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, 2003.

OR

o 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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of common stock outstanding as of August 8, 2003 was 4,654,245.

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
	Item 4. Controls and Procedures
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 10.34.01
EXHIBIT 10.38
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

Lynx Therapeutics, Inc.

FORM 10-Q
For the Quarter Ended June 30, 2003

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets —June 30, 2003 and December 31, 2002		3
	Condensed Consolidated Statements of Operations — three months and six months ended June 30, 2003 and 2002		4
	Condensed Consolidated Statements of Cash Flows — six months ended June 30, 2003 and 2002		5
	Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.	Controls and Procedures		23
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		24
Item 2.	Changes in Securities and Use of Proceeds		24
Item 3.	Defaults Upon Senior Securities		24
Item 4.	Submission of Matters to a Vote of Security Holders		24
Item 5.	Other Information		25
Item 6.	Exhibits and Reports on Form 8-K		25
Signatures			26

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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,
			2003			2002
			(unaudited)			(*)
Assets
Current Assets:
	Cash and cash equivalents		$	1,835		$	11,735
	Restricted cash			1,165			—
	Accounts receivable			1,176			836
	Inventory			1,012			1,030
	Other current assets			431			714
	Total current assets			5,619			14,315
Property and equipment:
	Leasehold improvements			12,233			12,238
	Laboratory and other equipment			23,222			22,972
				35,455			35,210
	Less accumulated depreciation and amortization			(21,503	)		(19,640	)
	Net property and equipment			13,952			15,570
Investment in related party				214			1,930
Other non-current assets				172			172
			$	19,957		$	31,987
Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable		$	1,200		$	962
	Accrued compensation			515			516
	Deferred revenue			3,426			2,926
	Note payable			1,675			2,250
	Other accrued liabilities			413			604
	Total current liabilities			7,229			7,258
Deferred revenue				6,064			10,634
Note payable				490			1,093
Other non-current liabilities				924			946
Commitments and contingencies
Stockholders’ equity:
	Common stock			110,992			110,978
	Deferred compensation			—			(9	)
	Accumulated deficit			(105,742	)		(98,913	)
		Total stockholders’ equity		5,250			12,056
			$	19,957		$	31,987

* The balance sheet amounts at December 31, 2002 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,
			2003			2002			2003			2002
Net revenues:
	Technology access and service fees		$	4,187		$	2,443		$	7,187		$	4,597
	License fees from related party			190			190			380			380
	Collaborative research and other			208			220			282			2,898
Total revenues				4,585			2,853			7,849			7,875
Operating costs and expenses:
		Cost of services fees and other		1,377			436			2,101			735
		Research and development		3,196			5,406			6,761			12,293
		General and administrative		1,893			1,408			3,678			3,142
		Restructuring charge for workforce reduction		—			530			292			530
Total operating costs and expenses				6,466			7,780			12,832			16,700
Loss from operations				(1,881	)		(4,927	)		(4,983	)		(8,825	)
Equity in net loss of related party				(891	)		(721	)		(1,716	)		(1,508	)
Interest expense, net				(84	)		(24	)		(128	)		(124	)
Other income (expense), net				—			(75	)		—			911
Loss before provision for income taxes				(2,856	)		(5,747	)		(6,827	)		(9,546	)
Income tax provision (benefit)				1			(271	)		2			(310	)
Net loss				(2,857	)		(5,476	)		(6,829	)		(9,236	)
Basic and diluted net loss per share				(0.61	)		(1.61	)		(1.47	)		(3.44	)
Shares used in per share computation				4,654			3,394			4,653			2,682

See accompanying notes.

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

			Six Months Ended
			June 30,
			2003			2002
Cash flows from operating activities:
Net loss			$	(6,829	)	$	(9,236	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of fixed assets and leasehold improvements				1,863			2,279
	Amortization of deferred compensation			9			489
	Equity in net loss of related party			1,716			1,508
	Gain on sale of antisense business			—			(1,008	)
	Changes in operating assets and liabilities:
		Accounts receivable		(340	)		510
		Inventory		18			628
		Other current assets		283			97
		Accounts payable		238			(613	)
		Accrued liabilities		(192	)		54
		Deferred revenue		(4,070	)		(1,643	)
		Other non-current liabilities		(22	)		35
Net cash used in operating activities				(7,326	)		(6,900	)
Cash flows from investing activities:
Purchases of short-term investments				—			(3,249	)
Proceeds from sale of equity securities				—			2,180
Purchases of property and equipment, net of proceeds from sale				(245	)		(840	)
Payments received on notes receivable from officers and employees				—			42
Net cash used in investing activities				(245	)		(1,867	)
Cash flows from financing activities:
Issuance of common stock, net of repurchases				14			20,946
Repayment of equipment loan				(1,178	)		(798	)
Net cash provided by (used in) financing activities				(1,164	)		20,148
Net increase (decrease) in cash and cash equivalents				(8,735	)		11,381
Cash and cash equivalents at beginning of period				11,735			3,199
Cash, cash equivalents and restricted cash at end of period			$	3,000		$	14,580
Supplemental cash flow information:
Cash paid during the period for income taxes			$	2		$	0
Cash paid during the period for interest			$	134		$	191

See accompanying notes.

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

June 30, 2003

1. Nature of Business

     We believe that Lynx Therapeutics, Inc. (“Lynx” or the “Company”) is a leader in the development and application of novel genomics analysis solutions that provide comprehensive and quantitative digital gene expression information important to modern systems biology research in the pharmaceutical, biotechnology and agricultural industries. These solutions are based on Megaclone and Massively Parallel Signature Sequencing, or MPSS, Lynx’s unique and proprietary cloning and sequencing technologies. Gene expression refers to the number of genes and the extent a cell or tissue expresses those genes, and represents a way to move beyond DNA sequence data to understand the function of genes, the proteins that they encode and the role they play in health and disease. Systems biology is an approach in which researchers seek to gain a complete molecular understanding of biological systems in health and disease.

2. Basis of Presentation

     In January 2003, we received stockholder approval for, and effected, a reverse stock split of our common stock at a ratio of 1-for-7 (the “reverse stock split”). As a result of the reverse stock split, each outstanding share of common stock automatically converted into one-seventh of a share of common stock, with the par value of each share of common stock remaining at one cent ($.01) per share. Accordingly, common stock share and per share amounts for all periods presented have been adjusted to reflect the impact of the reverse stock split.

     The accompanying unaudited condensed consolidated financial statements included herein have been prepared by Lynx 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, Lynx 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 six months ended June 30, 2003 are not necessarily indicative of the results for the full year.

     Our unaudited condensed consolidated financial statements have been presented on a basis that contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have experienced operating losses since our inception of $105.7 million, including net losses of $2.9 million and $6.8 million for the three and six months ended June 30, 2003, respectively. Net losses may continue for at least the next several years as we proceed with the commercialization and additional development of our technologies. The size of these losses will depend on the rate of growth, if any, in our revenues and on the level of our expenses. As of June 30, 2003, our cash and cash equivalents consisted of $1.8 million in unrestricted cash and restricted cash of $1.2 million, and our accounts receivable were $1.2 million. In July 2003, we received a cash payment of approximately $3.0 million from Takara Bio Inc. related to an amendment of our existing collaboration with Takara and the sale of three MPSS instruments. Depending on the success of our commercial efforts, we may require additional funding to continue our business activities for at least the next twelve months. We will be considering various options, which include securing additional equity financing and obtaining new collaborators and customers. If we raise additional capital by issuing equity or convertible debt securities, our existing stockholders may experience substantial dilution. If we require additional financing, there can be no assurance that it will be available on satisfactory terms, or at all. If we are unable to secure additional financing on reasonable terms, or are unable to generate sufficient new sources of revenue through arrangements with customers, collaborators and licensees, we may be forced to take substantial restructuring actions, which may include significantly reducing our anticipated

6

level of expenditures, the sale of some or all of our assets, or obtaining funds by entering into financing or collaborative agreements on unattractive terms, or we will not be able to fund operations.

     The unaudited condensed consolidated financial statements include all accounts of Lynx and our wholly owned subsidiary, Lynx Therapeutics GmbH (“Lynx GmbH”), formed under the laws of the Federal Republic of Germany. All significant intercompany balances and transactions have been eliminated. Certain amounts in prior periods have been reclassified to conform to the current year presentation.

     These financial statements should be read in conjunction with Lynx’s audited consolidated financial statements and notes thereto for the year ended December 31, 2002, included in Lynx’s annual report on Form 10-K, filed with the SEC.

3. Summary of Significant Accounting Policies

Revenue Recognition

     Technology access fees have generally resulted from upfront payments from collaborators, customers and licensees who are provided access to our technologies for specified periods. We receive service fees from collaborators and customers for genomics discovery services performed by us on the biological samples they send to us. Collaborative research revenues are payments received under various agreements and include such items as milestone payments. Milestone payments are recognized as revenue pursuant to collaborative agreements upon the achievement of specified technology developments, representing the culmination of the earnings process. Other revenues include the proceeds from the sale of technology assets, the sale of proprietary instruments and reagents, and grant revenue.

     Technology access and license fees are deferred and recognized as revenue on a straight-line basis over the noncancelable term of the agreement to which they relate. Payments for services and/or materials provided by Lynx are recognized as revenues when earned over the period in which the services are performed and/or materials are delivered, provided that no other consequential obligations, refunds or credits to be applied to future work exist. Revenues from the sale of technology assets are recognized upon the transfer of the assets to the purchaser. Revenues from the sales of instruments and reagents are recognized upon shipment to the customer.

Inventory

     Inventory is stated at the lower of cost (which approximates first-in, first out cost) or market. The balances at June 30, 2003 and December 31, 2002 were classified as raw materials and consisted primarily of reagents and other chemicals utilized while performing genomics discovery services. Inventory used in providing genomics discovery services and for reagent sales is charged to cost of services fees and other as consumed. Reagents and chemicals purchased for internal development purposes are charged to research and development expense as incurred.

Net Loss Per Share

     Basic and diluted net loss per share have been computed using the weighted-average number of shares of common stock outstanding during the period. Basic and diluted net loss per share amounts are the same in each period as we have incurred a net loss for all periods presented. Had we been in a net income position, diluted earnings per share would have included the dilutive impact of outstanding options and warrants to purchase common stock. At June 30, 2003, options to purchase approximately 530,986 shares of common stock at a weighted-average exercise price of $40.08 per share and warrants to purchase 101,082 shares of common stock at an exercise price of $39.76 per share, 41,714 shares of common stock at an exercise price of $10.85 per share and 834,272 shares of common stock at an exercise price of $13.58 per share were excluded from the calculation of diluted loss per share for 2003 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, 2002, options to purchase approximately 418,277 shares of common stock at a weighted-average exercise price of $74.26 per share and warrants to purchase 101,082 shares of common stock at an exercise price of $39.76 per share, 41,714 shares of common stock at an exercise price of $10.85 per share and 834,272 shares of common stock

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at an exercise price of $13.58 per share were excluded from the calculation of diluted loss per share for 2002 because the effect of inclusion would be antidilutive.

Stock-Based Compensation

     We grant stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. We account for stock option grants in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related Interpretations. Under APB 25, when the exercise price of our employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

     All stock option awards to non-employees are accounted for at the fair value of the consideration received or the fair value of the equity instrument issued, as calculated using the Black-Scholes model, in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation, (SFAS 123) and Emerging Issues Task Force Consensus No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. The option arrangements with non-employees are subject to periodic remeasurement over their vesting terms. Pro forma information regarding net loss and net loss per share required by SFAS 123, as amended by Accounting for Stock-Based Compensation — Transition and Disclosure (SFAS 148), is presented below and has been determined as if we had accounted for awards under our stock option and employee stock purchase plans using the fair value method:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
Net loss, as reported	$	(2,857	)	$	(5,476	)	$	(6,829	)	$	(9,236	)
Add: Stock-based employee compensation as reported		0			489			9			489
Deduct: Stock-based employee compensation as if fair value method applied to all awards		(720	)		(1,138	)		(1,125	)		(2,587	)
Net loss, pro forma as if fair value method applied to all awards	$	(3,577	)	$	(6,125	)	$	(7,945	)	$	(11,334	)
Basic and diluted net loss per share, as reported	$	(0.61	)	$	(1.61	)	$	(1.47	)	$	(3.44	)
Basic and diluted net loss per share, pro forma as if fair value method applied to all awards	$	(0.77	)	$	(1.80	)	$	(1.71	)	$	(4.23	)

Recent Accounting Pronouncements

     In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not believe the adoption of FIN 46 will have a material impact on its financial position or results of operations.

