0001095811-01-505035.txt : 20011009
0001095811-01-505035.hdr.sgml : 20011009
ACCESSION NUMBER: 0001095811-01-505035
CONFORMED SUBMISSION TYPE: 10-K405/A
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010921
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: LYNX THERAPEUTICS INC
CENTRAL INDEX KEY: 0000913275
STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833]
IRS NUMBER: 943161073
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405/A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-22570
FILM NUMBER: 1741632
BUSINESS ADDRESS:
STREET 1: 3832 BAY CENTER PL
CITY: HAYWARD
STATE: CA
ZIP: 94545
BUSINESS PHONE: 5106709300
MAIL ADDRESS:
STREET 1: 3832 BAY CENTER PLACE
CITY: HAYWARD
STATE: CA
ZIP: 94545
10-K405/A
1
f75847a2e10-k405a.txt
10-K405/A
1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2 TO
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22570
LYNX THERAPEUTICS, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 94-3161073
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
25861 Industrial Blvd., Hayward, CA 94545
(Address of principal executive offices, including zip code)
(510) 670-9300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The number of shares of common stock of the Registrant outstanding as of
August 6, 2001, was 13,446,554. The aggregate market value of the common stock
of the Registrant held by non-affiliates of the Registrant, based upon the
closing price of the Common Stock reported on the Nasdaq National Market on
August 6, 2001, was $76,694,739.66.
================================================================================
2
EXPLANATORY NOTE
Lynx Therapeutics, Inc. is filing this Amendment No. 2 to Form 10-K to
amend and restate certain portions of its Annual Report on Form 10-K, as
amended. Each of the following sections of the Annual Report is amended and
restated in its entirety, and is current as of September 21, 2001:
- Item 1: Business -- Collaborations, Customers and Licensees;
- Item 8: Financial Statements, Notes to Consolidated Financial
Statements -- Note 3. Collaborators, Customers and Licensees; and
- Item 14: Exhibits, Financial Statement Schedule and Reports on Form 8-K.
Lynx previously filed Amendment No. 1 to Form 10-K to amend and restate
certain portions of its Annual Report. Each of the following sections of the
Annual Report was amended and restated in its entirety, and is current as of
August 24, 2001:
- Item 1: Business -- Business Risks;
- Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources; and
- Item 8: Financial Statements, Notes to Consolidated Financial Statements
-- Note 12. Subsequent Events (Unaudited).
The remaining portions of the Annual Report, unless otherwise noted, are
current as of March 30, 2001, the initial filing date of the Annual Report.
LYNX THERAPEUTICS, INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000
TABLE OF CONTENTS
PART I
Item 1. Business ................................................................................... 1
Item 2. Properties ................................................................................. 20
Item 3. Legal Proceedings .......................................................................... 20
Item 4. Submission of Matters to a Vote of Security Holders ........................................ 20
PART II
Item 5. Market for Registrants Common Equity and Related Stockholder Matters ....................... 21
Item 6. Selected Financial Data .................................................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................................. 23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................................. 27
Item 8. Consolidated Financial Statements and Supplementary Data ................................... 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ....... 46
PART III
Item 10. Directors and Executive Officers of the Registrant ......................................... 47
Item 11. Executive Compensation ..................................................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management ............................. 51
Item 13. Certain Relationships and Related Transactions ............................................. 52
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K ............................. 53
Signatures ........................................................................................... 55
3
PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, this report
contains certain information that is forward-looking in nature. Examples of
forward-looking statements include statements regarding Lynx's future financial
results, operating results, product successes, business strategies, projected
costs, future products, competitive positions and plans and objectives of
management for future operations. In some cases, you can identify
forward-looking statements by terminology, such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms and other comparable
terminology. In addition, statements that refer to expectations or other
characterizations of future events or circumstances are forward-looking
statements. These statements involve known and unknown risks and uncertainties
that may cause Lynx's or its industry's results, levels of activity, performance
or achievements to be materially different from those expressed or implied by
the forward-looking statements. Factors that may cause or contribute to such
differences include, among others, those discussed under the captions
"Business," "Business -- Business Risks" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." These and many other
factors could affect the future financial and operating results of Lynx. Lynx
undertakes no obligation to update any forward-looking statement to reflect
events after the date of this report.
Lynx, MPSS(TM), Megaclone(TM), Megasort(TM), Megatype(TM), Protein
ProFiler(TM) and the Lynx logo are some of Lynx Therapeutics, Inc.'s trademarks
and service marks.
OVERVIEW
We believe that Lynx Therapeutics, Inc. is a leader in the development
and application of novel technologies for the discovery of gene expression
patterns and genomic variations important to the pharmaceutical, biotechnology
and agricultural industries. Gene expression patterns refer to the number of
genes and the extent a cell or tissue expresses those genes, and they represent
a way to move beyond DNA sequence data to understand the function of genes, the
proteins that they encode and the role they play in health and disease. Genomic
variations refer to the differences in the genetic sequences in the genomes of
different organisms. Megaclone, our unique and proprietary cloning procedure,
forms the foundation of these technologies. Megaclone transforms a sample
containing millions of DNA molecules into one made up of millions of
micro-beads, which are microscopic beads of latex, each of which carries
approximately 100,000 copies of one of the DNA molecules in the sample. In
contrast to conventional cloning, in which an individual DNA molecule is
selected from a sample and amplified into many copies for analysis or
identification, we can capture on one set of micro-beads clones of nearly all
the DNA sequences that characterize a sample. Once attached to the micro-beads,
these clones can be handled and subjected to experiments and analyses all at the
same time. Megaclone thereby enables many analyses or characterizations to be
conducted that would otherwise be too cumbersome or onerous to conduct using
conventional procedures where each clone must be addressed individually. Based
on Megaclone, we have developed a suite of applications that have the potential
to enhance the pace, scale and quality of genomics and genetics research
programs. Lynx's current commercial collaborators and customers are BASF AG,
E.I. DuPont de Nemours and Company, Aventis CropScience GmbH, Oxagen Limited,
Hybrigenics S.A., Genomics Collaborative Inc., Molecular Engines Laboratories
SA, the Institute of Molecular and Cell Biology, Phytera, Inc., Celera Genomics,
AstraZeneca, UroGene S.A., GenoMar ASA and AniGenics, Inc. Additionally, Lynx
has provided a license for the use of certain of our technologies to Takara
Shuzo Co. Ltd. and BASF-LYNX Bioscience AG (BASF-LYNX).
Technologies we have developed that leverage the power of Megaclone are:
- Massively Parallel Signature Sequencing, or MPSS, which
generates simultaneously, from a million or more Megaclone
micro-beads, gene sequence information that uniquely identifies
a sample's DNA molecules without the need for individual
conventional sequencing reactions, and produces a comprehensive
quantitative profile of gene expression in cells or tissues;
- Megasort, which enables researchers to focus on potential
target genes by permitting, from a single experiment, the direct
physical isolation of nearly all the genes differentially
expressed between samples; and
- Megatype, which, when fully developed, should enable a single
experiment to yield directly those disease- or trait-associated
single nucleotide polymorphisms, also known as SNPs, that
differentiate large populations of genomes. SNPs are single
nucleotide variations, or differences occurring in a single
subunit of DNA or RNA, in the genetic code that occur at every
1,000 bases along the three billion nucleotides in the human
genome. Megatype experiments would not require genotyping, which
is the process of testing entire individual genomes for the
presence or absence of a set of SNPs.
We are developing additional applications of these technologies, as well
as new technologies aimed at addressing the needs of the pharmaceutical,
biotechnology and agricultural industries. For example, we are working on a new
separation technology in the area of proteomics, which is the study of the
number of proteins and the extent to which they are expressed in cells or
tissues, to provide high-resolution analysis of complex mixtures of proteins
from cells or tissues of interest.
In addition to our and our licensee's work with collaborators and
customers, we intend to apply our suite of technologies in selected biological
areas to develop products internally to discover and then license or sell gene
targets, validated gene targets, genetic associations, genomic maps and other
products. For example, we are pursuing projects directed to gene discovery and
target validation in immunopathology and, through BASF-LYNX, our joint venture
with BASF, central nervous system disorders.
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INDUSTRY BACKGROUND
The publication of the first draft sequence of the human genome was a
milestone in the history of genetics and genomics. However, the remaining
challenge for researchers in industry and academia alike is to explore the
multitude of genomic variations and to discover, from the analysis of these
differences, the functions of genes and their roles in health and disease. It is
this work, post genome-sequencing, that is expected to lead to commercial
opportunities and ultimately to the discovery of new therapies for unmet medical
needs and to provide the basis for the emerging fields of pharmacogenetics,
which is the identification and assessment of genes that are predictive of
efficacy and toxicity of drug compounds or that may correlate drug responses to
individual genotypes, and individualized patient therapy.
Many diseases result from a malfunction of the genetically programmed
protective response to insults, such as trauma, infection, stress or an
inherited mutant gene. That malfunction may result in inadequate, misguided or
exaggerated gene expression, unfolding a complex pathogenic process which may
resolve itself, linger chronically or evolve with increasingly destructive
effects in a manner quite removed from, and even independent of, the original
insult. By analyzing which genes are expressed in a cell or tissue, the level of
expression can illustrate which physiological pathways are active in the cell
and to what degree. By understanding when and where abnormal gene expression
occurs and the changes in expression that a drug can cause, the physiological
pathways implicated in disease and drug action can be pinpointed. This knowledge
could be used to help discover drug targets, screen drug leads, predict a
compound's toxic effects, anticipate pharmacological responses to drug leads and
tailor clinical trials to the specific needs of subgroups within a population.
By recognizing gene expression patterns, researchers, and ultimately physicians,
may also be able to determine which treatments are likely to be effective for a
specific condition and which may be ineffective or harmful.
Genomic approaches to therapeutics seek to identify genes connected to
the origin of a disease. Searches to identify such genes generally are laborious
and involve a very large amount of conventional DNA sequencing to identify genes
or gene fragments. This knowledge of genes is a first step only. While it may
pave the way for the development of better diagnostics, it may not necessarily
lead to a successful therapy. For example, while a particular gene, or absence
of a gene, may predispose a person to a cancer, an entirely different set of
genes is likely to govern the tumor and its metastases. Hence, in addition to
understanding the cause of disease, it is important to understand entire
networks of genes and their functions in both healthy and diseased states in
order to identify the optimal targets for therapy.
One approach to genomics research is based on the study of gene
expression and regulation of gene expression in cells in differing states or
conditions. Gene expression in a cell consists of transcription, the process
which converts the genetic information encoded in the double-stranded DNA of a
gene into mRNA, and translation, the process which converts the genetic
information encoded in mRNA into a specific protein molecule. At any one time,
any particular human cell expresses thousands of genes. A different number of
copies of each mRNA type will be present in each sample depending upon the
particular cell, its function and its environmental conditions at the time.
Thus, a cell will contain, at any one time, tens of thousands of different
mRNAs, in various quantities, for a total on the order of one million or more
mRNA molecules.
Elucidating gene function involves not only determining which genes are
expressed in a healthy or diseased tissue, but also requires determining which
of the altered gene expressions cause a disease rather than result from the
disease. In general, only the most abundantly expressed genes are currently
accessible using conventional methods. In addition, conventional methods are
dependent on separating and cloning double-stranded copies of each individual
mRNA, or cDNA, prior to analysis. Thus, by conventional methods, it is
impractical to obtain a comprehensive, high-resolution analysis of gene
expression across one million or more mRNA molecules in cells of interest to the
researcher.
Another approach to genomics research is based on the study of human
genetic variations. It is well known that the incidence of human diseases and
their severity differ in different groups and individuals. There are many common
diseases in which several genes play a role in the initiation and development of
the pathological process, as well as in the responses of the individual to a
therapy. This approach studies gene association with diseases by using a large
assembly of specific gene variants called polymorphisms. The most abundant of
these are single nucleotide polymorphisms, or SNPs, which are single-base
mutations in the genome. A SNP is found, on average, once in every 1,000 bases.
This means if any two individuals are compared, their genomes will be found to
differ at more than one million places. Genotyping refers to the process of
testing individual genomes for the presence or absence of a set of SNPs.
If a SNP correlation to a disorder is proven, it would point to those
regions of the genome in which the sequences responsible for the disorder may be
located. However, to discover such regions, it is currently believed that one
would have to test several hundred individual genomes for the presence or
absence of tens of thousands, if not more, SNPs. Thus, there is a real need to
employ a technology that can quickly and efficiently determine which of these
thousands of SNPs are significantly associated with diseases in large
populations of patients and thereby provide a relevant set of SNPs for
downstream genotyping of individuals.
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OUR SOLUTION
We overcome many of the limitations of current technologies by capturing
essentially all of the different DNA molecules in a sample on micro-beads using
our Megaclone technology and applying our various analytical technologies to
conduct relevant comparisons and other analyses of the captured DNA molecules.
Thus, our patented Megaclone technology enables an automated, high-throughput
analysis of complex mixtures of DNA molecules.
Megaclone is a process that uses a proprietary library of approximately
16.7 million short synthetic DNA sequences, called tags, and their complementary
anti-tags, to uniquely mark and process each DNA molecule in a sample. Each
unique tag is a permanent identifier of the DNA molecule it is attached to, and
all of the tagged molecules in a sample are amplified together to create
multiple copies of the tagged molecules. We use another proprietary process to
generate five micron diameter micro-beads, each of which carries multiple copies
of a short anti-tag DNA sequence complementary to one of the 16.7 million tags.
Then we collect the amplified tagged DNA molecules onto the micro-beads through
hybridization of the tags to the complementary anti-tags. Each micro-bead
carries on its surface enough complementary anti-tags to collect approximately
100,000 identical copies of the corresponding tagged DNA molecule.
By this process, each tagged DNA molecule in the original sample is
converted into a micro-bead carrying about 100,000 copies of the same sequence.
Therefore, in a few steps, our Megaclone technology can transform a complex
mixture of a million or more individual DNA molecules into a usable format that
provides the following benefits:
- substantially all the different DNA molecules present in a
sample are represented in the final micro-bead collection;
- these million or more DNA molecules can be analyzed
simultaneously in various applications; and
- the need for storing and handling millions of individual DNA
clones is eliminated.
Megaclone is the foundation for our analytical applications, including MPSS,
which provides gene sequence information and high-resolution gene expression
information, Megasort, which provides focused sets of differentially expressed
genes and potential gene targets, and Megatype, which is expected to provide SNP
disease- or trait-association information.
OUR BUSINESS STRATEGY
We intend to apply our technologies to maximize the value of human,
animal and plant genomic information for our licensee, collaborators and
customers and ourselves through high-resolution gene expression analysis and in
the discovery and characterization of important genetic variations. Now that we
have reduced to practice the majority of our technologies, we intend to enlarge
our presence in the pharmaceutical, biotechnology, agricultural and other
commercially important markets. We believe many drug discovery and development
companies now recognize the need for significantly greater resolution and scope
in their genomics and genetics research.
The primary elements of our business strategy are:
- Pursue selected internal programs to capture greater value
We intend to use our technologies to discover and develop gene targets,
validated gene targets, genetic associations, genomic maps or other products in
selected fields. Through these internal programs, we will endeavor to create
valuable drug discovery information and related intellectual property that we
could license to third parties. If successful, we could realize revenues from
licensing our discoveries through licensing fees, milestone payments and
royalties or profit-sharing. For example, we have initiated a program directed
to the discovery and validation of targets in the field of immunopathology.
- Collaborate with others with whom we can create value
We will seek to collaborate with companies and research institutions
under arrangements in which we provide access to our technologies, and our
collaborators provide access to well-defined clinical samples and/or biological
expertise. Through these programs, we will endeavor to create valuable drug
discovery information and related intellectual property that could be licensed
to third parties. If successful, we could realize revenues through a share in
any licensing or commercialization by us or our collaborators.
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- Provide high-resolution gene expression information for use in
databases
We intend to use our technologies, particularly MPSS, to produce
high-resolution gene expression information from cells or tissues for inclusion
in databases. We believe the distinguishing feature of the information that Lynx
could produce is that it represents a comprehensive quantitative profile of gene
expression in cells or tissues. Our approach could be either to assemble this
information on our own or with a partner in a database format, accessible to
others for an access fee and/or continuing subscriptions, or to provide this
information to others for inclusion in their existing database products, in
return for services fees in producing the information and/or a share of the
revenues or profits from the commercialization of the database.
- Provide high-resolution gene expression information for the
specific programs of others
With the assumed accessibility to databases containing high-resolution
gene expression information on cells or tissues for comparative purposes, we
expect that pharmaceutical, biotechnology, agricultural and other companies will
engage us to produce a comprehensive quantitative profile of gene expression in
cells or tissues for their specific interests, such as in diseased, abnormal or
induced states or conditions. In these arrangements, we could provide
information content for each company's specific internal database or programs.
In return, we could earn services fees in producing the information and/or a
share of the revenues or profits from the commercialization of a product
stemming from the use the information by the company.
- Continue to grow our genomics discovery services
We have generated revenues through agreements for genomics discovery
services. We plan to continue to provide such services to pharmaceutical,
biotechnology and agricultural companies for use in their discovery, development
and commercialization efforts. The revenue sources from these arrangements
typically include technology access and services fees. We have provided a
license for the use of certain of our technologies to Takara. The license
provides Takara with the right in Japan, Korea and China, including Taiwan, to
use our technologies exclusively for at least five years, and non-exclusively
thereafter, to provide genomics discovery services and to manufacture and sell
microarrays (small glass or silicon wafers with tens of thousands of DNA
molecules arrayed on the surface for subsequent analysis) containing content
identified by our technologies. Takara also receives from us a non-exclusive
license right to manufacture and sell such microarrays elsewhere throughout the
world.
- Develop new technologies and additional applications of our
technologies
We intend to continue to develop creative solutions to complex
biological problems. We currently focus on reducing to commercial practice our
Megatype technology in order to extract from large populations those genomic
fragments exhibiting SNPs and associate these SNPs with traits or diseases. We
may further develop our technology to apply it to individual genotyping, which
would determine the relevant SNPs present in an individual. We are also working
in the area of proteomics to provide a means of high-resolution analysis of
complex mixtures of proteins from cells or tissues.
OUR TECHNOLOGIES AND APPLICATIONS
We have developed, or are developing, several important analytical
applications of our Megaclone technology to better address the need for
increased pace, scale and quality of genomics and genetics research programs.
Current Applications
Massively Parallel Signature Sequencing Technology. Our MPSS technology
addresses the need to generate sequence information from millions of DNA
fragments. At this extremely large scale, our MPSS approach eliminates the need
for individual sequencing reactions and the physical separation of DNA fragments
required by conventional sequencing methods.
MPSS enables the simultaneous identification of nearly all the DNA
molecules in a sample. MPSS uses flow cells which are glass plates that are
micromachined, or fabricated to very precise, small dimensions, to create a
grooved chamber for immobilizing microbeads in a planar microarray, which is a
two-dimensional, dense ordered array of DNA samples. With MPSS, one million or
more Megaclone micro-beads are fixed in a single layer array in a flow cell, so
solvents and reagents can be washed over the micro-beads in each cycle of the
process. Our proprietary protocol elicits from the Megaclone micro-beads
sequence-dependent fluorescent responses, which are recorded by a charged
coupled device, or CCD, camera after each cycle. The process produces short 16-
to 20-base-pair signature, or identifying, sequences, without requiring fragment
separation and separate sequencing reactions as in conventional DNA sequencing
approaches. We have developed proprietary instrumentation and software to
automate the delivery of reagents and solutions used in our sequencing process
and to compile, from the images obtained at each cycle, the signature sequences
that result from each experiment.
