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 March 31, 2004
	OR
[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	for the transition period from                     to

Commission File Number 0-22570

Lynx Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [  ]

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

The number of shares of common stock outstanding as of May 7, 2004 was 7,527,538.

Lynx Therapeutics, Inc.

FORM 10-Q
For the Quarter Ended March 31, 2004

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets -March 31, 2004 and December 31, 2003		3
	Condensed Consolidated Statements of Operations — three months ended March 31, 2004 and 2003		4
	Condensed Consolidated Statements of Cash Flows — three months ended March 31, 2004 and 2003		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, Use of Proceeds and Issuer Purchases of Equity Securities		24
Item 3.	Defaults Upon Senior Securities		24
Item 4.	Submission of Matters to a Vote of Security Holders		24
Item 5.	Other Information		24
Item 6.	Exhibits and Reports on Form 8-K		24
Signatures			26
EXHIBIT 10.46
EXHIBIT 10.47
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lynx Therapeutics, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

	March 31,			December 31,
	2004			2003
	(unaudited)			(*)
Assets
Current assets:
Cash and cash equivalents	$	5,139		$	4,881
Restricted cash		510			728
Accounts receivable		338			402
Inventory		875			904
Other current assets		561			722
Total current assets		7,423			7,637
Property and equipment:
Leasehold improvements		11,510			11,510
Laboratory and other equipment		21,657			21,667
		33,167			33,177
Less accumulated depreciation and amortization		(23,114	)		(22,190	)
Net property and equipment		10,053			10,987
Other non-current assets		172			172
	$	17,648		$	18,796
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	594		$	1,070
Accrued compensation		364			284
Accrued professional fees		217			181
Deferred revenues		759			759
Equipment loans — current portion		723			1,128
Other accrued liabilities		177			163
Total current liabilities		2,834			3,585
Deferred revenues		4,222			4,213
Other non-current liabilities		921			932
Stockholders’ equity:
Common stock		121,547			117,722
Accumulated other comprehensive income		18			17
Accumulated deficit		(111,894	)		(107,673	)
Total stockholders’ equity		9,671			10,066
	$	17,648		$	18,796

*The balance sheet amounts at December 31, 2003 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
	March 31,
	2004			2003
Revenues:
Technology access and services fees	$	1,140		$	3,000
License fee from related party		190			190
Collaborative research and other		11			74
Total revenues		1,341			3,264
Operating costs and expenses:
Cost of services fees and other		1,350			724
Research and development		2,463			3,565
General and administrative		1,587			1,785
Restructuring charge for workforce reduction		102			292
Total operating costs and expenses		5,502			6,366
Loss from operations		(4,161	)		(3,102	)
Equity share of net loss of related party		—			(825	)
Interest income (expense), net		(18	)		(44	)
Other income (expense), net		(42	)		—
Loss before income taxes		(4,221	)		(3,971	)
Income tax provision (benefit)		—			1
Net loss	$	(4,221	)	$	(3,972	)
Basic and diluted net loss per share	$	(0.66	)	$	(0.85	)
Shares used in per share computation		6,399			4,652

See accompanying notes.

4

Lynx Therapeutics, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Three Months Ended
	March 31,
	2004			2003
Cash flows from operating activities:
Net loss	$	(4,221	)	$	(3,972	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of fixed assets and leasehold improvements		924			1,002
Amortization of deferred compensation		—			9
Equity share of net loss of related party		—			825
Changes in operating assets and liabilities:
Accounts receivable		64			322
Inventory		29			(246	)
Prepaid expenses and other current assets		161			138
Accounts payable		(476	)		287
Accrued liabilities		130			(158	)
Deferred revenues		9			(1,865	)
Other non-current liabilities		(11	)		(11	)
Net cash used in operating activities		(3,391	)		(3,669	)
Cash flows from investing activities:
Leasehold improvements and equipment purchases, net of retirements		—			(123	)
Adjustments of property and equipment		10			—
Net cash provided by (used in) investing activities		10			(123	)
Cash flows from financing activities:
Repayment of equipment loan		(405	)		(574	)
Issuance of common stock, net of issuance costs		3,825			14
Net cash provided by (used in) financing activities		3,420			(560	)
Net increase (decrease) in cash and cash equivalents		39			(4,352	)
Cash and cash equivalents at beginning of period		5,609			11,735
Effect of change in currency translation rates		1			—
Cash and cash equivalents at end of period	$	5,649		$	7,383
Supplemental disclosure of cash flow information:
Interest paid	$	20		$	74

See accompanying notes.

5

Lynx Therapeutics, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004

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 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

     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 three months ended March 31, 2004 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 $111.9 million, including a net loss of $4.2 million for the quarter ended March 31, 2004. We expect to continue to incur net losses as we proceed with the commercialization and additional development of our technologies. Our cash and cash equivalents were $5.6 million at March 31, 2004, which includes restricted cash of $0.5 million. Assuming we meet our sales forecast for the year, we believe that with the funds raised in March 2004, our current cash, cash equivalents and restricted cash, along with cash flows to be generated from customers, collaborators and licensees, will be sufficient to enable us to meet our projected operating and capital requirements through at least December 31, 2004, and we will consider the need for other actions, if any, as necessary so as to have sufficient resources to meet our projected operating and capital requirements through March 31, 2005. We may seek additional financing, as needed, through arrangements with customers, collaborators and licensees, and equity or debt offerings. We are actively evaluating the possible options available to us for raising capital so that we will be able to move forward. If we raise additional capital by issuing equity or convertible debt securities, our existing stockholders may experience substantial dilution. There can be no assurance that additional financing 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 will 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 may not be able to continue to operate.

     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.

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     These financial statements should be read in conjunction with Lynx’s audited consolidated financial statements and notes thereto for the year ended December 31, 2003, included in Lynx’s annual report on Form 10-K, as amended, 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 March 31, 2004 and March 31, 2003 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 upon receipt or as consumed.

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 year 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 March 31, 2004, options to purchase approximately 483,000 shares of common stock at a weighted-average exercise price of $40.24 per share and warrants to purchase 1,544,363 shares of common stock at exercise prices ranging from $6.12 to $39.76 per share, were excluded from the calculation of diluted loss per share for 2004 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 March 31, 2003, options to purchase approximately 557,000 shares of common stock at a weighted-average exercise price of $42.81 per share and warrants to purchase 977,068 shares of common stock at exercise prices ranging from $10.85 to $39.76 per share were excluded from the calculation of diluted loss per share for 2003 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 prior to the date of grant. We account for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related Interpretations. Under APB 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

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     All stock option awards to non-employees are accounted for at the fair value of the equity instrument issued, as calculated using the Black-Scholes model, in accordance with 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 are subject to periodic remeasurement over their vesting terms.

     Pro forma information regarding net loss and net loss per share required by Statement of Financial Accounting Standard No. 123, Accounting for Stock-based Compensation (SFAS 123), as amended by SFAS 148, is presented below and has been determined as if the Company had accounted for awards under its stock option and employee stock purchase plans using the fair value method:

	Three Months Ended March 31,
	2004			2003
	(in thousands, except per share amounts)
Net loss, as reported	$	(4,221	)	$	(3,972	)
Add: Stock-based employee compensation, as reported		—			9
Deduct: Stock-based employee compensation, as if fair value method applied to all awards		(541	)		(399	)
Net loss, pro forma as if fair value method applied to all awards	$	(4,762	)	$	(4,362	)
Basic and diluted net loss per share, as reported	$	(0.66	)	$	(0.85	)
Basic and diluted net loss per share, pro forma as if fair value method applied to all awards	$	(0.74	)	$	(0.94	)

4. Related-Party Transactions

Axaron Bioscience AG

     We hold an equity investment in Axaron Bioscience AG (“Axaron”). As of March 31, 2004, we held approximately a 42% ownership interest in Axaron and had the ability to exercise significant influence over Axaron’s operating and accounting policies. We have accounted for the investment under the equity method in accordance with APB Opinion No. 18. Under the equity method, the Company records its 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. 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 noncancelable term of the agreement. The recorded revenue for the three-month period ended March 31, 2004 and 2003 was $190,000 and $190,000, respectively. In accordance with APB 18, we have discontinued applying the equity method as our investment in Axaron has been reduced to zero. For the quarter ended March 31, 2003 our pro-rata share of Axaron’s losses was approximately $0.8 million.

     We also subleased certain offices in Germany to Axaron. During 2003 and 2002, the Company received an immaterial amount of sublease income from Axaron.

Other Transactions with Related Parties

     For legal services and expenses during the quarter ended March 31, 2004, Lynx paid approximately $55,000 to Cooley Godward LLP, Lynx’s counsel. A partner of Cooley Godward LLP is a director of Lynx. At March 31, 2004, Lynx had an outstanding liability to Cooley Godward LLP of approximately $129,000. At December 31, 2003, Lynx had an outstanding liability to Cooley Godward LLP of approximately $55,000.

8

     For genomics discovery services performed during the quarter ended March 31, 2004, Lynx did not receive any revenues from the Institute for Systems Biology. The President and Director of the Institute for Systems Biology is a director of Lynx. As of March 31, 2004, Lynx had a receivable of $30,000 due from the Institute for Systems Biology.

     In June 2001, Dr. Sydney Brenner, a director of the Company, entered into a consulting agreement with us. Pursuant to the agreement, Dr. Brenner performs consulting services of at least eight to 16 hours per month in consideration of his standard consulting fee. During the quarter ended March 31, 2004, Dr. Brenner received no consulting fees under this agreement.

5. Restructuring Charges

     In March 2004, we implemented a reduction of approximately 15% of our workforce, or 14 people. The reduction included positions in all functions of the Company’s business. The workforce reduction is intended to further focus our financial and human resources on expanding the commercial use of MPSS. We recorded a workforce reduction charge of $102,000 in the quarter ended March 31, 2004, which related primarily to severance compensation expense for our former employees, which amounts will be paid entirely in May 2004.

6. Common Stock

     On March 9, 2004, Lynx completed a $4.0 million private placement of common stock and warrants to purchase common stock (the “financing”) resulting in proceeds of $3.8 million, net of commissions and expenses. The financing included the sale of 788,235 shares of newly issued shares of common stock at $5.10 per share and the issuance of warrants to purchase 181,295 shares of common stock at an exercise price of $6.25 per share.

7. Subsequent Events

     On April 14, 2004, Lynx and UK-based Solexa Ltd. (“Solexa”) closed a transaction to jointly acquire from Swiss-based Manteia SA (“Manteia”) the rights to proprietary technology assets for DNA colony generation. Lynx issued and delivered to Manteia 540,058 shares of common stock of Lynx for a value representing fifty (50) percent of the purchase price. The acquired technology assets feature a process to enable parallel amplification of millions of DNA fragments, each from a single DNA molecule, to create DNA colonies or “clusters.” The clusters are dense collections of DNA molecules on a surface, which should enable fast and simplified preparation of the biological sample for analysis and allow reduced reagent consumption as a result of the highly parallel nature of the analysis.

     Lynx and Solexa have entered into a technology sharing agreement, dated as of March 22, 2004, for the purpose of managing the ownership and development of the assets acquired from Manteia.

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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 2003 audited financial statements and notes thereto included in our 2003 Annual Report on Form 10-K, as amended. Operating results for the three months ended March 31, 2004 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 2003 Annual Report on Form 10-K, as amended, 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 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 March 31, 2004, we had an accumulated deficit of approximately $111.9 million. We expect net losses will continue for at least the next several years as we proceed with the commercialization and additional development of our technologies. 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 cash and cash equivalents were $5.6 million as of December 31, 2003, which included restricted cash of $0.7 million. As of March 31, 2004, our cash and cash equivalents consisted of $5.1 million in unrestricted cash and restricted cash of $0.5 million. In March 2004, we raised an additional $4.0 million through the sale of common stock. We believe that with the funds raised in March 2004, we will have sufficient funding to meet our projected operating and capital requirements through at least December 31, 2004. In addition, we are considering various options to raise additional funds, which will be required to allow us to continue our business activities beyond 2004. These options 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. There can be no assurance that additional financing 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 will 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 continue to operate.

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     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 in the following table.

	Three Months Ended March 31,						Year Ended December 31,
	2004			2003			2003
Takara Bio Inc.		—			19	%		39	%
E.I. DuPont de Nemours and Company		62	%		34	%		28	%
BASF AG		14	%		17	%		14	%
Bayer CropScience		—			23	%		4	%

     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 services 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 initially accounted for our investment in Axaron Bioscience AG, a company owned primarily by BASF AG and us, using the equity method. In accordance with APB 18, we have discontinued applying the equity method as of December 31, 2003, as our investment in Axaron has been reduced to zero. For the quarter ended March 31, 2003 our pro-rata share of Axaron’s losses was approximately $0.8 million.

     As of March 31, 2004, we employed 76 full-time employees, of which 63 were engaged in production and research and development activities. In March 2004, we implemented a reduction of approximately 15% of our total workforce, or 14 people. The reduction included positions in all functions of the Company’s business. The workforce reduction is intended to further focus our financial and human resources on expanding the commercial use of MPSS.

     On April 14, 2004, Lynx and UK-based Solexa Ltd. (“Solexa”) closed a transaction to jointly acquire from Swiss-based Manteia SA (“Manteia”) the rights to proprietary technology assets for DNA colony generation. We issued and delivered to Manteia 540,058 shares of our common stock for a value representing fifty (50) percent of the purchase price. The acquired technology assets feature a process to enable parallel amplification of millions of DNA fragments, each from a single DNA molecule, to create DNA colonies or “clusters.” The clusters are dense collections of DNA molecules on a surface, which should enable fast and simplified preparation of the biological sample for analysis and allow reduced reagent consumption as a result of the highly parallel nature of the analysis.

     We have entered into a technology sharing agreement, dated as of March 22, 2004, with Solexa for the purpose of managing the ownership and development of the assets acquired from Manteia.

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Results of Operations

Revenues

     Revenues for the three-month period ended March 31, 2004 were approximately $1.3 million, compared to revenues of $3.3 million for the corresponding three-month period of 2003. Revenues for the three-month period in 2004 included technology access fees and services fees of $1.1 million, license fees from Axaron, a related party, of $190,000 and other revenues of $11,000. Revenues for the three-month period in 2003 included technology access fees and service fees of $3.0 million, license fees from Axaron, a related party, of $190,000 and other revenues of $74,000. The decrease in revenue was due to full recognition of previously deferred technology access fee revenue in 2003, for which there was no corresponding amount in 2004. 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 $5.5 million for the three-month period ended March 31, 2004, compared to approximately $6.4 million for the three-month period ended March 31, 2003. For the three-month period in 2004, cost of services fees was $1.4 million, compared to $0.7 million for the corresponding period in 2003, and reflects the costs of providing our genomics discovery services. The increase in cost of services fees in 2004 reflects our organizational changes in that proportionally more overhead is allocated to the services group than in the past, and an increase in depreciation from the implementation of new production equipment. Research and development expenses were approximately $2.5 million for the three-month period ended March 31, 2004, compared to approximately $3.6 million for the corresponding period in 2003. The decrease in research and development expenses in 2004 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 2004 and the first quarter of 2003. Research and development expenses may increase due to planned spending for ongoing technology development and implementation, as well as new applications, primarily for MPSS.

     General and administrative expenses were $1.6 million for the three-month period ended March 31, 2004, compared to $1.8 million for the corresponding period in 2003. General and administrative expenses may increase in support of Lynx’s commercial, business development and research and development activities.

     In March 2004, we implemented a reduction of approximately 15% of our workforce, or 14 people. The reduction included positions in all functions of the Company’s business. The workforce reduction is intended to further focus our financial and human resources on expanding the commercial use of MPSS. We recorded a workforce reduction charge of $102,000 in the quarter ended March 31, 2004, related primarily to severance compensation expense for our former employees, which amounts will be paid entirely in May 2004. We anticipate annualized cost savings of approximately $1.3 million related to compensation, benefits and employer taxes that would have been paid to, and on behalf of, such former employees had they remained employed by Lynx.

