective contribution of each Party in obtaining the Genotyping Results. In the event the Parties are unable to complete such agreement within the aforesaid term, AgrEvo may refer the matter to the International Center for technical Expertise of the International Chamber of Commerce (ICC) in accordance with the ICC Rules for Technical Expertise and the Parties agree to be bound by the expert's decision. 5.6 TECHNOLOGY DEVELOPMENT PROJECTS. (a) INTELLECTUAL PROPERTY. Unless otherwise agreed in the context of a particular Technology Development Project, any Intellectual Property in or associated with the results of a Technology Development Project directed to the development of a novel application of Lynx Technology shall be owned by Lynx, and AgrEvo shall make all appropriate assignments and take all other actions reasonably necessary to give effect to Lynx's ownership of such Intellectual Property. Lynx shall have the sole right to prosecute, maintain, protect and enforce any Intellectual Property associated with such a Technology Development Project, at its own discretion, in its name and at its expense. AgrEvo will provide reasonable assistance to Lynx, at Lynx's expense, in obtaining and managing the prosecution, protection and enforcement of Intellectual Property associated with such a Technology Development Project. Notwithstanding the foregoing, in the event a Technology Development Project includes analyses of samples of a Crop or of a model species relevant to a Crop agreed to by the Parties, AgrEvo shall have the option, exercisable by written notice to Lynx [ * ] after completion of the Technology Development Project, to obtain an exclusive, worldwide, perpetual license, with the right to sublicense, to use all genomic or gene expression data resulting from such analyses and the related Intellectual Property for any use or purpose. In the event AgrEvo decides to exercise its option on the aforementioned license, AgrEvo shall pay to Lynx [*]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 12 14 (b) ROYALTY. Lynx shall pay AgrEvo a royalty of [ * ] on Lynx's net sales of the services resulting from the Technology Development Project to Third Parties until [ * ]. (c) PUBLICATIONS. Either Party may publish results obtained from a Technology Development Project, provided that the other Party is given at least thirty (30) days to review any abstract, manuscript, or other presentation materials prior to any submission for publication or presentation in order to (i) determine whether Confidential Information is disclosed, and (ii) take action to ensure that suitable patent applications have been filed on any inventions disclosed in such submissions. If the reviewing Party determines that an invention it desires to protect is disclosed in the materials to be published or presented, then after so notifying the other Party in writing within the initial thirty (30) day review period, the reviewing Party shall have the right to extend the review period by up to an additional forty-five (45) days to allow for the filing of a patent application. If the reviewing Party determines that Confidential Information of the reviewing Party is disclosed in the materials to be published or presented, then the Parties shall negotiate in good faith the removal of such Confidential Information. 5.7 AGREVO COVENANT. AgrEvo hereby covenants to use the Genotyping Results and any other genomic or gene expression data generated by the Experiments or Technology Development Projects conducted under this Agreement only for uses and purposes that relate to Products or for such other uses or purposes as may be covered by an agreement made pursuant to Section 5.5 (e), and will not permit any division, Affiliate, business unit or subsidiary of AgrEvo to use such results or data for any purpose or use that is not so authorized. 5.8 LYNX COVENANT. Lynx hereby covenants that it will not assert any claim for infringement of the Lynx Technology against AgrEvo based upon AgrEvo's use of the HRP Maps, or AgrEvo's use in relation to Products of the results of Experiments or Technology Development Projects conducted pursuant to this Agreement, or for any other use or purpose authorized pursuant to the provisions of Section 5.5(e), so long as such uses by AgrEvo are permitted under this Agreement or the Services Agreement and AgrEvo's uses do not include the use of the Lynx Technology, except to the extent that any Lynx Technology may be required for the interpretation of Genotyping Results or the results of other Experiments, Technology Development Projects and/or HRP Maps. 5.9 OTHER RESULTS. Except as otherwise expressly provided in, and subject to the limitations set forth in this Agreement, AgrEvo shall have full and exclusive ownership of all genomic or gene expression data generated by Experiments conducted pursuant to this Agreement. AgrEvo shall have the sole right to prosecute, maintain, protect and enforce any Intellectual Property associated with such data, at is own discretion, in its own name and at its own expense. Lynx will provide reasonable assistance to AgrEvo, at AgrEvo's expense, in obtaining and maintaining the prosecution, protection and enforcement of Intellectual Property associated with such data. 5.10 INFRINGEMENT. Each Party shall promptly notify the other in writing of any alleged or threatened infringement of any Intellectual Property discussed in this Article 5. In addition, in the event that any Intellectual Property discussed in this Article 5 becomes the subject of a Third Party claim, the Party against which such Third Party infringement claim is brought shall defend against such claim at its sole expense. The other Party shall reasonably [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 13 15 cooperate with the defending Party in the defense of any such claim, at the defending Party's reasonable request and expense. Neither Party shall enter into any settlement that materially affects the rights or interests of the other Party without such other Party's written consent, which consent shall not be unreasonably withheld or delayed. ARTICLE 6 TERM AND TERMINATION 6.1 TERM. (a) With regard to Experiments and Technology Development Projects: the term of this Agreement shall commence upon the Effective Date and, unless sooner terminated as provided in this Article 6, expire three (3) years from the Effective Date (the "Collaboration Term"); provided, however, that if work is commenced on any Experiment and/or Technology Development Project prior to the expiration of the Collaboration Term and such work is incomplete or otherwise unfinished upon the expiration of the Collaboration Term, this Agreement shall remain in effect for such period (not to exceed [ * ]) and to the extent reasonably required by Lynx to complete any such Experiment or Technology Development Project, and no other Experiment or Technology Development Project shall be commenced during such period. Notwithstanding the above, the Parties also may mutually agree in writing to extend the Collaboration Term. (b) With regard to HRP Maps: the term of this Agreement shall commence upon the Effective date and, unless sooner terminated as provided in this Article 6, expire on the earlier of (i) delivery of the last HRP Map to be constructed pursuant to the terms of Section 3.4, or (ii) [ * ] from the Effective Date. 6.2 TERMINATION FOR BREACH. Each Party shall have the right to terminate this Agreement and its obligations hereunder for material breach by the other Party, which breach remains uncured for ninety (90) days after written notice is provided to the breaching Party, or in the case of an obligation to pay amounts owing under this Agreement, which breach remains uncured for thirty (30) days after written notice to the breaching Party unless there exists a bona fide dispute as to whether such payments are owing. Notwithstanding any termination under this Section 6.2, any obligation to pay amounts which had accrued or become payable as of the date of termination shall survive termination of this Agreement. 6.3 SURVIVAL. Except as otherwise provided in this Section 6.3, Articles 5, 7 and 9 of this Agreement shall survive termination of this Agreement for any reason (subject to any subsequent dates of termination referred to in such individual Articles). 6.4 RENEWAL. At or prior to expiration of the Collaboration Term, the Parties agree to discuss in good faith, taking into account the respective contributions of the Parties to the collaboration, including AgrEvo's contributions to any Technology Development Projects, the terms and conditions under which this Agreement may be renewed or the working relationship of the Parties otherwise extended. If for any reason the Parties fail to conclude any such agreement, AgrEvo shall have the option, exercisable by written notice to Lynx, to secure the right to [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 14 16 continue ordering Experiments based on technologies developed in any Technology Development Projects on the terms and conditions set forth in this Agreement, but on a nonexclusive basis, for a period of up to [ * ] after the Collaboration Term. ARTICLE 7 CONFIDENTIALITY 7.1 CONFIDENTIAL INFORMATION. Each Party will maintain all Confidential Information received by it under this Agreement in trust and confidence and will not disclose any such Confidential Information to any Third Party or use any such Confidential Information for any purposes other than those purposes permitted under this Agreement. Each Party may use the other Party's Confidential Information only to the extent explicitly permitted under this Agreement or required to accomplish the purposes of this Agreement. Confidential Information shall not be used for any purpose or in any manner that would constitute a violation of any laws or regulations, including without limitation the export control laws of the United States. Confidential Information shall not be reproduced in any form except as required to accomplish the intent of this Agreement. No Confidential Information shall be disclosed to any employee, agent, consultant, Affiliate, or sublicensee who does not have a need for such information permitted under this Agreement. To the extent that disclosure is authorized by this Agreement, the disclosing Party will obtain prior agreement from its employees, agents, consultants, Affiliates or sublicensees to whom disclosure is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement. Each Party will use at least the same standard of care as it uses to protect its own Confidential Information of a similar nature to ensure that such employees, agents, consultants, Affiliates and sublicensees do not disclose or make any unauthorized use of such Confidential Information, but no less than reasonable care. Each Party will promptly notify the other upon discovery of any unauthorized use or disclosure of the Confidential Information. 7.2 EXCEPTIONS. Confidential Information shall not include any Information which the receiving Party can demonstrate by contemporaneous written records: (a) is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party in breach hereof, generally known or available; (b) is known by the receiving Party at the time of receiving such information, as evidenced by its written records; (c) is hereafter furnished to the receiving Party by a Third Party, as a matter of right and without restriction on disclosure; (d) is independently developed by the receiving Party without any breach of this Agreement; or (e) is the subject of a written permission to disclose provided by the disclosing Party. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 15 17 7.3 AUTHORIZED DISCLOSURE. Notwithstanding any other provision of this Agreement, each Party may disclose Confidential Information if such disclosure: (a) is in response to a valid order of a court or other governmental body of the United States or a foreign country, or any political subdivision thereof; provided, however, that the responding Party shall first have given notice to the other Party hereto and shall have made a reasonable effort to obtain a protective order requiring that the Confidential Information so disclosed be used only for the purposes for which the order was issued; (b) is otherwise required by law or regulation, including SEC related documents; provided, however, that the responding Party shall first have given notice to the other Party hereto and shall have made a reasonable effort to obtain confidential treatment for the Confidential Information which is the subject of the required disclosure; (c) is necessary to enforce a Party's rights under this Agreement; or (d) is otherwise necessary to file or prosecute patent applications, prosecute or defend litigation or comply with applicable governmental regulations or otherwise establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary. 7.4 RETURN OF CONFIDENTIAL INFORMATION. In the event this Agreement is terminated, each Party shall return to the other Party all Confidential Information received by it from the other Party, provided, however, that each Party may keep one copy of such Confidential Information for legal archival purposes. Access to the copy so retained by each Party's legal department shall be restricted to counsel and such Confidential Information shall not be used except in the resolution of any claims or disputes arising out of this Agreement. ARTICLE 8 REPRESENTATIONS AND WARRANTIES 8.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party hereby represents and warrants: (a) CORPORATE POWER. Such Party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. (b) DUE AUTHORIZATION. Such Party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder. (c) BINDING AGREEMENT. This Agreement is a legal and valid obligation binding upon it and is enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it may be bound, nor violate [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 16 18 any law or regulation of any court, governmental body or administrative or other agency having authority over it. 8.2 UNILATERAL REPRESENTATIONS AND WARRANTIES. (a) Lynx hereby represents and warrants that it Controls Lynx Technology and that it has full right to grant the rights that are granted in this Agreement. (b) Lynx hereby represents and warrants that in case Lynx is prevented from operating due to patent infringement or otherwise, any Intellectual Property that is jointly owned in accordance with Section 5.5 will be [ * ]. (c) AgrEvo hereby represents and warrants that it Controls the AgrEvo Patents and AgrEvo Know-How. 8.3 NO OTHER REPRESENTATIONS. THE EXPRESS REPRESENTATIONS AND WARRANTIES STATED IN THIS ARTICLE 8 ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR ANY WARRANTY THAT MAKING, USING, OR SELLING ANY MATERIALS OR INFORMATION OBTAINED HEREUNDER, INCLUDING GENOTYPING RESULTS AND HRP MAPS, WILL NOT INFRINGE ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. ARTICLE 9 DISPUTE RESOLUTION AND GOVERNING LAW 9.1 DISPUTES. The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement which relate to either Party's rights and/or obligations hereunder or thereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 9 if and when a dispute arises under this Agreement. 