10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 2002.

OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from                          to                          .

Commission File Number 0-22570

Lynx Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 94-3161073
(I.R.S. Employer
Identification No.)

25861 Industrial Blvd.
Hayward, CA 94545
(Address of principal
executive offices)

(510) 670-9300
(Registrant’s telephone number, including area code)

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 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 [   ]

The number of shares of common stock outstanding as of August 1, 2002 was 28,450,257.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
INDEX TO EXHIBITS
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 10.32
EXHIBIT 99.1

Lynx Therapeutics, Inc.

FORM 10-Q

For the Quarter Ended June 30, 2002

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — June 30, 2002 and December 31, 2001		3
	Condensed Consolidated Statements of Operations — three and six months ended June 30, 2002 and 2001		4
	Condensed Consolidated Statements of Cash Flows — six months ended June 30, 2002 and 2001		5
	Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		18
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		19
Item 2.	Changes in Securities and Use of Proceeds		19
Item 3.	Defaults Upon Senior Securities		19
Item 4.	Submission of Matters to a Vote of Security Holders		19
Item 5.	Other Information		19
Item 6.	Exhibits and Reports on Form 8-K		19
Signatures			21

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Lynx Therapeutics, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

		June 30,			December 31,
		2002			2001 *
		(Unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	14,580		$	3,199
	Short-term investments		3,248			2,310
	Accounts receivable		642			1,152
	Inventory		1,090			1,718
	Other current assets		800			897
Total current assets			20,360			9,276
Property and equipment:
	Leasehold improvements		12,239			12,225
	Laboratory and other equipment		21,110			20,284
			33,349			32,509
	Less accumulated depreciation and amortization		(16,562	)		(14,283	)
Net property and equipment			16,787			18,226
Investment in related party			2,944			4,452
Other non-current assets			506			548
		$	40,597		$	32,502
Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable	$	1,424		$	2,037
	Accrued compensation		982			694
	Deferred revenues — current portion		4,426			5,259
	Notes payable — current portion		1,672			1,445
	Other accrued liabilities		95			329
Total current liabilities			8,599			9,764
Deferred revenues			14,305			15,115
Notes payable			781			1,806
Other non-current liabilities			1,138			1,103
Stockholders’ equity:
	Common stock		108,897			87,951
	Notes receivable from stockholders		(250	)		(250	)
	Deferred compensation		(255	)		(744	)
	Accumulated other comprehensive income (loss)		—			1,139
	Accumulated deficit		(92,618	)		(83,382	)
Total stockholders’ equity			15,774			4,714
		$	40,597		$	32,502

* The balance sheet amounts at December 31, 2001 have been derived from audited financial statements at that date but do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See accompanying notes.

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Lynx Therapeutics, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2002			2001			2002			2001
Revenues:
	Technology access and service fees		$	2,443		$	3,942		$	4,597		$	7,198
	License fees from related party			190			—			380			—
	Collaborative research and other			220			414			2,898			554
Total revenues				2,853			4,357			7,875			7,752
Operating costs and expenses:
		Cost of service fees revenues and other		436			1,117			735			1,773
		Research and development		5,406			5,866			12,293			11,822
		General and administrative		1,408			2,008			3,142			4,009
		Special charge for workforce reduction		530			—			530			—
Total operating costs and expenses				7,780			8,991			16,700			17,604
Loss from operations				(4,927	)		(4,634	)		(8,825	)		(9,852	)
Interest income (expense), net				(24	)		10			(124	)		16
Other income (expense), net				(796	)		48			(597	)		(438	)
Loss before provision for income taxes				(5,747	)		(4,576	)		(9,546	)		(10,274	)
Income tax provision (benefit)				(271	)		—			(310	)		—
Net loss			$	(5,476	)	$	(4,576	)	$	(9,236	)	$	(10,274	)
Basic and diluted net loss per share			$	(0.23	)	$	(0.37	)	$	(0.49	)	$	(0.86	)
Shares used in per share computation				23,757			12,403			18,775			11,937

See accompanying notes.

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Lynx Therapeutics, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

			Six Months Ended
			June 30,
			2002			2001
Cash flows from operating activities:
Net loss			$	(9,236	)	$	(10,274	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			2,279			2,564
	Amortization of deferred compensation			489			503
	Pro rata share of net loss of related party			1,508			—
	Gain on sale of antisense program			(1,008	)		(1,060	)
	Loss on writedown of equity investment			—			1,605
	Changes in operating assets and liabilities:
		Accounts receivable		510			506
		Inventory		628			—
		Other current assets		97			(915	)
		Accounts payable		(613	)		(636	)
		Accrued liabilities		54			169
		Deferred revenues		(1,643	)		(3,328	)
		Other non-current liabilities		35			74
Net cash used in operating activities				(6,900	)		(10,792	)
Cash flows from investing activities:
Purchases of short-term investments				(3,249	)		(2,807	)
Maturities of short-term investments				—			8,928
Proceeds from sale of equity securities				2,180			—
Leasehold improvements and equipment purchases, net of retirements				(840	)		(4,412	)
Notes receivable from officers and employees				42			(9	)
Net cash provided by (used in) investing activities				(1,867	)		1,700
Cash flows from financing activities:
Repayment of notes payable				(798	)		(606	)
Issuance of common stock				20,946			11,108
Net cash provided by financing activities				20,148			10,502
Net increase in cash and cash equivalents				11,381			1,410
Cash and cash equivalents at beginning of period				3,199			7,875
Cash and cash equivalents at end of period			$	14,580		$	9,285
Supplemental disclosure of cash flow information:
Interest paid			$	191		$	232

See accompanying notes.

5

Lynx Therapeutics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2002

1. Nature of Business

     Lynx believes that it is a leader in the development and application of novel technologies for the discovery of gene expression patterns important to the pharmaceutical, biotechnology and agricultural industries. These technologies are based on the Megaclone™ technology, Lynx’s unique and proprietary cloning procedure, which 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. Megaclone™ technology and Massively Parallel Signature Sequencing technology, or MPSS™, together provide comprehensive and quantitative digital gene expression data important to modern systems biology research. Lynx is also developing a proteomics technology, Protein ProFiler™, an automated two-dimensional liquid-based electrophoresis system that is expected to permit high-resolution analysis of complex mixtures of proteins from cells or tissues.

2. Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (the “SEC”). Certain prior year amounts have been reclassified to conform to current year presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the results for the full year.

     The unaudited condensed consolidated financial statements include all accounts of the Company and its wholly-owned subsidiaries, Lynx Therapeutics GmbH and Lynx Therapeutics Berteiligungs-und Verwertungsgesellschaft GmbH, both of which are German limited liability companies formed under the laws of the Federal Republic of Germany. All significant intercompany balances and transactions have been eliminated.

     These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the Company’s year ended December 31, 2001, included in its annual report on Form 10-K, filed with the SEC.

3. Summary of Significant Accounting Policies

Revenue Recognition

     Technology access and license fees have generally resulted from upfront payments from customers, collaborators and licensees who are provided access to Lynx’s technologies for specified periods. The amounts are deferred and recognized as revenue on a straight-line basis over the noncancelable terms of the agreements to which they relate. The Company receives payments from customers, collaborators and licensees for genomics discovery services performed by Lynx on the biological samples they send to Lynx and/or for the materials provided by Lynx. These amounts 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. Collaborative research revenues are payments received under various agreements and include such items as the sale of technology assets and milestone payments. Milestone payments are recognized as revenue upon the achievement of specified technology developments, representing the culmination of the earnings process. Other revenues include the proceeds from the sale of proprietary reagents and grant revenue. Revenues from the sales of products and reagents, which have been immaterial to date, are recognized upon shipment to the customer.

Investment in Related Party Equity Securities

     As of June 30, 2002, we held an approximately 40% equity interest in Axaron Bioscience AG (“Axaron”), a company owned primarily by Lynx and BASF AG. We account for our investment in Axaron using the equity method because our ownership is greater than 20% and we have the ability to exercise significant influence over the operating, investing and financing decisions of Axaron.

6

Under the equity method, we record our pro-rata share of Axaron’s income or losses and adjust the basis of our investment accordingly. Although we have the ability to exercise significant influence over the operations of Axaron, we may choose not to exercise such influence or may not have influence over certain operating matters. Consequently, Axaron’s operating results could differ significantly from our expectations, and our pro rata share of Axaron’s income or losses that we record in the future could be material. For the quarter and six-month period ended June 30, 2002, Lynx’s pro-rata share of Axaron’s losses was $0.7 million and $1.5 million, respectively.

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 that 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 losses per share are equivalent for all periods presented herein due to the Company’s net loss in all periods. At June 30, 2002, options to purchase approximately 2,930,000 shares of common stock at a weighted-average exercise price of $10.61 per share and warrants to purchase 707,588 shares of common stock at $5.68 per share, 292,000 shares of common stock at $1.55 per share and 5,840,000 shares of common stock at $1.94 per share were excluded from the calculation of diluted loss per share for 2002 because the effect of inclusion would be antidilutive. The options and warrants will be included in the calculation at such time as the effect is no longer antidilutive, as calculated using the treasury stock method. At June 30, 2001, options to purchase approximately 2,646,000 shares of common stock at a weighted-average exercise price of $13.31 per share and warrants to purchase 436,808 shares of common stock at an exercise price of $9.2011 per share were excluded from the calculation of diluted loss per share for 2001 because the effect of inclusion would be antidilutive.

Recent Accounting Pronouncements

     In July 2001, the FASB issued Statement of Financial Accounting Standard No. 141, “Business Combinations” (“SFAS 141”). SFAS 141 establishes new standards for accounting and reporting for business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. Lynx adopted this statement during the first quarter of fiscal 2002, and its adoption did not have a material effect on Lynx’s operating results or financial position.

     In July 2001, the FASB issued Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), which supercedes APB Opinion No. 17, “Intangible Assets.” SFAS 142 establishes new standards for goodwill, including the elimination of goodwill amortization to be replaced with methods of periodically evaluating goodwill for impairment. Lynx adopted this statement during the first quarter of fiscal 2002, and its adoption did not have a material effect on Lynx’s operating results or financial position.

     In October 2001, the FASB issued Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.” SFAS 144 establishes a single accounting model for long-lived assets to be disposed of and is applicable to financial statements issued for fiscal years beginning after December 15, 2001 (January 2002 for calendar year-end companies) with transition provisions for certain matters. Lynx adopted this statement during the first quarter of fiscal 2002, and its adoption did not have a material effect on Lynx’s operating results or financial position.

Comprehensive Income (Loss)

The following are the components of comprehensive income (loss): (in thousands)

	Three Months Ended June 30,
	2002			2001
Net loss	$	(5,476	)	$	(4,576	)
Net unrealized gain (loss) on available-for-sale securities		(13	)		1,065
Comprehensive loss	$	(5,489	)	$	(3,511	)

	Six Months Ended June 30,
	2002			2001
Net loss	$	(9,236	)	$	(10,274	)
Net unrealized gain (loss) on available-for-sale securities		(1,139	)		1,043

7

	Six Months Ended June 30,
	2002			2001
Comprehensive loss	$	(10,375	)	$	(9,231	)

The components of accumulated other comprehensive income (loss) relate entirely to unrealized gains (losses) on available-for-sale securities and were $0 at June 30, 2002 and $1.1 million at December 31, 2001.

5. Related Party Transactions

     In 2001, the Company extended its technology licensing agreement with Axaron. The license extends Axaron’s right to use Lynx’s proprietary MPSS™ and Megasort™ technologies non-exclusively in Axaron’s neuroscience, toxicology and microbiology programs until December 31, 2007. The Company received from Axaron a $5.0 million technology license fee, which was recorded as deferred revenue and is being recognized on a straight-line basis over the noncancelable term of the agreement. The recorded revenue for the three- and six-month periods ended June 30, 2002 was approximately $190,000 and $380,000, respectively. For the quarter and six-month period ended June 30, 2002, Lynx’s pro-rata share of Axaron’s losses was approximately $0.7 million and $1.5 million, respectively. In 2001, Lynx made a capital investment in Axaron of approximately $4.5 million.

     The Company also subleases certain offices in Germany to Axaron. During the three- and six-month period ended June 30, 2002 and 2001, the Company received an immaterial amount of sublease income from Axaron.

6. Sale of Technology Assets

     On March 6, 2002, Lynx sold its intellectual property rights under the N3’-P5’ phosphoramidate patent estate to Geron Corporation (“Geron”) in exchange for $1.0 million in cash and 210,000 shares of Geron common stock. The agreement with Geron covers the sale of a family of patents covering process and compositional matter claims related to oligonucleotides containing phosphoramidate backbone linkages. The Company recognized proceeds of approximately $2.6 million from the sale of this technology to Geron. The Company sold all of the Geron stock in April 2002, realizing a loss upon sale of approximately $64,000.

7. Common Stock

     On April 30, 2002, Lynx completed a $22.6 million private placement of common stock and warrants to purchase common stock (the “financing”) resulting in proceeds of $20.9 million, net of commissions and expenses. The financing included the sale of 14.6 million newly issued shares of common stock at $1.55 per share and the issuance of warrants to purchase approximately 5.8 million shares of common stock at an exercise price of $1.94 per share. In May 2002, Lynx filed with the SEC a resale registration statement on Form S-3 relating to the issued securities. In connection with the financing, the Company issued a warrant to purchase up to an aggregate of 292,000 shares of the Company’s common stock at an exercise price of $1.55 per share to Friedman, Billings, Ramsey & Co., Inc. (“FBR”), as partial consideration, in addition to other customary fees, for services rendered by FBR as sole manager for the private equity financing.

8. Restructuring Charges

     On April 18, 2002, Lynx announced a reduction of approximately 30% of its domestic workforce. This reduction in workforce is expected to direct Lynx’s financial and human resources toward the further commercial expansion of Lynx’s genomics technologies — principally Massively Parallel Signature Sequencing, or MPSS™ — and the development of its Protein ProFiler™ proteomics technology. The Company recorded a workforce reduction charge of $0.5 million related primarily to severance compensation expense for former Lynx employees in the second quarter and six months ended June 30, 2002.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This discussion and analysis should be read in conjunction with the Company’s financial statements and accompanying notes included in this report and the Company’s 2001 audited financial statements and notes thereto included in its 2001 Annual Report on Form 10-K. Operating results for the three and six months ended June 30, 2002 are not necessarily indicative of results that may occur in future periods.

     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

8

intended to identify such forward-looking statements. There can be no assurance that these statements will prove to be correct. 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 Lynx’s 2001 Annual Report on Form 10-K, as filed with the SEC. Lynx undertakes no obligation to update any of the forward-looking statements contained herein to reflect any future events or developments.

Overview

     Lynx believes that it is a leader in the development and application of novel technologies for the discovery of gene expression patterns important to the pharmaceutical, biotechnology and agricultural industries. These technologies are based on the Megaclone™ technology, Lynx’s unique and proprietary cloning procedure, which 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. Megaclone™ technology and Massively Parallel Signature Sequencing technology, or MPSS™, together provide comprehensive and quantitative digital gene expression data important to modern systems biology research. Lynx is also developing a proteomics technology, Protein ProFiler™, an automated two-dimensional liquid-based electrophoresis system that is expected to permit high-resolution analysis of complex mixtures of proteins from cells or tissues.

     We have incurred net losses each year since our inception in 1992. As of June 30, 2002, we had an accumulated deficit of approximately $92.6 million. Future net losses or profits will depend, in part, on the rate of growth, if any, in our revenues and on the level of our expenses.

     To date, we have received a significant portion of our revenues from a small number of customers, collaborators and licensees. For the six months ended June 30, 2002, revenues from E.I. DuPont de Nemours and Co., Takara Shuzo Co., Ltd. and Aventis CropScience GmbH accounted for 25%, 13% and 11%, respectively, of our total revenues. For the year ended December 31, 2001, revenues from DuPont, BASF AG, Takara and the Institute of Molecular and Cell Biology accounted for 37%, 24%, 12% and 12%, 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%, respectively, of our total revenues. Revenues for the second quarter and six-month period ended June 30, 2002 were $2.9 million and $7.9 million, respectively, and revenues for the corresponding second quarter and six-month period of 2001 were $4.4 million and $7.8 million, respectively. These revenues consist primarily of technology access and service fees from Lynx’s customers, collaborators and licensees.

     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 customers, collaborators and licensees, 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 customers, collaborators and licensees.

     Our operating costs and expenses include cost of service fees, research and development expenses and general and administrative expenses. 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 customers, collaborators and licensees. 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. Research and development expenses may increase 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, business development, legal and investor relations activities. General and administrative expenses may increase in support of Lynx’s commercial, business development and research and development activities.

     We account for our investment in Axaron Bioscience AG using the equity method. Prior to our cash capital contribution of approximately $4.5 million in 2001, such investment had a carrying value of zero in the financial statements. Since September 1, 2001, we have recognized our share of Axaron’s operating results in the accompanying statements of operations. For the quarter and six-month period ended June 30, 2002, our pro-rata share of Axaron’s losses was approximately $720,000 and $1.5 million, respectively.

Results of Operations

Revenues

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     Revenues for the quarter and six-month period ended June 30, 2002 were approximately $2.9 million and $7.9 million, respectively, compared to revenues for the corresponding quarter and six-month period of 2001 of $4.4 million and $7.8 million, respectively. These revenues consist primarily of technology access and service fees from Lynx’s customers, collaborators and licensees. Revenues for the six-month period in 2002 included technology access fees and service fees of $4.6 million, license fees from a related party of $0.4 million and other revenues of $2.9 million, including $2.6 million from the sale of certain of Lynx’s technology assets. Revenues for the six-month period in 2001 consisted primarily of technology access and service fees.

Operating Costs and Expenses

     Total operating costs and expenses were approximately $7.8 million for the quarter ended June 30, 2002, compared to $9.0 million for the corresponding period of 2001. For the six-month period ended June 30, 2002, operating costs and expenses were approximately $16.7 million, compared to $17.6 million for the corresponding period of 2001. For the quarter and six-month period ended June 30, 2002, cost of service fees were approximately $0.4 million and $0.7 million, respectively, compared to $1.1 million and $1.8 million, respectively, for the corresponding quarter and six-month period of 2001. These amounts reflect the costs of providing our genomics discovery services. Research and development expenses were approximately $5.4 million for the quarter ended June 30, 2002, compared to $5.9 million for the corresponding period of 2001. The decrease in research and development expenses from the 2001 period to the 2002 period reflects lower personnel expenses, primarily resulting from the workforce reduction that occurred during the second quarter of 2002, and a decrease in materials consumed in research and development efforts. For the six-month period ended June 30, 2002, research and development expenses were approximately $12.3 million, compared to $11.8 million for the corresponding period in 2001. The increase research and development expenses in 2002 reflects higher personnel expenses year to date, partially offset by a decrease in materials consumed in research and development efforts and lower personnel expenses in the second quarter of 2002, primarily resulting from the workforce reduction. General and administrative expenses decreased to approximately $1.4 million for the quarter ended June 30, 2002, compared to $2.0 million for the corresponding period of 2001. For the six-month period ended June 30, 2002, general and administrative expenses decreased to approximately $3.1 million, compared to $4.0 million in the same period of 2001. The decrease in general and administrative expenses from the 2001 periods to the 2002 periods reflects lower personnel expenses, primarily from the workforce reduction that occurred during the second quarter of 2002, and lower outside service costs. The special charge of approximately $0.5 million in the second quarter and six months ended June 30, 2002, was comprised primarily of severance charges for former Lynx employees who were part of Lynx’s workforce reduction in the second quarter of 2002.

Interest Income (expense), Net

     Net interest expense was $24,000 and $124,000 for the quarter and six-month period ended June 30, 2002, respectively, compared to net interest income of $10,000 and $16,000, respectively, for the corresponding periods of 2001. The 2002 net interest expense reflects a decrease in interest income due to lower average cash, cash equivalents and investment balances as compared to the 2001 period. Interest expense incurred on equipment-related debt is included in both the 2002 and 2001 periods.

Other Income (expense), Net

     Other expense was approximately $0.8 million in the quarter ended June 30, 2002, compared to other income of $48,000 in the 2001 period. The other expense for the three-month period ended June 30, 2002 was related primarily to our pro-rata share of the net loss of Axaron, a related party. For the six-month period ended June 30, 2002, the other loss was approximately $0.6 million, compared to other expense of $0.4 million in the same period in 2001. The 2002 other expense was related primarily to our pro-rata share of the net loss of Axaron, a related party, partially offset by the gain on the sale of our equity investment in Inex Pharmaceuticals Corporation. The other expense for the six-month period in 2001 was related primarily to a $1.6 million writedown for an other-than-temporary decline in the value of Lynx’s equity investment in Inex, net of a $1.1 million gain recorded from the receipt of shares of common stock from Inex in the first quarter of 2001 as part of the proceeds related to the March 1998 sale of Lynx’s former antisense program.

Income Taxes

     The income tax benefit amount of approximately $271,000 for the quarter and $310,000 for the six-months ended June 30, 2002 relates primarily to a refund receivable for federal alternative minimum taxes paid in prior periods. There were no provisions made for income taxes for the quarter and six-month period ended June 30, 2001.

Liquidity and Capital Resources

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Net cash used in operating activities was $6.9 million for the six months ended June 30, 2002, as compared to net cash used in operating activities of $10.8 million for the same period of 2001. The change was primarily due to a lower net loss from operations after adjusting for non-cash charges and revenues. Net cash used in investing activities of $1.9 million for the six-month period ended June 30, 2002 primarily related to the purchase of short-term investments and to expenditures on capital equipment. Net cash provided by financing activities for the six-month period ended June 30, 2002, related primarily to the issuance of common stock pursuant to a common stock purchase agreement between the Company and certain investors, partially offset by repayment of principal under an equipment loan arrangement. Cash, cash equivalents and short-term investments were approximately $17.8 million at June 30, 2002.

     On April 30, 2002, Lynx completed a private placement of common stock and warrants to purchase common stock. The financing included the sale of 14.6 million newly issued shares of common stock at a purchase price of $1.55 per share, resulting in gross proceeds of approximately $22.6 million, pursuant to a common stock purchase agreement between Lynx and certain investors. In connection with this transaction, Lynx issued warrants to purchase up to 5.84 million shares of common stock at an exercise price of $1.94 per share. Additionally, Lynx issued a warrant to purchase up to an aggregate of 292,000 shares of common stock at an exercise price of $1.55 per share to Friedman, Billings, Ramsey & Co., Inc. (FBR), as partial consideration, in addition to other customary fees, for services rendered by FBR as sole manager for the private equity financing.

     Lynx expects to use the net proceeds of approximately $21.0 million from the financing and other available funds to support ongoing commercial, business development and research and development activities. Lynx’s efforts will be directed toward the expansion of the commercial applications of its genomics technologies-principally MPSS™-and the continued development of its Protein ProFiler™ proteomics technology.

     Lynx expects capital investments during 2002 will be comprised primarily of equipment purchases required in the normal course of business and expenditures for leasehold improvements. Lynx intends to invest its excess cash in investment-grade, interest-bearing securities.

     In late 1998, Lynx entered into a financing agreement with a financial institution, Transamerica Business Credit Corporation, 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 it under this agreement. Each draw down under the loan has a term of 48 months from the date of the draw down and an interest rate ranging from 10.9% to 11.8%. As of June 30, 2002, the principal balance under loans outstanding under this agreement was approximately $2.5 million. The draw down period under the agreement expired on March 31, 2000.

     Lynx has obtained funding for its operations primarily through sales of preferred and common stock to venture capital investors, institutional investors, licensees and collaborators, payments under contractual arrangements with customers, collaborators and licensees and interest income. The timing and amount of funds required for specific uses by Lynx cannot be precisely determined at this time and will be based upon the progress and the scope of its collaborative and independent research and development projects; payments received under customer, collaborative and license agreements; Lynx’s 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 anticipate that our current cash and cash equivalents, short-term investments and funding to be received from customers, collaborators and licensees 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 are unable to obtain adequate funds on reasonable terms, we may have to curtail operations significantly or to obtain funds by entering into financing or collaborative agreements on unattractive terms.

Additional 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.

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We have a history of 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 $6.7 million in 1999, $13.3 million in 2000 and $16.7 million in 2001. As of June 30, 2002, we had an accumulated deficit of approximately $92.6 million. Future net losses or profits 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. Research and development expenses may 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 agreements with customers, collaborators and licensees;

• our ability to establish and maintain arrangements with customers, collaborators and licensees;

• the progress of the development and commercialization efforts under our collaborations and corporate agreements;

• 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 customers, collaborators and licensees 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 our collaborators or us to identify genes, proteins or targets for drug discovery.

You must evaluate us in light of the uncertainties and complexities affecting an early stage genomics and proteomics company. Our technologies are new and unproven. The application of these technologies is in too early a stage to determine whether it can be

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successfully implemented. These technologies assume that information about gene expression, protein 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 either our collaborators or us to identify genes, proteins or targets for drug discovery. To date, neither our collaborators nor we have identified any targets for drug discovery based on our technologies that have shown commercial viability.

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 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 customers, collaborators and licensees. For the six months ended June 30, 2002, revenues from DuPont, Takara and Aventis CropScience accounted for 25%, 13% and 11%, respectively, of our total revenues. For the year ended December 31, 2001, revenues from DuPont, BASF, Takara and the Institute of Molecular and Cell Biology accounted for 37%, 24%, 12% and 12%, 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%, 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 customers, collaborators or licensees do not renew existing agreements, we lose one of these customers, collaborators or licensees and we do not attract new customers, collaborators or licensees or we are unable to enter into new agreements with customers, collaborators or licensees 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.

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     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.

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 and proteomics research is a rapidly evolving field. Competition among entities attempting to identify genes and proteins 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 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 and proteins;

• 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 and protein expression analysis methodologies, including the use of chip-based systems, to attempt to identify disease-related genes and proteins.

     In addition, numerous pharmaceutical, biotechnology and agricultural companies are developing genomics and proteomics 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 affect us 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 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

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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, and 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, proteins, the analysis of gene expression and protein 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 protein expression and for the individual disease genes and proteins 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.

     Our ability to achieve profitability depends on attracting customers, collaborators and licensees for our technologies and products. There are a limited number of pharmaceutical, biotechnology and agricultural companies that are potential customers, collaborators and licensees 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 customers, collaborators and licensees 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 and proteomics efforts. Our sales cycle is typically lengthy because we need to educate our potential customers, collaborators and licensees 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 customer, collaborator or licensee. 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 may 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 customers, collaborators and licensees, suppliers and other third parties. Our ability to manage our

15

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 and other agreements. 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, Kevin P. Corcoran, the loss of whose services could have a material adverse effect on our business. Although we have an employment agreement with Mr. Corcoran 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 or proteins 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.

     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.

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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, and the occurrence of an earthquake or other catastrophic disaster could cause damage to our facilities and equipment, which could require us to cease or curtail operation.

     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, development and production 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, 2000 to June 30, 2002, the closing sales price of our common stock as quoted on the Nasdaq National Market fluctuated from a low of $1.12 to a high of $48.75 per share. In addition, the securities 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;

• failure to maintain the Nasdaq National Market listing requirements;

• 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.

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     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.

     Any authorization or issuance of preferred stock, while providing desirable flexibility in connection with financings, 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.

Item 3. 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. Lynx’s investments in debt securities are subject to interest rate risk. To minimize the exposure due to adverse shifts in interest rates, Lynx invests in short-term securities and maintains an average maturity of less than one year. As a result, we believe that we are not subject to significant interest rate risks.

Foreign Currency Rate Fluctuations

     The functional currency for our German subsidiaries is the Euro. Our German subsidiaries’ accounts are translated from the Euro 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 subsidiaries conduct their 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 subsidiaries or transactions with our European collaborators and customers.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings

     None

Item 2. Changes in Securities and Use of Proceeds

(c)  On April 30, 2002, Lynx completed a private placement of common stock and warrants to purchase common stock. The financing included the sale of 14.6 million newly issued shares of common stock at a purchase price of $1.55 per share, resulting in gross proceeds of approximately $22.6 million, pursuant to a common stock purchase agreement between Lynx and certain accredited investors. In connection with this transaction, we issued warrants to purchase up to 5.84 million shares of common stock at an exercise price of $1.94 per share. Additionally, we issued a warrant to purchase up to an aggregate of 292,000 shares of the Company’s common stock at an exercise price of $1.55 per share to Friedman, Billings, Ramsey & Co., Inc. (FBR), as partial consideration, in addition to other customary fees, for services rendered by FBR as sole manager for the financing. We issued the newly issued shares of common stock and warrants to purchase common stock in reliance upon an exemption from the registration requirements of the Securities Act by virtue of Section 4(2) thereof and Regulation D promulgated thereunder. Lynx filed a resale registration statement on Form S-3 (No. 333-87394) relating to the issued securities with the Securities and Exchange Commission, which was declared effective on May 13, 2002.