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We believe MPSS has the following advantages over conventional DNA
sequencing methods:
- it sequences DNA molecules on as many as one million or more
Megaclone beads simultaneously;
- it eliminates the need for individual sequencing reactions and
gels;
- it identifies each of the DNA molecules by a unique 16- to
20-base signature sequence;
- it produces a comprehensive quantitative profile of gene
expression in cells or tissues of interest; and
- it identifies even the rarest expressed genes.
We currently have over 30 operational proprietary MPSS instruments. We
are utilizing MPSS to generate high-resolution expression data in several
biological systems for our collaborators and customers and for ourselves. These
data are being derived from tissues and samples that have been prioritized by
our collaborators and customers, in addition to those identified by our research
teams for our internal programs. We will also generate data that can be
delivered directly to our customers to identify new genes and otherwise enhance
their databases.
MPSS delivers gene sequence information and high-resolution gene
expression information and could enable the construction of high-resolution gene
expression databases from cells or tissues of interest.
Megasort Technology. Our Megasort technology provides a method to
identify and physically extract essentially all genes that differ in expression
level between two samples. The novelty of Megasort is that the identification
and extraction are performed in a single assay.
Megasort compares two DNA samples, each containing millions of
molecules, and extracts those DNA molecules that are present in different
proportions in the samples. These could be differentially expressed genes or DNA
fragments that are found in one sample but not the other. Because the comparison
and sorting require no prior knowledge of the sequences of the genes in either
sample, Megasort can be used with samples isolated from tissues or organisms
that are not well characterized. Megasort involves hybridizing two probes
prepared separately, one from each of the samples to be compared, with a
population of Megaclone micro-beads, each of which carries many copies of a
single DNA fragment or gene derived from either of the samples. Because each
probe is labeled with a different fluorescent marker, we can readily separate by
a fluorescence activated cell sorter, also referred to as a FACS, genes or
fragments that are under- or over-represented in either sample. Genes or
fragments of interest can then be recovered from the sorted micro-beads for
further study.
Megasort technology uses Megaclone micro-beads as a "fluid" microarray.
In a single experiment, Megasort can isolate nearly all the potential target
genes that are differentially expressed, and remove those that do not differ
between the samples. We believe Megasort has the following advantages over
conventional gene microarrays:
- it interrogates all the expressed genes, including rarely
expressed genes, in the two samples being compared, whether
known or not;
- it does not require advance knowledge about any of the genes in
these samples; and
- it extracts, at the end of the experiment, physical DNA clones
of those genes that are of interest attached to the micro-beads
that were sorted.
Megasort delivers focused sets of differentially expressed genes and potential
gene targets.
Technologies, Applications and Products Under Development
Megatype Technology. We believe our Megatype technology will permit the
comparison of collected genomes of two populations. It is designed to enable the
detection and recovery of DNA fragments with the SNPs that distinguish these two
populations. In contrast to other SNP validation methods that require thousands
or millions of assays, only a single Megatype experiment should be required for
SNP association with disease or other traits.
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Megatype is designed to identify SNPs that are differentially
represented in two populations of individuals. We use a proprietary method to
select DNA fragments that exhibit a specific class of SNPs in the combined
populations and to load the fragments onto micro-beads with our Megaclone
technology. Using fluorescently labeled probes, prepared through the same
proprietary method, from the two separate populations, micro-beads bearing
SNP-containing fragments that are under- or over-represented in either of the
two populations are easily separated using the FACS. No prior knowledge of the
SNP sequences or where they are located in the genome is required to conduct
this analysis.
We believe the advantages of Megatype will include:
- enabling simultaneous discovery of disease- or trait-associated
SNPs without prior knowledge of SNP sequences;
- identifying, in a single experiment, the genetic differences
that distinguish large populations;
- extracting fragments containing over- or under-represented SNPs
in different populations;
- eliminating the need for millions of individual genotyping
assays to determine SNP disease association; and
- bypassing the prior need for a comprehensive SNP map.
We believe our Megatype technology will deliver information on the disease- or
trait-association of SNPs and should provide a cost-effective approach to drug
discovery and pharmacogenetics.
Proteomics. Proteomics is the study of the entire protein complement in
cells. Our proteomics technology aims to provide high-resolution analysis of
complex mixtures of proteins from cells or tissues. Based on solution-phase
electrophoresis in proprietary micro-channel plates, the approach combines the
speed of capillary electrophoresis, the process by which electronically charged
molecules are separated by their different mobilities in an electric field, with
the resolving power of conventional two-dimensional gel-based techniques. Using
this technology, we expect to complement high-resolution gene expression
measurements using our MPSS platform with similar high-resolution analysis of a
cell's translated proteins. The combined data from these measurements should
provide a much more accurate and comprehensive picture of cell and tissue
physiology than is available using current techniques. Our goal is to use our
proteomics technology to discover drug targets, validate candidate targets and
correlate gene expression with protein expression in cells.
Genotyping. As a natural extension of our Megatype technology, we may
further apply the technology to individual genotyping, which would determine the
relevant SNPs present in an individual. This application will attempt to derive
more of the downstream value from the scientifically relevant SNPs through the
additional enabling of trait selection in crops, and predictive or preventative
medicine in humans, thus moving closer to the notion of "personal genomics."
Furthermore, we may develop additional assays to help link associated SNPs
initially identified by Megatype technology to specific genes responsible for
the observed traits.
COLLABORATIONS, CUSTOMERS AND LICENSEES
Lynx's current commercial collaborators and customers are BASF AG
(BASF), E.I. DuPont de Nemours and Company, Aventis CropScience GmbH, Oxagen
Limited, Hybrigenics S.A., Genomics Collaborative Inc., Molecular Engines
Laboratories S.A., the Institute of Molecular and Cell Biology, Phytera, Inc.,
Celera Genomics, AstraZeneca, UroGene S.A., GenoMar ASA and AniGenics, Inc.
Additionally, Lynx has provided a license for the use of certain of its
technologies to Takara Shuzo Co. Ltd. and BASF-LYNX Bioscience AG (BASF-LYNX).
BASF
In October 1996, as amended in October 1998, Lynx entered into an
agreement with BASF to provide them with nonexclusive access to certain of our
genomics discovery services. In connection with certain technology development
accomplishments, BASF paid us a technology access fee of $4.5 million in the
fourth quarter of 1999. BASF's access to Lynx's genomics discovery services is
for a minimum of two years and requires BASF to purchase services at a minimum
rate of $4.0 million per year. At the end of the initial two-year service
period, BASF has the right to carryover for an additional two-year period a
certain level of previously unrequested genomics discovery services. BASF paid
us $4.0 million in each of the fourth quarters of 1999 and 2000 for genomics
discovery services to be performed by us. To date, Lynx has received from BASF
aggregate payments of $19 million under the agreement. Lynx could receive
additional payments from BASF over the remaining term of the agreement from
Lynx's performance of genomics discovery services in excess of those covered by
the payments previously made by BASF.
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DuPont
In October 1998, Lynx entered into a research collaboration agreement
with DuPont to apply our technologies on an exclusive basis to the study of
certain crops and their protection. Under the terms of the agreement, the
Company could receive payments over a five-year period for genomics discovery
services, the achievement of specific technology milestones and the delivery of
genomic maps of specified crops. An initial payment of $10 million for
technology access was received at the execution of the agreement, with
additional minimum service fees of $12 million to be received by us over a
three-year period that commenced in January 1999. At the end of three years from
the effective date of the agreement, DuPont can terminate the agreement either
with no further payment obligations to Lynx other than those accrued, or if
DuPont chooses to maintain exclusivity with respect to certain crops, with
payments for the remaining two years of the agreement. In the fourth quarter of
1999, Lynx achieved a technology milestone under the agreement that resulted in
a $5 million payment from DuPont. To date, Lynx has received from DuPont
aggregate payments of $26 million under the agreement. Lynx could receive
additional payments from DuPont which could total approximately $35 million
over the remaining term of the agreement. Lynx's receipt of these payments is
contingent on Lynx's continuing performance of genomics discovery services, the
achievement of specific technology milestones by Lynx and the delivery of
genomic maps of specified crops by Lynx.
Aventis CropScience
In March 1999, Aventis Pharmaceuticals, formerly Hoechst Marion Roussel,
Inc., obtained nonexclusive access to certain of our genomics discovery services
for the benefit of its affiliate, Aventis CropScience. Lynx received an initial
payment for genomics discovery services to be performed by us for Aventis
CropScience. The service period, which was renewed in March 2000, has been
extended to September 2001, and is subject to renewal for up to two additional
one-year periods.
In September 1999, Lynx signed a three-year research collaboration
agreement with Aventis CropScience. Aventis CropScience will receive exclusive
access to certain of our genomics discovery services for the study of certain
plants, which is aimed at developing new crop varieties and other agricultural
products. Under the terms of the agreement, Aventis CropScience paid us a
technology access fee upon execution of the agreement. Lynx can earn additional
fees for the performance of genomics discovery services, the delivery of genomic
maps of certain plants and milestone payments and licensing fees related to the
discovery of trait-associated SNPs for the subject plants.
To date, Lynx has received from Aventis CropScience aggregate payments
of $8 million under the above agreements. Lynx could receive additional
payments from Aventis CropScience which could total approximately $20 million
over the remaining term of the agreements. Lynx's receipt of these payments is
contingent on Lynx's continuing performance of genomics discovery services, the
delivery of genomic maps of certain plants and milestone payments and licensing
fees related to the discovery of trait-associated SNPs for the subject plants.
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Takara
In November 2000, Lynx entered into a technology licensing agreement
with Takara Shuzo Co. Ltd. of Japan. The license provides Takara with the right
in Japan, Korea and China, including Taiwan, to use our proprietary Megaclone,
Megasort and MPSS technologies exclusively for at least five years, and
non-exclusively thereafter, to provide genomics discovery services and to
manufacture and sell microarrays containing content identified by our
technologies. Takara also receives a non-exclusive license right to manufacture
and sell such microarrays elsewhere throughout the world. At the end of three
years from the effective date of the agreement, Takara can terminate the
agreement with no further payment obligations to Lynx other than those accrued
prior to the termination. Under the terms of the agreement, Lynx will receive
from Takara payments for technology access fees, royalties on sales of
microarrays and revenues from genomics discovery services, the sale to Takara of
proprietary reagents used in applying our technologies and purchases of Lynx
common stock. In the event of improvements made by Takara that increase the
efficiency of the Lynx technologies by a defined amount, Lynx and Takara have
agreed to negotiate in good faith a limited reduction to the royalty rate
applicable to the above royalties.
To date, Lynx has received from Takara aggregate payments of $5.3
million under the agreement. Lynx could receive additional payments from Takara
of approximately $10 million over the remaining term of the agreement from
technology access fees and purchases of Lynx common stock. Also, Lynx may
receive payments from Takara for royalties on sales of microarrays and revenues
from genomics discovery services and the sale to Takara of proprietary reagents
used in applying Lynx's technologies.
BASF-LYNX
In June 2001, Lynx extended its technology licensing agreement with
BASF-LYNX, a joint venture company established in Heidelberg, Germany, by Lynx
and BASF in 1996. The license extends BASF-LYNX's right to use Lynx's
proprietary MPSS(TM) and Megasor(TM) technologies non-exclusively in
BASF-LYNX's neuroscience, toxicology and microbiology research programs until
December 31, 2007. The agreement also uniquely positions BASF-LYNX to apply
Lynx's technologies to specific disorders in the neuroscience field. Under the
terms of the agreement, Lynx will receive from BASF-LYNX a multi-million dollar
technology license fee. Lynx will furnish BASF-LYNX, initially without charge
and later for a fee, with Megaclone(TM) technology micro-beads, other reagents
and additional MPSS(TM) technology instruments for use in BASF-LYNX's research
programs.
Separately, Lynx and BASF have agreed to continue their support of
BASF-LYNX's growth, including an increase of the capital reserve of BASF-LYNX.
Lynx's additional investment in BASF-LYNX will maintain Lynx's ownership
interest in BASF-LYNX at more than 40%.
BASF-LYNX began operations in 1997 and is employing Lynx's technologies
in its neuroscience toxicology and microbiology research programs. Upon the
establishment of BASF-LYNX, Lynx contributed access to its technologies to
BASF-LYNX in exchange for an initial 49% equity ownership. BASF, by committing
to provide research funding to BASF-LYNX of DM50 million) or approximately
$23.4 million based on a August 2001 exchange rate) over a five-year period
beginning in 1997, received an initial 51% equity ownership in BASF-LYNX. In
1998, BASF agreed to provide an additional $10 million in research funding to
BASF-LYNX, of which $4.3 million was paid to Lynx for technology assets related
to a CNS program.
To date, Lynx has received from BASF-LYNX net aggregate payments of
$4.8 million under all related agreements. Lynx may receive additional payments
from BASF-LYNX over the remaining terms of the agreements from the sale to
BASF-LYNX of proprietary reagents and additional MPSS(TM) technology
instruments for use in BASF-LYNX's research programs.
COMPETITION
Competition among entities attempting to identify the genes associated
with specific diseases and to develop products based on such discoveries is
intense. We face, and will continue to face, competition from pharmaceutical,
biotechnology and agricultural companies, such as Affymetrix, Inc., Celera
Genomics Group, Incyte Genomics, Inc., Gene Logic, Inc., Genome Therapeutics
Corporation and Hyseq, Inc., academic and research institutions and government
agencies, both in the United States and abroad. Several entities are attempting
to identify and patent randomly sequenced genes and gene fragments, while others
are pursuing a gene identification, characterization and product development
strategy based on positional cloning. We are aware that certain entities are
using a variety of gene expression analysis methodologies, including chip-based
systems, to attempt to identify disease-related genes. In addition, numerous
pharmaceutical companies are developing genomic research programs, either alone
or in partnership with our competitors. Competition among such entities is
intense and is expected to increase. In order to successfully compete against
existing and future technologies, we will need to demonstrate to potential
customers that our technologies and capabilities are superior to those of
competitors.
Some of our competitors have substantially greater capital resources,
research and development staffs, facilities, manufacturing and marketing
experience, distribution channels and human resources than us. These competitors
may discover, characterize or develop important genes, drug targets or drug
leads, drug discovery technologies or drugs in advance of our customers or us or
which are more effective than those developed by our collaborators and customers
or us. They may also obtain regulatory approvals for their
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drugs more rapidly than our collaborators or customers will, any of which could
have a material adverse effect on our business. Moreover, our competitors may
obtain patent protection or other intellectual property rights that could limit
our rights or our collaborators' and customers' abilities to use our
technologies or commercialize therapeutic, diagnostic or agricultural products.
We also face competition from these and other entities in gaining access to
cells, tissues and nucleic acid samples for use in our discovery programs.
INTELLECTUAL PROPERTY
We are pursuing a strategy designed to obtain United States and foreign
patent protection for our core technologies. Our long-term commercial success
will be dependent in part on our ability to obtain commercially valuable patent
claims and to protect our intellectual property portfolio. As of December 31,
2000, we owned or controlled 63 issued patents and 117 pending patent
applications in the United States and foreign countries relating to our genomics
technologies.
In addition to acquiring patent protection for our core analysis
technologies, as part of our business strategy, we intend to file for patent
protection on sets of genes, both known and newly discovered, that have
diagnostic or prognostic applications, novel genes that may serve as drug
development targets, genetic maps and sets of genetic markers, such as SNPs,
that are associated with traits or conditions of medical or economic importance.
However, there is substantial uncertainty regarding the availability of such
patent protection.
Patent law relating to the scope of claims in the technology field in
which we operate is still evolving. The degree to which we will be able to
protect our technology with patents, therefore, is uncertain. Others may
independently develop similar or alternative technologies, duplicate any of our
technologies, and, if patents are licensed or issued to us, design around the
patented technologies licensed to or developed by us. In addition, we could
incur substantial costs in litigation if we are required to defend ourselves in
patent suits brought by third parties or if we initiate such suits.
With respect to proprietary know-how that is not patentable and for
processes for which patents are difficult to enforce, we rely on trade secret
protection and confidentiality agreements to protect our interests. We intend to
maintain several important aspects of our technology platform as trade secrets.
While we require all employees, consultants, collaborators, customers and
licensees to enter into confidentiality agreements, we cannot be certain that
proprietary information will not be disclosed or that others will not
independently develop substantially equivalent proprietary information.
RESEARCH AND DEVELOPMENT EXPENDITURES
We have devoted our efforts primarily to research and development.
Research and development expenses were $19.8 million for the year ended December
31, 2000, $15.5 million for the year ended December 31, 1999 and $13.2 million
for the year ended December 31, 1998.
SCIENTIFIC ADVISORS
Our principal scientific advisor:
Sydney Brenner, M.B., D.Phil., is a distinguished Professor at the Salk
Institute of Biological Studies in La Jolla, California. From July 1996 to
January 2001, Dr. Brenner served as Director and President of The Molecular
Sciences Institute, a non-profit research institute in Berkeley, California.
Until his retirement in 1996, Dr. Brenner was Honorary Professor of Genetic
Medicine, University of Cambridge School of Clinical Medicine, Cambridge,
England. Dr. Brenner is known for his work on genetic code and the information
transfer from genes to proteins, and for his pioneering research on the genetics
and development of the nematode. Dr. Brenner is a Fellow of the Royal Society
(1995) and a Foreign Associate of the U.S. National Academy of Sciences (1977)
and has received numerous awards of recognition, including the Albert Lasker
Medical Research Award (1991), the Genetics Society of America Medal (1987) and
the Kyoto Prize (1990). Dr. Brenner is the principal inventor of Lynx's
bead-based technologies.
EMPLOYEES
As of December 31, 2000, we employed 156 full-time employees, of which
128 were engaged in research and development activities and 28 in finance and
administrative activities. We believe we have been successful in attracting
skilled and experienced scientific personnel; however, competition for such
personnel is intense. None of our employees are covered by collective bargaining
agreements, and management considers relations with our employees to be good.
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BUSINESS RISKS
Lynx's business faces significant risks. These risks include those
described below and may include additional risks of which Lynx is not currently
aware or which Lynx currently does not believe are material. If any of the
events or circumstances described in the following risks actually occurs, our
business, financial condition or results of operations could be materially
adversely affected. These risks should be read in conjunction with the other
information set forth in this report.
WE HAVE A HISTORY OF NET LOSSES. WE EXPECT TO CONTINUE TO INCUR NET LOSSES, AND
WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.
We have incurred net losses each year since our inception in 1992,
including net losses of approximately $4.3 million in 1998, $6.7 million in 1999
and $13.3 million in 2000. As of June 30, 2001, we had an accumulated deficit of
approximately $76.9 million. We expect these losses to continue for at least the
next several years. The size of these net losses will depend, in part, on the
rate of growth, if any, in our revenues and on the level of our expenses. Our
research and development expenditures and general and administrative costs have
exceeded our revenues to date, and we expect research and development expenses
to increase due to planned spending for ongoing technology development and
implementation, as well as new applications. As a result, we will need to
generate significant additional revenues to achieve profitability. Even if we do
increase our revenues and achieve profitability, we may not be able to sustain
profitability.
Our ability to generate revenues and achieve profitability depends on
many factors, including:
- our ability to continue existing customer relationships and enter into
additional corporate collaborations and agreements;
- our ability to discover genes and targets for drug discovery;
- our ability to expand the scope of our research into new areas of
pharmaceutical, biotechnology and agricultural research;
- our collaborators' ability to develop diagnostic and therapeutic
products from our drug discovery targets; and
- the successful clinical testing, regulatory approval and
commercialization of such products.
The time required to reach profitability is highly uncertain. We may not achieve
profitability on a sustained basis, if at all.
WE WILL NEED ADDITIONAL FUNDS IN THE FUTURE, WHICH MAY NOT BE AVAILABLE TO US.