9.2 INITIAL PROCEDURE. In the event of disputes between the Parties concerning the validity, interpretation or performance of this Agreement, a Party seeking to resolve such dispute may, by written notice to the other, have such dispute referred to the Parties' respective executive officers designated below or their successors, for attempted resolution by good faith negotiations within thirty (30) days after such notice is received. Said designated officers are as follows: For Lynx: Chief Executive Officer For AgrEvo: Head of Biotechnology Research [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 17 19 In the event the designated executive officers are not able to resolve such dispute, either Party may at any time after the thirty (30) day period invoke the provisions of Section 9.3 hereinafter. 9.3 ARBITRATION. Any dispute concerning the validity, interpretation or performance of this Agreement shall be settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC) by no less than three (3) arbitrators appointed in accordance with said rules. The award to be rendered shall be final and binding upon the Parties. The place of arbitration shall be San Francisco, California. 9.4 JUDICIAL ENFORCEMENT. The Parties agree that judgment on any arbitral award issued pursuant to this Article 9 shall be entered in the United States District Court for the Northern District of California or, in the event such court does not have subject matter jurisdiction over the dispute in question, such judgment shall be entered in the Superior Court of the State of California, in the County of Alameda. 9.5 GOVERNING LAW. This Agreement is made in accordance with and shall be governed and construed under the laws of the State of California, as such laws are applied to contract entered into and to be performed within such state. ARTICLE 10 MISCELLANEOUS 10.1 AGENCY. Neither Party is, nor will be deemed to be, an employee, agent or legal representative of the other Party for any purpose. Neither Party will be entitled to enter into any contracts in the name of, or on behalf of the other Party, nor will a Party be entitled to pledge the credit of the other Party in any way or hold itself out as having authority to do so. This Agreement is an arm's-length research and license agreement between the Parties and shall not constitute or be construed as a joint venture. 10.2 ASSIGNMENT. Except as otherwise provided herein, neither this Agreement nor any interest hereunder will be assignable in part or in whole by any Party without the prior written consent of the other; provided, however, that either Party may assign this Agreement to any of its Affiliates or to any successor by merger or sale of all or substantially all of its business assets to which this Agreement relates in a manner such that the assignor will remain liable and responsible for the performance and observance of all its duties and obligations hereunder. This Agreement will be binding upon the successors and permitted assigns of the Parties and the name of a Party herein will be deemed to include the names of such Party's successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. Any assignment which is not in accordance with this Section 10.2 will be void. 10.3 AMENDMENT. No amendment or modification hereof shall be valid or binding upon the Parties unless made in writing and signed by both Parties. 10.4 NOTICES. Any notice or other communication required or permitted to be given to either Party hereto shall be in writing unless otherwise specified and shall be deemed to have been properly given and to be effective on the date of delivery if delivered in person or by [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 18 20 facsimile or three (3) days after mailing by registered or certified mail, postage paid, to the other Party at the following address: In the case of Lynx : President Lynx Therapeutics, Inc. 25861 Industrial Boulevard Hayward, CA 94545 In the case of AgrEvo: Head of Biotechnology Research Miraustrasse 54 13509 Berlin, Germany Either Party may change its address for communications by a notice to the other Party in accordance with this Section 10.4. 10.5 FORCE MAJEURE. Any prevention, delay or interruption of performance by any Party under this Agreement shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the Party affected, including but not limited to acts of God, embargoes, governmental restrictions, strikes or other concerted acts of workers, fire, flood, earthquake, explosion, riots, wars, civil disorder, rebellion or sabotage. The Party suffering such occurrence shall immediately notify the other Party and any time for performance hereunder shall be extended by the actual time of prevention, delay, or interruption caused by the occurrence. 10.6 EXPORT CONTROL. This Agreement is made subject to any restrictions concerning the export of products or technical information from the United States of America or other countries which may be imposed upon or related to Lynx or AgrEvo from time to time. Each Party agrees that it will comply with all applicable export laws and regulations in connection with its activities under this Agreement. 10.7 SEVERABILITY. If any term, condition or provision of this Agreement is held to be unenforceable for any reason, it shall, if possible, be interpreted, to achieve the intent of the Parties to this Agreement to the extent possible rather than voided. If not capable of such interpretation, the Parties shall in good faith seek to agree on an alternative provision reflecting the intent of the Parties which is enforceable. In any event, all other terms, conditions and provisions of this Agreement shall be deemed valid and enforceable to the full extent. 10.8 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder shall be in addition to, and not in limitation of, all rights, powers and remedies provided at law or in equity, or under any other agreement between the Parties. All of such rights, powers and remedies shall be cumulative, and may be exercised successively or cumulatively. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 19 21 10.9 WAIVER. No waiver by either Party hereto on any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent or similar breach or default. 10.10 FURTHER ASSURANCES. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, necessary to carry out the purposes and intent of this Agreement. 10.11 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 10.12 ENTIRE AGREEMENT. This Agreement embodies the entire understanding of the Parties with respect to the subject matter hereof and shall supersede all previous communications, representations or understandings, either oral or written, between the Parties relating to the subject matter hereof. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 20 22 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by their respective officers hereunto duly authorized. LYNX THERAPEUTICS, INC. HOECHST SCHERING AGREVO GMBH By: /s/ Sam Eletr By: /s/ Bernard Convent ---------------------------------- --------------------------------- Its: Chairman of the Board Its: Head of Research & Development, --------------------------------- ------------------------------- Biotechnology ------------- By: /s/ Jurgen Asshauer --------------------------------- Its: Member of the Board - AgrEvo -------------------------------- [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 21 23 APPENDIX A GUIDELINES FOR THE REFERENCE SETS It is understood by AgrEvo that Lynx has proprietary technology allowing them to identify SNPs that affect a specific restriction site in the genome of a Crop. It is further understood by AgrEvo, that this SNP discovery technology will have reasonable efficiency such that a significant percentage of the SNPs associated with a particular restriction site motif will be identified in a single experiment. Thus, AgrEvo can expect reference sets of SNPs of a complexity that in principle reflects the average polymorphism percentage of such a restriction site, in a particular Crop. Specific requirements are: 1. SNP-containing fragments from the reference sets will be sequenced by MPSS. There should be sufficient sequence diversity among the fragments to indicate that the set will allow a genomic scan of high density. The MPSS technology will provide sequence information adjacent to the SNP. 2. MPSS-defined sequence tags of all SNP-containing fragments of the reference sets will be produced using enzymatic methods that are compatible with their being placed on the physical map. The sets of DNA fragments harboring the SNPs will be made available to AgrEvo. AgrEvo should be able to co-amplify and propagate such DNA fragments by using PCR primer sequences supplied by Lynx. MINIMUM CRITERIA FOR THE [ * ] MAP 1. [ * ] base, ordered, nucleotide sequences, spaced [ * ] apart for low-resolution map (jumps over repetitive sequences). 2. [ * ] base, ordered, nucleotide sequences spaced [ * ] apart for high-resolution map. 3. High resolution map assembles genes (ESTs) into clusters (or islands) anchored at multiple sites to the physical/genetic map. 4. Map need not be continuous. It may have multiple break-point islands and seas. 5. For the [ * ] genome, the map would be created both from random sequences and from sets of BAC clones, and would consist of [ * ] islands covering [ * ]. GUIDELINES FOR THE HRP MAP OF THE CROPS 1. HRP Maps will be created preferentially from random sequences, and, if necessary, with the support of e.g. a BAC library supplied by AgrEvo. 2. Low resolution map will consist of unique, unambiguous sequence tags of [ * ] in length, ordered, spaced [ * ] (jumps over repetitive sequences), and should be based also on [ * ]. 3. HRP Maps will consist of unique sequence tags [ * ] in length, ordered, spaced [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 1 24 4. HRP Maps should aim to anchor up to [ * ] sequence set (cDNAs, EST contigs) of AgrEvo as verified by a means approved by the JRC. 5. [ * ] of the HRP Map will be colinear with genetic map developed by AgrEvo, and checked with [ * ] genetic markers. 6. HRP Maps need not be continuous. They may have multiple break-points. 7. HRP Maps will consist of [ * ] covering [ * ] of the non-repetitive sequences of the genome. 8. [ * ] of contigs will be `free-floating', i.e. not assigned to the major body of a chromosome 9. Mapping data will be made available in database format (CORBA-compatible), to be specified by the JRC. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2 25 TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS..................................................1 1.1 "Affiliate".....................................................1 1.2 "AgrEvo Know-How"...............................................2 1.3 "AgrEvo Patents"................................................2 1.4 "Co-Exclusive Crop".............................................2 1.5 "Collaboration Term"............................................2 1.6 "Confidential Information"......................................2 1.7 "Control" or "Controlled".......................................2 1.8 "Crops".........................................................2 1.9 "[ * ]".........................................................2 1.10 "[ * ] Map".....................................................2 1.11 "Exclusive Crops"...............................................2 1.12 "Experiments"...................................................2 1.13 "Field".........................................................2 1.14 "Fully Burdened Cost" or "FBC"..................................2 1.15 "Genotyping Experiments"........................................3 1.16 "Genotyping Results"............................................3 1.17 "HRP Map".......................................................3 1.18 "Improvement Inventions"........................................3 1.19 "Information"...................................................3 1.20 "Intellectual Property".........................................3 1.21 "Joint Research Committee" or "JRC".............................3 1.22 "Lynx Know-How".................................................3 1.23 "Lynx Patents"..................................................3 1.24 "Lynx Technology"...............................................3 1.25 "Patents".......................................................3 1.26 "Products"......................................................4 1.27 "SNP"...........................................................4 1.28 "Technology Development Project"................................4 1.29 "Third Party"...................................................4
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PAGE ARTICLE 2 COLLABORATION MANAGEMENT.....................................4 2.1 Overview........................................................4 2.2 Joint Research Committee........................................4 2.3 Meetings of the Joint Research Committee........................4 2.4 Functions of the Joint Research Committee.......................5 2.5 Decision-Making of the Joint Research Committee.................5 2.6 Limitations on Joint Research Committee Powers..................5 ARTICLE 3 CONDUCT OF COLLABORATION.....................................5 3.1 General.........................................................5 3.2 Lynx Capacity...................................................6 3.3 Experiments.....................................................6 3.4 HRP Maps........................................................6 3.5 Technology Development Projects.................................7 3.6 Collaboration Exclusivity.......................................7 3.7 Co-Exclusive Crop...............................................7 3.8 [ * ]...........................................................7 ARTICLE 4 COMPENSATION.................................................8 4.1 Access Fee......................................................8 4.2 Experiments Fees................................................8 4.3 Technology Development Project Fees.............................8 4.4 HRP Map Fees....................................................8 4.5 Milestone.......................................................8 4.6 Technology Licensing Fee........................................8 4.7 Payments........................................................9 4.8 Audit...........................................................9 ARTICLE 5 INTELLECTUAL PROPERTY........................................9 5.1 Lynx Technology.................................................9 5.2 AgrEvo Know-How and AgrEvo Patents..............................9 5.3 Improvement Inventions..........................................9 5.4 HRP Maps.......................................................10
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ii. 27 TABLE OF CONTENTS (CONTINUED)