Item 3. Defaults Upon Senior Securities

     None

Item 4. Submission of Matters to a Vote of Security Holders

     None

Item 5. Other Information

     None

Item 6. Exhibits and Reports on Form 8-K.

a) Exhibits — The following documents are filed as Exhibits to this report:

Exhibit Number			Description
	3.1	(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	(1)	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.
	10.27	(2)	Form of Securities Purchase Agreement by and among the Company and the investors listed therein.
	10.28	(2)	Form of Registration Rights Agreement by and among the Company and the investors listed therein.
	10.29	(2)	Form of Warrant issued by the Company in favor or each investor party to the Securities Purchase Agreement and Friedman, Billings, Ramsey & Co., Inc.
	10.30		Employment Agreement, dated as of June 3, 2002, by and between the Company and Kevin P. Corcoran.
	10.31		Employment Agreement, dated as of June 10, 2002, by and between the Company and Thomas J. Vasicek, Ph.D.
	10.32		Letter Agreement, dated as of July 9, 2002, by and between the Company and Norman John Wilkie Russell, Ph.D.
	99.1		Certification by the Chief Executive Officer and the Chief Financial Officer of Lynx Therapeutics, Inc. as required by Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. § 1350, as adopted) (the Sarbanes-Oxley Act of 2002), dated August 13, 2002.

(1) Filed as an exhibit to Lynx’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference.

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(2) Filed as an exhibit to Lynx’s Current Report on Form 8-K, as amended, filed on April 30, 2002, and incorporated herein by reference.

b)	Reports on Form 8-K
	The Company filed an amendment to a Current Report on Form 8-K on April 11, 2002, reporting that the Company sold its intellectual property rights under the N3’-P5’ phosphoramidate patent estate to Geron Corporation.
	The Company filed a Current Report on Form 8-K on April 19, 2002, announcing a private equity financing and announcing a workforce reduction.
	The Company filed a Current Report on Form 8-K on April 30, 2002, as amended on May 22, 2002, announcing the completion of a private equity financing.
	The Company filed a Current Report on Form 8-K on June 4, 2002, announcing the resignation of Norrie Russell, Ph.D., and the promotion of Kevin P. Corcoran to President and Chief Executive Officer.
	The Company filed a Current Report on Form 8-K on June 18, 2002, announcing the appointment of Richard P. Woychik, Ph.D., to the board of directors and the appointment of Thomas J. Vasicek, Ph.D., as Vice President, Business Development.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	LYNX THERAPEUTICS, INC.
		/s/   Kevin P. Corcoran
	By:	Kevin P. Corcoran President and Chief Executive Officer
Date: August 14, 2002
		/s/   Edward C. Albini
	By:	Edward C. Albini Chief Financial Officer (Principal Financial and Accounting Officer)
Date: August 14, 2002

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INDEX TO EXHIBITS

Exhibit Number			Description
	3.1	(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	(1)	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.
	10.27	(2)	Form of Securities Purchase Agreement by and among the Company and the investors listed therein.
	10.28	(2)	Form of Registration Rights Agreement by and among the Company and the investors listed therein.
	10.29	(2)	Form of Warrant issued by the Company in favor or each investor party to the Securities Purchase Agreement and Friedman, Billings, Ramsey & Co., Inc.
	10.30		Employment Agreement, dated as of June 3, 2002, by and between the Company and Kevin P. Corcoran.
	10.31		Employment Agreement, dated as of June 10, 2002, by and between the Company and Thomas J. Vasicek, Ph.D.
	10.32		Letter Agreement, dated as of July 9, 2002, by and between the Company and Norman John Wilkie Russell, Ph.D.
	99.1		Certification by the Chief Executive Officer and the Chief Financial Officer of Lynx Therapeutics, Inc. as required by Section 906 of the Public Company Accounting Reform and Investor Protection Act of 202 (18 U.S.C. §1350, as adopted) (the Sarbanes-Oxley Act of 2002), dated August 13, 2002.

(1)	Filed as an exhibit to Lynx’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference.
(2)	Filed as an exhibit to Lynx’s Current Report on Form 8-K, as amended, filed on April 30, 2002, and incorporated herein by reference.

22 EX-10.30 3 f83225exv10w30.txt EXHIBIT 10.30 EXHIBIT 10.30 LYNX THERAPEUTICS, INC. EMPLOYEE AGREEMENT FOR KEVIN P. CORCORAN This Employment Agreement ("Agreement") by and between Kevin P. Corcoran ("Executive") and LYNX THERAPEUTICS, INC., a Delaware corporation (the "Company"), is entered into and is effective as of June 3, 2002 (the "Effective Date"). WHEREAS, the Company desires that Executive continue to provide personal services to the Company, and wishes to provide Executive with the compensation and benefits set forth below in return for such services; and WHEREAS, Executive wishes to continue to provide personal services to the Company in return for the compensation and benefits set forth below; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is hereby agreed by and between the parties hereto as follows: 1. EMPLOYMENT BY THE COMPANY. 1.1 Subject to the terms set forth herein, Executive shall be employed in his new capacity in the position of President and Chief Executive Officer, reporting to Board of Directors of the Company. Executive agrees to devote his best efforts and substantially all of his business time and attention (except for vacation periods permitted by the Company's general employment policies, reasonable periods of illness or other incapacities permitted by the Company's general employment policies, and as otherwise provided herein) to the business of the Company. 1.2 Executive shall serve in an executive capacity and shall perform such duties as are customarily associated with his then current title. 1.3 The employment relationship between the parties is "at will," which means that either party may terminate the relationship at any time, with or without cause and with or without advance notice. The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company, including those relating to protection of confidential information and assignment of inventions, except that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or practices, this Agreement shall control. 2. COMPENSATION. 2.1 SALARY. As of the Effective Date, Executive shall receive for services to be rendered hereunder an annualized base salary of Two Hundred Fifty Thousand U.S. Dollars 1. ($250,000), payable on the Company's normal payroll schedule, and subject to standard payroll deductions and withholdings. 2.2 STOCK OPTION. As part of Executive's employment by the Company before the Effective Date of this Agreement, Executive has been granted, on one or more occasion, a nonstatutory stock option ("Option") to purchase shares of the common stock of the Company pursuant to the Company's 1992 Stock Option Plan (the "Plan"), as amended. Any such Option(s) will continue to be subject to the terms of the Plan and Executive's corresponding Stock Option Grant Notices and Stock Option Agreements. 2.3 INCENTIVE COMPENSATION. The Company does not currently have an incentive compensation plan or program in place, and therefore the Company cannot offer Executive incentive compensation at this time. It is the Company's intention, however, to implement such a plan or program and to cause Executive to be eligible for such plan or program. 2.4 STANDARD COMPANY BENEFITS. Executive shall continue to be entitled to all rights and benefits for which he is eligible under the terms and conditions of the standard Company benefits and compensation practices that may be in effect from time to time and provided by the Company to its employees generally, including but not limited to health benefit plans. Executive also shall continue to be eligible to participate in the Company's 401(k) Plan, including eligibility for a monthly matching contribution by the Company on Executive's behalf, in an amount equal to that contributed by Executive up to a maximum annual matching contribution of Seven Hundred Fifty Dollars ($750). 3. PROPRIETARY INFORMATION OBLIGATIONS. 3.1 AGREEMENT. Executive agrees to abide by the executed Employee Invention Agreement attached hereto as Exhibit A. 3.2 REMEDIES. Executive's duties under the Employee Invention Agreement shall survive termination of his employment with the Company. Executive acknowledges that a remedy at law for any breach or threatened breach by him of the provisions of the Employee Invention Agreement would be inadequate, and he therefore agrees that the Company shall be entitled to injunctive relief in case of any such breach or threatened breach. 4. OUTSIDE ACTIVITIES. 4.1 Except with the prior written consent of the Chairman of the Board, Executive will not during the term of this Agreement undertake or engage in any other employment, occupation or business enterprise, other than ones in which Executive is a passive investor. Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of his duties hereunder. 4.2 Except as permitted by Section 4.3, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by him to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise. 2. 4.3 During the term of his employment by the Company, except on behalf of the Company, Executive will not directly or indirectly, whether as an officer, director, stockholder, partner, proprietor, associate, representative, consultant, or in any capacity whatsoever engage in, become financially interested in, be employed by or have any business connection with any other person, corporation, firm, partnership or other entity whatsoever which were known by him to compete directly with the Company, throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company; provided, however, that anything above to the contrary notwithstanding, he may own, as a passive investor, securities of any competitor corporation, so long as his direct holdings in any one such corporation shall not in the aggregate constitute more than One Percent (1%) of the voting stock of such corporation. 5. TERMINATION OF EMPLOYMENT. 5.1 TERMINATION WITHOUT CAUSE. (a) The Company shall have the right to terminate Executive's employment with the Company at any time without cause or advance notice. (b) In the event Executive's employment is terminated without Cause (as defined in section 5.2) by the Company, or by any successor or acquiring entity upon or after an Asset Sale, Merger, Consolidation, or Reverse Merger (as defined in the Lynx Therapeutics, Inc. 1992 Stock Option Plan, as amended), Executive shall be eligible to receive severance compensation, calculated as specified herein, provided that, Executive executes a general release of any and all claims he may have against the Company, which general release shall be in a form acceptable to the Company. The amount of severance compensation that Executive shall receive shall be calculated pursuant to the following schedule: (a) if the termination occurs on or prior to the first year anniversary of the Effective Date of this Agreement, Executive shall receive an amount equal to six (6) months of his base salary, subject to standard payroll deductions and withholdings, and paid in a lump sum; (b) if the termination occurs after the first year anniversary of the Effective Date of this Agreement, Executive shall receive an amount equal to three (3) months of his base salary, subject to standard payroll deductions and withholdings, and paid in a lump sum. ("Severance"). The Severance shall be the only severance, benefit, or cash compensation, other than accrued wages, to which the Executive shall be entitled from the Company in the event of a termination without Cause. In the event, however, that a successor or acquiring entity is obligated to pay Severance to Executive, such Severance shall be in addition to any equity compensation or benefits for which the Executive may be eligible under the Lynx Therapeutics, Inc. 1992 Stock Option Plan, as amended. 5.2 TERMINATION FOR CAUSE. (a) The Company shall have the right to terminate Executive's employment with the Company at any time for Cause. (b) "Cause" for termination shall mean: (a) indictment or conviction of any felony or of any crime involving dishonesty; (b) participation in any fraud or act of dishonesty against the Company; (c) Executive's failure to perform his duties to the Company in 3. a satisfactory manner; (d) intentional damage to any property of the Company; or (e) conduct by Executive which in the good faith and reasonable determination of the Chairman of the Board demonstrates lack of fitness to serve. (c) In the event Executive's employment is terminated at any time for Cause, Executive will not be entitled to Severance or any other compensation or benefit other than accrued wages. 5.3 VOLUNTARY OR MUTUAL TERMINATION. (a) Executive may voluntarily terminate his employment with the Company at any time, after which no further compensation will be paid to Executive. (b) In the event Executive voluntarily terminates his employment, he will not be entitled to Severance or any other such compensation or benefit, other than accrued wages. 6. NONINTERFERENCE. While employed by the Company, and for two (2) years immediately following the termination of his employment, Executive agrees not to interfere with the business of the Company by soliciting, attempting to solicit, inducing, or otherwise causing any employee of the Company to terminate his or her employment in order to become an employee, consultant or independent contractor to or for any competitor of the Company. 7. COOPERATION WITH COMPANY. 7.1 COOPERATION OBLIGATION. During and after Executive's employment, Executive will cooperate with the Company in responding to the reasonable requests of the Company's Chairman of the Board or General Counsel, in connection with any and all existing or future litigation, arbitrations, mediations or investigations brought by or against the Company or its affiliates, agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which the Company reasonably deems Executive's cooperation necessary or desirable. In such matters, Executive agrees to provide the Company with reasonable advice, assistance and information, including offering and explaining evidence, providing sworn statements, and participating in discovery and trial preparation and testimony. Executive also agrees to promptly send the Company copies of all correspondence (for example, but not limited to, subpoenas) received by Executive in connection with any such legal proceedings, unless Executive is expressly prohibited by law from so doing. The failure by Executive to cooperate fully with the Company in accordance with this Section 7 will be a material breach of the terms of this Agreement which will result in all commitments of the Company to pay Severance to Executive under Section 5.1 (b) becoming null and void. 7.2 EXPENSES AND FEES. The Company will reimburse Executive for reasonable out-of-pocket expenses incurred by Executive as a result of his cooperation with the obligations described in Section 7.1, within thirty (30) days of the presentation of appropriate documentation thereof, in accordance with the Company's standard reimbursement policies and procedures. After termination of Executive's employment, the Company will also pay Executive 4. a reasonable fee in the amount of $200 per hour for the time Executive devotes to matters as requested by the Company under Section 7.1 ("the Fees"). The Company will not deduct or withhold any amount from the Fees for taxes, social security, or other payroll deductions, but will instead issue an IRS Form 1099 with respect to the Fees. Executive acknowledges that in cooperating in the manner described in Section 7.1, he will be serving as an independent contractor, not a Company employee, and he will be entirely responsible for the payment of all income taxes and any other taxes due and owing as a result of the payment of Fees. Executive hereby indemnifies the Company and its officers, directors, agents, attorneys, employees, shareholders, subsidiaries, and affiliates and holds them harmless from any liability for any taxes, penalties, and interest that may be assessed by any taxing authority with respect to the Fees, with the exception of the employer's share of employment taxes subsequently determined to be applicable, if any. 8. GENERAL PROVISIONS. 8.1 NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed on the Company payroll. 8.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction in order to most closely effectuate the parties' intentions. 8.3 WAIVER. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 8.4 COMPLETE AGREEMENT. This Agreement and its Exhibit constitute the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in writing signed by a member of the Company's Board. 8.5 COUNTERPARTS. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. 8.6 HEADINGS. The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof. 8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, 5. assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which shall not be withheld unreasonably. 8.8 ATTORNEY'S FEES. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action. 8.9 GOVERNING LAW. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California. Executive hereby expressly consents to the personal jurisdiction of the state and federal courts located in Alameda County, California for any lawsuit filed there against Executive by the Company arising from or related to this Agreement. 6. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written below. LYNX THERAPEUTICS, INC. By: /s/ Craig C. Taylor ------------------------------ Craig C. Taylor Chairman of the Board Date: June 3, 2002 ------------------------------ Accepted and agreed this 3 day of June 2002. - --- ---- /s/ Kevin P. Corcoran - -------------------------------- [Name] June 3, 2002 - -------------------------------- Date 7. EXHIBIT A LYNX THERAPEUTICS, INC. EMPLOYEE INVENTION AGREEMENT 1. As an employee of Lynx Therapeutics, Inc. (the "Company"), and in consideration of the compensation now and hereafter paid to me, I agree at all times during the term of my employment and thereafter, to hold in strictest confidence, and not to use or to disclose to any person, firm or corporation, without express authorization of an officer of the Company, any information, manufacturing technique, processes, formulas, development or experimental work, work in process, trade secrets or any other proprietary or confidential matter relating to the products, sales or business of the Company. 2. I further agree that I will promptly make full disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will assign all my right, title and interest to, any and all inventions, discoveries, developments, improvements or trade secrets which I may solely or jointly conceive, develop or reduce to practice, or cause to be conceived, developed or reduced to practice, during the period of time I am in the employ of the Company, except any invention, discovery, development, improvement or trade secret as to which I can prove that: a) it was developed entirely on my own time; and b) no equipment, supplies, facility or trade secret of the Company was used in its development; and c) (i) it does not relate to the business or actual or demonstrably anticipated research or development of the Company, or (ii) it does not result from any work performed by me for the Company. Notwithstanding the foregoing, I also assign to or as directed by the Company all my right, title and interest in and to any and all inventions, discoveries, developments, improvements or trade secrets, full title to which is required to be in the United States by a contract between the Company and the United States or any of its agencies. 3. I agree to execute any proper oath or verify any proper document in connection with carrying out the terms of this agreement. In the event the Company is unable (because of my mental or physical incapacity or for any other reason whatsoever) to secure my signature to apply for, or to pursue any application for any United States or foreign letters patent, covering inventions assigned to the Company as stated above, I hereby irrevocably designate and appoint the Company and its duly authorized officer and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent thereon with the same legal force and effect as if executed by me. I have attached hereto a list describing all inventions made by me prior to my employment with the Company belonging to me, relating to the Company's proposed business and products and not assigned to the Company, or, if no such list is attached, I represent that there are no such inventions. I hereby waive and quitclaim to the Company any and all claims of any nature whatsoever which I now or may hereafter have for infringement of any patent or patents resulting from any such applications for letters patent assigned hereunder to the Company. 4. I recognize that the Company may receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree that I owe the Company and such third parties during the term of my employment and thereafter a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation (except as necessary in carrying out my work for the Company consistent with the Company's agreement with such third party) or use it for the benefit of anyone other than for the Company or such third party consistent with the Company's agreement with such third party without the express authorization of an officer of the Company. 5. I further agree that at the time of leaving the employ of the Company, I will deliver to the Company and will not keep in my possession, nor deliver to anyone else, any and all drawings, blueprints, notes, memoranda, specifications, devices, documents, or any other material containing or disclosing any of the matters referred to herein. 6. I agree that I will not during my employment at the Company improperly use or disclose any proprietary information or trade secrets of my former or concurrent employers or companies, if any, and that I shall not bring onto the premises of the Company any unpublished document or any property belonging to my former or concurrent employers or companies, if any, unless consented to in writing by said employers or companies. 7. The provisions of this agreement requiring assignment to the Company do not apply to any invention which qualifies fully under the provisions of Section 2870 of the California Labor Code. I will advise the company promptly in writing of any inventions, discoveries, developments, improvement or trade secrets that I believe meet the criteria in subparagraphs 2 a, b, and c above; and I will at that time provide to the Company in writing all evidence necessary to substantiate that belief. I understand that the Company will keep in confidence and will not disclose to third parties without my consent any confidential information disclosed in writing to the Company relating to inventions which qualify fully under the provision of Section 2870 of the California Labor Code. IN WITNESS WHEREOF, I have subscribed my name hereunto this 25 day of August 1995. /s/ Kevin P. Corcoran --------------------- Signature Kevin P. Corcoran --------------------- Print Name /s/ David Martin, Jr. - --------------------- Witness EX-10.31 4 f83225exv10w31.txt EXHIBIT 10.31 EXHIBIT 10.31 LYNX THERAPEUTICS, INC. EMPLOYEE AGREEMENT FOR THOMAS J. VASICEK, PH.D. This Employment Agreement ("Agreement") by and between Thomas J. Vasicek, Ph.D. ("Executive") and LYNX THERAPEUTICS, INC., a Delaware corporation (the "Company"), is entered into and is effective as of June 10, 2002 (the "Effective Date"). WHEREAS, the Company desires to employ Executive to provide personal services to the Company, and wishes to provide Executive with certain compensation and benefits in return for his services; and WHEREAS, Executive wishes to be employed by the Company and provide personal services to the Company in return for certain compensation and benefits; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is hereby agreed by and between the parties hereto as follows: 1. EMPLOYMENT BY THE COMPANY. 1.1 Subject to the terms set forth herein, the Company agrees to employ Executive in the position of Vice President, Business Development, reporting to the President and Chief Executive Officer, and Executive hereby accepts such employment effective as of June 17, 2002. During the term of his employment with the Company, Executive will devote his best efforts and substantially all of his business time and attention (except for vacation periods permitted by the Company's general employment policies, reasonable periods of illness or other incapacities permitted by the Company's general employment policies, and as otherwise provided herein) to the business of the Company. 1.2 Executive shall serve in an executive capacity and shall perform such duties as are customarily associated with his then current title. 1.3 The employment relationship between the parties is "at will," which means that either party may terminate the relationship at any time , with or without cause and with or without advance notice. The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company, including those relating to protection of confidential information and assignment of inventions, except that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or practices, this Agreement shall control. 2. COMPENSATION. 2.1 SALARY. Executive shall receive for services to be rendered hereunder an annualized base salary of Two Hundred Thousand U.S. Dollars ($200,000), payable on the 1. Company's normal payroll schedule, and subject to standard payroll deductions and withholdings. On the date that is one year after the Effective Date of this Agreement, provided that Executive's performance meets the Company's reasonable expectations, Executive's annualized base salary will increase to Two Hundred Forty Thousand U.S. Dollars ($240,000). 2.2 SIGN-ON BONUS. The Company will pay you a sign-on bonus of $15,000 subject to all required withholdings. This sign-on bonus must be repaid to the Company on a pro-rata basis if your employment terminates prior to one year of service. 2.3 STOCK OPTION. Subject to approval by the Board, the Company will grant Executive a nonstatutory stock option (the "Option") to purchase One Hundred Twenty Thousand (120,000) shares of the common stock of the Company (the "Common Stock") pursuant to the Company's 1992 Stock Option Plan (the "Plan"), as amended. The exercise price per share of the Option will be the Fair Market Value (as defined in the Plan) per share of the Common Stock on the date of grant. Except as otherwise provided herein, the Option will vest and become exercisable over five (5) years, with Twenty Percent (20%) of the shares covered by the Option vesting and becoming exercisable on the first year anniversary of the date of grant and the remaining Eighty Percent (80%) of the shares covered by the Option vesting and becoming exercisable in Forty-Eight (48) equal monthly installments thereafter, in accordance with the Company's standard vesting and exercisability policy, as long as the Executive remains in continuous service with the Company. The Option will be subject to the terms of the Plan and Executive's corresponding Stock Option Grant Notice and Stock Option Agreement. 2.4 TRANSACTION BONUS. For the period beginning on the Effective Date of this Agreement and ending on the date that is one year after the Effective Date (the "Transaction Bonus Period"), Executive shall be eligible to receive, for identifying and completing during the Transaction Bonus Period any transactions between third parties and the Company (a "Transaction"), a cash bonus equal to one percent (1%) of the cash proceeds received by the Company from any Transaction during the Transaction Bonus Period (the "Transaction Bonus"). The Transaction Bonus payable under this provision, if any, shall be paid within thirty (30) days after the Transaction is ratified by the Company, less any deductions or withholdings required by law or reasonably requested by Executive. Executive must be employed at the time that the Transaction Bonus is paid to receive such Transaction Bonus, unless the Company has terminated Executive's employment for a reason other than cause. 2.5 STANDARD COMPANY BENEFITS. Executive shall be entitled to all rights and benefits for which he is eligible under the terms and conditions of the standard Company benefits and compensation practices which may be in effect from time to time and provided by the Company to its employees generally, including but not limited to health benefit plans. Executive also shall be eligible to participate in the Company's 401(k) Plan, including eligibility for a monthly matching contribution by the Company on Executive's behalf, in an amount equal to that contributed by Executive up to a maximum annual matching contribution of Seven Hundred Fifty Dollars ($750). Executive shall be provided specific information concerning these Company benefits upon commencement of his employment. 2. 3. PROPRIETARY INFORMATION OBLIGATIONS. 3.1 AGREEMENT. Executive agrees to execute and abide by the Employee Invention Agreement attached hereto as Exhibit A. 3.2 REMEDIES. Executive's duties under the Employee Invention Agreement shall survive termination of his employment with the Company. Executive acknowledges that a remedy at law for any breach or threatened breach by him of the provisions of the Employee Invention Agreement would be inadequate, and he therefore agrees that the Company shall be entitled to injunctive relief in case of any such breach or threatened breach. 4. OUTSIDE ACTIVITIES. 4.1 Except with the prior written consent of the President and Chief Executive Officer, Executive will not during the term of this Agreement undertake or engage in any other employment, occupation or business enterprise, other than ones in which Executive is a passive investor. Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of his duties hereunder. 4.2 Except as permitted by Section 4.3, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by him to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise. 4.3 During the term of his employment by the Company, except on behalf of the Company, Executive will not directly or indirectly, whether as an officer, director, stockholder, partner, proprietor, associate, representative, consultant, or in any capacity whatsoever engage in, become financially interested in, be employed by or have any business connection with any other person, corporation, firm, partnership or other entity whatsoever which were known by him to compete directly with the Company, throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company; provided, however, that anything above to the contrary notwithstanding, he may own, as a passive investor, securities of any competitor corporation, so long as his direct holdings in any one such corporation shall not in the aggregate constitute more than One Percent (1%) of the voting stock of such corporation. 5. TERMINATION OF EMPLOYMENT. 5.1 TERMINATION WITHOUT CAUSE. (a) The Company shall have the right to terminate Executive's employment with the Company at any time without cause or advance notice. (b) In the event Executive's employment is terminated without Cause (as defined in section 5.2) by the Company, or by any successor or acquiring entity upon or after an Asset Sale, Merger, Consolidation, or Reverse Merger (as defined in the Lynx Therapeutics, Inc. 1992 Stock Option Plan, as amended), the executive shall be eligible to receive severance compensation, calculated as specified herein, provided that, Executive executes a general release of any and all claims he may have against the Company, which general release shall be in a form 3. acceptable to the Company. The amount of severance compensation that Executive shall receive shall be calculated pursuant to the following schedule: (a) if the termination occurs on or prior to the first year anniversary of Executive's hire date, he shall receive an amount equal to six (6) months of his base salary, subject to standard payroll deductions and withholdings, and paid in a lump sum; (b) if the termination occurs after the first year anniversary of Executive's hire date, he shall receive an amount equal to three (3) months of his base salary, subject to standard payroll deductions and withholdings, and paid in a lump sum. ("Severance"). The Severance shall be the only severance, benefit, or cash compensation, other than accrued wages, to which the Executive shall be entitled from the Company in the event of a termination without Cause. In the event, however, that a successor or acquiring entity is obligated to pay Severance to Executive, such Severance shall be in addition to any equity compensation or benefits for which the Executive may be eligible under the Lynx Therapeutics, Inc. 1992 Stock Option Plan, as amended. 5.2 TERMINATION FOR CAUSE. (a) The Company shall have the right to terminate Executive's employment with the Company at any time for Cause. (b) "Cause" for termination shall mean: (a) indictment or conviction of any felony or of any crime involving dishonesty; (b) participation in any fraud or act of dishonesty against the Company; (c) Executive's failure to perform his duties to the Company in a satisfactory manner; (d) intentional damage to any property of the Company; or (e) conduct by Executive which in the good faith and reasonable determination of the President and Chief Executive Officer demonstrates lack of fitness to serve. (c) In the event Executive's employment is terminated at any time for Cause, Executive will not be entitled to Severance or any other compensation or benefit other than accrued wages. 5.3 VOLUNTARY OR MUTUAL TERMINATION. (a) Executive may voluntarily terminate his employment with the Company at any time, after which no further compensation will be paid to Executive. (b) In the event Executive voluntarily terminates his employment, he will not be entitled to Severance or any other such compensation or benefit, other than accrued wages. 6. NONINTERFERENCE. While employed by the Company, and for two (2) years immediately following the termination of his employment, Executive agrees not to interfere with the business of the Company by soliciting, attempting to solicit, inducing, or otherwise causing any employee of the Company to terminate his or her employment in order to become an employee, consultant or independent contractor to or for any competitor of the Company. 4. 7. COOPERATION WITH COMPANY. 7.1 COOPERATION OBLIGATION. During and after Executive's employment, Executive will cooperate with the Company in responding to the reasonable requests of the Company's Chairman of the Board, Chief Executive Officer or General Counsel, in connection with any and all existing or future litigation, arbitrations, mediations or investigations brought by or against the Company or its affiliates, agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which the Company reasonably deems Executive's cooperation necessary or desirable. In such matters, Executive agrees to provide the Company with reasonable advice, assistance and information, including offering and explaining evidence, providing sworn statements, and participating in discovery and trial preparation and testimony. Executive also agrees to promptly send the Company copies of all correspondence (for example, but not limited to, subpoenas) received by Executive in connection with any such legal proceedings, unless Executive is expressly prohibited by law from so doing. The failure by Executive to cooperate fully with the Company in accordance with this Section 7 will be a material breach of the terms of this Agreement which will result in all commitments of the Company to pay Severance to Executive under Section 5.1 (b) becoming null and void. 7.2 EXPENSES AND FEES. The Company will reimburse Executive for reasonable out-of-pocket expenses incurred by Executive as a result of his cooperation with the obligations described in Section 7.1, within thirty (30) days of the presentation of appropriate documentation thereof, in accordance with the Company's standard reimbursement policies and procedures. After termination of Executive's employment, the Company will also pay Executive a reasonable fee in the amount of $200 per hour for the time Executive devotes to matters as requested by the Company under Section 7.1 ("the Fees"). The Company will not deduct or withhold any amount from the Fees for taxes, social security, or other payroll deductions, but will instead issue an IRS Form 1099 with respect to the Fees. Executive acknowledges that in cooperating in the manner described in Section 7.1, he will be serving as an independent contractor, not a Company employee, and he will be entirely responsible for the payment of all income taxes and any other taxes due and owing as a result of the payment of Fees. Executive hereby indemnifies the Company and its officers, directors, agents, attorneys, employees, shareholders, subsidiaries, and affiliates and holds them harmless from any liability for any taxes, penalties, and interest that may be assessed by any taxing authority with respect to the Fees, with the exception of the employer's share of employment taxes subsequently determined to be applicable, if any. 8. GENERAL PROVISIONS. 8.1 NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed on the Company payroll. 8.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will 5. not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction in order to most closely effectuate the parties' intentions. 8.3 WAIVER. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 8.4 COMPLETE AGREEMENT. This Agreement and its Exhibit constitute the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in writing signed by a member of the Company's Board. 8.5 COUNTERPARTS. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. 8.6 HEADINGS. The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof. 8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which shall not be withheld unreasonably. 8.8 ATTORNEY'S FEES. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action. 8.9 GOVERNING LAW. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California. Executive hereby expressly consents to the personal jurisdiction of the state and federal courts located in Alameda County, California for any lawsuit filed there against Executive by the Company arising from or related to this Agreement. 6. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written below. LYNX THERAPEUTICS, INC. By: /s/ Kathy A. San Roman --------------------------------- Kathy A. San Roman Vice President, Human Resources & Administration Date: June 7, 2002 -------------------------------- Accepted and agreed this 11 day of June 2002. - ---- ---- /s/ Thomas J. Vasicek, Ph.D. - -------------------------------- Thomas J. Vasicek, Ph.D. June 11, 2002 - -------------------------------- Date 7. EXHIBIT A LYNX THERAPEUTICS, INC. EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT In consideration of my employment or continued employment by Lynx Therapeutics, Inc. (the "Company"), and the compensation now and hereafter paid to me, I hereby agree as follows: 1. NONDISCLOSURE 1.1 RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times during my employment and thereafter, I will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Company's Proprietary Information (defined below), except as such disclosure, use or publication may be required in connection with my work for the Company, or unless an officer of the Company expressly authorizes such in writing. I will obtain Company's written approval before publishing or submitting for publication any material (written, verbal, or otherwise) that relates to my work at Company and/or incorporates any Proprietary Information. I hereby assign to the Company any rights I may have or acquire in such Proprietary Information and recognize that all Proprietary Information shall be the sole property of the Company and its assigns. 1.2 PROPRIETARY INFORMATION. The term "PROPRIETARY INFORMATION" shall mean any and all confidential and/or proprietary knowledge, data or information of the Company. By way of illustration but not limitation, "PROPRIETARY INFORMATION" includes tangible and intangible information relating to antibodies and other biological materials, cell lines, samples of assay components, media and/or cell lines and procedures and formulations for producing any such assay components, media and/or cell lines, formulations, products, processes, know-how, designs, formulas, methods, developmental or experimental work, clinical data, improvements, discoveries, plans for research, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers and customers, and information regarding the skills and compensation of other employees of the Company. Notwithstanding the foregoing, it is understood that, at all such times, I am free to use information which is generally known in the trade or industry, which is not gained as result of a breach of this Agreement, and my own skill, knowledge, know-how and experience to whatever extent and in whichever way I wish. 1.3 THIRD PARTY INFORMATION. I understand, in addition, that the Company has received and in the future will receive from third parties confidential or proprietary information ("THIRD PARTY INFORMATION") subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third Party Information in the strictest confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for the Company) or use, except in connection with my work for the Company, Third Party Information unless expressly authorized by an officer of the Company in writing. 1.4 NO IMPROPER USE OF INFORMATION OF PRIOR EMPLOYERS AND OTHERS. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person. I will use in the performance of my duties only information which is generally known and used by persons with training and experience comparable to my own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company. 2. ASSIGNMENT OF INVENTIONS. 2.1 PROPRIETARY RIGHTS. The term "PROPRIETARY RIGHTS" shall mean all trade secret, patent, copyright, mask work and other intellectual property rights throughout the world. 2.2 PRIOR INVENTIONS. Inventions, if any, patented or unpatented, which I made prior to the commencement of my employment with the Company are excluded from the scope of this Agreement. To preclude any possible uncertainty, I have set forth on Exhibit B (Previous Inventions) attached hereto a complete list of all Inventions that I have, alone or jointly with others, conceived, developed or reduced to practice or caused to be conceived, developed or reduced to practice prior to the commencement of my employment with the Company, that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (collectively referred to as "PRIOR INVENTIONS"). If disclosure of any such Prior Invention would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Prior Inventions in Exhibit B but am only to disclose a cursory name for each such invention, a listing of the party(ies) to whom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. A space is provided on Exhibit B for such purpose. If no such disclosure is attached, I represent that there are no Prior Inventions. If, in the course of my employment with the Company, I incorporate a Prior Invention into a Company product, process or machine, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such Prior Invention. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, Prior Inventions in any Company Inventions without the Company's prior written consent. 2.3 ASSIGNMENT OF INVENTIONS. Subject to Sections 2.4, and 2.6, I hereby assign and agree to assign in the future (when any such Inventions or Proprietary Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to the Company all my right, title and interest in and to any and all Inventions (and all Proprietary Rights with respect thereto) whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period of my employment with the Company. Inventions assigned to the Company, or to a third party as directed by the Company pursuant to this Section 2, are hereinafter referred to as "COMPANY INVENTIONS." 2.4 NONASSIGNABLE INVENTIONS. This Agreement does not apply to an Invention which qualifies fully as a nonassignable Invention under Section 2870 of the California Labor Code (hereinafter "SECTION 2870"). I have reviewed the notification on Exhibit A (Limited Exclusion Notification) and agree that my signature acknowledges receipt of the notification. 2.5 OBLIGATION TO KEEP COMPANY INFORMED. During the period of my employment and for six (6) months after termination of my employment with the Company, I will promptly disclose to the Company fully and in writing all Inventions authored, conceived or reduced to practice by me, either alone or jointly with others. In addition, I will promptly disclose to the Company all patent applications filed by me or on my behalf within a year after termination of employment. At the time of each such disclosure, I will advise the Company in writing of any Inventions that I believe fully qualify for protection under Section 2870; and I will at that time provide to the Company in writing all evidence necessary to substantiate that belief. The Company will keep in confidence and will not use for any purpose or disclose to third parties without my consent any confidential information disclosed in writing to the Company pursuant to this Agreement relating to Inventions that qualify fully for protection under the provisions of Section 2870. I will preserve the confidentiality of any Invention that does not fully qualify for protection under Section 2870. 2.6 GOVERNMENT OR THIRD PARTY. I also agree to assign all my right, title and interest in and to any particular Company Invention to a third party, including without limitation the United States, as directed by the Company. 2.7 WORKS FOR HIRE. I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by copyright are "works made for hire," pursuant to United States Copyright Act (17 U.S.C., Section 101). 2.8 ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in every proper way to obtain, and from time to time enforce, United States and foreign Proprietary Rights relating to Company Inventions in any and all countries. To that end I will execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as the Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the assignment thereof. In addition, I will execute, verify and deliver assignments of such Proprietary Rights to the Company or its designee. My obligation to assist the Company with respect to Proprietary Rights relating to such Company Inventions in any and all countries shall continue beyond the termination of my employment, but the Company shall compensate me at a reasonable rate after my termination for the time actually spent by me at the Company's request on such assistance. In the event the Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with the actions specified in the preceding paragraph, I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act for and in my behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by me. I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Company. 3. RECORDS. I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that may be required by the Company) of all Proprietary Information developed by me and all Inventions made by me during the period of my employment at the Company, which records shall be available to and remain the sole property of the Company at all times. 4. ADDITIONAL ACTIVITIES. I agree that during the period of my employment by the Company I will not, without the Company's express written consent, engage in any employment or business activity which is competitive with, or would otherwise conflict with, my employment by the Company. I agree further that for the period of my employment by the Company and for one (l) year after the date of termination of my employment by the Company I will not, either directly or through others, solicit or attempt to solicit any employee, independent contractor or consultant of the company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity. 5. NO CONFLICTING OBLIGATION. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith. 6. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I will deliver to the Company any and all drawings, notes, memoranda, specifications, devices, formulas, and documents, together with all copies thereof, and any other material containing or disclosing any Company Inventions, Third Party Information or Proprietary Information of the Company. I further agree that any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. Prior to leaving, I will cooperate with the Company in completing and signing the Company's termination statement. 7. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique and because I may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement. 8. NOTICES. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three (3) days after the date of mailing. 9. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the Company, I hereby consent to the notification of my new employer of my rights and obligations under this Agreement. 10. GENERAL PROVISIONS. 10.1 GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement will be governed by and construed according to the laws of the State of California, as such laws are applied to agreements entered into and to be performed entirely within California between California residents. I hereby expressly consent to the personal jurisdiction of the state and federal courts located in Alameda County, California for any lawsuit filed there against me by Company arising from or related to this Agreement. 10.2 SEVERABILITY. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear. 10.3 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. 10.4 SURVIVAL. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee. 10.5 EMPLOYMENT. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right or the Company's right to terminate my employment at any time, with or without cause. 10.6 WAIVER. No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement. 10.7 ENTIRE AGREEMENT. The obligations pursuant to Sections 1 and 2 of this Agreement shall apply to any time during which I was previously employed, or am in the future employed, by the Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement. This Agreement shall be effective as of the first day of my employment with the Company, namely: June 17, 2002. I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE COMPLETELY FILLED OUT EXHIBIT B TO THIS AGREEMENT. Dated: June 17, 2002 /s/ Thomas J. Vasicek - -------------------------------------------------- (SIGNATURE) Thomas J. Vasicek, Ph. D. - -------------------------------------------------- (PRINTED NAME) ACCEPTED AND AGREED TO: LYNX THERAPEUTICS, INC. By: /s/ Cristina Alves ---------------------------------------------- Title: Human Resources Coordinator ------------------------------------------- 25861 Industrial Blvd. - -------------------------------------------------- (Address) Hayward, CA 94545 - -------------------------------------------------- Dated: June 17, 2002 EXHIBIT A LIMITED EXCLUSION NOTIFICATION THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either: 1. Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; or 2. Result from any work performed by you for the Company. To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable. This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. I ACKNOWLEDGE RECEIPT of a copy of this notification. By: Thomas J. Vasicek ------------------------------------------ (PRINTED NAME OF EMPLOYEE) Date: June 17, 2002 ---------------------------------------- WITNESSED BY: Cristina Alves - -------------------------------------- (PRINTED NAME OF REPRESENTATIVE) EXHIBIT B PRIOR WORK PRODUCT DISCLOSURE 1. Except as listed in Section 2 below, the following is a complete list of all Prior Work Product that have been made or conceived or first reduced to practice by Contractor alone or jointly with others prior to my engagement by Lynx Therapeutics, Inc.: [ ] No inventions or improvements. [X] See below: Methods for preparing and storing DNA and RNA from fresh, frozen and preserved tissues as well as whole organisms, and microbial pellets Methods for manufacture, use, and analysis of DNA arrays -------------------------------------------------------------- -------------------------------------------------------------- [ ] Additional sheets attached. 2. Due to a prior confidentiality agreement, Contractor cannot complete the disclosure under Section 1 above with respect to inventions or improvements generally listed below, the proprietary rights and duty of confidentiality with respect to which Contractor owes to the following party(ies):