We have invested significant capital in our scientific and business
development activities. Our future capital requirements will be substantial as
we expand our operations, and will depend on many factors, including:
- the progress and scope of our collaborative and independent research and
development projects;
- payments received under collaborative agreements;
- our ability to establish and maintain collaborative arrangements;
- the progress of the development and commercialization efforts under our
collaborations and corporate agreements;
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- the costs associated with obtaining access to samples and related
information; and
- the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and other intellectual property rights.
We anticipate that our current cash and cash equivalents, short-term
investments and funding to be received from collaborators and customers will
enable us to maintain our currently planned operations for at least the next 12
months. Changes to our current operating plan may require us to consume
available capital resources significantly sooner than we expect. If our capital
resources are insufficient to meet future capital requirements, we will have to
raise additional funds. We do not know if we will be able to raise sufficient
additional capital on acceptable terms, or at all. If we raise additional
capital by issuing equity or convertible debt securities, our existing
stockholders may experience substantial dilution. If we fail to obtain adequate
funds on reasonable terms, we may have to curtail operations significantly or
obtain funds by entering into financing or collaborative agreements on
unattractive terms.
OUR TECHNOLOGIES ARE NEW AND UNPROVEN AND MAY NOT ALLOW US OR OUR COLLABORATORS
TO IDENTIFY GENES OR TARGETS FOR DRUG DISCOVERY.
You must evaluate us in light of the uncertainties and complexities
affecting an early stage genomics company. Our technologies are new and
unproven. The application of these technologies is in too early a stage to
determine whether it can be successfully implemented. These technologies assume
that information about gene expression and gene sequences may enable scientists
to better understand complex biological processes. Our technologies also depend
on the successful integration of independent technologies, each of which has its
own development risks. Relatively few therapeutic products based on gene
discoveries have been successfully developed and commercialized. Our
technologies may not enable us or our collaborators to identify genes or targets
for drug discovery. To date, neither we nor our collaborators have identified
any targets for drug discovery based on our technologies.
WE DEPEND ON OUR COLLABORATIONS AND WILL NEED TO FIND ADDITIONAL COLLABORATORS
IN THE FUTURE TO DEVELOP AND COMMERCIALIZE DIAGNOSTIC OR THERAPEUTIC PRODUCTS.
Our strategy for the development and commercialization of our
technologies and potential products includes entering into collaborations,
subscription arrangements or licensing arrangements with pharmaceutical,
biotechnology and agricultural companies. We do not have the resources to
develop or commercialize diagnostic or therapeutic products on our own. If we
cannot negotiate additional collaborative arrangements or contracts on
acceptable terms, or at all, or such collaborations or relationships are not
successful, we may never become profitable.
We have derived substantially all of our revenues derived from corporate
collaborations and agreements. Revenues from collaborations and related
agreements depend upon continuation of the collaborations, the achievement of
milestones and royalties derived from future products developed from our
research and technologies. To date, we have received a significant portion of
our revenues from a small number of collaborators and customers. For the three
months ended March 31, 2001, revenues from DuPont, BASF, Takara and Aventis
CropScience accounted for 36%, 25%, 19% and 10%, respectively, of our total
revenues. For the year ended December 31, 2000, revenues from DuPont, BASF and
Aventis CropScience accounted for 51%, 29% and
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11%, respectively, of our total revenues. For the year ended December 31, 1999,
revenues from DuPont, Aventis CropScience and BASF accounted for 81%, 13% and
5%, respectively, of our total revenues. For the year ended December 31, 1998,
revenues from BASF-LYNX Bioscience AG, BASF and DuPont accounted for 61%, 33%
and 5%, respectively, of our total revenues. If we fail to successfully achieve
milestones or our collaborators fail to develop successful products, we will not
earn the revenues contemplated under such collaborative agreements. If our
collaborators or customers do no renew existing agreements, we lose one of these
collaborators or customers and we do not attract new collaborators or customers
or we are unable to enter into new collaborative agreements on commercially
acceptable terms, our revenues may decrease, and our activities may fail to lead
to commercialized products.
Our dependence on collaborative arrangements with third parties subjects
us to a number of risks. We have limited or no control over the resources that
our collaborators may choose to devote to our joint efforts. Our collaborators
may breach or terminate their agreements with us or fail to perform their
obligations thereunder. Further, our collaborators may elect not to develop
products arising out of our collaborative arrangements or may fail to devote
sufficient resources to the development, manufacture, marketing or sale of such
products. While we do not currently compete directly with any of our
collaborators, some of our collaborators could become our competitors in the
future if they internally develop DNA or protein analysis technologies or if
they acquire other genomics or proteomics companies and move into the genomics
and proteomics industries. We will not earn the revenues contemplated under our
collaborative arrangements, if our collaborators:
- do not develop commercially successful products using our technologies;
- develop competing products;
- preclude us from entering into collaborations with their competitors;
- fail to obtain necessary regulatory approvals; or
- terminate their agreements with us.
WE DEPEND ON A SOLE SUPPLIER TO MANUFACTURE FLOW CELLS USED IN OUR MPSS
TECHNOLOGY.
Flow cells are glass plates that are micromachined, or fabricated to
very precise, small dimensions, to create a grooved chamber for immobilizing
microbeads in a planar microarray, which is a two-dimensional, dense ordered
array of DNA samples. We use flow cells in our Massively Parallel Signature
Sequencing, or MPSS, technology. We currently purchase the flow cells used in
our MPSS technology from a single supplier, although the flow cells are
potentially available from multiple suppliers. While we believe that alternative
suppliers for flow cells exist, identifying and qualifying new suppliers could
be an expensive and time-consuming process. Our reliance on outside vendors
involves several risks, including:
- the inability to obtain an adequate supply of required components due to
manufacturing capacity constraints, a discontinuance of a product by a
third-party manufacturer or other supply constraints;
- reduced control over quality and pricing of components; and
- delays and long lead times in receiving materials from vendors.
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WE OPERATE IN AN INTENSELY COMPETITIVE INDUSTRY WITH RAPIDLY EVOLVING
TECHNOLOGIES, AND OUR COMPETITORS MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT
MAKE OURS OBSOLETE.
The biotechnology industry is highly fragmented and is characterized by
rapid technological change. In particular, the area of genomics research is a
rapidly evolving field. Competition among entities attempting to identify genes
associated with specific diseases and to develop products based on such
discoveries is intense. Many of our competitors have substantially greater
research and product development capabilities and financial, scientific, and
marketing resources than we do.
We face, and will continue to face, competition from pharmaceutical,
biotechnology and agricultural companies, as well as academic research
institutions, clinical reference laboratories and government agencies. Some of
our competitors, such as Affymetrix, Inc., Celera Genomics Group, Incyte
Genomics, Inc., Gene Logic, Inc., Genome Therapeutics Corporation and Hyseq,
Inc., may be:
- attempting to identify and patent randomly sequenced genes and gene
fragments;
- pursuing a gene identification, characterization and product development
strategy based on positional cloning, which uses disease inheritance
patterns to isolate the genes that are linked to the transmission of
disease from one generation to the next; and
- using a variety of different gene expression analysis methodologies,
including the use of chip-based systems, to attempt to identify
disease-related genes.
In addition, numerous pharmaceutical, biotechnology and agricultural
companies are developing genomic research programs, either alone or in
partnership with our competitors. Our future success will depend on our ability
to maintain a competitive position with respect to technological advances. Rapid
technological development by others may make our technologies and future
products obsolete.
Any products developed through our technologies will compete in highly
competitive markets. Our competitors may be more effective at using their
technologies to develop commercial products. Further, our competitors may obtain
intellectual property rights that would limit the use of our technologies or the
commercialization of diagnostic or therapeutic products using our technologies.
As a result, our competitors' products or technologies may render our
technologies and products, and those of our collaborators, obsolete or
noncompetitive.
IF WE FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGIES, THIRD PARTIES MAY
BE ABLE TO USE OUR TECHNOLOGY, WHICH COULD PREVENT US FROM COMPETING IN THE
MARKET.
Our success depends in part on our ability to obtain patents and
maintain adequate protection of the intellectual property related to our
technologies and products. The patent positions of biotechnology companies,
including our patent position, are generally uncertain and involve complex legal
and factual questions. We will be able to protect our proprietary rights from
unauthorized use by third parties only to the extent that our proprietary
technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. The laws of some foreign countries do not protect
proprietary rights to the same extent as the laws of the U.S., and many
companies have encountered significant problems in protecting and defending
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their proprietary rights in foreign jurisdictions. We have applied and will
continue to apply for patents covering our technologies, processes and products
as and when we deem appropriate. However, third parties may challenge these
applications, or these applications may fail to result in issued patents. Our
existing patents and any future patents we obtain may not be sufficiently broad
to prevent others from practicing our technologies or from developing competing
products. Furthermore, others may independently develop similar or alternative
technologies or design around our patents. In addition, our patents may be
challenged or invalidated or fail to provide us with any competitive advantage.
We also rely on trade secret protection for our confidential and
proprietary information. However, trade secrets are difficult to protect. We
protect our proprietary information and processes, in part, with confidentiality
agreements with employees, collaborators and consultants. However, third parties
may breach these agreements, we may not have adequate remedies for any such
breach or our trade secrets may still otherwise become known by our competitors.
In addition, our competitors may independently develop substantially equivalent
proprietary information.
LITIGATION OR THIRD-PARTY CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT COULD
REQUIRE US TO SPEND SUBSTANTIAL TIME AND MONEY AND ADVERSELY AFFECT OUR ABILITY
TO DEVELOP AND COMMERCIALIZE OUR TECHNOLOGIES AND PRODUCTS.
Our commercial success depends in part on our ability to avoid
infringing patents and proprietary rights of third parties and not breaching any
licenses that we have entered into with regard to our technologies. Other
parties have filed, and in the future are likely to file, patent applications
covering genes, gene fragments, the analysis of gene expression and the
manufacture and use of DNA chips or microarrays, which are tiny glass or silicon
wafers on which tens of thousands of DNA molecules can be arrayed on the surface
for subsequent analysis. We intend to continue to apply for patent protection
for methods relating to gene expression and for the individual disease genes and
drug discovery targets we discover. If patents covering technologies required by
our operations are issued to others, we may have to rely on licenses from third
parties, which may not be available on commercially reasonable terms, or at all.
Third parties may accuse us of employing their proprietary technology
without authorization. In addition, third parties may obtain patents that relate
to our technologies and claim that use of such technologies infringes these
patents. Regardless of their merit, such claims could require us to incur
substantial costs, including the diversion of management and technical
personnel, in defending ourselves against any such claims or enforcing our
patents. In the event that a successful claim of infringement is brought against
us, we may need to pay damages and obtain one or more licenses from third
parties. We may not be able to obtain these licenses at a reasonable cost, or at
all. Defense of any lawsuit or failure to obtain any of these licenses could
adversely affect our ability to develop and commercialize our technologies and
products and thus prevent us from achieving profitability.
WE HAVE LIMITED EXPERIENCE IN SALES AND MARKETING AND THUS MAY BE UNABLE TO
FURTHER COMMERCIALIZE OUR TECHNOLOGIES AND PRODUCTS.
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Our ability to achieve profitability depends on attracting collaborators
and customers for our technologies and products. There are a limited number of
pharmaceutical, biotechnology and agricultural companies that are potential
collaborators and customers for our technologies and products. To market our
technologies and products, we must develop a sales and marketing group with the
appropriate technical expertise. We may not successfully build such a sales
force. If our sales and marketing efforts fail to be successful, our
technologies and products may fail to gain market acceptance.
OUR SALES CYCLE IS LENGTHY, AND WE MAY SPEND CONSIDERABLE RESOURCES ON
UNSUCCESSFUL SALES EFFORTS OR MAY NOT BE ABLE TO ENTER INTO AGREEMENTS ON THE
SCHEDULE WE ANTICIPATE.
Our ability to obtain collaborators and customers for our technologies
and products depends in significant part upon the perception that our
technologies and products can help accelerate their drug discovery and genomics
efforts. Our sales cycle is typically lengthy because we need to educate our
potential collaborators and customers and sell the benefits of our products to a
variety of constituencies within such companies. In addition, we may be required
to negotiate agreements containing terms unique to each collaborator or
customer. We may expend substantial funds and management effort with no
assurance that we will successfully sell our technologies and products. Actual
and proposed consolidations of pharmaceutical companies have negatively
affected, and may in the future negatively affect, the timing and progress of
our sales efforts.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
We expect to continue to experience significant growth in the number of
our employees and the scope of our operations. This growth may place a
significant strain on our management and operations. As our operations expand,
we expect that we will need to manage additional relationships with various
collaborators and customers, suppliers and other third parties. Our ability to
manage our operations and growth effectively requires us to continue to improve
our operational, financial and management controls, reporting systems and
procedures. We may not successfully implement improvements to our management
information and control systems in an efficient or timely manner and may
discover deficiencies in existing systems and controls.
THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD IMPAIR THE GROWTH OF OUR BUSINESS.
We are highly dependent on the principal members of our management and
scientific staff. The loss of any of these persons' services might adversely
impact the achievement of our objectives and the continuation of existing
collaborations. In addition, recruiting and retaining qualified scientific
personnel to perform future research and development work will be critical to
our success. There is currently a shortage of skilled executives and employees
with technical expertise, and this shortage is likely to continue. As a result,
competition for skilled personnel is intense and turnover rates are high.
Competition for experienced scientists from numerous companies, academic and
other research institutions may limit our ability to attract and retain such
personnel. We depend on our President and Chief Executive Officer, Norman J.W.
Russell, Ph.D., the loss of whose services could have a material adverse effect
on our business. Although
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we have an employment agreement with Dr. Russell in place, currently we do not
maintain key person insurance for him or any other key personnel.
WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS. ANY CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE
MATERIALS COULD BE TIME CONSUMING AND COSTLY.
Our research and development processes involve the controlled use of
hazardous materials, including chemicals and radioactive and biological
materials. Our operations produce hazardous waste products. We cannot eliminate
the risk of accidental contamination or discharge and any resultant injury from
these materials. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of hazardous materials. We may be
sued for any injury or contamination that results from our use or the use by
third parties of these materials, and our liability may exceed our insurance
coverage and our total assets. Compliance with environmental laws and
regulations may be expensive, and current or future environmental regulations
may impair our research, development and production efforts.
ETHICAL, LEGAL AND SOCIAL ISSUES MAY LIMIT THE PUBLIC ACCEPTANCE OF, AND DEMAND
FOR, OUR TECHNOLOGIES AND PRODUCTS.
Our collaborators and customers may seek to develop diagnostic products
based on genes we discover. The prospect of broadly available gene-based
diagnostic tests raises ethical, legal and social issues regarding the
appropriate use of gene-based diagnostic testing and the resulting confidential
information. It is possible that discrimination by third-party payors, based on
the results of such testing, could lead to the increase of premiums by such
payors to prohibitive levels, outright cancellation of insurance or
unwillingness to provide coverage to individuals showing unfavorable gene
expression profiles. Similarly, employers could discriminate against employees
with gene expression profiles indicative of the potential for high
disease-related costs and lost employment time. Finally, government authorities
could, for social or other purposes, limit or prohibit the use of such tests
under certain circumstances. These ethical, legal and social concerns about
genetic testing and target identification may delay or prevent market acceptance
of our technologies and products.
Although our technology does not depend on genetic engineering, genetic
engineering plays a prominent role in our approach to product development. The
subject of genetically modified food has received negative publicity, which has
aroused public debate. Adverse publicity has resulted in greater regulation
internationally and trade restrictions on imports of genetically altered
agricultural products. Claims that genetically engineered products are unsafe
for consumption or pose a danger to the environment may influence public
attitudes and prevent genetically engineered products from gaining public
acceptance. The commercial success of our future products may depend, in part,
on public acceptance of the use of genetically engineered products, including
drugs and plant and animal products.
IF WE DEVELOP PRODUCTS WITH OUR COLLABORATORS, AND IF PRODUCT LIABILITY LAWSUITS
ARE SUCCESSFULLY BROUGHT AGAINST US, WE COULD FACE SUBSTANTIAL LIABILITIES THAT
EXCEED OUR RESOURCES.
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We may be held liable, if any product we develop with our collaborators
causes injury or is otherwise found unsuitable during product testing,
manufacturing, marketing or sale. Although we have general liability and product
liability insurance, this insurance may become prohibitively expensive or may
not fully cover our potential liabilities. Inability to obtain sufficient
insurance coverage at an acceptable cost or to otherwise protect us against
potential product liability claims could prevent or inhibit our ability to
commercialize products developed with our collaborators.
HEALTHCARE REFORM AND RESTRICTIONS ON REIMBURSEMENTS MAY LIMIT OUR RETURNS ON
DIAGNOSTIC OR THERAPEUTIC PRODUCTS THAT WE MAY DEVELOP WITH OUR COLLABORATORS.
If we successfully validate targets for drug discovery, products that we
develop with our collaborators based on those targets may include diagnostic or
therapeutic products. The ability of our collaborators to commercialize such
products may depend, in part, on the extent to which reimbursement for the cost
of these products will be available from government health administration
authorities, private health insurers and other organizations. In the U.S.,
third-party payors are increasingly challenging the price of medical products
and services. The trend towards managed healthcare in the U.S., legislative
healthcare reforms and the growth of organizations such as health maintenance
organizations that may control or significantly influence the purchase of
healthcare products and services, may result in lower prices for any products
our collaborators may develop. Significant uncertainty exists as to the
reimbursement status of newly approved healthcare products. If adequate
third-party coverage is not available in the future, our collaborators may fail
to maintain price levels sufficient to realize an appropriate return on their
investment in research and product development.
OUR FACILITIES ARE LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES; AN EARTHQUAKE OR
OTHER CATASTROPHIC DISASTER COULD CAUSE DAMAGE TO OUR FACILITIES AND EQUIPMENT,
WHICH COULD REQUIRE US TO CEASE OPERATIONS.
Our facilities are located near known earthquake fault zones and are
vulnerable to damage from earthquakes. We are also vulnerable to damage from
other types of disasters, including fire, floods, power loss, communications
failures and similar events. If any disaster were to occur, our ability to
operate our business at our facilities would be seriously, or potentially
completely, impaired. In addition, the unique nature of our research activities
could cause significant delays in our programs and make it difficult for us to
recover from a disaster. The insurance we maintain may not be adequate to cover
our losses resulting from disasters or other business interruptions.
Accordingly, an earthquake or other disaster could materially and adversely harm
our ability to conduct business.
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE.
We believe that the market price of our common stock will remain highly
volatile and may fluctuate significantly due to a number of factors. The market
prices for securities of many publicly-held, early-stage biotechnology companies
have in the past been, and can in the future be expected to be, especially
volatile. For example, during the two-year period from June 30, 1999 to 2001,
the closing sales price of our common stock as quoted on the Nasdaq National
Market fluctuated from a low of $5.01 to a high of $96.875 per share. In
addition, the securities
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markets have from time to time experienced significant price and volume
fluctuations that may be unrelated to the operating performance of particular
companies. The following factors and events may have a significant and adverse
impact on the market price of our common stock:
- fluctuations in our operating results;
- announcements of technological innovations or new commercial products by
us or our competitors;
- release of reports by securities analysts;
- developments or disputes concerning patent or proprietary rights;
- developments in our relationships with current or future collaborators
or customers; and
- general market conditions.
Many of these factors are beyond our control. These factors may cause a decrease
in the market price of our common stock, regardless of our operating
performance.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY
MAKE IT MORE DIFFICULT TO ACQUIRE US OR TO EFFECT A CHANGE IN OUR MANAGEMENT,
EVEN THOUGH AN ACQUISITION OR MANAGEMENT CHANGE MAY BE BENEFICIAL TO OUR
STOCKHOLDERS.