Equity Share of Loss of Related Party

     In accordance with APB 18, we have discontinued applying the equity method as of December 31, 2003, as our investment in Axaron has been reduced to zero. The equity share of loss of related party of $0.8 million for the three months ended March 31, 2003, reflects Lynx’s pro-rata share of the net loss of Axaron.

Interest Income (Expense), Net

     Net interest expense was $18,000 for the quarter ended March 31, 2004, compared to net interest expense of $44,000 for the corresponding period of 2003. The decrease in net interest expense from 2003 to 2004 reflects primarily decreased interest expense in 2004 incurred on equipment-related debt outstanding during both the 2004 and 2003 periods.

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Other Income (Expense)

     Other expense was $42,000 in the quarter ended March 31, 2004, compared to no other income in the 2003 period. The other income amount in 2004 relates to expenses incurred by the closure of Lynx GmbH.

Income Tax Provision (Benefit)

     No provision for income tax was required in 2004. The provision of approximately $1,000 in 2003 consisted entirely of foreign withholding tax on a payment received from our licensee, Takara.

Liquidity and Capital Resources

     Cash and cash equivalents at March 31, 2004 totaled $5.6 million, including $0.5 million of restricted cash. Net cash used in operating activities was $3.4 million for the quarter ended March 31, 2004, as compared to $3.7 million for the same period in 2003. The change was due primarily to a higher net loss in 2004 and a decrease in accounts payable, offset by a lower related party net loss, a decrease in inventory, and an increase in deferred revenue during 2004 as compared to 2003. The amount of net cash used in operating activities differed from the 2004 net loss primarily due to depreciation and amortization expenses and a decrease in other current assets, partially offset by an increase in accounts payable. The amount of net cash used in operating activities differed from the 2003 net loss primarily due to depreciation and amortization expenses, the impact of our pro-rata share of the net loss of Axaron, an increase in accounts payable, and decreases in accounts receivable and other current assets, offset by an increase in inventory and a decrease in deferred revenues. Net cash provided by investing activities for the first quarter of 2004 was due to an adjustment to property and equipment. Net cash used by investing activities of $0.1 million for the first quarter of 2003 was due primarily to expenditures for capital equipment.

     Net cash provided by financing activities of $3.4 million in the first quarter of 2004 was due primarily to the issuance of common stock pursuant to a common stock purchase agreement between Lynx and certain investors. Net cash used of $0.6 million in the first quarter of 2003 was due primarily to the repayment of principal under equipment-related obligations.

     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 March 31, 2004, the balance of restricted cash was approximately $0.5 million. As of March 31, 2004, the principal balance of loans outstanding under this agreement was approximately $460,000. 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. In September 2000, Lynx obtained additional financing of approximately $1.0 million under an amendment to the original financing agreement. 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 March 31, 2004, the principal balance of loans outstanding under this agreement was $223,000. 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 2004 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.

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     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 incurred net losses each year since our inception in 1992. As of March 31, 2004, we had an accumulated deficit of $111.9 million. We expect net losses will continue for at least the next several years as we proceed with the commercialization and additional development of our technologies. 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 cash and cash equivalents were $5.6 million at March 31, 2004, which included restricted cash of $0.5 million. In March 2004, we completed a $4.0 million private placement of common stock and warrants to purchase common stock resulting in proceeds of $3.8 million, net of commissions and expenses. The financing included the sale of 788,235 newly issued shares of common stock at $5.10 per share and the issuance of warrants to purchase 181,295 shares of common stock at an exercise price of $6.25 per share. Also, in March 2004, we reduced our headcount by 15% to 76 employees. Assuming we meet our sales forecast for the year, we believe that with the funds raised in March 2004, our current cash, cash equivalents and restricted cash, along with cash flows to be generated from customers, collaborators and licensees, will be sufficient to enable us to meet our projected operating and capital requirements through at least December 31, 2004, and we will consider the need for other actions, if any, as necessary so as to have sufficient resources to meet our projected operating and capital requirements through March 31, 2005. We may seek additional financing, as needed, through arrangements with customers, collaborators and licensees, and equity or debt offerings. We are actively evaluating the possible options available to us for raising capital so that we will be able to move forward if we deem it prudent to do so. If we raise additional capital by issuing equity or convertible debt securities, our existing stockholders may experience substantial dilution. There can be no assurance that additional financing, if required, 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 will 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

     Our business faces significant risks. These risks include those described below and may include additional risks of which we are not currently aware or which we currently do 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 $8.8 million for the year ended December 31, 2003, $15.5 million in 2002 and $16.7 million in 2001. As of March 31, 2004, we had an accumulated deficit of approximately $111.9 million. Net losses may continue for at least the next several years as we proceed with the commercialization and additional development of our technologies. The

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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.

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.

     Assuming we meet our sales forecast for the year, we believe that with the funds raised in March 2004, our current cash, cash equivalents and restricted cash, along with cashflows to be generated from customers, collaborators and licensees, will be sufficient to enable us to meet our projected operating and capital requirements through at least March 31, 2005. We may seek additional financing, as needed, through arrangements with customers, collaborators and licensees and equity or debt offerings. If we raise additional capital by issuing equity or convertible debt securities, our existing stockholders may experience substantial dilution. There can be no assurance that additional financing 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 will 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.

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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 and, therefore, provide us with increased commercial opportunities for our products. 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 if such collaborations or relationships are not successful, we may never become profitable.

     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, as shown on the following table:

	Three Months Ended March 31,						Year Ended December 31,
	2004			2003			2003
Takara Bio Inc.		—			19	%		39	%
E.I. DuPont de Nemours and Company		62	%		34	%		28	%
BASF AG		14	%		17	%		14	%
Bayer CropScience		—			23	%		4	%

     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, agreements or licenses with third parties subjects us to a number of risks. We have limited or no control over the resources that such third parties may choose to devote to our joint efforts. Our collaborators, customers or licensees may breach or terminate their agreements with us or fail to perform their obligations thereunder. Further, our collaborators, customers or licensees may elect not to develop products arising out of our agreements 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;

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• fail to obtain necessary regulatory approvals; or

• terminate their agreements with us.

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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 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;

• 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, 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

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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 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

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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 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.

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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.

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 April 1, 2002 to March 31, 2004, the closing sales price of our common stock as quoted on the Nasdaq National Market and Nasdaq SmallCap Market fluctuated from a low of $1.61 to a high of $14.77 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.

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     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.

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.

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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 one year. 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. Our German subsidiary conducted 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 March 31, 2004, our chief executive officer and acting 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 control over financial reporting during the quarter ended March 31, 2004 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

     Our management, including our chief executive officer and acting chief financial 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 the 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 all 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.

23

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     None

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

     On March 9, 2004, Lynx completed a $4.0 million private placement of common stock and warrants to purchase common stock (the “financing”) resulting in proceeds of $3.8 million, net of commissions and expenses. The financing included the sale of 788,235 shares of newly issued shares of common stock at $5.10 per share and the issuance of warrants to purchase 181,295 shares of common stock at an exercise price of $6.25 per share. In April 2004, Lynx filed with the SEC, a resale registration statement on Form S-3 relating to the issued securities.

     On April 14, 2004, Lynx and UK-based Solexa Ltd. (“Solexa”) closed a transaction to jointly acquire from Swiss-based Manteia SA the rights to proprietary technology assets for DNA colony generation. Lynx issued and delivered to Manteia 540,058 shares of common stock of Lynx for a value representing fifty (50) percent of the purchase price. In April 2004, Lynx filed with the SEC, a resale registration statement on Form S-3 relating to the issued common stock.

Item 3. Defaults Upon Senior Securities

     None

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

     None

Item 5. Other Information

     None

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

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

Exhibit
Number	Description
3.1	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 September 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.
10.42	Securities Purchase Agreement by and among the Company and the investors listed therein, incorporated by reference to the indicated exhibit of the Company’s Form 8-K filed on January 2, 2004.

24

Exhibit
Number	Description
10.43	Form of Warrant issued by the Company in favor of each investor, incorporated by reference to the indicated exhibit of the Company’s Form 8-K filed on January 2, 2004.
10.44	Securities Purchase Agreement by and among the Company and the investors listed therein, incorporated by reference to the indicated exhibit of the Company’s Form 8-K filed on March 12, 2004.
10.45	Form of Warrant issued by the Company in favor of each investor, incorporated by reference to the indicated exhibit of the Company’s Form 8-K filed on March 12, 2004.
10.46	Asset Purchase Agreement, dated as of March 22, 2004, by and among the Company and the parties listed therein.
10.47+	Colony Technology Sharing Agreement, dated as of March 22, 2004, by and between Solexa Ltd. and the Company.
31.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
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 January 2, 2004 describing and furnishing the press release announcing a private equity financing. This disclosure was filed under Item 5.
	A Current Report on Form 8-K was filed on March 12, 2004 describing and furnishing the press release announcing a private equity financing. This disclosure was filed under Item 5.
	A Current Report on Form 8-K was filed on March 31, 2004 describing and furnishing the press release announcing our financial results for the fourth quarter and fiscal year 2003. The press release was furnished under Item 9.

*

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 (Principal Executive Officer)

Date: May 13, 2004

	/s/ Kathy A. San Roman
By:	Kathy A. San Roman Vice President, Human Resources & Administration and Acting Chief Financial Officer (Principal Financial and Accounting Officer)

Date: May 13, 2004

26

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 September 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.
10.42	Securities Purchase Agreement by and among the Company and the investors listed therein, incorporated by reference to the indicated exhibit of the Company’s Form 8-K filed on January 2, 2004.

Exhibit
Number	Description
10.43	Form of Warrant issued by the Company in favor of each investor, incorporated by reference to the indicated exhibit of the Company’s Form 8-K filed on January 2, 2004.
10.44	Securities Purchase Agreement by and among the Company and the investors listed therein, incorporated by reference to the indicated exhibit of the Company’s Form 8-K filed on March 12, 2004.
10.45	Form of Warrant issued by the Company in favor of each investor, incorporated by reference to the indicated exhibit of the Company’s Form 8-K filed on March 12, 2004.
10.46	Asset Purchase Agreement, dated as of March 22, 2004, by and among the Company and the parties listed therein.
10.47+	Colony Technology Sharing Agreement, dated as of March 22, 2004, by and between Solexa Ltd. and the Company.
31.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
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.

EX-10.46

                                                                   EXHIBIT 10.46

                                                     EXECUTION COPY - 22 03 2004

                            ASSET PURCHASE AGREEMENT

                               MANTEIA TECHNOLOGY



                                                     EXECUTION COPY - 22 03 2004

                                                                                    
ARTICLE.1           PURCHASE AND SALE OF ASSETS.................................        5

ARTICLE.2           CLOSING AND PURCHASE PRICE..................................        6

ARTICLE.3           REPRESENTATIONS AND WARRANTIES OF THE SELLER................        8

ARTICLE.4           REPRESENTATIONS AND WARRANTIES OF SOLEXA....................        9

ARTICLE.5           REPRESENTATIONS AND WARRANTIES OF LYNX......................       10

ARTICLE.6           OTHER COVENANTS AND AGREEMENTS OF THE SELLER................       13

ARTICLE.7           OTHER COVENANTS AND AGREEMENTS OF THE BUYERS................       15

ARTICLE.8           OTHER COVENANTS AND AGREEMENTS OF LYNX  AND THE SELLER
                    WITH  RESPECT TO THE LYNX SHARES............................       15

ARTICLE.9           CONDITIONS PRECEDENT........................................       23

ARTICLE.10          MISCELLANEOUS...............................................       24

SCHEDULE.1.1        MANTEIA TANGIBLE ASSETS.....................................

SCHEDULE.1.2        MANTEIA PATENTS.............................................

SCHEDULE.1.3        MANTEIA KNOW HOW............................................

SCHEDULE.1.4        MOSAIC LICENSE..............................................

SCHEDULE.2.2        EXAMPLE OF THE COMPUTATION OF THE DEFFERED CONSIDERATION....

SCHEDULE.2.3A       FORM OF ASSIGNMENT OF PATENTS...............................

SCHEDULE.2.3C       WAIVER FROM EMPLOYEES.......................................

SCHEDULE.2.3D       LETTER FROM SERONO SA.......................................

SCHEDULE.2.3I       LETTER TO GLAXOSMITHKLINE...................................

SCHEDULE.2.3J       MOSAIC LICENSE ASSIGNMENT AGREEMENT.........................



                                       2


                                                     EXECUTION COPY - 22 03 2004

                                                                                    
SCHEDULE.5.1        LYNX DISCLOSURE SCHEDULE....................................

SCHEDULE.5.F        LYNX SECURITIES.............................................

SCHEDULE.5.L        LYNX SECURITIES REGISTRATION RIGHTS.........................

SCHEDULE.8.3A       PLAN OF DISTRIBUTION........................................

SCHEDULE.8.8        EXISTING LYNX REGISTRATION RIGHTS...........................

SCHEDULE.8.10       OTHER REGISTRATION STATEMENT................................



                                       3


                                                     EXECUTION COPY - 22 03 2004

This Asset Purchase Agreement (the "AGREEMENT") is made and entered into as of
March 22, 2004 ( the "SIGNING DATE") by and between:

MANTEIA SA, a company established under the laws of Switzerland and having its
registered office at zone industrielle, 1267 Coinsins, Switzerland (the
"SELLER")

                                                                 on the one hand

                                      and

SOLEXA LIMITED, a company established under the laws of England and Wales and
having its registered office at Little Chesterford, Saffron Walden, Essex CB10
1XL (hereinafter referred to as "SOLEXA")

                                      and

LYNX THERAPEUTICS INC, a company established under the laws of Delaware and
having its registered office at 25861 Industrial Boulevard, Hayward, CA 94545,
United States of America (hereinafter referred to as "LYNX")

(Solexa and Lynx hereinafter collectively referred to as the "BUYERS", each of
them a "BUYER")

                                                               on the other hand

The Seller and the Buyers are hereinafter collectively referred to as the
"PARTIES", and individually as a "PARTY".

                                       4


                                                     EXECUTION COPY - 22 03 2004

PREAMBLE

Whereas the Seller was incorporated in November 2000 and has been working toward
the development of a proprietary technology in the field of genotyping and high
throughput sequencing of human DNA.

Whereas, due to financial difficulties, the Seller has initiated on November 4,
2003 a debt restructuring procedure by filing a request for a provisory debt
restructuring moratorium pursuant to Article 293 of the Swiss Debt Enforcement
and Bankruptcy Statute.

Whereas the Debt Restructuring Court has granted to the Seller a provisory debt
restructuring moratorium for a period of two months on November 10, 2003.

Whereas the Debt Restructuring Court has appointed a commissioner (in the person
of Mr Bruno Vocat, the "COMMISSIONER") in order to supervise the activities of
the Seller.

Whereas a debt restructuring moratorium (the "MORATORIUM") has been granted by
the Debt Restructuring Court and is in force until August 2, 2004. The duration
of the Moratorium can be further extended by Court decision.

Whereas the Seller currently employs only two employees, of which only Mr
Gerardo Turcatti is still in activity for the Seller. All other employment
relationships have been terminated by the Seller in accordance with the
provisions of the Swiss Federal Code of Obligations ("CO").

Whereas the Seller has organized a bid process for the sale of its assets under
the supervision of the Commissioner.

Whereas Lynx and Solexa were allowed to (i) conduct technical and legal due
diligence and site visit at the Seller's premises for two consecutive days each,
(ii) ask detailed follow-up questions to the Seller, all of which were promptly
answered by the Seller, and (iii) share the results of such investigations with
one another.

Whereas the Buyers have shown their interest in purchasing certain assets of the
Seller and have sent to the Seller an Offer Letter dated February 17, 2004.

Whereas the Buyers now desire to purchase from the Seller and the Seller desires
to sell to the Buyers certain assets of the Seller specifically designated in
this Agreement and the related schedules.

Whereas the Parties do not intend to structure the present transaction as a
transfer of a business with assets and liabilities in accordance with article
181 CO.

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

                     ARTICLE.1 PURCHASE AND SALE OF ASSETS

                                       5


                                                     EXECUTION COPY - 22 03 2004

1.1   On and subject to the terms and conditions set forth in this Agreement,
      the Seller hereby agrees to sell, assign, transfer and deliver to the
      Buyers and the Buyers agree to purchase from the Seller all of the
      Seller's right, title and interest in and to the following assets
      (collectively, the "PURCHASED ASSETS"):

      (i)   Tangible assets: the tangible assets set forth in SCHEDULE 1.1
            hereto (the "TANGIBLE ASSETS").