INVENTION OR IMPROVEMENT PARTY(IES) RELATIONSHIP 1. ---------------------------- ------------------------ ----------------------- 2. ---------------------------- ------------------------ ----------------------- 3. ---------------------------- ------------------------ -----------------------

[ ] Additional sheets attached. BACKGROUND TECHNOLOGY DISCLOSURE The following is a list of all Background Technology which Contractor intends to use in performing under this Agreement: -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- EX-10.32 5 f83225exv10w32.txt EXHIBIT 10.32 EXHIBIT 10.32 VIA COURIER July 9, 2002 Dr. Norrie Russell 60 Hillmont Place Danville, CA 94526 Dear Norrie: This letter sets forth the substance of the separation agreement (the "Agreement") which Lynx Therapeutics, Inc. (the "Company") is offering to aid in your employment transition. 1. RESIGNATION. On or before the Effective Date of this Agreement (as defined in Section 14 herein), you will submit your resignation as Chief Executive Officer ("CEO"), resign your membership on the Company's Board of Director's ("Board"), and resign from any other offices or positions you may hold with the Company, and the Board will accept your resignation, effective as of May 31, 2002 (the "Separation Date"). You agree to submit your resignation in a letter (in the form attached hereto as Exhibit A) to Craig C. Taylor, Chairman of the Board. 2. ACCRUED SALARY AND PAID TIME OFF. On the Separation Date, the Company paid you all accrued salary, and all accrued and unused vacation earned through the Separation Date, subject to standard payroll deductions and withholdings. You were entitled to those payments regardless of whether or not you sign this Agreement. 3. SEVERANCE BENEFITS. (a) SEVERANCE PAYMENT. Although the Company has no policy or procedure requiring payment of any severance benefits, if you sign and do not revoke this Agreement, on or before the Effective Date the Company will pay you, as severance, Two Hundred Forty Six Thousand Six Hundred Sixty Five Dollars and no cents ($246,665.00), subject to standard payroll deductions and withholdings (the "Severance Payment"). (b) PROCEEDS AND LOAN REPAYMENT. During your employment with the Company, you received a $250,000.00 housing loan (the "Loan") from the Company pursuant to that certain Promissory Note Secured by Deed of Trust, dated November 8, 1999 (the "Note"). A copy of the Note is attached hereto as Exhibit C. Pursuant to the terms of the Note, you were obligated to repay the outstanding balance of the Loan in the amount of $144,794.99, plus interest (the "Loan Amount") immediately upon Separation Date. As part of this Agreement, you have directed the Company to apply a portion of the net Severance Payment against the Loan Amount such that you will receive a cash distribution of the net Severance Payment in the amount of $60,000 and will apply the balance of the net Severance Payment against the Loan Amount as a payment thereunder. Accordingly, as of the Separation Page 2 Date, the Loan will have a remaining balance of $77,355.07. As further consideration for the promises and covenants contained herein, the Company has agreed to amend and restate the Note to inter alia incorporate the foregoing payments and revise the repayment terms. A copy of the amended and restated Note is attached hereto as Exhibit D. 4. HEALTH INSURANCE. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by the Company's current group health insurance policies, you will be eligible to continue your group health insurance benefits at your own expense. Later, you may be able to convert to an individual policy through the provider of the Company's health insurance, if you wish. 5. STOCK OPTIONS. Pursuant to the terms of your stock options, and the Company's 1992 Stock Option Plan (the "Plan"), vesting of your stock options ceased on the Separation Date. Your right to exercise any vested shares, and all other rights and obligations with respect to your stock options, are set forth in your stock option grant notices, stock option agreements, and the Plan. 6. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance or benefits after the Separation Date. 7. EXPENSE REIMBURSEMENTS. You agree that, within thirty (30) days of the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practice. 8. RETURN OF COMPANY PROPERTY. By the Effective Date, you agree to return to the Company all Company documents (and all copies thereof) and other Company property that you have had in your possession at any time, including, but not limited to, Company files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property (including, but not limited to, computers), credit cards, entry cards, identification badges and keys; and, any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof) ("Company Property"). You also represent that you will perform a good faith search to ensure that you are no longer in possession or control of any Company Property after the Effective Date. Notwithstanding the foregoing, as part of this Agreement, the Company will allow you to keep the laptop the Company issued you to perform your job duties. However, you will only be allowed to keep the laptop computer if you return it to the Company by the Effective Date so that the Company can remove all Company data, files, and other property from the laptop before it returns the computer to you. The Company will also allow you to keep the cellular telephone the Company issued you to perform your job duties. 9. TRANSITION CONSULTING. After the Separation Date and through November 1, 2002, the Company may engage you from time to time as a consultant regarding patent and other Page 3 technology issues ("Consulting Period"). Should the Company utilize you to perform transition consulting services it will be pursuant to the terms below. (a) CONSULTING SERVICES. During the Consulting Period, you agree to make yourself available, by telephone or in person, to provide consulting services on patent and other technology issues (the "Consulting Services") to the Company as requested by the Company's CEO, or by any other officer or director designated by the Board. You agree to exercise the highest degree of professionalism and to utilize your expertise and creative talents in performing the Consulting Services. (b) CONSULTING FEES. The Company will pay you at a rate of $100.00 per hour for these services. Because you will be an independent contractor, the Company will not withhold or deduct taxes or other customary employee withholdings from your Consulting Fees. You will be solely responsible for all tax revenues and payments required to be filed with or made to any federal, state, or local tax authority with respect to the Consulting Fees. The Company will report any Consulting Fees paid to you by filing a Form 1099-MISC with the Internal Revenue Service as required by law. (c) NO AGENCY OR EMPLOYMENT RELATIONSHIP. During the Consulting Period, you will not be allowed on Company premises unless specifically requested by the Board or CEO. During the Consulting Period, you will be an independent contractor and you will not be considered an agent or an employee of the Company; you will not have authority to make any representation, contract, or commitment on behalf of the Company and you shall not purport to have any such authority. In addition, you will not be entitled to any of the benefits which the Company may make available to its employees, such as group insurance, workers' compensation insurance coverage, profit sharing, or retirement benefits. You will be solely responsible for payment of any and all expenses incurred by you in performing the Services, except as incurred at the request of the Company and approved in advance by the CEO, or by an officer or director designated by the Board. (d) PROTECTION OF COMPANY INFORMATION. You agree that, during the Consulting Period and thereafter, other than in the course of performing the Services, you will not use or disclose any confidential or proprietary information or materials of the Company which you obtain or develop in the course of performing the Services, except with the advance written authorization of the Company's CEO. Any and all work product you create in connection with the Services will be the sole and exclusive property of the Company. You hereby assign to the Company, to the fullest extent permitted by law, all right, title, and interest in all inventions, techniques, processes, materials, and other intellectual property developed in the course of performing the Services. 10. PROPRIETARY INFORMATION OBLIGATIONS. Both during and after your employment you acknowledge your continuing obligations under your Employee Invention Agreement not to Page 4 use or disclose any confidential or proprietary information of the Company without prior written authorization from a duly authorized representative of the Company. A copy of your Employee Invention Agreement is attached hereto as Exhibit E. 11. CONFIDENTIALITY. The provisions of this Agreement will be held in strictest confidence by you and the Company and will not be publicized or disclosed in any manner whatsoever; provided, however, that: (a) you may disclose this Agreement to your immediate family; (b) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (c) the Company may disclose this Agreement as necessary to fulfill standard or legally required corporate reporting or disclosure requirements; and (d) the parties may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law. In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former Company employee. 12. NONDISPARAGEMENT. Both you and the Company agree not to disparage the other party, and the other party's officers, directors, employees, shareholders and agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation; provided that both you and the Company will respond accurately and fully to any question, inquiry or request for information when required by legal process. 13. RELEASE. You hereby release, acquit and forever discharge the Company, its officers, directors, agents, servants, employees, attorneys, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date this Agreement is signed, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with your employment with the Company or the termination of that employment; claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law, statute or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Americans with Disabilities Act of 1990; the federal Age Discrimination in Employment Act of 1967, as amended (the "ADEA"); the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; harassment; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing. 14. ADEA WAIVER. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised that: (a) your waiver and release do not apply to any claims that may arise after the date you sign this Agreement; (b) you should consult with an attorney prior to executing this Agreement; (c) Page 5 you have twenty-one (21) days to consider this Agreement (although you may choose voluntarily to execute this Agreement earlier); (d) you have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Agreement is executed by you (the "Effective Date"). 15. SECTION 1542 WAIVER. YOU UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. In giving this release, which includes claims that may be unknown to you at present, you acknowledge that you have read and understand Section 1542 of the California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." You expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to your release of any unknown or unsuspected claims you may have against the Company. 16. FURTHER ASSURANCES. You agree to execute and deliver such other documents and instruments, and take such other actions as may be required and which may be necessary to consummate the transactions contemplated herein and to otherwise effectuate the agreements herein, including without limitation, executing (and causing to be acknowledged where appropriate) the exhibits hereto. 17. MISCELLANEOUS. This Agreement, including exhibits, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to this subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified by the court so as to be rendered enforceable. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California. You are advised by the Company to seek independent legal advice with respect to tax issues pertaining to the provisions of this Agreement and the documents attached hereto. If this Agreement is acceptable to you, please sign below and return the originals of both to me. Page 6 I wish you good luck in your future endeavors. Sincerely, LYNX THERAPEUTICS, INC. By: /s/ Kathy A. San Roman --------------------------------------------------- Kathy A. San Roman Vice President, Human Resources & Administration Exhibit A -- Letter of Resignation Exhibit B -- Letter of Resignation to Axaron Bioscience AG Exhibit C -- Loan Agreement Exhibit D -- Amended Note Exhibit E -- Employee Invention Agreement AGREED: /s/ Norman Russell DATE: 12 July 2002 - -------------------------------------------- ------------------------ Norrie Russell, Ph.D. EXHIBIT A LETTER OF RESIGNATION Mr. Craig C. Taylor Chairman of the Board Lynx Therapeutics, Inc. 25861 Industrial Boulevard Hayward, CA 94545 Dear Craig: As we have discussed, I have resigned as Chief Executive Officer, Director, and from any other position or office that I may hold with Lynx Therapeutics, Inc., effective as of May 31, 2002. Sincerely, /s/ Norman Russell Norrie Russell, Ph.D. EXHIBIT B LETTER OF RESIGNATION TO AXARON BIOSCIENCE AG Dr. Alfred Bach President & CEO Axaron Bioscience AG Im Neuenheimer Feld 515 69120 Heidelberg Dear Alfred: I hereby resign as Director and any other position or office that I may hold with Axaron Bioscience AG, effective as of May 31, 2002. Sincerely, /s/ Norman Russell Norrie Russell, Ph.D. EXHIBIT C LOAN AGREEMENT DO NOT DESTROY THIS NOTE: WHEN PAID, THIS NOTE AND DEED OF TRUST SECURING SAME MUST BE SURRENDERED BEFORE RECONVEYANCE WILL BE MADE PROMISSORY NOTE SECURED BY DEED OF TRUST $250,000 HAYWARD, CALIFORNIA NOVEMBER 8, 1999 FOR VALUE RECEIVED, the undersigned, Norman J. W. Russell, Ph.D. ("Maker"), hereby promises to pay to the order of Lynx Therapeutics, Inc. ("Payee"), at 25861 Industrial Blvd., Hayward, CA 94545, or to such other place as the holder hereof may from time to time designate by written notice to Maker, in lawful money of the United States of America, the sum of Two Hundred Fifty Thousand Dollars ($250,000). 1. The entire unpaid principal balance plus accrued interest thereon shall become due and payable upon the earlier of (i) the date of sale, exchange, conveyance, encumbrance, hypothecation or other transfer by Maker of real property at 60 Hillmont Place, Danville, CA 94526 or (ii) Norman J. W. Russell ceases to be a full time employee of Lynx Therapeutics, Inc. or an affiliate thereof. 2. Interest shall accrue hereon from the date of this Note until paid, at the rate of 6.02% per annum on the principal balance remaining from time to time unpaid, compounded annually. Accrued interest shall be due and payable when principal becomes due and payable in lawful tender of the United States of America. 3. The principal and related accrued interest thereon will be forgiven on the following terms: Fifty Percent (50%) of principal plus accrued interest thereon shall be forgiven at the end of two years of full-time employment; an additional Twenty-five Percent (25%) of principal plus accrued interest thereon will be forgiven at the end of three years of full-time employment; and the remaining Twenty-five Percent (25%) of principal plus accrued interest thereon will be forgiven at the end of four years of full-time employment. 4. The entire unpaid principal balance plus accrued interest thereon at the election of Payee, becomes immediately due and payable upon the occurrence of any of the following, if any of these events occur prior to the end of four years of full-time employment by Norman J. W. Russell: (a) Any failure on the part of the Maker to make any payment when the same is due and to cure such default within five (5) days after notice is given by Payee. (b) Any failure on the part of Maker (i) to perform or observe any of their obligations under any of the "Loan Documents" (hereinafter defined), and (ii) to commence and proceed diligently to cure such default within ten (10) days after written notice thereof is given by Payee, and in any event to cure such default within thirty (30) days after the date on which such notice is given. (c) The sale, exchange, conveyance, encumbrance, hypothecation or other transfer of the real property subject to the Deed of Trust (hereinafter defined), or any part thereof or interest therein, or the entering into by Maker of any contract or agreement to do so. (d) The filing by Maker of a voluntary petition in bankruptcy, a petition for reorganization, arrangement or other relief under federal or state bankruptcy laws, or a voluntary petition for the appointment of a receiver or for other relief under the Laws of any state, or the making by Maker of an assignment of all or substantially all of its assets for the benefit of creditors. (e) The adjudication of Maker as a bankrupt or insolvent, the appointment of a receiver of all or substantially all of Maker's assets, or the entry of an order of the reorganization of Maker under applicable federal or state bankruptcy laws, if such adjudication, order or appointment is made upon a petition filed against Maker and is not, within sixty (60) days after it is made, vacated or stayed on appeal or otherwise, or if Maker by any action or failure to act signifies its approval thereof, consent thereto or acquiescence therein. 5. In the event of any failure on the part of Maker to make any payment when due, whether at maturity, as herein provided, or by reason of acceleration of maturity under the terms of paragraphs 4 and 9 hereof, Payee shall be entitled to recover from Maker all costs of effecting collection of the same, including reasonable attorney's fees and all costs of collection, whether suit be brought or not. 6. Maker may prepay all or any part of the monies due hereunder without penalty. 7. Any notice to either party hereto may be given by delivering the same in writing to such person, or by sending the same by registered or certified mail, postage prepaid, to the following mailing addresses or to any other mailing addresses within the State of California of which the parties notify each other: MAKER: Norman J. W. Russell, Ph.D. 60 Hillmont Place Danville, CA 94526 PAYEE: Lynx Therapeutics Inc. 25861 Industrial Blvd. Hayward, CA 94545 Attn: Chief Financial Officer 8. This Note is secured by (i) a certain Second Deed of Trust of even date herewith (the "Deed of Trust"), covering certain real property located at 60 Hillmont Place, Danville, CA 94526 and more fully described in Exhibit A to the Deed of Trust. The Deed of Trust and all other documents now and/or hereinafter issued in connection with the loan evidenced hereby are herein collectively referred to as the "Loan Documents". 9. In the event that Maker, without the prior written consent of Payee sells, exchanges, conveys, encumbers, hypothecates or otherwise transfers the real property covered by the Deed of Trust or any interest therein or portion thereof, or agrees to do so, Payee may, at its option, declare all sums secured hereby immediately due and payable. Consent to one such transaction shall not be deemed to be a waiver of the right to grant or withhold such consent to future or successive transactions, at Payee's sole discretion. Not withstanding the above, Maker shall not refinance the subject property without the prior written consent of Payee, which consent shall not be withheld unreasonably. 10. In the event that any one or more of the provisions contained in this Note or any of the Loan Documents shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note or any of the Loan Documents, but this Note and the Loan Documents shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein or therein. 11. Any failure of the Payee to exercise or enforce any right hereunder or under any of the Loan Documents shall not constitute a waiver of such right. All rights of the Payee hereunder or under the Loan Documents shall be cumulative and not alternative and shall be in addition to any other rights and remedies granted to the Payee pursuant to any other agreement, by statute, or by law. 12. This Note may not be changed orally, but only by an agreement in writing signed by the parties against whom enforcement of any waiver, change, modification or discharge is sought. 13. This Note shall be construed and enforced in accordance with, and governed by, the laws of the State of California and shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and assigns. 14. The obligations of the undersigned under the Loan Documents shall be joint and several. WITNESS, the undersigned has executed this Note, with the intent of being legally bound, effective as of the date first set forth above. /s/ Norman Russell - ---------------------------------------- Norman J. W. Russell, Ph.D. EXHIBIT D AMENDED AND RESTATED NOTE AMENDED AND RESTATED PROMISSORY NOTE SECURED BY DEED OF TRUST $77,355.07 JULY 9, 2002 Hayward, California This AMENDED AND RESTATED PROMISSORY NOTE SECURED BY DEED OF TRUST ("NOTE") amends and restates that certain Promissory Note Secured by Deed of Trust in the principal amount of $250,000, executed on November 8, 1999, in Hayward California by NORMAN J. W. RUSSELL ("BORROWER") in favor of LYNX THERAPEUTICS, INC., a Delaware corporation ("LENDER"). Pursuant to the forgiveness provisions the original terms of the Note and a payment of principal under a work separation agreement between Borrower and Lender the outstanding principal amount of the Note has been reduced. Accordingly, Borrower hereby unconditionally promises to pay to the order of Lender, in lawful money of the United States of America and in immediately available funds the principal amount of Seventy-seven Thousand Three Hundred fifty-five and 07/100 Dollars ($77,355.07) together with all accrued and unpaid interest thereon, if any (the "LOAN") in accordance with the terms and conditions hereof. 1. SECURITY. This Note is secured by that certain Deed of Trust with Assignment of Rents executed by Borrower and Borrower's spouse in favor of Lender, as beneficiary and of even date herewith (as the same may from time to time be amended, modified, supplemented, or restated, the "DEED OF TRUST"), encumbering that certain real property located at 60 Hillmont Place, Danville, California, as more particularly described therein (the "PROPERTY"). Borrower hereby represents and warrants that, as of the date of this Note: (a) Borrower and Borrower's spouse are the sole and lawful fee owners of the Property, (b) the fair market value of the Property exceeds the aggregate amount of all indebtedness secured by liens upon the Property, and (c) this Note is not for consumer, family or household purposes as that term is defined and used in Article XV of the California Constitution. 2. PRINCIPAL REPAYMENT. (a) The Loan shall be due and payable in accordance with the following schedule: one half (1/2) of the then outstanding principal plus all accrued interest thereon shall be due and payable on September 30, 2002, and the remaining balance of the outstanding principal plus all accrued interest thereon shall be due and payable on December 30, 2002. Notwithstanding the foregoing, the entire outstanding principal balance of the Loan plus all accrued interest shall be due and payable in full immediately upon any Event of Default (as defined in Section 7 below). (b) This Note is subject to Section 2966 of the Civil Code, which provides that the Lender shall give written notice of the following to Borrower at least 90 and not more than 150 days before the natural due date:(i) the name and address to whom the payment is required to be paid, (ii) the date on which the payment is required to be paid, (iii) the amount due at time of payment, and (iv) confirmation that Borrower does not have a right to refinance the Note with Lender; provided, however, the foregoing provisions of this section 2(b) shall be inapplicable to an accelerated due date arising from an Event of Default. 3. INTEREST RATE. Until paid in full, this Note shall bear interest at the rate of 6.02% compounded annually. 4. DEFAULT INTEREST. Upon the occurrence of an Event of Default, at the Lender's option, the outstanding principal balance shall immediately begin to accrue interest at a rate equal to fifteen percent (15.0%) compounded continuously. 5. APPLICATION OF PAYMENTS. Any payment on this Note shall be applied first to accrued interest, then to other amounts owing hereunder, and thereafter to the outstanding principal balance hereof. Any payment due hereunder shall be paid to Lender at the address for notices below. Any amount payable hereunder shall be due and payable without set-off, deduction, or counter-claim. 6. PREPAYMENT. Subject to Section 5 above, Borrower may prepay the outstanding principal balance of this Note in whole or in part, without penalty, at any time. 7. DEFAULT AND REMEDIES. (a) DEFAULT. Each of the following events shall be an "EVENT OF DEFAULT" hereunder: (i) Borrower fails to pay timely any amounts due under this Note on the date the same becomes due and payable, (ii) Borrower breaches any covenant, representation, warranty, or agreement under this Note or any other agreement with Lender, (iii) Borrower defaults on any of its obligations under the Deed of Trust or any other instrument evidencing or securing this Note, (iv) Borrower defaults on any of its obligations under any mortgage, deed of trust, encumbrance or lien respecting the Property, which is senior to the Deed of Trust, (v) Borrower dies, (vi) Borrower files a petition or action for relief under any bankruptcy, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors or takes any action in furtherance of any of the foregoing, (vii) an involuntary petition is filed against Borrower (unless such petition is dismissed or discharged within sixty (60) days of filing) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of Borrower, or (viii) Borrower transfers, directly or indirectly, of all or any part of the Property, whether by sale, lease, assignment, mortgage or otherwise, voluntarily or involuntarily. (b) REMEDIES. Upon the occurrence of an Event of Default, all outstanding principal, accrued interest and other amounts owing hereunder shall, at the option of Lender, and, in the case of an Event of Default pursuant to Sections 7(a)(vi) and (vii) above, automatically, be immediately due and payable. Lender shall have all rights and may exercise any remedies available to it under the Deed of Trust or at law or in equity, successively or concurrently. 2. 8. NOTICE. All notices or other communications required or given hereunder shall be in writing and shall be deemed effectively given when presented personally or on the date of receipt (or refusal of delivery) if sent by courier service or U.S. Mail (certified or registered, postage prepaid, return receipt requested) to the parties at the addresses given below or such other addresses as the parties may hereafter designate in writing. The date shown on the courier's confirmation of delivery or return receipt shall be conclusive as to the date of receipt. BORROWER: Norman J.W. Russell 60 Hillmont Place Danville, CA 94526 LENDER: Lynx Therapeutics, Inc. 25861 Industrial Boulevard Hayward, California, 94545 Attn: Vice President, Human Resources 9. MAXIMUM LEGAL RATE OF INTEREST. All agreements between Borrower and Lender, whether now existing or hereafter arising, are hereby limited so that in no event shall the interest charged hereunder or agreed to be paid to Lender exceed the maximum amount permitted under applicable law. Lender shall be entitled to amortize, prorate and spread throughout the full term of this Note all interest paid or payable so that the interest paid does not exceed the maximum amount permitted under applicable law. If Lender ever receives interest or anything deemed interest in excess of the maximum amount permitted under applicable law, an amount equal to such excess shall be applied to the reduction of the principal balance, and to the extent it exceeds the unpaid balance of principal hereof, the remainder shall be refunded to Borrower. If interest otherwise payable to Lender would exceed the maximum amount permitted under applicable law, the interest payable shall be reduced to the maximum amount permitted under applicable law. This section shall control all agreements between Borrower and Lender in connection with the indebtedness evidenced hereby. 10. WAIVER. Borrower waives diligence, presentment, protest and demand and also notice of protest, demand, dishonor, acceleration, intent to accelerate, and nonpayment of this Note and agrees to pay all costs of collection when incurred, including, without limitation attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the fullest extent permitted by law. 11. USE OF PROCEEDS; NON-TRANSFERABLE. The right of Borrower to request and receive the Loan hereunder, as well as the other benefits under this Note, shall not be assignable or otherwise transferable by Borrower. 12. MISCELLANEOUS. (a) This Note may be modified only by a written agreement executed by Borrower and Lender. (b) The terms of this Note shall inure to the benefit of and bind Borrower and Lender and their respective heirs, legal representatives and successors and assigns. 3. (c) Time is of the essence with respect to all matters set forth in this Note. (d) If this Note is destroyed, lost or stolen, Borrower will deliver a new note to Lender on the same terms and conditions as this Note with a notation of the unpaid principal in substitution of the prior Note. Lender shall furnish to Borrower reasonable evidence that the Note was destroyed, lost or stolen and any security or indemnity that may be reasonably required by Borrower in connection with the replacement of this Note. (e) If any provision of this Note shall be held to be invalid or unenforceable, such determination shall not affect the remaining provisions of this Note. (f) If this Note is now, or hereinafter shall be, signed by more than one party or person, it shall be the joint and several obligation of such parties or persons and shall be binding upon such parties or persons and upon their respective successors and assigns. 13. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. IN WITNESS WHEREOF, Borrower has executed this Secured Promissory Note as of the date and year first above written. BORROWER: /s/ Norman Russell -------------------------------------------- NORMAN J.W. RUSSELL 4. WHEN RECORDED MAIL TO: Lynx Therapeutics, Inc. 25861 Industrial Boulevard Hayward, California, 94545 Attn: Vice President, Human Resources - -------------------------------------------------------------------------------- SPACE ABOVE THIS LINE FOR RECORDER'S USE DEED OF TRUST WITH ASSIGNMENT OF RENTS (SHORT FORM) This DEED OF TRUST, made July 9, 2002, between NORMAN J. W. RUSSELL and JANE RUSSELL, husband and wife HEREIN COLLECTIVELY called TRUSTOR, whose address is 60 Hillmont Place, Danville, California, 94526, FIRST AMERICAN TITLE COMPANY, herein called TRUSTEE, and LYNX THERAPEUTICS, INC. a Delaware corporation, herein called BENEFICIARY. WITNESSETH: That Trustor grants to Trustee in trust, with power of sale, that property in the City of Danville, County of Contra Costa, State of California, described as: SEE LEGAL DESCRIPTION ATTACHED HERETO AS EXHIBIT A AND MADE A PART HEREOF together with the rents, issues and profits thereof, subject, however, to the right, power and authority hereinafter given to and conferred upon Beneficiary to collect and apply such rents, issues and profits for the Purpose of Securing (1) payment of the sum of $77,355.07 with interest thereon according to the terms of a promissory note or notes of even date herewith made by Norman J.W. Russell, payable to order of Beneficiary, and extensions or renewals thereof, (2) the performance of each agreement of Trustor incorporated by reference or contained herein, and (3) payment of additional sums and interest thereon which may hereafter be loaned to Trustor, or Trustor's successors or assigns, when evidenced by a promissory note or notes reciting that they are secured by this Deed of Trust. To protect the security of this Deed of Trust, and with respect to the property above described Trustor expressly makes each and all of the agreements, and adopts and agrees to perform and be bound by each and all of the terms and provisions set forth in subdivision A, and it is mutually agreed that each and all of the terms and provisions set forth in subdivision B of the fictitious deed of trust recorded in Orange County August 17, 1964, and in all other counties August 18, 1964, in the book and at the page of Official Records in the office of the county recorder of the county where said property is located, noted below opposite the name of such county, namely: 1.