Under our certificate of incorporation, our board of directors has the
authority, without further action by the holders of our common stock, to issue
2,000,000 additional shares of preferred stock from time to time in series and
with preferences and rights as it may designate. These preferences and rights
may be superior to those of the holders of our common stock. For example, the
holders of preferred stock may be given a preference in payment upon our
liquidation or for the payment or accumulation of dividends before any
distributions are made to the holders of common stock.
Although we have no present intention to authorize or issue any
additional series of preferred stock, any authorization or issuance, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could also have the effect of making it more difficult
for a third party to acquire a majority of our outstanding voting stock or
making it more difficult to remove directors and effect a change in management.
The preferred stock may have other rights, including economic rights senior to
those of our common stock, and, as a result, an issuance of additional preferred
stock could lower the market value of our common stock. Provisions of Delaware
law may also discourage, delay or prevent someone from acquiring or merging with
us.
RECENT PRONOUNCEMENTS COULD IMPACT OUR FINANCIAL POSITION AND RESULTS OF
OPERATIONS.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is effective for the year ending December 31,
2001. This statement establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement also requires that
changes in the derivative's
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fair value be recognized in earnings unless specific hedge accounting criteria
are met. We believe the adoption of SFAS 133 on January 1, 2001 had no material
effect on the financial statements, since we currently do not invest in
derivative instruments and engage in hedging activities.
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ITEM 2. PROPERTIES
In February 1998, we entered into a noncancelable operating lease for
facilities space of approximately 111,000 square-feet in two buildings in
Hayward, California. Currently, our corporate headquarters, principal research
and development facilities and production facilities are located in one of the
two buildings. The remaining space will be developed and occupied in phases,
depending on our growth. The lease runs through December 2008. We have an option
to extend the lease for an additional five-year period, subject to certain
conditions. We have leased approximately 37,000 square feet of additional space
in one of the buildings for further expansion purposes.
In June 1998, Lynx GmbH entered into a noncancelable operating lease for
facilities space of approximately 6,300 square-feet in Heidelberg, Germany, to
house its operations. The space will be developed and occupied in phases,
depending on the growth of the organization. The lease terminates in June 2005.
A portion of this space is currently being subleased by BASF-LYNX.
In August 1993, we entered into a noncancelable operating lease for
another facility that expires on July 31, 2003. In 1998, we entered into an
agreement to sublease a portion of this space, and in 1999, through a subsequent
agreement, subleased the remaining portion of the facility. The term of the
sublease runs through July 2003. Rent from the sublease is sufficient to cover
the rent and other operating expenses incurred by Lynx under the terms of the
1993 lease.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the quarter
ended December 31, 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On December 30, 1997, we listed our common stock on the Nasdaq National
Market. Prior to December 30, 1997, there was no established public trading
market for our voting stock. Our common stock trades on the Nasdaq National
Market under the symbol LYNX. The following table sets forth, for the periods
indicated, the high and low closing sale prices for our common stock as reported
by the Nasdaq National Market:
COMMON STOCK PRICE
------------------
HIGH LOW
------ ------
YEAR ENDED DECEMBER 31, 1999
First Quarter ................... $15.00 $ 8.88
Second Quarter .................. 12.69 9.44
Third Quarter ................... 15.75 10.63
Fourth Quarter .................. 37.00 9.13
YEAR ENDED DECEMBER 31, 2000
First Quarter ................... $96.88 $24.06
Second Quarter .................. 47.56 14.25
Third Quarter ................... 48.75 24.00
Fourth Quarter .................. 31.25 7.25
As of March 22, 2001, there were approximately 2,400 stockholders of
record of our common stock. On March 22, 2001, the last reported sale price of
our common stock was $7.50.
We have never declared or paid any cash dividends on our common stock.
We currently intend to retain earnings to support the development of our
business and do not anticipate paying cash dividends for the foreseeable future.
Any future determination to pay dividends will be at the discretion of our board
of directors.
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ITEM 6. SELECTED FINANCIAL DATA
This section presents our selected consolidated historical financial
data. You should read carefully the consolidated financial statements and the
notes thereto included in this report and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Consolidated Statement of Operations Data for the years ended
December 31, 1998, 1999 and 2000 and the Consolidated Balance Sheet Data as of
December 31, 1999 and 2000 have been derived from our audited consolidated
financial statements included elsewhere in this report. The Consolidated
Statement of Operations Data for the years ended December 31, 1996 and 1997 and
the Consolidated Balance Sheet Data as of December 31, 1996, 1997 and 1998 have
been derived from our audited financial statements that are not included in this
report. Historical results are not necessarily indicative of future results. See
the Notes to Consolidated Financial Statements for an explanation of the method
used to determine the number of shares used in computing basic and diluted net
loss per share.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Technology access and services fees ......... $ 1,958 $ 3,875 $ 2,625 $ 7,833 $ 12,389
Collaborative research and other ............ 7,791 707 4,380 5,042 235
-------- -------- -------- -------- --------
Total revenues ...................... 9,749 4,582 7,005 12,875 12,624
Operating costs and expenses:
Cost of services fees ....................... -- -- -- 828 3,652
Research and development .................... 12,545 14,226 13,166 15,510 19,761
General and administrative .................. 3,170 1,930 2,141 4,175 6,170
-------- -------- -------- -------- --------
Total operating costs and expenses .. 15,715 16,156 15,307 20,513 29,583
-------- -------- -------- -------- --------
Loss from operations .......................... (5,966) (11,574) (8,302) (7,638) (16,959)
Interest and other income, net ................ 585 753 4,106 1,232 4,158
-------- -------- -------- -------- --------
Loss before provision for income taxes ........ (5,381) (10,821) (4,196) (6,406) (12,801)
Provision for income taxes .................... 10 -- 151 258 500
-------- -------- -------- -------- --------
Net loss ...................................... $ (5,391) $(10,821) $ (4,347) $ (6,664) $(13,301)
======== ======== ======== ======== ========
Basic and diluted net loss per share .......... $ (2.45) $ (3.09) $ (0.45) $ (0.60) $ (1.17)
Shares used in per share computation .......... 2,197 3,501 9,642 11,128 11,388
DECEMBER 31,
-----------------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments ... $14,082 $24,930 $23,862 $30,786 $18,798
Working capital ..................................... 9,118 21,875 20,834 25,042 10,887
Total assets ........................................ 18,412 29,267 40,334 51,638 39,215
Notes payable -- noncurrent portion ................. -- -- -- 3,471 3,077
Stockholders' equity ................................ $10,732 $25,590 $23,457 $19,646 $ 6,222
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
FISCAL YEAR 2000 QUARTER ENDED
-----------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues .................................. $ 3,016 $ 2,834 $ 3,425 $ 3,349
Loss from operations ...................... (3,918) (3,421) (5,177) (4,443)
Net loss .................................. (481) (3,167) (4,966) (4,687)
Basic and diluted net loss per share ...... $ (0.04) $ (0.28) $ (0.44) $ (0.41)
FISCAL YEAR 1999 QUARTER ENDED
-----------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues ...................................... $ 654 $ 961 $ 1,122 $ 10,138
Income (loss) from operations ................. (3,670) (4,602) (4,196) 4,830
Net income (loss) ............................. (3,200) (4,557) (3,950) 5,043
Basic and diluted net income (loss) per share . $ (0.29) $ (0.41) $ (0.36) $ 0.46
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information is dated as of March 30, 2001, the initial
filing dated of this Annual Report, except for "Liquidity and Capital
Resources," which has been amended and restated as of the date of the Amendment
No. 1 to Form 10-K/A filing. Investors are directed to our review our additional
SEC reports and filings, including our Quarterly Reports on Form 10-Q, for
additional information.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. When used herein, the words "believe," "anticipate," "expect,"
"estimate" and similar expressions are intended to identify such forward-looking
statements. There can be no assurance that these statements will prove to be
correct. The Lynx's actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed in this section as well as in the section
entitled "Item 1. Business -- Business Risks." Lynx undertakes no obligation to
update any of the forward-looking statements contained herein to reflect any
future events or developments.
OVERVIEW
We are a leader in the development and application of novel technologies
for the discovery of gene expression patterns and genomic variations important
to the pharmaceutical, biotechnology and agricultural industries. These
technologies are based on Megaclone, our unique and proprietary cloning
procedure. Megaclone transforms a sample containing millions of DNA molecules
into one made up of millions of micro-beads, each of which carries approximately
100,000 copies of one of the DNA molecules in the sample. Based on Megaclone, we
have developed a suite of applications that have the potential to enhance the
pace, scale and quality of genomics and genetics research programs. Currently,
our principal collaborators and customers are BASF AG, E.I. DuPont de Nemours
and Company, Aventis CropScience GmbH, Oxagen Limited Hybrigenics S.A., Genomics
Collaborative Inc., Molecular Engines Laboratories SA, the Institute of
Molecular and Cell Biology, Phytera, Inc. and Celera Genomics. Additionally, we
have provided a license for the use of certain of our technologies to Takara
Shuzo Co. Ltd.
We have incurred net losses each year since our inception in 1992. As of
December 31, 2000, we had an accumulated deficit of approximately $66.7 million.
We expect these losses to continue for at least the next several years. The size
of these losses will depend, in part, on the rate of growth, if any, in our
revenues and on the level of our expenses.
Revenues from technology access fees are generally from upfront payments
from our collaborators, customers and licensees who are provided access to our
technologies for specified periods. We receive service fees from our
collaborators and customers for genomics discovery services performed by us on
the biological samples they send to us. Collaborative research revenues are
payments received under various agreements and include such items as milestone
payments. Other revenues include the proceeds from the sale of our technology
assets to BASF-LYNX and product sales under one of our former programs.
Technology access fees are deferred and recognized as revenue on a
straight-line basis over the noncancelable term of the agreement to which they
relate. Payments for services and/or materials provided by us are recognized as
revenues when earned over the period in which the services are performed and/or
materials are delivered, provided no other obligations, refunds or credits to be
applied to future work exist. Milestone payments are recognized as revenues upon
the achievement of the related milestone and the satisfaction of any related
obligations. Revenues from the sales of products, which have been immaterial to
date, are recognized upon shipment to the customer.
To date, we have received, and expect to continue to receive in the
future, a significant portion of our revenues from a small number of
collaborators and customers. During 2000, revenues from 3 collaborators and
customers accounted for 51%, 29% and 11% of total revenues. During 1999,
revenues from 3 collaborators and customers accounted for 81%, 13% and 5% of
total revenues. During 1998, revenues from 3 collaborators and customers
accounted for 61%, 33% and 5% of total revenues.
Revenues in each quarterly and annual period have in the past, and could
in the future, fluctuate due to: the timing and amount of any technology access
fee and the period over which the revenue is recognized; the level of service
fees, which is tied to the number and timing of biological samples received from
our collaborators and customers, as well as our performance of the related
genomics discovery services on the samples; the timing of achievement of
milestones and the amount of related payments to us; and the number, type and
timing of new, and the termination of existing, agreements with collaborators
and customers.
Cost of services fees includes the costs of direct labor, materials and
supplies, outside expenses, equipment and overhead incurred by us in performing
our genomics discovery services for our collaborators and customers. Research
and development expenses include the costs of personnel, materials and supplies,
outside expenses, equipment and overhead incurred by us in our technology and
application development efforts. We expect research and development expenses to
increase substantially due to planned spending for ongoing technology
development and implementation, as well as new applications. General and
administrative expenses include the costs of personnel, materials and supplies,
outside expenses, equipment and overhead incurred by us primarily in our
administrative,
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business development, legal and investor relations activities. We expect general
and administrative expenses to increase in support of our research and
development, commercial and business development efforts.
We account for our investment in BASF-LYNX on the equity method, however
such investment has a carrying value of zero in the financial statements. As we
have no obligation to fund the operations of BASF-LYNX, we have not recognized
our share of BASF-LYNX's losses in the accompanying statements of operations.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Revenues
We had total revenues of $12.6 million for the year ended December 31,
2000, compared to $12.9 million for the year ended December 31, 1999. Revenues
for 2000 included technology access fees and service fees of $12.4 million and
collaborative research and other revenue of $0.2 million. Revenues for 1999
included technology access and service fees of $7.8 million and collaborative
research revenue from a $5.0 million milestone fee.
Operating Costs and Expenses
Our total operating costs and expenses were $29.6 million for the year
ended December 31, 2000, compared to $20.5 million for the year ended December
31, 1999. Cost of services fees were $3.7 million for the year ended December
31, 2000, compared to $0.8 million for the year ended December 31, 1999, and
reflect the costs of providing our genomics discovery services. Research and
development expenses were $19.8 million in 2000 and $15.5 million in 1999. The
increase in research and development expenses in 2000, as compared to 1999, is
due primarily to higher personnel-related and facilities expenses and an
increase in materials consumed in research and development efforts. Our efforts
in 2000 were directed toward the expansion of the commercial applications of our
genomics technologies. These activities included new collaborations and other
agreements, internal discovery projects and an internal investment in building a
store of human genomic information. We also continued our development work on
our Megatype and Protein ProFiler technologies. We expect research and
development expenses to continue to increase due to planned spending for ongoing
technology development and implementation, as well as new applications.
General and administrative expenses were $6.2 million for the year ended
December 31, 2000, compared to $4.2 million for the year ended December 31,
1999. The increase was primarily due to higher personnel-related expenses and
increased costs for outside services. We expect general and administrative
expenses to increase in support of our research and development, commercial and
business development efforts.
Interest and Other Income
Net interest income decreased to $0.9 million in the year ended December
31, 2000, from $1.1 million in the year ended December 31, 1999, primarily due
to lower average cash, cash equivalents and investment balances during 2000, as
compared to 1999, and increased interest expense incurred on equipment-related
debt outstanding in 2000. Other income was $3.3 million in the year ended
December 31, 2000, and $0.1 million in the year ended December 31, 1999. In
2000, other income was due primarily to a gain of approximately $3.1 million
from the receipt of shares of common stock from Inex Pharmaceuticals
Corporation, as part of the proceeds related to the March 1998 sale of our
former antisense program. In 1999, other income was attributable to a gain on
the sale of certain fixed assets no longer used in our operations.
Income Taxes
The provision for income taxes of approximately $500,000 for 2000
consisted entirely of foreign withholding tax due on a payment received from one
of our customers, collaborators and licensees. The provision for income taxes of
approximately $258,000 for 1999 consisted entirely of alternative minimum tax.
As of December 31, 2000, we had a federal net operating loss
carryforward of approximately $38.6 million, which will expire at various dates
from 2008 through 2020, if not utilized. We have a state net operating loss
carryforward of approximately $5.3 million, which will expire in 2010.
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As of December 31, 2000, we also had federal and California research and
development and other tax credit carryforwards of approximately $3.8 million and
$1.3 million, respectively. The federal research and development credit will
expire at various dates from 2008 through 2020, if not utilized.
Utilization of net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in expiration of net
operating loss and tax credit carryforwards before full utilization. Utilization
of federal and California net operating losses and credit carryforwards incurred
prior to February 1994 is limited on an annual basis under the Internal Revenue
Code of 1986, as amended, as a result of an ownership change in 1994.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues
We had total revenues of $12.9 million for the year ended December 31,
1999, compared to $7.0 million for the year ended December 31, 1998. Revenues
for 1999 included technology access fees and service fees of $7.8 million and
collaborative research revenue from a $5.0 million milestone fee. Revenues for
1998 included technology access fees of $2.6 million and $4.3 million from the
sale of our technology assets for certain central nervous system, or CNS,
disorders.
Operating Costs and Expenses
Our total operating costs and expenses were $20.5 million for the year
ended December 31, 1999, compared to $15.3 million for the year ended December
31, 1998. Cost of services fees were $0.8 million in 1999 and reflect the costs
of providing our genomics discovery services, which commenced in 1999. Research
and development expenses were $15.5 million in 1999 and $13.2 million in 1998.
The increase in research and development expenses in 1999, as compared to 1998,
is due primarily to a higher number of personnel, facilities expansion and
activities as we prepared to launch our commercial operations. Our efforts in
1999 focused on initiating production for the commercial application of our
genomics technologies and completing the scientific experimentation that led to
the successful achievement of technology milestones and achievements under
certain of our agreements. We expect research and development expenses to
continue to increase substantially due to planned spending for ongoing
technology development and implementation, as well as new applications.
General and administrative expenses were $4.2 million for the year ended
December 31, 1999, compared to $2.1 million for the year ended December 31,
1998. The increase was primarily due to higher personnel-related expenses,
outside services costs and facilities expansion. We expect general and
administrative expenses to increase in support of our research and development,
commercial and business development efforts.
Interest and Other Income
Net interest income decreased to $1.1 million in the year ended December
31, 1999, from $1.2 million in the year ended December 31, 1998, primarily due
to lower average cash, cash equivalents and investment balances during 1999, as
compared to 1998, and interest expense incurred on equipment-related debt
outstanding in 1999. Other income was $0.1 million in the year ended December
31, 1999, and $2.9 million in the year ended December 31, 1998. In 1998, other
income was due primarily to the gain from the sale of the assets associated with
our antisense program to Inex Pharmaceuticals Corporation.
Income Taxes
The provision for income taxes of approximately $258,000 for 1999 and
$151,000 for 1998 consisted entirely of alternative minimum tax.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $9.0 million for the year
ended December 31, 2000, as compared to net cash provided by operating
activities of $7.8 million for the same period in 1999. This change was
primarily due to the change in deferred revenue and a higher net loss in 2000,
offset partially by the change in accounts payable and accrued liabilities, the
difference in depreciation and amortization of fixed assets and leasehold
improvements and the change in accounts receivable. The amount of net cash used
in operating activities differed from the 2000 net loss due primarily to the
depreciation and amortization of fixed assets and leasehold
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improvements and the collection of accounts receivable. The 1999 net cash
provided by operating activities differed from the 1999 net loss due primarily
to an increase in deferred revenue and collection of accounts receivable,
partially offset by a decrease in current liabilities. Net cash provided by
operating activities of $5.7 million for the year ended December 31, 1998, was
primarily due to increases in deferred revenue, accounts payable and accrued
liabilities, partially offset by an increase in accounts receivable.
Net cash used in investing activities of $2.3 million for the year ended
December 31, 2000, was due primarily to expenditures for leasehold improvements
and purchases of equipment, partially offset by net maturities of short-term
investments. Net cash used in investing activities of $10.7 million for the year
ended December 31, 1999, was primarily due to net purchases of short-term
investments and leasehold improvements and equipment purchases. Net cash
provided by investing activities of $1.0 million for the year ended December 31,
1998, was primarily due to net maturities of short-term investments, offset in
part by expenditures for leasehold improvements and purchases of equipment.
Net cash provided by financing activities in 2000 of $1.1 million was
due primarily to issuance of common stock from the exercise of employee stock
options. Net cash provided by financing activities in 1999 of $4.8 million
resulted primarily from borrowings under an equipment loan arrangement. Net cash
provided by financing activities of $0.6 million in the year ended December 31,
1998 resulted from the issuance of common stock. Cash and cash equivalents and
short-term investments were $18.8 million at December 31, 2000.
Net cash used in operating activities was $10.8 million for the
six-month period ended June 30, 2001, as compared to net cash used in operating
activities of $5.5 million for the same period in 2000. This change was
primarily due to a higher net loss in the 2001 period, the change in accounts
payable and the change in deferred revenues, partially offset by the difference
between the 2001 loss and the 2000 gain related to the common stock of Inex
received from the sale of Lynx's antisense program to Inex, and higher
depreciation and amortization expense for fixed assets and leasehold
improvements. Net cash used in operating activities of $10.8 million for the
six-month period in 2001 differed from the net loss for the same period in 2000
primarily due to the decrease in deferred revenues, offset partially by
depreciation and amortization expense.