     In November 2002, the Emerging Issues Task Force (EITF) reached a consensus regarding EITF Issue 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. The consensus addresses not only when and how an arrangement involving multiple deliverables should be divided into separate units of accounting, but also how the arrangement’s consideration should be allocated among separate units. The pronouncement is effective for revenue

8

arrangements entered into in fiscal periods beginning after June 15, 2003. We are in the process of evaluating the financial statement impact, if any, of adopting EITF Issue 00-21, but do not expect that the adoption of EITF Issue 00-21 will have a material effect on our results of operations or financial position.

     In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). The Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. The Statement is effective for all financial instruments created or modified after May 31, 2003, and to other instruments for periods beginning after June 15, 2003. We are currently evaluating the effects of SFAS 150, but do not expect that the adoption of SFAS 150 will have a material effect on our results of operations or financial position.

4. Comprehensive Loss

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

	Three Months Ended
	June 30,
	2003			2002
Net loss	$	(2,857	)	$	(5,476	)
Net unrealized loss on available-for-sale securities		—			(13	)
Comprehensive loss	$	(2,857	)	$	(5,489	)

	Six Months Ended
	June 30,
	2003			2002
Net loss	$	(6,829	)	$	(9,236	)
Net unrealized loss on available-for-sale securities		—			(1,139	)
Comprehensive loss	$	(6,829	)	$	(10,375	)

     There was no accumulated other comprehensive income (loss) at either June 30, 2003 or December 31, 2002.

5. Related-Party Transactions

Axaron Bioscience AG

     We hold an equity investment in Axaron Bioscience AG. As of June 30, 2003, Lynx held approximately a 40% ownership interest in Axaron and had the ability to exercise significant influence over Axaron’s operating and accounting policies. Lynx has accounted for the investment under the equity method in accordance with APB Opinion No. 18. Under the equity method, we record our pro-rata share of the income or losses of Axaron. Axaron is engaged in employing Lynx’s technologies in its neuroscience, toxicology and microbiology research programs.

     In 2001, we extended our technology licensing agreement with Axaron. The license extends Axaron’s right to use our proprietary MPSS and Megasort technologies non-exclusively in Axaron’s neuroscience, toxicology and microbiology programs until December 31, 2007. In 2001, we made a capital investment in Axaron of approximately $4.5 million. Also in 2001, we 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 period from June 1, 2001 to December 31, 2007. The recorded revenue for the three-month and six-month periods ended June 30, 2003 was approximately $190,000 and $380,000, respectively. The recorded revenue for the three-month and six-month periods ended June 30, 2002 was approximately $190,000 and $380,000, respectively. Our pro-rata share of Axaron’s losses for the three-month and six-month periods ended June 30, 2003 was approximately $0.9 million and $1.7 million, respectively. Our pro-rata share of Axaron’s losses for the three-month and six-month periods ended June 30, 2002 was approximately $0.7 million and $1.5 million, respectively.

     We also sublease certain offices in Germany to Axaron. During the six-month period ended June 30, 2003, we received an immaterial amount of sublease income from Axaron.

9

Other Transactions with Related Parties

     For legal services, Lynx paid approximately $63,000 during the quarter ended June 30, 2003 and approximately $166,000 during the six-months ended June 30, 2003 to Cooley Godward LLP, Lynx’s counsel, of which a director of Lynx is a partner.

6. Restructuring Charges

     In January 2003, we implemented a reduction of approximately 25% of our workforce, or 32 people. The groups affected primarily by this action included research and development personnel based at Lynx Therapeutics GmbH in Germany and those working in our proteomics group in California. The workforce reduction was intended to further focus our financial and human resources on expanding the commercial use of MPSS. We recorded a workforce reduction charge of $0.3 million in the quarter ended March 31, 2003 related primarily to severance compensation expense for our former employees, which amounts had been paid entirely as of April 30, 2003.

7. Subsequent Events

     In July 2003, we received a cash payment of approximately $3.0 million from Takara Bio Inc. related to an amendment of our existing collaboration with Takara and the sale of three MPSS instruments.

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

     This discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this report and our 2002 audited financial statements and notes thereto included in our 2002 Annual Report on Form 10-K. Operating results for the quarter and six months ended June 30, 2003 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 intended to identify such forward-looking statements. There can be no assurance that these statements will prove to be correct. Our 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 our 2002 Annual Report on Form 10-K, as filed with the SEC. We undertake no obligation to update any of the forward-looking statements contained herein to reflect any future events or developments.

Overview

     We believe that Lynx Therapeutics, Inc. is a leader in the development and application of novel genomics analysis solutions that provide comprehensive and quantitative digital gene expression information important to modern systems biology research in the pharmaceutical, biotechnology and agricultural industries. These solutions are based on Megaclone and Massively Parallel Signature Sequencing, or MPSS, Lynx’s unique and proprietary cloning and sequencing technologies. Gene expression refers to the number of genes and the extent a cell or tissue expresses those genes, and represents a way to move beyond DNA sequence data to understand the function of genes, the proteins that they encode and the role they play in health and disease. Systems biology is an approach in which researchers seek to gain a complete molecular understanding of biological systems in health and disease.

     We have incurred net losses each year since our inception in 1992. As of June 30, 2003, we had an accumulated deficit of approximately $105.7 million, including a net loss of $2.9 million for the quarter and $6.8 million for the six months ended June 30, 2003. Net losses may continue for at least the next several years as we proceed with the commercialization and additional development of our technologies. The size of these losses will depend on the rate of growth, if any, in our revenues and on the level of our expenses.

     As of June 30, 2003, our cash and cash equivalents consisted of $1.8 million in unrestricted cash and restricted cash of $1.2 million, and our accounts receivable were $1.2 million. In July 2003, we received a cash payment of

10

approximately $3.0 million from Takara Bio Inc. related to an amendment of our existing collaboration with Takara and the sale of three MPSS instruments. Depending on the success of our commercial efforts, we may require additional funding to continue our business activities for at least the next twelve months. We will be considering various options, which include securing additional equity financing and obtaining new collaborators and customers. If we raise additional capital by issuing equity or convertible debt securities, our existing stockholders may experience substantial dilution. If we require additional financing, there can be no assurance that it will be available on satisfactory terms, or at all. If we are unable to secure additional financing on reasonable terms, or are unable to generate sufficient new sources of revenue through arrangements with customers, collaborators and licensees, we may be forced to take substantial restructuring actions, which may include significantly reducing our anticipated level of expenditures, the sale of some or all of our assets, or obtaining funds by entering into financing or collaborative agreements on unattractive terms, or we will not be able to fund operations.

     To date, we have received, and expect to continue to receive in the future, a significant portion of our revenues from a small number of collaborators, customers and licensees, as shown on the following table.

	Six Months Ended June 30,						Year Ended December 31,
	2003			2002			2002
E.I. DuPont de Nemours and Company		31	%		25	%		32	%
BASF AG		24	%		6	%		11	%
Takara Bio Inc.		18	%		13	%		16	%
Bayer CropScience		10	%		11	%		14	%
Geron Corporation		—			33	%		15	%

     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 fees and the period over which the revenue is recognized; the level of service fees, which is tied to the number and timing of biological samples received from our collaborators and customers, as well as our performance of the related genomics discovery services on the samples; the timing of achievement of milestones and the amount of related payments to us; and the number, type and timing of new, and the termination of existing, agreements with collaborators, customers and licensees.

     Our operating costs and expenses include cost of service fees and other, research and development expenses and general and administrative expenses. Cost of services fees and other includes primarily the costs of direct labor, materials and supplies, outside expenses, equipment and overhead incurred by us in performing our genomics discovery services for, and the costs of reagents and instruments sold to, our collaborators, customers 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 and process improvement efforts. Research and development expenses may increase due to spending for ongoing technology development and implementation, as well as new applications, primarily for MPSS. 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 our research and development, commercial and business development efforts.

     We account for our investment in Axaron Bioscience AG, a company owned primarily by BASF AG and us, using the equity method. For each of the six months ended June 30, 2003 and 2002, our pro-rata share of Axaron’s losses was approximately $1.7 million and $1.5 million, respectively.

     As of June 30, 2003, we employed 94 full-time employees, of which 76 were engaged in production and research and development activities. In January 2003, we implemented a reduction of approximately 25% of our total workforce, or 32 people. The groups affected primarily by this action included research and development personnel based at Lynx GmbH in Germany and our proteomics group in California. The workforce reduction was intended to further focus our financial and human resources on expanding the commercial use of MPSS.

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Results of Operations

Revenues

     Revenues for the three-month period ended June 30, 2003 were approximately $4.6 million, compared to revenues of $2.9 million for the corresponding three-month period of 2002. Revenues for the three-month period in 2003 included technology access fees and service fees of $4.2 million, license fees from Axaron, a related party, of $190,000 and other revenues of $208,000. Revenues for the three-month period in 2002 included technology access fees and service fees of $2.4 million, license fees from Axaron of $190,000 and other revenues of $220,000.

     Revenues for the six months ended June 30, 2003 were approximately $7.8 million, compared to revenues of $7.9 million for the corresponding six-month period of 2002. Revenues for the six-month period in 2003 included technology access fees and service fees of $7.2 million, license fees from Axaron, a related party, of $380,000 and other revenues of $282,000. Revenues for the six-month period in 2002 included technology access fees and service fees of $4.6 million, license fees from Axaron of $380,000 and other revenues of $2.9 million, including $2.6 million from the sale of certain of our technology assets.

     Our revenues have historically fluctuated from quarter to quarter and year to year and may continue to fluctuate in future periods due primarily to our service fees, which are impacted principally by the timing and number of biological samples received from existing customers and collaborators, as well as our performance of related services on these samples. Additionally, the number, type and timing of new collaborations and agreements and the related demand for, and delivery of, our services or products will impact the level of future revenues.

Operating Costs and Expenses

     Total operating costs and expenses were approximately $6.5 million for the three-month period ended June 30, 2003, compared to approximately $7.8 million for the three-month period ended June 30, 2002. For the six-month periods ended June 30, 2003 and 2002, operating costs and expenses were approximately $12.8 million and $16.7 million, respectively.

     For the three-month period in 2003, cost of services fees and other was $1.4 million, compared to $0.4 million for the corresponding period in 2002. Cost of services fees and other for the six-months ended June 30, 2003 and 2002 were $2.1 million and $0.7 million, respectively. Cost of services fees and other reflect primarily the costs of providing our genomics discovery services.

     Research and development expenses were approximately $3.2 million for the three-month period ended June 30, 2003, compared to approximately $5.4 million for the corresponding period in 2002. For the six-month periods ended June 30, 2003 and 2002, research and development expenses were approximately $6.8 million and $12.3 million, respectively. The decrease in research and development expenses in 2003 reflects a decrease in materials consumed in research and development efforts and lower personnel expenses, primarily resulting from the workforce reductions that occurred in the first quarter of 2003 and the second quarter of 2002. Research and development expenses may increase due to spending for ongoing technology development and implementation, as well as new applications, primarily for MPSS.

     General and administrative expenses were $1.9 million for the three-month period ended June 30, 2003, compared to $1.4 million for the corresponding period in 2002. For the six-month periods ended June 30, 2003 and 2002, general and administrative expenses were approximately $3.7 million and $3.1 million, respectively. The increase in general and administrative expenses in the 2003 periods over the same periods in 2002 reflect primarily expenses for outside services in support of our commercial and business development efforts. General and administrative expenses may increase in support of our continuing commercial, business development and research and development activities.

     In January 2003, we implemented a reduction of approximately 25% of our workforce, or 32 people. The groups affected primarily by this action included research and development personnel based at Lynx Therapeutics GmbH in Germany and in our proteomics group in California. The workforce reduction was intended to further

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focus our financial and human resources on expanding the commercial use of MPSS. We recorded a workforce reduction charge of $0.3 million in the quarter ended March 31, 2003 related primarily to severance compensation expense for our former employees, which amounts had been paid entirely as of April 30, 2003. In terms of compensation, benefits and employer taxes that would have been paid to, and on behalf of, such former employees had they remained employed by Lynx, we anticipate annualized cost savings of approximately $2.0 million.