      (ii)  Patents: the patents set forth in SCHEDULE 1.2 hereto (the
            "PATENTS").

      (iii) Know how: the know how of the Seller derived from or associated with
            the Tangible Assets and the Patents (the "KNOW HOW"), including but
            not limited to the Know How set forth in SCHEDULE 1.3.

      (iv)  License: The license to the Patents of Mosaic Technologies as set
            forth in SCHEDULE 1.4 hereto (the "MOSAIC LICENSE").

1.2   The Parties agree not to structure this purchase as a transfer of a
      business with assets and liabilities in accordance with art. 181 CO.

                      ARTICLE.2 CLOSING AND PURCHASE PRICE

2.1   The closing of the transactions contemplated by this Agreement (the
      "CLOSING") shall take place at the latest ten (10) business days following
      the satisfaction of the Conditions Precedent set forth in clauses (i) and
      (ii) of Article 9.1 below, or such other date as the Parties may mutually
      agree in writing.

2.2   The aggregate purchase price for the Purchased Assets is USD 4'000'000.-
      (four million US dollars) (hereinafter referred to as the "PURCHASE
      PRICE"). The payment of the Purchase Price shall be made as follows:

      (i)   Cash Consideration:

      At the Closing, Solexa shall arrange for payment to the Seller of USD
      2'000'000 (two million US Dollars), being fifty (50) percent of the
      Purchase Price in cash (the "CASH CONSIDERATION") by a wire transfer of
      freely available USD denominated funds to Seller's bank account to be
      indicated by the Seller.

      (ii)  Share Consideration:

      At the Closing, Lynx shall issue and deliver to the Seller shares of
      common stock of Lynx (the "LYNX SHARES") for a value representing the
      remaining fifty (50) percent of the Purchase Price (the "SHARE
      CONSIDERATION"). The number of Lynx Shares to be issued and delivered to
      the Seller for the Share Consideration shall be determined by reference to
      the average of the volume weighted average price of Lynx Shares for the
      ten (10) trading days prior to the day prior to the filing date of the
      Registration Statement with the U.S. Securities and Exchange Commission
      (the "COMMISSION"), as per Article 8.3 below, less a 20% discount. An
      example of the computation of the Share Consideration is attached as
      SCHEDULE 2.2. Price and volume information used to determine the number of
      Lynx Shares to be issued to the Seller shall be extracted from a reliable
      external source of information such as Reuters or Bloomberg.

                                       6


                                                     EXECUTION COPY - 22 03 2004

2.3   At the Closing, the Seller shall deliver to the Buyers:

      a) A duly executed assignment of the Patents (notarized and apostilled for
         Manteia SA), essentially on the form attached hereto as SCHEDULE 2.3a);

      b) The Patents prosecution files, any general and background files and any
         summaries, searches and opinions relating to the Patents, any and all
         searches, opinions, summaries etc. relating to the Freedom to Operate
         (FTO) of the Patents and any documentation relating to draft
         applications or subject-matter considered for filing in the last
         eighteen (18) months but have never been filed, if any;

      c) Duly executed waivers of the two current employees, essentially in the
         form attached hereto as SCHEDULE 2.3c);

      d) Letter of Serono, essentially in the form attached hereto, as SCHEDULE
         2.3d)

      e) The Tangible Assets;

      f) A duly passed resolution of the board of directors of the Seller
         approving the execution and consummation of this Agreement;

      g) The approval of the Commissioner to execute and consummate this
         Agreement;

      h) An approval rendered by the Tribunal d'arrondissement de la Cote, 1260
         Nyon (the "DEBT RESTRUCTURING COURT") approving the execution and
         consummation of this Agreement;

      i) The letter sent to and countersigned by GlaxoSmithKline, a copy of
         which is attached hereto as SCHEDULE 2.3i);

      j) A written document assigning the Mosaic License to the Buyers (the
         "MOSAIC LICENSE ASSIGNMENT AGREEMENT") essentially in the form attached
         hereto as SCHEDULE 2.3j);

      k) A complete set of all agreements still in force or already terminated
         which relate to the Patents, the Know-How and the Mosaic-License;

      l) A complete set of any and all publications relating to the Patents, the
         Know-How and the Mosaic-License.

2.4   At Closing the Buyers shall deliver to the Seller duly passed resolutions
      of the Board of Directors of each of the Buyers approving the execution
      and consummation of this Agreement.

2.5

                                       7


                                                     EXECUTION COPY - 22 03 2004

   a) The Buyers undertake to remove from the seller's premises of the Tangible
      Assets and all files and documents relating to the Patents, the Know How
      and the Mosaic License within 30 days after the Closing.

   b) From the Signing Date on and for 30 days after the Closing, the Seller
      undertakes to maintain existing security to its premises in order to
      safeguard the Purchased Assets and all documents related thereto and to
      keep the premises and its installation in the current working conditions
      (e.g. electricity, light, air condition etc) so that the Purchased Assets
      do not lose their functionality;

   c) From the Closing on and for 30 days after the Closing, the Seller
      undertakes to grant to the Buyers access to its premises from 8 am until 6
      pm on each business day in the Canton of Vaud.

             ARTICLE.3 REPRESENTATIONS AND WARRANTIES OF THE SELLER

3.1   The Seller represents and warrants, as of the Signing Date and the
      Closing, to the Buyers as follows:

   a) ORGANIZATION: The Seller is a corporation duly organized and validly
      existing under the laws of Switzerland. The Seller is under the protection
      of the Moratorium in accordance with the laws of Switzerland.

   b) AUTHORIZATION: Subject to the Conditions Precedent set forth in Article
      9.1 (i) and (ii) below, the Seller has the requisite corporate power and
      authority to enter into and consummate the transaction contemplated by
      this Agreement and otherwise to carry out its obligations hereunder and
      thereunder. The execution and delivery of each of this Agreement by the
      Seller and the consummation by it of the transactions contemplated hereby
      and thereby have been duly authorized by all necessary action on the part
      of its part and no further consent or action is required by its board of
      directors or its stockholders. This Agreement has been (or upon delivery
      will be) duly executed by the Seller and is, or when delivered in
      accordance with the terms hereof, will constitute, the valid and binding
      obligation of the Seller enforceable against it in accordance with its
      terms.

   c) TANGIBLE ASSETS: The Seller is the legal and beneficial owner of and has
      good and valid record title, to the extent that valid record to title is
      capable of existing, to all of the Tangible Assets. All Tangible Assets
      are owned by the Seller free and clear of all encumbrances.

   d) LITIGATION: To the best of the knowledge of the Seller, no action, claim,
      suit, judgment, injunction, order, decree, proceeding or investigation is
      threatened or has ever been notified in writing to the Seller relating to
      or affecting any of the Purchased Assets and the Seller has never
      instigated any litigation relating to or affecting any of the Purchased
      Assets.

   e) PATENTS: All costs and fees pertaining to the prosecution, registration
      and renewal of the Patents have been duly paid with all the relevant
      registries and all agents' fees and work in progress has been paid for and
      will have been paid for at the Closing. The Seller

                                       8


                                                     EXECUTION COPY - 22 03 2004

         exclusively owns all right, title and interest to and in the Patents
         free an clear of any encumbrances.

   f) NON-CONTRAVENTION; CONSENTS: To the best of the knowledge of the Seller,
      neither the execution and delivery of the Agreement, nor the consummation
      or performance of any of the transactions contemplated hereunder, will
      directly or indirectly (with or without notice or lapse of time):

            (i)  contravene, conflict with or result in a violation of, or give
                 any governmental body the right to challenge any of the
                 transactions contemplated hereunder or to exercise any remedy
                 or obtain any relief under, any order, judgment or decree of
                 any court or other governmental agency to which the Seller, or
                 any of the Tangible Assets, is subject; or

            (ii) contravene, conflict with or result in a violation of any of
                 the terms or requirements of, or give any governmental body the
                 right to revoke, withdraw, suspend, cancel, terminate or
                 modify, any governmental authorization that is to be included
                 in the Tangible Assets or is held by the Seller.

3.2   The representations and warranties of the Seller are expressly limited to
      those set forth in this Article 3.1. No other representations or
      warranties, of whatever nature and whatever kind, are given by the Seller
      in relation to this Agreement.

3.3   The Seller does not represent or warrant the suitability, usefulness or
      applicability of the Purchased Assets. The Seller does not represent or
      warrant either that the Tangible Assets are in good and/or working
      condition.

3.4   The Buyers performed a due diligence and site visit at the Seller's
      premises and purchase the Purchased Assets in an "as is" condition.

3.5   The representations and warranties made by the Seller under this Agreement
      terminate one year after the Closing and shall be limited to a maximum
      amount equivalent to:

      a)    The Cash Consideration; plus

      b)    The net proceeds (after deduction of costs and fees) from the sale
            of the Lynx Shares (Share Consideration); plus

      c)    Any remaining Lynx Shares (Share Consideration) not sold by the
            Seller and therefore still owned by the Seller.

               ARTICLE.4 REPRESENTATIONS AND WARRANTIES OF SOLEXA

4.1   Solexa represents and warrants to the Seller as of the Signing Date and
      the Closing, as follows:

   a) ORGANIZATION: Solexa is an entity duly organized, validly existing and in
      good standing under the laws of England and Wales. Solexa is not aware of
      any circumstances which could (i) adversely affect the legality, validity
      or enforceability of this Agreement or (ii)

                                       9


                                                     EXECUTION COPY - 22 03 2004

      adversely impair its ability to perform fully on a timely basis its
      obligations under this Agreement.

   b) AUTHORIZATION: Solexa has the corporate power and authority to execute and
      deliver this Agreement and to perform fully its obligations hereunder.

   c) LITIGATION: There is no action, claim, suit, judgement, injunction, order
      or decree pending, or to Solexa's knowledge threatened, against Solexa
      that relates to the transactions contemplated by this Agreement, nor are
      there agreements or envisaged agreements which are capable of impacting on
      Solexa's ability to fulfill its obligations under this Agreement.

4.2   The representations and warranties of Solexa are expressly limited to
      those set forth in Article 4.1. No other representations or warranties, of
      whatever nature and whatever kind, are given by Solexa in relation to this
      Agreement.

                ARTICLE.5 REPRESENTATIONS AND WARRANTIES OF LYNX

5.1   Subject to Schedule 5.1, Lynx represents and warrants to the Seller as of
      the Signing Date and of the Closing as follows:

a)    ORGANIZATION: Lynx is an entity duly organized, validly existing and in
      good standing under the laws of the jurisdiction of its incorporation,
      with the requisite power and authority to own and use its properties and
      assets and to carry on its business as currently conducted. Neither Lynx
      nor any of its subsidiaries (the"SUBSIDIARIES") is in violation of any of
      the provisions of its respective certificate or articles of incorporation,
      bylaws or other organizational or charter documents. Lynx and each of its
      Subsidiaries is duly qualified to do business and is in good standing as a
      foreign corporation or other entity in each jurisdiction in which the
      nature of the business conducted or property owned by it makes such
      qualification necessary, except where the failure to be so qualified or in
      good standing, as the case may be, could not, individually or in the
      aggregate, (i) adversely affect the legality, validity or enforceability
      of this Agreement, (ii) have or result in a material adverse effect on the
      results of operations, assets, prospects, business or condition (financial
      or otherwise) of Lynx, or (iii) adversely impair Lynx's ability to perform
      fully on a timely basis its obligations under this Agreement (any of (i),
      (ii) or (iii), a "MATERIAL ADVERSE EFFECT").

b)    AUTHORIZATION: Lynx has the requisite corporate power and authority to
      enter into and to consummate the transactions contemplated by this
      Agreement and otherwise to carry out its obligations hereunder and
      thereunder. The execution and delivery of this Agreement and the
      consummation by it of the transactions contemplated hereby have been duly
      authorized by all necessary action on its part and no further consent or
      action is required by its board of directors or its stockholders. This
      Agreement has been (or upon delivery will be) duly executed by Lynx and
      is, or when delivered in accordance with the terms hereof, will
      constitute, the valid and binding obligation of Lynx enforceable against
      it in accordance with its terms.

c)    NO CONFLICTS: The execution, delivery and performance of this Agreement
      and the consummation by Lynx of the transactions contemplated hereby do
      not and will not (i)

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      conflict with or violate any provision of Lynx's certificate or articles
      of incorporation, bylaws or other organizational or charter documents,
      (ii) conflict with, or constitute a default (or an event that with notice
      or lapse of time or both would become a default) under, or give to others
      any rights of termination, amendment, acceleration or cancellation (with
      or without notice, lapse of time or both) of, any agreement, credit
      facility, debt or other instrument (evidencing Lynx's debt or otherwise)
      or other understanding to which Lynx is a party or by which any property
      or asset of Lynx is bound or affected, except to the extent that such
      conflict, default or termination right could not reasonably be expected to
      have a Material Adverse Effect, or (iii) result in a violation of any law,
      rule, regulation, order, judgment, injunction, decree or other restriction
      of any court or governmental authority to which Lynx is subject (including
      U.S. federal and state securities laws and regulations), or by which any
      property or asset of Lynx or of its Subsidiaries is bound or affected.

   d) LITIGATION: There is no action, claim, suit, judgement, injunction, order
      or decree pending, or to Lynx's knowledge threatened, against Lynx that
      relates to the transactions contemplated by this Agreement, nor are there
      agreements or envisaged agreements which are capable of impacting Lynx's
      ability to fulfill its obligations under this Agreement.

   e) ISSUANCE OF THE LYNX SHARES: The Lynx Shares are duly authorized and, when
      issued and paid for in accordance with this Agreement, will be duly and
      validly issued, fully paid and nonassessable, free and clear of all liens
      and shall not be subject to preemptive rights or similar rights of
      stockholders.

   f) CAPITALIZATION: The number of shares and type of all authorized, issued
      and outstanding capital stock, options and other securities of Lynx
      (whether or not presently convertible into or exercisable or exchangeable
      for shares of capital stock of Lynx) is set forth in SCHEDULE 5.f. All
      outstanding shares of capital stock are duly authorized, validly issued,
      fully paid and nonassessable and have been issued in compliance with all
      applicable securities laws.