Net cash provided by investing activities of $1.7 million for the
six-month period ended June 30, 2001 related primarily to the net maturities of
short-term investments, offset partially by expenditures for capital assets. Net
cash provided by financing activities of $10.5 million for the six-month period
ended June 30, 2001 related primarily to the issuance of common stock pursuant
to a common stock purchase agreement between Lynx and certain investors,
partially offset by repayment of principal under an equipment loan arrangement.
Cash, cash equivalents, short-term investments and marketable securities were
$15.8 million at June 30, 2001.
In May 2001, we completed a private placement of common stock and
warrants to purchase common stock. The financing included the sale of 1,747,248
newly issued shares of common stock at a purchase price of $6.37 per share
resulting in net proceeds of approximately $10.5 million, pursuant to a common
stock purchase agreement between Lynx and certain investors. In connection with
this transaction, we issued warrants to purchase up to 436,808 shares of common
stock at an exercise price of $9.2011 per share. We have filed with the
Securities and Exchange Commission a resale registration statement related to
the privately placed securities. We expect to use the net proceeds from the
financing to support ongoing commercial, business development and research and
development activities. Our research and development efforts will focus on the
continuing development of the Megatype and Protein ProFiler technologies, as
well as internal discovery projects.
In late 1998, we entered into a financing agreement with a financial
institution, Transamerica Business Credit Corporation, under which we drew down
$4.8 million during 1999 for the purchase of equipment and certain other capital
expenditures. We granted the lender a security interest in all items financed by
it under this agreement. Each draw down under the loan has a term of 48 months
from the date of the draw down. As of June 30, 2001, the principal balance under
loans outstanding under this agreement was approximately $3.8 million. The draw
down period under the agreement expired on March 31, 2000.
We plan to use available funds for ongoing commercial and research and
development activities, working capital and other general corporate purposes and
capital expenditures. We expect capital investments during 2001 will be
comprised primarily of equipment purchases required in the normal course of
business and expenditures for leasehold improvements. We intend to invest our
excess cash in investment-grade, interest-bearing securities.
We have obtained funding for our operations primarily through sales of
preferred and common stock to venture capital investors, institutional investors
and collaborators, payments under contractual arrangements with customers,
collaborators and licensees and interest income. The cost, timing and amount of
funds required for specific uses by us cannot be precisely determined at this
time and will be based upon the progress and the scope of our collaborative and
independent research and development projects; payments received under customer,
collaborative and license agreements; our ability to establish and maintain
customer, collaborative and license agreements; costs of protecting intellectual
property rights; legal and administrative costs; additional facilities capacity
needs and the availability of alternate methods of financing.
We expect to incur substantial and increasing research and development
expenses and intend to seek additional financing, as needed, through
arrangements with customers, collaborators and licensees and equity or debt
offerings. We cannot assure you that any additional financing we require will be
available on favorable terms, or at all. We believe, at current spending levels,
our existing capital resources and interest income thereon, will enable us to
maintain our current and planned operations through at least the next 12 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or "FASB,"
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 requires us to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through net income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative are either offset against the change in fair value of
assets, liabilities or firm commitments through earnings or recognized in the
other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings. SFAS 133 is effective for our year ending December 31,
2001. We do not currently hold any derivatives and we do not expect this
pronouncement to materially impact results of operations.
26
29
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," which must be adopted in the
fourth quarter of 2000. SAB 101 summarizes certain areas of the Staff's views in
applying generally accepted accounting principles to revenue in financial
statements and specifically addresses revenue recognition for non-refundable
technology access fees. We believe that our revenue recognition policies prior
to adoption of SAB 101 complied with the requirements of SAB 101.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation", which contains rules
designed to clarify the application of APB Opinion No. 25. FIN 44 was effective
on July 1, 2000 and adopted by us at that time. The adoption of FIN 44 did not
have a material impact on our operating results or financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Short-Term Investments
The primary objective of our investment activities is to preserve
principal while, at the same time, maximizing yields without significantly
increasing risk. To achieve this objective, we invest in highly liquid and
high-quality debt securities. Our investments in debt securities are subject to
interest rate risk. To minimize the exposure due to adverse shifts in interest
rates, we invest in short-term securities and maintain an average maturity of
less than one year. As a result, we do not believe we are subject to significant
interest rate risk.
The Company holds an investment in an equity security that is subject to
market volatility. The fair value of the equity security recorded at December
31, 2000 and 1999 was $2.6 million and $1.8 million, respectively.
Foreign Currency Rate Fluctuations
The functional currency for our German subsidiary is the deutsche mark.
Our German subsidiary's accounts are translated from the German deutsche mark to
the U.S. dollar using the current exchange rate in effect at the balance sheet
date, for balance sheet accounts, and using the average exchange rate during the
period, for revenues and expense accounts. The effects of translation are
recorded as a separate component of stockholders' equity, and to date, have not
been material. Our German subsidiary conducts its business in local European
currencies. Exchange gains and losses arising from these transactions are
recorded using the actual exchange differences on the date of the transaction.
We have not taken any action to reduce our exposure to changes in foreign
currency exchange rates, such as options or futures contracts, with respect to
transactions with our German subsidiary or transactions with our European
collaborators and customers.
27
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Ernst & Young LLP, Independent Auditors.................................................... 26
Consolidated Balance Sheets as of December 31, 2000 and 1999......................................... 27
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998........... 28
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998. 29
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998........... 30
Notes to Consolidated Financial Statements........................................................... 31
28
31
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Lynx Therapeutics
We have audited the accompanying consolidated balance sheets of Lynx
Therapeutics, Inc. as of December 31, 2000 and 1999, and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Lynx Therapeutics,
Inc. at December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 2, 2001
29
32
LYNX THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31,
-----------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 7,875 $ 18,050
Short-term investments ............................... 10,923 12,736
Accounts receivable .................................. 1,539 4,045
Other current assets ................................. 2,270 1,379
-------- --------
Total current assets ......................... 22,607 36,210
Property and equipment:
Leasehold improvements ............................... 11,527 10,347
Laboratory and other equipment ....................... 13,555 8,025
-------- --------
25,082 18,372
Less accumulated depreciation and amortization ....... (9,263) (5,494)
-------- --------
Net property and equipment ............................. 15,819 12,878
Other non-current assets ............................... 789 2,550
-------- --------
$ 39,215 $ 51,638
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 1,640 $ 640
Accrued compensation ................................. 614 356
Deferred revenues -- current portion ................. 7,219 8,438
Note payable -- current portion ...................... 1,319 944
Other accrued liabilities ............................ 928 790
-------- --------
Total current liabilities .................... 11,720 11,168
Deferred revenues ...................................... 17,467 16,896
Note payable ........................................... 3,077 3,471
Other non-current liabilities .......................... 729 457
Commitments
Stockholders' equity:
Preferred stock, $0.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding ...... -- --
Common stock, $0.01 par value; 60,000,000 shares
authorized, 11,443,702 and 11,219,188 shares
issued and outstanding at December 31, 2000 and 75,851 74,606
1999, respectively ...............................
Notes receivable from stockholders ................... (263) (293)
Deferred compensation ................................ (1,557) (2,444)
Accumulated other comprehensive income (loss) ........ (1,157) 1,128
Accumulated deficit .................................. (66,652) (53,351)
-------- --------
Total stockholders' equity ................... 6,222 19,646
-------- --------
$ 39,215 $ 51,638
======== ========
See accompanying notes.
30
33
LYNX THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
-------- -------- --------
Revenues:
Technology access and services fees ..... $ 12,389 $ 7,833 $ 2,625
Collaborative research and other ........ 235 5,042 4,380
-------- -------- --------
Total revenues .................. 12,624 12,875 7,005
Operating costs and expenses:
Cost of services fees ................... 3,652 828 --
Research and development ................ 19,761 15,510 13,166
General and administrative .............. 6,170 4,175 2,141
-------- -------- --------
Total operating costs and
expenses............... 29,583 20,513 15,307
-------- -------- --------
Loss from operations ...................... (16,959) (7,638) (8,302)
Interest income, net ...................... 900 1,125 1,241
Other income .............................. 3,258 107 2,865
-------- -------- --------
Loss before provision for income taxes .... (12,801) (6,406) (4,196)
Provision for income taxes ................ 500 258 151
-------- -------- --------
Net loss .................................. $(13,301) $ (6,664) $ (4,347)
======== ======== ========
Basic and diluted net loss per share ...... $ (1.17) $ (0.60) $ (0.45)
-------- -------- --------
Shares used in per share computation ...... 11,388 11,128 9,642
======== ======== ========
See accompanying notes.
31
34
LYNX THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PREFERRED STOCK COMMON STOCK
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
Balance at December 31, 1997 ................ 495,587 $ 27,189 5,892,353 $ 46,640
Comprehensive loss:
Net loss ................................. -- -- -- --
Other comprehensive income (loss) ........ --
Net unrealized gain on
securities ............................. -- -- -- --
Comprehensive loss ......................... -- -- -- --
Exercise of stock options for cash
and note receivable ...................... -- -- 334,309 744
Repurchase of common stock ................. -- -- (49,717) (108)
Conversion of series B, C and D
preferred stock to common stock .......... (495,587) (27,189) 4,955,870 27,189
Amortization of deferred
compensation, including forfeitures ...... -- -- -- (416)
Consulting and service expense
related to stock option grants ........... -- -- -- 280
----------- ----------- ----------- -----------
Balance at December 31, 1998 ................ -- -- 11,132,815 74,329
----------- ----------- ----------- -----------
Comprehensive loss:
Net loss ................................. -- -- -- --
Other comprehensive income (loss) ........
Net unrealized gain on securities ........ -- -- -- --
Comprehensive loss ......................... -- -- -- --
Employee stock purchase plan issuance ...... -- -- 17,379 182
Exercise of stock options for
cash and repayment of note receivable .... -- -- 68,994 196
Amortization of deferred
compensation, including forfeitures ...... -- -- -- (188)
Consulting and service expense
related to stock option grants ........... -- -- -- 87
----------- ----------- ----------- -----------
Balance at December 31, 1999 ................ -- -- 11,219,188 74,606
----------- ----------- ----------- -----------
Comprehensive loss:
Net loss ................................. -- -- -- --
Other comprehensive income (loss) ........
Net unrealized loss on securities ........ -- -- -- --
Comprehensive loss ......................... -- -- -- --
Net exercise of warrants ................... -- -- 29,597 --
Employee stock purchase plan
issuance .................................. -- -- 16,532 288
Exercise of stock options for
cash and repayment of note receivable .... -- -- 178,385 843
Amortization of deferred compensation,
including forfeitures .................... -- -- -- --
Consulting and service expense
related to stock option grants ........... -- -- -- 114
----------- ----------- ----------- -----------
Balance at December 31, 2000 ................ -- $ -- 11,443,702 $ 75,851
=========== =========== =========== ===========
NOTES ACCUMULATED
RECEIVABLE OTHER TOTAL
FROM DEFERRED COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
STOCKHOLDERS COMPENSATION INCOME (LOSS) DEFICIT EQUITY
------------ ------------ ------------- ----------- -------------
Balance at December 31, 1997 ............. $ (460) $ (5,394) $ (45) $ (42,340) $ 25,590
Comprehensive loss:
Net loss .............................. -- -- -- (4,347) (4,347)
Other comprehensive income (loss) .....
Net unrealized gain on
securities .......................... -- -- 38 38
-----------
Comprehensive loss ...................... -- -- -- -- (4,309)
Exercise of stock options for cash
and note receivable ................... (81) -- -- -- 663
Repurchase of common stock .............. 105 -- -- -- (3)
Conversion of series B, C and D
preferred stock to common stock ....... -- -- -- -- --
Amortization of deferred
compensation, including forfeitures ... -- 1,652 -- -- 1,236
Consulting and service expense
related to stock option grants ........ -- -- -- -- 280
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 ............. (436) (3,742) (7) (46,687) 23,457
----------- ----------- ----------- ----------- -----------
Comprehensive loss:
Net loss .............................. -- -- -- (6,664) (6,664)
Other comprehensive income (loss) .....
Net unrealized gain on securities ..... -- -- 1,135 -- 1,135
-----------
Comprehensive loss ...................... -- -- -- -- (5,529)
Employee stock purchase plan issuance ... -- -- -- -- 182
Exercise of stock options for
cash and repayment of note receivable . 143 -- -- -- 339
Amortization of deferred
compensation, including forfeitures ... -- 1,298 -- -- 1,110
Consulting and service expense
related to stock option grants ........ -- -- -- -- 87
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 ............. (293) (2,444) 1,128 (53,351) 19,646
----------- ----------- ----------- ----------- -----------
Comprehensive loss:
Net loss .............................. -- -- -- (13,301) (13,301)
Other comprehensive income (loss) .....
Net unrealized loss on securities ..... -- -- (2,285) -- (2,285)
-----------
Comprehensive loss ...................... -- -- -- -- (15,586)
Net exercise of warrants ................ -- -- -- -- --
Employee stock purchase plan
issuance ............................... -- -- -- -- 288
Exercise of stock options for
cash and repayment of note receivable . 30 -- -- -- 873
Amortization of deferred compensation,
including forfeitures ................. -- 887 -- -- 887
Consulting and service expense
related to stock option grants ........ -- -- -- -- 114
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 ............. $ (263) $ (1,557) $ (1,157) $ (66,652) $ 6,222
=========== =========== =========== =========== ===========
See accompanying notes.
32
35
LYNX THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................... $(13,301) $ (6,664) $ (4,347)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of fixed assets and
leasehold improvements ............................ 3,769 1,964 1,176
Issuance of stock options to non-employees in
exchange for services ............................. 114 87 111
Amortization of deferred compensation ................ 887 1,110 1,236
Gain on sale of antisense business ................... (3,119) -- --
Other ................................................ -- -- (138)
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts receivable .................................. 2,506 1,271 (5,072)
Other current assets ................................. (891) (701) (479)
Accounts payable ..................................... 1,000 (1,130) 1,579
Accrued liabilities .................................. 396 (3,106) 3,237
Deferred revenues .................................... (648) 14,667 8,375
Other noncurrent liabilities ......................... 272 269 9
-------- -------- --------
Net cash provided by (used in) operating activities .... (9,015) 7,767 5,687
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments .................... (8,097) (22,121) (21,767)
Maturities of short-term investments ................... 12,543 17,016 30,245
Leasehold improvements and equipment purchases, net of
retirements .......................................... (6,710) (5,205) (7,254)
Notes receivable from officers and employees ........... 30 (248) (175)
Other assets ........................................... (38) (122) --
-------- -------- --------
Net cash provided by (used in) investing activities .... (2,272) (10,680) 1,049
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, net of repurchases ........... 1,131 378 636
Proceeds from equipment loan ........................... 950 4,838 --
Repayment of equipment loan ............................ (969) (423) --
-------- -------- --------
Net cash provided by financing activities .............. 1,112 4,793 636
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ... (10,175) 1,880 7,372
Cash and cash equivalents at beginning of year ......... 18,050 16,170 8,798
-------- -------- --------
Cash and cash equivalents at end of year ............... $ 7,875 $ 18,050 $ 16,170
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid ...................................... $ 110 $ 303 --
======== ======== ========
Interest paid .......................................... $ 128 $ 174 --
======== ======== ========
Following are the effects of the non-cash
transactions relating to the sale of the antisense
business assets sold, net of depreciation .............. -- -- $ 210
======== ======== ========
Inex stock received ............................... -- -- $ 603
======== ======== ========
See accompanying notes.
33
36
LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
BUSINESS AND BASIS OF PRESENTATION
Lynx Therapeutics, Inc. ("Lynx" or the "Company") is a leader in the
development and application of novel technologies for the discovery of gene
expression patterns and genomic variations important to the pharmaceutical,
biotechnology and agricultural industries. These technologies are based on
Megaclone, Lynx's unique and proprietary cloning procedure. Megaclone transforms
a sample containing millions of DNA molecules into one made up of millions of
micro-beads, each of which carries approximately 100,000 copies of one of the
DNA molecules in the sample. Based on Megaclone, Lynx has developed a suite of
applications that have the potential to enhance the pace, scale and quality of
genomics and genetics research programs. Currently, Lynx's principal
collaborators and customers are BASF AG, E.I. DuPont de Nemours and Company,
Aventis CropScience GmbH, Oxagen Limited Hybrigenics S.A., Genomics
Collaborative Inc., Molecular Engines Laboratories SA, the Institute of
Molecular and Cell Biology, Phytera, Inc. and Celera Genomics. Additionally,
Lynx has provided a license for the use of certain of its technologies to Takara
Shuzo Co. Ltd.
The Company's consolidated financial statements have been presented on a
basis that contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has experienced
operating losses since its inception of $66.7 million, including a net loss of
$13.3 million in the year ended December 31, 2000, and expects such losses to
continue as it proceeds with the development and commercialization of its
technology. The Company's cash, cash equivalents and short-term investments were
$18.8 million at December 31, 2000. Management believes that its current capital
resources along with cash to be generated from its existing collaboration
arrangements will be sufficient to enable the Company to meet its projected
operating and capital requirements through December 31, 2001. Additionally, Lynx
intends to seek additional financing, as needed, through arrangements with
customers, collaborators and licensees and equity or debt offerings. There can
be no assurance that additional financing, if required, will be available on
satisfactory terms or at all. If the Company is unable to secure additional
financing, management may need to reevaluate and revise its current operating
plans as well as reduce its anticipated level of expenditures.
The consolidated financial statements of the Company include the
accounts of the Company and its wholly-owned subsidiary, Lynx Therapeutics GmbH,
formed under the laws of the Federal Republic of Germany. All significant
intercompany balances and transactions have been eliminated. Certain amounts in
prior periods have been reclassified to conform to the current year
presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all investments in money market mutual funds,
commercial paper and corporate bonds and notes with original maturities from the
date of purchase of 90 days or less as cash equivalents. Investments with
original maturities beyond 90 days are considered to be short-term investments.
Equity securities are considered to be short-term investments. The Company's
investment policy stipulates that the investment portfolio be maintained with
the objectives of preserving principal, maintaining liquidity and maximizing
return.
The Company determines the appropriate classification of money market
mutual funds, commercial paper and corporate bonds and notes at the time of
purchase and reevaluates such designation as of each balance sheet date. As of
December 31, 2000 and 1999, the Company has classified its entire investment
portfolio as available-for-sale. Available-for-sale securities are carried at
fair value based on quoted market prices, with the unrealized gains and losses
reported as a separate component of stockholders' equity. The cost of
investments in this category is adjusted for amortization of premiums and
accretion of discounts to maturity, which are included in interest income.
Realized gains and losses and declines in value judged to be
other-than-temporary, on available-for-sale securities, if any, are included in
interest income or expense. The cost of securities sold, if any, is based on the
specific identification method.
34
37
LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(CONTINUED)
The Company invests its excess cash in deposits with major banks and in
money market and short-term debt securities of companies with strong credit
ratings from a variety of industries. These securities generally mature within
365 days and, therefore, bear minimal interest-rate risk. The Company, by
corporate policy, limits the amount of credit exposure to any one issuer and to
any one type of investment.
PROPERTY AND EQUIPMENT
Property and equipment are stated at original cost and are depreciated
using the straight-line method over the estimated useful lives of the assets,
which is generally three years. Leasehold improvements are amortized over the
lesser of the useful life of the asset or the remaining term of the facility
lease.
REVENUE RECOGNITION
Revenues from technology access fees have generally resulted from
upfront payments from collaborators, customers and licensees who are provided
access to Lynx's technologies for specified periods. The Company receives
service fees from collaborators and customers for genomics discovery services
performed by Lynx on the biological samples they send to Lynx. Collaborative
research revenues are payments received under various agreements and include
such items as milestone payments. Milestone payments are recognized pursuant to
collaborative agreements upon the achievement of specified technology
developments, representing the culmination of the earnings process, for
financial accounting purposes. Other revenues include non-contract related
revenues, such as the proceeds from the sale of technology assets to BASF-LYNX
and product sales under one of Lynx's former programs.