     The restructuring charge of $0.5 million in the second quarter of 2002 was comprised primarily of severance charges for former Lynx employees who were part of Lynx’s workforce reduction of approximately 30% of our domestic workforce, or 45 people, in that period. The group affected primarily by this action was research and development personnel in California. The workforce reduction was intended to focus our financial and human resources on expanding the commercial use of MPSS. In terms of compensation, benefits and employer taxes that would have been paid to, and on behalf of, such former employees had they remained employed by Lynx, we anticipate annualized cost savings of approximately $3.0 million.

Equity in Net Loss of Related Party

     The equity share of loss of related party for the three-month and six-month periods ended June 30, 2003 was approximately $0.9 million and $1.7 million, respectively, and for the three-month and six-month periods ended June 30, 2002 was approximately $0.7 million and $1.5 million, respectively, and reflects Lynx’s pro-rata share of the net loss of Axaron, a joint venture investee.

Interest Expense, Net

     Net interest expense was approximately $84,000 for the quarter ended June 30, 2003, compared to net interest expense of approximately $24,000 for the corresponding period of 2002. The increase in net interest expense from 2002 to 2003 reflects primarily a decrease in interest income due to a lower average balance of cash, cash equivalents and restricted cash in the second quarter of 2003, partially offset by decreased interest expense in 2003 incurred on equipment-related debt outstanding during both the 2003 and 2002 periods. Net interest expense was approximately $128,000 for the six months ended June 30, 2003, compared to net interest expense of approximately $124,000 for the corresponding period of 2002.

Other Income (Expense), Net

     Other income was $0 in the quarter ended June 30, 2003, compared to other expense of approximately $75,000 in the 2002 period. Other income was $0 for the six months ended June 30, 2003, compared to other income of $0.9 million in the 2002 period. The 2002 other income amount for the six-month period was related primarily to the gain on the sale of our equity investment in Inex Pharmaceuticals Corporation.

Income Tax Provision (Benefit)

     The provisions for income tax for the quarter and six-months ended June 30, 2003 of approximately $1,000 and $2,000, respectively, consisted entirely of foreign withholding tax on payments received from our licensee, Takara. The income tax benefit for the 2002 periods relates to refunds of federal and state income taxes.

Liquidity and Capital Resources

     Cash and cash equivalents at June 30, 2003 consisted of $1.8 million in unrestricted cash and restricted cash of $1.2 million. Net cash used in operating activities was $7.3 million for the six months ended June 30, 2003, as compared to $6.9 million for the same period in 2002. The change was due primarily to a greater decrease in deferred revenues and an increase in accounts receivable in 2003 as compared to a decrease in 2002, partially offset by the higher net loss in 2002 than in 2003, as adjusted for the impact of non-cash expenses, losses and gains. The amount of net cash used in operating activities differed from the 2003 net loss due primarily to the decrease in deferred revenues, partially offset by the adjustment for non-cash items, primarily depreciation and amortization expenses and the impact of our pro rata share of the net loss of Axaron. The amount of net cash used in operating activities differed from the 2002 net loss due primarily to the adjustment for non-cash items, primarily depreciation

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and amortization expenses and the impact of our pro rata share of the net loss of Axaron, partially offset by a decrease in deferred revenues and the adjustment for the non-cash gain on the sale of the antisense program in 2002.

     Net cash used in investing activities of $0.2 million for the six-month period in 2003 was due to expenditures for capital equipment. Net cash used in investing activities of $1.9 million for the six-month period in 2002 was due primarily to purchases of short-term investments, expenditures on capital equipment, partially offset by proceeds from the sale of equity securities.

     Net cash used in financing activities of $1.2 million for the six months ended June 30, 2003 was due primarily to the repayment of principal under equipment-related debt. Net cash provided by financing activities of $20.1 million during the 2002 six-month period related primarily to the issuance of common stock pursuant to a common stock purchase agreement between Lynx and certain investors, partially offset by the repayment of principal under equipment-related debt.

     In October 2002, we entered into a loan and security agreement with a financial institution, Comerica Bank-California, for an equipment line of credit of up to $2.0 million with a draw-down period of one year. Under the initial advance, we drew down $1.6 million in November 2002 related to the purchase of equipment made in previous periods. We granted Comerica Bank-California a security interest in all items we financed under this agreement. The initial advance under the loan to finance the purchase of equipment made in previous periods has a term of 24 months from the date of advance and bears interest at a rate of 7.25%. In May 2003, we renegotiated the terms of the agreement, which now require that we maintain a minimum cash balance of restricted cash and cash equivalents in an account at Comerica Bank-California of at least 110% of the principal balance under loans outstanding under this agreement until Comerica Bank-California receives payment in full of all outstanding obligations. As of June 30, 2003, the balance of restricted cash was approximately $1.2 million. As of June 30, 2003, the principal balance under loans outstanding under this agreement was $1.1 million. We believe that we are in compliance with all terms of the loan agreement.

     In late 1998, we entered into a financing agreement with a financial institution, Transamerica Business Credit Corporation, under which we drew down $4.8 million during 1999 for the purchase of equipment and certain other capital expenditures. We granted the lender a security interest in all items financed by it under this agreement. Each draw down under the loan has a term of 48 months from the date of the draw down. As of June 30, 2003, the principal balance under loans outstanding under this agreement was $1.1 million. The draw down period under the agreement expired on March 31, 2000.

     We plan to use available funds for ongoing commercial and research and development activities, working capital and other general corporate purposes and capital expenditures. We expect capital investments during the remainder of 2003 will be less than $1.0 million and will be comprised primarily of expenditures for capital equipment required in the normal course of business. We intend to invest our excess cash in investment-grade, interest-bearing securities.

     We have obtained funding for our operations primarily through sales of preferred and common stock, payments received under contractual arrangements with customers, collaborators and licensees and interest income. Consequently, investors in our equity securities and our customers, collaborators and licensees are significant sources of liquidity for us. Therefore, our ability to maintain liquidity is dependent upon a number of uncertain factors, including but not limited to the following: our ability to advance and commercialize further our technologies; our ability to generate revenues through expanding existing collaborations, customer and licensee arrangements and obtaining significant new customers, collaborators and licensees; and the receptivity of capital markets toward our equity or debt securities. The cost, timing and amount of funds required for specific uses by us cannot be precisely determined at this time and will be based upon the progress and the scope of our commercial and research and development activities; payments received under customer, collaborative and license agreements; our ability to establish and maintain customer, collaborative and license agreements; costs of protecting intellectual property rights; legal and administrative costs; additional facilities capacity needs, and the availability of alternate methods of financing.

     We have experienced operating losses since our inception of $105.7 million, including a net loss of $2.9 million for the quarter and $6.8 million for the six months ended June 30, 2003. Net losses may continue for at least the next

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several years as we proceed with the commercialization and additional development of our technologies. The size of these losses will depend on the rate of growth, if any, in our revenues and on the level of our expenses. As of June 30, 2003, our cash and cash equivalents were $3.0 million, including restricted cash of $1.2 million, and our accounts receivable were $1.2 million. In July 2003, we received a cash payment of approximately $3.0 million from Takara Bio Inc. related to an amendment of our existing collaboration with the company and the sale of three MPSS instruments. Depending on the success of our commercial efforts, we may require additional funding to continue our business activities for at least the next twelve months. We will be considering various options, which include securing additional equity financing and obtaining new collaborators and customers. If we raise additional capital by issuing equity or convertible debt securities, our existing stockholders may experience substantial dilution. If we require additional financing, there can be no assurance that it will be available on satisfactory terms, or at all. If we are unable to secure additional financing on reasonable terms, or are unable to generate sufficient new sources of revenue through arrangements with customers, collaborators and licensees, we may be forced to take substantial restructuring actions, which may include significantly reducing our anticipated level of expenditures, the sale of some or all of our assets, or obtaining funds by entering into financing or collaborative agreements on unattractive terms, or we will not be able to fund operations.

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.

We have a history of net losses. We expect to continue to incur net losses, and we may not achieve or maintain profitability.

     We have incurred net losses each year since our inception in 1992, including net losses of approximately $15.5 million in 2002, $16.7 million in 2001 and $13.3 million in 2000. As of June 30, 2003, we had an accumulated deficit of approximately $105.7 million. Net losses may continue for at least the next several years. The presence and size of these potential net losses will depend, in part, on the rate of growth, if any, in our revenues and on the level of our expenses. Our research and development expenditures and general and administrative costs have exceeded our revenues to date. Research and development expenses may increase due to spending for ongoing technology development and implementation, as well as new applications. 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 expand the scope of our products and services into new areas of pharmaceutical, biotechnology and agricultural research;

• our customers’ and collaborators’ abilities to develop diagnostic, therapeutic and other commercial products from the application of our technologies; and

• the successful clinical testing, regulatory approval and commercialization of such products by our customers and collaborators.

     The time required to reach profitability is highly uncertain. We may not achieve profitability on a sustained basis, if at all.

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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 conduct our operations, and will depend on many factors including:

• the progress and scope of our research and development projects;

• payments received under our customer, license and collaborative agreements;

• our ability to establish and maintain customer, license and collaborative arrangements;

• the progress of the development and commercialization efforts under our customer, license and collaborative agreements;

• the costs associated with obtaining access to biological samples and related information; and

• the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights.

     As of June 30, 2003, our cash and cash equivalents consisted of $1.8 million in unrestricted cash and restricted cash of $1.2 million, and our accounts receivable were $1.2 million. In July 2003, we received a cash payment of approximately $3.0 million from Takara Bio Inc. related to an amendment of our existing collaboration with Takara and the sale of three MPSS instruments. Depending on the success of our commercial efforts, we may require additional funding to continue our business activities for at least the next twelve months. We will be considering various options, which include securing additional equity financing and obtaining new collaborators and customers. If we raise additional capital by issuing equity or convertible debt securities, our existing stockholders may experience substantial dilution. If we require additional financing, there can be no assurance that it will be available on satisfactory terms, or at all. If we are unable to secure additional financing on reasonable terms, or are unable to generate sufficient new sources of revenue through arrangements with customers, collaborators and licensees, we may be forced to take substantial restructuring actions, which may include significantly reducing our anticipated level of expenditures, the sale of some or all of our assets, or obtaining funds by entering into financing or collaborative agreements on unattractive terms, or we will not be able to fund operations.

Our technologies are new and unproven and may not allow our customers, 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 company. Our technologies are new and unproven. The application of these technologies is in too early a stage to determine whether it can be successfully implemented. These technologies assume that information about gene expression and gene sequences may enable scientists to better understand complex biological processes. Our technologies also depend on the successful integration of independent technologies, each of which has its own development risks. Relatively few therapeutic products based on gene discoveries have been successfully developed and commercialized. Our technologies may not enable our customers, collaborators or us to identify genes, proteins or targets for drug discovery. To date, neither our customers nor we have identified any targets for drug discovery based on our technologies.

We are dependent on our customers and collaborators and will need to find additional customers and 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, customer agreements or licensing arrangements with pharmaceutical, biotechnology and agricultural companies and research institutes. 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.

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     We have derived substantially all of our revenues from corporate collaborations, customer agreements and licensing arrangements. Revenues from such agreements depend upon continuation of the related relationships, our performance of genomics discovery services, the achievement of milestones and royalties derived from future products developed from our research and technologies. To date, we have received, and expect to continue to receive in the future, a significant portion of our revenues from a small number of collaborators, customers and licensees.

	Six Months Ended June 30,						Year Ended December 31,
	2003			2002			2002
E.I. DuPont de Nemours and Company		31	%		25	%		32	%
BASF AG		24	%		6	%		11	%
Takara Bio Inc.		18	%		13	%		16	%
Bayer CropScience		10	%		11	%		14	%
Geron Corporation		—			33	%		15	%

     If we fail to perform genomics discovery services or successfully achieve milestones or our collaborators fail to develop successful products, we will not earn the revenues contemplated under such agreements. If our collaborators, customers or licensees do not renew existing agreements, we lose one of these collaborators, customers or licensees, we do not attract new collaborators, customers or licensees or we are unable to enter into new collaborative, customer or license agreements on commercially acceptable terms, our revenues may decrease, and our activities may fail to lead to commercialized products.