      Except as set forth in SCHEDULE 5.f, there are no outstanding options,
      warrants, script rights to subscribe to, calls or commitments of any
      character whatsoever relating to, or securities, rights or obligations
      convertible into or exercisable or exchangeable for, or giving any person
      or entity any right to subscribe for or acquire, any shares of common
      stock of Lynx (the "COMMON STOCK"), or contracts, commitments,
      understandings or arrangements by which Lynx is or may become bound to
      issue additional shares of Common Stock, or securities or rights
      convertible or exchangeable into shares of Common Stock. Except as set
      forth in SCHEDULE 5.f, there are no anti-dilution or price adjustment
      provisions contained in any security issued by Lynx (or in any agreement
      providing rights to security holders) and the issue and sale of the Lynx
      Shares will not obligate Lynx to issue shares of Common Stock or other
      securities to any person or entity (other than the Seller) and will not
      result in a right of any holder of Lynx securities to adjust the exercise,
      conversion, exchange or reset price under such securities. To the
      knowledge of Lynx, except as specifically disclosed in SCHEDULE 5.f, no
      person and entity or group of related person and entities beneficially
      owns (as determined pursuant to Rule 13d-3 under the U.S. Securities
      Exchange Act of 1934, as amended, the "EXCHANGE ACT"), or has the right to
      acquire, by agreement with or by obligation binding upon Lynx, beneficial
      ownership of in excess of 5% of the outstanding Common Stock, ignoring for

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      such purposes any limitation on the number of shares of Common Stock that
      may be owned at any single time.

   g) SEC REPORTS; FINANCIAL STATEMENTS: Lynx has filed all reports required to
      be filed by it under the U.S. Securities Act of 1933, as amended (the
      "SECURITIES ACT") and the EXCHANGE ACT, including pursuant to Section
      13(a) or 15(d) thereof, for the two years preceding the date hereof (or
      such shorter period as Lynx was required by law to file such material)
      (the foregoing materials being collectively referred to herein as the "SEC
      REPORTS" and, together with this Agreement and the Schedules to this
      Agreement, the "DISCLOSURE MATERIALS") on a timely basis or has received a
      valid extension of such time of filing and has filed any such SEC Reports
      prior to the expiration of any such extension. As of their respective
      dates, the SEC Reports complied in all material respects with the
      requirements of the Securities Act and the Exchange Act and the rules and
      regulations of the Commission promulgated thereunder, and none of the SEC
      Reports, when filed, contained any untrue statement of a material fact or
      omitted to state a material fact required to be stated therein or
      necessary in order to make the statements therein, in the light of the
      circumstances under which they were made, not misleading. The financial
      statements of Lynx included in the SEC Reports comply in all material
      respects with applicable accounting requirements and the rules and
      regulations of the Commission with respect thereto as in effect at the
      time of filing. Such financial statements have been prepared in accordance
      with United States generally accepted accounting principles applied on a
      consistent basis during the periods involved ("GAAP"), except as may be
      otherwise specified in such financial statements or the notes thereto or,
      in the case of unaudited financial statements, as permitted by Form 10-Q
      of the Commission, and fairly present in all material respects the
      financial position of Lynx and its consolidated subsidiaries as of and for
      the dates thereof and the results of operations and cash flows for the
      periods then ended, subject, in the case of unaudited statements, to
      normal, immaterial, year-end audit adjustments. All material agreements,
      as such contracts are defined in Section 601(a)(10) of Regulation S-K
      under the Securities Act, to which Lynx is a party or to which the
      property or assets of Lynx are subject are included as part of or
      specifically identified in the SEC Reports.

   h) MATERIAL CHANGES: Since September 30, 2003, the date of the latest
      financial statements included within the SEC Reports, except as
      specifically disclosed in the SEC Reports, (i) there has been no event,
      occurrence or development that, individually or in the aggregate, has had
      or that could result in a Material Adverse Effect, (ii) Lynx has not
      incurred any liabilities (contingent or otherwise) other than (A) trade
      payables and accrued expenses incurred in the ordinary course of business
      consistent with past practice and (B) liabilities not required to be
      reflected in Lynx's financial statements pursuant to GAAP or required to
      be disclosed in filings made with the Commission, (iii) Lynx has not
      altered its method of accounting or the identity of its auditors, (iv)
      Lynx has not declared or made any dividend or distribution of cash or
      other property to its stockholders or purchased, redeemed or made any
      agreements to purchase or redeem any shares of its capital stock, and (v)
      Lynx has not issued any equity securities to any officer, director, or
      affiliate except pursuant to existing Lynx stock option and stock purchase
      plans.

   i) PRIVATE PLACEMENT: Neither Lynx nor any person or entity acting on Lynx's
      behalf has sold or offered to sell or solicited any offer to buy the Lynx
      Shares by means of any form of general solicitation or advertising.
      Neither Lynx nor any person or entity acting on Lynx's behalf has,
      directly or indirectly, at any time within the past six months, made any
      offer or sale of any security or solicitation of any offer to buy any
      security under

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      circumstances that would (i) eliminate the availability of the exemption
      from registration under Regulation D under the Securities Act in
      connection with the offer and sale of the Lynx Shares as contemplated
      hereby or (ii) cause the offering of the Lynx Shares pursuant to this
      Agreement to be integrated with prior offerings by Lynx for purposes of
      any applicable law, regulation or stockholder approval provisions,
      including, without limitation, under the rules and regulations of any
      trading market (the Nasdaq Small Cap Market, the New York Stock Exchange,
      the American Stock Exchange or the Nasdaq National Market, a "TRADING
      MARKET"). Lynx is not, and is not an affiliate (meaning a person or entity
      that, directly or indirectly, through one or more intermediaries, controls
      or is controlled by or is under common control with a person or entity, an
      "AFFILIATE") of, an "investment company" within the meaning of the
      Investment Securities Act of 1940, as amended. Lynx is not a United States
      real property holding corporation within the meaning of the Foreign
      Investment in Real Property Tax Act of 1980.

   j) FORM S-3 ELIGIBILITY: Lynx is eligible to register its Common Stock for
      resale by the Seller using Form S-3 promulgated under the Securities Act.

   k) LISTING AND MAINTENANCE REQUIREMENTS: Except as described in Lynx's Annual
      Report for the year ended December 31, 2002 initially filed on Form 10-K
      with the Commission on March 28, 2003, as amended (the "ANNUAL REPORT"),
      Lynx has not, in the two years preceding the date hereof, received notice
      (written or oral) from any Trading Market on which the Common Stock is or
      has been listed or quoted to the effect that Lynx is not in compliance
      with the listing or maintenance requirements of such Trading Market.

   l) REGISTRATION RIGHTS: Except as described in SCHEDULE 5.L, Lynx has not
      granted or agreed to grant to any person or entity any rights (including
      "piggy-back" registration rights) to have any securities of Lynx
      registered with the Commission or any other governmental authority that
      have not been satisfied.

5.2   The representations and warranties of Lynx are expressly limited to those
      set forth in this Article 5.1. No other representations or warranties, of
      whatever nature and whatever kind, are given by Lynx in relation to this
      Agreement.

             ARTICLE.6 OTHER COVENANTS AND AGREEMENTS OF THE SELLER

6.1.  The Seller undertakes to use best endeavours to assist the Buyers in
      completing the legal transfer of the Patents to one or both of the Buyers,
      it being understood that the procedures relating to the registration of
      the Patents in the name of the Buyers will be carried out by the Buyers.
      All third party costs (invoices of third parties, registration fees, etc.)
      in relation thereto, if any, shall be borne by the Buyers, whereas no
      entity in which Serono has a majority of the voting rights or a majority
      of the shares shall be considered as a third party. Before instructing any
      third parties, the Seller shall first consult with the Buyers and obtain
      their written approval.

6.2.  Seller undertakes for a period of two (2) years after the Closing not to
      (i) directly or indirectly compete with either of the Buyers, (ii) provide
      products or services to direct or indirect competitors of the Buyers,
      (iii) acquire participations or other interests in such direct or indirect
      competitors, or (iv) cooperate in any way with, or act for, such direct or
      indirect competitors. This covenant not to compete extends to all
      companies and partnerships controlled by Seller.

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      The relevant market with regard to (i) territory and (ii) products and
      services comprises all markets in which the Buyers, directly or through
      subsidiaries, offer their products and services at the time of the
      asserted infringement of the undertaking.

      Further, during two (2) years after the Closing, Seller will not employ
      (as employee or consultant) any person who is or becomes an employee of
      either of the Buyers on or after the Signing Date, and will not allow such
      employment by any company or partnership controlled by Seller.

      For each infringement of the undertakings made in this Article 6.2, Seller
      owes to the Buyers a contractual penalty of USD 500,000 (five hundred
      thousand United States Dollars) in accordance with art. 161 para. 1 CO,
      regardless of the occurrence of actual damages. In addition, Seller owes
      full indemnification for all damages suffered by the Buyers (without the
      right to offset the amount of the contractual penalty), and the Buyers may
      prohibit further infringements of the undertakings and require the
      elimination of any continued infringement.

6.3.  30 days after the Effective Date, Seller shall use best endeavors to
      delete all copies of the Know-How remaining in its possession.

6.4.  For the purpose of assisting the Buyers in achieving the full transfer of
      the Purchased Assets, the Seller shall procure to the Buyers the services
      of Mr. Gerardo Turcatti, three (3) days a week for a period of three (3)
      months from the Closing, subject to vacation entitlement of seven (7) days
      over the period. In relation thereto, the Parties agree as follows:

      6.4.1 The salary of Mr Turcatti will be entirely borne by the Seller
            whereby any additional expenses associated with the provision of the
            services by Mr. Turcatti will be borne by the Buyers.

      6.4.2 Should the Buyers require the presence of Mr. Turcatti outside of
            Europe, then Mr. Turcatti shall travel to such place in business
            class. Mr. Turcatti shall be accommodated in convenient and mutually
            agreed upon hotels. Any request for the presence of Mr. Turcatti on
            either of the Buyers' facilities shall be made with, at least, the
            following written advance notice: two business days for a travel to
            Solexa's facilities and four business days for a travel to Lynx's
            facilities.

6.5.

      a)    The Seller agrees to the imprinting, so long as is required by this
            Section, of the following legend on any certificate evidencing Lynx
            Shares:

            THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
            EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
            RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
            ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
            MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
            AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT

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            TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
            ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

      b)    Certificates evidencing Lynx Shares shall not be required to contain
            such legend or any other legend (i) following any sale of such Lynx
            Shares while a registration statement covering the resale of such
            Lynx Shares is effective under the Securities Act, provided that the
            prospectus delivery requirements of the Securities Act have been
            met, or (ii) following any sale of such Lynx Shares pursuant to Rule
            144 under the Securities Act, or (iii) if such Lynx Shares are
            eligible for sale under Rule 144(k), or (iv) if such legend is not
            required under applicable requirements of the Securities Act
            (including judicial interpretations and pronouncements issued by the
            Staff of the Commission). Lynx shall cause its counsel to issue a
            legal opinion on the date that the Registration Statement (as
            defined under art. 8.3 below) is first declared effective by the
            Commission, the "EFFECTIVE DATE"). Following the Effective Date or
            at such earlier time as a legend is no longer required for certain
            Lynx Shares, Lynx will no later than three trading days (any day on
            which the Common Stock is listed or quoted on the Nasdaq Small Cap
            Market, the "TRADING DAYS") following the delivery by the Seller to
            Lynx or the Transfer Agent of a legended certificate representing
            such Lynx Shares and following delivery by the Seller to Lynx or
            Lynx's counsel of a signed and completed notice of sale representing
            that the prospectus delivery requirements of the Securities Act have
            been met with respect to such sale, deliver or cause to be delivered
            to the Seller a certificate representing such Lynx Shares that is
            free from all restrictive and other legends. Lynx may not make any
            notation on its records or give instructions to any transfer agent
            of Lynx that enlarge the restrictions on transfer set forth in this
            Article.

             ARTICLE.7 OTHER COVENANTS AND AGREEMENTS OF THE BUYERS

The Buyers acknowledge that the Seller has entered into a patent assignment
agreement dated June 10, 2002 (the "GSK PATENT ASSIGNMENT AGREEMENT") with Glaxo
Group Limited and SmithKline Beecham Corporation ("GLAXOSMITHKLINE") by which
the latter have assigned certain patent applications to the Seller and by which
the Seller has granted to GlaxoSmithKline a world-wide, non-exclusive license to
use such patents applications for internal research purposes. The Buyers thus
agree to assume the obligation of the Seller under the GSK Patent Assignment
Agreement by granting such license to GlaxoSmithKline on such patent
applications.

  ARTICLE.8 OTHER COVENANTS AND AGREEMENTS OF LYNX AND THE SELLER WITH RESPECT
                               TO THE LYNX SHARES

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8.1.  FURNISHING OF INFORMATION: As long as the Seller owns Lynx Shares, Lynx
      covenants to timely file (or obtain extensions in respect thereof and file
      within the applicable grace period) all reports required to be filed by
      Lynx after the date hereof pursuant to the Exchange Act. Upon the request
      of the Seller, Lynx shall deliver to the Seller a written certification of
      a duly authorized officer as to whether it has complied with the preceding
      sentence. During the earlier of (i) the date two years from the Closing or
      (ii) as long as the Seller owns Lynx Shares, if Lynx is not required to
      file reports pursuant to such laws, it will prepare and furnish to the
      Seller and make publicly available in accordance with paragraph (c) of
      Rule 144 such information as is required for the Seller to sell the Lynx
      Shares under Rule 144. Lynx further covenants that it will take such
      further action as any holder of Lynx Shares may reasonably request to
      satisfy the provisions of Rule 144 applicable to the issuer of securities
      relating to transactions for the sale of securities pursuant to Rule 144.

8.2.  INTEGRATION: Lynx shall not, and shall use its best efforts to ensure that
      no Affiliates of Lynx shall sell, offer for sale or solicit offers to buy
      or otherwise negotiate in respect of any security (as defined in Section 2
      of the Securities Act) that would be integrated with the offer or sale of
      the Lynx Shares in a manner that would require the registration under the
      Securities Act of the sale of the Lynx Shares to the Seller, or that would
      be integrated with the offer or sale of the Lynx Shares for purposes of
      the rules and regulations of any Trading Market.

8.3.  SHELF REGISTRATION:

      a) No later than the later to occur of (i) 20 days after the Signing Date
         or (ii) 3 days after the Conditions Precedent set forth in clauses (i)
         and (ii) of Article 9.1 having been met, Lynx shall prepare and file
         with the Commission a "Shelf" registration statement covering the
         resale of all the Lynx Shares for an offering to be made on a
         continuous basis pursuant to Rule 415 (the "REGISTRATION STATEMENT").
         The date on which Lynx files the Registration Statement in accordance
         with the preceding sentence referred to herein as the "FILING DATE".
         The Registration Statement shall be on Form S-3 (except if Lynx is not
         then eligible to register for resale of the Lynx Shares on Form S-3, in
         which case such registration shall be on another appropriate form in
         accordance herewith as the Seller may consent) and shall contain
         (except if otherwise directed by the Seller) the "Plan of Distribution"
         attached hereto as SCHEDULE 8.3.a.

      b) Lynx shall use its best efforts (as that concept is understood under
         English law) to cause the Registration Statement to be declared
         effective by the Commission as promptly as possible after the filing
         thereof, but in any event prior to the date that is 60 days after the
         Closing (the "REQUIRED EFFECTIVENESS DATE"), and shall use its best
         efforts (as that concept is understood under English law) to keep the
         Registration Statement continuously effective under the Securities Act
         until the second anniversary of the Effective Date or such earlier date
         when all Lynx Shares covered by such Registration Statement have been
         sold or may be sold without volume restrictions pursuant to Rule 144(k)
         (the "EFFECTIVENESS PERIOD").

      c) Lynx shall notify the Seller in writing promptly (and in any event
         within one Trading Day) after receiving notification from the
         Commission that the Registration Statement has been declared effective.

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      d) Upon the occurrence of any Event (as defined below) and on every
         monthly anniversary thereof until the applicable Event is cured, as
         partial relief for the damages suffered therefrom by the Seller (which
         remedy shall not be exclusive of any other remedies available under
         this Agreement, at law or in equity), Lynx shall pay to the Seller an
         amount of USD 15'000 (fifteen thousand US dollars) in cash, as
         liquidated damages and not as a penalty. The payments to which the
         Seller shall be entitled pursuant to this Article 8.3(d) are referred
         to herein as "Event Payments". Any Event Payments payable pursuant to
         the terms hereof shall apply on a pro-rata basis for any portion of a
         month prior to the cure of an Event. In the event Lynx fails to make
         Event Payments in a timely manner, such Event Payments shall bear
         interest at the rate of 1.5% per month (prorated for partial months)
         until paid in full.

         For such purposes, the occurrence of the Registration Statement not
         being declared effective on or prior to the Required Effectiveness Date
         shall constitute an "Event".

      e) Notwithstanding anything in this Agreement to the contrary, Lynx may,
         by written notice to the Seller, suspend sales under the Registration
         Statement after the Effective Date thereof and/or require that the
         Seller immediately cease the sale of shares of Common Stock pursuant
         thereto if at any time Lynx determines in good faith that the
         Registration Statement contains an untrue statement of a material fact
         or omits to state a material fact required to be stated therein or
         necessary to make the statements therein, in the light of the
         circumstances under which they were made, not misleading and cannot be
         utilized in connection with the sale of shares of Common Stock until it
         has been appropriately amended. Upon receipt of such notice, the Seller
         shall immediately discontinue any sales of Lynx Shares pursuant to such
         registration until the Seller has received copies of a supplemented or
         amended prospectus or until the Seller is advised in writing by Lynx
         that the then-current prospectus may be used and has received copies of
         any additional or supplemental filings that are incorporated or deemed
         incorporated by reference in such prospectus. In no event, however,
         shall this right be exercised to suspend sales beyond the period during
         which (in the good faith determination of Lynx's board of directors)
         the failure to require such suspension would be materially detrimental
         to Lynx. Furthermore, in no event may Lynx exercise its rights
         hereunder for a period of more than 7 consecutive Trading Days or more
         than 20 Trading Days in any twelve month period. Immediately after the
         end of any suspension period under this Article 8.3(e), Lynx shall take
         all necessary actions (including filing any required supplemental
         prospectus) to restore the effectiveness of the Registration Statement
         and the ability of the Seller to publicly resell its Lynx Shares
         pursuant to such effective Registration Statement.