Technology access fees are deferred and recognized as revenue on a
straight-line basis over the noncancelable term of the agreement to which they
relate. Payments for services and/or materials provided by Lynx are recognized
as revenues when earned over the period in which the services are performed
and/or materials are delivered, provided no other obligations, refunds or
credits to be applied to future work exist. Milestone payments are recognized as
revenue upon the achievement of the related milestone and the satisfaction of
any related obligations. Revenues from the sales of products, which have been
immaterial to date, are recognized upon shipment to the customer.
During 2000, revenue from 3 collaborators and customers represented 51%,
29% and 11% of total revenues. During 1999, revenue from 3 collaborators and
customers represented 81%, 13% and 5% of total revenues. During 1998, revenue
from three collaborators and customers represented 61%, 33% and 5% of total
revenues.
NET LOSS PER SHARE
Basic earnings per share ("EPS") is computed by dividing income or loss
applicable to common stockholders by the weighted-average number of common
shares outstanding for the period, net of certain common shares outstanding
which are subject to continued vesting and the Company's right of repurchase.
Diluted EPS reflects the potential dilution of securities that could share in
the earnings of the Company, to the extent such securities are dilutive. Basic
and diluted net loss per share is equivalent for all periods presented herein
due to the Company's net loss in all periods. At December 31, 2000, options to
purchase approximately 2,457,000 shares of common stock at a weighted-average
price of $13.16 per share have been excluded from the calculation of diluted
loss per share for 2000 because the effect of inclusion would be antidilutive.
The options will be included in the calculation at such time as the effect is no
longer antidilutive, as calculated using the treasury stock method. The
weighted-average number of shares subject to repurchase for fiscal years 2000,
1999 and 1998 were 16,000, 55,000 and 152,000, respectively. The common shares
which are outstanding but are subject to the Company's right of repurchase,
which expires ratably over five years, have been excluded from the calculation
of basic loss per share. The repurchasable shares will be included in the
calculation of basic EPS at such time as the Company's right of repurchase
lapses.
See Note 7 for additional disclosure regarding common stock and stock
options.
35
38
LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(CONTINUED)
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
All stock option awards to non-employees are accounted for at the fair
value of the consideration received or the fair value of the equity instrument
issued, as calculated using the Black-Scholes model, in accordance with FAS 123
and Emerging Issues Task Force Consensus No. 96-18, "Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." The option arrangements are
subject to periodic remeasurement over their vesting terms. The Company recorded
compensation expense related to option grants to non-employees of $114,000 for
the year ended December 31, 2000, $87,000 for the year ended December 31, 1999
and $111,000 for the year ended December 31, 1998.
SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), establishes
standards for the way that public business enterprises report information about
operating segments in financial statements. SFAS 131 also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company's business activities include the development of
technologies aimed at handling and/or analyzing the DNA molecules or fragments
in biological samples. Accordingly, the Company operates in only one business
segment. All of the Company's assets and revenues are derived from this
activity. Substantially all of the Company's assets are located in the United
States. To date, revenues have been derived primarily from contracts with
companies located in North America, Europe and Asia, as follows (revenue is
attributed to geographic areas based on the location of the customers):
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
North America ...... $ 6,480 $10,440 $ 401
Europe ............. 5,394 2,435 6,542
Asia ............... 750 -- 62
------- ------- -------
$12,624 $12,875 $ 7,005
======= ======= =======
INCOME TAXES
Under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"), deferred tax assets and liabilities are
determined based on the difference between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. SFAS 109
provides for the recognition of deferred tax assets if realization of such
assets is more likely than not. Based upon the weight of available evidence,
which includes the Company's historical operating performance and the reported
cumulative net losses for the prior three years, the Company has provided a full
valuation against its net deferred tax assets as of December 31, 2000 and 1999.
The Company intends to evaluate the realizability of the deferred tax assets on
a quarterly basis. See Note 8 to the Consolidated Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires Lynx to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through net income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative are either offset against the change in fair value of
assets, liabilities or firm commitments through earnings or recognized in the
other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in
36
39
LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(CONTINUED)
earnings. SFAS 133 is effective for Lynx's year ending December 31, 2001. Lynx
does not currently hold any derivatives and does not expect this pronouncement
to materially impact results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," which must be adopted in the
fourth quarter of 2000. SAB 101 summarizes certain areas of the Staff's views in
applying generally accepted accounting principles to revenue in financial
statements and specifically addresses revenue recognition for non-refundable
technology access fees. Lynx believes that its revenue recognition policies
prior to adoption of SAB 101 complied with the requirements of SAB 101.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation", which contains rules
designed to clarify the application of APB Opinion No. 25. FIN 44 was effective
on July 1, 2000 and adopted by Lynx at that time. The adoption of FIN 44 did not
have a material impact on Lynx's operating results or financial position.
2. INVESTMENTS
The following is a summary of available-for-sale securities:
AVAILABLE-FOR-SALE SECURITIES
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
DECEMBER 31, 2000
Equity securities ........... $ 3,791 $ -- $ (1,164) $ 2,627
Money market mutual funds ... 6,951 -- -- 6,951
Corporate bonds and notes ... 8,298 6 -- 8,304
-------- -------- -------- --------
$ 19,040 $ 6 $ (1,164) $ 17,882
======== ======== ======== ========
DECEMBER 31, 1999
Equity securities ........... $ 603 $ 1,196 $ -- $ 1,799
Money market mutual funds ... 9,624 -- -- 9,624
Commercial paper ............ 10,449 -- (45) 10,404
Corporate bonds and notes ... 8,781 -- (23) 8,758
-------- -------- -------- --------
$ 29,457 $ 1,196 $ (68) $ 30,585
======== ======== ======== ========
During the years ended December 31, 2000, 1999 and 1998, the Company did
not sell any equity securities. As of December 31, 2000, $7.0 million of the
marketable securities were classified as cash equivalents and $10.9 million were
classified as short-term investments. As of December 31, 1999, $16.1 million of
the marketable securities were classified as cash equivalents, $12.7 million
were classified as short-term investments and $1.8 million were classified as
other non-current assets. All short-term investments have maturities of less
than one year. Expected maturities may differ from contractual maturities
because the issuers of the securities may have the right to prepay obligations
without prepayment penalties.
3. COLLABORATORS, CUSTOMERS AND LICENSEES
Lynx's current commercial collaborators and customers are BASF AG
(BASF), E.I. DuPont de Nemours and Company, Aventis CropScience GmbH, Oxagen
Limited, Hybrigenics S.A., Genomics Collaborative Inc., Molecular Engines
Laboratories S.A., the Institute of Molecular and Cell Biology, Phytera, Inc.,
Celera Genomics, AstraZeneca, UroGene S.A., GenoMar ASA and AniGenics, Inc.
Additionally, Lynx has provided a license for the use of certain of its
technologies to Takara Shuzo Co. Ltd. and BASF-LYNX Bioscience AG (BASF-LYNX).
BASF
In October 1996, as amended in October 1998, the Company entered into an
agreement with BASF to provide them with nonexclusive access to certain of its
genomics discovery services. In connection with certain technology development
accomplishments, BASF paid Lynx a technology access fee of $4.5 million in the
fourth quarter of 1999. BASF's access to Lynx's genomics discovery services is
for a minimum of two years and requires BASF to purchase services at a minimum
rate of $4.0 million per year. At the end of the initial two-year service
period, BASF has the right to carryover for an additional two-year period a
certain level of previously unrequested genomics discovery services. BASF paid
Lynx $4.0 million in each of the fourth quarters of 1999 and 2000 for genomics
discovery services to be performed by Lynx. To date, Lynx has received from BASF
aggregate payments of $19 million under the agreement. Lynx could receive
additional payments from BASF over the remaining term of the agreement from
Lynx's performance of genomics discovery services in excess of those covered by
the payments previously made by BASF.
37
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LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. COLLABORATORS, CUSTOMERS AND LICENSEES (CONTINUED)
DuPont
In October 1998, Lynx entered into a research collaboration agreement
with DuPont to apply Lynx's technologies on an exclusive basis to the study of
certain crops and their protection. Under the terms of the agreement, the
Company could receive payments over a five-year period for genomics discovery
services, the achievement of specific technology milestones and the delivery of
genomic maps of specified crops. An initial payment of $10 million for
technology access was received at the execution of the agreement, with
additional minimum service fees of $12 million to be received by Lynx over a
three-year period which commenced in January 1999. At the end of three years
from the effective date of the agreement, DuPont can terminate the agreement
with no further payment obligations to Lynx other than those accrued, or if
Dupont chooses to maintain exclusivity with respect to certain crops, with
payments for the remaining two years of the agreement. In the fourth quarter of
1999, Lynx achieved a technology milestone under the agreement that resulted in
a $5 million payment from DuPont.
To date, Lynx has received from DuPont aggregate payments of $26 million
under the agreement. Lynx could receive additional payments from DuPont which
could total approximately $35 million over the remaining term of the agreement.
Lynx's receipt of these payments is contingent on Lynx's continuing performance
of genomics discovery services, the achievement of specific technology milestone
by Lynx and the delivery of genomic maps of specified crops by Lynx.
Aventis CropScience
In March 1999, Aventis Pharmaceuticals, formerly Hoechst Marion Roussel,
Inc., obtained nonexclusive access to certain of Lynx's genomics discovery
services for the benefit of its affiliate, Aventis CropScience. Lynx received an
initial payment for genomics discovery services to be performed by Lynx for
Aventis CropScience. The service period, which was renewed in March 2000, ends
on March 31, 2001, and is subject to renewal for up to two additional one-year
periods.
In September 1999, Lynx signed a three-year research collaboration
agreement with Aventis CropScience. Aventis CropScience will receive exclusive
access to certain of Lynx's genomics discovery services for the study of certain
plants, which is aimed at developing new crop varieties and other agricultural
products. Under the terms of the agreement, Aventis CropScience paid Lynx a
technology access fee upon execution of the agreement. Lynx can earn additional
fees for the performance of genomics discovery services, the delivery of genomic
maps of certain plants and milestone payments and licensing fees related to the
discovery of trait-associated SNPs for the subject plants.
To date, Lynx has received from Aventis CropScience aggregate payments
of $8 million under the above agreements. Lynx could receive additional
payments from Aventis CropScience which could total approximately $20 million
over the remaining term of the agreements. Lynx's receipt of these payments is
contingent on Lynx's continuing performance of genomics discovery services, the
delivery of genomic maps of certain plants and milestone payments and licensing
fees related to the discovery of trait-associated SNPs for the subject plants.
38
41
LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. COLLABORATORS, CUSTOMERS AND LICENSEES (CONTINUED)
Takara
In November 2000, Lynx entered into a technology licensing agreement
with Takara Shuzo Co. Ltd. of Japan. The license provides Takara with the right
in Japan, Korea and China, including Taiwan, to use Lynx's proprietary
Megaclone, Megasort and MPSS technologies exclusively for at least five years,
and non-exclusively thereafter, to provide genomics discovery services and to
manufacture and sell microarrays containing content identified by Lynx's
technologies. Takara also receives from Lynx a non-exclusive license right to
manufacture and sell such microarrays elsewhere throughout the world. At the end
of three years from the effective date of the agreement, Takara can terminate
the agreement with no further payment obligation to Lynx other than those
accrued prior to the termination. Under the terms of the agreement, Lynx will
receive from Takara payments for technology access fees, royalties on sales of
microarrays and revenues from genomics discovery services, the sale to Takara of
proprietary reagents used in applying Lynx's technologies and purchases of Lynx
common stock. In the event of improvements made by Takara that increase the
efficiency of the Lynx technologies by a defined amount, Lynx and Takara have
agreed to negotiate in good faith a limited reduction to the royalty rate
applicable to the above royalties.
To date, Lynx has received from Takara aggregate payments of $5.3
million under the agreement. Lynx could receive additional payments from Takara
of approximately $10 million over the remaining term of the agreement from
technology access fees and purchases of Lynx common stock. Also, Lynx may
receive payments from Takara for royalties on sales of microarrays and revenues
from genomics discovery services and the sale to Takara of proprietary reagents
used in applying Lynx's technologies.
BASF-LYNX
In 1996, Lynx and BASF established BASF-LYNX, a joint venture company
in Heidelberg, Germany. BASF-LYNX began operations in 1997 and is employing
Lynx's technologies in its neuroscience, toxicology and microbiology research
programs. Upon the establishment of BASF-LYNX, Lynx contributed access to its
technologies to BASF-LYNX in exchange for an initial 49% equity ownership. BASF,
by committing to provide research funding to BASF-LYNX of DM50 million (or
approximately $23.4 million based on a August 2001 exchange rate) over a
five-year period beginning in 1997, received an initial 51% equity ownership in
BASF-LYNX. In 1998, BASF agreed to provide an additional $10 million in research
funding to BASF-LYNX, of which $4.3 million was paid to Lynx for technology
assets related to a CNS program. In June 2001, Lynx extended its technology
licensing agreement with BASF-LYNX (see Note 12).
To date, Lynx has received from BASF-LYNX net aggregate payments of
$4.8 million under all related agreements. Lynx may receive additional payments
from BASF-LYNX over the remaining terms of the agreements from the sale to
BASF-LYNX of proprietary reagents and additional MPSS(TM) technology
instruments for use in BASF-LYNX's research programs.
4. SALE OF THE ANTISENSE BUSINESS
In March 1998, Lynx sold its portfolio of phosphorothioate antisense
patents and licenses and its therapeutic oligonucleotide manufacturing facility
(collectively, the "Antisense Business") to Inex Pharmaceuticals Corporation
("Inex"), a Canadian company. As partial consideration in this transaction, Lynx
received $3 million in cash and will receive 1.2 million shares of Inex common
stock, in three equal installments, with the first 400,000 shares received in
March 1998, and the second 400,000 shares received in March 2000. The third
installment of stock is to be received in March 2001. The Inex common stock
received by Lynx is subject to certain restrictions on trading for specific
periods of time following receipt by Lynx, with the sale restriction on the
initial 400,000 shares and second installment of 400,000 shares having expired
on March 10, 2000, and March 10, 2001, respectively. Lynx is also entitled to
receive royalties on future sales of phosphorothioate antisense products. In
addition, Lynx is also entitled to receive royalties under a license to Inex for
phosphoroamidate chemistry for certain therapeutic applications in the fields of
cancer and inflammation.
39
42
LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SALE OF THE ANTISENSE BUSINESS (CONTINUED)
The gain on the sale of the Antisense Business in 1998 is based on the
cash and the first installment of the Inex common stock received on the
transaction date, net of the book value of the assets transferred to Inex and
certain other costs associated with the transaction and incurred by Lynx.
Subsequent installments of Inex common stock are recorded at fair value by Lynx
in other income when received. As of December 31, 2000, Inex common stock was
classified as equity securities in short-term investments. As of December 31,
1999, Inex common stock was classified as equity securities in other non-current
assets.
5. LICENSE AGREEMENTS
Lynx has entered into various license agreements with companies and
academic institutions. Such agreements generally require Lynx to pay annual or
semiannual license fees and are generally cancelable upon 60 to 120 days'
notice. The expenses associated with licenses were approximately $90,000 and
$86,000 for the years ended December 31, 2000 and 1999, respectively. Lynx
recorded a credit to expense of approximately $27,000 in the year ended December
31, 1998 for license fees which had been paid, then subsequently included in the
sale of the antisense business.
6. NOTES RECEIVABLE FROM OFFICERS
In 1999, the Company entered into loan agreements with officers of the
Company. The aggregate loans total $360,000, are secured by second mortgages on
real property, have interest accruable at the rate of 4.83% to 6.02% per annum
and are subject to early repayment under specified circumstances. The principal
and interest on the loans will be forgiven, based on the officers' continuous
employment over a four-year period, in the following amounts: 50% on the second
anniversary dates of employment; and 25% on each of the third and fourth
anniversary dates of employment.
In August 1998, the Company entered into two loan agreements with an
officer of the Company. Each loan is in the amount of $100,000, secured by a
second mortgage on real property, with interest accruable at the rate of 5.57%
per annum, and subject to early repayment under specified circumstances. The
principal and interest on one loan will be forgiven, based on the officer's
continuous employment over a four-year period, in the following amounts: 50% on
the second anniversary date of employment; and 25% on each of the third and
fourth anniversary dates of employment. The second loan is to be repaid by the
officer according to the following schedule: 50% of the principal on the third
anniversary date of employment; and the remainder of the principal plus accrued
interest on the fourth anniversary date of employment.
In April 1997, the Company entered into a full-recourse loan agreement
with an officer of the Company. A note receivable of $250,000 was issued under a
stock purchase agreement for the purchase of 50,000 shares of common stock
whereby all the shares issued under the agreement are pledged as collateral. The
outstanding principal amount is due and payable in full in April 2002, subject
to an obligation to prepay under specified circumstances. Interest is payable
upon the expiration or termination of the note and accrues at the rate of 6.49%
per annum.
7. STOCKHOLDERS' EQUITY
PREFERRED STOCK
On March 31, 1998, pursuant to the Amended and Restated Certificate of
Designation, dated September 30, 1997, 332,288 shares of Series B preferred
stock, 123,299 shares of Series C preferred stock and 40,000 shares of Series D
preferred stock converted into 4,955,870 shares of common stock.
40
43
LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK
At December 31, 2000, Lynx has reserved 2,915,213 shares of common stock
for issuance upon the exercise of outstanding employee and nonemployee stock
options and upon the issuance of shares to be purchased pursuant to the employee
stock purchase plan as noted below:
Stock option grants outstanding ........ 2,456,533
Shares available for option grants ..... 292,591
Employee stock purchase plan shares .... 166,089
---------
2,915,213
=========
In October 1997, Lynx issued 2,675,500 shares of common stock, resulting
in net proceeds of $25.1 million, pursuant to a common stock purchase agreement
between the Company and certain investors. In connection with this transaction,
warrants were issued by the Company to purchase 50,000 shares of common stock at
an exercise price of $14.00 per share. The warrants were exercised in January
2000.
In November 1996, Lynx issued 959,182 shares of common stock in exchange
for 737,832 shares of Spectragen, Inc. common stock held by certain officers,
employees and one consultant of Spectragen, pursuant to an Agreement of Merger
between Lynx and Spectragen. Spectragen was a wholly-owned subsidiary of Lynx at
the time of the exchange. A portion of the shares are subject to repurchase
rights, which expire ratably over a five-year period. Pursuant to the merger,
and in accordance with APB 25, "Accounting for Stock Issued to Employees," Lynx
recognized compensation and consultant expense of $2.1 million and recorded
approximately $1.4 million in deferred compensation for the difference between
the fair market value of the Lynx stock and the deemed fair market value of the
Spectragen stock on the day of acquisition. The deferred compensation will be
charged ratably to expense as the repurchase rights expire.
Also in November 1996, Lynx issued options to purchase 524,355 shares of
Lynx common stock in exchange for options to purchase 403,350 Spectragen common
stock pursuant to the Agreement of Merger between the Company and Spectragen. In
accordance with APB 25, Lynx recognized deferred compensation of $712,000
representing the difference between the exercise price of the options and the
fair market value of the Company's common stock on the day of the exchange. The
deferred compensation is being charged to expense over the respective vesting
period of the grants.
1992 STOCK OPTION PLAN
In July 1992, the Board of Directors of the Company (the "Board")
adopted, and the stockholders subsequently approved, the Company's 1992 Stock
Option Plan (the "1992 Plan"). In May 2000, the stockholders approved an
amendment to the 1992 Plan, authorizing the increase in the number of shares
authorized for issuance under the 1992 Plan from a total of 4,200,000 shares to
4,800,000 shares and the inclusion of directors (including non-employee
directors) of the Company and its affiliates as eligible to participate in the
1992 Plan. In May 1996, the stockholders approved an amendment to the 1992 Plan
extending the term of the 1992 Plan until March 2006.