COUNTY BOOK PAGE COUNTY BOOK PAGE COUNTY BOOK PAGE COUNTY BOOK PAGE ALAMEDA 1288 556 KINGS 858 713 PLACER 1028 379 SIERRA 38 187 ALPINE 3 130-31 LAKE 437 110 PLUMAS 166 1307 SISKIYOU 506 762 AMADOR 133 438 LASSEN 192 367 RIVERSIDE 3778 347 SOLANO 1287 621 BUTTE 1330 513 LOS T-3878 874 SACRAMENTO 5039 124 SONOMA 2067 427 ANGELES CALAVERAS 185 338 MADERA 911 136 SAN BENITO 300 405 STANISLAUS 1970 56 COLUSA 323 391 MARIN 1849 122 SAN BERNARDINO 6213 768 SUTTER 655 585 CONTRA COSTA 4684 1 MARIPOSA 90 453 SAN FRANCISCO A-804 596 TEHAMA 457 183 DEL NORTE 101 549 MENDOCINO 667 99 SAN JOAQUIN 2855 283 TRINITY 108 595 EL DORADO 704 635 MERCED 1660 753 SAN LUIS 1311 137 TULARE 2530 108 OBISPO FRESNO 5052 623 MODOC 191 93 SAN MATEO 4778 175 TUOLUMNE 177 160 GLENN 469 76 MONO 69 302 SANTA BARBARA 2065 881 VENTURA 2607 237 HUMBOLDT 801 83 MONTEREY 357 239 SANTA CLARA 6626 664 YOLO 769 16 IMPERIAL 1189 701 NAPA 704 742 SANTA CRUZ 1638 607 YUBA 398 693 INYO 165 672 NEVADA 363 94 SHASTA 800 633 KERN 3756 690 ORANGE 7182 18 SAN DIEGO SERIES 5 BOOK 1964, PAGE 149774

shall inure to and bind the parties hereto, with respect to the property above described. Said agreements, terms and provisions contained in said subdivisions A and B, (identical in all counties, and printed on Pages 3 and 4 hereof) are by the within reference thereto, incorporated herein and made a part of this Deed of Trust for all purposes as fully as if set forth at length herein, and Beneficiary may charge for a statement regarding the obligation secured hereby, provided the charge therefor does not exceed the maximum allowed by law. The undersigned Trustor, requests that a copy of any Notice of Default and any Notice of Sale hereunder be mailed to Trustor at the address hereinbefore set forth. SEE ADDENDUM 1 AND ADDENDUM 2 ATTACHED HERETO AND INCORPORATED HEREIN BY THIS REFERENCE FOR ADDITIONAL PROVISIONS. Signature of Trustor /s/ Norman Russell - -------------------------------------------- Norman J. W. Russell /s/ Jane Russell - -------------------------------------------- Jane Russell (Signatures need to be acknowledged) 2. DO NOT RECORD The following is a copy of Subdivisions A and B of the fictitious Deed of Trust recorded in each county in California as stated in the foregoing Deed of Trust and incorporated by reference in said Deed of Trust as being a part thereof as if set forth at length therein. To protect the security of this Deed of Trust, Trustor agrees: To keep said property in good condition and repair; not to remove or demolish any building thereon; to complete or restore promptly and in good and workmanlike manner any building which may be constructed, damaged or destroyed thereon and to pay when due all claims for labor performed and materials furnished therefor; to comply with all laws affecting said property or requiring any alterations or improvements to be made thereon; not to commit or permit waste thereof; not to commit, suffer or permit any act upon said property in violation of law; to cultivate, irrigate, fertilize, fumigate, prune and do all other acts which from the character or use of said property may be reasonably necessary, the specific enumerations herein not excluding the general. To provide, maintain and deliver to Beneficiary fire insurance satisfactory to and with loss payable to Beneficiary. The amount collected under any fire or other insurance policy may be applied by Beneficiary upon any indebtedness secured hereby and in such order as Beneficiary may determine, or at option of Beneficiary the entire amount so collected or any part thereof may be released to Trustor. Such application or release shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice. To appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; and to pay all costs and expenses, including cost of evidence of title and attorney's fees in a reasonable sum, in any such action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed. To pay: at least ten days before delinquency all taxes and assessments affecting said property, including assessments on appurtenant water stock; when due, all encumbrances, charges and liens, with interest, on said property or any part thereof, which appear to be prior or superior hereto; all costs, fees and expenses of this Trust. Should Trustor fail to make any payment or to do any act as herein provided, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligation hereof, may: make or do the same in such manner and to such extent as either may deem necessary to protect the security hereof, Beneficiary or Trustee being authorized to enter upon said property for such purposes; appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; pay, purchase, contest or compromise any encumbrance, charge or lien which in the judgment of either appears to be prior or superior hereto; and, in exercising any such powers, pay necessary expenses, employ counsel and pay his reasonable fees. To pay immediately and without demand all sums so expended by Beneficiary or Trustee, with interest from date of expenditure at the amount allowed by law in effect at the date hereof, and to pay for any statement provided for by law in effect at the date hereof regarding the obligation secured hereby any amount demanded by the Beneficiary not to exceed the maximum allowed by law at the time when said statement is demanded. It is mutually agreed: That any award of damages in connection with any condemnation for public use of or injury to said property or any part thereof is hereby assigned and shall be paid to Beneficiary who may apply or release such monies received by him in the same manner and with the same effect as above provided for disposition of proceeds of fire or other insurance. That by accepting payment of any sum secured hereby after its due date, Beneficiary does not waive his right either to require prompt payment when due of all other sums so secured or to declare default for failure so to pay. That at any time or from time to time, without liability therefor and without notice, upon written request of Beneficiary and presentation of this Deed and said note for endorsement, and without affecting the personal liability of any person for payment of the indebtedness secured hereby, Trustee may: reconvey any part of said property; consent to the making of any map or plat thereof; join in granting any easement thereon; or join in any extension agreement or any agreement subordinating the lien or charge hereof. That upon written request of Beneficiary stating that all sums secured hereby have been paid, and upon surrender of this Deed and said note to Trustee for cancellation and retention or other disposition as Trustee in its sole discretion may choose and upon payment of its fees, Trustee shall reconvey, without warranty, the property then held hereunder. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The Grantee in such reconveyance may be described as "the person or persons legally entitled thereto." That as additional security, Trustor hereby gives to and confers upon Beneficiary the right, power and authority, during the continuance of these Trusts, to collect the rents, issues and profits of said property, reserving unto Trustor the right, prior to any default by Trustor in payment of any indebtedness secured hereby or in performance of any agreement hereunder, to collect and retain such rents, issues and profits as they become due and payable. Upon any such default, Beneficiary may at any time without notice, either in person, by agent, or by a receiver to be appointed by a court, and without regard to the adequacy of any 3. security for the indebtedness hereby secured, enter upon and take possession of said property or any part thereof, in his own name sue for or otherwise collect such rents, issues, and profits, including those past due and unpaid, and apply the same, less costs and expenses of operation and collection, including reasonable attorney's fees, upon any indebtedness secured hereby, and in such order as Beneficiary may determine. The entering upon and taking possession of said property, the collection of such rents, issues and profits and the application thereof as aforesaid, shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice. That upon default by Trustor in payment of any indebtedness secured hereby or in performance of any agreement hereunder, Beneficiary may declare all sums secured hereby immediately due and payable by delivery to Trustee of written declaration of default and demand for sale and of written notice of default and of election to cause to be sold said property, which notice Trustee shall cause to be filed for record. Beneficiary also shall deposit with Trustee this Deed, said note and all documents evidencing expenditures secured hereby. After the lapse of such time as may then be required by law following the recordation of said notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Trustor, shall sell said property at the time and place fixed by it in said notice of sale, either as a whole or in separate parcels, and in such order as it may determine, at public auction to the highest bidder for cash in lawful money of the United States, payable at time of sale. Trustee may postpone sale of all or any portion of said property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to such purchaser its deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustor, Trustee, or Beneficiary as hereinafter defined, may purchase at such sale. After deducting all costs, fees and expenses of Trustee and of this Trust, including cost of evidence of title in connection with sale, Trustee shall apply the proceeds of sale to payment of: all sums expended under the terms hereof, not then repaid, with accrued interest at the amount allowed by law in effect at the date hereof; all other sums then secured hereby; and the remainder, if any, to the person or persons legally entitled thereto. Beneficiary, or any successor in ownership of any indebtedness secured hereby, may from time to time, by instrument in writing, substitute a successor or successors to any Trustee named herein or acting hereunder, which instrument, executed by the Beneficiary and duly acknowledged and recorded in the office of the recorder of the county or counties where said property is situated, shall be conclusive proof of proper substitution of such successor Trustee or Trustees, who shall, without conveyance from the Trustee predecessor, succeed to all its title, estate, rights, powers and duties. Said instrument must contain the name of the original Trustor, Trustee and Beneficiary hereunder, the book and page where this Deed is recorded and the name and address of the new Trustee. That this Deed applies to, inures to the benefit of, and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors and assigns. The term Beneficiary shall mean the owner and holder, including pledgees of the note secured hereby, whether or not named as Beneficiary herein. In this Deed, whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. That Trustee accepts this Trust when this Deed, duly executed and acknowledged, is made a public record as provided by law. Trustee is not obligated to notify any party hereto of pending sale under any other Deed of Trust or of any action or proceeding in which Trustor, Beneficiary or Trustee shall be a party unless brought by Trustee. DO NOT RECORD REQUEST FOR FULL RECONVEYANCE TO FIRST AMERICAN TITLE INSURANCE COMPANY, TRUSTEE: The undersigned is the legal owner and holder of the note or notes, and of all other indebtedness secured by the foregoing Deed of Trust. Said note or notes, together with all other indebtedness secured by said Deed of Trust, have been fully paid and satisfied; and you are hereby requested and directed, on payment to you of any sums owing to you under the terms of said Deed of Trust, to cancel said note or notes above mentioned, and all other evidences of indebtedness secured by said Deed of Trust delivered to you herewith, together with the said Deed of Trust, and to reconvey, without warranty, to the parties designated by the terms of said Deed of Trust, all the estate now held by you under the same. Dated ------------------------- -------------------------------------- -------------------------------------- Please mail Deed of Trust, ------------------------------------------------------ Note and Reconveyance to -------------------------------------------------------- Do not lose or destroy this Deed of Trust OR THE NOTE which it secures. Both must be delivered to the Trustee for cancellation before reconveyance will be made. 4. ADDENDUM 1 TO DEED OF TRUST ADDITIONAL PROVISIONS Trustor also agrees that it shall not encumber, hypothecate, sell, assign, or otherwise transfer the property above described, and the performance of such agreement is one of the purposes secured by this Deed of Trust. 5. ADDENDUM 2 TO DEED OF TRUST 1. DEFINITIONS. As used in this Addendum: (a) "THIRD PARTY SECURED OBLIGATION" means any obligation which is required to be performed by Borrower (as defined below) under this Deed of Trust or which is secured by this Deed of Trust: (b) "CO-OWNER" means Jane Russell; and (c) "BORROWER" means Norman J.W. Russell. As used herein, "BENEFICIARY" shall mean Beneficiary (as defined in the Deed of Trust) or Trustee (as defined in the Deed of Trust) if acting on behalf of Beneficiary (as defined in the Deed of Trust). All other capitalized words are used herein as they are defined in the attached Deed of Trust. 2. RIGHTS OF BENEFICIARY. Co-Owner authorizes Beneficiary to perform any or all of the following acts at any time in its sole discretion, all without notice to Co-Owner and without affecting Beneficiary's rights or Co-Owner's obligations under this Deed of Trust: (a) Beneficiary may alter any terms of the Third Party Secured Obligation or any part of it, including renewing, compromising, extending or accelerating, or otherwise changing the time for payment of, or increasing or decreasing the rate of interest on, the Third Party Secured Obligation or any part of it; (b) Beneficiary may take and hold any additional security for the Third Party Secured Obligation, accept substituted security for that obligation, and subordinate, exchange, enforce, waive, release, compromise, fail to perfect and sell or otherwise dispose of any such security; (c) Beneficiary may direct the order and manner of any sale of all or any part of any security now or later to be held for the Third Party Secured Obligation, and Beneficiary may also bid at any such sale; (d) Beneficiary may apply any payments or recoveries from Borrower or any other source, and any proceeds of any security, to the Third Party Secured Obligation in such manner, order and priority as Beneficiary may elect, whether that obligation is secured by this Deed of Trust or not at the time of the application; (e) Beneficiary may release Borrower of Borrower's liability for the Third Party Secured Obligation or any part of it; (f) Beneficiary may substitute, add or release any one or more guarantors or endorsers; and 6. (g) In addition to the Third Party Secured Obligation, Beneficiary may extend other credit to Borrower, and may take and hold security for the credit so extended, all without affecting Beneficiary's rights or Co-Owner's liability under this Deed of Trust. 3. DEED OF TRUST TO BE ABSOLUTE. Co-Owner expressly agrees that until each and every term, covenant and condition of this Deed of Trust and the Third Party Secured Obligation is fully performed, Co-Owner shall not be released by or because of: (a) Any act or event which might otherwise discharge, reduce, limit or modify Co-Owner's obligations under this Deed of Trust; (b) Any waiver, extension, modification, forbearance, delay or other act or omission of Beneficiary, or its failure to proceed promptly or otherwise as against Borrower, any other person or any security; (c) Any action, omission or circumstance which might increase the likelihood that Co-Owner may be called upon to perform under this Deed of Trust or which might affect the rights or remedies of Co-Owner as against Borrower; and (d) Any dealings occurring at any time between Borrower and Beneficiary, whether relating to the Third Party Secured Obligation or otherwise. Co-Owner hereby expressly waives and surrenders any defense to Co-Owner's liability under this Deed of Trust based upon any of the foregoing acts, omissions, agreements, waivers or matters. It is the purpose and intent of this Deed of Trust that the obligations of Co-Owner under it shall be absolute and unconditional under any and all circumstances. 4. CO-OWNER'S WAIVERS. Co-Owner waives: (a) All statutes of limitations as a defense to any action or proceeding brought against Co-Owner by Beneficiary, to the fullest extent permitted by law; (b) Any right it may have to require Beneficiary to proceed against Borrower, proceed against or exhaust any other security held from Borrower, or pursue any other remedy in Beneficiary's power to pursue; (c) Any defense based on any claim that Co-Owner's obligations exceed or are more burdensome than those of Borrower; (d) Any defense based on: (i) any legal disability of Borrower, (ii) any release, discharge, modification, impairment or limitation of the liability of Borrower to Beneficiary from any cause, whether consented to by Beneficiary or arising by operation of law or from any bankruptcy or other voluntary of involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships ("INSOLVENCY PROCEEDING") and (iii) any rejection or disaffirmance of the Third Party Secured Obligation, or any part of it, or any security held for it, in any such Insolvency Proceeding; 7. (e) Any defense based on any action taken or omitted by Beneficiary in any Insolvency Proceeding involving Borrower, including any election to have Beneficiary's claim allowed as being secured, partially secured or unsecured, any extension of credit by Beneficiary to Borrower in any Insolvency Proceeding, and the taking and holding by Beneficiary of any security for any such extension of credit; (f) All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of acceptance of this Deed of Trust, and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind; (g) Any defense based on or arising out of any defense that Borrower may have to the payment or performance of the Third Party Secured Obligation or any part of it; (h) All rights and defenses that the Co-Owner may have because the Third Party Secured Obligation is secured by real property, which means, among other things: (i) The Beneficiary may foreclose under this Deed of Trust without first foreclosing on any other real or personal property collateral; and (ii) If the Beneficiary forecloses on any real property collateral pledged as collateral: (1) The amount of the Third Party Secured Obligation may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; and (2) The Beneficiary may foreclose pursuant to this Deed of Trust even if the Beneficiary, by foreclosing on the real property collateral, has destroyed any right the Co-Owner may have to collect from the Borrower; and (i) The Co-Owner waives all rights and defenses arising out of an election of remedies by the Beneficiary, even though that election of remedies, such as a nonjudicial foreclosure, has destroyed the Co-Owner's rights of subrogation and reimbursement against the Borrower by the operation of Section 580d of the California Code of Civil Procedure or otherwise. This is an unconditional and irrevocable waiver of any rights and defenses the Co-Owner may have because the Third Party Secured Obligation is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure. 5. WAIVERS OF SUBROGATION AND OTHER RIGHTS. (a) Upon a default by Borrower, Beneficiary in its sole discretion, without prior notice to or consent of Co-Owner, may elect to: (i) foreclose either judicially or nonjudicially against any real or personal property security it may hold for the Third Party Secured Obligation, (ii) accept a transfer of any such security in lieu of foreclosure, (iii) 8. compromise or adjust the Third Party Secured Obligation or any part of it or make any other accommodation with Borrower or Co-Owner, or (iv) exercise any other remedy against Borrower or any security. No such action by Beneficiary shall release or limit the liability of Co-Owner, who shall remain liable under this Deed of Trust after the action, even if the effect of the action is to deprive Co-Owner of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from Borrower for any sums paid to Beneficiary, whether contractual or arising by operation of law or otherwise. Co-Owner expressly agrees that under no circumstances shall it be deemed to have any right, title, interest or claim in or to any real or personal property to be held by Beneficiary or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Third Party Secured Obligation. (b) Regardless of whether Co-Owner may have made any payments to Beneficiary, Co-Owner hereby waives: (i) all rights of subrogation, all rights of indemnity, and any other rights to collect reimbursement from Borrower for any sums paid to Beneficiary, whether contractual or arising by operation of law (including the United States Bankruptcy Code or any successor or similar statute) or otherwise, (ii) all rights to enforce any remedy that Beneficiary may have against Borrower, and (iii) all rights to participate in any security now or later to be held by Beneficiary for the Third Party Secured Obligation. The waivers given in this Section 5(b) shall be effective until the Third Party Secured Obligation has been paid and performed in full. (c) Co-Owner understands and acknowledges that if Beneficiary forecloses judicially or nonjudicially against any real property security for the Third Party Secured Obligation, that foreclosure could impair or destroy any ability that Co-Owner may have to seek reimbursement, contribution, and indemnification from Borrower or others based on any right Co-Owner may have of subrogation, reimbursement, contribution or indemnification. Co-Owner further understands and acknowledges that in the absence of this Deed of Trust, such potential impairment or destruction of Co-Owner's rights, if any, may entitle Co-Owner to assert a defense to this Deed of Trust based on Section 580d of the California Code of Civil Procedure as defined in Union Bank v. Gradsky, 265 Cal.App.2d 40 (1968). By executing this Deed of Trust, Co-Owner freely, irrevocably and unconditionally: (i) waives and relinquishes that defense and agrees that Co-Owner will be fully liable under this Deed of Trust even though Beneficiary may foreclose judicially or nonjudicially against any real property security for the Third Party Secured Obligation, (ii) agrees that Co-Owner will not assert that defense in any action or proceeding which Beneficiary may commence to enforce this Deed of Trust, (iii) acknowledges and agrees that the rights and defense that Co-Owner may have or be entitled to assert based upon or arising out of any one or more Sections 580a, 580b, 580d or 726 of the California Code of Civil Procedure or Section 2848 of the California Civil Code, and (iv) acknowledges and agrees that Beneficiary is relying on this waiver in making the Third Party Secured Obligation, and that this waiver is a material part of the consideration which Beneficiary is receiving for making the Third Party Secured Obligation. 6. REVIVAL AND REINSTATEMENT. If Beneficiary is required to pay, return or restore to Borrower or any other person any amounts previously paid on the Third Party Secured Obligation because of any Insolvency Proceeding of Borrower, any stop notice or any other reason, the obligations of Co-Owner shall be reinstated and revived and the rights of Beneficiary shall continue with regard to such amounts, all as though they had never been paid. 9. 7. INFORMATION REGARDING BORROWER. Before signing this Deed of Trust, Co-Owner understands and acknowledges that Co-Owner is aware of the financial condition and business operations of Borrower and such other matters as Co-Owner deems appropriate to assure Co-Owner of Borrower's ability to discharge its obligations in connection with the Third Party Secured Obligation. Co-Owner assumes full responsibility for that due diligence, as well as for keeping informed of all matters which may affect Borrower's ability to pay and perform its obligations to Beneficiary. Beneficiary has no duty to disclose to Co-Owner any information which Beneficiary may have or receive about Borrower's financial condition, business operations, or any other circumstances. 10. EXHIBIT A TO DEED OF TRUST LEGAL DESCRIPTION OF THE PROPERTY [ATTACHED] 11. RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Lynx Therapeutics, Inc. 25861 Industrial Boulevard Hayward, California, 94545 Attn: Vice President, Human Resources - -------------------------------------------------------------------------------- SPACE ABOVE THIS LINE FOR RECORDER'S USE REQUEST FOR NOTICE UNDER SECTION 2924b CIVIL CODE In accordance with Section 2924b, Civil Code, request is hereby made that a copy of any Notice of Default and a copy of any Notice of Sale under Deed of Trust recorded as instrument No. 1999-0296940-00, on November 10, 1999, Official Records of Contra Costa County, California, and describing land therein as Legal description attached hereto and made a part hereof executed by Norman J.W. Russell and Jane Russell, husband and wife, as Trustor, in which Washington Mutual Bank, FA is named as Lender/Beneficiary, and California Reconveyance Company, as Trustee, be mailed to Lynx Therapeutics, Inc. at 25861 Industrial Boulevard, Hayward, California, 94545, Attn: Vice President, Human Resources. The undersigned requests that a copy of any Notice of Default and of any Notice of Sale hereunder be mailed to him at his address hereinbefore set forth. Dated: July 19, 2002 ------- Lynx Therapeutics, Inc, By: /s/ Kathy A. San Roman --------------------------- Its: Vice President, Human Resources & Administration ---------------------------------------------------- 1. RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Lynx Therapeutics, Inc. 25861 Industrial Boulevard Hayward, California, 94545 Attn: Vice President, Human Resources - -------------------------------------------------------------------------------- SPACE ABOVE THIS LINE FOR RECORDER'S USE REQUEST FOR NOTICE UNDER SECTION 2924b CIVIL CODE In accordance with Section 2924b, Civil Code, request is hereby made that a copy of any Notice of Default and a copy of any Notice of Sale under Deed of Trust recorded as instrument No. 2000-0094895-00, on May 8, 2000, Official Records of Contra Costa County, California, and describing land therein as Legal description attached hereto and made a part hereof executed by Norman J.W. Russell and Jane Russell, husband and wife, as Trustor, in which Wells Fargo Bank, N.A. is named as Lender/Beneficiary, and American Securities Company, as Trustee, be mailed to Lynx Therapeutics, Inc. at 25861 Industrial Boulevard, Hayward, California, 94545, Attn: Vice President, Human Resources. The undersigned requests that a copy of any Notice of Default and of any Notice of Sale hereunder by mailed to him at his address hereinbefore set forth. Dated: July 19, 2002 ------- Lynx Therapeutics, Inc, By: /s/ Kathy A. San Roman ---------------------------- ITS: VICE PRESIDENT, HUMAN RESOURCES & ADMINISTRATION ---------------------------------------------------- 1. CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT - ------------------------------------------------------------------------------- STATE OF CALIFORNIA ) ) SS. COUNTY OF ) ----------------------------------------- On , before me, , ----------------- ----------------------------------------------- Date Name And Title Of Officer (e.g. "Jane Doe, Notary Public") personally appeared , ------------------------------------------------------------ Name of Signer(s) [ ] personally known to me -- OR -- [X] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. -------------------------------------- Signature of Notary Public - -------------------------------------------------------------------------------- OPTIONAL Though the information below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent removal and reattachment of this form to another document. DESCRIPTION OF ATTACHED DOCUMENT Title or Type of Document: ----------------------------------------------------- Document Date: Number of Pages: ------------------------- ---------------------- Signer(s) Other Than Named Above: ---------------------------------------------- CAPACITY(IES) CLAIMED BY SIGNER(S) CAPACITY(IES) CLAIMED BY SIGNER(S) Signer's Name: Signer's Name: ------------------------------------------ --------------------------------------- [ ]Individual [ ]Individual [ ]Corporate Officer [ ]Corporate Officer Title(s): Title(s): ------------------------------------------- ---------------------------------------- [ ]Partner -- [ ] Limited [ ] General [ ]Partner -- [ ] Limited [ ] General [ ]Attorney-in-Fact [ ]Attorney-in-Fact [ ]Trustee [ ]Trustee [ ]Guardian or Conservator ------------------ [ ]Guardian or Conservator ------------------ [ ]Other: RIGHT THUMBPRINT [ ]Other: RIGHT THUMBPRINT ------------------------ OF SIGNER ----------------------- OF SIGNER ------------------ ------------------ ------------------------ Top of thumb here ---------------------- Top of thumb here Signer is representing: Signer is representing: ----------------------------------- -------------------------------- ----------------------------------- ------------------ -------------------------------- ------------------ - ------------------------------------------------------------------------------------------------------------------- EXHIBIT E EMPLOYEE INVENTION AGREEMENT LYNX THERAPEUTICS INC. EMPLOYEE INVENTION AGREEMENT 1. As an employee of Lynx Therapeutics Incorporated (the "Company"), and in consideration of the compensation now and hereafter paid to me, I agree at all times during the term of my employment and thereafter, to hold in strictest confidence, and not to use or to disclose to any person, firm or corporation, without express authorization of an officer of the Company, any information, manufacturing technique, processes, formulas, development or experimental work, work in process, trade secrets or any other proprietary or confidential matter relating to the products, sales or business of the Company. 2. I further agree that I will promptly make full disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will assign all my right, title and interest to, any and all inventions, discoveries, developments, improvements or trade secrets which I may solely or jointly conceive, develop or reduce to practice, or cause to be conceived, developed or reduced to practice, during the period of time I am in the employ of the Company, except any invention, discovery, development, improvement or trade secret as to which I can prove that: a) it was developed entirely on my own time; and b) no equipment, supplies, facility or trade secret of the Company was used in its development; and c) (i) it does not relate to the business or actual or demonstrably anticipated research or development of the Company, or (ii) it does not result from any work performed by me for the Company. Notwithstanding the foregoing, I also assign to or as directed by the Company all my right, title and interest in and to any and all inventions, discoveries, developments, improvements or trade secrets, full title to which is required to be in the United States by a contract between the Company and the United States or any of its agencies. 3. I agree to execute any proper oath or verify any proper document in connection with carrying out the terms of this agreement. In the event the Company is unable (because of my mental or physical incapacity or for any other reason whatsoever) to secure my signature to apply for, or to pursue any application for any United States or foreign letters patent, covering inventions assigned to the Company as stated above, I hereby irrevocably designate and appoint the Company and its duly authorized officer and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent thereon with the same legal force and effect as if executed by me. I have attached hereto a list describing all inventions made by me prior to my employment with the Company belonging to me, relating to the Company's proposed business and products and not assigned to the Company, or, if no such list is attached, I represent that there are no such inventions. I hereby waive and quitclaim to the Company any and all claims of any nature whatsoever which I now or may hereafter have for infringement of any patent or patents resulting from any such applications for letters patent assigned hereunder to the Company. 4. I recognize that the Company may receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree that I owe the Company and such third parties during the term of my employment and thereafter a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation (except as necessary in carrying out my work for the Company consistent with the Company's agreement with such third party) or use it for the benefit of anyone other than for the Company or such third party consistent with the Company's agreement with such third party without the express authorization of an officer of the Company. 5. I further agree that at the time of leaving the employ of the Company, I will deliver to the Company and will not keep in my possession, nor deliver to anyone else, any and all drawings, blueprints, notes, memoranda, specifications, devices, documents, or any other material containing or disclosing any of the matters referred to herein. 6. I agree that I will not during my employment at the Company improperly use or disclose any proprietary information or trade secrets of my former or concurrent employers or companies, if any, and that I shall not bring onto the premises of the Company any unpublished document or any property belonging to my former or concurrent employers or companies, if any, unless consented to in writing by said employers or companies. 7. The provisions of this agreement requiring assignment to the Company do not apply to any invention which qualifies fully under the provisions of Section 2870 of the California Labor Code. I will advise the company promptly in writing of any inventions, discoveries, developments, improvement or trade secrets that I believe meet the criteria in subparagraphs 2 a, b, and c above; and I will at that time provide to the Company in writing all evidence necessary to substantiate that belief. I understand that the Company will keep in confidence and will not disclose to third parties without my consent any confidential information disclosed in writing to the company relating to inventions which qualify fully under the provision of Section 2870 of the California Labor Code. IN WITNESS WHEREOF, I have subscribed my name hereunto this 18th day of June , 1999. - ---- ---------------------------- ---- /s/ Norman Russell ------------------------------------ Signature Dr. NJW Russell ------------------------------------ Print Name /s/ Cristina Alves - ------------------------------------ Witness EX-99.1 6 f83225exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. Section 1350, as adopted), Kevin P. Corcoran, the Chief Executive Officer of Lynx Therapeutics, Inc. (the "Company"), and Edward C. Albini, the Chief Financial Officer of the Company, each hereby certifies that, to the best of his or her knowledge: 1. The Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002, to which this Certification is attached as Exhibit 99.1 (the "Periodic Report"), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report. Dated: August 14, 2002 /s/ Kevin P. Corcoran /s/ Edward C. Albini - ------------------------------------- ----------------------------------- Kevin P. Corcoran Edward C. Albini President and Chief Executive Officer Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.30