8.4.  REGISTRATION PROCEDURES: In connection with Lynx's registration
      obligations hereunder, Lynx shall:

      a) Not less than three Trading Days prior to the filing of the
         Registration Statement or any related prospectus or any amendment or
         supplement thereto (specifically excluding any document that would be
         incorporated or deemed to be incorporated therein by reference),
         furnish to the Seller and to the Seller's counsel copies of all such
         documents proposed to be filed, which documents (other than those
         incorporated or deemed to be incorporated by reference) will be subject
         to the review of the Seller and the Seller's counsel. Lynx shall not
         file a Registration Statement or any such prospectus or any amendments
         or supplements thereto to which the Seller shall reasonably object in
         good

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         faith. In the absence of any reaction from the Seller within three
         working days, the Seller is deemed to consent to such documents
         proposed to be filed.

      b) (i) Prepare and file with the Commission such amendments, including
         post-effective amendments, to the Registration Statement and the
         prospectus used in connection therewith as may be necessary to keep the
         Registration Statement continuously effective as to the Lynx Shares for
         the Effectiveness Period; (ii) cause the related prospectus to be
         amended or supplemented by any required prospectus supplement, and as
         so supplemented or amended to be filed pursuant to Rule 424; (iii)
         respond as promptly as reasonably possible, and in any event within 15
         days, to any comments received from the Commission with respect to the
         Registration Statement or any amendment thereto and as promptly as
         reasonably possible provide the Seller true and complete copies of all
         correspondence from and to the Commission relating to the Registration
         Statement; and (iv) comply in all material respects with the provisions
         of the Securities Act and the Exchange Act with respect to the
         disposition of all Lynx Shares covered by the Registration Statement
         during the applicable period in accordance with the intended methods of
         disposition by the Seller thereof set forth in the Registration
         Statement as so amended or in such prospectus as so supplemented.

      c) Notify the Seller and the Seller's counsel as promptly as reasonably
         possible, and (if requested by any such person or entity) confirm such
         notice in writing no later than one Trading Day thereafter, of any of
         the following events: (i) the Commission notifies Lynx whether there
         will be a "review" of the Registration Statement; (ii) the Commission
         comments in writing on the Registration Statement (in which case Lynx
         shall deliver to the Seller a copy of such comments and of all written
         responses thereto); (iii) the Registration Statement or any
         post-effective amendment is declared effective; (iv) the Commission or
         any other U.S. Federal or state governmental authority requests any
         amendment or supplement to the Registration Statement or prospectus or
         requests additional information related thereto; (v) the Commission
         issues any stop order suspending the effectiveness of the Registration
         Statement or initiates any proceedings, suits, actions, investigations,
         proceedings ("the Proceedings") for that purpose; (vi) Lynx receives
         notice of any suspension of the qualification or exemption from
         qualification of any Lynx Shares for sale in any jurisdiction, or the
         initiation or threat of any Proceeding for such purpose; or (vii) the
         financial statements included in the Registration Statement become
         ineligible for inclusion therein or any statement made in the
         Registration Statement or prospectus or any document incorporated or
         deemed to be incorporated therein by reference is untrue in any
         material respect or any revision to Registration Statement, prospectus
         or other document is required so that it will not contain any untrue
         statement of a material fact or omit to state any material fact
         required to be stated therein or necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading.

      d) Use its best efforts (as that concept is understood under English law)
         to avoid the issuance of or, if issued, obtain the withdrawal of (i)
         any order suspending the effectiveness of the Registration Statement,
         or (ii) any suspension of the qualification (or exemption from
         qualification) of any of the Lynx Shares for sale in any jurisdiction,
         at the earliest practicable moment.

      e) Furnish to the Seller and to the Seller's counsel, without charge, at
         least one conformed copy of the Registration Statement and each
         amendment thereto, including financial statements and schedules, all
         documents incorporated or deemed to be incorporated

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         therein by reference, and all exhibits to the extent requested by such
         person or entity (including those previously furnished or incorporated
         by reference) promptly after the filing of such documents with the
         Commission.

      f) Promptly deliver to the Seller and to the Seller's counsel, without
         charge, as many copies of the prospectus or prospectuses (including
         each form of prospectus) and each amendment or supplement thereto as
         such person or entity may reasonably request. Lynx hereby consents to
         the use of such prospectus and each amendment or supplement thereto by
         the Seller in connection with the offering and sale of the Lynx Shares
         covered by such prospectus and any amendment or supplement thereto.

      g) (i) In the time and manner required by each Trading Market, prepare and
         file with such Trading Market an additional shares listing application
         covering all of the Lynx Shares; (ii) take all steps necessary to cause
         such Lynx Shares to be approved for listing on each Trading Market as
         soon as possible thereafter; (iii) provide to the Seller evidence of
         such listing; and (iv) maintain the listing of the Lynx Shares on each
         such Trading Market.

      h) Prior to any public offering of Lynx Shares, use its best efforts (as
         that concept is understood under English law) to register or qualify or
         cooperate with the Seller and the Seller's counsel in connection with
         the registration or qualification (or exemption from such registration
         or qualification) of such Lynx Shares for offer and sale under the
         securities or blue sky laws of such jurisdictions within the United
         States as the Seller requests in writing, to keep each such
         registration or qualification (or exemption therefrom) effective during
         the Effectiveness Period and to do any and all other acts or things
         necessary or advisable to enable the disposition in such jurisdictions
         of the Lynx Shares covered by the Registration Statement; provided,
         however, that Lynx shall not be obligated to file any general consent
         to service of process or to qualify as a foreign corporation or as a
         dealer in securities in any jurisdiction in which it is not so
         qualified or to subject itself to taxation in respect of doing business
         in any jurisdiction in which it is not otherwise subject.

      i) Cooperate with the Seller to facilitate the timely preparation and
         delivery of certificates representing Lynx Shares to be delivered to a
         transferee pursuant to the Registration Statement, which certificates
         shall be free, to the extent permitted by this Agreement, of all
         restrictive legends, and to enable such Lynx Shares to be in such
         denominations and registered in such names as the Seller may request.

      j) Upon the occurrence of any event described in Article 8.4(c)(vii), as
         promptly as reasonably possible, prepare a supplement or amendment,
         including a post-effective amendment, to the Registration Statement or
         a supplement to the related prospectus or any document incorporated or
         deemed to be incorporated therein by reference, and file any other
         required document so that, as thereafter delivered, neither the
         Registration Statement nor such prospectus will contain an untrue
         statement of a material fact or omit to state a material fact required
         to be stated therein or necessary to make the statements therein, in
         the light of the circumstances under which they were made, not
         misleading.

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

                                       19


                                                     EXECUTION COPY - 22 03 2004

8.5.  REGISTRATION EXPENSES. Lynx shall pay (or reimburse the Seller for) all
      fees and expenses incident to the performance of or compliance with this
      Article 8 of this Agreement by Lynx, including without limitation (a) all
      registration and filing fees and expenses, including without limitation
      those related to filings with the Commission, any Trading Market and in
      connection with applicable state securities or Blue Sky laws, (b) printing
      expenses (including without limitation expenses of printing certificates
      for Lynx Shares and of printing prospectuses requested by the Seller), (c)
      messenger, telephone and delivery expenses, (d) fees and disbursements of
      counsel for Lynx, (e) fees and expenses of all other persons or entities
      retained by Lynx in connection with the consummation of the transactions
      contemplated by Article 8 of this Agreement, and (f) all listing fees to
      be paid by Lynx to the Trading Market.

8.6.  INDEMNIFICATION.

      a) Lynx shall, notwithstanding any termination of this Agreement,
         indemnify and hold harmless the Seller, its officers, directors,
         partners, members, agents, brokers (including brokers who offer and
         sell Lynx Shares as principal as a result of a pledge or any failure to
         perform under a margin call of Common Stock), investment advisors and
         employees, each person or entity who controls the Seller (within the
         meaning of Section 15 of the Securities Act or Section 20 of the
         Exchange Act) and the officers, directors, partners, members, agents
         and employees of each such controlling person or entity, to the fullest
         extent permitted by applicable law, from and against any and all
         losses, claims, damages, liabilities, settlement costs and expenses,
         including without limitation reasonable attorney's fees ("the Losses"),
         as incurred, arising out of or relating to any untrue or alleged untrue
         statement of a material fact contained in the Registration Statement,
         any prospectus or any form of prospectus or in any amendment or
         supplement thereto or in any preliminary prospectus, or arising out of
         or relating to any omission or alleged omission of a material fact
         required to be stated therein or necessary to make the statements
         therein (in the case of any prospectus or form of prospectus or
         supplement thereto, in the light of the circumstances under which they
         were made) not misleading, except to the extent, but only to the
         extent, that (i) such untrue statements, alleged untrue statements,
         omissions or alleged omissions are based solely upon information
         regarding the Seller furnished in writing to Lynx by the Seller
         expressly for use therein, or to the extent that such information
         relates to the Seller or the Seller's proposed method of distribution
         of Lynx Shares and was reviewed and expressly approved in writing by
         the Seller expressly for use in the Registration Statement, such
         prospectus or such form of prospectus or in any amendment or supplement
         thereto or (ii) in the case of an occurrence of an event of the type
         specified in Article 8.4(c)(v)-(vii), the use by the Seller of an
         outdated or defective prospectus after Lynx has notified the Seller in
         writing that the prospectus is outdated or defective and prior to the
         receipt by the Seller of the Advice contemplated in Article 8.7 below.
         Lynx shall notify the Seller promptly of the institution, threat or
         assertion of any Proceeding of which Lynx is aware in connection with
         the transactions contemplated by this Agreement.

      b) INDEMNIFICATION BY THE SELLER. The Seller shall indemnify and hold
         harmless Lynx, its directors, officers, agents and employees, each
         Person who controls Lynx (within the meaning of Section 15 of the
         Securities Act and Section 20 of the Exchange Act), and the directors,
         officers, agents or employees of such controlling Persons, to the
         fullest extent permitted by applicable law, from and against all
         Losses, as incurred, arising solely out of any untrue statement of a
         material fact contained in the

                                       20


                                                     EXECUTION COPY - 22 03 2004

         Registration Statement, any prospectus, or any form of prospectus, or
         in any amendment or supplement thereto, or arising solely out of any
         omission of a material fact required to be stated therein or necessary
         to make the statements therein (in the case of any prospectus or form
         of prospectus or supplement thereto, in the light of the circumstances
         under which they were made) not misleading to the extent, but only to
         the extent, that such untrue statement or omission is contained in any
         information so furnished in writing by the Seller to Lynx specifically
         for inclusion in such Registration Statement or such prospectus or to
         the extent that (i) such untrue statements or omissions are based
         solely upon information regarding the Seller furnished in writing to
         Lynx by the Seller expressly for use therein, or to the extent that
         such information relates to the Seller or the Seller's proposed method
         of distribution of the Lynx Shares and was reviewed and expressly
         approved in writing by the Seller expressly for use in the Registration
         Statement, such Prospectus or such form of Prospectus or in any
         amendment or supplement thereto or (ii) in the case of an occurrence of
         an event of the type specified in Article 8.4(c)(v)-(vii), the use by
         the Seller of an outdated or defective Prospectus after Lynx has
         notified the Seller in writing that the Prospectus is outdated or
         defective and prior to the receipt by the Seller of the Advice
         contemplated in Article 8.7 below. In no event shall the liability of
         the Seller hereunder be greater in amount than two million dollars (USD
         $2,000,000).

      c) Conduct of Indemnification Proceedings. If any Proceeding shall be
         brought or asserted against any person or entity entitled to indemnity
         hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party shall
         promptly notify the person or entity from whom indemnity is sought (the
         "INDEMNIFYING Party") in writing, and the Indemnifying Party shall
         assume the defense thereof, including the employment of counsel
         reasonably satisfactory to the Indemnified Party and the payment of all
         fees and expenses incurred in connection with defense thereof;
         provided, that the failure of any Indemnified Party to give such notice
         shall not relieve the Indemnifying Party of its obligations or
         liabilities pursuant to this Agreement, except (and only) to the extent
         that it shall be finally determined by a court of competent
         jurisdiction (which determination is not subject to appeal or further
         review) that such failure shall have proximately and materially
         adversely prejudiced the Indemnifying Party.

         An Indemnified Party shall have the right to employ separate counsel in
         any such Proceeding and to participate in the defense thereof, but the
         fees and expenses of such counsel shall be at the expense of such
         Indemnified Party or Parties unless: (i) the Indemnifying Party has
         agreed in writing to pay such fees and expenses; or (ii) the
         Indemnifying Party shall have failed promptly to assume the defense of
         such Proceeding and to employ counsel reasonably satisfactory to such
         Indemnified Party in any such Proceeding; or (iii) the named parties to
         any such Proceeding (including any impleaded parties) include both such
         Indemnified Party and the Indemnifying Party, and such Indemnified
         Party shall have been advised by counsel that a conflict of interest is
         likely to exist if the same counsel were to represent such Indemnified
         Party and the Indemnifying Party (in which case, if such Indemnified
         Party notifies the Indemnifying Party in writing that it elects to
         employ separate counsel at the expense of the Indemnifying Party, the
         Indemnifying Party shall not have the right to assume the defense
         thereof and such counsel shall be at the expense of the Indemnifying
         Party). The Indemnifying Party shall not be liable for any settlement
         of any such Proceeding effected without its written consent, which
         consent shall not be unreasonably withheld. No Indemnifying Party
         shall, without the prior written consent of the Indemnified Party,
         effect any settlement of any pending Proceeding in respect of which any

                                       21


                                                     EXECUTION COPY - 22 03 2004

         Indemnified Party is a party, unless such settlement includes an
         unconditional release of such Indemnified Party from all liability on
         claims that are the subject matter of such Proceeding.

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

      d) Contribution. If a claim for indemnification under Article 8.6(a) is
         unavailable to an Indemnified Party (by reasons other than the
         specified exclusions to indemnification), then each Indemnifying Party,
         in lieu of indemnifying such Indemnified Party, shall contribute to the
         amount paid or payable by such Indemnified Party as a result of such
         Losses, in such proportion as is appropriate to reflect the relative
         fault of the Indemnifying Party and Indemnified Party in connection
         with the actions, statements or omissions that resulted in such Losses
         as well as any other relevant equitable considerations. The relative
         fault of such Indemnifying Party and Indemnified Party shall be
         determined by reference to, among other things, whether any action in
         question, including any untrue or alleged untrue statement of a
         material fact or omission or alleged omission of a material fact, has
         been taken or made by, or relates to information supplied by, such
         Indemnifying Party or Indemnified Party, and the parties' relative
         intent, knowledge, access to information and opportunity to correct or
         prevent such action, statement or omission. The amount paid or payable
         by a party as a result of any Losses shall be deemed to include,
         subject to the limitations set forth in Article 8.6, any reasonable
         attorneys' or other reasonable fees or expenses incurred by such party
         in connection with any Proceeding to the extent such party would have
         been indemnified for such fees or expenses if the indemnification
         provided for in this Article was available to such party in accordance
         with its terms.

         The parties hereto agree that it would not be just and equitable if
         contribution pursuant to this Article 8.6(c) were determined by prorata
         allocation or by any other method of allocation that does not take into
         account the equitable considerations referred to in the immediately
         preceding paragraph. Notwithstanding the provisions of this Article
         8.6(c), the Seller shall not be required to contribute, in the
         aggregate, any amount in excess of the amount by which the proceeds
         actually received by the Seller from the sale of the Lynx Shares
         subject to the Proceeding exceeds the amount of any damages that the
         Seller has otherwise been required to pay by reason of such untrue or
         alleged untrue statement or omission or alleged omission. No person or
         entity guilty of fraudulent misrepresentation (within the meaning of
         Section 11(f) of the Securities Act) shall be entitled to contribution
         from any person or entity who was not guilty of such fraudulent
         misrepresentation.