     Our dependence on collaborations 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 customers and collaborators, some of our customers and collaborators could become our competitors in the future if they internally develop DNA analysis technologies or if they acquire other genomics companies and move into the genomics industry. We will not earn the revenues contemplated under our customer and collaborative arrangements, if our customers and 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 single supplier to manufacture flow cells used in our MPSS technology.

     Flow cells are glass plates that are micromachined, or fabricated to very precise, small dimensions, to create a grooved chamber for immobilizing micro-beads in a planar microarray, which is a two-dimensional, dense ordered array of DNA samples. We use flow cells in our 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;

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• 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 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 reference laboratories and government agencies. Some of our competitors, such as Affymetrix, Inc., Celera Genomics Group, Incyte Genomics, Inc., Gene Logic, Inc., and Genome Therapeutics Corporation 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 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 technologies, which could prevent us from competing in the market.

     Our success depends in part on our ability to obtain patents and maintain adequate protection of the intellectual property related to our technologies and products. The patent positions of biotechnology companies, including our patent position, are generally uncertain and involve complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the U.S., and many companies have encountered significant problems in protecting and defending their proprietary rights in foreign jurisdictions. We have applied and will continue to apply for patents covering our technologies, processes and products as and when we deem appropriate. However, third parties may challenge these applications, or these applications may fail to result in issued patents. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around our patents. In addition, our patents may be challenged or invalidated or fail to provide us with any competitive advantage.

     We also rely on trade secret protection for our confidential and proprietary information. However, trade secrets are difficult to protect. We protect our proprietary information and processes, in part, with confidentiality

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agreements with employees, collaborators and consultants. However, third parties may breach these agreements, we may not have adequate remedies for any such breach or our trade secrets may still otherwise become known by our competitors. In addition, our competitors may independently develop substantially equivalent proprietary information.

Litigation or third-party claims of intellectual property infringement could require us to spend substantial time and money and adversely affect our ability to develop and commercialize our technologies and products.

     Our commercial success depends in part on our ability to avoid infringing patents and proprietary rights of third parties and not breaching any licenses that we have entered into with regard to our technologies. Other parties have filed, and in the future are likely to file, patent applications covering genes, gene fragments, 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 collaborators and customers for our technologies and products. There are a limited number of pharmaceutical, biotechnology and agricultural companies and research institutes that are potential collaborators and customers for our technologies and products. To market our technologies and products, we must develop a sales and marketing group with the appropriate technical expertise. We may not successfully build such a sales force. If our sales and marketing efforts fail to be successful, our technologies and products may fail to gain market acceptance.

Our sales cycle is lengthy, and we may spend considerable resources on unsuccessful sales efforts or may not be able to enter into agreements on the schedule we anticipate.

     Our ability to obtain collaborators and customers for our technologies and products depends in significant part upon the perception that our technologies and products can help accelerate their drug discovery and genomics efforts. Our sales cycle is typically lengthy because we need to educate our potential collaborators and customers and sell the benefits of our products to a variety of constituencies within such companies. In addition, we may be required to negotiate agreements containing terms unique to each collaborator or customer. We may expend substantial funds and management effort without any 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.

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 customer, collaborative and license agreements. In addition, recruiting and retaining qualified scientific personnel to

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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. 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. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. 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. 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 or protein expression profiles. Similarly, employers could discriminate against employees with gene or protein 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 operations.

     Our facilities are located near known earthquake fault zones and are vulnerable to damage from earthquakes. We are also vulnerable to damage from other types of disasters, including fire, floods, power loss, communications failures and similar events. If any disaster were to occur, our ability to operate our business at our facilities would be seriously, or potentially completely, impaired. In addition, the unique nature of our research activities could cause significant delays in our programs and make it difficult for us to recover from a disaster. The insurance we maintain may not be adequate to cover our losses resulting from disasters or other business interruptions. Accordingly, an earthquake or other disaster could materially and adversely harm our ability to conduct business.

Our stock price may be extremely volatile.

     We believe that the market price of our common stock will remain highly volatile and may fluctuate significantly due to a number of factors. The market prices for securities of many publicly-held, early-stage biotechnology companies have in the past been, and can in the future be expected to be, especially volatile. For example, during the two-year period from July 2, 2001 to June 30, 2003, the closing sales price of our common stock as quoted on the Nasdaq National Market from July 2, 2001 to May 21, 2003 and on the Nasdaq SmallCap Market from May 22, 2003 to June 30, 2003 fluctuated from a low of $1.61 to a high of $53.32 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;

• developments or disputes concerning patent or proprietary rights;

• developments in our relationships with current or future collaborators, customers or licensees; 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.

21

Our securities have been transferred from the Nasdaq National Market to the Nasdaq SmallCap Market, which has subjected us to various statutory requirements and may have adversely affected the liquidity of our common stock, and a failure by us to meet the listing maintenance standards of the Nasdaq SmallCap Market could result in delisting from the Nasdaq SmallCap Market.

     Effective May 22, 2003, a Nasdaq Qualifications Panel terminated our Nasdaq National Market Listing and transferred our securities to the Nasdaq SmallCap Market. In order to maintain the listing of our securities on the Nasdaq SmallCap Market, we must be able to demonstrate compliance with all applicable listing maintenance requirements. In the event we are unable to do so, our securities will be delisted from the Nasdaq Stock Market.

     With our securities listed on the Nasdaq SmallCap Market, we face a variety of legal and other consequences that will likely negatively affect our business including, without limitation, the following:

• we may have lost our exemption from the provisions of Section 2115 of the California Corporations Code, which imposes aspects of California corporate law on certain non-California corporations operating within California. As a result, (i) our stockholders may be entitled to cumulative voting and (ii) we may be subject to more stringent stockholder approval requirements and more stockholder-favorable dissenters’ rights in connection with certain strategic transactions;

• the state securities law exemptions available to us are more limited, and, as a result, future issuances of our securities may require time-consuming and costly registration statements and qualifications;

• due to the application of different securities law exemptions and provisions, we have been required to amend our stock option plan, suspend our stock purchase plan and must comply with time-consuming and costly administrative procedures;

• the coverage of Lynx by securities analysts may decrease or cease entirely; and

• we may lose current or potential investors.

     In addition, we are required to satisfy various listing maintenance standards for our common stock to be quoted on the Nasdaq SmallCap Market. If we fail to meet such standards, our common stock would likely be delisted from the Nasdaq SmallCap Market and trade on the over-the-counter bulletin board, commonly referred to as the “pink sheets.” This alternative is generally considered to be a less efficient market and would seriously impair the liquidity of our common stock and limit our potential to raise future capital through the sale of our common stock, which could materially harm our business.

Anti-takeover provisions in our charter documents and under Delaware law may make it more difficult to acquire us or to effect a change in our management, even though an acquisition or management change may be beneficial to our stockholders.

     Under our certificate of incorporation, our board of directors has the authority, without further action by the holders of our common stock, to issue 2,000,000 additional shares of preferred stock from time to time in series and with preferences and rights as it may designate. These preferences and rights may be superior to those of the holders of our common stock. For example, the holders of preferred stock may be given a preference in payment upon our liquidation or for the payment or accumulation of dividends before any distributions are made to the holders of common stock.

     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.

22

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. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to adverse shifts in interest rates, we invest in short-term securities and maintain an average maturity of less than 90 days. As a result, we do not believe we are subject to significant interest rate risk.

Foreign Currency Rate Fluctuations

     The functional currency for our German subsidiary is the Euro. Our German subsidiary’s 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 subsidiary conducts its business primarily in Euros. Exchange gains and losses arising from these transactions are recorded using the actual exchange differences on the date of the transaction. We have not taken any action to reduce our exposure to changes in foreign currency exchange rates, such as options or futures contracts, with respect to transactions with our German subsidiary or transactions with our European collaborators and customers.

Item 4. Controls and Procedures

     Based on their evaluation as of June 30, 2003, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were sufficiently effective to ensure that the information required to be disclosed by us in this quarterly report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and Form 10-Q.

     There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2003 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

     Our management, including the chief financial officer and chief executive officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our chief executive officer and chief financial officer have concluded, based on their evaluation as of June 30, 2003, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure controls and procedures were met.

23

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     None

Item 2. Changes in Securities and Use of Proceeds

     None

Item 3. Defaults Upon Senior Securities

     None

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

     At Lynx’s 2003 Annual Meeting of Stockholders held on May 22, 2003, Lynx Stockholders voted on the following matters:

Proposal I — The following nine directors were each elected for a one-year term expiring at Lynx’s 2004 Annual Meeting of Stockholders:

Nominee	Votes For		Votes Withheld
Craig C. Taylor		3,331,727		132,978
Kevin P. Corcoran		3,305,811		158,894
Sydney Brenner, M.B., D. Phil.		3,333,336		131,369
Leroy Hood, M.D., Ph.D.		3,333,321		131,384
James C. Kitch		3,331,766		132,939
Marc D. Kozin		3,412,494		52,211
James V. Mitchell		3,413,098		51,607
David C. U’Prichard, Ph.D.		3,412,473		52,232
Richard P. Woychik, Ph.D.		3,332,960		131,745

Proposal II — Approval of the Company’s 1992 Stock Option Plan, as amended, to increase the aggregate number of shares of common stock authorized for issuance under such plan by 200,000 shares:

FOR	AGAINST		ABSTAIN		NO VOTE
1,785,377		180,936		3,993		1,494,399

Proposal III — Approval of the Company’s 1998 Employee Stock Purchase Plan, as amended, to increase the aggregate number of shares of common stock authorized for issuance under such plan by 75,000 shares:

FOR	AGAINST		ABSTAIN		NO VOTE
1,899,777		67,903		2,626		1,494,399

Proposal IV — Approval of future sales of common stock to Takara Bio, Inc. under the Collaboration Agreement, dated October 1, 2000, as amended:

FOR	AGAINST		ABSTAIN		NO VOTE
1,289,466		48,351		632,489		1,494,399

Proposal V — Ratification of the selection of Ernst & Young LLP as independent auditors of the Company for its fiscal year ending December 31, 2003:

FOR	AGAINST		ABSTAIN
3,420,625		42,595		1,485

24

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	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.
	3.1.1	Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to the indicated exhibit of the Company’s Form 10-K for the year ended December 31, 2002.
	3.2	Bylaws of the Company, as amended, incorporated by reference to the indicated exhibit of the Company’s Form 10-Q for the period ended June 30, 2000.
	4.1	Form of Common Stock Certificate, incorporated by reference to Exhibit 4.2 of the Company’s Statement Form 10 (File No. 0-22570), as amended.
	10.34.1+	First Amendment to Loan and Security Agreement, dated as of May 13, 2003, by and between the Company and Comerica Bank-California.
	10.38	The Company’s 1992 Stock Option Plan, as amended.
	31.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
	31.2	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
	32.1*	Certification required by Rule 13a-14(a) or Rule 15d-14(a) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

b)	Reports on Form 8-K.
	A Current Report on Form 8-K was filed on May 15, 2003 describing and furnishing the press release announcing our financial results for the quarter ended March 31, 2003.
	A Current Report on Form 8-K was filed on May 22, 2003 describing and furnishing the press release announcing the Company’s transfer to the Nasdaq SmallCap Market.

*

This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, pursuant to Section 906 of the Sarbanes Oxley Act of 2002, and is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Lynx Therapeutics, Inc. under the Securities Act or the Exchange Act (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

(+)

Confidential treatment requested as to specific portions of this agreement, which portions are omitted and filed separately with the Securities and Exchange Commission.

25

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 13, 2003
		/s/ Edward C. Albini
	By:	Edward C. Albini Chief Financial Officer (Principal Financial and Accounting Officer)
Date: August 13, 2003

26

INDEX TO EXHIBITS

Exhibit Number		Description
	3.1	Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to the indicated exhibit of the Company’s Form 10-Q for the period ended June 30, 2000.
	3.1.1	Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to the indicated exhibit of the Company’s Form 10-K for the year ended December 31, 2002.
	3.2	Bylaws of the Company, as amended, incorporated by reference to the indicated exhibit of the Company’s Form 10-Q for the period ended June 30, 2000.
	4.1	Form of Common Stock Certificate, incorporated by reference to Exhibit 4.2 of the Company’s Statement Form 10 (File No. 0-22570), as amended.
	10.34.1+	First Amendment to Loan and Security Agreement, dated as of May 13, 2003, by and between the Company and Comerica Bank-California.
	10.38	The Company’s 1992 Stock Option Plan, as amended.
	31.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
	31.2	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
	32.1*	Certification required by Rule 13a-14(a) or Rule 15d-14(a) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

*

This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, pursuant to Section 906 of the Sarbanes Oxley Act of 2002, and is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Lynx Therapeutics, Inc. under the Securities Act or the Exchange Act (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

(+)

Confidential treatment requested as to specific portions of this agreement, which portions are omitted and filed separately with the Securities and Exchange Commission.