PAGE 5.5 Genotyping Results.............................................10 5.6 Technology Development Projects................................12 5.7 AgrEvo Covenant................................................13 5.8 Lynx Covenant..................................................13 5.9 Other Results..................................................14 5.10 Infringement...................................................14 ARTICLE 6 TERM AND TERMINATION........................................14 6.1 Term...........................................................14 6.2 Termination for Breach.........................................14 6.3 Survival.......................................................15 6.4 Renewal........................................................15 ARTICLE 7 CONFIDENTIALITY.............................................15 7.1 Confidential Information.......................................15 7.2 Exceptions.....................................................16 7.3 Authorized Disclosure..........................................16 7.4 Return of Confidential Information.............................16 ARTICLE 8 REPRESENTATIONS AND WARRANTIES..............................17 8.1 Mutual Representations and Warranties..........................17 8.2 Unilateral Representations and Warranties......................17 8.3 No Other Representations.......................................17 ARTICLE 9 DISPUTE RESOLUTION AND GOVERNING LAW........................18 9.1 Disputes.......................................................18 9.2 Initial Procedure..............................................18 9.3 Arbitration....................................................18 9.4 Judicial Enforcement...........................................18 9.5 Governing Law..................................................18 ARTICLE 10 MISCELLANEOUS...............................................18 10.1 Agency.........................................................18 10.2 Assignment.....................................................19 10.3 Amendment......................................................19
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. iii. 28 TABLE OF CONTENTS (CONTINUED)
PAGE 10.4 Notices........................................................19 10.5 Force Majeure..................................................19 10.6 Export Control.................................................20 10.7 Severability...................................................20 10.8 Cumulative Rights..............................................20 10.9 Waiver.........................................................20 10.10 Further Assurances.............................................20 10.11 Counterparts...................................................20 10.12 Entire Agreement...............................................20
APPENDIX A [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. iv. EX-10.18 9 f75239a1ex10-18.txt EXHIBIT 10.18 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EXHIBIT 10.18 COLLABORATION AGREEMENT This Collaboration Agreement ("Agreement") is effective as of the 1st day of October, 2000 ("Effective Date"), by and between Takara Shuzo Co., Ltd., a Japanese corporation having its principal office at SETA 3-4-1, Otsu, Shiga, 520-2193 JAPAN ("Takara"), and Lynx Therapeutics, Inc., a Delaware corporation, having its principal office at 25861 Industrial Blvd., Hayward, California, USA ("Lynx"). RECITALS WHEREAS, Lynx owns and is an exclusive licensee of unique proprietary technologies for genetic analysis, including Megaclone(TM) technology for generating libraries of microbeads each containing a clone of a distinct DNA molecule, Megasort(TM) technology for isolating genes carried on Megaclone(TM) microbeads that are differentially expressed in two different cell or tissue sources, and MPSS(TM) technology for simultaneously generating signature sequences of DNA molecules carried on Megaclone(TM) microbeads; WHEREAS, Takara has extensive experience as a provider of biomedical research products in Asia and worldwide, and is in the business of manufacturing and marketing kits and reagents, including microarrays, for molecular biology research and genetic analysis; and WHEREAS, Takara desires to acquire from Lynx, and Lynx desires to grant to Takara in exchange for the consideration described below, the right to use Lynx's proprietary technologies to manufacture, distribute, and sell microarrays worldwide and to provide Megasort(TM) and MPSS(TM) services to customers in Japan, China, and Korea. NOW, THEREFORE, in view of the foregoing premises and in consideration of the mutual promises and covenants contained in the Agreement, Lynx and Takara agree as follows: ARTICLE 1 DEFINITIONS. 1.1 "Affiliate" means a corporation, partnership, entity, person, firm, company or joint venture that controls, is controlled by or is under the common control with the referenced Party. For the purposes of this definition the word "control" means the power to direct or cause the direction of the management and policies of such entity, or the ownership of at least fifty percent (50%) of the voting stock of such entity. Page 1. 2 1.2 "Confidential Information" of a Disclosing Party shall mean the following, to the extent previously, currently, or subsequently disclosed to the other party hereunder or otherwise: information relating to each Party's technology and business including, without limitation, reagents, computer programs, algorithms, names and expertise of employees and consultants, know-how, formulas, processes, ideas, inventions (whether patentable or not), schematics and other technical, business, financial, customer and product development plans, forecasts, strategies and information. In particular, but without limitation, information, including information regarding costs, relating to Lynx Technology, Proprietary Reagents, MPSS(TM) Instruments, Manufacturing Information, Lynx Software, Patent Rights, Lynx Know-How, and improvements and additions made by Lynx thereto shall be considered Confidential Information of Lynx. In particular, but without limitation, information relating to Microarray technology, including Microarray composition, fabrication, production, quality control and improvements thereto made by Takara, sales and distribution information relating to Microarrays and services based on Lynx Technology, including customer lists, marketing plans forecasts and the like, shall be considered Confidential Information of Takara. 1.3 "Licensed Microarray" means a Microarray which has at least one Microarray Spot containing a nucleic acid sequence identified by Megasort(TM) or MPSS(TM) technology. 1.4 "Lynx Know-How" means procedures, reagents, materials, or other Confidential Information owned and/or controlled by Lynx, which is not generally known to the public, necessary or desirable for the practice of Megaclone(TM), Megasort(TM), and MPSS(TM) technologies, including standard operating procedures (SOPs), quality control procedures and data, software for control and data acquisition, software for data analysis and display, and the like. 1.5 "Lynx Technology" means Megaclone(TM), Megasort(TM), and/or MPSS(TM) technologies. 1.6 "Lynx Software" means any data acquisition, processing, or display software owned, controlled, and developed by Lynx which is used in process control, sample handling, operation, or data acquisition or analysis in the Megaclone(TM), Megasort(TM), and MPSS(TM) technologies. 1.7 "Manufacturing Information" in reference to Proprietary Materials means procedures, reagents, materials, or other Confidential Information necessary or desirable for manufacture or synthesis of Proprietary Materials, including standard operating procedures (SOPs), quality control procedures and data, designs, and the like, related to such synthesis or manufacture. 1.8 "Marketing Plan" means a commercially reasonable written plan including the elements set forth in Exhibit 8. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 2. 3 1.9 "Megaclone(TM) technology" means the technology owned and/or controlled by Lynx for generating a population of microbeads having complementary DNA (cDNA) molecules attached wherein substantially every different cDNA molecule is attached to a different microbead of the population. A "Megaclone(TM) Library" means a cDNA library which has been transformed using Megaclone(TM) technology into a population of microbeads each having attached a clonal population of a distinct cDNA molecule. As used herein, Megaclone(TM) technology does not include any process for attaching genomic fragments of DNA to microbeads or any other solid phase support. 1.10 "Megasort(TM) Service" means the analysis of genes expressed in different cell or tissue sources by Megasort(TM) technology. 1.11 "Megasort(TM) technology" means the technology owned and/or controlled by Lynx for detecting and isolating gene products, such as cDNA molecules, differentially expressed in two different cell or tissue sources by fluorescence activated cell sorting (FACS) analysis of a Megaclone(TM) Library to which differently labeled probes derived from the two different cell or tissue sources have been competitively hybridized. 1.12 "Microarray" means a solid phase support containing a plurality of discrete regions such that within each discrete region a single species of nucleic acid is attached. Said nucleic acid may be attached covalently or non-covalently by any method, including, but not limited to, deposition of a solution containing a separately synthesized cDNA, polynucleotide, or oligonucleotide, or in situ synthesis using ink-jet, photolithographic, or any other chemical technologies. 1.13 "Microarray Spot" means a discrete region of a Microarray in which a single species of nucleic acid is attached. 1.14 "MPSS(TM) Instrument" means an apparatus for carrying out the process steps of MPSS(TM) technology. An MPSS(TM) Instrument consists of the following modules: Flow Cell including housing with heating and cooling system, optical/imaging system, fluid delivery system, control/monitoring system, and data collection software. 1.15 "MPSS(TM) Service" means the analysis of genes expressed in a cell or tissue by MPSS(TM) technology. 1.16 "MPSS(TM) technology" means the technology owned and/or controlled by Lynx for simultaneously generating signature sequences of cDNAs in a Megaclone(TM) Library disposed in a [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 3. 4 flow cell using the ligation-based sequencing method described in Brenner et al, Nature Biotechnology, 18: 630-634 (2000). 1.17 "Party" or "Parties" shall mean Lynx or Takara or their Affiliates. 1.18 "Patent Rights" shall mean the patents and patent applications listed in Exhibit 1; and with respect to U.S. patents and applications, all foreign equivalents thereof, if not already listed in Exhibit 1; and patents issuing on said foreign and U.S. patent applications. "Patent Rights" shall also include any divisional, continuation, reissue, reexamination or extension of the above-described patent applications and resulting patents, along with any extended or restored term, and any confirmation patent, registration patent, or patent of addition. Patent Rights shall include Lynx's rights under the Harvard Patents (defined below). 1.19 "Process Improvement" means any improvement in Lynx Technology that is covered by a Valid Claim. 1.20 "Proprietary Reagents" shall mean any material, compositions of matter, or article of manufacture which is covered by one or more Valid Claims of a patent or patent application listed in Exhibit 1 or which is part of Lynx Know-How. Proprietary Reagents include Flow Cells, Tagged Microbeads, Tag Vectors, Encoded Adaptors, Decoder Probes, and Pac I restriction endonuclease. As used herein, "Flow Cell" means an optically transmissive article comprising an inlet, an outlet, and a planar chamber for substantially immobilizing microbeads in a closely packed planar array and through which processing reagents may be passed so that chemical or enzymatic reactions may be carried out on the microbeads and optical signals generated as a result thereof may be detected. Flow Cells are described and claimed in International patent publication WO 98/53300, and related patent applications. As used herein, "Tagged Microbeads" mean populations of microbeads each member of which has a single kind of oligonucleotide tag attached from a defined repertoire of oligonucleotide tags. Tagged Microbeads, oligonucleotide tags, and repertoires of oligonucleotide tags are described in U.S. patents 5,635,400 and 5,654,413, and related patents and patent applications. As used herein, "Tag Vector" means a population of cloning vectors which are identical, except for a double stranded segment consisting of an oligonucleotide tag, usually adjacent to a clone insertion site or a polylinker region. Tag Vectors are described in U.S. patents 5,635,400; 5,846,719; 5,149,625, and related patents and patent applications. As used herein, "Encoded Adaptor" means a double stranded adaptor molecule having a single stranded portion containing an oligonucleotide tag for detection with a complementary Decoder Probe. Encoded Adaptors are described in U.S. patent 6,013,445 and related patents and patent applications. As used herein, "Decoder Probe" means a fluorescently labeled single [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 4. 5 stranded oligonucleotide tag complementary to a single stranded portion of an Encoded Adaptor. Decoder Probes are described in U.S. patent 6,013,445 and related patents and patent applications. 1.21 "Qualified Improvement" means a Process Improvement that [ * ]. 1.22 "Revenue" means the total amount of compensation in any form earned or recognized by Takara or its Affiliates for the performance of any service, project, contract research, collaboration, or the like, that involves the use of Lynx Technology, including Megasort(TM) or MPSS(TM) Services. Revenue also includes a) the fair market value of any non-cash consideration received by Takara or Affiliates for the use of Lynx Technology or for the performance of Megasort(TM) or MPSS(TM) Services, where fair market value will be calculated as of the time of transfer of such non-cash consideration to Takara or its Affiliate, and b) any deferred income or payments, such as royalties or milestone payments, received from projects, contract research, or collaborations involving the use of Lynx Technology. 1.23 "Territory" means Japan, Korea, and China including Taiwan. 1.24 "Valid Claim" means any claim(s) in an unexpired patent or pending in a patent application included within the Patent Rights which has not been held unenforceable, unpatentable, or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer. ARTICLE 2 TECHNOLOGY RIGHTS. Subject to all the terms and limitations of this Agreement, Lynx hereby grants to Takara the following rights: 2.1 EXCLUSIVE LICENSE. Subject to satisfaction of the Performance Criteria and for a period of five (5) years beginning from the Effective Date of the Agreement ("Period of Exclusivity"), Lynx hereby grants to Takara and its Affiliates an exclusive royalty-bearing license under Patent Rights and Lynx Know-How, without rights to sublicense, to use Megaclone(TM) technology to provide MPSS(TM) Services and Megasort(TM) Services to customers in the Territory and to make and sell Microarrays containing nucleic acid sequences identified by Megasort(TM) or MPSS(TM) technologies to customers in the Territory, whether or not such nucleic acid sequences were known or described prior to such identification. From and after the fifth anniversary of the Effective Date or [ * ] or whichever occurs sooner, the license rights of this paragraph shall become non-exclusive for the remainder of the term of the Agreement. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 5. 6 2.2 EXCEPTIONS TO EXCLUSIVE LICENSE. Notwithstanding paragraph 2.1, the following shall be exceptions to the exclusive rights granted under this Article: a) Upon notice to Takara, Lynx may install Lynx Technology for a customer's internal use in the Territory, provided that in respect of such transaction Lynx would share with Takara [ * ] of any profits received by Lynx for installation or operation of such Lynx Technology, including [ * ]. b) In the event that a customer from the Territory requests MPSS(TM) or Megasort(TM) Services from Lynx, then Lynx will promptly notify Takara in writing and will refer such customer to Takara. If for any reason Takara is unable to provide, or will not provide, MPSS(TM) or Megasort(TM) Services to such customer, then thirty (30) days after the above notification, Lynx may provide MPSS(TM) or Megasort(TM) Services to such customer under the following conditions: i) Lynx shall charge [ * ] of any access and/or service fees charged to customers in the Territory by Takara for like services; ii) Lynx shall share with Takara [ * ] of any profits received by Lynx for performing such services, including [ * ]; and iii) Lynx shall impose a contractual obligation on the customer not to use information obtained from such services to manufacture Microarrays for sale in the Territory, unless such customer pays a royalty of at least [ * ] per Microarray Spot for sales in the Territory, of which Lynx shall share [ * ] with Takara as a third party beneficiary under such contract. 2.3 PERFORMANCE CRITERIA. In order to maintain the exclusive rights under this Article, Takara shall use its best efforts to accomplish the indicated tasks by the indicated target dates and to perform any other necessary or desirable acts to meet all the criteria set forth in Exhibit 2. In the event that Takara does not satisfy the Performance Criteria during the Period of Exclusivity, Lynx shall so notify Takara in writing. Such notice shall include the reasons for finding that the Performance Criteria were not met by Takara. Takara shall then have sixty (60) days to cure its performance so that the Performance Criteria are met. If after such sixty (60) day period, Takara is unable or unwilling to cure its performance in order to meet the Performance Criteria, then the exclusive license under paragraph 2.1 shall become non-exclusive. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 6. 7 2.4 MICROARRAYS. Lynx hereby grants to Takara a non-exclusive royalty-bearing license under Patent Rights and Lynx Know-How, without rights to sublicense, to use Lynx Technologies to make and sell Licensed Microarrays to customers outside of the Territory. 2.5 INTERNAL RESEARCH. Lynx hereby grants to Takara a non-exclusive royalty-free license under Patent Rights and Lynx Know-How, without rights to sublicense, to use Lynx Technologies for internal research in the Territory. 2.6 SOFTWARE. Solely in connection with Takara's use of MPSS(TM) Instruments, Lynx hereby grants to Takara a personal, nontransferable, non-exclusive license to use Lynx Software in the Territory, subject to the following conditions: a) Takara shall (i) not reverse engineer, disassemble, decompile, decrypt, modify, alter, translate, make additions to, derive works from, transfer, or sublicense Lynx Software; (ii) take all reasonable steps to ensure that Confidential Information included in Lynx Software are not disclosed, duplicated, misappropriated or used in any manner not expressly permitted by the terms of this Agreement by or to any employee, consultant or agent of Takara or by or to any third party; and (iii) not remove, or allow to be removed, any copyright, trade secret or other proprietary protection legends or notices from Lynx Software or any portion thereof. Takara agrees to disclose Confidential Information included in Lynx Software only to employees, consultants and agents of Takara with a need to know. b) Copyright in and title to the Lynx Software at all times remains vested exclusively in Lynx or, as applicable, a third party licensor. 2.7 CONDITIONAL DISTRIBUTORSHIP. Conditional on a decision by Lynx to distribute MPSS(TM) Instruments to customers in the Territory prior to the expiration of the Period of Exclusivity, Lynx will appoint and grant to Takara an exclusive and nonassignable right to sell MPSS(TM) Instruments and Proprietary Reagents to buyers of MPSS(TM) Instruments in the Territory for the remainder of the Period of Exclusivity; provided, however, that if such decision is made after the third anniversary of the Effective Date, the parties shall negotiate in good faith a term of such a distributorship that is conventional in the trade under the circumstances, which circumstances include recognition that a primary purpose of the present conditional right is the protection of Takara's exclusivity during the Period of Exclusivity. Promptly upon written notice to Takara by Lynx of its decision to distribute MPSS(TM) Instruments in the Territory, the Parties shall negotiate in good faith an [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 7. 8 agreement to implement the right of this paragraph. Such agreement shall contain terms and conditions conventional in the trade of distributing scientific instrumentation and shall not contain any term that requires Takara to pay any access fee or up-front payment in order to exercise the right of this paragraph. 2.8 HARVARD SUBLICENSE. The licenses granted under this Article include a sublicense in respect of U.S. Patent No. 4,942,124, U.S. Patent No. 5,149,625, Japanese Patent No. 2,665,775, European Patent Application No. 88307391.8, Canadian Patent No. 1,339,727 (the "Harvard Patents"). The sublicense under the Harvard Patents are subject to the further terms and conditions set forth in Exhibit 9, as applicable. ARTICLE 3 RIGHTS NOT LICENSED. 3.1 This Agreement does not grant to Takara any right to use Megaclone(TM) technology to attach genomic DNA fragments to microbeads such that substantially every different genomic DNA fragment is attached to a different microbead, or any right to use Megaclone(TM) or Megasort(TM) technologies to analyze genomic DNA fragments. 3.2 Except as provided in paragraph 2.7, this Agreement does not grant to Takara any right to re-sell or distribute Proprietary Reagents or MPSS(TM) Instruments or components thereof, whether or not manufactured or assembled by, or on behalf of, Lynx for practicing Lynx Technologies. 3.3 Takara hereby covenants to not practice any Lynx Technology outside of the specific scope of the licenses provided under Article 2. ARTICLE 4 EXTENSION OF THE PERIOD OF EXCLUSIVITY. 4.1 On or before [ * ] of the Effective Date, the Parties shall discuss the possibility of extending the Period of Exclusivity under paragraph 2.1 beyond [ * ]. In determining whether or not to extend the Period of Exclusivity, Lynx shall consider the amount of revenue generated by Takara in the Territory from the time of the Effective Date using Lynx Technology and whether Takara met or exceeded the Performance Criteria. Lynx shall be under no obligation to extend the Period of Exclusivity beyond [ * ] term of paragraph 2.1. ARTICLE 5 TRADEMARK AND SERVICE MARK LICENSE; OBLIGATION TO MARK. 5.1 LICENSE. Subject to all the terms and limitations of this Agreement, Lynx hereby grants to Takara a worldwide non-exclusive license, without a right to sublicense, to use the [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 8. 9 trademarks and service marks "LYNX," "MEGACLONE," "MPSS," and "MEGASORT" (collectively, the "Licensed Marks") in advertising and other promotional materials related to the use of Lynx Technology hereunder and in packaging, advertising and other promotional materials related to the sale, distribution, and marketing of Microarrays containing nucleic acid sequences identified by Megasort(TM) or MPSS(TM) technologies. 5.2 QUALITY AND MAINTENANCE OF STANDARDS; PERFORMANCE REVIEW. Takara shall maintain quality control and quality assurance programs for reagent and sample preparation, sample analysis, and data analysis and delivery at least equivalent to those maintained by Lynx for its service customers. Upon reasonable notice by Lynx, Takara shall permit Lynx to inspect during normal business hours the facilities of any premises of Takara's where Lynx Technology is being practiced for providing services to customers in order to determine whether Takara's quality control and quality assurance programs are in compliance with the above standard. Quality control and assurance shall be a topic on the agenda of each meeting of the Performance Review Committee, and the minutes of each meeting shall include a review and evaluation of Takara's quality control and quality assurance programs as they relate to Lynx Technology. 5.3 APPROVAL AND FORM OF USE. Takara shall use only labeling, packaging, advertising and promotional materials containing the Licensed Marks which have been approved by Lynx in response to a written request by Takara. Such approval shall not unreasonably be withheld. In the event that within thirty (30) days of the submission by Takara of a request for approval of any labeling, packaging, advertising, or promotional materials, Lynx shall not have advised Takara that such approval is withheld and the reasons therefor, such approval shall be deemed to have been given. Takara shall use the Licensed Marks in the same stylized form and color as used by Lynx. 5.4 OBLIGATION TO MARK. Takara shall prominently display one or more Licensed Marks in all advertising and other promotional materials related to providing services based on the application of Lynx Technology, and Takara shall prominently display in all advertising, packaging, and other promotional materials relating to Microarrays containing nucleic acid sequences identified by Megasort(TM) or MPSS(TM) technologies the marks "LYNX Megasort(TM) Content" or "LYNX MPSS(TM) Content" as appropriate. 5.5 TERM AND TERMINATION. The license under paragraph 5.1 shall run for the term of this Agreement, unless terminated earlier due to Takara's failure to conform to the quality control and assurance standards of paragraph 5.2. Such termination shall be effective only after reasonable notice [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 9. 10 by Lynx in writing and a reasonable period not in excess of ninety (90) days for Takara to correct its quality control and quality assurance programs. ARTICLE 6 TECHNOLOGY TRANSFER. 6.1 TRAINING. Within sixty (60) days of the Effective Date, Lynx and Takara shall agree on a plan for training Takara employees in the use of Megaclone(TM) and Megasort(TM) technologies, and Lynx shall provide such Takara employees reasonable access to and training for Megaclone(TM) and Megasort(TM) technologies at Lynx's facility in Hayward, California. Such training shall be consistent with the recommendations set forth in Exhibit 3. At a time agreed to by the Parties, but in no event later than twelve (12) months after the Effective Date, Lynx and Takara shall agree on a plan for training Takara employees in the use of MPSS(TM) technology, and Lynx shall provide reasonable access to and training for MPSS(TM) technology at Lynx's facility in Hayward, California. Each Party shall bear its own costs for the training under this paragraph. In particular, Takara shall bear all food, lodging, and travel costs of its employees. 6.2 INSTALLATION OF MPSS(TM) INSTRUMENTS. Lynx shall use commercially reasonable efforts to install Takara's requirements of MPSS(TM) Instrument(s) at Takara's facilities in Japan in Lynx's recommended operating configuration, as set forth in Exhibit 4. Installation shall be scheduled to take place within three months of initial commercial deployment of such MPSS(TM) Instruments at Lynx's facility in Hayward, California. Lynx shall sell such instruments to Takara at [ * ]. 6.3 SERVICE AND SUPPORT. Lynx shall provide limited warranty and support for a period of one (1) year from the completion of installation of an MPSS(TM) Instrument as set forth in Exhibit 7. 6.4 UP-GRADES. For a period of two (2) years following the initial installation of MPSS(TM) Instruments, Lynx shall provide Takara with up-grades to installed MPSS(TM) Instruments, Lynx Software, and any process improvements relating to Lynx Technology at [ * ]; thereafter, Lynx shall provide MPSS(TM) Instruments and up-grades thereto at [ * ]. ARTICLE 7 INTERIM MPSS(TM) SERVICES. 7.1 In order to permit Takara to begin providing customers in the Territory with MPSS(TM) services as soon as possible after the Effective Date, Lynx shall use commercially reasonable efforts to provide MPSS(TM) Services for Takara's customers until such time as one or more MPSS(TM) Instruments are installed and made operational at Takara's facility in the Territory. For each sample analyzed using Lynx's MPSS(TM) Service, Takara shall pay Lynx a fee of [ * ]; provided, however, that [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 10. 11 if Takara carries out part of the MPSS(TM) process without Lynx's assistance, then the above-mentioned fee shall be adjusted to reflect Takara's proportionate contribution to such process. ARTICLE 8 CONSIDERATION FOR EXCLUSIVE ACCESS TO LYNX TECHNOLOGY. 8.1 In partial consideration of the rights and licenses granted to it, Takara shall pay to Lynx a non-refundable non-creditable technology access fee of [ * ] payable as follows: a) Within sixty (60) days of the Effective Date, Takara shall pay to Lynx [ * ] in cash by bank wire transfer in immediately available funds to such account designated by Lynx; and b) On each of the first through fifth anniversary dates after the Effective Date, Takara shall pay to Lynx [ * ] in cash by bank wire transfer in immediately available funds to such account designated by Lynx. 8.2 GRANTBACK RIGHTS IN IMPROVEMENTS. Takara hereby grants to Lynx a paid-up royalty-free worldwide non-exclusive license, with right to sublicense, in any Process Improvement. In the event that Takara demonstrates with convincing evidence that a Process Improvement is a Qualified Improvement, the Parties shall negotiate in good faith a reduction in the royalty of paragraph 9.1 a), such reduction to reflect the cost savings attributable to the Process Improvement; provided, however, that the total of such reductions shall not reduce the royalty of paragraph 9.1 a) to below [ * ] . ARTICLE 9 ROYALTIES, ACCOUNTING, AND RECORDS. 9.1 In partial consideration of the rights and licenses granted to it, Takara shall pay to Lynx the following royalties for the term of the Agreement: a) a [ * ] royalty on all Revenue generated from its use of Lynx Technology, except for the sale of Licensed Microarrays which is provided for in b) and c) of this paragraph; b) a royalty of [ * ] per Microarray Spot times the total number of Microarray Spots on each Licensed Microarray sold, and the following additional royalties, if applicable: for such Microarrays priced above [ * ] a royalty of [ * ] and [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 11. 12 c) an annual minimum royalty due on the indicated anniversary date, against which earned royalties under b) for a given year may be credited, in accordance with the following table:
Anniversary Minimum Royalty Date Amount (in U.S. Dollars) ----------- ------------------------ 1st [ * ] 2nd [ * ] 3rd [ * ] 4th [ * ] 5th [ * ]
9.2 Takara shall require customers of MPSS(TM) and Megasort(TM) Services to undertake a contractual obligation not to use information obtained from such services to manufacture Microarrays for sale, unless such user pays Takara a royalty of at least [ * ] per Microarray Spot, of which Takara would share [ * ] with Lynx as a third party beneficiary under such contract. 9.3 Payments of royalties (other than the minimum annual royalties whose payment schedule is set forth above) under this Article are to be made to Lynx within forty-five (45) days of the end of each quarter of the calendar year. Royalties shall be accompanied by a statement that shall include for each country in which sales of services or Licensed Microarrays occurred: the gross sales in each country's currency of services rendered and Licensed Microarrays sold, the Licensed Microarrays being classified according to the number of Microarray Spots; the related amounts payable in each country's currency; the applicable exchange rate to convert from each country's currency to U.S. dollars; and the amounts payable in U.S. dollars. Royalties shall first be calculated in the currency of the country in which sales took place and then directly converted to U.S. Dollars using the exchange rate as reported in the Wall Street Journal for the last business day of the calendar quarter of sales. All payments hereunder shall be made to Lynx in U.S. dollars by bank wire transfer in immediately available funds to such account designated by Lynx. The paying party shall provide notice at least five (5) business days prior to the wire transfer date of the amount of payment, the nature of the payment (with reference to the applicable section of the subject agreement) and the date of receipt of good funds. Such notice should be given to the Controller of Lynx at the address set forth at the beginning of this Agreement or such other address directed by Lynx. 9.4 Any payment under this Article not paid by the payment due date shall bear interest at the rate which is the lesser of eighteen percent (18%) per annum or the maximum rate permitted by applicable law, calculated on the number of days such payment is delinquent. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 12. 13 9.5 The payments under this Article shall be free and clear of any taxes, duties, levies, fees or charges, except for withholding taxes (to the extent applicable). The paying party shall make any withholding payments due on behalf of Lynx and shall promptly provide Lynx with written documentation of any such payment sufficient to satisfy the reasonable requirements of an appropriate tax authority concerning an application by Lynx for a foreign tax credit for such payment or for similar treatment. The paying party agrees to take such reasonable and lawful steps as Lynx may request to minimize the amount of tax to which the payments to Lynx are subject. 9.6 If by law, regulations or fiscal policy of a particular country, remittance of payments in U.S. Dollars is restricted or forbidden, notice thereof will be promptly given to Lynx, and payments shall be made by deposit thereof in local currency to the credit of Lynx in a recognized banking institution designated by Lynx. When in any country the law or regulations prohibit both the transmittal and deposit of payments based on sales in such a country, such payments shall be suspended for as long as such prohibition is in effect and as soon as such prohibition ceases to be in effect, all payments that the paying party would have been under obligation to transmit or deposit but for the prohibition, shall forthwith be deposited or transmitted promptly to the extent allowable. 9.7 Takara shall keep, for at least three (3) years, research and development records related to Takara's Process Improvements and business records of all sales of products in sufficient detail to permit Lynx to confirm the accuracy of Takara's payment calculations. Once a year, at the request and the expense of Lynx, upon at least five (5) days prior written notice, Takara shall permit a nationally recognized, independent, certified public accountant, appointed by Lynx and acceptable to Takara, access to these records during regular business hours solely to the extent necessary to verify such calculations, provided that such an accountant has entered into a confidentiality agreement with Takara with terms substantially similar to the confidentiality provisions of this Agreement, limiting the use and disclosure of such information to purposes germane to this section. Results of any such examination shall be made available to both parties to this Agreement. If such examination reveals an underpayment of amounts by five percent (5%) or more, Takara shall pay all costs of such examination. In the event such accountant concludes that additional payments are owed, the additional payments shall be paid within thirty (30) days of the date Lynx delivers to Takara the accountant's written report reflecting such conclusion. This section shall survive any termination of this Agreement for five (5) years. ARTICLE 10 EQUITY INVESTMENT. 10.1 On each of the first through fifth anniversary dates after the Effective Date, Takara shall make an equity investment in Lynx of [ * ] . For each such equity investment by Takara, Lynx [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 13. 14 shall authorize new shares of Lynx common stock in a number sufficient to equal [ * ] in market value at the then determined market price. Such shares shall then be issued to Takara in exchange for the [ * ] investment. The market price of Lynx common stock for computing the number of shares to be issued on each such anniversary shall be [ * ]. The purchase of shares under this paragraph shall be made under a Common Stock Purchase Agreement having substantially the form as the contract attached as Exhibit 10. ARTICLE 11 PERFORMANCE REVIEW. 11.1 MARKETING PLAN. Within six (6) months of the Effective Date, Takara shall provide a five (5) year Marketing Plan containing the elements set forth in Exhibit 8 acceptable to Lynx for commercializing the licensed technologies in the Territory and worldwide in the case of Licensed Microarrays. 11.2 PERFORMANCE REVIEW COMMITTEE ("PRC"). A PRC shall be formed by the Parties which shall comprise two (2) representatives from each Party. The Parties shall designate their representatives to the PRC within ten (10) days of the Effective Date. An alternate member designated by a Party may serve temporarily in the absence of a member designated by such Party. Each Party shall designate one of its representatives as Co-Chair of the PRC. Each Co-Chair will be responsible for the agenda and for recording the minutes of alternating meetings of the PRC. Each Party shall bear its own costs for participating in the PRC. Each Party may replace any of its representatives to the PRC at any time, and will inform the other Party thereof in writing. 11.3 MEETINGS. The PRC shall hold meetings at such times and places as shall be determined by a majority of the entire membership of the PRC, but no less frequently than once every six (6) months. Subject to the foregoing, the PRC may conduct meetings in person or by telephone conference or other means of communication. Each Party may invite other personnel of their company to attend meetings of the PRC, subject to the mutual consent of the Parties. No meetings of the PRC can be held unless both Parties are represented. Every meeting shall have an agenda of topics to be discussed prepared alternatively by the Parties and distributed to PRC members at least ten (10) business days prior to the meeting. Every meeting shall have minutes recorded and distributed within five (5) business days to the Parties for approval. 11.4 FUNCTIONS. The PRC shall assess performance of the parties, including, but not limited to, conformance with the Marketing Plan and other Performance Criteria, reagent delivery, instrumentation and process performance, quality control, and trademark and service mark usage. The PRC may make recommendations to the Parties with respect to performance, but the PRC shall not [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 14. 15 have the authority to make determinations or findings as to whether the Performance Criteria have been, or have not been, met. ARTICLE 12 SUPPLY OF PROPRIETARY REAGENTS. 12.1 Subject to the terms and conditions of this Agreement, Lynx shall supply Takara with its requirements of Proprietary Reagents under the terms and conditions of Exhibit 5 for the prices set forth in Exhibit 6, and as amended from time to time as provided in Exhibit 5. ARTICLE 13 CONFIDENTIALITY. 13.1 Subject to the terms and conditions of this Agreement, Takara and Lynx each agree that, during the term of this Agreement and for five (5) years thereafter, each will use all reasonable efforts to keep confidential, and will cause its Affiliates to use reasonable efforts to keep confidential, all Lynx Confidential Information or Takara Confidential Information, as the case may be, that is disclosed to it or to any of its Affiliates by the other party in connection with the performance of this Agreement. Neither Takara nor Lynx nor any of their respective Affiliates shall use the other party's Confidential Information except as expressly permitted in this Agreement. 13.2 Takara and Lynx each agree that any disclosure of the other's Confidential Information to any officer, employee, contractor, consultant, sublicensee, or agent of the other party or of any of its Affiliates shall be made only if and to the extent necessary to carry out its responsibilities under this Agreement and to exercise the rights granted to it hereunder, shall be limited to the extent consistent with such responsibilities and rights, and shall be provided only to such persons or entities who are bound to maintain same in confidence in a like manner as the party receiving same hereunder is so required. Each party shall use reasonable efforts to take such action, and to cause its Affiliates to take such action, to preserve the confidentiality of each other's Confidential Information, including not less than such efforts as it would customarily take to preserve the confidentiality of its own Confidential Information. Each party, upon the other's request, will return all the Confidential Information disclosed to the other party pursuant to this Agreement, including all copies and extracts of documents, within sixty (60) days of the request of the other party following any termination of this Agreement, except for one (1) copy which may be kept for the purpose of ascertaining and complying with continuing confidentiality obligations under this Agreement, and except for such copies as a party may retain in order to continue to exercise its rights hereunder after termination of this Agreement. 13.3 Confidential Information shall not include any information which the receiving party can prove by competent evidence: [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 15. 16 a) is now, or hereafter becomes, through no act or failure to act on the part of the receiving party, generally known or available; b) is known by the receiving party at the time of receiving such information, as evidence by its records; c) is hereafter furnished to the receiving party without restriction as to disclosure or use by a third party lawfully entitled to so furnish same; d) is independently developed by the employees, agents or contractors of the receiving party without the aid, application or use of the disclosing party's Confidential Information; or e) is the subject of a written permission to disclose provided by the disclosing party; or f) is provided by the disclosing party to a third party without restriction as to confidentiality. 13.4 A Party may also disclose Confidential Information of the other where required to do so by law or legal process, provided that, in such event, the party required to so disclose shall give maximum practical advance notice of same to the other party and will cooperate with the other party's efforts to seek, at the request and expense of the other party, all Proprietary treatment and protection for such disclosure as is permitted by applicable law. 13.5 The Parties agree that the material financial terms of this Agreement will be considered Confidential Information of both parties. Notwithstanding the foregoing, either party may disclose such terms in legal proceedings or as are required to be disclosed in its financial statements, by law. Either party shall have the further right to disclose the material financial terms of this Agreement under strictures of confidentiality to any potential acquiror, merger partner, bank, venture capital firm, or other financial institution to obtain financing, or other bona fide potential strategic partner or collaborator. ARTICLE 14 PATENT LITIGATION. 14.1 THIRD PARTY INFRINGEMENT. In the event Takara or its Affiliates or Lynx becomes aware of any actual or threatened infringement of the Patent Rights or the violation of any other intellectual property right of Lynx, that Party shall promptly notify the other Party in writing. Lynx [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 16. 17 and its Affiliates shall have the sole and exclusive right, but not the obligation, to bring, at Lynx's expense and in its sole control, an infringement action against any third party and Lynx shall be entitled to retain any award made in such suit. If a continuing unlicensed infringement (within the Period of Exclusivity) of Patent Rights licensed hereunder directly and materially damages Takara's business regarding services bearing royalties hereunder, Takara may request that Lynx take action towards licensing or enforcement with respect to such infringement. If Lynx has not commenced action within ninety (90) days of Takara's request and has not obtained termination of the infringement or licensed the infringer, then the royalties with respect to adversely affected services will be prospectively reduced (until such infringement ceases or is licensed) to reflect the reduced value (if any) of Takara's license upon agreement by the Parties (which the Parties will attempt to reach reasonably and in good faith, or if the Parties cannot agree with ninety (90) days, upon arbitration under Article 18 ("Dispute Resolution")) as to the amount, if any, of the reduction. 14.2 DEFENSE OF INFRINGEMENT CLAIMS. In the event of the institution of any suit by a third party against Lynx or Takara or any of their Affiliates for patent infringement involving the manufacture, use, sale, distribution or marketing of products or services based on Lynx Technology or trademark infringement in connection with the use of a Licensed Mark anywhere in the world, the Party sued shall promptly notify the other Parties in writing. Lynx shall assume the responsibility for the conduct of the defense of such suits in the United States, Canada, Japan, the European Economic Community, and in any other country in which it chooses to defend. Takara may assume responsibility in all other countries in which it or its Affiliates sell Microarrays or provide services based on Lynx Technology. The Party not assuming responsibility shall have the right to participate in the defense of each suit at its own expense. Upon the request of one Party, the other Party shall reasonably assist and cooperate in any such litigation. The Party having responsibility for the suit shall bear the costs of the defense of such suit. In the event the Parties should not prevail in such a suit, or prior to suit the Party having responsibility shall have determined that it is unlikely to prevail in such a suit, and thereby Takara shall be required to pay royalties to a third party in order to practice Lynx Technology, the royalties thereafter due and payable to Lynx with respect to such practice and such country shall be reduced by [ * ]. ARTICLE 15 REPRESENTATIONS AND WARRANTIES. 