                                                                   EXHIBIT 10.30

                            LYNX THERAPEUTICS, INC.


                               EMPLOYEE AGREEMENT
                                       FOR
                                KEVIN P. CORCORAN


        This Employment Agreement ("Agreement") by and between Kevin P. Corcoran
("Executive") and LYNX THERAPEUTICS, INC., a Delaware corporation (the
"Company"), is entered into and is effective as of June 3, 2002 (the "Effective
Date").

        WHEREAS, the Company desires that Executive continue to provide personal
services to the Company, and wishes to provide Executive with the compensation
and benefits set forth below in return for such services; and

        WHEREAS, Executive wishes to continue to provide personal services to
the Company in return for the compensation and benefits set forth below;

        NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:

        1. EMPLOYMENT BY THE COMPANY.

               1.1 Subject to the terms set forth herein, Executive shall be
employed in his new capacity in the position of President and Chief Executive
Officer, reporting to Board of Directors of the Company. Executive agrees to
devote his best efforts and substantially all of his business time and attention
(except for vacation periods permitted by the Company's general employment
policies, reasonable periods of illness or other incapacities permitted by the
Company's general employment policies, and as otherwise provided herein) to the
business of the Company.

               1.2 Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then current title.

               1.3 The employment relationship between the parties is "at will,"
which means that either party may terminate the relationship at any time, with
or without cause and with or without advance notice. The employment relationship
between the parties shall also be governed by the general employment policies
and practices of the Company, including those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with the Company's
general employment policies or practices, this Agreement shall control.

        2. COMPENSATION.

               2.1 SALARY. As of the Effective Date, Executive shall receive for
services to be rendered hereunder an annualized base salary of Two Hundred Fifty
Thousand U.S. Dollars



                                       1.

($250,000), payable on the Company's normal payroll schedule, and subject to
standard payroll deductions and withholdings.

               2.2 STOCK OPTION. As part of Executive's employment by the
Company before the Effective Date of this Agreement, Executive has been granted,
on one or more occasion, a nonstatutory stock option ("Option") to purchase
shares of the common stock of the Company pursuant to the Company's 1992 Stock
Option Plan (the "Plan"), as amended. Any such Option(s) will continue to be
subject to the terms of the Plan and Executive's corresponding Stock Option
Grant Notices and Stock Option Agreements.

               2.3 INCENTIVE COMPENSATION. The Company does not currently have
an incentive compensation plan or program in place, and therefore the Company
cannot offer Executive incentive compensation at this time. It is the Company's
intention, however, to implement such a plan or program and to cause Executive
to be eligible for such plan or program.

               2.4 STANDARD COMPANY BENEFITS. Executive shall continue to be
entitled to all rights and benefits for which he is eligible under the terms and
conditions of the standard Company benefits and compensation practices that may
be in effect from time to time and provided by the Company to its employees
generally, including but not limited to health benefit plans. Executive also
shall continue to be eligible to participate in the Company's 401(k) Plan,
including eligibility for a monthly matching contribution by the Company on
Executive's behalf, in an amount equal to that contributed by Executive up to a
maximum annual matching contribution of Seven Hundred Fifty Dollars ($750).

        3. PROPRIETARY INFORMATION OBLIGATIONS.

               3.1 AGREEMENT. Executive agrees to abide by the executed Employee
Invention Agreement attached hereto as Exhibit A.

               3.2 REMEDIES. Executive's duties under the Employee Invention
Agreement shall survive termination of his employment with the Company.
Executive acknowledges that a remedy at law for any breach or threatened breach
by him of the provisions of the Employee Invention Agreement would be
inadequate, and he therefore agrees that the Company shall be entitled to
injunctive relief in case of any such breach or threatened breach.

        4. OUTSIDE ACTIVITIES.

               4.1 Except with the prior written consent of the Chairman of the
Board, Executive will not during the term of this Agreement undertake or engage
in any other employment, occupation or business enterprise, other than ones in
which Executive is a passive investor. Executive may engage in civic and
not-for-profit activities so long as such activities do not materially interfere
with the performance of his duties hereunder.

               4.2 Except as permitted by Section 4.3, Executive agrees not to
acquire, assume or participate in, directly or indirectly, any position,
investment or interest known by him to be adverse or antagonistic to the
Company, its business or prospects, financial or otherwise.



                                       2.

               4.3 During the term of his employment by the Company, except on
behalf of the Company, Executive will not directly or indirectly, whether as an
officer, director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known by him to compete directly with the Company, throughout the world, in any
line of business engaged in (or planned to be engaged in) by the Company;
provided, however, that anything above to the contrary notwithstanding, he may
own, as a passive investor, securities of any competitor corporation, so long as
his direct holdings in any one such corporation shall not in the aggregate
constitute more than One Percent (1%) of the voting stock of such corporation.

        5. TERMINATION OF EMPLOYMENT.

               5.1 TERMINATION WITHOUT CAUSE.

                    (a) The Company shall have the right to terminate
Executive's employment with the Company at any time without cause or advance
notice.

                    (b) In the event Executive's employment is terminated
without Cause (as defined in section 5.2) by the Company, or by any successor or
acquiring entity upon or after an Asset Sale, Merger, Consolidation, or Reverse
Merger (as defined in the Lynx Therapeutics, Inc. 1992 Stock Option Plan, as
amended), Executive shall be eligible to receive severance compensation,
calculated as specified herein, provided that, Executive executes a general
release of any and all claims he may have against the Company, which general
release shall be in a form acceptable to the Company. The amount of severance
compensation that Executive shall receive shall be calculated pursuant to the
following schedule: (a) if the termination occurs on or prior to the first year
anniversary of the Effective Date of this Agreement, Executive shall receive an
amount equal to six (6) months of his base salary, subject to standard payroll
deductions and withholdings, and paid in a lump sum; (b) if the termination
occurs after the first year anniversary of the Effective Date of this Agreement,
Executive shall receive an amount equal to three (3) months of his base salary,
subject to standard payroll deductions and withholdings, and paid in a lump sum.
("Severance"). The Severance shall be the only severance, benefit, or cash
compensation, other than accrued wages, to which the Executive shall be entitled
from the Company in the event of a termination without Cause. In the event,
however, that a successor or acquiring entity is obligated to pay Severance to
Executive, such Severance shall be in addition to any equity compensation or
benefits for which the Executive may be eligible under the Lynx Therapeutics,
Inc. 1992 Stock Option Plan, as amended.

               5.2 TERMINATION FOR CAUSE.

                    (a) The Company shall have the right to terminate
Executive's employment with the Company at any time for Cause.

                    (b) "Cause" for termination shall mean: (a) indictment or
conviction of any felony or of any crime involving dishonesty; (b) participation
in any fraud or act of dishonesty against the Company; (c) Executive's failure
to perform his duties to the Company in



                                       3.

a satisfactory manner; (d) intentional damage to any property of the Company; or
(e) conduct by Executive which in the good faith and reasonable determination of
the Chairman of the Board demonstrates lack of fitness to serve.

                    (c) In the event Executive's employment is terminated at any
time for Cause, Executive will not be entitled to Severance or any other
compensation or benefit other than accrued wages.

               5.3 VOLUNTARY OR MUTUAL TERMINATION.

                    (a) Executive may voluntarily terminate his employment with
the Company at any time, after which no further compensation will be paid to
Executive.

                    (b) In the event Executive voluntarily terminates his
employment, he will not be entitled to Severance or any other such compensation
or benefit, other than accrued wages.

        6. NONINTERFERENCE.

        While employed by the Company, and for two (2) years immediately
following the termination of his employment, Executive agrees not to interfere
with the business of the Company by soliciting, attempting to solicit, inducing,
or otherwise causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant or independent contractor
to or for any competitor of the Company.

        7. COOPERATION WITH COMPANY.

               7.1 COOPERATION OBLIGATION. During and after Executive's
employment, Executive will cooperate with the Company in responding to the
reasonable requests of the Company's Chairman of the Board or General Counsel,
in connection with any and all existing or future litigation, arbitrations,
mediations or investigations brought by or against the Company or its
affiliates, agents, officers, directors or employees, whether administrative,
civil or criminal in nature, in which the Company reasonably deems Executive's
cooperation necessary or desirable. In such matters, Executive agrees to provide
the Company with reasonable advice, assistance and information, including
offering and explaining evidence, providing sworn statements, and participating
in discovery and trial preparation and testimony. Executive also agrees to
promptly send the Company copies of all correspondence (for example, but not
limited to, subpoenas) received by Executive in connection with any such legal
proceedings, unless Executive is expressly prohibited by law from so doing. The
failure by Executive to cooperate fully with the Company in accordance with this
Section 7 will be a material breach of the terms of this Agreement which will
result in all commitments of the Company to pay Severance to Executive under
Section 5.1 (b) becoming null and void.

               7.2 EXPENSES AND FEES. The Company will reimburse Executive for
reasonable out-of-pocket expenses incurred by Executive as a result of his
cooperation with the obligations described in Section 7.1, within thirty (30)
days of the presentation of appropriate documentation thereof, in accordance
with the Company's standard reimbursement policies and procedures. After
termination of Executive's employment, the Company will also pay Executive



                                       4.

a reasonable fee in the amount of $200 per hour for the time Executive devotes
to matters as requested by the Company under Section 7.1 ("the Fees"). The
Company will not deduct or withhold any amount from the Fees for taxes, social
security, or other payroll deductions, but will instead issue an IRS Form 1099
with respect to the Fees. Executive acknowledges that in cooperating in the
manner described in Section 7.1, he will be serving as an independent
contractor, not a Company employee, and he will be entirely responsible for the
payment of all income taxes and any other taxes due and owing as a result of the
payment of Fees. Executive hereby indemnifies the Company and its officers,
directors, agents, attorneys, employees, shareholders, subsidiaries, and
affiliates and holds them harmless from any liability for any taxes, penalties,
and interest that may be assessed by any taxing authority with respect to the
Fees, with the exception of the employer's share of employment taxes
subsequently determined to be applicable, if any.

        8. GENERAL PROVISIONS.

               8.1 NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery (including
personal delivery by facsimile) or the third day after mailing by first class
mail, to the Company at its primary office location and to Executive at his
address as listed on the Company payroll.

               8.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction in order to most closely
effectuate the parties' intentions.

               8.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.

               8.4 COMPLETE AGREEMENT. This Agreement and its Exhibit constitute
the entire agreement between Executive and the Company and it is the complete,
final, and exclusive embodiment of their agreement with regard to this subject
matter. It is entered into without reliance on any promise or representation
other than those expressly contained herein, and it cannot be modified or
amended except in writing signed by a member of the Company's Board.

               8.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.

               8.6 HEADINGS. The headings of the sections hereof are inserted
for convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.

               8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors,



                                       5.

assigns, heirs, executors and administrators, except that Executive may not
assign any of his duties hereunder and he may not assign any of his rights
hereunder without the written consent of the Company, which shall not be
withheld unreasonably.

               8.8 ATTORNEY'S FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.

               8.9 GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of California. Executive hereby expressly consents to the personal
jurisdiction of the state and federal courts located in Alameda County,
California for any lawsuit filed there against Executive by the Company arising
from or related to this Agreement.



                                       6.

        IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year written below.

                                             LYNX THERAPEUTICS, INC.



                                             By:  /s/ Craig C. Taylor
                                                  ------------------------------
                                                  Craig C. Taylor
                                                  Chairman of the Board


                                                  Date: June 3, 2002
                                                  ------------------------------


Accepted and agreed this
 3 day of June 2002.
- ---       ----


/s/ Kevin P. Corcoran
- --------------------------------
[Name]


June 3, 2002
- --------------------------------
Date



                                       7.

                                                                       EXHIBIT A

                            LYNX THERAPEUTICS, INC.

                          EMPLOYEE INVENTION AGREEMENT



1.   As an employee of Lynx Therapeutics, Inc. (the "Company"), and in
     consideration of the compensation now and hereafter paid to me, I agree at
     all times during the term of my employment and thereafter, to hold in
     strictest confidence, and not to use or to disclose to any person, firm or
     corporation, without express authorization of an officer of the Company,
     any information, manufacturing technique, processes, formulas, development
     or experimental work, work in process, trade secrets or any other
     proprietary or confidential matter relating to the products, sales or
     business of the Company.

2.   I further agree that I will promptly make full disclosure to the Company,
     will hold in trust for the sole right and benefit of the Company, and will
     assign all my right, title and interest to, any and all inventions,
     discoveries, developments, improvements or trade secrets which I may solely
     or jointly conceive, develop or reduce to practice, or cause to be
     conceived, developed or reduced to practice, during the period of time I
     am in the employ of the Company, except any invention, discovery,
     development, improvement or trade secret as to which I can prove that:

     a)   it was developed entirely on my own time; and

     b)   no equipment, supplies, facility or trade secret of the Company was
          used in its development; and

     c)   (i) it does not relate to the business or actual or demonstrably
          anticipated research or development of the Company, or (ii) it does
          not result from any work performed by me for the Company.

     Notwithstanding the foregoing, I also assign to or as directed by the
     Company all my right, title and interest in and to any and all inventions,
     discoveries, developments, improvements or trade secrets, full title to
     which is required to be in the United States by a contract between the
     Company and the United States or any of its agencies.

3.   I agree to execute any proper oath or verify any proper document in
     connection with carrying out the terms of this agreement. In the event the
     Company is unable (because of my mental or physical incapacity or for any
     other reason whatsoever) to secure my signature to apply for, or to pursue
     any application for any United States or foreign letters patent, covering
     inventions assigned to the Company as stated above, I hereby irrevocably
     designate and appoint the Company and its duly authorized officer and
     agents as my agent and attorney in fact, to act for and in my behalf and
     stead to execute and file any such applications and to do all other
     lawfully permitted acts to further the prosecution and issuance of letters
     patent thereon with the same legal force and effect as if executed by me. I
     have attached hereto a list describing all inventions made by me prior to
     my employment with the Company belonging to me, relating to the Company's
     proposed business and products and not assigned to the Company, or, if no
     such list is attached, I represent that there are no such inventions. I
     hereby waive and quitclaim to the Company any and all claims of any nature
     whatsoever which I now or may hereafter have for infringement of any patent
     or patents resulting from any such applications for letters patent assigned
     hereunder to the Company.

4.   I recognize that the Company may receive from third parties their
     confidential or proprietary information subject to a duty on the Company's
     part to maintain the confidentiality of such information and to use it only
     for certain limited purposes. I agree that I owe the Company and such third
     parties during the term of my employment and thereafter a duty to hold all
     such confidential or proprietary information in the strictest confidence
     and not to disclose it to any person, firm or corporation (except as
     necessary in carrying out my work for the Company consistent with the
     Company's agreement with such third party) or use it for the benefit of
     anyone other than for the Company or such third party consistent with the
     Company's agreement with such third party without the express authorization
     of an officer of the Company.


5.   I further agree that at the time of leaving the employ of the Company, I
     will deliver to the Company and will not keep in my possession, nor deliver
     to anyone else, any and all drawings, blueprints, notes, memoranda,
     specifications, devices, documents, or any other material containing or
     disclosing any of the matters referred to herein.

6.   I agree that I will not during my employment at the Company improperly use
     or disclose any proprietary information or trade secrets of my former or
     concurrent employers or companies, if any, and that I shall not bring onto
     the premises of the Company any unpublished document or any property
     belonging to my former or concurrent employers or companies, if any, unless
     consented to in writing by said employers or companies.

7.   The provisions of this agreement requiring assignment to the Company do not
     apply to any invention which qualifies fully under the provisions of
     Section 2870 of the California Labor Code. I will advise the company
     promptly in writing of any inventions, discoveries, developments,
     improvement or trade secrets that I believe meet the criteria in
     subparagraphs 2 a, b, and c above; and I will at that time provide to the
     Company in writing all evidence necessary to substantiate that belief. I
     understand that the Company will keep in confidence and will not disclose
     to third parties without my consent any confidential information disclosed
     in writing to the Company relating to inventions which qualify fully under
     the provision of Section 2870 of the California Labor Code.

IN WITNESS WHEREOF, I have subscribed my name hereunto this 25 day of August
1995.



                                        /s/ Kevin P. Corcoran
                                        ---------------------
                                              Signature

                                            Kevin P. Corcoran
                                        ---------------------
                                              Print Name


/s/ David Martin, Jr.
- ---------------------
       Witness

EX-10.31

                                                                   EXHIBIT 10.31

                            LYNX THERAPEUTICS, INC.


                               EMPLOYEE AGREEMENT
                                       FOR
                            THOMAS J. VASICEK, PH.D.


        This Employment Agreement ("Agreement") by and between Thomas J.
Vasicek, Ph.D. ("Executive") and LYNX THERAPEUTICS, INC., a Delaware corporation
(the "Company"), is entered into and is effective as of June 10, 2002 (the
"Effective Date").

        WHEREAS, the Company desires to employ Executive to provide personal
services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and

        WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;

        NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:

        1. EMPLOYMENT BY THE COMPANY.

               1.1 Subject to the terms set forth herein, the Company agrees to
employ Executive in the position of Vice President, Business Development,
reporting to the President and Chief Executive Officer, and Executive hereby
accepts such employment effective as of June 17, 2002. During the term of his
employment with the Company, Executive will devote his best efforts and
substantially all of his business time and attention (except for vacation
periods permitted by the Company's general employment policies, reasonable
periods of illness or other incapacities permitted by the Company's general
employment policies, and as otherwise provided herein) to the business of the
Company.

               1.2 Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then current title.

               1.3 The employment relationship between the parties is "at will,"
which means that either party may terminate the relationship at any time , with
or without cause and with or without advance notice. The employment relationship
between the parties shall also be governed by the general employment policies
and practices of the Company, including those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with the Company's
general employment policies or practices, this Agreement shall control.

        2. COMPENSATION.

               2.1 SALARY. Executive shall receive for services to be rendered
hereunder an annualized base salary of Two Hundred Thousand U.S. Dollars
($200,000), payable on the



                                       1.

Company's normal payroll schedule, and subject to standard payroll deductions
and withholdings. On the date that is one year after the Effective Date of this
Agreement, provided that Executive's performance meets the Company's reasonable
expectations, Executive's annualized base salary will increase to Two Hundred
Forty Thousand U.S. Dollars ($240,000).

               2.2 SIGN-ON BONUS. The Company will pay you a sign-on bonus of
$15,000 subject to all required withholdings. This sign-on bonus must be repaid
to the Company on a pro-rata basis if your employment terminates prior to one
year of service.

               2.3 STOCK OPTION. Subject to approval by the Board, the Company
will grant Executive a nonstatutory stock option (the "Option") to purchase One
Hundred Twenty Thousand (120,000) shares of the common stock of the Company (the
"Common Stock") pursuant to the Company's 1992 Stock Option Plan (the "Plan"),
as amended. The exercise price per share of the Option will be the Fair Market
Value (as defined in the Plan) per share of the Common Stock on the date of
grant. Except as otherwise provided herein, the Option will vest and become
exercisable over five (5) years, with Twenty Percent (20%) of the shares covered
by the Option vesting and becoming exercisable on the first year anniversary of
the date of grant and the remaining Eighty Percent (80%) of the shares covered
by the Option vesting and becoming exercisable in Forty-Eight (48) equal monthly
installments thereafter, in accordance with the Company's standard vesting and
exercisability policy, as long as the Executive remains in continuous service
with the Company. The Option will be subject to the terms of the Plan and
Executive's corresponding Stock Option Grant Notice and Stock Option Agreement.

               2.4 TRANSACTION BONUS. For the period beginning on the Effective
Date of this Agreement and ending on the date that is one year after the
Effective Date (the "Transaction Bonus Period"), Executive shall be eligible to
receive, for identifying and completing during the Transaction Bonus Period any
transactions between third parties and the Company (a "Transaction"), a cash
bonus equal to one percent (1%) of the cash proceeds received by the Company
from any Transaction during the Transaction Bonus Period (the "Transaction
Bonus"). The Transaction Bonus payable under this provision, if any, shall be
paid within thirty (30) days after the Transaction is ratified by the Company,
less any deductions or withholdings required by law or reasonably requested by
Executive. Executive must be employed at the time that the Transaction Bonus is
paid to receive such Transaction Bonus, unless the Company has terminated
Executive's employment for a reason other than cause.

               2.5 STANDARD COMPANY BENEFITS. Executive shall be entitled to all
rights and benefits for which he is eligible under the terms and conditions of
the standard Company benefits and compensation practices which may be in effect
from time to time and provided by the Company to its employees generally,
including but not limited to health benefit plans. Executive also shall be
eligible to participate in the Company's 401(k) Plan, including eligibility for
a monthly matching contribution by the Company on Executive's behalf, in an
amount equal to that contributed by Executive up to a maximum annual matching
contribution of Seven Hundred Fifty Dollars ($750). Executive shall be provided
specific information concerning these Company benefits upon commencement of his
employment.



                                       2.