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

                                       22


                                                     EXECUTION COPY - 22 03 2004

8.7.  DISPOSITIONS. The Seller agrees that it will comply with the prospectus
      delivery requirements of the Securities Act as applicable to it in
      connection with sales of Lynx Shares pursuant to the Registration
      Statement. The Seller further agrees that, upon receipt of a notice from
      Lynx of the occurrence of any event of the kind described in Articles
      8.4(c)(v), (vi) or (vii), the Seller will discontinue disposition of such
      Lynx Shares under the Registration Statement until the Seller's receipt of
      the copies of the supplemented prospectus and/or amended Registration
      Statement contemplated by Article 8.4(j), or until it is advised in
      writing (the "Advice") by Lynx that the use of the applicable prospectus
      may be resumed, and, in either case, has received copies of any additional
      or supplemental filings that are incorporated or deemed to be incorporated
      by reference in such prospectus or Registration Statement. Lynx may
      provide appropriate stop orders to enforce the provisions of this
      paragraph.

8.8.  NO PIGGYBACK ON REGISTRATIONS. Other than pursuant to the exercise of
      existing registration rights by certain stockholders of Lynx as specified
      in SCHEDULE 8.8 hereto, neither Lynx nor any of its security holders
      (other than the Seller in such capacity pursuant hereto) may include
      securities of Lynx in the Registration Statement other than the Lynx
      Shares, and Lynx shall not after the date hereof enter into any agreement
      providing any such right to any of its security holders.

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

8.10. OTHER REGISTRATION STATEMENTS. Except for the filing of the Registration
      Statement, and except as provided in SCHEDULE 8.10, Lynx shall not, for a
      period from the Signing Date until the day that is 21 days after the
      Closing, file with the Commission a registration statement relating to an
      offering for its own account or the account of others under the Securities
      Act of any of its equity securities.

                         ARTICLE.9 CONDITIONS PRECEDENT

9.1.  The respective obligations of the Parties to effect the transactions
      contemplated under this Agreement shall be subject to the following
      conditions precedent having been met (the "CONDITIONS PRECEDENT"):

      (i)   Written consent of the Commissioner by which the Commissioner shall
            approve the sale of the Purchased Assets to the Buyers, as per the
            terms of this Agreement;

      (ii)  Written consent of the Debt Restructuring Court approving the sale
            of the Purchased Assets to the Buyers, as per the terms of this
            Agreement;

                                       23


                                                     EXECUTION COPY - 22 03 2004

      (iii) Filing of the Registration Statement by Lynx as defined under 8.3
            above; and

      (iv)  No material adverse change to the condition of the Purchased Assets
            between the Signing Date and the Closing.

9.2.  The Seller undertakes and agrees to use its best efforts to have the
      Conditions Precedent set forth in clauses (i) and (ii) of Article 9.1 met
      as soon as possible after the Signing Date, provided however the Buyers
      acknowledge and agree that the Seller has not the power to influence the
      decisions which shall be taken (at their sole and entire discretion) by
      the Commissioner and by the Debt Restructuring Court.

9.3.  Should the Conditions Precedent not be met on or before April 30, 2004,
      then this Agreement shall be automatically terminated, without prejudice
      to rights and liabilities accrued by any party prior to such termination.

                            ARTICLE.10 MISCELLANEOUS

10.1. FURTHER ASSURANCES OF THE SELLER: The Seller shall execute and/or cause to
      be delivered to the Buyers such instruments and other documents, and shall
      take such other actions, as the Buyers may reasonably request (prior to,
      at or after the Closing) for the purpose of carrying out or evidencing any
      of the transactions contemplated hereunder.

10.2. PUBLICITY. Promptly following the realization of the Condition Precedent
      9.1 (ii), Lynx and Solexa shall issue a joint press release, the contents
      of which shall be mutually agreed upon between the Parties.

10.3. SEVERAL OBLIGATIONS OF THE BUYERS: Except where the context clearly
      indicates otherwise, the Buyers' obligations under this Agreement are
      several and not joint .

10.4. SEVERABILITY: Should one or several provisions of this Agreement be or
      become invalid, then the Parties hereto shall substitute such invalid
      provisions by valid ones, which in their economic effect come so close to
      the invalid provisions that it can be reasonably assumed that the Parties
      would have concluded this Agreement with such new provisions. In case such
      provisions cannot be found or agreed upon, the invalidity of one or
      several provisions of this Agreement shall not affect the validity of the
      Agreement as a whole, unless the invalid provisions are of such essential
      importance for this Agreement that it is to be reasonably assumed that the
      Parties would not have concluded this Agreement without the invalid
      provisions.

10.5. NOTICES: All notices, requests, demands, waivers and other communications
      required or permitted to be given under the Agreements shall be in writing
      and shall be deemed to have been duly given if delivered personally or
      mailed, if sent by certified or registered mail with postage prepaid, or
      if sent by telegram, telefax or by e-mail, as follows:

      (i) If to the Seller, to the following address:

        Manteia SA
        Zone Industrielle

                                       24


                                                     EXECUTION COPY - 22 03 2004

        1267 Coinsins
        Switzerland

        with copy to:

   a)   Bruno Vocat
        C/o BfB Societe Fiduciaire SA
        Avenue de Jomini 8
        Case Postale 156
        1009 Lausanne
        Switzerland
        Telephone: (+41-21) 641 46 46
        Fax:       (+41-21) 641 46 40

   b)   Lenz & Staehelin
        Attn Guy Vermeil
        Grand'Rue 25
        1211 Geneve 11
        Switzerland
        Telephone: (+41-22) 318 7000
        Fax:       (+41-22) 318 7001

        or to such other person or address as the Seller shall from time to time
        specify by notice in writing to be sent by certified mail only to the
        Buyers.

   (ii) If to the Buyers, to:

   a)   Lynx Therapeutics, Inc
        Attention: Kevin P. Corcoran
        25861 Industrial Bld, Hayward,
        CA 94545 USA
        Tel 510 670 93 00
        Fax 510 670 93 03

   b)   Solexa Limited
        Attention: Nick McCooke
        Chesterford Research Park
        Little Chesterford Nr Saffron Walden
        Essex CB10 1 XL, England
        Tel 44 (0) 1799 532 300
        Fax 44(0) 1799 532 301

        or to such other person or address as the Buyers shall from time to time
        specify by notice in writing to be sent by certified mail only to the
        Seller.

10.6. ENTIRE AGREEMENT: This Agreement (including the Schedules hereto)
      constitutes the entire agreement and supersedes all prior agreements and
      understandings, both written and oral, between the Parties with respect to
      the subject matter hereof.

10.7. AMENDMENT: Except as otherwise expressly provided herein, no amendment,
      modification or discharge of this Agreement, and no waiver hereunder,
      shall be valid or binding unless

                                       25


                                                     EXECUTION COPY - 22 03 2004

       set forth in writing and duly executed by the Party against whom
       enforcement of the amendment, modification, discharge or waiver is
       sought. Any such waiver shall constitute a waiver only with respect to
       the specific matter described in such writing and shall in no way impair
       the rights of the Party granting such waiver in any other respect or at
       any other time. Neither the waiver by any of the Parties of a breach of
       or a default under any of the provisions of this Agreement, nor the
       failure by any of the Parties, on one or more occasions, to enforce any
       of the provisions of this Agreement or to exercise any right or privilege
       hereunder, shall be construed as a waiver of any other breach or default
       of a similar nature, or as a waiver of any of such provisions, rights or
       privileges hereunder.

10.8.  COUNTERPARTS: The Parties may execute this Agreement in separate
       counterparts (no one of which need contain the signatures of all
       Parties), each of which will be an original and all of which together
       will constitute one and the same instrument.

10.9.  ASSIGNMENT: This Agreement shall not be assignable or otherwise
       transferable by any Party without the prior written consent of the others
       Parties hereto.

10.10. GOVERNING LAW: This Agreement shall be governed by, construed and
       enforced in accordance with the laws of Switzerland.

10.11. ARBITRATION: Any dispute, controversy or claim arising out of or in
       relation to this Agreement, including the validity, invalidity, breach or
       termination thereof, shall be settled by arbitration in accordance with
       the Swiss Rules of International Arbitration of the Swiss Chambers of
       Commerce in force on the date when the Notice of Arbitration is submitted
       in accordance with these Rules.

       The number of arbitrators shall be one. The seat of the arbitration shall
       be in Geneva. The arbitral proceedings shall be conducted in English
       language.

                                       26


                                                     EXECUTION COPY - 22 03 2004

IN WITNESS THEREOF, the Parties hereto have caused this Agreement to be duly
executed by their respective authorized signatories as of this March 22., 2004.

MANTEIA SA                                     SOLEXA LIMITED

/s/ Francois Naef                              /s/ Nick McCooke
- ------------------------------                 ---------------------------------
Francois Naef                                  Nick McCooke
                                               Chief Executive Officer

                                               LYNX THERAPEUTICS

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

EX-10.47

                                                                   EXHIBIT 10.47

[*]=  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.

                       DATED                         2004
                      ------------------------------------

                                 SOLEXA LIMITED

                                      AND

                             LYNX THERAPEUTICS INC

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

                           COLONY TECHNOLOGY SHARING
                                   AGREEMENT

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

                              CMS CAMERON MCKENNA
                                  MITRE HOUSE
                             160 ALDERSGATE STREET
                                LONDON EC1A 4DD

                              T +44(0)20 7367 3000
                              F +44(0)20 7367 2000



                               TABLE OF CONTENTS

                                                                                    
1.         Definitions and Interpretation.......................................        3
2.         Term.................................................................        6
3.         Project Management...................................................        6
4.         Standstill Period....................................................        7
5.         Ownership of IP Rights...............................................        7
6.         Registered IP........................................................        7
7.         Ownership of Background Assets.......................................        8
8.         Commercial Exploitation..............................................        9
9.         Payments and Royalties...............................................       10
10.        Infringement of the Intellectual Property Rights.....................       11
11.        Third Party Claims...................................................       11
12.        Audit Rights.........................................................       12
13.        Liability............................................................       12
14.        Confidentiality......................................................       13
15.        Termination..........................................................       13
16.        Survival.............................................................       14
17.        Announcements........................................................       15
18.        Non-solicitation.....................................................       15
19.        No Assignment........................................................       15
20.        Costs and Payments...................................................       15
21.        Entire Agreement.....................................................       15
22.        Notices..............................................................       16
23.        Third Party Rights...................................................       17
24.        Disputes.............................................................       17
25.        Governing Law and Jurisdiction.......................................       18

Schedule 1......................................................................       19

         Background IP..........................................................       19

Schedule 2......................................................................       20

           Background Assets....................................................       20



[*]=  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.



THIS AGREEMENT is made the 22nd day of March, 2004

BETWEEN:

(1)   SOLEXA LIMITED a company registered in England and Wales with company
      number 03625145 and registered office at Chesterford Research Park, Little
      Chesterford, Saffron Walden, Essex CB10 1XL ("SOLEXA") and

(2)   LYNX THERAPEUTICS INC a Delaware corporation having its principal place of
      business at 25861 Industrial Blvd, Hayward, CA 94545 ("LYNX").

RECITALS:

(A)   On [ * ], Serono International S.A. issued an Information Memorandum in
      respect of the proposed sale by auction by [ * ] (the "SELLER") of all the
      assets and rights identified in Schedules 1 and 2.

(B)   Solexa and Lynx submitted a joint non-binding offer to acquire the assets
      and rights identified in Schedules 1 and 2 1 (the "ACQUISITION") on 30
      January 2004 and a revised offer on 17 February 2004.

(C)   Subject to completion of the Acquisition, Solexa and Lynx agree to jointly
      own the Colony Technology (as hereinafter defined) and Background Assets
      (as hereinafter defined). Both Parties shall have the right to exploit
      such rights and assets on the terms set out herein.

IT IS AGREED as follows:

1.    DEFINITIONS AND INTERPRETATION

1.1   In this Agreement, the following words and expressions shall have the
      following meanings:-

      "ACQUISITION": has the meaning prescribed in Recital (B);

      "AFFILIATE": means any company, partnership or other entity which directly
      or indirectly Controls, is Controlled by or is under common Control with,
      either Party;

      "AGREEMENT": means the terms and conditions set out herein, together with
      any Schedules;

      "BACKGROUND IP": means any IP Rights obtained from the Seller as a result
      of the Acquisition including in relation to the Background Assets, as
      identified in Schedule 1;

      "BACKGROUND ASSETS": means the assets obtained from the Seller as a result
      of the Acquisition and as identified in Schedule 2;

      "COLONY TECHNOLOGY": means the Background IP and any Foreground IP;

[*]=  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.



      "COMPETENT AUTHORITY": means any local or national agency, authority,
      department, court, tribunal, arbitrator, inspectorate, minister, ministry
      official or public or statutory person (whether autonomous or not) of, any
      government of, any country having jurisdiction over this Agreement or any
      of the Parties or in respect of the regulation of a Product;

      "CONTROL": means the ownership of more than 50% of the issued share
      capital or the legal power to direct or cause the direction of the general
      management and policies of the Party in question;

      "EFFECTIVE DATE": means the date of completion of the Acquisition;

      "FOREGROUND IP": means any IP Rights created jointly by Solexa and Lynx on
      or after the Effective Date which results from a Joint Development
      Project;

      "FORCE MAJEURE": means any cause preventing either Party from performing
      all or any of its obligations under this Agreement which arise or is
      attributable to acts, events, omissions or accidents beyond the reasonable
      control of the Party so prevented;

      "KNOW-HOW": means trade secrets, confidential business information and
      unpatented technical and other information, including information
      comprising or relating to concepts, formulae, specifications, discoveries,
      data, material, ideas, inventions, procedures for experiments, tests and
      results of experimentation and testing, results of research or development
      processes, manufacturing processes and techniques whether such information
      is recorded or stored in any paper notebooks, books, files, ledgers,
      records, tapes, discs, diskettes, CDROM or any other media;

      "IP RIGHTS": means all rights in or to any and all patents, trade marks,
      service marks, trade and business names, copyright (including without
      limitation copyright in computer programs), rights in designs, database
      rights, rights in Know-How, and all other intellectual property rights or
      forms of protection of a similar or equivalent nature or effect which may
      subsist anywhere in the world (whether or not registered or capable of
      registration), together with all applications for registration of and
      rights to apply for, and any licence to use, any of the forgoing;

      "JOINT DEVELOPMENT PROJECT": means a project to be jointly undertaken by
      the Parties to develop IP Rights using Background IP;

      "NET SALES": means subject to Clause 9, any invoiced amount in respect of
      the Sale of Products less the following, to the extent they are paid or
      allowed and included in the invoice price:

      (a)   quantity and/or trade discounts actually granted;

      (b)   freight, shipment and insurance costs incurred in transporting
            Products to customers; and

      (c)   sales taxes and customs duties incurred in connection with the sale,
            exportation or importation of Product.

[*]=  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.



      "PARTIES": means Solexa and Lynx collectively and reference to a "PARTY"
      shall mean either Solexa or Lynx as the context so requires;

      "PATENT AGENTS": has the meaning ascribed thereto in Clause 6;

      "PRODUCT(S)": means any and all goods, products, services or materials
      utilising or incorporating or exploiting any part of the Colony Technology
      the Sale of which would infringe the Colony Technology if such Sale was
      not by the owner of the Colony Technology or with the consent of such
      owner or if such utilisation, incorporation or exploitation would require
      the consent or license of or to be undertaken by such owner;

      "PURCHASE AGREEMENT": means the Asset Purchase Agreement between the
      Seller, Solexa and Lynx relating to the Colony Technology existing at the
      date of such agreement;

      "REGISTERED IP": means Background IP or Foreground IP which is registered
      or capable of registration on any official register of IP Rights anywhere
      in the world;

      "SALE": means sale, lend, license, lease, hire, supply or dispose and
      "Sells" and "Sold" shall be construed accordingly;

      "SELLER": has the meaning prescribed in Recital (A);

      "STEERING COMMITTEE": has the meaning prescribed by Clause 3.1; and

      "TRANSFER AND VALIDATION PROJECT": means the project to be agreed and
      undertaken by the Parties to ensure that the Background IP is correctly
      vested jointly in the Parties and that it is validated by appropriate
      experiments which will have defined project goals and objectives agreed
      between the Parties.