15.1 Lynx warrants and represents to Takara that a) it has the lawful right to grant the license under this Agreement, including the license to the Licensed Marks and the sublicense under the Harvard Patents, and that Lynx has made all filings and paid all fees and done all such other things as to maintain the Patent Rights in good standing, and b) it has no knowledge of any current or threatened [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 17. 18 infringement or inconsistent claims by third parties of any of the rights and licenses granted to Takara and its Affiliates. 15.2 This license and the associated inventions are provided WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. LYNX MAKES NO REPRESENTATION OR WARRANTY THAT THE PRACTICE OF LYNX TECHNOLOGY WILL NOT INFRINGE ANY PATENT OR OTHER PROPERTY RIGHT. ARTICLE 16 TERM AND TERMINATION. 16.1 Unless otherwise terminated by operation of law or by acts of the parties in accordance with the terms of this Agreement, this Agreement shall be in force from the Effective Date and shall remain in effect for the life of the last-to-expire patent licensed under this Agreement, or until the last patent application licensed under this Agreement is abandoned. 16.2 Any termination of this Agreement will not affect the rights and obligations set forth in the following Articles: Par. 8.2 Grantback Rights Article 9. Royalties, Accounting, Records Article 13. Confidentiality Article 17. Indemnification and Limitation of Liability 16.3 If either Party should violate or fail to perform any material term or covenant of this Agreement, then the other Party may give written notice of such default ("Notice of Default") to the defaulting Party. If the defaulting Party should fail to repair such default within thirty (30) days after the date of such Notice of Default, the notifying Party shall have the right to terminate this Agreement and the licenses herein by a second written notice ("Notice of Termination") to the defaulting Party. If a Notice of Termination is sent to the notifying Party, this Agreement shall automatically terminate on the date such notice takes effect. Such termination shall not relieve the defaulting Party of its obligation to pay any royalty or license fees owing at the time of such termination and will not impair any accrued right of the notifying Party. Material terms under this Agreement include, but are not limited to, Article 2 (Grant), Article 3 (Rights Not Licensed), Article 5 (Trademarks), Article 6 (Technology Transfer), Article 8 (Technology Access), Article 9 (Royalties, Accounting, and Records), Article 10 (Equity Investment), Article 11 (Performance), Article 12 (Supply), Article 13 (Confidentiality), and Article 17 (Indemnification). [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 18. 19 16.4 After three (3) years from the Effective Date, Takara shall have the right at any time to terminate this Agreement by giving notice in writing to Lynx. Such Notice of Termination shall be effective ninety (90) days after the date thereof. Any termination pursuant to this paragraph shall not relieve Takara, Lynx, or their respective Affiliates of any obligation or liability accrued hereunder prior to such termination or rescind anything done by Takara, Lynx, or their respective Affiliates of any payments made to Lynx by Takara hereunder prior to the time such termination becomes effective, and such termination shall not affect in any manner rights of Lynx or Takara arising under this Agreement prior to such termination. 16.5 Lynx shall have the right at its option to repurchase all or any part of the inventories of MPSS(TM) Instruments and Proprietary Reagents in Takara's possession at the time of the termination of this Agreement at [ * ]. Lynx shall exercise its option by notifying Takara in writing no later than thirty (30) days after the effective termination date. ARTICLE 17 INDEMNIFICATION AND LIMITATION OF LIABILITY. 17.1 Takara will indemnify, hold harmless, and defend Lynx, its officers, employees, and agents against any and all claims, suits, losses, damage, costs, fees, and expenses resulting from or arising out of exercise of this license or the purchase of Proprietary Reagents, unless otherwise provided in this Agreement (including Exhibits). This indemnification will include, but will not be limited to, any product liability. 17.2 Lynx will promptly notify Takara in writing of any claim or suit brought against Lynx in respect of which Lynx intends to invoke the provisions of this Article (Indemnification). Takara will keep Lynx informed on a current basis of its defense of any claims pursuant to this Article (Indemnification.) 17.3 In no event shall Lynx be liable for any incidental, special, or consequential damages resulting from exercise of the license granted herein, or the purchase of Proprietary Reagents hereunder, or the use of any invention described in any of the Patent Rights. ARTICLE 18 DISPUTE RESOLUTION. 18.1 If a dispute or controversy regarding any right or obligation under this Agreement arises between the Parties, the Parties will seek to resolve such dispute or controversy by good faith negotiation between senior management representatives of the Parties, to be commenced promptly after such dispute or controversy arises. If such dispute or controversy is not resolved by such negotiation within thirty (30) days of notice by one party to the other, then the Parties shall proceed as [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 19. 20 follows. Any unresolved dispute, controversy, action, claim or proceeding initiated by either Party (other than a third party action, claim, or proceeding) relating to, arising out of, or resulting from this Agreement, or the performance by either Party of its obligations hereunder, whether before or after termination of this Agreement, shall be finally resolved by binding arbitration. Whenever a Party shall decide to institute arbitration proceeding, it shall give written notice to that effect to the other Party. If initiated by Lynx, any arbitration hereunder shall be held in Osaka, Japan, pursuant to the Rules of Conciliation and Arbitration of the International Chamber of Commerce. If initiated by Takara, any arbitration hereunder shall be held in San Francisco, California, pursuant to the Rules of Conciliation and Arbitration of the International Chamber of Commerce. Each such arbitration shall be conducted in the English language by a panel of three arbitrators appointed in accordance with such rules. The arbitrators shall have the authority to grant specific performance, and to allocate between the Parties the costs of arbitration in such equitable manner as they determine. Judgment upon the award so rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of any award and an order of enforcement, as the case may be. In no event shall a demand for arbitration be made after the date when institution of a legal or equitable proceeding based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. ARTICLE 19 NOTICES. 19.1 Any notice or payment required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be effective on receipt, when given by registered airmail or overnight courier and addressed, unless otherwise specified in writing, to the respective addresses given below. As to Lynx: Lynx Therapeutics, Inc. 25861 Industrial Blvd. Hayward, CA 94545 USA Attn: Chief Executive Officer As to Takara: Takara Shuzo Co., Ltd. Biomedical Group Seta 3-4-1, Otsu, Shiga 520-2193 JAPAN Attn: President ARTICLE 20 MISCELLANEOUS. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 20. 21 20.1 HEADINGS. The headings of the several sections are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 20.2 ENTIRE AGREEMENT. This Agreement embodies the entire understanding of the parties and will supersede all previous communication, representations or understandings, either oral or written, between the parties relating to the subject matter hereof. However, confidential disclosures made under previously executed Nondisclosure Agreements between Lynx and Takara will remain subject to the terms of those Nondisclosure Agreements. No amendment or modification hereof will be valid or binding upon the parties unless made in writing and signed on behalf of each party. 20.3 SEVERABILITY. In case any of the provisions contained in the Agreement are held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability will not affect any other provisions hereof, but this Agreement will be construed as if such invalid or illegal or unenforceable provisions had never been contained herein. 20.4 WAIVER. It is agreed that no waiver by either party hereto of any breach or default of any of the covenants or agreements herein set forth will be deemed a waiver as to any subsequent and /or similar breach or default. 20.5 ASSIGNMENT. Neither this Agreement nor any rights or benefits hereunder shall be assigned or transferred by Takara without the written consent of Lynx, except that Takara may assign its rights and obligations under this Agreement as a part of the sale or transfer of its entire business and assets of its biomedical, research, and genomics business including, but not limited to, its Biomedical Group. 20.6 GOVERNING LAW. This Agreement shall be considered to have been made in the United States, and shall be governed by the laws of the United States of America and the State of California. 20.7 FORCE MAJEURE. The parties to this Agreement will be excused from any performance required hereunder if such performance is rendered impossible or unfeasible due to any acts of God, catastrophes, or other major events beyond their reasonable control, including, without limitation, war, riot, and insurrection; laws, proclamations, edicts, ordinances, or regulations; strikes, lock-outs, or other serious labor disputes; and floods, fires, explosions, or other natural disasters. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 21. 22 20.8 NO AGENCY. Nothing herein shall be deemed to create an agency, joint venture, or partnership relationship between Takara and Lynx. 20.9 GOVERNMENT APPROVAL OR REGISTRATION. If this Agreement or any associated transaction is required by the law of any nation to be either approved or registered with any governmental agency, Takara will assume all legal obligations to do so. Takara will notify Lynx if it becomes aware that this Agreement is subject to a United States or foreign government reporting or approval requirement. Takara will make all necessary filings and pay all costs including fees, penalties, and all other out -of-pocket costs associated with such reporting or approval process. 20.10 EXPORT CONTROL LAWS. Takara will observe all applicable United States and foreign laws with respect to the transfer of Lynx Technology, Licensed Microarrays and related technical data to foreign countries, including, without limitation, the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations, subject to a proper and timely instruction as to any such law or regulation. 20.11 OFFICIAL LANGUAGE. The official text of this Agreement and any appendices, exhibits and schedules hereto, shall be made, written and interpreted in English. Any notices, accounts, reports, documents, disclosures of information or statements required by or made under this Agreement, whether during its term or upon expiration or termination thereof, shall be in English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any other translation into any other language. 20.12 PATENT MARKING. Takara will mark all Licensed Microarrays made, used , or sold under the terms of this Agreement, or their containers, in accordance with the applicable patent marking laws. In Witness Whereof, Takara and Lynx have caused this Agreement to be duly executed by their duly authorized representatives as of the date first shown herein. LYNX THERAPEUTICS, INC. TAKARA SHUZO CO., LTD. By: /s/ Norman Russell By: /s/ Ikunoshin Kato -------------------------------- ------------------ Name: Norman J.W. Russell, Ph.D. Name: Ikunoshin Kato, Ph.D. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 22. 23 Title: President and Title: Senior Managing Director and Chief Executive Officer President, Biomedical Group Date: 7th November 2000 Date: 8th Nov. 2000 ---------------------------- ------------- [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 23. 24 EXHIBIT 1 PATENT RIGHTS [ * ] (2 1/2 page table omitted here) [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 24. 25 EXHIBIT 2 PERFORMANCE CRITERIA FOR PERIOD OF EXCLUSIVITY I. Scheduling and building facilities for conducting Megasort(TM) and MPSS(TM) services.
Target Date Task -------------------------------------------------------------------------------- [ * ] months after Effective Begin construction of MPSS(TM) laboratory. Date(1) -------------------------------------------------------------------------------- [ * ] months after Effective Complete construction of MPSS(TM) laboratory. Date --------------------------------------------------------------------------------
1. This assumes that the second generation MPSS instrument is available no later than 18 months after the Effective Date. II. Purchasing and installing required instrumentation.
Target Date Task ------------------------------------------------------------------------------- [ * ] months after Effective MoFlo FACS instrument installed and operating. Date(2) -------------------------------------------------------------------------------
2. This assumes that there would be no delays caused by Cytomation, Inc. III. Training of employees in Megasort(TM) and MPSS(TM) technologies.
Target Date Task ------------------------------------------------------------------------------- [ * ] months after Effective At least one Takara employee starts Megasort Date(3) training at Lynx. ------------------------------------------------------------------------------- At least [ * ] months prior to At least one Takara employee starts MPSS the delivery of second generation training at Lynx. MPSS instruments to Takara. --------------------------------- ---------------------------------------------
3. This assumes that training at Cytomation can be accomplished by this time. IV. Implementation of Marketing Plan. V. Monetary commitments for advertising and promotion.
Journal Number of Advertisements per Year ------------------------------------------------------------------------------- Japanese-language Scientific or Trade [ * ] Journals (combined) -------------------------------------------------------------------------------