        3. PROPRIETARY INFORMATION OBLIGATIONS.

               3.1 AGREEMENT. Executive agrees to execute and abide by the
Employee Invention Agreement attached hereto as Exhibit A.

               3.2 REMEDIES. Executive's duties under the Employee Invention
Agreement shall survive termination of his employment with the Company.
Executive acknowledges that a remedy at law for any breach or threatened breach
by him of the provisions of the Employee Invention Agreement would be
inadequate, and he therefore agrees that the Company shall be entitled to
injunctive relief in case of any such breach or threatened breach.

        4. OUTSIDE ACTIVITIES.

               4.1 Except with the prior written consent of the President and
Chief Executive Officer, Executive will not during the term of this Agreement
undertake or engage in any other employment, occupation or business enterprise,
other than ones in which Executive is a passive investor. Executive may engage
in civic and not-for-profit activities so long as such activities do not
materially interfere with the performance of his duties hereunder.

               4.2 Except as permitted by Section 4.3, Executive agrees not to
acquire, assume or participate in, directly or indirectly, any position,
investment or interest known by him to be adverse or antagonistic to the
Company, its business or prospects, financial or otherwise.

               4.3 During the term of his employment by the Company, except on
behalf of the Company, Executive will not directly or indirectly, whether as an
officer, director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known by him to compete directly with the Company, throughout the world, in any
line of business engaged in (or planned to be engaged in) by the Company;
provided, however, that anything above to the contrary notwithstanding, he may
own, as a passive investor, securities of any competitor corporation, so long as
his direct holdings in any one such corporation shall not in the aggregate
constitute more than One Percent (1%) of the voting stock of such corporation.

        5. TERMINATION OF EMPLOYMENT.

               5.1 TERMINATION WITHOUT CAUSE.

                    (a) The Company shall have the right to terminate
Executive's employment with the Company at any time without cause or advance
notice.

                    (b) In the event Executive's employment is terminated
without Cause (as defined in section 5.2) by the Company, or by any successor or
acquiring entity upon or after an Asset Sale, Merger, Consolidation, or Reverse
Merger (as defined in the Lynx Therapeutics, Inc. 1992 Stock Option Plan, as
amended), the executive shall be eligible to receive severance compensation,
calculated as specified herein, provided that, Executive executes a general
release of any and all claims he may have against the Company, which general
release shall be in a form



                                       3.

acceptable to the Company. The amount of severance compensation that Executive
shall receive shall be calculated pursuant to the following schedule: (a) if the
termination occurs on or prior to the first year anniversary of Executive's hire
date, he shall receive an amount equal to six (6) months of his base salary,
subject to standard payroll deductions and withholdings, and paid in a lump sum;
(b) if the termination occurs after the first year anniversary of Executive's
hire date, he shall receive an amount equal to three (3) months of his base
salary, subject to standard payroll deductions and withholdings, and paid in a
lump sum. ("Severance"). The Severance shall be the only severance, benefit, or
cash compensation, other than accrued wages, to which the Executive shall be
entitled from the Company in the event of a termination without Cause. In the
event, however, that a successor or acquiring entity is obligated to pay
Severance to Executive, such Severance shall be in addition to any equity
compensation or benefits for which the Executive may be eligible under the Lynx
Therapeutics, Inc. 1992 Stock Option Plan, as amended.

               5.2 TERMINATION FOR CAUSE.

                    (a) The Company shall have the right to terminate
Executive's employment with the Company at any time for Cause.

                    (b) "Cause" for termination shall mean: (a) indictment or
conviction of any felony or of any crime involving dishonesty; (b) participation
in any fraud or act of dishonesty against the Company; (c) Executive's failure
to perform his duties to the Company in a satisfactory manner; (d) intentional
damage to any property of the Company; or (e) conduct by Executive which in the
good faith and reasonable determination of the President and Chief Executive
Officer demonstrates lack of fitness to serve.

                    (c) In the event Executive's employment is terminated at any
time for Cause, Executive will not be entitled to Severance or any other
compensation or benefit other than accrued wages.

               5.3 VOLUNTARY OR MUTUAL TERMINATION.

                    (a) Executive may voluntarily terminate his employment with
the Company at any time, after which no further compensation will be paid to
Executive.

                    (b) In the event Executive voluntarily terminates his
employment, he will not be entitled to Severance or any other such compensation
or benefit, other than accrued wages.

        6. NONINTERFERENCE.

               While employed by the Company, and for two (2) years immediately
following the termination of his employment, Executive agrees not to interfere
with the business of the Company by soliciting, attempting to solicit, inducing,
or otherwise causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant or independent contractor
to or for any competitor of the Company.



                                       4.

        7. COOPERATION WITH COMPANY.

               7.1 COOPERATION OBLIGATION. During and after Executive's
employment, Executive will cooperate with the Company in responding to the
reasonable requests of the Company's Chairman of the Board, Chief Executive
Officer or General Counsel, in connection with any and all existing or future
litigation, arbitrations, mediations or investigations brought by or against the
Company or its affiliates, agents, officers, directors or employees, whether
administrative, civil or criminal in nature, in which the Company reasonably
deems Executive's cooperation necessary or desirable. In such matters, Executive
agrees to provide the Company with reasonable advice, assistance and
information, including offering and explaining evidence, providing sworn
statements, and participating in discovery and trial preparation and testimony.
Executive also agrees to promptly send the Company copies of all correspondence
(for example, but not limited to, subpoenas) received by Executive in connection
with any such legal proceedings, unless Executive is expressly prohibited by law
from so doing. The failure by Executive to cooperate fully with the Company in
accordance with this Section 7 will be a material breach of the terms of this
Agreement which will result in all commitments of the Company to pay Severance
to Executive under Section 5.1 (b) becoming null and void.

               7.2 EXPENSES AND FEES. The Company will reimburse Executive for
reasonable out-of-pocket expenses incurred by Executive as a result of his
cooperation with the obligations described in Section 7.1, within thirty (30)
days of the presentation of appropriate documentation thereof, in accordance
with the Company's standard reimbursement policies and procedures. After
termination of Executive's employment, the Company will also pay Executive a
reasonable fee in the amount of $200 per hour for the time Executive devotes to
matters as requested by the Company under Section 7.1 ("the Fees"). The Company
will not deduct or withhold any amount from the Fees for taxes, social security,
or other payroll deductions, but will instead issue an IRS Form 1099 with
respect to the Fees. Executive acknowledges that in cooperating in the manner
described in Section 7.1, he will be serving as an independent contractor, not a
Company employee, and he will be entirely responsible for the payment of all
income taxes and any other taxes due and owing as a result of the payment of
Fees. Executive hereby indemnifies the Company and its officers, directors,
agents, attorneys, employees, shareholders, subsidiaries, and affiliates and
holds them harmless from any liability for any taxes, penalties, and interest
that may be assessed by any taxing authority with respect to the Fees, with the
exception of the employer's share of employment taxes subsequently determined to
be applicable, if any.

        8. GENERAL PROVISIONS.

               8.1 NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery (including
personal delivery by facsimile) or the third day after mailing by first class
mail, to the Company at its primary office location and to Executive at his
address as listed on the Company payroll.

               8.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will



                                       5.

not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction in order to most
closely effectuate the parties' intentions.

               8.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.

               8.4 COMPLETE AGREEMENT. This Agreement and its Exhibit constitute
the entire agreement between Executive and the Company and it is the complete,
final, and exclusive embodiment of their agreement with regard to this subject
matter. It is entered into without reliance on any promise or representation
other than those expressly contained herein, and it cannot be modified or
amended except in writing signed by a member of the Company's Board.

               8.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.

               8.6 HEADINGS. The headings of the sections hereof are inserted
for convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.

               8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.

               8.8 ATTORNEY'S FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.

               8.9 GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of California. Executive hereby expressly consents to the personal
jurisdiction of the state and federal courts located in Alameda County,
California for any lawsuit filed there against Executive by the Company arising
from or related to this Agreement.



                                       6.

        IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year written below.


                                          LYNX THERAPEUTICS, INC.



                                          By:  /s/ Kathy A. San Roman
                                               ---------------------------------
                                               Kathy A. San Roman
                                               Vice President, Human Resources &
                                               Administration


                                          Date: June 7, 2002
                                                --------------------------------

Accepted and agreed this
 11 day of June 2002.
- ----       ----


/s/ Thomas J. Vasicek, Ph.D.
- --------------------------------
Thomas J. Vasicek, Ph.D.


June 11, 2002
- --------------------------------
Date



                                       7.

                                    EXHIBIT A


                             LYNX THERAPEUTICS, INC.

                        EMPLOYEE PROPRIETARY INFORMATION
                            AND INVENTIONS AGREEMENT


      In consideration of my employment or continued employment by Lynx
Therapeutics, Inc. (the "Company"), and the compensation now and hereafter paid
to me, I hereby agree as follows:

1.    NONDISCLOSURE

      1.1   RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times during
my employment and thereafter, I will hold in strictest confidence and will not
disclose, use, lecture upon or publish any of the Company's Proprietary
Information (defined below), except as such disclosure, use or publication may
be required in connection with my work for the Company, or unless an officer of
the Company expressly authorizes such in writing. I will obtain Company's
written approval before publishing or submitting for publication any material
(written, verbal, or otherwise) that relates to my work at Company and/or
incorporates any Proprietary Information. I hereby assign to the Company any
rights I may have or acquire in such Proprietary Information and recognize that
all Proprietary Information shall be the sole property of the Company and its
assigns.

      1.2   PROPRIETARY INFORMATION. The term "PROPRIETARY INFORMATION" shall
mean any and all confidential and/or proprietary knowledge, data or information
of the Company. By way of illustration but not limitation, "PROPRIETARY
INFORMATION" includes tangible and intangible information relating to antibodies
and other biological materials, cell lines, samples of assay components, media
and/or cell lines and procedures and formulations for producing any such assay
components, media and/or cell lines, formulations, products, processes,
know-how, designs, formulas, methods, developmental or experimental work,
clinical data, improvements, discoveries, plans for research, new products,
marketing and selling, business plans, budgets and unpublished financial
statements, licenses, prices and costs, suppliers and customers, and information
regarding the skills and compensation of other employees of the Company.
Notwithstanding the foregoing, it is understood that, at all such times, I am
free to use information which is generally known in the trade or industry, which
is not gained as result of a breach of this Agreement, and my own skill,
knowledge, know-how and experience to whatever extent and in whichever way I
wish.

      1.3   THIRD PARTY INFORMATION. I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary information ("THIRD PARTY INFORMATION") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of my employment and
thereafter, I will hold Third Party Information in the strictest confidence and
will not disclose to anyone (other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.

      1.4   NO IMPROPER USE OF INFORMATION OF PRIOR EMPLOYERS AND OTHERS. During
my employment by the Company I will not improperly use or disclose any
confidential information or trade secrets, if any, of any former employer or any
other person to whom I have an obligation of confidentiality, and I will not
bring onto the premises of the Company any unpublished documents or any property
belonging to any former employer or any other person to whom I have an
obligation of confidentiality unless consented to in writing by that former
employer or person. I will use in the performance of my duties only information
which is generally known and used by persons with training and experience
comparable to my own, which is common knowledge in the industry or otherwise
legally in the public domain, or which is otherwise provided or developed by the
Company.

2.    ASSIGNMENT OF INVENTIONS.

      2.1   PROPRIETARY RIGHTS. The term "PROPRIETARY RIGHTS" shall mean all
trade secret, patent, copyright, mask work and other intellectual property
rights throughout the world.

      2.2   PRIOR INVENTIONS. Inventions, if any, patented or unpatented, which
I made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To

preclude any possible uncertainty, I have set forth on Exhibit B (Previous
Inventions) attached hereto a complete list of all Inventions that I have, alone
or jointly with others, conceived, developed or reduced to practice or caused to
be conceived, developed or reduced to practice prior to the commencement of my
employment with the Company, that I consider to be my property or the property
of third parties and that I wish to have excluded from the scope of this
Agreement (collectively referred to as "PRIOR INVENTIONS"). If disclosure of any
such Prior Invention would cause me to violate any prior confidentiality
agreement, I understand that I am not to list such Prior Inventions in Exhibit B
but am only to disclose a cursory name for each such invention, a listing of the
party(ies) to whom it belongs and the fact that full disclosure as to such
inventions has not been made for that reason. A space is provided on Exhibit B
for such purpose. If no such disclosure is attached, I represent that there are
no Prior Inventions. If, in the course of my employment with the Company, I
incorporate a Prior Invention into a Company product, process or machine, the
Company is hereby granted and shall have a nonexclusive, royalty-free,
irrevocable, perpetual, worldwide license (with rights to sublicense through
multiple tiers of sublicensees) to make, have made, modify, use and sell such
Prior Invention. Notwithstanding the foregoing, I agree that I will not
incorporate, or permit to be incorporated, Prior Inventions in any Company
Inventions without the Company's prior written consent.

      2.3   ASSIGNMENT OF INVENTIONS. Subject to Sections 2.4, and 2.6, I hereby
assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my right, title and interest in and to
any and all Inventions (and all Proprietary Rights with respect thereto) whether
or not patentable or registrable under copyright or similar statutes, made or
conceived or reduced to practice or learned by me, either alone or jointly with
others, during the period of my employment with the Company. Inventions assigned
to the Company, or to a third party as directed by the Company pursuant to this
Section 2, are hereinafter referred to as "COMPANY INVENTIONS."

      2.4   NONASSIGNABLE INVENTIONS. This Agreement does not apply to an
Invention which qualifies fully as a nonassignable Invention under Section 2870
of the California Labor Code (hereinafter "SECTION 2870"). I have reviewed the
notification on Exhibit A (Limited Exclusion Notification) and agree that my
signature acknowledges receipt of the notification.

      2.5   OBLIGATION TO KEEP COMPANY INFORMED. During the period of my
employment and for six (6) months after termination of my employment with the
Company, I will promptly disclose to the Company fully and in writing all
Inventions authored, conceived or reduced to practice by me, either alone or
jointly with others. In addition, I will promptly disclose to the Company all
patent applications filed by me or on my behalf within a year after termination
of employment. At the time of each such disclosure, I will advise the Company in
writing of any Inventions that I believe fully qualify for protection under
Section 2870; and I will at that time provide to the Company in writing all
evidence necessary to substantiate that belief. The Company will keep in
confidence and will not use for any purpose or disclose to third parties without
my consent any confidential information disclosed in writing to the Company
pursuant to this Agreement relating to Inventions that qualify fully for
protection under the provisions of Section 2870. I will preserve the
confidentiality of any Invention that does not fully qualify for protection
under Section 2870.

      2.6   GOVERNMENT OR THIRD PARTY. I also agree to assign all my right,
title and interest in and to any particular Company Invention to a third party,
including without limitation the United States, as directed by the Company.

      2.7   WORKS FOR HIRE. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for hire,"
pursuant to United States Copyright Act (17 U.S.C., Section 101).

      2.8   ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in
every proper way to obtain, and from time to time enforce, United States and
foreign Proprietary Rights relating to Company Inventions in any and all
countries. To that end I will execute, verify and deliver such documents and
perform such other acts (including appearances as a witness) as the Company may
reasonably request for use in applying for, obtaining, perfecting, evidencing,
sustaining and enforcing such Proprietary Rights and the assignment thereof. In
addition, I will execute, verify and deliver assignments of such Proprietary
Rights to the Company or its designee. My obligation to assist the Company with
respect to Proprietary Rights relating to such Company Inventions in any and all
countries shall continue beyond the termination of my employment, but the
Company shall compensate me at a reasonable rate after my termination for the

time actually spent by me at the Company's request on such assistance.

In the event the Company is unable for any reason, after reasonable effort, to
secure my signature on any document needed in connection with the actions
specified in the preceding paragraph, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and attorney
in fact, which appointment is coupled with an interest, to act for and in my
behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.

3.    RECORDS. I agree to keep and maintain adequate and current records (in the
form of notes, sketches, drawings and in any other form that may be required by
the Company) of all Proprietary Information developed by me and all Inventions
made by me during the period of my employment at the Company, which records
shall be available to and remain the sole property of the Company at all times.

4.    ADDITIONAL ACTIVITIES. I agree that during the period of my employment by
the Company I will not, without the Company's express written consent, engage in
any employment or business activity which is competitive with, or would
otherwise conflict with, my employment by the Company. I agree further that for
the period of my employment by the Company and for one (l) year after the date
of termination of my employment by the Company I will not, either directly or
through others, solicit or attempt to solicit any employee, independent
contractor or consultant of the company to terminate his or her relationship
with the Company in order to become an employee, consultant or independent
contractor to or for any other person or entity.

5.    NO CONFLICTING OBLIGATION. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep in confidence information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any agreement either written or oral in
conflict herewith.

6.    RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I
will deliver to the Company any and all drawings, notes, memoranda,
specifications, devices, formulas, and documents, together with all copies
thereof, and any other material containing or disclosing any Company Inventions,
Third Party Information or Proprietary Information of the Company. I further
agree that any property situated on the Company's premises and owned by the
Company, including disks and other storage media, filing cabinets or other work
areas, is subject to inspection by Company personnel at any time with or without
notice. Prior to leaving, I will cooperate with the Company in completing and
signing the Company's termination statement.

7.    LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique
and because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement.

8.    NOTICES. Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as the
party shall specify in writing. Such notice shall be deemed given upon personal
delivery to the appropriate address or if sent by certified or registered mail,
three (3) days after the date of mailing.

9.    NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby consent to the notification of my new employer of my rights
and obligations under this Agreement.

10.   GENERAL PROVISIONS.

      10.1  GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement will
be governed by and construed according to the laws of the State of California,
as such laws are applied to agreements entered into and to be performed entirely
within California between California residents. I hereby expressly consent to
the personal jurisdiction of the state and federal courts located in Alameda
County, California for any lawsuit filed there against me by Company arising
from or related to this Agreement.

      10.2  SEVERABILITY. In case any one or more of the provisions contained in
this Agreement

shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect the
other provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. If moreover, any one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, it shall be construed by limiting and
reducing it, so as to be enforceable to the extent compatible with the
applicable law as it shall then appear.

      10.3  SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.

      10.4  SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.

      10.5  EMPLOYMENT. I agree and understand that nothing in this Agreement
shall confer any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with my right or the Company's right
to terminate my employment at any time, with or without cause.

      10.6  WAIVER. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.

      10.7  ENTIRE AGREEMENT. The obligations pursuant to Sections 1 and 2 of
this Agreement shall apply to any time during which I was previously employed,
or am in the future employed, by the Company as a consultant if no other
agreement governs nondisclosure and assignment of inventions during such period.
This Agreement is the final, complete and exclusive agreement of the parties
with respect to the subject matter hereof and supersedes and merges all prior
discussions between us. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, will be effective unless in
writing and signed by the party to be charged. Any subsequent change or changes
in my duties, salary or compensation will not affect the validity or scope of
this Agreement.

      This Agreement shall be effective as of the first day of my employment
with the Company, namely: June 17, 2002.

      I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT B TO THIS AGREEMENT.

Dated: June 17, 2002


/s/ Thomas J. Vasicek
- --------------------------------------------------
(SIGNATURE)

Thomas J. Vasicek, Ph. D.
- --------------------------------------------------
(PRINTED NAME)


ACCEPTED AND AGREED TO:

LYNX THERAPEUTICS, INC.


By: /s/ Cristina Alves
    ----------------------------------------------

Title: Human Resources Coordinator
       -------------------------------------------

25861 Industrial Blvd.
- --------------------------------------------------
(Address)

Hayward, CA 94545
- --------------------------------------------------

Dated: June 17, 2002

                                    EXHIBIT A

                         LIMITED EXCLUSION NOTIFICATION


      THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and the Company does not
require you to assign or offer to assign to the Company any invention that you
developed entirely on your own time without using the Company's equipment,
supplies, facilities or trade secret information except for those inventions
that either:

      1.    Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company; or

      2.    Result from any work performed by you for the Company.

      To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.

      This limited exclusion does not apply to any patent or invention covered
by a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.

      I ACKNOWLEDGE RECEIPT of a copy of this notification.

                                 By: Thomas J. Vasicek
                                     ------------------------------------------
                                       (PRINTED NAME OF EMPLOYEE)

                                 Date: June 17, 2002
                                       ----------------------------------------
WITNESSED BY:


Cristina Alves
- --------------------------------------
(PRINTED NAME OF REPRESENTATIVE)

                                    EXHIBIT B

                          PRIOR WORK PRODUCT DISCLOSURE


      1.    Except as listed in Section 2 below, the following is a complete
list of all Prior Work Product that have been made or conceived or first reduced
to practice by Contractor alone or jointly with others prior to my engagement by
Lynx Therapeutics, Inc.:

           [ ] No inventions or improvements.

           [X] See below:

                  Methods for preparing and storing DNA and RNA from fresh,
                  frozen and preserved tissues as well as whole organisms, and
                  microbial pellets

                  Methods for manufacture, use, and analysis of DNA arrays

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

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

           [ ] Additional sheets attached.

      2.    Due to a prior confidentiality agreement, Contractor cannot complete
the disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality with
respect to which Contractor owes to the following party(ies):



     INVENTION OR IMPROVEMENT              PARTY(IES)                 RELATIONSHIP
                                                           
1.
   ----------------------------     ------------------------     -----------------------

2.
   ----------------------------     ------------------------     -----------------------

3.
   ----------------------------     ------------------------     -----------------------


[ ] Additional sheets attached.


                        BACKGROUND TECHNOLOGY DISCLOSURE

      The following is a list of all Background Technology which Contractor
intends to use in performing under this Agreement:

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

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

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

EX-10.32

                                                                   EXHIBIT 10.32
VIA COURIER


July 9, 2002


Dr. Norrie Russell
60 Hillmont Place
Danville, CA  94526

Dear Norrie:

This letter sets forth the substance of the separation agreement (the
"Agreement") which Lynx Therapeutics, Inc. (the "Company") is offering to aid in
your employment transition.

        1. RESIGNATION. On or before the Effective Date of this Agreement (as
defined in Section 14 herein), you will submit your resignation as Chief
Executive Officer ("CEO"), resign your membership on the Company's Board of
Director's ("Board"), and resign from any other offices or positions you may
hold with the Company, and the Board will accept your resignation, effective as
of May 31, 2002 (the "Separation Date"). You agree to submit your resignation in
a letter (in the form attached hereto as Exhibit A) to Craig C. Taylor, Chairman
of the Board.

        2. ACCRUED SALARY AND PAID TIME OFF. On the Separation Date, the Company
paid you all accrued salary, and all accrued and unused vacation earned through
the Separation Date, subject to standard payroll deductions and withholdings.
You were entitled to those payments regardless of whether or not you sign this
Agreement.

        3. SEVERANCE BENEFITS.

               (a) SEVERANCE PAYMENT. Although the Company has no policy or
procedure requiring payment of any severance benefits, if you sign and do not
revoke this Agreement, on or before the Effective Date the Company will pay you,
as severance, Two Hundred Forty Six Thousand Six Hundred Sixty Five Dollars and
no cents ($246,665.00), subject to standard payroll deductions and withholdings
(the "Severance Payment").

               (b) PROCEEDS AND LOAN REPAYMENT. During your employment with the
Company, you received a $250,000.00 housing loan (the "Loan") from the Company
pursuant to that certain Promissory Note Secured by Deed of Trust, dated
November 8, 1999 (the "Note"). A copy of the Note is attached hereto as Exhibit
C. Pursuant to the terms of the Note, you were obligated to repay the
outstanding balance of the Loan in the amount of $144,794.99, plus interest (the
"Loan Amount") immediately upon Separation Date.

As part of this Agreement, you have directed the Company to apply a portion of
the net Severance Payment against the Loan Amount such that you will receive a
cash distribution of the net Severance Payment in the amount of $60,000 and will
apply the balance of the net Severance Payment against the Loan Amount as a
payment thereunder. Accordingly, as of the Separation

Page 2



Date, the Loan will have a remaining balance of $77,355.07. As further
consideration for the promises and covenants contained herein, the Company has
agreed to amend and restate the Note to inter alia incorporate the foregoing
payments and revise the repayment terms. A copy of the amended and restated Note
is attached hereto as Exhibit D.

        4. HEALTH INSURANCE. To the extent provided by the federal COBRA law or,
if applicable, state insurance laws, and by the Company's current group health
insurance policies, you will be eligible to continue your group health insurance
benefits at your own expense. Later, you may be able to convert to an individual
policy through the provider of the Company's health insurance, if you wish.

        5. STOCK OPTIONS. Pursuant to the terms of your stock options, and the
Company's 1992 Stock Option Plan (the "Plan"), vesting of your stock options
ceased on the Separation Date. Your right to exercise any vested shares, and all
other rights and obligations with respect to your stock options, are set forth
in your stock option grant notices, stock option agreements, and the Plan.

        6. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as
expressly provided in this Agreement, you will not receive any additional
compensation, severance or benefits after the Separation Date.

        7. EXPENSE REIMBURSEMENTS. You agree that, within thirty (30) days of
the Separation Date, you will submit your final documented expense reimbursement
statement reflecting all business expenses you incurred through the Separation
Date, if any, for which you seek reimbursement. The Company will reimburse you
for these expenses pursuant to its regular business practice.

        8. RETURN OF COMPANY PROPERTY. By the Effective Date, you agree to
return to the Company all Company documents (and all copies thereof) and other
Company property that you have had in your possession at any time, including,
but not limited to, Company files, notes, drawings, records, business plans and
forecasts, financial information, specifications, computer-recorded information,
tangible property (including, but not limited to, computers), credit cards,
entry cards, identification badges and keys; and, any materials of any kind that
contain or embody any proprietary or confidential information of the Company
(and all reproductions thereof) ("Company Property"). You also represent that
you will perform a good faith search to ensure that you are no longer in
possession or control of any Company Property after the Effective Date.
Notwithstanding the foregoing, as part of this Agreement, the Company will allow
you to keep the laptop the Company issued you to perform your job duties.
However, you will only be allowed to keep the laptop computer if you return it
to the Company by the Effective Date so that the Company can remove all Company
data, files, and other property from the laptop before it returns the computer
to you. The Company will also allow you to keep the cellular telephone the
Company issued you to perform your job duties.

        9. TRANSITION CONSULTING. After the Separation Date and through November
1, 2002, the Company may engage you from time to time as a consultant regarding
patent and other

Page 3



technology issues ("Consulting Period"). Should the Company utilize you to
perform transition consulting services it will be pursuant to the terms below.

                (a) CONSULTING SERVICES. During the Consulting Period, you agree
                to make yourself available, by telephone or in person, to
                provide consulting services on patent and other technology
                issues (the "Consulting Services") to the Company as requested
                by the Company's CEO, or by any other officer or director
                designated by the Board. You agree to exercise the highest
                degree of professionalism and to utilize your expertise and
                creative talents in performing the Consulting Services.

                (b) CONSULTING FEES. The Company will pay you at a rate of
                $100.00 per hour for these services. Because you will be an
                independent contractor, the Company will not withhold or deduct
                taxes or other customary employee withholdings from your
                Consulting Fees. You will be solely responsible for all tax
                revenues and payments required to be filed with or made to any
                federal, state, or local tax authority with respect to the
                Consulting Fees. The Company will report any Consulting Fees
                paid to you by filing a Form 1099-MISC with the Internal Revenue
                Service as required by law.

                (c) NO AGENCY OR EMPLOYMENT RELATIONSHIP. During the Consulting
                Period, you will not be allowed on Company premises unless
                specifically requested by the Board or CEO. During the
                Consulting Period, you will be an independent contractor and you
                will not be considered an agent or an employee of the Company;
                you will not have authority to make any representation,
                contract, or commitment on behalf of the Company and you shall
                not purport to have any such authority. In addition, you will
                not be entitled to any of the benefits which the Company may
                make available to its employees, such as group insurance,
                workers' compensation insurance coverage, profit sharing, or
                retirement benefits. You will be solely responsible for payment
                of any and all expenses incurred by you in performing the
                Services, except as incurred at the request of the Company and
                approved in advance by the CEO, or by an officer or director
                designated by the Board.

                (d) PROTECTION OF COMPANY INFORMATION. You agree that, during
                the Consulting Period and thereafter, other than in the course
                of performing the Services, you will not use or disclose any
                confidential or proprietary information or materials of the
                Company which you obtain or develop in the course of performing
                the Services, except with the advance written authorization of
                the Company's CEO. Any and all work product you create in
                connection with the Services will be the sole and exclusive
                property of the Company. You hereby assign to the Company, to
                the fullest extent permitted by law, all right, title, and
                interest in all inventions, techniques, processes, materials,
                and other intellectual property developed in the course of
                performing the Services.

        10. PROPRIETARY INFORMATION OBLIGATIONS. Both during and after your
employment you acknowledge your continuing obligations under your Employee
Invention Agreement not to

Page 4



use or disclose any confidential or proprietary information of the Company
without prior written authorization from a duly authorized representative of the
Company. A copy of your Employee Invention Agreement is attached hereto as
Exhibit E.

        11. CONFIDENTIALITY. The provisions of this Agreement will be held in
strictest confidence by you and the Company and will not be publicized or
disclosed in any manner whatsoever; provided, however, that: (a) you may
disclose this Agreement to your immediate family; (b) the parties may disclose
this Agreement in confidence to their respective attorneys, accountants,
auditors, tax preparers, and financial advisors; (c) the Company may disclose
this Agreement as necessary to fulfill standard or legally required corporate
reporting or disclosure requirements; and (d) the parties may disclose this
Agreement insofar as such disclosure may be necessary to enforce its terms or as
otherwise required by law. In particular, and without limitation, you agree not
to disclose the terms of this Agreement to any current or former Company
employee.