1.2   In this Agreement:

      1.2.1 all references to Clauses and Schedules are references to clauses
            and schedules to this Agreement unless the context otherwise
            requires;

      1.2.2 references to statutory provisions shall, except where the context
            requires otherwise, be construed as references to those provisions
            as respectively amended or re-enacted or as their application is
            modified by other provisions (whether before or after the date of
            this Agreement from time to time);

      1.2.3 unless the context otherwise requires, references to the singular
            include the plural and vice versa, references to any gender include
            all other genders, and references to "persons" shall include
            individuals, bodies corporate, unincorporated associations,
            businesses and partnerships;

      1.2.4 the headings shall be ignored in construing the Agreement; and

      1.2.5 references to the words "includes" or "including" shall be construed
            without limitation to the generality of the preceding words.

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



1.3   The Schedule(s) form part of this Agreement and shall have the same force
      and effect as if expressly set out in the body of this Agreement.

2.    TERM

2.1   This Agreement shall commence on the Effective Date and shall continue
      thereafter unless or until it expires or is terminated in accordance with
      Clause 15.

3.    PROJECT MANAGEMENT

3.1   The Parties shall each appoint a representative to form a committee for
      the term of this Agreement to agree on the Transfer and Validation Project
      and to deal with any issues that arise between them including with regard
      to the maintenance, prosecution and exploitation of the Colony Technology
      (the "STEERING COMMITTEE").

3.2   The Steering Committee shall consist of one member from each Party. Each
      Party may replace or provide substitutes for its members as it sees fit.
      On and from the Effective Date, the following persons shall be appointed
      to the Steering Committee:

      3.2.1      From Solexa:    Tony Smith

      3.2.2      From Lynx:      Mary Schramke

3.3   Within 30 days of the Effective Date, the members of the Steering
      Committee shall meet and agree on the scope and nature of the Transfer and
      Validation Project setting out such agreement in reasonable detail.

3.4   The Steering Committee will then meet every month in person or by
      telephone conference at such places and on such dates as shall be mutually
      convenient to the Parties. Additional representatives of the Parties may
      attend provided the Party inviting the additional representatives gives
      prior written notification to the other Party. The Quorum for meetings of
      the Steering Committee shall be one representative from each Party.

3.5   All decisions to be taken by the Steering Committee will require unanimous
      agreement from both Parties representatives. In the event that there is
      not unanimous agreement, the matter in question requiring the decision of
      the Steering Committee shall not proceed and the status quo shall be
      preserved.

3.6   The Steering Committee shall keep accurate minutes of its deliberations
      which record all proposed decisions and actions recommended or taken.
      Draft minutes to be approved by the Committee Chairman within 10 days.

3.7   During the term of the Agreement each of the Parties shall furnish the
      Steering Committee with monthly written reports describing the progress of
      agreed projects and comprehensive written reports within 30 days of the
      completion of each such project.

3.8   Chairmanship of each meeting of the Steering Committee shall alternate
      between the Parties. The Chairman shall not have a casting vote.

[*]=  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.



3.9   The costs of each Party's representative on the Steering Committee shall
      be for the account of such Party. Expenses of the Steering Committee shall
      be borne as agreed between the Parties of it not agreed, equally by the
      Parties.

4.    STANDSTILL PERIOD

4.1   Save as may be otherwise agreed in writing by the Steering Committee in
      relation to the Transfer and Validation Project or a Joint Development
      Project, neither Party shall undertake any review, investigation,
      experimentation, development, exploitation or other activity in connection
      with any part of the Background IP without the express written consent of
      the other Party until the expiry of a six (6) month period from the
      Effective Date.

5.    OWNERSHIP OF IP RIGHTS

5.1   All Background IP obtained through or as a result of the Acquisition shall
      be assigned to both Parties jointly to hold in equal undivided shares as
      tenants in common.

5.2   Any Foreground IP developed jointly by the Parties or in the performance
      or carrying out of a Joint Development Project or the Transfer and
      Validation Project shall be owned and held jointly by the Parties as
      tenants in common in equal and undivided shares.

5.3   Any IP Rights developed, acquired or created by either Party independently
      of the other Party and not in the performance or carrying out of a Joint
      Development Project or the Transfer and Validation Project shall be owned
      by such Party and nothing in this Agreement shall give the other Party any
      right, title, interest or licence therein or in respect thereof.

5.4   If in any territory it is not possible for the Parties to hold Colony
      Technology jointly as tenants in common in equal undivided shares the
      Parties shall agree through the Steering Committee that one Party shall
      hold the relevant legal rights on trust for both Parties and shall grant a
      licence to the other Party to put such Party, so far as possible, in the
      same position as regards its legal and economic rights as it would have
      been had the Parties been joint owners of the relevant Colony Technology
      in the relevant territory as tenant in common in equal individual shares.

5.5   Each Party shall execute all such documents and do all such things as
      shall be reasonably necessary to vest or perfect the vesting of the Colony
      Technology (including Registered IP) in the Parties as provided in this
      Clause 5 and otherwise to give effect to the provisions of this Clause 5.
      The expenses of the Parties in doing so shall be shared equally between
      the Parties.

6.    REGISTERED IP

6.1   The Parties shall jointly appoint such firm of patent agents as the CEO's
      of each of the Parties shall determine by mutual agreement within 30 days
      of the Effective date (the "PATENT AGENTS") who shall act for the Parties
      in respect of all matters relating to the application for registration in
      any jurisdiction of any IP Rights which are capable of registration, and
      shall generally advise the Parties as to the conduct and administration of
      the IP Rights as provided for in this Agreement.

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



6.2   The Steering Committee shall meet (at such times as may be reasonably
      requested by either Party) in order to decide (after consultation with the
      Patent Agents) upon:

      6.2.1 the jurisdictions in which any Colony Technology capable of
            registration shall be applied for and registered; and

      6.2.2 whether or not to renew, surrender, or allow to lapse, any such
            Colony Technology

6.3   In the event that the Parties fail to agree upon any matter falling to be
      decided pursuant to Clause 6.2 above they shall use their best endeavours
      to resolve the deadlock by consultation. Failing such resolution the
      matter in dispute shall not go ahead and the status quo shall be
      preserved, except that in relation to the registration or renewal of a
      registration of any Colony Technology in any Territory the Party wishing
      to do so may instruct the Patent Agents to do so independently of the
      other Party (and in its sole name) in order to preserve the Colony
      Technology in the relevant territory and may carry out such other action
      as may be necessary to obtain, maintain and protect the Colony Technology
      in such territory provided that all costs of obtaining, maintaining and
      protecting the Colony Technology in the territory concerned (including the
      Patent Agents fees) shall be for the sole account of the Party taking such
      action. The Party which does not take such action and share in the costs
      of registration or renewal (as the case may be) of the Registered IP
      concerned shall not be entitled to manufacture, market, distribute, sell
      or otherwise commercially exploit Products or the Colony Technology in the
      territory in which the said Registered IP is registered to the extent that
      the Party taking such action (as registered owner of the Registered IP)
      would be entitled to prevent the other Party from doing so but for this
      Agreement and the other Party's joint ownership of the Colony Technology
      pursuant to this Agreement.

6.4   Except as specified in Clause 6.3, the fees of the said firm of Patent
      Agents and the costs of the implementation of the Steering Committee's
      decisions, including without limitation all fees, costs, charges and
      expenses incurred in order to obtain, maintain and protect any part of the
      IP Rights capable of registration shall be borne equally by the Parties.

7.    OWNERSHIP OF BACKGROUND ASSETS

7.1   All Background Assets obtained through the Acquisition shall be assigned
      to and shall be owned jointly by both Parties in equal undivided shares as
      tenants in common.

7.2   The Steering Committee shall decide which portion of the Background Assets
      capable of physical possession will be held by each of the Parties

7.3   With respect to the Background Assets held by either Party, such Party
      shall:

      7.3.1 hold the same in trust for both Parties;

      7.3.2 adequately insure the same from loss, damage and destruction at the
            expense of both Parties in equal shares;

      7.3.3 protect the same and keep the same in suitable environmental
            conditions secure from unauthorised access, loss, damage or
            destruction;

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



      7.3.4 upon reasonable notice from the other Party provide the other Party
            with free unrestricted access to and use of such Background Assets
            (or such part thereof as the other Party shall request) at such
            premises as the same shall be kept from time to time or such other
            premises as the other Party may reasonably require;

      7.3.5 where reasonably practicable at all times mark such Background
            Assets as the joint property of the Parties and held in trust for
            the Parties.

8.    COMMERCIAL EXPLOITATION

8.1   Subject to Clause 4, the other provisions of this Clause 8 and any
      decision of the Steering Committee both Parties shall have the right to
      manufacture, market, distribute, sell and otherwise commercially exploit
      the Products and Colony Technology independently of the other Party as it
      may determine appropriate in its absolute discretion (including without
      limitation to grant one or more non-exclusive licences provided the same
      do not include any right to sub-license and do not prejudice the
      integrity, reputation, or value of the Colony Technology or the ability of
      the other Party to manufacture, market, distribute, sell or otherwise
      exploit Products or the Colony Technology). Neither Party shall grant any
      licence of any part of the Colony Technology to any third party during the
      period of [ * ] from the Effective Date without the prior written consent
      of the other.

8.2   At least 30 days prior to the grant of any licence or right by any Party
      under or in relation to the Colony Technology to any third party such
      Party shall provide to the other Party details of the licence or right to
      be granted and a copy of the agreement or document recording the same. The
      Party intending to grant the licence or right shall take into account
      (including by way of amendment to the intended licence or right) the
      comments of the other Party to the extent the other Party reasonably
      requires in order to preserve the integrity, reputation or value of the
      Colony Technology or its ability to manufacture, market, distribute, sell
      or otherwise exploit Products or the Colony Technology.

8.3   Neither Party shall charge, mortgage, encumber or, except as specified in
      Clause 8.1, create any licence, right or interest over or in respect of
      the Colony Technology without the prior written consent of the other Party
      (except in relation to any licence of the Colony Technology during the
      period of [ * ] from the Effective Date, such consent not to be
      unreasonably withheld or delayed).

8.4   Neither Party shall assign, transfer, sell or dispose of its interest (or
      any part thereof) in the Colony Technology or Background Assets without
      the prior written consent of the other Party (such consent not to be
      unreasonably withheld or delayed) except that either Party may assign,
      transfer, sell or dispose of the whole of such interest to an Affiliate or
      to a third party acquiring all or substantially all of the business and
      assets of the assigning Party and then only if such Affiliates or third
      Party first undertakes in writing to be bound by the terms of this
      Agreement.

8.5   [ * ]

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



9.    PAYMENTS AND ROYALTIES

9.1   In the event that a Party or any licensee of a Party sells any Product
      that Party shall pay to the other Party a royalty equal to [ * ] of any
      and all Net Sales in respect of that Product whether such Net Sales are by
      such Party or its licensee (but subject always to Clause 9.4).

9.2   The Sale of any Product to a third party other than in a bona fide arms
      length transaction exclusively for money and any use of a Product by a
      third party for commercial purposes which does not result in a Sale shall
      be deemed to constitute a Sale and the Net Sales in respect of such Sale
      shall be the higher of the actual invoiced amount or the usual selling
      price of Product of the Party or its licensee (as the case may be) or, if
      none, the fair market value of such Product. Net Sales by either Party to
      its Affiliate shall not be subject to the payment of a royalty under
      Clause 9.1 but any Sale of Product by an Affiliate to a third party shall
      be subject to the payment of a royalty under Clause 9.1 in all respects as
      if such Sale were by the relevant Party and not by its Affiliate.

9.3   If any Product is incorporated in any other product sold or supplied by
      either Party or any licensee and is not priced separately from such other
      product, the Net Sales of such Products shall be taken to be that
      proportion of the invoiced Sales of such other product fairly attributable
      to the Product when comparing the cost to make the Product with the cost
      to make the other product.

9.4   The Parties may vary the percentage of royalties payable on Net Sales of
      Product by licensees of a Party by prior written agreement. Neither Party
      shall unreasonably withhold or delay their consideration or consent to a
      request by either Party to a reduction in the royalties payable in respect
      of Net Sales by a licensee if such a reduction is reasonably needed to
      achieve a licence of the Colony Technology and the percentage of royalties
      payable on Net Sales of Product by the licensee (and the share of such
      royalties payable to the Party whose consent is required) is commercially
      reasonable under the circumstances. For the avoidance of doubt it shall
      not in any circumstance be unreasonable for a Party to withhold its
      consent to such a reduction if the proposed royalty payable on Net Sales
      of Product by the licensee is less than [ * ] or the proposed share of
      such royalty receivable by the Party whose consent is required is less
      than [ * ] of Net Sales of Product by the licensee.

9.5   Payment of the sums due under this Clause 9 shall be made in arrears
      within thirty (30) days of the end of each calendar quarter in respect of
      Net Sales of the Product made during such a calendar quarter. Both Parties
      shall procure that all payments are accompanied by a written statement
      giving full details of the quantity and description of the Product Sold,
      the invoiced value of Sales and the deductions made from such invoiced
      value in order to give Net Sales and the amount due in respect of that
      period. Such statements shall be accompanied by payment in full of the
      total amount shown to be due by the statement.

9.6   All sums payable under this Clause 9:

      9.6.1 shall be paid in US dollars. If any Net Sales are not calculated in
            US dollars it shall be converted into US dollars on the last day of
            the relevant period specified

[*]=  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.



            in Clause 9.5 at the open middle market rate of exchange published
            on that day by the Wall Street Journal;

      9.6.2 shall be paid in full without any withholding or deduction whether
            on account of any taxes, charges or duties or otherwise unless the
            Party is required by law to make such withholding or deduction. The
            parties to this Agreement shall take all steps necessary to ensure
            that royalties may be paid under this Agreement without any or at
            reduced rates of withholding or deduction and the paying Party shall
            provide the other with proper documentary evidence as to the
            deduction or withholding to enable the other Party to obtain
            appropriate relief under such double taxation agreements as may be
            relevant; and

      9.6.3 shall be paid by the due date failing which the other Party shall be
            entitled to charge interest on any outstanding amount at the
            statutory rate of interest for late payment prescribed by section 1
            of the Late Payment of Commercial Debts (Interest) Act 1998. Such
            interest shall be paid by the defaulting Party on demand in writing.

9.7   All payments to be made under this Clause 9 are exclusive of any
      applicable VAT or sales tax to which the payment is subject. The paying
      Party shall be additionally liable for all taxes, charges or duties in
      respect of all payments to be made hereunder and shall pay the same for
      the other Party in the manner and at the rate prescribed by law or
      regulation.

9.8   All payments under this Agreement shall be made without legal or equitable
      deduction, abatement or set-off.

10.   INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS

10.1  In the event that either Party becomes aware of a third party infringing
      any part of the Colony Technology, it shall notify the other Party as soon
      as reasonably practicable. The Parties shall then meet through the
      Steering Committee to decide what action should be taken against that
      third party. Any costs in relation to an action against a third party in
      respect of the relevant IP Rights shall be shared equally unless one Party
      decides that it does not wish to enforce the relevant IP Rights against
      the infringer in which case the other Party can elect to prosecute on its
      own (indemnifying the non-participating Party against all costs and
      expenses that it may incur in respect of the claim against the third
      party).

10.2  Any awards or payments received from the third party infringer shall be
      shared equally by the Parties, unless one of the Parties elects not to
      participate in the action against the infringer in which case the sole
      participating Party shall retain such sums.