VI. Purchase of reagents under supply agreement.
- ---------------------------------------------------------------------------------------------- Minimal Reagent Purchases Minimal Reagent Purchases Time Interval for the Following Number for the Following Number From: To: of Megasort(TM) analyses of MPSS(TM) analyses - ---------------------------------------------------------------------------------------------- Effective Date 1st Anniversary [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 1st Anniversary 2nd Anniversary [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 2nd Anniversary 3rd Anniversary [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 3rd Anniversary 4th Anniversary [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 4th Anniversary 5th Anniversary [ * ] [ * ] - ----------------------------------------------------------------------------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 25. 26 EXHIBIT 3 RECOMMENDED INITIAL MEGASORT(TM) TRAINING Instrumentation: 1 MoFlo flow sorter (see attached Purchase Order for exact configuration). Size of group: 2 individuals (1 flow system operator, 1 molecular biologist) Training: 1 week MoFlo training with Cytomation (1 individual) After MoFlo training: 6 weeks Megaclone/Megasort training at Lynx (2 individuals) I. Flow system operator training prior to training at Lynx (1 week at Cytomation facility): o Flow systems theory. o "Summit" software (MoFlo instrument control and data analysis). o Standardization and calibration of instrument. o Rudimentary trouble shooting. II. Additional flow system training at Lynx (1-2 weeks): o Analysis and sorting of Megaclone(TM) microbeads. o Sorting experience for enriching Megaclone(TM) microbead libraries (1-color sorting). o Megasort(TM) experience using second laser (2-color sorting). III. Bead loading & sorting (6 weeks recommended; can be carried out concurrently with II.) o Optional: Trainees should bring two samples for analysis (to follow through process). o Lynx will concurrently provide standard samples that will go through analysis also. o Trainees will go through each step with an experienced Lynx employee (In case of any inadvertent failures of trainees' sample, they will take over Lynx sample). [GRAPH] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 26. 27 EXHIBIT 4 RECOMMENDED EQUIPMENT AND FACILITIES FOR MEGASORT(TM) AND MPSS(TM) TECHNOLOGIES I. Computer Requirements for Megasort(TM) and MPSS(TM) Technology. (1) Fileserver/RAID a. Images are automatically stored and processed on a fileserver b. Need approximately 100 GB per MPSS instrument c. Support for LINUX (RedHat 6.X) preferred, Sun (Solaris 2.5 or greater) also supported (2) Relational Database Server a. MultiCPU (SMP), with 1 - 2 GB RAM preferred b. Small RAID or mirrored disks (15-30 GB's) c. Running Sybase Adaptive Server Enterprise 11.9.2 on LINUX (3) Compute Server a. LINUX cluster running PBS (Parallel Batch System) b. Current system is VALinux FullOn 2x2 Cluster c. Each node is 2-processor Pentium III with 1GB RAM (4) Analysis QC/Clients a. NT Workstations with 512 MB RAM, large screen, with good fast video preferred b. Most software requires Java (Java 1.3 or greater) c. You could use several of these clients (5) Network a. Transfer of many large images files requires at least 100BaseT networking II. Facilities Requirements for MPSS(TM) Technology. o 15-25% humidity. o Vacuum source for each instrument. o "Dry" fire extinguisher system (water would damage the instrumentation). o Nitrogen is used to operate some mechanical components of the instrument (e.g. rotary valve, valve blocks) o Back-up power system. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 27. 28 EXHIBIT 5 TERMS AND CONDITIONS FOR SUPPLYING PROPRIETARY REAGENTS 1. Definitions. 1.1 "Purchase Order" shall mean a Purchase Order of Takara issued in accordance with the terms of this Agreement. 2. Pricing. 2.1 Prices for Proprietary Reagents purchased hereunder are set forth in Exhibit 6. 2.2 The prices of Exhibit 6 may be adjusted by Lynx from time to time, but no more than once for each Proprietary Reagent in any two-year period after the Effective Date, to reflect increases in costs of labor and/or materials and design, manufacturing, or process changes. Such adjustments shall not exceed [ * ] of the then current price of the Proprietary Reagent. 2.3 Prices stated are exclusive of any taxes, fees, duties, or levies now or later imposed upon the storage, sale, transportation or use of the Proprietary Reagents. 3. Orders. 3.1 Shipments of Proprietary Reagents to Takara shall be made in response to Takara's written Purchase Orders identifying the Proprietary Reagents to be purchased, the quantity, price, shipping instructions, delivery dates, and any other special information. 3.2 Lynx shall make commercially reasonable efforts to meet requested delivery dates, but shall have no obligation to meet requested delivery dates earlier than thirty (30) days from the date of receipt of such Purchase Order. 3.3 Title and risk of loss shall pass from Lynx to Takara upon delivery. Delivery shall be deemed made upon transfer of possession to a common carrier of Takara's selection "F.O.B." at Lynx's facility in Hayward, California, or other location that Lynx may designate in writing to Takara. "F.O.B." shall have the definition as given in the Uniform Commercial Code of the United States. 3.4 All customs, duties, costs, taxes, insurance premiums, and other expenses relating to transportation and delivery shall be at Takara's expense. 3.5 Payment shall be remitted by Takara net thirty (30) days from receipt of an invoice from Lynx and in the currency specified on such invoice. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 28. 29 4. Changes or Improvements. 4.1 During the term of this Agreement, Lynx shall inform Takara on a timely basis of any changes or improvements in the Proprietary Reagents, and of any new related products being developed. However, before any changes are made to existing Proprietary Reagents, Lynx agrees that Takara will be given the opportunity to purchase adequate quantities of unaltered material to carry it through a reasonable period to develop new protocols for use with the altered Proprietary Reagents. 5. Delays in Supplies. 5.1 In the event that Lynx is unable to supply Takara's reasonable requirements of the Proprietary Reagents, Lynx and Takara agree to work together in good faith to identify a third party supplier to which Lynx will transfer under appropriate safeguards Manufacturing Information necessary and desirable for such third party supplier to make Proprietary Reagents necessary to satisfy Takara's requirements. 6. Limited Warranty. 6.1 Lynx warrants to Takara that, for a period of one (1) year from the date of delivery of any Proprietary Reagent, or such other periods indicated for particular Proprietary Reagents, such Proprietary Reagent will be free from defects in material, workmanship, design and title, and will substantially meet the specifications required for use in Lynx Technology. 6.2 If any Proprietary Reagent fails to meet the foregoing warranty, Lynx will replace such deficient Proprietary Reagent in the most timely manner possible at its own expense or Lynx will refund to Takara all costs associated with the purchase and shipping of that Proprietary Reagent. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 29. 30 EXHIBIT 6 TRANSFER PRICES FOR PROPRIETARY AND NON-PROPRIETARY REAGENTS
- ------------------------------------------------------------------------------------------------------- Transfer Material Comments Estimated Estimated Price Per Run Shipment Unit Runs for Unit for Unit Usage Conc. Amount Amount Amount ======================================================================================================= - ------------------------------------------------------------------------------------------------------- PROPRIETARY: - ------------------------------------------------------------------------------------------------------- 5 (u)m GMA tagged [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] microbeads - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Encoded adaptor mix [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- PE-labeled decoder Each probe [ * ] [ * ] [ * ] [ * ] [ * ] probes(1) provided separately. - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Tag vector (pNCV2) [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Flow cell [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Pac I Under license [ * ] [ * ] [ * ] [ * ] [ * ] from NEB. - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- NON-PROPRIETARY: - ------------------------------------------------------------------------------------------------------- MPSS: - ------------------------------------------------------------------------------------------------------- C4 carrier DNA single stranded [ * ] [ * ] [ * ] [ * ] [ * ] (ss) - ------------------------------------------------------------------------------------------------------- PCR F-biotin ss [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- PCR R-FAM ss [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- MPSS 2-step adaptor ds + label [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- MPSS 4-step adaptor ds + label [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- Cap adaptor top ss + [ * ] [ * ] [ * ] [ * ] [ * ] non-natural base - ------------------------------------------------------------------------------------------------------- Cap adaptor bottom ss [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- MEGASORT: - ------------------------------------------------------------------------------------------------------- Competitive oligo(dT) ss [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- F Lin Cy5 ss [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- F Lin FAM ss [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- Comptop primer 500 ss [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- Compbot primer 500 ss [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------- G+ATC comparator ds [ * ] [ * ] [ * ] [ * ] [ * ] - -------------------------------------------------------------------------------------------------------
1. PE-labeled probes have a shelf life of form 1-3 months; therefore, monthly orders are recommended. 2. [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 30. 31 EXHIBIT 7 LIMITED WARRANTY AND SUPPORT FOR MPSS(TM) INSTRUMENT Lynx warrants to Takara that, for a period ending on the date one year from the completion of installation ("Warranty Period"), an MPSS(TM) Instrument will be free from defects in material and workmanship and will perform in accordance with specifications. During the Warranty Period, if the MPSS(TM) Instrument's hardware becomes damaged or contaminated or if the MPSS(TM) Instrument otherwise fails to meet its specifications, Lynx will repair or replace the MPSS(TM) Instrument so that it meets specifications, at Lynx's expense. However, if the liquid handling pumps and delivery lines, or Flow Cell become damaged or contaminated, or if the chemical or enzymatic performance of the MPSS(TM) Instrument otherwise deteriorates due to solvents and/or reagents other than those supplied or expressly recommended by Lynx, Lynx will return the MPSS(TM) Instrument to specification at Takara's request and at Takara's expense. After this service is performed, coverage of the parts repaired will be restored thereafter for the remainder of the original Warranty Period. This Warranty does not extend to any MPSS(TM) Instrument or part which has been (a) the subject of an accident, misuse, or neglect (including but not limited to failure to follow the recommended maintenance procedures), (b) modified or repaired by a party other than Lynx, or (c) used in a manner not in accordance with the instructions provided with the MPSS(TM) Instrument. Lynx shall not be liable for any incidental, special, or consequential loss, damage, or expense directly or indirectly arising from the purchase or use of the MPSS(TM) Instrument. Lynx makes no warranty whatsoever with regard to products or part furnished by third parties. This warranty is limited to Takara and is not transferable without the prior written consent of Lynx. THIS WARRANTY IS THE SOLE AND EXCLUSIVE WARRANTY AS TO THE MPSS(TM) INSTRUMENT AND IS IN LIEU OF ANY OTHER EXPRESS OR IMPLIED WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IS IN LIEU OF ANY OTHER OBLIGATION ON THE PART OF LYNX. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 31. 32 EXHIBIT 8 OUTLINE OF MARKETING PLAN I. Description of market opportunities in each of the three major sub-regions of the Territory: Japan, Korea, and China. a) Who are the customers? b) Plan for accessing and/or communicating with customers of each sub-region? c) Sales goals for services and microarray products in each sub-region, or number of prospective customers created for each sub-region? d) What are the competitive products and services? e) Special circumstances or conditions in each sub-region that would affect marketing? II. Description of promotional plan required to carry out I. a)-c). III. Time schedule for carrying out I. a)-c). IV. Decisions regarding products and services to be promoted in each sub-region. a) Pricing? b) Distribution? [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 32. 33 EXHIBIT 9 CONDITIONS IN RESPECT OF THE HARVARD PATENTS 1.1 The rights granted under the Harvard Patents are subject to the following conditions: (a) HARVARD's "Statement of Policy in Regard to Inventions, Patents and Copyrights" (dated November 3, 1975 and amended on March 17, 1986, February 9, 1998 and August 10, 1998), Public Law 96-517, Public Law 98-620, and HARVARD's obligations under agreements with other sponsors of research. Any right granted in this Agreement greater than that permitted under Public Law 96-517, or Public Law 98-620, shall be subject to modification as may be required to conform to the provisions of those statutes. (b) HARVARD reserves the right to make and use, and grant to others non-exclusive licenses to make and use for NON-COMMERCIAL RESEARCH PURPOSES the subject matter described and claimed in PATENT RIGHTS. (c) Howard Hughes Medical Institute reserves certain rights listed below. (d) LICENSEE shall use diligent efforts to effect introduction of the LICENSED PRODUCTS into the commercial market as soon as practicable, consistent with sound and reasonable business practice and judgment; thereafter, until the expiration of this Agreement, LICENSEE shall endeavor to keep LICENSED PRODUCTS reasonably available to the public. (e) At any time after three (3) years from the effective date of this Agreement, HARVARD may render this license non-exclusive if, in HARVARD's reasonable judgment, the Progress Reports furnished by LICENSEE do not demonstrate that LICENSEE: (i) has put the licensed subject matter into commercial use in the country or countries hereby licensed, directly or through a sublicense, and is keeping the licensed subject matter reasonably available to the public, or (ii) is engaged in research, development, manufacturing, marketing or sublicensing activity appropriate to meeting the requirements of subparagraph 2.2(e)(i). (f) In order to meet the requirements of subparagraphs 2.2(e)(i) and (ii), LICENSEE shall: (i) within thirty-six (36) months of the Effective Date of the Agreement, develop at least one nucleic acid analysis process within the FIELD using one or more LICENSED PRODUCT(s). (ii) within forty-eight (48) months of the Effective Date of the Agreement, develop at least one non-service LICENSED PRODUCT, wherein such LICENSED PRODUCT and any method, reagent or apparatus essential for the use thereof is suitable for commercial use or sale. (iii) commence commercial sales or service by the year 2005. (g) A license in any other field of use in addition to the FIELD shall be the subject of a separate agreement and shall require LICENSEE's submission of evidence, satisfactory to HARVARD, demonstrating LICENSEE's willingness and ability to develop and [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 33. 34 commercialize in such other field of use the kinds of products or processes likely to be encompassed in such other field. (h) During the period of exclusivity of this license in the United States, LICENSEE shall cause any LICENSED PRODUCT produced for sale in the United States to be manufactured substantially in the United States. 1.2 All rights reserved to the United States Government and others under Public Law 96-517, and Public Law 98-620, shall remain and shall in no way be affected by this Agreement. 1.3 Requirements of Howard Hughes Medical Institute in respect of the Harvard Patents based on the "Collaboration Agreement between Howard Hughes Medical Institute and President and Fellows of Harvard College", dated January 1, 1986: "4.1 Ownership and Assignment of Rights and Obligations. The rights and obligations with respect to inventions, discoveries, improvements, and other intellectual property, whether or not patentable or copyrightable (each a "Subject Invention"), conceived or reduced to practice at the Premises by employees of the Institute participating in the Research Program will be assigned to and be the sole property of the University, and will be determined in accordance with the applicable policies and procedures of the University subject to the other provisions of this Article 4. 4.2 Mutual Objective. The parties agree that their mutual objective in respect of intellectual property conceived or developed pursuant to this Agreement is to disseminate such property for public use and benefit on a non-discriminatory basis. The parties will consult periodically with respect to any potential changes in their respective intellectual property policies. 4.3 Paid-Up License. The University will grant the Institute a paid-up, non-exclusive, irrevocable license to use each Subject Invention for its research and academic purposes, but with no right to sub-license for commercial purposes. 