        12. NONDISPARAGEMENT. Both you and the Company agree not to disparage
the other party, and the other party's officers, directors, employees,
shareholders and agents, in any manner likely to be harmful to them or their
business, business reputation or personal reputation; provided that both you and
the Company will respond accurately and fully to any question, inquiry or
request for information when required by legal process.

        13. RELEASE. You hereby release, acquit and forever discharge the
Company, its officers, directors, agents, servants, employees, attorneys,
shareholders, successors, assigns and affiliates, of and from any and all
claims, liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law, equity,
or otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the date this Agreement is signed,
including but not limited to: all such claims and demands directly or indirectly
arising out of or in any way connected with your employment with the Company or
the termination of that employment; claims or demands related to salary,
bonuses, commissions, stock, stock options, or any other ownership interests in
the Company, vacation pay, fringe benefits, expense reimbursements, severance
pay, or any other form of compensation; claims pursuant to any federal, state or
local law, statute or cause of action including, but not limited to, the federal
Civil Rights Act of 1964, as amended; the federal Americans with Disabilities
Act of 1990; the federal Age Discrimination in Employment Act of 1967, as
amended (the "ADEA"); the California Fair Employment and Housing Act, as
amended; tort law; contract law; wrongful discharge; discrimination; harassment;
fraud; defamation; emotional distress; and breach of the implied covenant of
good faith and fair dealing.

        14. ADEA WAIVER. You acknowledge that you are knowingly and voluntarily
waiving and releasing any rights you may have under the ADEA, and that the
consideration given for the waiver and release in the preceding paragraph hereof
is in addition to anything of value to which you were already entitled. You
further acknowledge that you have been advised that: (a) your waiver and release
do not apply to any claims that may arise after the date you sign this
Agreement; (b) you should consult with an attorney prior to executing this
Agreement; (c)

Page 5



you have twenty-one (21) days to consider this Agreement (although you may
choose voluntarily to execute this Agreement earlier); (d) you have seven (7)
days following the execution of this Agreement by the parties to revoke the
Agreement; (e) this Agreement will not be effective until the date upon which
the revocation period has expired, which will be the eighth day after this
Agreement is executed by you (the "Effective Date").

        15. SECTION 1542 WAIVER. YOU UNDERSTAND THAT THIS AGREEMENT INCLUDES A
RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. In giving this release, which includes
claims that may be unknown to you at present, you acknowledge that you have read
and understand Section 1542 of the California Civil Code which reads as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." You
expressly waive and relinquish all rights and benefits under that section and
any law of any jurisdiction of similar effect with respect to your release of
any unknown or unsuspected claims you may have against the Company.

        16. FURTHER ASSURANCES. You agree to execute and deliver such other
documents and instruments, and take such other actions as may be required and
which may be necessary to consummate the transactions contemplated herein and to
otherwise effectuate the agreements herein, including without limitation,
executing (and causing to be acknowledged where appropriate) the exhibits
hereto.

        17. MISCELLANEOUS. This Agreement, including exhibits, constitutes the
complete, final and exclusive embodiment of the entire agreement between you and
the Company with regard to this subject matter. It is entered into without
reliance on any promise or representation, written or oral, other than those
expressly contained herein, and it supersedes any other such promises,
warranties or representations. This Agreement may not be modified or amended
except in a writing signed by both you and a duly authorized officer of the
Company. This Agreement will bind the heirs, personal representatives,
successors and assigns of both you and the Company, and inure to the benefit of
both you and the Company, their heirs, successors and assigns. If any provision
of this Agreement is determined to be invalid or unenforceable, in whole or in
part, this determination will not affect any other provision of this Agreement
and the provision in question will be modified by the court so as to be rendered
enforceable. This Agreement will be deemed to have been entered into and will be
construed and enforced in accordance with the laws of the State of California as
applied to contracts made and to be performed entirely within California. You
are advised by the Company to seek independent legal advice with respect to tax
issues pertaining to the provisions of this Agreement and the documents attached
hereto.

If this Agreement is acceptable to you, please sign below and return the
originals of both to me.

Page 6



I wish you good luck in your future endeavors.

Sincerely,

LYNX THERAPEUTICS, INC.


By:  /s/ Kathy A. San Roman
     ---------------------------------------------------
        Kathy A. San Roman
        Vice President, Human Resources & Administration


Exhibit A -- Letter of Resignation
Exhibit B -- Letter of Resignation to Axaron Bioscience AG
Exhibit C -- Loan Agreement
Exhibit D -- Amended Note
Exhibit E -- Employee Invention Agreement

AGREED:


/s/  Norman Russell                               DATE: 12 July 2002
- --------------------------------------------            ------------------------
Norrie Russell, Ph.D.




                                    EXHIBIT A

                              LETTER OF RESIGNATION




Mr. Craig C. Taylor
Chairman of the Board
Lynx Therapeutics, Inc.
25861 Industrial Boulevard
Hayward, CA  94545


Dear Craig:

        As we have discussed, I have resigned as Chief Executive Officer,
Director, and from any other position or office that I may hold with Lynx
Therapeutics, Inc., effective as of May 31, 2002.



                                            Sincerely,

                                            /s/ Norman Russell

                                            Norrie Russell, Ph.D.




                                    EXHIBIT B

                  LETTER OF RESIGNATION TO AXARON BIOSCIENCE AG




Dr. Alfred Bach
President & CEO
Axaron Bioscience AG
Im Neuenheimer Feld 515
69120 Heidelberg


Dear Alfred:

        I hereby resign as Director and any other position or office that I may
hold with Axaron Bioscience AG, effective as of May 31, 2002.



                                            Sincerely,

                                            /s/ Norman Russell

                                            Norrie Russell, Ph.D.




                                    EXHIBIT C

                                 LOAN AGREEMENT




                      DO NOT DESTROY THIS NOTE: WHEN PAID,
                    THIS NOTE AND DEED OF TRUST SECURING SAME
                           MUST BE SURRENDERED BEFORE
                            RECONVEYANCE WILL BE MADE


                           PROMISSORY NOTE SECURED BY
                                  DEED OF TRUST

$250,000                                                     HAYWARD, CALIFORNIA

                                                                NOVEMBER 8, 1999


        FOR VALUE RECEIVED, the undersigned, Norman J. W. Russell, Ph.D.
("Maker"), hereby promises to pay to the order of Lynx Therapeutics, Inc.
("Payee"), at 25861 Industrial Blvd., Hayward, CA 94545, or to such other place
as the holder hereof may from time to time designate by written notice to Maker,
in lawful money of the United States of America, the sum of Two Hundred Fifty
Thousand Dollars ($250,000).

        1. The entire unpaid principal balance plus accrued interest thereon
shall become due and payable upon the earlier of (i) the date of sale, exchange,
conveyance, encumbrance, hypothecation or other transfer by Maker of real
property at 60 Hillmont Place, Danville, CA 94526 or (ii) Norman J. W. Russell
ceases to be a full time employee of Lynx Therapeutics, Inc. or an affiliate
thereof.

        2. Interest shall accrue hereon from the date of this Note until paid,
at the rate of 6.02% per annum on the principal balance remaining from time to
time unpaid, compounded annually. Accrued interest shall be due and payable when
principal becomes due and payable in lawful tender of the United States of
America.

        3. The principal and related accrued interest thereon will be forgiven
on the following terms: Fifty Percent (50%) of principal plus accrued interest
thereon shall be forgiven at the end of two years of full-time employment; an
additional Twenty-five Percent (25%) of principal plus accrued interest thereon
will be forgiven at the end of three years of full-time employment; and the
remaining Twenty-five Percent (25%) of principal plus accrued interest thereon
will be forgiven at the end of four years of full-time employment.


        4. The entire unpaid principal balance plus accrued interest thereon at
the election of Payee, becomes immediately due and payable upon the occurrence
of any of the following, if any of these events occur prior to the end of four
years of full-time employment by Norman J. W. Russell:

               (a) Any failure on the part of the Maker to make any payment when
the same is due and to cure such default within five (5) days after notice is
given by Payee.

               (b) Any failure on the part of Maker (i) to perform or observe
any of their obligations under any of the "Loan Documents" (hereinafter
defined), and (ii) to commence and proceed diligently to cure such default
within ten (10) days after written notice thereof is given by Payee, and in any
event to cure such default within thirty (30) days after the date on which such
notice is given.

               (c) The sale, exchange, conveyance, encumbrance, hypothecation or
other transfer of the real property subject to the Deed of Trust (hereinafter
defined), or any part thereof or interest therein, or the entering into by Maker
of any contract or agreement to do so.

               (d) The filing by Maker of a voluntary petition in bankruptcy, a
petition for reorganization, arrangement or other relief under federal or state
bankruptcy laws, or a voluntary petition for the appointment of a receiver or
for other relief under the Laws of any state, or the making by Maker of an
assignment of all or substantially all of its assets for the benefit of
creditors.




               (e) The adjudication of Maker as a bankrupt or insolvent, the
appointment of a receiver of all or substantially all of Maker's assets, or the
entry of an order of the reorganization of Maker under applicable federal or
state bankruptcy laws, if such adjudication, order or appointment is made upon a
petition filed against Maker and is not, within sixty (60) days after it is
made, vacated or stayed on appeal or otherwise, or if Maker by any action or
failure to act signifies its approval thereof, consent thereto or acquiescence
therein.

        5. In the event of any failure on the part of Maker to make any payment
when due, whether at maturity, as herein provided, or by reason of acceleration
of maturity under the terms of paragraphs 4 and 9 hereof, Payee shall be
entitled to recover from Maker all costs of effecting collection of the same,
including reasonable attorney's fees and all costs of collection, whether suit
be brought or not.

        6. Maker may prepay all or any part of the monies due hereunder without
penalty.

        7. Any notice to either party hereto may be given by delivering the same
in writing to such person, or by sending the same by registered or certified
mail, postage prepaid, to the following mailing addresses or to any other
mailing addresses within the State of California of which the parties notify
each other:

                  MAKER:     Norman J. W. Russell, Ph.D.
                             60 Hillmont Place
                             Danville, CA  94526

                  PAYEE:     Lynx Therapeutics Inc.
                             25861 Industrial Blvd.
                             Hayward, CA  94545
                             Attn: Chief Financial Officer

        8. This Note is secured by (i) a certain Second Deed of Trust of even
date herewith (the "Deed of Trust"), covering certain real property located at
60 Hillmont Place, Danville, CA 94526 and more fully described in Exhibit A to
the Deed of Trust.

        The Deed of Trust and all other documents now and/or hereinafter issued
in connection with the loan evidenced hereby are herein collectively referred to
as the "Loan Documents".

        9. In the event that Maker, without the prior written consent of Payee
sells, exchanges, conveys, encumbers, hypothecates or otherwise transfers the
real property covered by the Deed of Trust or any interest therein or portion
thereof, or agrees to do so, Payee may, at its option, declare all sums secured
hereby immediately due and payable. Consent to one such transaction shall not be
deemed to be a waiver of the right to grant or withhold such consent to future
or successive transactions, at Payee's sole discretion. Not withstanding the
above, Maker shall not refinance the subject property without the prior written
consent of Payee, which consent shall not be withheld unreasonably.

        10. In the event that any one or more of the provisions contained in
this Note or any of the Loan Documents shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Note or any of the
Loan Documents, but this Note and the Loan Documents shall be construed as if
such invalid, illegal or unenforceable provisions had never been contained
herein or therein.

        11. Any failure of the Payee to exercise or enforce any right hereunder
or under any of the Loan Documents shall not constitute a waiver of such right.
All rights of the Payee hereunder or under the Loan Documents shall be
cumulative and not alternative and shall be in addition to any other rights and
remedies granted to the Payee pursuant to any other agreement, by statute, or by
law.

        12. This Note may not be changed orally, but only by an agreement in
writing signed by the parties against whom enforcement of any waiver, change,
modification or discharge is sought.




        13. This Note shall be construed and enforced in accordance with, and
governed by, the laws of the State of California and shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors and assigns.

        14. The obligations of the undersigned under the Loan Documents shall be
joint and several.

        WITNESS, the undersigned has executed this Note, with the intent of
being legally bound, effective as of the date first set forth above.




/s/  Norman Russell
- ----------------------------------------
Norman J. W. Russell, Ph.D.




                                    EXHIBIT D

                            AMENDED AND RESTATED NOTE




                 AMENDED AND RESTATED PROMISSORY NOTE SECURED BY
                                  DEED OF TRUST

$77,355.07                                                          JULY 9, 2002
                                                             Hayward, California

        This AMENDED AND RESTATED PROMISSORY NOTE SECURED BY DEED OF TRUST
("NOTE") amends and restates that certain Promissory Note Secured by Deed of
Trust in the principal amount of $250,000, executed on November 8, 1999, in
Hayward California by NORMAN J. W. RUSSELL ("BORROWER") in favor of LYNX
THERAPEUTICS, INC., a Delaware corporation ("LENDER").

        Pursuant to the forgiveness provisions the original terms of the Note
and a payment of principal under a work separation agreement between Borrower
and Lender the outstanding principal amount of the Note has been reduced.

        Accordingly, Borrower hereby unconditionally promises to pay to the
order of Lender, in lawful money of the United States of America and in
immediately available funds the principal amount of Seventy-seven Thousand Three
Hundred fifty-five and 07/100 Dollars ($77,355.07) together with all accrued and
unpaid interest thereon, if any (the "LOAN") in accordance with the terms and
conditions hereof.

        1. SECURITY. This Note is secured by that certain Deed of Trust with
Assignment of Rents executed by Borrower and Borrower's spouse in favor of
Lender, as beneficiary and of even date herewith (as the same may from time to
time be amended, modified, supplemented, or restated, the "DEED OF TRUST"),
encumbering that certain real property located at 60 Hillmont Place, Danville,
California, as more particularly described therein (the "PROPERTY"). Borrower
hereby represents and warrants that, as of the date of this Note: (a) Borrower
and Borrower's spouse are the sole and lawful fee owners of the Property, (b)
the fair market value of the Property exceeds the aggregate amount of all
indebtedness secured by liens upon the Property, and (c) this Note is not for
consumer, family or household purposes as that term is defined and used in
Article XV of the California Constitution.

        2. PRINCIPAL REPAYMENT.

               (a) The Loan shall be due and payable in accordance with the
following schedule: one half (1/2) of the then outstanding principal plus all
accrued interest thereon shall be due and payable on September 30, 2002, and the
remaining balance of the outstanding principal plus all accrued interest thereon
shall be due and payable on December 30, 2002. Notwithstanding the foregoing,
the entire outstanding principal balance of the Loan plus all accrued interest
shall be due and payable in full immediately upon any Event of Default (as
defined in Section 7 below).

               (b) This Note is subject to Section 2966 of the Civil Code, which
provides that the Lender shall give written notice of the following to Borrower
at least 90 and not more




than 150 days before the natural due date:(i) the name and address to whom the
payment is required to be paid, (ii) the date on which the payment is required
to be paid, (iii) the amount due at time of payment, and (iv) confirmation that
Borrower does not have a right to refinance the Note with Lender; provided,
however, the foregoing provisions of this section 2(b) shall be inapplicable to
an accelerated due date arising from an Event of Default.

        3. INTEREST RATE. Until paid in full, this Note shall bear interest at
the rate of 6.02% compounded annually.

        4. DEFAULT INTEREST. Upon the occurrence of an Event of Default, at the
Lender's option, the outstanding principal balance shall immediately begin to
accrue interest at a rate equal to fifteen percent (15.0%) compounded
continuously.

        5. APPLICATION OF PAYMENTS. Any payment on this Note shall be applied
first to accrued interest, then to other amounts owing hereunder, and thereafter
to the outstanding principal balance hereof. Any payment due hereunder shall be
paid to Lender at the address for notices below. Any amount payable hereunder
shall be due and payable without set-off, deduction, or counter-claim.

        6. PREPAYMENT. Subject to Section 5 above, Borrower may prepay the
outstanding principal balance of this Note in whole or in part, without penalty,
at any time.

        7. DEFAULT AND REMEDIES.

               (a) DEFAULT. Each of the following events shall be an "EVENT OF
DEFAULT" hereunder: (i) Borrower fails to pay timely any amounts due under this
Note on the date the same becomes due and payable, (ii) Borrower breaches any
covenant, representation, warranty, or agreement under this Note or any other
agreement with Lender, (iii) Borrower defaults on any of its obligations under
the Deed of Trust or any other instrument evidencing or securing this Note, (iv)
Borrower defaults on any of its obligations under any mortgage, deed of trust,
encumbrance or lien respecting the Property, which is senior to the Deed of
Trust, (v) Borrower dies, (vi) Borrower files a petition or action for relief
under any bankruptcy, insolvency or moratorium law or any other law for the
relief of, or relating to, debtors, now or hereafter in effect, or makes any
assignment for the benefit of creditors or takes any action in furtherance of
any of the foregoing, (vii) an involuntary petition is filed against Borrower
(unless such petition is dismissed or discharged within sixty (60) days of
filing) under any bankruptcy statute now or hereafter in effect, or a custodian,
receiver, trustee, assignee for the benefit of creditors (or other similar
official) is appointed to take possession, custody or control of any property of
Borrower, or (viii) Borrower transfers, directly or indirectly, of all or any
part of the Property, whether by sale, lease, assignment, mortgage or otherwise,
voluntarily or involuntarily.

               (b) REMEDIES. Upon the occurrence of an Event of Default, all
outstanding principal, accrued interest and other amounts owing hereunder shall,
at the option of Lender, and, in the case of an Event of Default pursuant to
Sections 7(a)(vi) and (vii) above, automatically, be immediately due and
payable. Lender shall have all rights and may exercise any remedies available to
it under the Deed of Trust or at law or in equity, successively or concurrently.



                                       2.

        8. NOTICE. All notices or other communications required or given
hereunder shall be in writing and shall be deemed effectively given when
presented personally or on the date of receipt (or refusal of delivery) if sent
by courier service or U.S. Mail (certified or registered, postage prepaid,
return receipt requested) to the parties at the addresses given below or such
other addresses as the parties may hereafter designate in writing. The date
shown on the courier's confirmation of delivery or return receipt shall be
conclusive as to the date of receipt.

               BORROWER:     Norman J.W. Russell
                             60 Hillmont Place
                             Danville, CA 94526

               LENDER:       Lynx Therapeutics, Inc.
                             25861 Industrial Boulevard
                             Hayward, California, 94545
                             Attn: Vice President, Human Resources

        9. MAXIMUM LEGAL RATE OF INTEREST. All agreements between Borrower and
Lender, whether now existing or hereafter arising, are hereby limited so that in
no event shall the interest charged hereunder or agreed to be paid to Lender
exceed the maximum amount permitted under applicable law. Lender shall be
entitled to amortize, prorate and spread throughout the full term of this Note
all interest paid or payable so that the interest paid does not exceed the
maximum amount permitted under applicable law. If Lender ever receives interest
or anything deemed interest in excess of the maximum amount permitted under
applicable law, an amount equal to such excess shall be applied to the reduction
of the principal balance, and to the extent it exceeds the unpaid balance of
principal hereof, the remainder shall be refunded to Borrower. If interest
otherwise payable to Lender would exceed the maximum amount permitted under
applicable law, the interest payable shall be reduced to the maximum amount
permitted under applicable law. This section shall control all agreements
between Borrower and Lender in connection with the indebtedness evidenced
hereby.

        10. WAIVER. Borrower waives diligence, presentment, protest and demand
and also notice of protest, demand, dishonor, acceleration, intent to
accelerate, and nonpayment of this Note and agrees to pay all costs of
collection when incurred, including, without limitation attorneys' fees, costs
and other expenses. The right to plead any and all statutes of limitations as a
defense to any demands hereunder is hereby waived to the fullest extent
permitted by law.

        11. USE OF PROCEEDS; NON-TRANSFERABLE. The right of Borrower to request
and receive the Loan hereunder, as well as the other benefits under this Note,
shall not be assignable or otherwise transferable by Borrower.

        12. MISCELLANEOUS.

               (a) This Note may be modified only by a written agreement
executed by Borrower and Lender.

               (b) The terms of this Note shall inure to the benefit of and bind
Borrower and Lender and their respective heirs, legal representatives and
successors and assigns.



                                       3.

               (c) Time is of the essence with respect to all matters set forth
in this Note.

               (d) If this Note is destroyed, lost or stolen, Borrower will
deliver a new note to Lender on the same terms and conditions as this Note with
a notation of the unpaid principal in substitution of the prior Note. Lender
shall furnish to Borrower reasonable evidence that the Note was destroyed, lost
or stolen and any security or indemnity that may be reasonably required by
Borrower in connection with the replacement of this Note.

               (e) If any provision of this Note shall be held to be invalid or
unenforceable, such determination shall not affect the remaining provisions of
this Note.

               (f) If this Note is now, or hereinafter shall be, signed by more
than one party or person, it shall be the joint and several obligation of such
parties or persons and shall be binding upon such parties or persons and upon
their respective successors and assigns.

        13. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.

        IN WITNESS WHEREOF, Borrower has executed this Secured Promissory Note
as of the date and year first above written.



                                    BORROWER:

                                    /s/  Norman Russell
                                    --------------------------------------------
                                    NORMAN J.W. RUSSELL



                                       4.

WHEN RECORDED MAIL TO:

Lynx Therapeutics, Inc.
25861 Industrial Boulevard
Hayward, California, 94545
Attn: Vice President, Human Resources

- --------------------------------------------------------------------------------
                                        SPACE ABOVE THIS LINE FOR RECORDER'S USE



                     DEED OF TRUST WITH ASSIGNMENT OF RENTS
                                  (SHORT FORM)


This DEED OF TRUST, made July 9, 2002, between NORMAN J. W. RUSSELL and JANE
RUSSELL, husband and wife HEREIN COLLECTIVELY called TRUSTOR, whose address is
60 Hillmont Place, Danville, California, 94526,

FIRST AMERICAN TITLE COMPANY, herein called TRUSTEE, and

LYNX THERAPEUTICS, INC. a Delaware corporation, herein called BENEFICIARY.

WITNESSETH: That Trustor grants to Trustee in trust, with power of sale, that
property in the

City of Danville, County of Contra Costa, State of California, described as:



    SEE LEGAL DESCRIPTION ATTACHED HERETO AS EXHIBIT A AND MADE A PART HEREOF




together with the rents, issues and profits thereof, subject, however, to the
right, power and authority hereinafter given to and conferred upon Beneficiary
to collect and apply such rents, issues and profits for the Purpose of Securing
(1) payment of the sum of $77,355.07 with interest thereon according to the
terms of a promissory note or notes of even date herewith made by Norman J.W.
Russell, payable to order of Beneficiary, and extensions or renewals thereof,
(2) the performance of each agreement of Trustor incorporated by reference or
contained herein, and (3) payment of additional sums and interest thereon which
may hereafter be loaned to Trustor, or Trustor's successors or assigns, when
evidenced by a promissory note or notes reciting that they are secured by this
Deed of Trust.

To protect the security of this Deed of Trust, and with respect to the property
above described Trustor expressly makes each and all of the agreements, and
adopts and agrees to perform and be bound by each and all of the terms and
provisions set forth in subdivision A, and it is mutually agreed that each and
all of the terms and provisions set forth in subdivision B of the fictitious
deed of trust recorded in Orange County August 17, 1964, and in all other
counties August 18, 1964, in the book and at the page of Official Records in the
office of the county recorder of the county where said property is located,
noted below opposite the name of such county, namely:



                                       1.



COUNTY          BOOK     PAGE      COUNTY       BOOK      PAGE      COUNTY            BOOK      PAGE     COUNTY       BOOK

                PAGE
                                                                                              
ALAMEDA         1288     556       KINGS        858       713       PLACER            1028      379      SIERRA       38       187
ALPINE          3        130-31    LAKE         437       110       PLUMAS            166       1307     SISKIYOU     506      762
AMADOR          133      438       LASSEN       192       367       RIVERSIDE         3778      347      SOLANO       1287     621
BUTTE           1330     513       LOS          T-3878    874       SACRAMENTO        5039      124      SONOMA       2067     427
                                   ANGELES
CALAVERAS       185      338       MADERA       911       136       SAN BENITO        300       405      STANISLAUS   1970     56
COLUSA          323      391       MARIN        1849      122       SAN BERNARDINO    6213      768      SUTTER       655      585
CONTRA COSTA    4684     1         MARIPOSA     90        453       SAN FRANCISCO     A-804     596      TEHAMA       457      183
DEL NORTE       101      549       MENDOCINO    667       99        SAN JOAQUIN       2855      283      TRINITY      108      595
EL DORADO       704      635       MERCED       1660      753       SAN LUIS          1311      137      TULARE       2530     108
                                                                    OBISPO
FRESNO          5052     623       MODOC        191       93        SAN MATEO         4778      175      TUOLUMNE     177      160
GLENN           469      76        MONO         69        302       SANTA BARBARA     2065      881      VENTURA      2607     237
HUMBOLDT        801      83        MONTEREY     357       239       SANTA CLARA       6626      664      YOLO         769      16
IMPERIAL        1189     701       NAPA         704       742       SANTA CRUZ        1638      607      YUBA         398      693
INYO            165      672       NEVADA       363       94        SHASTA            800       633
KERN            3756     690       ORANGE       7182      18        SAN DIEGO SERIES 5 BOOK 1964, PAGE 149774


shall inure to and bind the parties hereto, with respect to the property above
described. Said agreements, terms and provisions contained in said subdivisions
A and B, (identical in all counties, and printed on Pages 3 and 4 hereof) are by
the within reference thereto, incorporated herein and made a part of this Deed
of Trust for all purposes as fully as if set forth at length herein, and
Beneficiary may charge for a statement regarding the obligation secured hereby,
provided the charge therefor does not exceed the maximum allowed by law.

The undersigned Trustor, requests that a copy of any Notice of Default and any
Notice of Sale hereunder be mailed to Trustor at the address hereinbefore set
forth.

SEE ADDENDUM 1 AND ADDENDUM 2 ATTACHED HERETO AND INCORPORATED HEREIN BY THIS
REFERENCE FOR ADDITIONAL PROVISIONS.

Signature of Trustor


/s/  Norman Russell
- --------------------------------------------
Norman J. W. Russell


/s/  Jane Russell
- --------------------------------------------
Jane Russell


                      (Signatures need to be acknowledged)



                                       2.

                                  DO NOT RECORD

The following is a copy of Subdivisions A and B of the fictitious Deed of Trust
recorded in each county in California as stated in the foregoing Deed of Trust
and incorporated by reference in said Deed of Trust as being a part thereof as
if set forth at length therein.

    To protect the security of this Deed of Trust, Trustor agrees:

        To keep said property in good condition and repair; not to remove or
demolish any building thereon; to complete or restore promptly and in good and
workmanlike manner any building which may be constructed, damaged or destroyed
thereon and to pay when due all claims for labor performed and materials
furnished therefor; to comply with all laws affecting said property or requiring
any alterations or improvements to be made thereon; not to commit or permit
waste thereof; not to commit, suffer or permit any act upon said property in
violation of law; to cultivate, irrigate, fertilize, fumigate, prune and do all
other acts which from the character or use of said property may be reasonably
necessary, the specific enumerations herein not excluding the general.

        To provide, maintain and deliver to Beneficiary fire insurance
satisfactory to and with loss payable to Beneficiary. The amount collected under
any fire or other insurance policy may be applied by Beneficiary upon any
indebtedness secured hereby and in such order as Beneficiary may determine, or
at option of Beneficiary the entire amount so collected or any part thereof may
be released to Trustor. Such application or release shall not cure or waive any
default or notice of default hereunder or invalidate any act done pursuant to
such notice.

        To appear in and defend any action or proceeding purporting to affect
the security hereof or the rights or powers of Beneficiary or Trustee; and to
pay all costs and expenses, including cost of evidence of title and attorney's
fees in a reasonable sum, in any such action or proceeding in which Beneficiary
or Trustee may appear, and in any suit brought by Beneficiary to foreclose this
Deed.

        To pay: at least ten days before delinquency all taxes and assessments
affecting said property, including assessments on appurtenant water stock; when
due, all encumbrances, charges and liens, with interest, on said property or any
part thereof, which appear to be prior or superior hereto; all costs, fees and
expenses of this Trust.

Should Trustor fail to make any payment or to do any act as herein provided,
then Beneficiary or Trustee, but without obligation so to do and without notice
to or demand upon Trustor and without releasing Trustor from any obligation
hereof, may: make or do the same in such manner and to such extent as either may
deem necessary to protect the security hereof, Beneficiary or Trustee being
authorized to enter upon said property for such purposes; appear in and defend
any action or proceeding purporting to affect the security hereof or the rights
or powers of Beneficiary or Trustee; pay, purchase, contest or compromise any
encumbrance, charge or lien which in the judgment of either appears to be prior
or superior hereto; and, in exercising any such powers, pay necessary expenses,
employ counsel and pay his reasonable fees.