27 EX-10.34.01 3 f92259exv10w34w01.txt EXHIBIT 10.34.01 EXHIBIT 10.34.1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT This First Amendment to Loan and Security Agreement is entered into as of May 13, 2003 (the "Amendment"), by and between COMERICA BANK - CALIFORNIA ("Bank") and LYNX THERAPEUTICS, INC. ("Borrower"). RECITALS Borrower and Bank are parties to that certain Loan and Security Agreement dated as of October 23, 2002, as amended (collectively, the "Agreement"). The parties desire to amend the Agreement in accordance with the terms of this Amendment. NOW, THEREFORE, the parties agree as follows: 1. Borrower shall not request nor receive any further Credit Extensions. 2. The following defined term in Section 1.1 of the Agreement is hereby amended in its entirety to read as follows: "Collateral" means the property described on Exhibit A attached hereto and the Cash Collateral (as defined in Section 13). 3. A new Section 13 is hereby added to the Agreement to read as follows: 13. CASH COLLATERAL. 13.1 Pledge. Borrower shall maintain a money market account with Bank with a balance of at least 110% of the aggregate outstanding balance of all Indebtedness owing from Borrower to Bank (the "Required Balance") at all times. For purposes of clarity, Bank and Borrower agree that Borrower has no obligation to keep more than 110% of the aggregate outstanding balance of all Indebtedness owing from Borrower to Bank at Bank. Such money market account and all amounts held therein, together with all proceeds thereof, interest paid thereon, and substitutions therefor, including without limitation money market account # [ * ] at Bank, are the "Cash Collateral". Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Cash Collateral, in order to secure prompt repayment of any and all Obligations. Bank shall retain control over the Cash Collateral up to the Required Balance (as such Required Balance is adjusted downward from time to time as Borrower makes principal payments to Bank) to secure the Obligations until such Obligations have been satisfied in full. Borrower hereby authorizes Bank to place restrictions on Borrower's ability to withdraw amounts from accounts holding the Cash Collateral in order to ensure that such Required Balance is maintained. Borrower authorizes Bank to execute and/or file such documents, and take such actions, as Bank determines reasonable to perfect its security interest in the Cash Collateral. Such security interest constitutes a valid, first priority security interest in the Cash Collateral, and will constitute a valid, first priority security interest in Cash Collateral acquired after the date hereof. Notwithstanding termination of this Agreement, Bank's Lien on the Cash Collateral shall remain in effect for so long as any Obligations are outstanding. 13.2 Representations, Warranties and Covenants. Borrower represents and warrants to and covenants with Bank that: 1 (a) Except for the Lien created hereunder, the Cash Collateral is owned by Borrower free and clear of any security interests, liens, encumbrances, options or other restrictions; (b) Borrower has full power and authority to create a first lien on the Cash Collateral in favor of Bank and no disability or contractual obligation exists that would prohibit Borrower from pledging the Cash Collateral pursuant to this Agreement, and, except for the Lien created hereunder, Borrower will not assign, create or permit to exist any other claim to, lien or encumbrance upon, or security interest in any of the Cash Collateral; (c) The Cash Collateral is not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and Borrower knows of no reasonable grounds for the institution of any such proceedings; (d) Except for the Lien created hereunder, Borrower shall not transfer, encumber, dispose of, or otherwise direct the payment of any proceeds, interest, or amounts payable with respect to the Cash Collateral; and (d) Except for the Lien created hereunder, Borrower shall not transfer, encumber, dispose of, or otherwise direct the payment of any proceeds, interest, or amounts payable with respect to the Cash Collateral; and (e) Borrower shall execute and deliver such documents as Bank reasonably deems necessary to create, perfect and continue the security interest in the Cash Collateral contemplated hereby. 13.3 Bank's Remedies Upon Default. Upon the occurrence and during the continuance of an Event of Default, Bank shall have the right to exercise all such rights as a secured party under the Code as it, in its sole judgment, shall deem necessary or appropriate, including without limitation the right to apply the Cash Collateral to reduce the Obligations. 4. Provided that Borrower is in compliance with Section 13.1 of the Agreement, any failure by Borrower to comply with Sections 6.8 and/or 6.9 of the Agreement after the date hereof shall be automatically waived and such failure shall not constitute an Event of Default. Bank does not waive any other failure by Borrower to perform its Obligations under the Loan Documents. This waiver is not a continuing waiver with respect to any failure to perform any other Obligation after the date hereof. 5. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms the continuing effectiveness of all promissory notes, guaranties, security agreements, mortgages, deeds of trust, environmental agreements, and all other instruments, documents and agreements entered into in connection with the Agreement. 6. Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct in all material respects as of the date of this Amendment (provided however, that those representations and warranties expressly referring to another date shall be true and correct in all material respects as of such date), and that no Event of Default has occurred and is continuing. 7. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2 8. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following: (a) this Amendment, duly executed by Borrower; (b) an amount equal to all Bank Expenses incurred in connection with this Amendment through the date of this Amendment; and (c) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written. LYNX THERAPEUTICS, INC. By: /s/ Edward C. Albini ------------------------------------- Title: Chief Financial Officer ----------------------------------- COMERICA BANK - CALIFORNIA By: /s/ Jonathan H. Norris ------------------------------------- Title: Vice President ----------------------------------- [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 3 DEBTOR: LYNX THERAPEUTICS, INC. SECURED PARTY: COMERICA BANK-CALIFORNIA EXHIBIT A COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT All equipment of Borrower (herein referred to as "Borrower" or "Debtor") financed by Bank, as listed on Appendix I attached hereto, and any additional equipment financed by Bank (which financings shall be supported by a UCC filing including an appendix listing such equipment), wherever located, and including all accessions and additions thereto, and any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9 of the Uniform Commercial Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July 1, 2001. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 4 EX-10.38 4 f92259exv10w38.txt EXHIBIT 10.38 EXHIBIT 10.38 LYNX THERAPEUTICS, INC. 1992 STOCK OPTION PLAN ADOPTED JULY 1, 1992 LAST AMENDED BY THE BOARD ON JUNE 18, 2003 LAST APPROVED BY STOCKHOLDERS ON MAY 22, 2003 TERMINATION DATE: MARCH 11, 2006 1. PURPOSES. (A) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options are the Employees, Directors and Consultants of the Company and its Affiliates. (B) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by which eligible recipients of Options may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Options: (i) Incentive Stock Options, and (ii) Nonstatutory Stock Options. (C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Options, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 2. DEFINITIONS. (A) "AFFILIATE" means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (B) "BOARD" means the Board of Directors of the Company. (C) "CODE" means the Internal Revenue Code of 1986, as amended. (D) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c). (E) "COMMON STOCK" means the common stock of the Company. (F) "COMPANY" means Lynx Therapeutics, Inc., a Delaware corporation. (G) "CONSULTANT" means any person, including an advisor, (1) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (2) who is a member of the Board of Directors of an Affiliate. However, the term "Consultant" shall not include either Directors of the Company who are not compensated by the Company for their services as Directors or Directors of the Company who are merely paid a director's fee by the Company for their services as Directors. 1. (H) "CONTINUOUS SERVICE" means that the Optionholder's service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Optionholder's Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionholder renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Optionholder renders such service, provided that there is no interruption or termination of the Optionholder's Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director of the Company will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. (I) "COVERED EMPLOYEE" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (J) "DIRECTOR" means a member of the Board of Directors of the Company. (K) "DISABILITY" means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code; provided, however, that to the extent that Section 260.140.41 of Title 10 of the California Code of Regulations applies to an Option, "Disability" shall mean the inability of a person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that person's position with the Company or an Affiliate because of the sickness or injury of the person and such inability results in termination of employment by the Company or an Affiliate. (L) "EMPLOYEE" means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director's fee by the Company or an Affiliate shall not be sufficient to constitute "employment" by the Company or an Affiliate. (M) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (N) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock determined as follows and in each case in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations: (I) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market, Nasdaq SmallCap Market or Over The Counter Bulletin Board system the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange, market or system (or the exchange, market or system with the greatest volume of trading the Common Stock) on the last market trading day prior to determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable. (II) In the absence of an established market or system for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. 2. (O) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (P) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (Q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (R) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (S) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan. (T) "OPTION AGREEMENT" means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (U) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (V) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (W) "PLAN" means this Lynx Therapeutics, Inc. 1992 Stock Option Plan. (X) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. (Y) "SECURITIES ACT" means the Securities Act of 1933, as amended. 3. (Z) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates. 3. ADMINISTRATION. (A) ADMINISTRATION BY BOARD. The Board will administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (B) POWERS OF BOARD. The board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (I) To determine from time to time which of the persons eligible under the Plan shall be granted Options; when and how each Option shall be granted; what type or combination of types of Option shall be granted; the provisions of each Option granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to an Option; and the number of shares with respect to which an Option shall be granted to each such person. (II) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (III) To amend the Plan or an Option as provided in Section 11. (IV) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (C) DELEGATION TO COMMITTEE. (I) GENERAL. The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. (II) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. 4. Within the scope of such authority, the Board or the Committee may (i) delegate to a committee of one or more members of the Board who are not Outside Directors, the authority to grant Options to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Option or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (ii) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Options to eligible persons who are not then subject to Section 16 of the Exchange Act. 4. SHARES SUBJECT TO THE PLAN. (A) SHARE RESERVE. Subject to the provisions of Section 10 relating to adjustments upon changes in stock and Section 4(d) below, the stock that may be issued pursuant to Options shall not exceed in the aggregate one million seventy one thousand fifty two (1,071,052) shares of Common Stock less any shares of Common Stock remaining outstanding which were originally issued to Employees, Officers or Directors of, or Consultants to, the Company pursuant to stock purchase agreements or similar compensatory arrangements approved by the Board. (B) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Option shall revert to and again become available for issuance under the Plan. If any Common Stock acquired pursuant to the exercise of an Option shall for any reason be repurchased by the Company under an unvested share repurchase option provided under the Plan, the stock repurchased by the Company under such repurchase option shall not revert to and again become available for issuance under the Plan. (C) SOURCE OF SHARES. The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. (D) RESERVE LIMITATION. Notwithstanding Section 4(a), if at the time of each grant of a Stock Award under the Plan, the Company is subject to Section 260.140.45 of Title 10 of the California Code of Regulations ("Section 260.140.45"), and to the extent required by Section 260.140.45 the total number of securities issuable upon exercise of all outstanding options of the Company and the total number of shares provided for under this Plan or any other equity incentive, stock bonus or similar plan or agreement of the Company shall not exceed thirty percent (30%) of the then outstanding capital stock of the Company (as measured as set forth in Section 260.140.45), unless stockholder approval to exceed thirty percent (30%) has been obtained in compliance with Section 260.140.45, in which case the limit shall be such higher percentage as approved by the stockholders. 5. ELIGIBILITY. (A) ELIGIBILITY FOR SPECIFIC OPTIONS. Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted to Employees, Directors and Consultants. (B) TEN PERCENT STOCKHOLDERS. 5. (I) So long as the Company is subject to Section 260.140.41 of Title 10 of the California Code of Regulations, no Ten Percent Stockholder shall be eligible for the grant of a Nonstatutory Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant; provided, however, that a Nonstatutory Stock Option may be granted at a lower exercise price and a longer term if a lower percentage of the Fair Market Value of the Common Stock on the date of grant and a longer term is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the Nonstatutory Stock Option. (II) No Ten Percent Stockholder shall be eligible for the grant of a Nonstatutory Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (III) So long as the Company is subject to Section 260.140.42 of Title 10 of the California Code of Regulations, a Ten Percent Stockholder shall not be granted a restricted stock award unless the purchase price of the restricted stock is at least (A) one hundred percent (100%) of the Fair Market Value of the Common Stock on the date of grant or (B) such lower percentage of the Fair Market Value of the Common Stock on the date of grant as is permitted by Section 260.140.42 of Title 10 of the California Code of Regulations at the time of the grant of the restricted stock award. (C) SECTION 162(M) LIMITATION. Subject to the provisions of Section 10 relating to adjustments upon changes in stock, no employee shall be eligible to be granted Options covering more than one hundred forty two thousand eight hundred fifty seven (142,857) shares of the Common Stock during any calendar year. (D) CONSULTANTS. (I) A Consultant shall not be eligible for the grant of an Option if, at the time of grant, a Form S-8 Registration Statement under the Securities Act ("Form S-8") is not available to register either the offer or the sale of the Company's securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions. (II) Form S-8 generally is available to consultants and advisors only if (i) they are natural persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer's parent; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer's securities. 6. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (A) TERM. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (B) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (C) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (D) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) by delivery to the Company of other Common Stock, according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock) with the Optionholder or in any other form of legal consideration that may be acceptable to the Board; provided, however, that at any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement or at such higher rate of interest necessary in order to avoid variable award treatment for financial accounting purposes. 7. (E) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing provisions of this subsection 6(e), the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (F) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock Option shall be transferable to the extent provided in the Option Agreement; provided however, to the extent that the Company is subject to Section 260.140.41(d) of Title 10 of the California Code of Regulations at the time of the grant of the Nonstatutory Stock Option, the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing provisions of this subsection 6(f), the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (G) VESTING GENERALLY. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments which may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. Notwithstanding the foregoing, to the extent that the Company is subject to the following restrictions on vesting under Section 260.140.41(f) of Title 10 of the California Code of Regulations at the time of the grant of the Option, then an Option granted to an Employee who is not an Officer or Director on the date of grant shall provide for vesting of the total number of shares of Common Stock at a rate of at least twenty percent (20%) per year over five (5) years from the date the Option was granted, subject to reasonable conditions such as continued employment. (H) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's Continuous Service terminates (other than upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder's Continuous Service (or such longer or shorter period specified in the Option Agreement), which period, for so long as the Company is subject to Section 260.140.41(g) of Title 10 of the California Code of Regulations, shall not be less than thirty (30) days unless such termination is for cause), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. 8. (I) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or Disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (J) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's Continuous Service terminates as a result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement, which period, for so long as the Company is subject to Section 260.140.41(g) of Title 10 of the California Code of Regulations, shall not be less than six (6) months) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. (K) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise the Option as of the date of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date twelve (12) months following the date of death (or such longer or shorter period specified in the Option Agreement, which period, for so long as the Company is subject to Section 260.140.41(g) of Title 10 of the California Code of Regulations, shall not be less than six (6) months) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. (L) EARLY EXERCISE. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder's Continuous Service terminates to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Subject to the "Repurchase Limitation of Section 9(h) (for so long as the Company is subject to Sections 260.140.41 and 260.140.42 of Title 10 of the California Code of Regulations), any unvested shares so purchased may be subject to an unvested share repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. Provided that the "Repurchase Limitation" in Section 9(h) is not violated,(for so long as the Company is subject to Sections 260.140.41 and 260.140.42 of Title 10 of the California Code of Regulations) the Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option. 9. 7. COVENANTS OF THE COMPANY. (A) AVAILABILITY OF SHARES. During the terms of the Options, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Options. (B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Options and to issue and sell shares of Common Stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained. 8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company. 9. MISCELLANEOUS. (A) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the power to accelerate the time at which an Option may first be exercised or the time during which an Option or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Option stating the time at which it may first be exercised or the time during which it will vest. (B) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such Optionholder has satisfied all requirements for exercise of the Option pursuant to its terms. (C) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Optionholder or other holder of Options any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Option was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be. (D) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars 10. ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (E) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a condition of exercising or acquiring stock under any Option, (i) to give written assurances satisfactory to the Company as to the Optionholder's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (ii) to give written assurances satisfactory to the Company stating that the Optionholder is acquiring the stock subject to the Option for the Optionholder's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (iii) the issuance of the shares upon the exercise or acquisition of stock under the Option has been registered under a then currently effective registration statement under the Securities Act or (iv) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (F) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of an Option Agreement, the Optionholder may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under an Option by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Optionholder by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the Optionholder as a result of the exercise or acquisition of stock under the Option; or (iii) delivering to the Company owned and unencumbered shares of the Common Stock. (G) INFORMATION OBLIGATION. To the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall deliver financial statements to Participants at least annually. This Section 9(g) shall not apply to key Employees whose duties in connection with the Company assure them access to equivalent information. (H) REPURCHASE LIMITATION. The terms of any repurchase option shall be specified in the Stock Award, and the repurchase price may be either the Fair Market Value of the shares of Common Stock on the date of termination of Continuous Service or the lower of (i) the Fair Market Value of the shares of Common Stock on the date of repurchase or (ii) their original purchase price. To the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations at the time a Stock Award is made, any repurchase option contained in a Stock Award granted to a person who is not an Officer, Director or Consultant shall be upon the terms described below: (I) FAIR MARKET VALUE. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of Continuous Service at not less 11. than the Fair Market Value of the shares of Common Stock to be purchased on the date of termination of Continuous Service, then (i) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Stock Awards after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding "qualified small business stock") and (ii) the right terminates when the shares of Common Stock become publicly traded. (II) ORIGINAL PURCHASE PRICE. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of Continuous Service at the lower of (i) the Fair Market Value of the shares of Common Stock on the date of repurchase or (ii) their original purchase price, then (x) the right to repurchase at the original purchase price shall lapse at the rate of at least twenty percent (20%) of the shares of Common Stock per year over five (5) years from the date the Stock Award is granted (without respect to the date the Stock Award was exercised or became exercisable) and (y) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding "qualified small business stock"). 10. ADJUSTMENTS UPON CHANGES IN STOCK. (A) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject to the Plan, or subject to any Option, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 5(c), and the outstanding Options will be appropriately adjusted in the class(es) and number of securities and price per share of stock subject to such outstanding Options. Such adjustments shall be made by the Board, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company.) (B) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or liquidation of the Company, then such Options shall be terminated if not exercised (if applicable) prior to such event. (C) ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the event of (1) a sale of substantially all of the assets of the Company, (2) a merger or consolidation in which the Company is not the surviving corporation or (3) a reverse merger in which the Company is the 12. surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation or acquiring corporation shall assume any Options outstanding under the Plan or shall substitute similar Options (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection) for those outstanding under the Plan. In the event any surviving corporation or acquiring corporation refuses to assume such Options or to substitute similar Options for those outstanding under the Plan, then with respect to Options held by Optionholders whose Continuous Service has not terminated, the vesting shall be accelerated in full, and the Options shall terminate if not exercised at or prior to such event. With respect to any other Options outstanding under the Plan, such Options shall terminate if not exercised prior to such event. 11. AMENDMENT OF THE PLAN AND OPTIONS. (A) AMENDMENT OF PLAN. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements. (B) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (C) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (D) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing. (E) AMENDMENT OF OPTIONS. The Board at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights under any Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing. 12. TERMINATION OR SUSPENSION OF THE PLAN. (A) PLAN TERM. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on March 11, 2006. No Options may be granted under the Plan while the Plan is suspended or after it is terminated. 13. (B) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the written consent of the Optionholder. 13. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Option shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board. 14. EX-31.1 5 f92259exv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION I, KEVIN P. CORCORAN, CERTIFY THAT: 1. I have reviewed this quarterly report on Form 10-Q of Lynx Therapeutics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: AUGUST 13, 2003 /S/ KEVIN P. CORCORAN -------------------------- KEVIN P. CORCORAN CHIEF EXECUTIVE OFFICER EX-31.2 6 f92259exv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION I, EDWARD C. ALBINI, CERTIFY THAT: 1. I have reviewed this quarterly report on Form 10-Q of Lynx Therapeutics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: AUGUST 13, 2003 /S/ EDWARD C. ALBINI ------------------------------------- EDWARD C. ALBINI CHIEF FINANCIAL OFFICER EX-32.1 7 f92259exv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION (1) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350, as adopted), Kevin P. Corcoran, Chief Executive Officer of Lynx Therapeutics, Inc. (the "Company"), and Edward C. Albini, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge: 1. The Company's Quarterly Report on Form 10-Q for the period ended June 30, 2003, to which this Certification is attached as Exhibit 32.1 (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 periods covered by the Periodic Report and the results of operations of the Company for the periods covered by the Periodic Report. IN WITNESS WHEREOF, the undersigned have set their hands hereto as of August 13, 2003. /s/ Kevin P. Corcoran ------------------------------------------ Kevin P. Corcoran Chief Executive Officer /s/ Edward C. Albini ------------------------------------------ Edward C. Albini Chief Financial Officer - ------------- (1) This certification "accompanies" the Quarterly Report on Form 10-Q to which it relates, pursuant to Section 906 of the Sarbanes Oxley Act of 2002, and is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Lynx Therapeutics, Inc. under the Securities Act or the Exchange Act (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906 has been provided to Lynx Therapeutics, Inc. and will be retained by Lynx Therapeutics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.34.01