Under the 1992 Plan, the exercise price of incentive options granted may
not be less than 100% (110% in the case of options granted to a person who owns
more than 10% of the total combined voting power of all classes of stock of the
Company) of the fair market value of common stock at the date of grant.
Nonqualified options may be granted at not less than 85% of fair market value at
the date of grant. Options generally vest over a five-year period from the date
of grant and have a term of ten years (five years in the case of options granted
to a person who owns more than 10% of the total combined voting power of all
classes of stock of the Company).
In December 1997, the Board of Directors approved the commencement of
vesting of certain performance-based stock options that had been granted to
certain employees prior to the merger between Spectragen and Lynx. In connection
with this action, Lynx recognized deferred compensation of $4.1 million
representing the difference between the exercise price of the options and the
fair market value of the Company's common stock at the time of the December 1997
approval. The deferred compensation will be charged to expense over the period
beginning December 1997, through the end of the five-year vesting period.
41
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LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
The stock option activity under the 1992 Plan was as follows:
OPTIONS OUTSTANDING
---------------------------------------------------
AVAILABLE FOR NUMBER OF SHARES WEIGHTED AVERAGE
GRANT SUBJECT TO OPTIONS EXERCISE PRICE
------------- ------------------ ----------------
BALANCE AT DECEMBER 31, 1997 ...... 360,808 1,626,254 $ 3.22
Shares authorized ............... 600,000 -- --
Options granted ................. (407,500) 407,500 $ 11.27
Options exercised ............... -- (334,309) $ 2.27
Options canceled ................ 232,533 (269,723) $ 5.30
---------- ----------
BALANCE AT DECEMBER 31, 1998 ...... 785,841 1,429,722 $ 5.35
Shares authorized ............... 200,000 -- --
Options granted ................. (639,000) 639,000 $ 11.20
Options exercised ............... -- (68,994) $ 2.70
Options canceled ................ 40,246 (57,231) $ 7.10
---------- ----------
BALANCE AT DECEMBER 31, 1999 ...... 387,087 1,942,497 $ 7.32
Shares authorized ............... 600,000 -- --
Options granted ................. (736,500) 736,500 $ 26.42
Options exercised ............... -- (178,385) $ 4.72
Options canceled ................ 42,004 (44,079) $ 11.31
---------- ----------
BALANCE AT DECEMBER 31, 2000 ...... 292,591 2,456,533 $ 13.16
========== ==========
To date, all options granted under the 1992 Plan are nonqualified options.
Certain officers and employees of the Company were granted the right to exercise
their options prior to vesting, subject to the Company's right of repurchase at
the original issue price, which lapses ratably over five years. As of December
31, 2000, 15,609 shares outstanding were subject to repurchase.
The options outstanding at December 31, 2000, have been segregated into
ranges for additional disclosure as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ------------------------------
OPTIONS WEIGHTED-AVERAGE WEIGHTED- OPTIONS CURRENTLY WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL LIFE EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 2000 (IN YEARS) PRICE 2000 PRICE
--------------- -------------- ----------------- ---------- ----------------- ---------
$ 0.10 - $ 1.00 .... 180,809 3.95 $ 0.89 171,889 $ 0.92
$ 1.54 - $ 1.54 .... 268,622 5.60 $ 1.54 127,307 $ 1.54
$ 2.00 - $ 6.00 .... 298,764 5.30 $ 4.97 257,458 $ 4.99
$ 7.13 - $ 9.38 .... 252,400 7.69 $ 8.69 115,129 $ 8.66
$ 9.44 - $11.13 .... 477,750 8.90 $ 10.85 95,734 $ 10.92
$11.50 - $13.13 .... 282,008 8.66 $ 11.81 81,496 $ 11.83
$13.25 - $15.75 .... 332,180 8.04 $ 15.31 103,710 $ 15.00
$16.00 - $40.50 .... 257,500 9.61 $ 27.35 4,313 $ 32.57
$40.88 - $55.25 .... 26,500 9.42 $ 48.70 0 $ 0.00
$76.75 - $ 76.75 ... 80,000 9.15 $ 76.75 10,832 $ 76.75
--------- ---------
$ 0.10 - $ 76.75 ... 2,456,533 7.56 $ 13.16 967,868 $ 7.41
========= =========
As of December 31, 2000, 1999 and 1998, options to purchase 967,868,
709,433 and 505,522 shares were exercisable under the 1992 plan, respectively.
PRO FORMA INFORMATION
Pro forma information regarding net loss and net loss per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its stock options granted subsequent to December 31, 1994 under the fair
value method of SFAS 123. The weighted average fair value of options granted in
2000, 1999 and 1998 was $20.38, $7.87 and $6.74 per share, respectively. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model for the single option approach with the
following weighted-average assumptions: a risk-free interest rate of 6.0%, 4.97%
and 5.5% for 2000, 1999 and 1998, respectively; a weighted-average expected life
of five years for 2000 grants, five years for 1999 grants and 5.1 years for 1998
grants; an expected dividend yield of zero for all three years; and a volatility
factor of the expected market price of the Company's common stock of 100% for
2000, 86% for 1999 and 64% for 1998.
42
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LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's stock options.
Had compensation cost for the Company's stock-based compensation plan
been determined based on the fair value at the grant date for awards under the
plan consistent with the method of SFAS 123, the Company's net loss and net loss
per share would have been increased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net loss
Historical ........................... $ (13,301) $ (6,664) $ (4,347)
Pro forma ............................ $ (16,839) $ (7,874) $ (5,610)
Net loss per share
Historical ........................... $ (1.17) $ (0.60) $ (0.45)
Pro Forma ............................ $ (1.48) $ (0.71) $ (0.58)
1998 EMPLOYEE STOCK PURCHASE PLAN
In May 1998, the stockholders approved the adoption of the Company's
1998 Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan
authorized the issuance of 200,000 shares of common stock pursuant to purchase
rights granted to employees of the Company and is intended to be an "employee
stock purchase plan" as defined in Section 423 of the Internal Revenue Code.
As of December 31, 2000, a total of 33,911 shares of common stock have
been issued to employees at an aggregate purchase price of $470,706 and a
weighted average purchase price of $13.88 per share pursuant to offerings under
the Purchase Plan, and 166,089 shares remain available for future issuance.
Under SFAS 123, the fair value for these purchase options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions for 2000 and 1999, respectively:
risk-free interest rate of 6.0% and 4.97%; no dividend yields; volatility factor
of the expected market price of the Company's common stock of 100% and 86%; and
a weighted average expected life of 0.55 and 0.49 years. The weighted average
fair value of those purchase rights granted in 2000 and 1999, respectively, was
$7.58 and $5.13.
8. INCOME TAXES
The provision for income taxes of $500,000 for 2000 consists of foreign
withholding tax due on a payment received from one of Lynx's customers. The
provision for income taxes of approximately $258,000 for 1999 and $151,000 for
1998 consists entirely of alternative minimum tax.
The reconciliation of income tax expense (benefit) attributable to
continuing operations computed at the U.S. federal statutory rates to income tax
expense (benefit) for the fiscal years ended December 31, 2000, 1999 and 1998 is
as follows (in thousands):
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
------- ------- -------
Tax provision (benefit) at U.S statutory rate .... $(4,352) $(2,178) $(1,427)
Alternative minimum tax .......................... -- 258 151
Foreign taxes .................................... 500 -- --
Loss for which no tax benefit is currently
recognizable ..................................... 4,352 2,178 1,427
------- ------- -------
$ 500 $ 258 $ 151
======= ======= =======
43
46
LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets are as follows (in thousands):
2000 1999
-------- --------
Deferred tax assets:
Net operating loss carryforwards ............... $ 13,427 $ 6,717
Research and development tax credit
carryforwards ................................. 5,124 1,816
Alternative minimum tax credit carryforwards ... 218 290
Capitalized research and development
expenditures ................................. 1,422 859
Deferred revenues .............................. 9,865 10,124
Reserves and accruals .......................... 741 494
Other, net ..................................... -- 702
Valuation allowance ............................ (30,623) (21,002)
-------- --------
Net deferred tax assets .......................... 174 --
Deferred tax liabilities:
Other ............................................ 174 --
-------- --------
Net deferred tax assets .......................... $ -- $ --
======== ========
Realization of deferred tax assets is dependent on future earnings, if
any, the timing and the amount of which are uncertain. Accordingly, a valuation
allowance, in an amount equal to the net deferred tax assets as of December 31,
2000 and 1999 has been established to reflect these uncertainties. The change in
the valuation allowance was a net increase of approximately $9.6 million and
$3.6 million for the fiscal years ended December 31, 2000 and 1999,
respectively. Approximately $2.0 million of the valuation allowance for deferred
tax assets relates to benefits of stock option deductions which, when recognized
will be allocated directly to contributed capital.
As of December 31, 2000, the Company had a federal net operating loss
carryforward of approximately $38.6 million, which will expire at various dates
from 2008 through 2020, if not utilized. The Company has a state net operating
loss carryforward of approximately $5.3 million, which will expire in 2010.
As of December 31, 2000, the Company also had federal and California
research and development and other tax credit carryforwards of approximately
$3.8 million and $1.3 million, respectively. The federal research and
development credit will expire at various dates from 2008 through 2020, if not
utilized.
Utilization of net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in expiration of net
operating loss and tax credit carryforwards before full utilization. Utilization
of federal and California net operating losses and credit carryforwards incurred
prior to February 1994 is limited on an annual basis under the Internal Revenue
Code of 1986, as amended, as a result of an ownership change in 1994.
9. OBLIGATIONS UNDER OPERATING LEASES
In August 1993, the Company entered into a noncancelable operating lease
for facilities which expires on July 31, 2003. In 1998, the Company entered into
an agreement to sublease a portion of this space, and in 1999 through a
subsequent agreement, subleased the remaining portion of the facility. The term
of the sublease runs through July 2003. Rent from the sublease is sufficient to
cover the rent and other operating expenses incurred by Lynx under the terms of
the 1993 Lease.
In February 1998, the Company entered into a noncancelable operating
lease for facilities. The term of the lease commenced on December 15, 1998 and
expires on December 14, 2008. Under the terms of the lease, the monthly rental
payments are fixed for the first 24 months. Thereafter, the monthly rental
payments increase and are subject to annual Consumer Price Index-based
adjustments, with minimum and maximum limits. The Company is recognizing rent
expense on a straight-line basis over the lease period. The Company has the
option to extend the lease for an additional five-year period, subject to
certain conditions, with payments to be determined at the time of the exercise
of the option.
44
47
LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. OBLIGATIONS UNDER OPERATING LEASES (CONTINUED)
In June 1998, Lynx GmbH entered into a noncancelable operating lease for
facilities space of approximately 6,300 square feet in Heidelberg, Germany, to
house its operations. The space will be developed and occupied in phases,
depending on the growth of the organization. The lease terminates in June 2005.
A portion of such space is currently being subleased by BASF-LYNX.
The Company also leases equipment under various operating lease
agreements subject to minimum annual lease payments. Minimum annual rental
commitments and sublease income under non-cancelable operating leases are as
follows (in thousands):
SUBLEASE
YEARS ENDING DECEMBER 31: COMMITMENTS INCOME
----------- --------
2001 ............... $ 2,792 $ 1,117
2002 ............... 2,901 1,144
2003 ............... 2,691 682
2004 ............... 2,432 --
2005 ............... 2,498 --
Thereafter ......... 7,524 --
------- -------
$20,838 $ 2,943
======= =======
Rent expense for facilities and equipment under operating leases was
$2,055,000, $1,733,000 and $738,000 for the years ended December 31, 2000, 1999
and 1998, respectively. Rental income for the facility under sublease was
$1,127,000, $990,000 and $186,000 for the years ended December 31, 2000, 1999
and 1998, respectively.
10. 401(k) PLAN
In October 1992, Lynx adopted a 401(k) Plan covering all of its
employees. Pursuant to the 401(k) Plan, employees may elect to reduce their
current compensation by up to 15% (subject to an annual limit prescribed by the
Code as described below) and have the amount of such reduction contributed to
the 401(k) Plan. The 401(k) Plan permits, but does not require, additional
contributions to the 401(k) Plan by Lynx on behalf of all participants in the
401(k) Plan. In the years ended 2000, 1999 and 1998, the Company contributed
$74,000, $52,000 and $49,000, respectively.
11. EQUIPMENT FINANCING
In 1998, the Company entered into a financing agreement with a financial
institution ("Lender") under which Lynx drew down $4.8 million during 1999 for
the purchase of equipment and certain other capital expenditures. Lynx granted
the lender a security interest in all items financed by the Company under this
agreement. Each draw down under the loan has a term of 48 months from the date
of the draw down at interest rates ranging from 10.9% to 11.8% The original draw
down period under the agreement expired on March 31, 2000. In September 2000,
Lynx obtained additional financing of $950,000, under an amendment to the
original financing agreement. As of December 31, 2000, the principal balance
under loans outstanding under this agreement was approximately $4.4 million.
Accumulated depreciation relating to these assets amounted to $2.5 million and
$0.7 million for the years ended December 31, 2000 and 1999, respectively. The
carrying amounts of the Company's borrowings under its equipment financing
approximate their fair values. The fair values are estimated using a discounted
cash flow analysis based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements.
Principal payments based on equipment loans outstanding at December 31,
2000 are (in thousands):
2001.............................. $1,319
2002.............................. 1,393
2003.............................. 1,420
2004.............................. 264
------
$4,396
======
45
48
LYNX THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS (UNAUDITED)
Phytera
In January 2001, the Company entered into a collaboration with Phytera,
Inc. to identify genes from plants involved in the biosynthesis of anti-oxidant
polyphenols, naturally occurring compounds with nutraceutical and pharmaceutical
activity. Phytera will select plant species from its culture libraries and apply
its proprietary ExPAND(R) manipulation technology to regulate the expression of
the metabolic pathways and genes responsible for the production of specific
anti-oxidant polyphenolic compounds. Lynx will then use its proprietary Megasort
technology to identify genes activated after target compounds are induced. Lynx
and Phytera intend to validate gene targets and jointly commercialize the genes
with other partners in the nutraceutical and pharmaceutical sectors.
Celera
In March 2001, the Company entered into two agreements with Celera
Genomics. The first agreement involves the integration of sets of Lynx's
high-resolution gene expression data, derived from normal human tissues analyzed
using Lynx's MPSS technology, into Celera's database products for distribution
to Celera's customers through the Celera Discovery System (CDS). Under a second
agreement, Lynx will apply its MPSS technology to perform additional gene
expression analyses various tissues for Celera and to help supplement the Lynx
database offering.
In June 2001, Lynx extended its technology licensing agreement with
BASF-LYNX. The license extends BASF-LYNX's right to use Lynx's proprietary
MPSS(TM) and Megasort(TM) technologies non-exclusively in BASF-LYNX's
neuroscience, toxicology and microbiology research programs until December 31,
2007. The agreement also uniquely positions BASF-LYNX to apply Lynx's
technologies to specific disorders in the neuroscience field. Under the terms of
the agreement, Lynx will receive from BASF-LYNX a multi-million dollar
technology license fee. Lynx will furnish BASF-LYNX, initially without charge
and later for a fee, with Megaclone(TM) technology micro-beads, other reagents
and additional MPSS(TM) technology instruments for use in BASF-LYNX's research
programs.
Separately, Lynx and BASF have agreed to continue their support of
BASF-LYNX's growth, including an increase of the capital reserves of BASF-LYNX.
Lynx's additional investment in BASF-LYNX will maintain Lynx's ownership
interest in BASF-LYNX at more than 40%.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers, directors and certain employees, and
their ages as of February 15, 2001 are as follows:
NAME AGE POSITION
---- --- --------
Craig C. Taylor(1)(2)................. 50 Chairman of the Board
Norman J. W. Russell, Ph.D............ 48 President, Chief Executive Officer and Director
Edward C. Albini...................... 43 Chief Financial Officer and Secretary
Stephen C. Macevicz, Ph.D............. 51 Vice President, Intellectual Property
William Wong, Ph.D.................... 52 Vice President, Business Development
Richard C. Woychik, Ph.D.............. 48 Chief Scientific Officer
Sydney Brenner, M.B., D. Phil......... 73 Director and Principal Scientific Advisor
William K. Bowes, Jr.(1)(2)........... 74 Director
Leroy Hood, M.D., Ph.D................ 62 Director
James C. Kitch(1)(2).................. 53 Director
------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Craig C. Taylor was elected Chairman of the Board of Directors of Lynx
in December 2000 and has served as a director since March 1994, and served as
Acting Chief Financial Officer from July 1994 to April 1997. He has been active
in venture capital since 1977, when he joined Asset Management Company, a
venture capital firm. He is a general partner of AMC Partners 89 L.P., which
serves as the general partner of Asset Management Associates 1989 L.P., a
private venture capital partnership. He currently serves as a director of
Pharmacyclics, Inc., a biotechnology company, and several private companies.
Norman J. W. Russell, Ph.D., joined Lynx in October 1999 as President
and Chief Executive Officer and was elected to the Board of Directors in
December 1999. Prior to joining Lynx, he was Head of Biological Science and
Technology at AstraZeneca Pharmaceuticals, a pharmaceutical company. His
previous positions in 20 years at Zeneca included Head of Target Discovery, Head
of International Genomics and Head of Biotechnology. Dr. Russell earned a Ph.D.
in Physiology from Glasgow University, Scotland.
Edward C. Albini has served as Chief Financial Officer of Lynx since
April 1997. He was elected Secretary in February 1998. From January 1983 to
April 1997, Mr. Albini served in various financial management positions with
Genentech, Inc., a biotechnology company. His most recent role at Genentech was
as the Director of Financial Planning and Analysis. Mr. Albini holds a BS degree
in Accounting from Santa Clara University and an MBA degree from the Walter A.
Haas School of Business at the University of California, Berkeley. Mr. Albini is
also a certified public accountant.
Stephen C. Macevicz, Ph.D., joined Lynx in September 1995 as Vice
President, Intellectual Property. He was Senior Patent Attorney and chief patent
counsel at Applied Biosystems, Inc. from 1992 to August 1995 and, from 1986 to
1992, Patent Counsel at DNAX Research Institute of Molecular and Cellular
Biology, a research subsidiary of Schering-Plough Corporation. He received his
law degree from the University of California, Berkeley, Boalt Hall, and his
Ph.D. in Biophysics from the University of California, Berkeley.
William Wong, Ph.D., joined Lynx in January 2001 as Vice President,
Business Development. He was Executive Vice President, Business Development at
Nexell, a therapeutics company, from 1998 to 2000, Executive Director,
Technology and Business Development at Intracel Corp., a biotechnology company,
from 1995 to 1998, Sr. Vice President and General Manager at Zynaxis, Inc., a
drug delivery and diagnostics company, from 1994 to 1995, and he held various
positions at Zynaxis from 1990 to 1994. Dr. Wong received his Ph.D. from the
University of Rochester, School of Medicine, Rochester, New York.
Richard C. Woychik, Ph.D., joined Lynx in January 2001 as Chief
Scientific Officer. Prior to joining Lynx, Dr. Woychik was Senior Director and
Head of the Global R&D Molecular Genetics Research Center at Pfizer, a
pharmaceutical company, from 1998 to 2000. From 1997 to 1998, Dr. Woychik was a
Professor in the Departments of Pediatrics, Genetics and Pharmacology and Vice
Chairman for Research in Pediatrics at Case Western Reserve University and from
1987 to 1997, he was a research scientist at the Oak Ridge National Laboratory.
Dr. Woychik earned his Ph.D. in Molecular Biology at Case Western Reserve
University.