4.4 Use of the Property. The University will have the right to determine how best to utilize a Subject Invention; provided that (a) the Institute will, upon request, be given annual reports by the University on the utilization thereof, (b) the Institute will have the right to require licensing to others where, in its judgment, effective steps to achieve practical application of Subject Inventions have not been taken within a reasonable time or such licensing is necessary to meet the needs of public health or safety, and the University, within 90 days following notice from the Institute, fails to take such effective steps or otherwise to meet the needs of public health and safety through the enforcement of contractual rights or by other action; and (c) any license or sub-license by the University of any Subject Invention to a third party (i) will not relieve the University of its obligations to the Institute under Sections 4.3, 4.5 and 4.6 in respect of the Subject Invention and (ii) will provide that the Institute shall be indemnified and held harmless against any claims, liability, costs, loss or obligation, including without limitation, reasonable attorney's fees and costs, in connection with such license or sub-license." [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 34. 35 EXHIBIT 10 COMMON STOCK PURCHASE AGREEMENT THIS COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of October 1, 200_, by and between TAKARA SHUZO CO., LTD., a Japanese corporation having its principal office at SETA 3-4-1, Otsu, Shiga, 520-2193 JAPAN ("Purchaser"), and LYNX THERAPEUTICS, INC., a Delaware corporation, having its principal office at 25861 Industrial Blvd., Hayward, California, USA (the "Company"). RECITALS WHEREAS, Company and Purchaser have entered into that certain License Agreement effective as of the 1st day of October, 2000 (the "License Agreement") for the right to use the Company's proprietary technologies to manufacture, distribute and sell microarrays worldwide and to provide Megasort(TM) and MPSS(TM) services to customers in Japan, China and Korea; WHEREAS, the Company has authorized the sale and issuance of up to ____________ (__________) {to be calculated as the number of shares equal to [*] divided by the current market price per share as set forth in Section 1.1 below} shares of its common stock to purchase in a private placement; and WHEREAS, in connection with the License Agreement, the Company desires to issue and sell shares of its common stock to Purchaser, and Purchaser desires to purchase shares of Company's common stock on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and the following mutual promises and covenants, the parties hereto agree as follows: SECTION 1. SALE AND ISSUANCE OF STOCK 1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and conditions set forth in this Agreement and the License Agreement, on the Closing Date (as defined below), the Company agrees to sell and issue to Purchaser, and Purchaser agrees to purchase, the number of shares of the Company's common stock (the "Shares") determined by dividing the applicable [ * ] ("Purchase Price") by the current market price per share of the Company's common stock. The "current market price per share" shall be [ * ]. 1.2 PAYMENT OF PURCHASE PRICE. The Purchase Price is payable by Purchaser to the Company on the Closing Date by wire transfer of immediately available funds to an account or accounts to be designated by the Company, or by bank certified or cashier's check made payable to the Company. 1.3 TRANSFER TAXES. Any transfer taxes, stamp duties, filing fees, registration fees, recordation expenses, escrow fees or other similar taxes, fees, charges or expenses incurred by the Company, Purchaser or any other party in connection with the purchase or in connection with any of the other transactions contemplated by this Agreement shall be borne and paid exclusively by the party incurring such expenses. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 35. 36 SECTION 2. CLOSING; DELIVERY. The consummation of the transaction contemplated by this Agreement (the "Closing") shall be held on the date hereof ("Closing Date"). The Closing shall be held at the offices of Cooley Godward LLP, 3175 Hanover Street, Palo Alto, California 94306-2155 or at such other time or place as Purchaser and the Company may mutually agree. At the Closing, the Company shall cause to be issued to Purchaser a stock certificate, in the name of Purchaser, representing the Shares being purchased against receipt of the payment of the Purchase Price. The Company shall deliver such stock certificate to Purchaser at the Closing or promptly thereafter. SECTION 3. REPRESENTATIONS AND WARRANTIES OF COMPANY. THE COMPANY HEREBY REPRESENTS, WARRANTS AND COVENANTS TO PURCHASER AS FOLLOWS: 3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as presently proposed to be conducted. The Company is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties. 3.2 AUTHORIZATION. All corporate action on the part of Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of Company hereunder and the authorization, issuance and delivery of the Shares has been taken or will be taken prior to the Closing, and this Agreement, when executed and delivered will constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 3.3 VALID ISSUANCE OF COMMON STOCK. The Shares that are being purchased by Purchaser hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly authorized and issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement and applicable state and federal securities laws. 3.4 LEGAL PROCEEDINGS AND ORDERS. There is no action, suit, proceeding or investigation ("Legal Proceeding") pending or threatened against the Company that questions the validity of this Agreement or the right of the Company to enter into this Agreement or to consummate the transactions contemplated hereby, nor is the Company aware of any basis for any of the forgoing. The Company is neither a party nor subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality that would affect the ability of the Company to enter into this Agreement or to consummate the transactions contemplated hereby. SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 36. 37 Purchaser hereby represents, warrants and covenants to the Company as follows: 4.1 AUTHORIZATION. Purchase has full power and authority to enter into this Agreement, and this Agreement, when executed and delivered, will constitute valid and legally binding obligations of Purchaser, enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief or other equitable remedies. 4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with Purchaser in reliance upon Purchaser's representation to the Company, which by Purchaser's execution of this Agreement Purchaser hereby confirms, that the Shares to be purchased by Purchaser will be acquired for investment for Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof. Purchaser has no present intention of selling, granting any participation in or otherwise distributing the same. By executing this Agreement, Purchaser further represents that Purchaser does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Shares and Purchaser has not been formed for the specific purpose of acquiring the Shares. 4.3 RECEIPT OF INFORMATION. Purchaser has had an opportunity to discuss the Company's business, management and financial affairs and the terms and conditions of the offering of the Shares with the Company's management and has had an opportunity to review the Company's facilities. Purchaser has also had an opportunity to ask questions of and receive answers from the Company regarding the terms and conditions of its investment. Purchaser understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business which it believes to be material. 4.4 RESTRICTED SECURITIES. Purchaser understands that the Shares have not been, and will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), by reason of a specific exemption from the registration provisions of the Securities Act, which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Purchaser's representations as expressed herein. Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and on requirements relating to the Company which are outside of Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 37. 38 4.5 LEGENDS. Purchaser understands that the Shares and any securities issued in respect of or exchange for the Shares, may bear one or all of the following legends: (a) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED." (b) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. 4.6 ACCREDITED INVESTOR. Purchaser is either (a) an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Act or (b) not an accredited investor and neither such Investor nor any beneficiary of any trust or any investment client for whose account such Investor is purchasing is a citizen or resident of the United States or Canada, or any state, territory or possession thereof, including but not limited to any estate of any such person, or any corporation, partnership, trust or other entity created or existing under the laws thereof, or any entity controlled or owned by any of the foregoing (a "U.S. Person"). INVESTMENT EXPERIENCE. Purchaser is experienced in evaluating and investing in private placement transactions of securities of companies in a similar stage of development and acknowledges that Purchaser is able to fend for himself, herself or itself, can bear the economic risk of such investment and has such knowledge and experience in financial and business matters that Purchaser is capable of evaluating the merits and risks of the investment in the Shares. FURTHER REPRESENTATION BY FOREIGN INVESTORS. If Purchaser is not a U.S. Person, Purchaser hereby represents that Purchaser is satisfied as to the full observance of the laws of Purchaser's jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Agreement, including (i) the legal requirements of Purchaser's jurisdiction for the purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained and (iv) the income tax and other tax consequences, if any, which may be relevant to the purchase, holding, redemption, sale or transfer of the Shares. Purchaser's subscription and payment for, and Purchaser's continued beneficial ownership of, the Shares will not violate any applicable securities or other laws of Purchaser's jurisdiction. SECTION 5. CONDITIONS PRECEDENT TO OBLIGATION OF PURCHASER TO CLOSE The obligation of Purchaser to purchase the Shares and otherwise consummate the transactions that are contemplated by this Agreement is subject to the satisfaction, as of the Closing Date, of the following conditions (any of which may be waived by Purchaser in whole or in part): 5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company set forth in Section 3 shall be accurate and true in all material respects on and as of the Closing Date. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 38. 39 5.2 PERFORMANCE. All of the covenants and obligations that the Company is required to perform or to comply with pursuant to this Agreement and the license agreement between Lynx and Takara as of November 2, at or prior to the Closing, must have been duly performed and complied with in all material respects. 5.3 SHARES AVAILABLE. The Company shall have available under its Amended and Restated Certificate of Incorporation sufficient authorized shares of capital stock to issue and sell the Shares to Purchaser. SECTION 6. CONDITIONS TO OBLIGATION OF THE COMPANY TO CLOSE The obligation of the Company to cause the Shares to be sold to Purchaser and otherwise consummate the transactions that are contemplated by this Agreement is subject to the satisfaction, as of the Closing Date, of the following conditions (any of which may be waived by Company in whole or in part): 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Purchaser set forth in Section 4 shall be accurate and true in all material respects on and as of the Closing Date. 6.2 PERFORMANCE. All of the covenants and obligations that Purchaser is required to perform or to comply with pursuant to this Agreement, at or prior to the Closing, must have been duly performed and complied with in all material respects. 6.3 NO RESTRAINTS. No temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Purchase shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any law, rule, regulation, order, judgment or decree enacted or deemed applicable to the Purchase that makes consummation of the Purchase illegal. 6.4 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing. SECTION 7. MISCELLANEOUS PROVISIONS 7.1 TIME OF ESSENCE. Time is of the essence of this Agreement. 7.2 FURTHER ACTIONS. The Company shall execute such agreements and other documents, and shall take such other actions, as Purchaser may reasonably request (prior to, at or after the Closing) for the purpose of ensuring that the transactions contemplated by this Agreement are carried out in full compliance with the provisions of all applicable laws and regulations. 7.3 PUBLICITY. No press release, publicity, disclosure or notice to any Person concerning any of the transactions contemplated by this Agreement shall be issued, given, made or otherwise disseminated at any time (whether prior to, at or after the Closing) without the prior written approval of the other party. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 39. 40 7.4 GOVERNING LAW. This Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and performed entirely in California. 7.5 VENUE AND JURISDICTION. If any legal proceeding or other legal action relating to this Agreement is brought or otherwise initiated, the venue therefor shall be in California, which shall be deemed to be a convenient forum. Purchaser and the Company hereby expressly and irrevocably consent and submit to the jurisdiction of the courts in California. 7.6 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the addresses set forth on the signature page hereto or at such other address as the Company or Purchaser may designate by ten days advance written notice to the other parties thereto. 7.7 FEES AND EXPENSES. All fees, costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such fees, costs and expenses. 7.8 ATTORNEYS' FEES. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 7.9 TABLE OF CONTENTS AND HEADINGS. The table of contents of this Agreement and the Section headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement. 7.10 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the respective successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each of the parties hereto. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.11 SEVERABILITY. In the event that any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 40. 41 7.12 ENTIRE AGREEMENT. This Agreement and the License Agreement referred to herein and therein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled. This Agreement and the License Agreement are intended to define the full extent of the legally enforceable undertakings of the Company and Purchaser, and no promise or representation, whether written or oral, which is not set forth explicitly in this Agreement or the License Agreement is intended by either party to be legally binding. 7.13 WAIVER. No failure on the part of either party hereto to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of either party hereto in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver thereof; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. 7.14 AMENDMENTS. This Agreement may not be amended, modified, altered or supplemented except by means of a written instrument executed on behalf of both Purchaser and the Company. 7.15 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 7.16 CONFIDENTIALITY. Each party hereto agrees that, except with the prior written permission of the other party, it shall at all times keep confidential and not in any way divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the ownership of the Shares purchased hereunder. The provisions of this Section 7.16 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the transactions contemplated hereby. 7.17 INTERPRETATION OF AGREEMENT. (a) Each party hereto acknowledges that it has participated in the drafting of this Agreement, and any applicable rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in connection with the construction or interpretation of this Agreement. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 41. 42 (b) Whenever required by the context hereof, the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; and the neuter gender shall include the masculine and feminine genders. (c) As used in this Agreement, the words "include" and "including," and variations thereof, shall not be deemed to be terms of limitation, and shall be deemed to be followed by the words "without limitation." (d) References herein to "Sections" and "Schedules" are intended to refer to Sections of and Schedules to this Agreement. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 42. 43 IN WITNESS WHEREOF, each of the parties hereto has caused this Common Stock Purchase Agreement to be executed and delivered by its duly authorized officer on the date set forth above. ACCEPTED AND ACKNOWLEDGED BY PURCHASER: TAKARA SHUZO CO., LTD. By: ----------------------------------------- Printed Name: ------------------------------- Title: -------------------------------------- Address: ------------------------------------ --------------------------------------------- ACCEPTED AND ACKNOWLEDGED BY THE COMPANY: LYNX THERAPEUTICS, INC. By: ----------------------------------------- Printed Name: ------------------------------- Title: -------------------------------------- Address: ------------------------------------ --------------------------------------------- --------------------------------------------- [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Page 43. EX-23.1 10 f75239a1ex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-39171 and No. 333-62890) and the Registration Statements on Form S-8 (No. 333-59163, No. 333-59157, No. 333-21997, No. 333-86634, No. 333-94872, and No. 333-63804) pertaining to the 1992 Stock Option Plan and 1998 Employee Stock Purchase Plan of Lynx Therapeutics, Inc. of our report dated February 2, 2001, with respect to the consolidated financial statements of Lynx Therapeutics, Inc. included in its Annual Report (Form 10-K/A) for the year ended December 31, 2000. /s/ ERNST & YOUNG LLP ------------------------------- Palo Alto, California August 22, 2001 56 -----END PRIVACY-ENHANCED MESSAGE-----