                                                                 EXHIBIT 10.34.1

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                 FIRST AMENDMENT
                                       TO
                           LOAN AND SECURITY AGREEMENT

      This First Amendment to Loan and Security Agreement is entered into as of
May 13, 2003 (the "Amendment"), by and between COMERICA BANK - CALIFORNIA
("Bank") and LYNX THERAPEUTICS, INC. ("Borrower").

                                    RECITALS

      Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of October 23, 2002, as amended (collectively, the "Agreement"). The
parties desire to amend the Agreement in accordance with the terms of this
Amendment.

      NOW, THEREFORE, the parties agree as follows:

      1.    Borrower shall not request nor receive any further Credit
Extensions.

      2.    The following defined term in Section 1.1 of the Agreement is hereby
amended in its entirety to read as follows:

                  "Collateral" means the property described on Exhibit A
attached hereto and the Cash Collateral (as defined in Section 13).

      3.    A new Section 13 is hereby added to the Agreement to read as
follows:

            13.   CASH COLLATERAL.

                  13.1  Pledge. Borrower shall maintain a money market account
      with Bank with a balance of at least 110% of the aggregate outstanding
      balance of all Indebtedness owing from Borrower to Bank (the "Required
      Balance") at all times. For purposes of clarity, Bank and Borrower agree
      that Borrower has no obligation to keep more than 110% of the aggregate
      outstanding balance of all Indebtedness owing from Borrower to Bank at
      Bank. Such money market account and all amounts held therein, together
      with all proceeds thereof, interest paid thereon, and substitutions
      therefor, including without limitation money market account # [ * ] at
      Bank, are the "Cash Collateral". Borrower grants and pledges to Bank a
      continuing security interest in all presently existing and hereafter
      acquired or arising Cash Collateral, in order to secure prompt repayment
      of any and all Obligations. Bank shall retain control over the Cash
      Collateral up to the Required Balance (as such Required Balance is
      adjusted downward from time to time as Borrower makes principal payments
      to Bank) to secure the Obligations until such Obligations have been
      satisfied in full. Borrower hereby authorizes Bank to place restrictions
      on Borrower's ability to withdraw amounts from accounts holding the Cash
      Collateral in order to ensure that such Required Balance is maintained.
      Borrower authorizes Bank to execute and/or file such documents, and take
      such actions, as Bank determines reasonable to perfect its security
      interest in the Cash Collateral. Such security interest constitutes a
      valid, first priority security interest in the Cash Collateral, and will
      constitute a valid, first priority security interest in Cash Collateral
      acquired after the date hereof. Notwithstanding termination of this
      Agreement, Bank's Lien on the Cash Collateral shall remain in effect for
      so long as any Obligations are outstanding.

                  13.2  Representations, Warranties and Covenants. Borrower
      represents and warrants to and covenants with Bank that:


                                       1

                        (a)   Except for the Lien created hereunder, the Cash
      Collateral is owned by Borrower free and clear of any security interests,
      liens, encumbrances, options or other restrictions;

                        (b)   Borrower has full power and authority to create a
      first lien on the Cash Collateral in favor of Bank and no disability or
      contractual obligation exists that would prohibit Borrower from pledging
      the Cash Collateral pursuant to this Agreement, and, except for the Lien
      created hereunder, Borrower will not assign, create or permit to exist any
      other claim to, lien or encumbrance upon, or security interest in any of
      the Cash Collateral;

                        (c)   The Cash Collateral is not the subject of any
      present or threatened suit, action, arbitration, administrative or other
      proceeding, and Borrower knows of no reasonable grounds for the
      institution of any such proceedings; (d) Except for the Lien created
      hereunder, Borrower shall not transfer, encumber, dispose of, or otherwise
      direct the payment of any proceeds, interest, or amounts payable with
      respect to the Cash Collateral; and

                        (d)   Except for the Lien created hereunder, Borrower
      shall not transfer, encumber, dispose of, or otherwise direct the payment
      of any proceeds, interest, or amounts payable with respect to the Cash
      Collateral; and

                        (e)   Borrower shall execute and deliver such documents
      as Bank reasonably deems necessary to create, perfect and continue the
      security interest in the Cash Collateral contemplated hereby.