11.   THIRD PARTY CLAIMS

11.1  In the event that either Party receives notice of a claim by a third party
      that any of the relevant Colony Technology infringes that third party's
      rights, the Party will inform the other Party as soon as reasonably
      practicable and the Parties shall meet to discuss and agree the action to
      be taken by them in respect of such claim. If an action is brought by a
      third Party against one of the Parties alleging that the Colony Technology
      infringes that third Parties' IP Rights the other Party shall on request
      and at the requesting Parties' expense

[*]=  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.



      assist in the defence to such claim or action to the extent that in all
      the circumstances it is reasonable to do so.

12.   AUDIT RIGHTS

12.1  Both Parties shall keep, and procure that any licensee shall keep, at its
      normal place of business, complete and accurate records showing the
      quantity, description and Net Sales of the Products Sold or used as may be
      necessary or proper to enable the other Party to check the statements
      required under Clause 9.2, through an independent certified or chartered
      accountant, and shall at all times if and when required by the other Party
      produce such records to an independent certified or chartered accountant
      nominated by the other Party and permit such independent certified or
      chartered accountant to inspect and take copies and extracts of such
      records.

12.2  Subject to Clause 12.3 below, each Party shall be entitled on not less
      than ten (10) business days notice to require the other Party to permit it
      and its employees, agents, auditors to inspect the Sales and other records
      of that Party in relation to the Products.

12.3  Each Party shall not be entitled to exercise such audit right more
      frequently than twice in any period of twelve (12) months unless it finds
      a discrepancy amounting to a shortfall payment of more than [ * ] during a
      previous audit in which case it shall be entitled to undertake quarterly
      audits.

12.4  Each Party shall pay its own costs in conducting any audits of the other
      Party's records.

13.   LIABILITY

13.1  Neither Party shall be considered to be in breach of this Agreement or be
      liable for any damages suffered by the other, by reason of any failure to
      perform any obligation hereunder if and to the extent that such failure is
      the result of an event of Force Majeure. The respective obligations of the
      relevant Party's shall be suspended for such time as such an event shall
      prevent it from performing its obligations.

13.2  For the purpose of the establishment of any liability on the part of any
      of the Parties and for the purpose of the application of this Clause, a
      series of interrelated events shall be considered to constitute one single
      event.

13.3  Nothing in this Agreement shall be taken to exclude or limit either
      Party's liability:

      13.3.1 for death or personal injury caused by negligence;

      13.3.2 for fraud or fraudulent misrepresentation or the tort of deceit;

      13.3.3 any liability which cannot be excluded or limited by applicable
             law.

13.4  Neither Party shall be liable to the other for any indirect, special,
      punitive or consequential loss or damage whatsoever or howsoever occurring
      (including if arising in consequence of its negligence).

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



14.   CONFIDENTIALITY

14.1  Each Party hereby undertakes and agrees to maintain and protect the
      confidentiality of the Colony Technology in the same manner and to the
      same extent as it would maintain and protect comparable information that
      it exclusively owns including in relation to the disclosure of the Colony
      Technology as necessary to commercially exploit the same.

14.2  Each Party hereby undertakes and agrees to:

      14.2.1 use the confidential information (including that relating to the
             business affairs or finances) of the other Party disclosed or made
             available to or acquired by it under, pursuant to or in consequence
             of this Agreement (excluding the Colony Technology) ("CONFIDENTIAL
             INFORMATION") only as specified in and for the purposes envisaged
             under this Agreement and not to use the same for any other purpose
             whatsoever;

      14.2.2 ensure that only those of its officers and employees who are
             directly concerned with the carrying out of this Agreement have
             access to the Confidential Information on a strictly applied "need
             to know" basis and are informed of the secret and confidential
             nature of it;

      14.2.3 keep the Confidential Information secret and confidential and shall
             not directly or indirectly publish, disclose or permit to be
             published or disclosed the same to any third party for any reason
             without the prior written consent of the other Party.

14.3  The obligations of confidence referred to in Clause 14.2 shall not extend
      to any Confidential Information which:

      14.3.1 is or becomes generally available to the public otherwise than by
             reason of breach by the Party receiving the Confidential
             Information ("RECIPIENT PARTY") of the provisions of this Clause
             14;

      14.3.2 is known to the Recipient Party and is at its free disposal (having
             been generated independently by the Recipient Party or a third
             party in circumstances where it has not been derived directly or
             indirectly from the other Party's Confidential Information) prior
             to its receipt from the other Party provided that evidence of such
             knowledge is furnished by the Recipient Party to the other Party
             within 28 days of receipt of that Confidential Information; or

      14.3.3 is subsequently disclosed to the Recipient Party without
             obligations of confidence by a third party owing no such
             obligations to the other Party in respect of that Confidential
             Information.

14.4  The obligations of the Parties under this Clause 14 shall survive the
      expiration or termination of this Agreement for whatever reason.

15.   TERMINATION

15.1  This Agreement shall continue and remain in full force and effect for so
      long as any application for a patent or a registered patent in relation to
      the Colony Technology which is

[*]=  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.



      jointly owned by the Parties shall remain subsisting. This Agreement may
      only be terminated by the Parties upon mutual written agreement or in
      accordance with Clause 16.5.

16.   SURVIVAL

16.1  Clauses 5 (Ownership of IP Rights), 7 (Ownership of Background
      Technology), 13 (Liability), 14 (Confidentiality) and 25 (Governing Law
      and Jurisdiction) shall survive expiry and termination of this Agreement.

16.2  Subject to Clause 16.5 and without prejudice to Clause 16.1, upon expiry
      or termination of the Agreement for any reason each Party may continue to
      exploit the Colony Technology as it may determine in its absolute
      discretion and Clause 8.1 shall survive the expiration or termination of
      this Agreement.

16.3  Without prejudice to Clause 16.1, the royalties payable in respect of Net
      Sales in accordance with Clause 9 in respect of Net Sales during the term
      of this Agreement and the rights of the Parties to conduct audits thereof
      under Clause 12 shall survive the termination of this Agreement.

16.4  Obligations that by their nature are intended to continue to be in force
      after termination of this Agreement, shall survive the termination of this
      Agreement.

16.5  If in relation to either Party ("Affected Party"):

      16.5.1 a notice is issued to convene a meeting for the purpose of passing
             a resolution to wind it up, or such a resolution is passed (other
             than a resolution for its solvent reconstruction or
             reorganisation);

      16.5.2 a resolution is passed by its directors to seek a winding up or to
             enter administration; or a petition for a winding up order is
             presented against it or a petition is presented or an application
             is made for the appointment of an administrator, or such an order
             or appointment is made;

      16.5.3 a receiver, administrative receiver and manager, interim receiver,
             custodian, sequestrator, administrator or similar officer is
             appointed in respect of that Party or over a substantial part of
             its assets;

      16.5.4 any step or event is taken or arises outside the United Kingdom
             which is similar or analogous to any of the steps or events listed
             at 16.5.1 to 16.5.3 above;

      16.5.5 it makes any general assignment, composition or arrangement with or
             for the benefit of all or some of its creditors.

      the other Party shall have the right and option to purchase and the
      Affected Party shall sell (on the exercise of such option) the entire
      legal and beneficial title and interest of the Affected Party to all
      Colony Technology and Background Assets for a sum equal to the fair market
      value of such assets. Such option to be exercisable by the other Party
      upon written notice to the Affected Party at any time from the occurrence
      of such event to 30 days after receiving notice of such event from the
      Affected Party. Upon completion of such

[*]=  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.



      purchase this Agreement shall terminate. Upon such termination Clause 16.2
      shall not apply.

17.   ANNOUNCEMENTS

17.1  No Party shall make any formal press release or other public announcement
      in connection with any of the transactions contemplated by this Agreement
      except:

      17.1.1 an announcement in the agreed form or in any other form agreed by
             both Parties; or

      17.1.2 any announcement required by any applicable Competent Authority.

18.   NON-SOLICITATION

      The parties agree that during the term of the Agreement and for a period
      of [ * ] months thereafter, they will not, whether directly or indirectly,
      procure the services of any of the other Party's employees or consultants
      directly engaged in the performance of this Agreement. In the event that
      either Party breaches this Clause, the defaulting Party shall pay to the
      affected Party all unavoidable and reasonable costs incurred by the
      affected Party including but not limited to a sum equal to the gross
      salary of the employee or the consultant due under any relevant notice
      period. This Clause shall not restrict either Party from appointing any
      person, whether employee or consultant of the other or not, who has
      applied in response to an advertisement properly and publicly placed in
      the normal course of business.

19.   NO ASSIGNMENT

      Neither Party may assign any right under this Agreement without the prior
      written consent of the other Party (such consent not to be unreasonably
      withheld or delayed) except to an Affiliate or third party which at the
      same time acquires the whole of such Party's interest in the Colony
      Technology and Background Assets pursuant to Clause 8.4.

20.   COSTS AND PAYMENTS

      Except as otherwise stated in this Agreement, each Party shall bear its
      own costs and expenses in relation to the negotiation, preparation,
      execution and carrying into effect of this Agreement and all other
      agreements forming part of the transactions contemplated by this
      Agreement.

21.   ENTIRE AGREEMENT

21.1  This Agreement constitutes the whole and only agreement and understanding
      between the parties in relation to its subject matter. Except as provided
      in Clause 21.3, all previous agreements, understandings, undertakings,
      representations, warranties and arrangements of any nature whatsoever
      between the Parties with any bearing on the subject matter of this
      Agreement are superseded and extinguished (and all rights and liabilities
      arising by reason of them, whether accrued or not at the date of this
      Agreement, are cancelled) to the extent that they have such a bearing.

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



21.2  The rights, powers and remedies provided in this Agreement are independent
      and cumulative and do not exclude any rights, powers or remedies (express
      or implied) which are available as a matter of common law, statute, custom
      or otherwise.

21.3  Nothing in this Agreement shall be read or construed as excluding or
      restricting any liability or remedy in respect of fraud or the tort of
      deceit.

22.   NOTICES

22.1  Any communication to be given in connection with the matters contemplated
      by this Agreement shall except where expressly provided otherwise be in
      writing and shall either be delivered by hand or sent by first class
      pre-paid or registered post. Delivery by courier shall be regarded as
      delivery by hand.

22.2  Such communication shall be sent to the address of the relevant Party
      referred to in this Agreement or to such other address as may previously
      have been communicated to the sending Party in accordance with this
      Clause. Each communication shall be marked for the attention of the
      relevant person.

22.3  The addresses of the parties for the purpose of Clause 22.2 are as
      follows:

      Solexa:              Chesterford Research Park,
                           Little Chesterford,
                           Saffron Walden,
                           Essex CB10 1XL

      For the attention of:    Nick McCooke

      Lynx:                25861 Industrial Blvd,
                           Hayward,
                           CA 94545

      For the attention of:    Kevin Corcoran

22.4  A communication shall be deemed to have been served:

      22.4.1 if delivered by hand at the address referred to in Clause 22.3 at
             the time of delivery; or

      22.4.2 if sent by first class pre-paid post to the address referred to in
             that sub-clause, at the expiration of two clear days after the time
             of posting; and

22.5  If a communication would otherwise be deemed to have been delivered
      outside normal business hours (being 9:30 a.m. to 5:30 p.m. on a business
      day) under the preceding provisions of this Clause, it shall be deemed to
      have been delivered at the next opening of such normal business hours.

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



22.6  In proving service of the communication, it shall be sufficient to show
      that delivery by hand was made or that the envelope containing the
      communication was properly addressed and posted as a first class pre-paid
      letter or that the facsimile was despatched and a confirmatory
      transmission report received.

22.7  Either Party may notify the other of a change to its name, relevant person
      or address for the purposes of Clause 22.3 (Address) provided that such
      notification shall only be effective on:

      22.7.1 the date specified in the notification as the date on which the
             change is to take place; or

      22.7.2 if no date is specified or the date specified is less than five
             clear business days after the date on which notice is deemed to
             have been served, the date falling five clear business days after
             notice of any such change is deemed to have been given.

22.8  For the avoidance of doubt, the Parties agree that the provisions of this
      Clause shall not apply in relation to the service of any statement of
      claim, summons, order, judgment or other document relating to or in
      connection with any legal proceedings.

23.   THIRD PARTY RIGHTS

      Nothing in this Agreement is intended to confer on any person any right to
      enforce any term of this Agreement which that person would not have had
      but for the Contracts (Rights of Third Parties) Act 1999.

24.   DISPUTES

24.1  Any dispute in relation to this Agreement shall be referred by either
      Party to the Steering Committee for resolution unless the Steering
      Committee have already considered the matter in which case it shall be
      referred as indicated in Clause 24.2 below.

24.2  If within the 14 business days of the reference made under Clause 24.1 the
      Steering Committee has not resolved the dispute the Parties shall refer
      the dispute to the Chief Executive Officers of Solexa and Lynx for
      resolution. If the dispute cannot be resolved by those individuals within
      14 days after the dispute has been referred the dispute shall be resolved
      in accordance with the remaining provisions of this Clause.

24.3  Following a failure to resolve a dispute under Clause 24.2, either Party
      may request that the dispute be referred to mediation. Any reference to
      mediation shall be made in accordance with the mediation procedures of the
      Centre for Effective Dispute Resolution ("CEDR"). The mediation will be
      conducted by a single mediator appointed by the parties or, if the parties
      are unable to agree on the identity of the mediator within 14 days after
      the date of the request that the dispute be resolved by mediation, or if
      the person appointed is unable or unwilling to act, the mediator shall be
      appointed by the Executive of the CEDR on the application of either Party.
      The mediation shall be conducted in London and in English. Mediation is
      without prejudice to the rights of the parties in any future proceedings.

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



24.4  This Clause 24 is without prejudice to either Party's right to seek
      interim relief against the other Party (such as an injunction) through
      relevant courts and legal process in order to protect its rights and
      interests, or to enforce the obligations of the other Party.

25.   GOVERNING LAW AND JURISDICTION

25.1  This Agreement shall be governed by and construed in accordance with
      English law.

25.2  Subject to Clause 24, the parties hereby irrevocably agree to submit to
      the exclusive jurisdiction of the Courts of England in respect of any
      dispute which may arise in connection with the validity, effect,
      interpretation or performance of, or the legal relationships established
      by, this Agreement or otherwise arising in connection with this Agreement.

IN WITNESS WHEREOF the Parties duly executed this Agreement the day and year
first above written.

SIGNED by                  )         /s/ N. J. McCooke
                            ----------------------------------------

SOLEXA LIMITED             )         N. J. McCooke, CEO

in the presence of:        )         /s/ B. J. Haigh
                            ----------------------------------------

Witness:                   )         B. J. Haigh

SIGNED by                  )         /s/ Kevin P. Corcoran
                            ----------------------------------------

LYNX THERAPEUTICS INC      )         Kevin P. Corcoran, President & CEO

in the presence of:        )         /s/ Patricia Rabelo
                            ----------------------------------------

Witness:                   )         Patricia Rabelo

[*]=  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.



                                   SCHEDULE 1

                                 BACKGROUND IP

1.    [ * ]

2.    [ * ]

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



                                   SCHEDULE 2

                               BACKGROUND ASSETS

1.    [ * ]

2.    [ * ]

3.    [ * ]

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

EX-31.1

                                                                    EXHIBIT 31.1

                                  CERTIFICATION

I, Kevin P. Corcoran, President and Chief Executive Officer of Lynx
Therapeutics, Inc., 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: May 13, 2004

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

EX-31.2

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

I, Kathy A. San Roman, Acting Chief Financial Officer of Lynx Therapeutics,
Inc., 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: May 13, 2004

                                       /s/ Kathy A. San Roman
                                       -----------------------------------------
                                       Vice   President,    Human    Resources &
                                       Administration and Acting 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 Kathy A. San Roman, Vice President,
Human Resources & Administration and Acting Chief Financial Officer of the
Company, each hereby certifies that, to the best of his and her knowledge:

1.    The Company's Quarterly Report on Form 10-Q for the period ended March 31,
      2004, 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 Quarterly Report fairly presents, in all
      material respects, the financial condition and the results of operations
      of the Company.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of May 13,
2004.

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

                                               /s/ Kathy A. San Roman
                                               ---------------------------------
                                               Kathy A. San Roman
                                               Vice President, Human Resources &
                                               Administration and
                                               Acting 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.