        To pay immediately and without demand all sums so expended by
Beneficiary or Trustee, with interest from date of expenditure at the amount
allowed by law in effect at the date hereof, and to pay for any statement
provided for by law in effect at the date hereof regarding the obligation
secured hereby any amount demanded by the Beneficiary not to exceed the maximum
allowed by law at the time when said statement is demanded.

    It is mutually agreed:

        That any award of damages in connection with any condemnation for public
use of or injury to said property or any part thereof is hereby assigned and
shall be paid to Beneficiary who may apply or release such monies received by
him in the same manner and with the same effect as above provided for
disposition of proceeds of fire or other insurance.

        That by accepting payment of any sum secured hereby after its due date,
Beneficiary does not waive his right either to require prompt payment when due
of all other sums so secured or to declare default for failure so to pay.

        That at any time or from time to time, without liability therefor and
without notice, upon written request of Beneficiary and presentation of this
Deed and said note for endorsement, and without affecting the personal liability
of any person for payment of the indebtedness secured hereby, Trustee may:
reconvey any part of said property; consent to the making of any map or plat
thereof; join in granting any easement thereon; or join in any extension
agreement or any agreement subordinating the lien or charge hereof.

        That upon written request of Beneficiary stating that all sums secured
hereby have been paid, and upon surrender of this Deed and said note to Trustee
for cancellation and retention or other disposition as Trustee in its sole
discretion may choose and upon payment of its fees, Trustee shall reconvey,
without warranty, the property then held hereunder. The recitals in such
reconveyance of any matters or facts shall be conclusive proof of the
truthfulness thereof. The Grantee in such reconveyance may be described as "the
person or persons legally entitled thereto."

        That as additional security, Trustor hereby gives to and confers upon
Beneficiary the right, power and authority, during the continuance of these
Trusts, to collect the rents, issues and profits of said property, reserving
unto Trustor the right, prior to any default by Trustor in payment of any
indebtedness secured hereby or in performance of any agreement hereunder, to
collect and retain such rents, issues and profits as they become due and
payable. Upon any such default, Beneficiary may at any time without notice,
either in person, by agent, or by a receiver to be appointed by a court, and
without regard to the adequacy of any



                                       3.

security for the indebtedness hereby secured, enter upon and take possession of
said property or any part thereof, in his own name sue for or otherwise collect
such rents, issues, and profits, including those past due and unpaid, and apply
the same, less costs and expenses of operation and collection, including
reasonable attorney's fees, upon any indebtedness secured hereby, and in such
order as Beneficiary may determine. The entering upon and taking possession of
said property, the collection of such rents, issues and profits and the
application thereof as aforesaid, shall not cure or waive any default or notice
of default hereunder or invalidate any act done pursuant to such notice.

        That upon default by Trustor in payment of any indebtedness secured
hereby or in performance of any agreement hereunder, Beneficiary may declare all
sums secured hereby immediately due and payable by delivery to Trustee of
written declaration of default and demand for sale and of written notice of
default and of election to cause to be sold said property, which notice Trustee
shall cause to be filed for record. Beneficiary also shall deposit with Trustee
this Deed, said note and all documents evidencing expenditures secured hereby.

After the lapse of such time as may then be required by law following the
recordation of said notice of default, and notice of sale having been given as
then required by law, Trustee, without demand on Trustor, shall sell said
property at the time and place fixed by it in said notice of sale, either as a
whole or in separate parcels, and in such order as it may determine, at public
auction to the highest bidder for cash in lawful money of the United States,
payable at time of sale. Trustee may postpone sale of all or any portion of said
property by public announcement at such time and place of sale, and from time to
time thereafter may postpone such sale by public announcement at the time fixed
by the preceding postponement. Trustee shall deliver to such purchaser its deed
conveying the property so sold, but without any covenant or warranty, express or
implied. The recitals in such deed of any matters or facts shall be conclusive
proof of the truthfulness thereof. Any person, including Trustor, Trustee, or
Beneficiary as hereinafter defined, may purchase at such sale.

After deducting all costs, fees and expenses of Trustee and of this Trust,
including cost of evidence of title in connection with sale, Trustee shall apply
the proceeds of sale to payment of: all sums expended under the terms hereof,
not then repaid, with accrued interest at the amount allowed by law in effect at
the date hereof; all other sums then secured hereby; and the remainder, if any,
to the person or persons legally entitled thereto.

        Beneficiary, or any successor in ownership of any indebtedness secured
hereby, may from time to time, by instrument in writing, substitute a successor
or successors to any Trustee named herein or acting hereunder, which instrument,
executed by the Beneficiary and duly acknowledged and recorded in the office of
the recorder of the county or counties where said property is situated, shall be
conclusive proof of proper substitution of such successor Trustee or Trustees,
who shall, without conveyance from the Trustee predecessor, succeed to all its
title, estate, rights, powers and duties. Said instrument must contain the name
of the original Trustor, Trustee and Beneficiary hereunder, the book and page
where this Deed is recorded and the name and address of the new Trustee.

        That this Deed applies to, inures to the benefit of, and binds all
parties hereto, their heirs, legatees, devisees, administrators, executors,
successors and assigns. The term Beneficiary shall mean the owner and holder,
including pledgees of the note secured hereby, whether or not named as
Beneficiary herein. In this Deed, whenever the context so requires, the
masculine gender includes the feminine and/or neuter, and the singular number
includes the plural.

        That Trustee accepts this Trust when this Deed, duly executed and
acknowledged, is made a public record as provided by law. Trustee is not
obligated to notify any party hereto of pending sale under any other Deed of
Trust or of any action or proceeding in which Trustor, Beneficiary or Trustee
shall be a party unless brought by Trustee.




DO NOT RECORD                                      REQUEST FOR FULL RECONVEYANCE

TO FIRST AMERICAN TITLE INSURANCE COMPANY, TRUSTEE:

        The undersigned is the legal owner and holder of the note or notes, and
of all other indebtedness secured by the foregoing Deed of Trust. Said note or
notes, together with all other indebtedness secured by said Deed of Trust, have
been fully paid and satisfied; and you are hereby requested and directed, on
payment to you of any sums owing to you under the terms of said Deed of Trust,
to cancel said note or notes above mentioned, and all other evidences of
indebtedness secured by said Deed of Trust delivered to you herewith, together
with the said Deed of Trust, and to reconvey, without warranty, to the parties
designated by the terms of said Deed of Trust, all the estate now held by you
under the same.

        Dated
             -------------------------

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

                                          --------------------------------------
Please mail Deed of Trust,
                          ------------------------------------------------------
Note and Reconveyance to
                        --------------------------------------------------------
Do not lose or destroy this Deed of Trust OR THE NOTE which it secures. Both
must be delivered to the Trustee for cancellation before reconveyance will be
made.



                                       4.

                                   ADDENDUM 1
                                       TO
                                  DEED OF TRUST


                              ADDITIONAL PROVISIONS

Trustor also agrees that it shall not encumber, hypothecate, sell, assign, or
otherwise transfer the property above described, and the performance of such
agreement is one of the purposes secured by this Deed of Trust.



                                       5.

                                   ADDENDUM 2
                                       TO
                                  DEED OF TRUST

        1. DEFINITIONS. As used in this Addendum:

               (a) "THIRD PARTY SECURED OBLIGATION" means any obligation which
is required to be performed by Borrower (as defined below) under this Deed of
Trust or which is secured by this Deed of Trust:

               (b) "CO-OWNER" means Jane Russell; and

               (c) "BORROWER" means Norman J.W. Russell.

        As used herein, "BENEFICIARY" shall mean Beneficiary (as defined in the
Deed of Trust) or Trustee (as defined in the Deed of Trust) if acting on behalf
of Beneficiary (as defined in the Deed of Trust). All other capitalized words
are used herein as they are defined in the attached Deed of Trust.

        2. RIGHTS OF BENEFICIARY. Co-Owner authorizes Beneficiary to perform any
or all of the following acts at any time in its sole discretion, all without
notice to Co-Owner and without affecting Beneficiary's rights or Co-Owner's
obligations under this Deed of Trust:

               (a) Beneficiary may alter any terms of the Third Party Secured
Obligation or any part of it, including renewing, compromising, extending or
accelerating, or otherwise changing the time for payment of, or increasing or
decreasing the rate of interest on, the Third Party Secured Obligation or any
part of it;

               (b) Beneficiary may take and hold any additional security for the
Third Party Secured Obligation, accept substituted security for that obligation,
and subordinate, exchange, enforce, waive, release, compromise, fail to perfect
and sell or otherwise dispose of any such security;

               (c) Beneficiary may direct the order and manner of any sale of
all or any part of any security now or later to be held for the Third Party
Secured Obligation, and Beneficiary may also bid at any such sale;

               (d) Beneficiary may apply any payments or recoveries from
Borrower or any other source, and any proceeds of any security, to the Third
Party Secured Obligation in such manner, order and priority as Beneficiary may
elect, whether that obligation is secured by this Deed of Trust or not at the
time of the application;

               (e) Beneficiary may release Borrower of Borrower's liability for
the Third Party Secured Obligation or any part of it;

               (f) Beneficiary may substitute, add or release any one or more
guarantors or endorsers; and



                                       6.

               (g) In addition to the Third Party Secured Obligation,
Beneficiary may extend other credit to Borrower, and may take and hold security
for the credit so extended, all without affecting Beneficiary's rights or
Co-Owner's liability under this Deed of Trust.

        3. DEED OF TRUST TO BE ABSOLUTE. Co-Owner expressly agrees that until
each and every term, covenant and condition of this Deed of Trust and the Third
Party Secured Obligation is fully performed, Co-Owner shall not be released by
or because of:

               (a) Any act or event which might otherwise discharge, reduce,
limit or modify Co-Owner's obligations under this Deed of Trust;

               (b) Any waiver, extension, modification, forbearance, delay or
other act or omission of Beneficiary, or its failure to proceed promptly or
otherwise as against Borrower, any other person or any security;

               (c) Any action, omission or circumstance which might increase the
likelihood that Co-Owner may be called upon to perform under this Deed of Trust
or which might affect the rights or remedies of Co-Owner as against Borrower;
and

               (d) Any dealings occurring at any time between Borrower and
Beneficiary, whether relating to the Third Party Secured Obligation or
otherwise.

        Co-Owner hereby expressly waives and surrenders any defense to
Co-Owner's liability under this Deed of Trust based upon any of the foregoing
acts, omissions, agreements, waivers or matters. It is the purpose and intent of
this Deed of Trust that the obligations of Co-Owner under it shall be absolute
and unconditional under any and all circumstances.

        4. CO-OWNER'S WAIVERS. Co-Owner waives:

               (a) All statutes of limitations as a defense to any action or
proceeding brought against Co-Owner by Beneficiary, to the fullest extent
permitted by law;

               (b) Any right it may have to require Beneficiary to proceed
against Borrower, proceed against or exhaust any other security held from
Borrower, or pursue any other remedy in Beneficiary's power to pursue;

               (c) Any defense based on any claim that Co-Owner's obligations
exceed or are more burdensome than those of Borrower;

               (d) Any defense based on: (i) any legal disability of Borrower,
(ii) any release, discharge, modification, impairment or limitation of the
liability of Borrower to Beneficiary from any cause, whether consented to by
Beneficiary or arising by operation of law or from any bankruptcy or other
voluntary of involuntary proceeding, in or out of court, for the adjustment of
debtor-creditor relationships ("INSOLVENCY PROCEEDING") and (iii) any rejection
or disaffirmance of the Third Party Secured Obligation, or any part of it, or
any security held for it, in any such Insolvency Proceeding;



                                       7.

               (e) Any defense based on any action taken or omitted by
Beneficiary in any Insolvency Proceeding involving Borrower, including any
election to have Beneficiary's claim allowed as being secured, partially secured
or unsecured, any extension of credit by Beneficiary to Borrower in any
Insolvency Proceeding, and the taking and holding by Beneficiary of any security
for any such extension of credit;

               (f) All presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notices of
acceptance of this Deed of Trust, and of the existence, creation, or incurring
of new or additional indebtedness, and demands and notices of every kind;

               (g) Any defense based on or arising out of any defense that
Borrower may have to the payment or performance of the Third Party Secured
Obligation or any part of it;

               (h) All rights and defenses that the Co-Owner may have because
the Third Party Secured Obligation is secured by real property, which means,
among other things:

                    (i) The Beneficiary may foreclose under this Deed of Trust
without first foreclosing on any other real or personal property collateral; and

                    (ii) If the Beneficiary forecloses on any real property
collateral pledged as collateral:

                         (1) The amount of the Third Party Secured Obligation
may be reduced only by the price for which that collateral is sold at the
foreclosure sale, even if the collateral is worth more than the sale price; and

                         (2) The Beneficiary may foreclose pursuant to this Deed
of Trust even if the Beneficiary, by foreclosing on the real property
collateral, has destroyed any right the Co-Owner may have to collect from the
Borrower; and

                    (i) The Co-Owner waives all rights and defenses arising out
of an election of remedies by the Beneficiary, even though that election of
remedies, such as a nonjudicial foreclosure, has destroyed the Co-Owner's rights
of subrogation and reimbursement against the Borrower by the operation of
Section 580d of the California Code of Civil Procedure or otherwise.

        This is an unconditional and irrevocable waiver of any rights and
defenses the Co-Owner may have because the Third Party Secured Obligation is
secured by real property. These rights and defenses include, but are not limited
to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the
California Code of Civil Procedure.

        5. WAIVERS OF SUBROGATION AND OTHER RIGHTS.

               (a) Upon a default by Borrower, Beneficiary in its sole
discretion, without prior notice to or consent of Co-Owner, may elect to: (i)
foreclose either judicially or nonjudicially against any real or personal
property security it may hold for the Third Party Secured Obligation, (ii)
accept a transfer of any such security in lieu of foreclosure, (iii)



                                       8.

compromise or adjust the Third Party Secured Obligation or any part of it or
make any other accommodation with Borrower or Co-Owner, or (iv) exercise any
other remedy against Borrower or any security. No such action by Beneficiary
shall release or limit the liability of Co-Owner, who shall remain liable under
this Deed of Trust after the action, even if the effect of the action is to
deprive Co-Owner of any subrogation rights, rights of indemnity, or other rights
to collect reimbursement from Borrower for any sums paid to Beneficiary, whether
contractual or arising by operation of law or otherwise. Co-Owner expressly
agrees that under no circumstances shall it be deemed to have any right, title,
interest or claim in or to any real or personal property to be held by
Beneficiary or any third party after any foreclosure or transfer in lieu of
foreclosure of any security for the Third Party Secured Obligation.

               (b) Regardless of whether Co-Owner may have made any payments to
Beneficiary, Co-Owner hereby waives: (i) all rights of subrogation, all rights
of indemnity, and any other rights to collect reimbursement from Borrower for
any sums paid to Beneficiary, whether contractual or arising by operation of law
(including the United States Bankruptcy Code or any successor or similar
statute) or otherwise, (ii) all rights to enforce any remedy that Beneficiary
may have against Borrower, and (iii) all rights to participate in any security
now or later to be held by Beneficiary for the Third Party Secured Obligation.
The waivers given in this Section 5(b) shall be effective until the Third Party
Secured Obligation has been paid and performed in full.

               (c) Co-Owner understands and acknowledges that if Beneficiary
forecloses judicially or nonjudicially against any real property security for
the Third Party Secured Obligation, that foreclosure could impair or destroy any
ability that Co-Owner may have to seek reimbursement, contribution, and
indemnification from Borrower or others based on any right Co-Owner may have of
subrogation, reimbursement, contribution or indemnification. Co-Owner further
understands and acknowledges that in the absence of this Deed of Trust, such
potential impairment or destruction of Co-Owner's rights, if any, may entitle
Co-Owner to assert a defense to this Deed of Trust based on Section 580d of the
California Code of Civil Procedure as defined in Union Bank v. Gradsky, 265
Cal.App.2d 40 (1968). By executing this Deed of Trust, Co-Owner freely,
irrevocably and unconditionally: (i) waives and relinquishes that defense and
agrees that Co-Owner will be fully liable under this Deed of Trust even though
Beneficiary may foreclose judicially or nonjudicially against any real property
security for the Third Party Secured Obligation, (ii) agrees that Co-Owner will
not assert that defense in any action or proceeding which Beneficiary may
commence to enforce this Deed of Trust, (iii) acknowledges and agrees that the
rights and defense that Co-Owner may have or be entitled to assert based upon or
arising out of any one or more Sections 580a, 580b, 580d or 726 of the
California Code of Civil Procedure or Section 2848 of the California Civil Code,
and (iv) acknowledges and agrees that Beneficiary is relying on this waiver in
making the Third Party Secured Obligation, and that this waiver is a material
part of the consideration which Beneficiary is receiving for making the Third
Party Secured Obligation.

        6. REVIVAL AND REINSTATEMENT. If Beneficiary is required to pay, return
or restore to Borrower or any other person any amounts previously paid on the
Third Party Secured Obligation because of any Insolvency Proceeding of Borrower,
any stop notice or any other reason, the obligations of Co-Owner shall be
reinstated and revived and the rights of Beneficiary shall continue with regard
to such amounts, all as though they had never been paid.



                                       9.

        7. INFORMATION REGARDING BORROWER. Before signing this Deed of Trust,
Co-Owner understands and acknowledges that Co-Owner is aware of the financial
condition and business operations of Borrower and such other matters as Co-Owner
deems appropriate to assure Co-Owner of Borrower's ability to discharge its
obligations in connection with the Third Party Secured Obligation. Co-Owner
assumes full responsibility for that due diligence, as well as for keeping
informed of all matters which may affect Borrower's ability to pay and perform
its obligations to Beneficiary. Beneficiary has no duty to disclose to Co-Owner
any information which Beneficiary may have or receive about Borrower's financial
condition, business operations, or any other circumstances.



                                      10.

                                    EXHIBIT A
                                       TO
                                  DEED OF TRUST


                        LEGAL DESCRIPTION OF THE PROPERTY


                                   [ATTACHED]



                                      11.

RECORDING REQUESTED BY AND WHEN RECORDED
MAIL TO:

Lynx Therapeutics, Inc.
25861 Industrial Boulevard
Hayward, California, 94545
Attn: Vice President, Human Resources

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

                                        SPACE ABOVE THIS LINE FOR RECORDER'S USE



                  REQUEST FOR NOTICE UNDER SECTION 2924b CIVIL
                                      CODE

        In accordance with Section 2924b, Civil Code, request is hereby made
that a copy of any Notice of Default and a copy of any Notice of Sale under Deed
of Trust recorded as instrument No. 1999-0296940-00, on November 10, 1999,
Official Records of Contra Costa County, California, and describing land therein
as

                    Legal description attached hereto and made a part hereof


executed by Norman J.W. Russell and Jane Russell, husband and wife, as Trustor,
in which Washington Mutual Bank, FA is named as Lender/Beneficiary, and
California Reconveyance Company, as Trustee, be mailed to Lynx Therapeutics,
Inc. at 25861 Industrial Boulevard, Hayward, California, 94545, Attn: Vice
President, Human Resources.

The undersigned requests that a copy of any Notice of Default and of any Notice
of Sale hereunder be mailed to him at his address hereinbefore set forth.

Dated:  July 19, 2002
        -------

Lynx Therapeutics, Inc,

By:     /s/ Kathy A. San Roman
   ---------------------------

Its:    Vice President, Human Resources & Administration
    ----------------------------------------------------



                                       1.

RECORDING REQUESTED BY AND WHEN RECORDED
MAIL TO:

Lynx Therapeutics, Inc.
25861 Industrial Boulevard
Hayward, California, 94545
Attn: Vice President, Human Resources

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

                                        SPACE ABOVE THIS LINE FOR RECORDER'S USE



                  REQUEST FOR NOTICE UNDER SECTION 2924b CIVIL
                                      CODE

        In accordance with Section 2924b, Civil Code, request is hereby made
that a copy of any Notice of Default and a copy of any Notice of Sale under Deed
of Trust recorded as instrument No. 2000-0094895-00, on May 8, 2000, Official
Records of Contra Costa County, California, and describing land therein as

                   Legal description attached hereto and made a part hereof

executed by Norman J.W. Russell and Jane Russell, husband and wife, as Trustor,
in which Wells Fargo Bank, N.A. is named as Lender/Beneficiary, and American
Securities Company, as Trustee, be mailed to Lynx Therapeutics, Inc. at 25861
Industrial Boulevard, Hayward, California, 94545, Attn: Vice President, Human
Resources.

The undersigned requests that a copy of any Notice of Default and of any Notice
of Sale hereunder by mailed to him at his address hereinbefore set forth.

Dated:  July 19, 2002
        -------

Lynx Therapeutics, Inc,

By:     /s/  Kathy A. San Roman
   ----------------------------

ITS:    VICE PRESIDENT, HUMAN RESOURCES & ADMINISTRATION
    ----------------------------------------------------



                                       1.

CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
- -------------------------------------------------------------------------------

STATE OF CALIFORNIA                                )
                                                   )  SS.
COUNTY OF                                          )
          -----------------------------------------

On                  , before me,                                               ,
   -----------------            -----------------------------------------------
         Date                              Name And Title Of Officer
                                       (e.g. "Jane Doe, Notary Public")

personally appeared                                                            ,
                   ------------------------------------------------------------
                                         Name of Signer(s)

[ ] personally known to me -- OR -- [X]   proved to me on the basis of
                                          satisfactory evidence to be the
                                          person(s) whose name(s) is/are
                                          subscribed to the within instrument
                                          and acknowledged to me that
                                          he/she/they executed the same in
                                          his/her/their authorized
                                          capacity(ies), and that by
                                          his/her/their signature(s) on the
                                          instrument the person(s), or the
                                          entity upon behalf of which the
                                          person(s) acted, executed the
                                          instrument.

                                          WITNESS my hand and official seal.



                                          --------------------------------------
                                                Signature of Notary Public

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

                                    OPTIONAL

   Though the information below is not required by law, it may prove valuable
         to persons relying on the document and could prevent fraudulent
           removal and reattachment of this form to another document.

 DESCRIPTION OF ATTACHED DOCUMENT

 Title or Type of Document:
                           -----------------------------------------------------

 Document Date:                           Number of Pages:
               -------------------------                  ----------------------

 Signer(s) Other Than Named Above:
                                  ----------------------------------------------

                                                          
             CAPACITY(IES) CLAIMED BY SIGNER(S)                         CAPACITY(IES) CLAIMED BY SIGNER(S)

 Signer's Name:                                              Signer's Name:
               ------------------------------------------                  ---------------------------------------

 [ ]Individual                                               [ ]Individual
 [ ]Corporate Officer                                        [ ]Corporate Officer
    Title(s):                                                   Title(s):
              -------------------------------------------                 ----------------------------------------
 [ ]Partner -- [ ] Limited [ ] General                       [ ]Partner -- [ ] Limited [ ] General
 [ ]Attorney-in-Fact                                         [ ]Attorney-in-Fact
 [ ]Trustee                                                  [ ]Trustee
 [ ]Guardian or Conservator            ------------------    [ ]Guardian or Conservator         ------------------
 [ ]Other:                              RIGHT THUMBPRINT     [ ]Other:                           RIGHT THUMBPRINT
           ------------------------        OF SIGNER                  -----------------------       OF SIGNER
                                       ------------------                                       ------------------
           ------------------------     Top of thumb here              ----------------------    Top of thumb here


 Signer is representing:                                     Signer is representing:


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

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



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





                                    EXHIBIT E

                          EMPLOYEE INVENTION AGREEMENT




                             LYNX THERAPEUTICS INC.


                          EMPLOYEE INVENTION AGREEMENT



1.      As an employee of Lynx Therapeutics Incorporated (the "Company"), and in
        consideration of the compensation now and hereafter paid to me, I agree
        at all times during the term of my employment and thereafter, to hold in
        strictest confidence, and not to use or to disclose to any person, firm
        or corporation, without express authorization of an officer of the
        Company, any information, manufacturing technique, processes, formulas,
        development or experimental work, work in process, trade secrets or any
        other proprietary or confidential matter relating to the products, sales
        or business of the Company.


2.      I further agree that I will promptly make full disclosure to the
        Company, will hold in trust for the sole right and benefit of the
        Company, and will assign all my right, title and interest to, any and
        all inventions, discoveries, developments, improvements or trade secrets
        which I may solely or jointly conceive, develop or reduce to practice,
        or cause to be conceived, developed or reduced to practice, during the
        period of time I am in the employ of the Company, except any invention,
        discovery, development, improvement or trade secret as to which I can
        prove that:

        a)      it was developed entirely on my own time; and

        b)      no equipment, supplies, facility or trade secret of the Company
                was used in its development; and

        c)      (i) it does not relate to the business or actual or demonstrably
                anticipated research or development of the Company, or (ii) it
                does not result from any work performed by me for the Company.

        Notwithstanding the foregoing, I also assign to or as directed by the
        Company all my right, title and interest in and to any and all
        inventions, discoveries, developments, improvements or trade secrets,
        full title to which is required to be in the United States by a contract
        between the Company and the United States or any of its agencies.


3.      I agree to execute any proper oath or verify any proper document in
        connection with carrying out the terms of this agreement. In the event
        the




        Company is unable (because of my mental or physical incapacity or for
        any other reason whatsoever) to secure my signature to apply for, or to
        pursue any application for any United States or foreign letters patent,
        covering inventions assigned to the Company as stated above, I hereby
        irrevocably designate and appoint the Company and its duly authorized
        officer and agents as my agent and attorney in fact, to act for and in
        my behalf and stead to execute and file any such applications and to do
        all other lawfully permitted acts to further the prosecution and
        issuance of letters patent thereon with the same legal force and effect
        as if executed by me. I have attached hereto a list describing all
        inventions made by me prior to my employment with the Company belonging
        to me, relating to the Company's proposed business and products and not
        assigned to the Company, or, if no such list is attached, I represent
        that there are no such inventions. I hereby waive and quitclaim to the
        Company any and all claims of any nature whatsoever which I now or may
        hereafter have for infringement of any patent or patents resulting from
        any such applications for letters patent assigned hereunder to the
        Company.


4.      I recognize that the Company may receive from third parties their
        confidential or proprietary information subject to a duty on the
        Company's part to maintain the confidentiality of such information and
        to use it only for certain limited purposes. I agree that I owe the
        Company and such third parties during the term of my employment and
        thereafter a duty to hold all such confidential or proprietary
        information in the strictest confidence and not to disclose it to any
        person, firm or corporation (except as necessary in carrying out my work
        for the Company consistent with the Company's agreement with such third
        party) or use it for the benefit of anyone other than for the Company or
        such third party consistent with the Company's agreement with such third
        party without the express authorization of an officer of the Company.


5.      I further agree that at the time of leaving the employ of the Company, I
        will deliver to the Company and will not keep in my possession, nor
        deliver to anyone else, any and all drawings, blueprints, notes,
        memoranda, specifications, devices, documents, or any other material
        containing or disclosing any of the matters referred to herein.


6.      I agree that I will not during my employment at the Company improperly
        use or disclose any proprietary information or trade secrets of my
        former or concurrent employers or companies, if any, and that I shall
        not bring onto the premises of the Company any unpublished document or
        any property




        belonging to my former or concurrent employers or companies, if any,
        unless consented to in writing by said employers or companies.


7.      The provisions of this agreement requiring assignment to the Company do
        not apply to any invention which qualifies fully under the provisions of
        Section 2870 of the California Labor Code. I will advise the company
        promptly in writing of any inventions, discoveries, developments,
        improvement or trade secrets that I believe meet the criteria in
        subparagraphs 2 a, b, and c above; and I will at that time provide to
        the Company in writing all evidence necessary to substantiate that
        belief. I understand that the Company will keep in confidence and will
        not disclose to third parties without my consent any confidential
        information disclosed in writing to the company relating to inventions
        which qualify fully under the provision of Section 2870 of the
        California Labor Code.


IN WITNESS WHEREOF, I have subscribed my name hereunto this
18th     day of       June                  , 1999.
- ----           ----------------------------   ----


                                            /s/  Norman Russell
                                            ------------------------------------
                                                         Signature

                                                 Dr. NJW Russell
                                            ------------------------------------
                                                         Print Name


/s/  Cristina Alves
- ------------------------------------
              Witness

EX-99.1

                                                                    EXHIBIT 99.1


                                  CERTIFICATION

        Pursuant to Section 906 of the Public Company Accounting Reform and
Investor Protection Act of 2002 (18 U.S.C. Section 1350, as adopted), Kevin P.
Corcoran, the Chief Executive Officer of Lynx Therapeutics, Inc. (the
"Company"), and Edward C. Albini, the Chief Financial Officer of the Company,
each hereby certifies that, to the best of his or her knowledge:

1. The Company's Quarterly Report on Form 10-Q for the period ended June 30,
2002, to which this Certification is attached as Exhibit 99.1 (the "Periodic
Report"), fully complies with the requirements of Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Periodic Report fairly presents, in all
material respects, the financial condition of the Company at the end of the
period covered by the Periodic Report and results of operations of the Company
for the period covered by the Periodic Report.

Dated:  August 14, 2002

/s/   Kevin P. Corcoran                      /s/   Edward C. Albini
- -------------------------------------        -----------------------------------
Kevin P. Corcoran                            Edward C. Albini
President and Chief Executive Officer        Chief Financial Officer