                  13.3  Bank's Remedies Upon Default. Upon the occurrence and
      during the continuance of an Event of Default, Bank shall have the right
      to exercise all such rights as a secured party under the Code as it, in
      its sole judgment, shall deem necessary or appropriate, including without
      limitation the right to apply the Cash Collateral to reduce the
      Obligations.

      4.    Provided that Borrower is in compliance with Section 13.1 of the
Agreement, any failure by Borrower to comply with Sections 6.8 and/or 6.9 of the
Agreement after the date hereof shall be automatically waived and such failure
shall not constitute an Event of Default. Bank does not waive any other failure
by Borrower to perform its Obligations under the Loan Documents. This waiver is
not a continuing waiver with respect to any failure to perform any other
Obligation after the date hereof.

      5.    Unless otherwise defined, all initially capitalized terms in this
Amendment shall be as defined in the Agreement. The Agreement, as amended
hereby, shall be and remain in full force and effect in accordance with its
respective terms and hereby is ratified and confirmed in all respects. Except as
expressly set forth herein, the execution, delivery, and performance of this
Amendment shall not operate as a waiver of, or as an amendment of, any right,
power, or remedy of Bank under the Agreement, as in effect prior to the date
hereof. Borrower ratifies and reaffirms the continuing effectiveness of all
promissory notes, guaranties, security agreements, mortgages, deeds of trust,
environmental agreements, and all other instruments, documents and agreements
entered into in connection with the Agreement.

      6.    Borrower represents and warrants that the representations and
warranties contained in the Agreement are true and correct in all material
respects as of the date of this Amendment (provided however, that those
representations and warranties expressly referring to another date shall be true
and correct in all material respects as of such date), and that no Event of
Default has occurred and is continuing.

      7.    This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.



                                       2

      8.    As a condition to the effectiveness of this Amendment, Bank shall
have received, in form and substance satisfactory to Bank, the following:

                        (a)   this Amendment, duly executed by Borrower;

                        (b)   an amount equal to all Bank Expenses incurred in
      connection with this Amendment through the date of this Amendment; and

                        (c)   such other documents, and completion of such other
      matters, as Bank may reasonably deem necessary or appropriate.

            IN WITNESS WHEREOF, the undersigned have executed this Amendment as
of the first date above written.

                                      LYNX THERAPEUTICS, INC.


                                      By:  /s/ Edward C. Albini
                                           -------------------------------------

                                      Title:  Chief Financial Officer
                                             -----------------------------------


                                      COMERICA BANK - CALIFORNIA


                                      By:  /s/ Jonathan H. Norris
                                           -------------------------------------

                                      Title:  Vice President
                                             -----------------------------------





[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.



                                       3

DEBTOR: LYNX THERAPEUTICS, INC.
SECURED PARTY: COMERICA BANK-CALIFORNIA

                                    EXHIBIT A

                        COLLATERAL DESCRIPTION ATTACHMENT
                         TO LOAN AND SECURITY AGREEMENT

            All equipment of Borrower (herein referred to as "Borrower" or
      "Debtor") financed by Bank, as listed on Appendix I attached hereto, and
      any additional equipment financed by Bank (which financings shall be
      supported by a UCC filing including an appendix listing such equipment),
      wherever located, and including all accessions and additions thereto, and
      any and all cash proceeds and/or noncash proceeds of any of the foregoing,
      including, without limitation, insurance proceeds, and all supporting
      obligations and the security therefor or for any right to payment.

All terms above have the meanings given to them in the California Uniform
Commercial Code, as amended or supplemented from time to time, including revised
Division 9 of the Uniform Commercial Code-Secured Transactions, added by Stats.
1999, c.991 (S.B. 45), Section 35, operative July 1, 2001.









[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.





                                       4

EX-10.38

                                                                   EXHIBIT 10.38


                             LYNX THERAPEUTICS, INC.

                             1992 STOCK OPTION PLAN

                              ADOPTED JULY 1, 1992
                   LAST AMENDED BY THE BOARD ON JUNE 18, 2003
                  LAST APPROVED BY STOCKHOLDERS ON MAY 22, 2003
                        TERMINATION DATE: MARCH 11, 2006

1.    PURPOSES.

      (A)   ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Employees, Directors and Consultants of the Company and its Affiliates.

      (B)   AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which eligible recipients of Options may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of the following
Options: (i) Incentive Stock Options, and (ii) Nonstatutory Stock Options.

      (C)   GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Options, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2.    DEFINITIONS.

      (A)   "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

      (B)   "BOARD" means the Board of Directors of the Company.

      (C)   "CODE" means the Internal Revenue Code of 1986, as amended.

      (D)   "COMMITTEE" means a Committee appointed by the Board in accordance
            with subsection 3(c).

      (E)   "COMMON STOCK" means the common stock of the Company.

      (F)   "COMPANY" means Lynx Therapeutics, Inc., a Delaware corporation.

      (G)   "CONSULTANT" means any person, including an advisor, (1) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (2) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.


                                       1.

      (H)   "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.

      (I)   "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.

      (J)   "DIRECTOR" means a member of the Board of Directors of the Company.

      (K)   "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code; provided, however, that to
the extent that Section 260.140.41 of Title 10 of the California Code of
Regulations applies to an Option, "Disability" shall mean the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person's position with the Company or an
Affiliate because of the sickness or injury of the person and such inability
results in termination of employment by the Company or an Affiliate.

      (L)   "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.

      (M)   "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

      (N)   "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows and in each case in a manner consistent with Section
260.140.50 of Title 10 of the California Code of Regulations:

            (I)   If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market, Nasdaq SmallCap Market or Over
The Counter Bulletin Board system the Fair Market Value of a share of Common
Stock shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange, market or system (or the
exchange, market or system with the greatest volume of trading the Common Stock)
on the last market trading day prior to determination, as reported in THE WALL
STREET JOURNAL or such other source as the Board deems reliable.

            (II)  In the absence of an established market or system for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Board.


                                       2.

      (O)   "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

      (P)   "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either
(i) is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.

      (Q)   "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.

      (R)   "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

      (S)   "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.

      (T)   "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

      (U)   "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.

      (V)   "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

      (W)   "PLAN" means this Lynx Therapeutics, Inc. 1992 Stock Option Plan.

      (X)   "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

      (Y)   "SECURITIES ACT" means the Securities Act of 1933, as amended.


                                       3.

      (Z)   "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.

3.    ADMINISTRATION.

      (A)   ADMINISTRATION BY BOARD. The Board will administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).

      (B)   POWERS OF BOARD. The board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (I)   To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how each Option shall be
granted; what type or combination of types of Option shall be granted; the
provisions of each Option granted (which need not be identical), including the
time or times when a person shall be permitted to receive stock pursuant to an
Option; and the number of shares with respect to which an Option shall be
granted to each such person.

            (II)  To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.

            (III) To amend the Plan or an Option as provided in Section 11.

            (IV)  Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

      (C)   DELEGATION TO COMMITTEE.

            (I)   GENERAL. The Board may delegate administration of the Plan to
a Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

            (II)  COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3.



                                       4.

Within the scope of such authority, the Board or the Committee may (i) delegate
to a committee of one or more members of the Board who are not Outside
Directors, the authority to grant Options to eligible persons who are either (a)
not then Covered Employees and are not expected to be Covered Employees at the
time of recognition of income resulting from such Option or (b) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code
and/or (ii) delegate to a committee of one or more members of the Board who are
not Non-Employee Directors the authority to grant Options to eligible persons
who are not then subject to Section 16 of the Exchange Act.

4.    SHARES SUBJECT TO THE PLAN.

      (A)   SHARE RESERVE. Subject to the provisions of Section 10 relating to
adjustments upon changes in stock and Section 4(d) below, the stock that may be
issued pursuant to Options shall not exceed in the aggregate one million seventy
one thousand fifty two (1,071,052) shares of Common Stock less any shares of
Common Stock remaining outstanding which were originally issued to Employees,
Officers or Directors of, or Consultants to, the Company pursuant to stock
purchase agreements or similar compensatory arrangements approved by the Board.

      (B)   REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Option shall revert to
and again become available for issuance under the Plan. If any Common Stock
acquired pursuant to the exercise of an Option shall for any reason be
repurchased by the Company under an unvested share repurchase option provided
under the Plan, the stock repurchased by the Company under such repurchase
option shall not revert to and again become available for issuance under the
Plan.

      (C)   SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.

      (D)   RESERVE LIMITATION. Notwithstanding Section 4(a), if at the time of
each grant of a Stock Award under the Plan, the Company is subject to Section
260.140.45 of Title 10 of the California Code of Regulations ("Section
260.140.45"), and to the extent required by Section 260.140.45 the total number
of securities issuable upon exercise of all outstanding options of the Company
and the total number of shares provided for under this Plan or any other equity
incentive, stock bonus or similar plan or agreement of the Company shall not
exceed thirty percent (30%) of the then outstanding capital stock of the Company
(as measured as set forth in Section 260.140.45), unless stockholder approval to
exceed thirty percent (30%) has been obtained in compliance with Section
260.140.45, in which case the limit shall be such higher percentage as approved
by the stockholders.

5.    ELIGIBILITY.

      (A)   ELIGIBILITY FOR SPECIFIC OPTIONS. Incentive Stock Options may be
granted only to Employees. Nonstatutory Stock Options may be granted to
Employees, Directors and Consultants.

      (B)   TEN PERCENT STOCKHOLDERS.


                                       5.

            (I)   So long as the Company is subject to Section 260.140.41 of
Title 10 of the California Code of Regulations, no Ten Percent Stockholder shall
be eligible for the grant of a Nonstatutory Stock Option unless the exercise
price of such Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock at the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant;
provided, however, that a Nonstatutory Stock Option may be granted at a lower
exercise price and a longer term if a lower percentage of the Fair Market Value
of the Common Stock on the date of grant and a longer term is permitted by
Section 260.140.41 of Title 10 of the California Code of Regulations at the time
of the grant of the Nonstatutory Stock Option.

            (II)  No Ten Percent Stockholder shall be eligible for the grant of
a Nonstatutory Stock Option unless the exercise price of such Option is at least
one hundred ten percent (110%) of the Fair Market Value of the Common Stock at
the date of grant and the Option is not exercisable after the expiration of five
(5) years from the date of grant.

            (III) So long as the Company is subject to Section 260.140.42 of
Title 10 of the California Code of Regulations, a Ten Percent Stockholder shall
not be granted a restricted stock award unless the purchase price of the
restricted stock is at least (A) one hundred percent (100%) of the Fair Market
Value of the Common Stock on the date of grant or (B) such lower percentage of
the Fair Market Value of the Common Stock on the date of grant as is permitted
by Section 260.140.42 of Title 10 of the California Code of Regulations at the
time of the grant of the restricted stock award.

      (C)   SECTION 162(M) LIMITATION. Subject to the provisions of Section 10
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than one hundred forty two thousand eight
hundred fifty seven (142,857) shares of the Common Stock during any calendar
year.

      (D)   CONSULTANTS.

            (I)   A Consultant shall not be eligible for the grant of an Option
if, at the time of grant, a Form S-8 Registration Statement under the Securities
Act ("Form S-8") is not available to register either the offer or the sale of
the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.

            (II)  Form S-8 generally is available to consultants and advisors
only if (i) they are natural persons; (ii) they provide bona fide services to
the issuer, its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.


                                       6.

6.    OPTION PROVISIONS.

      Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions:

      (A)   TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

      (B)   EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.

      (C)   EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option shall be not less than eighty-five
percent (85%) of the Fair Market Value of the stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

      (D)   CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by delivery to the
Company of other Common Stock, according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Optionholder or in any other
form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.

      In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement or at such higher rate of interest
necessary in order to avoid variable award treatment for financial accounting
purposes.


                                       7.

      (E)   TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.

      (F)   TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement;
provided however, to the extent that the Company is subject to Section
260.140.41(d) of Title 10 of the California Code of Regulations at the time of
the grant of the Nonstatutory Stock Option, the Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution
and shall be exercisable during the lifetime of the Optionholder only by the
Optionholder. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing provisions of this subsection 6(f), the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

      (G)   VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
Notwithstanding the foregoing, to the extent that the Company is subject to the
following restrictions on vesting under Section 260.140.41(f) of Title 10 of the
California Code of Regulations at the time of the grant of the Option, then an
Option granted to an Employee who is not an Officer or Director on the date of
grant shall provide for vesting of the total number of shares of Common Stock at
a rate of at least twenty percent (20%) per year over five (5) years from the
date the Option was granted, subject to reasonable conditions such as continued
employment.

      (H)   TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service (or
such longer or shorter period specified in the Option Agreement), which period,
for so long as the Company is subject to Section 260.140.41(g) of Title 10 of
the California Code of Regulations, shall not be less than thirty (30) days
unless such termination is for cause), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate.


                                       8.

      (I)   EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.

      (J)   DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement, which period, for so long as the Company is subject to Section
260.140.41(g) of Title 10 of the California Code of Regulations, shall not be
less than six (6) months) or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.

      (K)   DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date twelve (12) months following
the date of death (or such longer or shorter period specified in the Option
Agreement, which period, for so long as the Company is subject to Section
260.140.41(g) of Title 10 of the California Code of Regulations, shall not be
less than six (6) months) or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.

      (L)   EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option.
Subject to the "Repurchase Limitation of Section 9(h) (for so long as the
Company is subject to Sections 260.140.41 and 260.140.42 of Title 10 of the
California Code of Regulations), any unvested shares so purchased may be subject
to an unvested share repurchase option in favor of the Company or to any other
restriction the Board determines to be appropriate. Provided that the
"Repurchase Limitation" in Section 9(h) is not violated,(for so long as the
Company is subject to Sections 260.140.41 and 260.140.42 of Title 10 of the
California Code of Regulations) the Company will not exercise its repurchase
option until at least six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes) have
elapsed following exercise of the Option unless the Board otherwise specifically
provides in the Option.


                                       9.

7.    COVENANTS OF THE COMPANY.

      (A)   AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.

      (B)   SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.

8.    USE OF PROCEEDS FROM STOCK.

      Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.

9.    MISCELLANEOUS.

      (A)   ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Option stating the time at which it
may first be exercised or the time during which it will vest.

      (B)   STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.

      (C)   NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Option granted pursuant thereto shall confer upon any
Optionholder or other holder of Options any right to continue to serve the
Company or an Affiliate in the capacity in effect at the time the Option was
granted or shall affect the right of the Company or an Affiliate to terminate
(i) the employment of an Employee with or without notice and with or without
cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.

      (D)   INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars


                                      10.

($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.

      (E)   INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.

      (F)   WITHHOLDING OBLIGATIONS. To the extent provided by the terms of an
Option Agreement, the Optionholder may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under an
Option by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the Optionholder by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Optionholder as a result of the exercise or acquisition of stock
under the Option; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.

      (G)   INFORMATION OBLIGATION. To the extent required by Section 260.140.46
of Title 10 of the California Code of Regulations, the Company shall deliver
financial statements to Participants at least annually. This Section 9(g) shall
not apply to key Employees whose duties in connection with the Company assure
them access to equivalent information.

      (H)   REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Stock Award, and the repurchase price may be either the Fair
Market Value of the shares of Common Stock on the date of termination of
Continuous Service or the lower of (i) the Fair Market Value of the shares of
Common Stock on the date of repurchase or (ii) their original purchase price. To
the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of
the California Code of Regulations at the time a Stock Award is made, any
repurchase option contained in a Stock Award granted to a person who is not an
Officer, Director or Consultant shall be upon the terms described below:

            (I)   FAIR MARKET VALUE. If the repurchase option gives the Company
the right to repurchase the shares of Common Stock upon termination of
Continuous Service at not less


                                      11.

than the Fair Market Value of the shares of Common Stock to be purchased on the
date of termination of Continuous Service, then (i) the right to repurchase
shall be exercised for cash or cancellation of purchase money indebtedness for
the shares of Common Stock within ninety (90) days of termination of Continuous
Service (or in the case of shares of Common Stock issued upon exercise of Stock
Awards after such date of termination, within ninety (90) days after the date of
the exercise) or such longer period as may be agreed to by the Company and the
Participant (for example, for purposes of satisfying the requirements of Section
1202(c)(3) of the Code regarding "qualified small business stock") and (ii) the
right terminates when the shares of Common Stock become publicly traded.

            (II)  ORIGINAL PURCHASE PRICE. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination of
Continuous Service at the lower of (i) the Fair Market Value of the shares of
Common Stock on the date of repurchase or (ii) their original purchase price,
then (x) the right to repurchase at the original purchase price shall lapse at
the rate of at least twenty percent (20%) of the shares of Common Stock per year
over five (5) years from the date the Stock Award is granted (without respect to
the date the Stock Award was exercised or became exercisable) and (y) the right
to repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Options after such date of termination, within ninety
(90) days after the date of the exercise) or such longer period as may be agreed
to by the Company and the Participant (for example, for purposes of satisfying
the requirements of Section 1202(c)(3) of the Code regarding "qualified small
business stock").

10.   ADJUSTMENTS UPON CHANGES IN STOCK.

      (A)   CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Options
will be appropriately adjusted in the class(es) and number of securities and
price per share of stock subject to such outstanding Options. Such adjustments
shall be made by the Board, the determination of which shall be final, binding
and conclusive. (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration" by the
Company.)

      (B)   DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then such Options shall be terminated if not
exercised (if applicable) prior to such event.

      (C)   ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the event of
(1) a sale of substantially all of the assets of the Company, (2) a merger or
consolidation in which the Company is not the surviving corporation or (3) a
reverse merger in which the Company is the


                                      12.

surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options (including an award to acquire the
same consideration paid to the stockholders in the transaction described in this
subsection) for those outstanding under the Plan. In the event any surviving
corporation or acquiring corporation refuses to assume such Options or to
substitute similar Options for those outstanding under the Plan, then with
respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting shall be accelerated in full, and the Options shall
terminate if not exercised at or prior to such event. With respect to any other
Options outstanding under the Plan, such Options shall terminate if not
exercised prior to such event.

11.   AMENDMENT OF THE PLAN AND OPTIONS.

      (A)   AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.

      (B)   STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.

      (C)   CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.

      (D)   NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.

      (E)   AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.

12.   TERMINATION OR SUSPENSION OF THE PLAN.

      (A)   PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on March 11, 2006. No Options
may be granted under the Plan while the Plan is suspended or after it is
terminated.


                                      13.

      (B)   NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Option
granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the Optionholder.

13.   EFFECTIVE DATE OF PLAN.

      The Plan shall become effective as determined by the Board, but no Option
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.




                                      14.

EX-31.1

                                                                    EXHIBIT 31.1


                                  CERTIFICATION


I, KEVIN P. CORCORAN, CERTIFY THAT:

1.  I have reviewed this quarterly report on Form 10-Q of Lynx  Therapeutics,
    Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of
    a material fact or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such statements
    were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial
    information included in this report, fairly present in all material respects
    the financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this report;

4.  The registrant's other certifying officer(s) and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

    (a) Designed such disclosure controls and procedures, or caused such
        disclosure controls and procedures to be designed under our supervision,
        to ensure that material information relating to the registrant,
        including its consolidated subsidiaries, is made known to us by others
        within those entities, particularly during the period in which this
        report is being prepared;

    (b) Evaluated the effectiveness of the registrant's disclosure controls and
        procedures and presented in this report our conclusions about the
        effectiveness of the disclosure controls and procedures, as of the end
        of the period covered by this report based on such evaluation; and

    (c) Disclosed in this report any change in the registrant's internal control
        over financial reporting that occurred during the registrant's most
        recent fiscal quarter (the registrant's fourth fiscal quarter in the
        case of an annual report) that has materially affected, or is reasonably
        likely to materially affect, the registrant's internal control over
        financial reporting; and

5.  The registrant's other certifying officer(s) and I have disclosed, based on
    our most recent evaluation of internal control over financial reporting, to
    the registrant's auditors and the audit committee of the registrant's board
    of directors (or persons performing the equivalent functions):

    (a) All significant deficiencies and material weaknesses in the design or
        operation of internal control over financial reporting which are
        reasonably likely to adversely affect the registrant's ability to
        record, process, summarize and report financial information; and

    (b) Any fraud, whether or not material, that involves management or other
        employees who have a significant role in the registrant's internal
        control over financial reporting.

DATE: AUGUST 13, 2003

                                             /S/ KEVIN P. CORCORAN
                                             --------------------------
                                             KEVIN P. CORCORAN
                                             CHIEF EXECUTIVE OFFICER

EX-31.2

                                                                    EXHIBIT 31.2


                                  CERTIFICATION


I, EDWARD C. ALBINI, CERTIFY THAT:

1.  I have reviewed this quarterly report on Form 10-Q of Lynx Therapeutics,
    Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of
    a material fact or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such statements
    were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial
    information included in this report, fairly present in all material respects
    the financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this report;

4.  The registrant's other certifying officer(s) and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

    (a) Designed such disclosure controls and procedures, or caused such
        disclosure controls and procedures to be designed under our supervision,
        to ensure that material information relating to the registrant,
        including its consolidated subsidiaries, is made known to us by others
        within those entities, particularly during the period in which this
        report is being prepared;

    (b) Evaluated the effectiveness of the registrant's disclosure controls and
        procedures and presented in this report our conclusions about the
        effectiveness of the disclosure controls and procedures, as of the end
        of the period covered by this report based on such evaluation; and

    (c) Disclosed in this report any change in the registrant's internal control
        over financial reporting that occurred during the registrant's most
        recent fiscal quarter (the registrant's fourth fiscal quarter in the
        case of an annual report) that has materially affected, or is reasonably
        likely to materially affect, the registrant's internal control over
        financial reporting; and

5.  The registrant's other certifying officer(s) and I have disclosed, based on
    our most recent evaluation of internal control over financial reporting, to
    the registrant's auditors and the audit committee of the registrant's board
    of directors (or persons performing the equivalent functions):

    a)  All significant deficiencies and material weaknesses in the design or
        operation of internal control over financial reporting which are
        reasonably likely to adversely affect the registrant's ability to
        record, process, summarize and report financial information; and

    b)  Any fraud, whether or not material, that involves management or other
        employees who have a significant role in the registrant's internal
        control over financial reporting.

DATE: AUGUST 13, 2003

                                           /S/ EDWARD C. ALBINI
                                           -------------------------------------
                                           EDWARD C. ALBINI
                                           CHIEF FINANCIAL OFFICER

EX-32.1

                                                                    EXHIBIT 32.1


                               CERTIFICATION (1)


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

1.   The Company's Quarterly Report on Form 10-Q for the period ended June 30,
     2003, to which this Certification is attached as Exhibit 32.1 (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
     periods covered by the Periodic Report and the results of operations of the
     Company for the periods covered by the Periodic Report.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of August 13,
2003.

                                    /s/  Kevin  P. Corcoran
                                    ------------------------------------------
                                    Kevin P. Corcoran
                                    Chief Executive Officer


                                    /s/  Edward C. Albini
                                    ------------------------------------------
                                    Edward C. Albini
                                    Chief Financial Officer


- -------------
(1)  This certification "accompanies" the Quarterly Report on Form 10-Q to which
     it relates, pursuant to Section 906 of the Sarbanes Oxley Act of 2002, and
     is not deemed filed with the Securities and Exchange Commission and is not
     to be incorporated by reference into any filing of Lynx Therapeutics, Inc.
     under the Securities Act or the Exchange Act (whether made before or after
     the date of the Quarterly Report on Form 10-Q), irrespective of any general
     incorporation language contained in such filing.

     A signed original of this written statement required by Section 906 has
     been provided to Lynx Therapeutics, Inc. and will be retained by Lynx
     Therapeutics, Inc. and furnished to the Securities and Exchange Commission
     or its staff upon request.