47
50
Sydney Brenner, M.B., D.Phil., has served as a director of Lynx since
October 1993. He is a distinguished Professor at the Salk Institute of
Biological Studies in La Jolla, California. He served as Director and President
of The Molecular Sciences Institute, a non-profit research institute in
Berkeley, California from July 1996 to January 2001, when he retired as Director
of Research. In September 1996, he retired from his position of Honorary
Professor of Genetic Medicine, University of Cambridge Clinical School. From
1986 to his retirement in 1991, Dr. Brenner directed the Medical Research
Council Unit of Molecular Genetics. He was a member of the Scripps Research
Institute in La Jolla, California, until December 1994. Dr. Brenner is the
principal inventor of Lynx's bead-based technologies.
William K. Bowes, Jr., has served as a director of Lynx since March
1994. He has been a general partner of U.S. Venture Partners, a venture capital
partnership, since 1981. He currently serves as a director of Amgen, Inc., a
biotechnology company, AMCC, an integrated circuit company, XOMA Corporation, a
biotechnology company, and one U.S. Venture Partners privately owned portfolio
company.
Leroy Hood, M.D., Ph.D., has served as a director of Lynx since May
2000. In December 1999, he founded the Institute of Systems Biology, a private
nonprofit research institute, and currently serves as the President and a
director. From 1992 to 1999, he was the Chair of the Molecular Biotechnology
Department at the University of Washington and the William Gates III Professor
of Biomedical Sciences. Dr. Hood received his M.D. from Johns Hopkins Medical
School and Ph.D. from the California Institute of Technology. He has been a
member of the National Academy of Sciences and the American Academy of Arts and
Sciences since 1982.
James C. Kitch has served as a director of Lynx since February 1993 and
Secretary of Lynx from February 1992 to December 1997. Since 1979, he has been a
partner at Cooley Godward LLP, a law firm, which has provided legal services to
Lynx.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a)
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission ("SEC") initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Officers, directors and greater than ten percent (10%) stockholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company, during the calendar year ended December
31, 2000, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent (10%) beneficial owners were complied
with.
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51
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid by the Company
during the calendar years ended December 31, 2000, 1999 and 1998, to its Chief
Executive Officer and the two other most highly compensated executive officers
whose compensation exceeded $100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY (1) OPTIONS (#) COMPENSATION
--------------------------- ---- ---------- ----------- ------------
Norman J. W. Russell, Ph.D.(2) ............. 2000 $262,571 -- --
President & Chief Executive Officer ...... 1999 $109,527 200,000 $ 33,212(2)
Edward C. Albini ........................... 2000 $196,405 70,000 $ 750(3)
Chief Financial Officer .................. 1999 $163,730 -- $ 750(3)
1998 $147,336 50,000 $ 750(3)
Stephen C. Macevicz, Ph.D .................. 2000 $191,538 20,000 $ 750(3)
Vice President, Intellectual Property .... 1999 $176,549 20,000 $ 750(3)
1998 $167,611 -- $ 750(3)
------------
(1) Includes amounts earned but deferred at the election of the Named
Executive Officer pursuant to the Company's 401(k) Plan.
(2) Dr. Russell joined the Company as President and Chief Executive Officer
on October 18, 1999. Prior to this time, Dr. Russell was employed at
Lynx Therapeutics GmbH, a wholly-owned subsidiary of the Company, from
July 1, 1999. Dr. Russell's compensation received while employed at Lynx
GmbH is reflected under Other Annual Compensation.
(3) Contributions made by the Company to the Company's 401(k) Plan on behalf
of such employee.
Except as disclosed above, no compensation characterized as long-term
compensation, including restricted stock awards issued at a price below fair
market value or long-term incentive plan payouts, was paid by the Company during
the year ended December 31, 2000, to any of the Named Executive Officers.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1992
Stock Option Plan, as amended. As of February 15, 2001, options to purchase a
total of 2,655,290 shares were outstanding under the 1992 Stock Option Plan, as
amended, and options to purchase 91,499 shares remained available for grant
thereunder.
The following table sets forth, for each of the Named Executive Officers
in the Summary Compensation Table, certain information regarding options granted
during the year ended December 31, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES
--------------------------------------------------------------------- OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS GRANTED EXERCISE OR FOR OPTION TERM (2)
UNDERLYING OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION --------------------------
NAME GRANTED IN FISCAL YEAR (1) ($/SH) DATE 5%($) 10%($)
------------------ ------------------ ----------- ---------- --------- -----------
Edward C. Albini ........... 40,000 5.43% 76.75 02/22/10 1,930,706 4,892,789
30,000 4.07% 15.75 05/26/10 297,153 753,043
Stephen C. Macevicz, Ph.D .. 20,000 2.72% 10.63 12/10/10 133,703 338,830
------------
(1) Based on options for an aggregate of 736,500 shares granted to employees
of, and consultants to, the Company during the year ended December 31,
2000, including the Named Executive Officer.
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52
(2) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated by assuming
that the stock price on the date of grant appreciates at the indicated
annual rate, compounded annually for the entire term of the option, and
that option is exercised and sold on the last day of the term for the
appreciated stock price.
The following table sets forth certain information concerning the number
of options exercised by the Named Executive Officers during the year ended
December 31, 2000, and the number of shares covered by both exercisable and
unexercisable stock options held by the Named Executive Officers. Also reported
are values for "in-the-money" options that represent the positive spread between
the respective exercise prices of outstanding options and the fair market value
of the Company's common stock as of December 29, 2000 ($9.00 per share).
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 2000 AND OPTION
VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR-END YEAR-END (1)
ACQUIRED ON VALUE ----------------------------- ----------------------------
NAME EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE EXERCISABLE
----------- ------------ ----------- ------------- ----------- -----------
Norman J. W. Russell, Ph.D. -- -- 56,666 143,334 0 0
Edward C. Albini ......... -- -- 28,333 21,667 0 0
-- -- 6,666 33,334 0 0
-- -- 3,500 26,500 0 0
Stephen C. Macevicz ...... 14,000 238,840 1,000 0 8,000 0
34,666 620,868 4,334 0 38,356 0
-- -- 4,000 16,000 0 0
-- -- 0 20,000 0 0
-------
(1) Based on the fair market value of the Company's common stock at December
29, 2000 ($9.00), minus the exercise price of the options, multiplied by
the number of shares underlying the options.
EMPLOYMENT SEVERANCE AND CHANGE OF CONTROL AGREEMENTS
In October 1999, the Company entered into an employment agreement with
Dr. Norman J. W. Russell, President and Chief Executive Officer, providing for
an annual compensation of $255,000 per year and an option to purchase 200,000
shares of common stock at an exercise price of $11.31 per share, subject to a
five-year vesting schedule. If Dr. Russell is terminated due to a change in
control of the Company, Dr. Russell's shares covered by the option shall
accelerate so that fifty percent of the then unvested shares covered by the
option shall immediately vest and become exercisable upon the effective date of
the change in control. The Company also provided Dr. Russell with a loan in the
amount of $250,000 for the sole purpose of the purchase of a house, which loan
shall be secured by the property, and is forgivable over a four-year period.
COMPENSATION OF DIRECTORS
Directors are not compensated by the Company for services as directors.
Non-employee directors are eligible to participate in the Company's 1992 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was established in March 1994 and
is currently composed of three non-employee directors: Messrs. Bowes, Kitch and
Taylor. Mr. Taylor served as Acting Chief Financial Officer of the Company from
July 1994 to April 1997. There were no officers or employees of the Company who
participated in deliberations of the Company's Compensation Committee concerning
executive officer compensation during the year ended December 31, 2000.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
The Company's Bylaws provide that the Company will indemnify its
directors and executive officers and may indemnify its other officers, employees
and other agents to the fullest extent permitted by Delaware law. The Company is
also empowered under its Bylaws to enter into indemnification agreements with
its directors and officers and to purchase insurance on behalf of any person
whom it is required or permitted to indemnify. Pursuant to this provision, the
Company has entered into indemnity agreements with each of its directors and
executive officers.
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53
In addition, the Company's Certificate of Incorporation provides that,
to the fullest extent permitted by Delaware law, the Company's directors will
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Company and its stockholders. This provision in the Certificate
of Incorporation does not eliminate the duty of care, and in appropriate
circumstances, equitable remedies such as an injunction or other forms of
nonmonetary relief would remain available under Delaware law. Each director will
continue to be subject to liability for breach of the director's duty of loyalty
to the Company, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for acts or omissions that the director
believes to be contrary to the best interests of the Company or its
stockholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Company or its stockholders when the director was aware
or should have been aware of a risk of serious injury to the Company or its
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws such as the federal securities laws or state or federal
environmental laws.
No pending material litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification is
being sought exists, and the Company is not aware of any pending or threatened
material litigation that may result in claims for indemnification by any
director, officer, employee or other agent.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the common stock as of February 15, 2001, by (i) each stockholder
who is known by the Company to own beneficially more than 5% of the common
stock; (ii) each Named Executive Officer of the Company listed on the Summary
Compensation Table; (iii) each director of the Company; and (iv) all directors
and executive officers of the Company as a group.
COMMON STOCK (1)
-----------------------------
NUMBER
NAME OF BENEFICIAL OWNER OF SHARES PERCENT
--------- ---------
Credit Suisse Asset Management, LLC .................... 723,296 6.3%
GEO Capital, LLC ....................................... 654,990 5.7%
Norman J. W. Russell, Ph.D.(2) ......................... 70,000 **
Edward C. Albini(3) .................................... 95,219 **
Stephen C. Macevicz, Ph.D.(4) .......................... 78,889 **
William K. Bowes, Jr.(5) ............................... 183,496 1.6%
Sydney Brenner, M.B., D. Phil.(6) ...................... 329,000 2.9%
Leroy Hood, M.D., Ph.D ................................. 6,896 **
James C. Kitch(7) ...................................... 20,620 **
Craig C. Taylor(8) ..................................... 386,434 3.4%
All directors and officers as a group (10 persons)(9) .. 1,170,554 9.99%
------------
** Less than one percent.
(1) Except as otherwise noted, and subject to community property laws where
applicable, each person or entity named in the table has sole voting and
investment power with respect to all shares shown as beneficially owned
by him, her or it. Percentage of beneficial ownership is based on
11,459,521 shares of common stock outstanding as of February 15, 2001,
except as otherwise noted in the footnotes. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Shares of common stock subject to options
currently exercisable or exercisable within 60 days of February 15,
2001, are deemed outstanding for computing the percentage of the person
holding such options but are not deemed outstanding for computing the
percentage of beneficial ownership of any other person.
(2) Consists of 70,000 shares of common stock issuable upon exercise of
stock options held by Dr. Russell that are exercisable within 60 days of
February 15, 2001.
(3) Includes 44,499 shares of common stock issuable upon exercise of stock
options held by Mr. Albini that are exercisable within 60 days of
February 15, 2001.
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54
(4) Includes 12,000 shares of common stock issuable upon exercise of stock
options held by Dr. Macevicz that are exercisable within 60 days of
February 15, 2001.
(5) Includes 35,401 shares of common stock held by Mr. Bowes, 17,606 shares
of common stock held by the William K. Bowes Charitable Remainder Trust,
of which Mr. Bowes is Trustee, and 8,333 shares of common stock issuable
upon exercise of stock options held by Mr. Bowes that are exercisable
within 60 days of February 15, 2001. Also includes 122,156 shares of
common stock held by entities affiliated with U.S. Venture Partners IV,
L.P. or U.S.V.P. IV. Mr. Bowes, a director of Lynx, is a general partner
of Presidio Management Group IV, the general partner of U.S.V.P. IV. Mr.
Bowes shares the power to vote and control the disposition of shares
held by U.S.V.P. IV and, therefore, may be deemed to be the beneficial
owner of such shares. Mr. Bowes disclaims beneficial ownership of such
shares, except to the extent of his pro-rata interest therein.
(6) Includes 99,000 shares of common stock issuable upon exercise of stock
options held by Dr. Brenner that are exercisable within 60 days of
February 15, 2001.
(7) Includes 2,287 shares of common stock, 8,333 shares of common stock
issuable upon exercise of stock options held by Mr. Kitch and 10,000
shares of common stock issuable upon the exercise of stock options also
held by Mr. Kitch that are exercisable within 60 days of February 15,
2001. Mr. Kitch holds these options for the benefit of Cooley Godward
LLP. He shares the power to vote and control the disposition of such
shares and, therefore, may be deemed to be the beneficial owner of such
shares. Mr. Kitch disclaims beneficial ownership of such shares, except
to the extent of his pro-rata interest therein.
(8) Includes 13,997 shares of common stock held by Mr. Taylor and 8,333
shares of common stock issuable upon exercise of stock options held by
Mr. Taylor. Also includes 364,104 shares of common stock held by Asset
Management Associates 1989 L.P. Mr. Taylor, the Chairman of the Board of
Lynx, is a general partner of AMC Partners 89, which is the general
partner of Asset 1989 L.P. Mr. Taylor shares the power to vote and
control the disposition of shares held by Asset 1989 L.P. and,
therefore, may be deemed to be the beneficial owner of such shares. Mr.
Taylor disclaims beneficial ownership of such shares, except to the
extent of his pro-rata interest therein.
(9) Includes 486,260 shares of common stock held by entities affiliated with
certain directors and 423,796 shares of common stock issuable upon
exercise of stock options held by directors and officers that are
exercisable within 60 days of February 15, 2001. See Notes 2 through 8
above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1999, the Company entered into a loan agreement with Norman
J. W. Russell, Ph.D., President, Chief Executive Officer and a director of the
Company. The loan is in the amount of $250,000, secured by a second mortgage on
real property, with interest accruable at the rate of 6.02% per annum, and
subject to early repayment under specified circumstances. The principal and
interest on the loan will be forgiven, based on the officer's continuous
employment over a four-year period, in the following amounts: 50% on the second
anniversary date of employment; and 25% on each of the third and fourth
anniversary dates of employment. At February 15, 2001, the outstanding principal
and accrued interest on the loan was $267,224.
In April 1997, the Company entered into a full-recourse loan agreement
with Edward C. Albini, an officer of the Company. A note receivable of $250,000
was issued under a stock purchase agreement for the purchase of 50,000 shares of
common stock whereby all the shares issued under the agreement are pledged as
collateral. The outstanding principal amount is due and payable in full in April
2002, subject to an obligation to prepay under specified circumstances. Interest
is payable upon the expiration or termination of the note and accrues at the
rate of 6.49% per annum. At February 15, 2001, the outstanding principal and
accrued interest on the loan was $293,988.
For legal services rendered during the calendar year ended December 31,
2000, the Company paid approximately $307,500 to Cooley Godward LLP, the
Company's counsel, of which Mr. Kitch, a director of the Company, is a partner.
The Company's Bylaws provide that the Company will indemnify its
directors and executive officers and may indemnify its other officers, employees
and other agents to the fullest extent permitted by Delaware law. The Company is
also empowered under its Bylaws to enter into indemnification agreements with
its directors and officers and to purchase insurance on behalf of any person
whom it is required or permitted to indemnify. Pursuant to this provision, the
Company has entered into indemnity agreements with each of its directors and
executive officers.
52
55
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(1) The following index, Report of Ernst & Young LLP,
Independent Auditors, and financial statements set forth on pages 26
through 31 of this report are being filed as part of this report:
(i) Report of Ernst & Young LLP, Independent Auditors.
(ii) Consolidated Balance Sheets as of December 31, 2000 and
1999.
(iii) Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.
(iv) Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998.
(v) Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.
(vi) Notes to Consolidated Financial Statements.
(2) All schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statement or notes thereto.
(3) The following documents are being filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1+ Acquisition Agreement, dated as of February 4, 1998, by and
between the Company and Inex Pharmaceuticals Corporation,
incorporated by reference to the indicated exhibit of the
Company's Current Report on Form 8-K filed on March 24, 1998.
3.1 Amended and Restated Certificate of Incorporation of the Company,
incorporated by reference to the indicated exhibit of the
Company's Form 10-Q for the period ended June 30, 2000.
3.2 Bylaws of the Company, as amended, incorporated by reference to
the indicated exhibit of the Company's Form 10-Q for the
period ended June 30, 2000.
4.1 Form of Common Stock Certificate, incorporated by reference to
Exhibit 4.2 of the Company's Statement Form 10 (File No.
0-22570), as amended.
10.1 Form of Indemnity Agreement entered into between the Company and
its directors and officers, incorporated by reference to Exhibit
10.7 of the Company's Statement Form 10 (File No. 0-22570), as
amended.
10.2** The Company's 1992 Stock Option Plan (the "Stock Option Plan"),
incorporated by reference to Exhibit 10.8 of the Company's
Statement Form 10 (File No. 0-22570), as amended.
10.3** Form of Incentive Stock Option Grant under the Stock Option Plan,
incorporated by reference to Exhibit 10.9 of the Company's
Statement Form 10 (File No. 0-22570), as amended.
10.4** Form of Nonstatutory Stock Option Grant under the Stock Option
Plan, incorporated by reference to Exhibit 10.10 of the
Company's Statement Form 10 (File No. 0-22570), as amended.
10.5 Agreement of Assignment and License of Intellectual Property
Rights, dated June 30, 1992, by and between the Company and ABI,
incorporated by reference to Exhibit 10.11 of the Company's
Statement Form 10 (File No. 0-22570), as amended.
10.6 Amended and Restated Investor Rights Agreement, dated as of
November 1, 1995, incorporated by reference to Exhibit 10.30 of
the Company's Form 10-K for the period ended December 31,
1995.
10.7+ Technology Development and Services Agreement, dated as of
October 2, 1995, by and among the Company, Hoechst
Aktiengesellschaft and its subsidiary, Hoechst Marion Roussel,
Inc., incorporated by reference to Exhibit 10.28 of the Company's
Form 10-K for the period ended December 31, 1995.
10.7.1+ Amended and Restated First Amendment to Technology Development
and Services Agreement, dated May 1, 1998, by and between
the Company and Hoechst Marion Roussel, Inc., incorporated by
reference to Exhibit 10.36 of the Company's Form 10-Q for the
period ended June 30, 1998.
10.7.2*+ Second Amendment to Technology Development and Services
Agreement, dated March 1, 1999, by and among the Company, Hoechst
Marion Roussel, Inc. and its affiliate Hoechst Schering AgrEvo
GmbH.
10.7.3+ Third Amendment to Technology Development and Services Agreement,
dated December 20, 1999, by and among the Company, Aventis
Pharmaceutical Inc. and its affiliate Aventis CropScience GmbH.
10.8** Stock Purchase Agreement, dated as of June 13, 1996, by and
between Spectragen, Inc. and Sam Eletr. The Stock Purchase
Agreement was assumed by the Company pursuant to the Agreement of
Merger between the Company and Spectragen, Inc., incorporated by
reference to Exhibit 10.25 of the Company's Form 10-K for the
period ended December 31, 1996.
53
56
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
1997.
10.9** Stock Purchase Agreement dated as of April 14, 1997, by and
between the Company and Edward C. Albini, incorporated by
reference to Exhibit 10.32 of the Company's Form 10-K for the
period ended December 31, 1997.
10.10 Form of Common Stock Purchase Agreement, dated as of September
28, 1997, by and between the Company and the investors listed
therein, incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-3, filed on October
31, 1997 (File No. 333-39171).
10.11 Lease dated as of February 27, 1998, by and between the Company
and SimFirst, L.P., Limited Partnership, incorporated by
reference to Exhibit 10.35 of the Company's Form 10-Q for the
period ended March 31, 1998.
10.12 The Company's 1998 Employee Stock Purchase Plan (the "Purchase
Plan"), incorporated by reference to Exhibit 99.1 of the
Company's Form S-8 (File No. 333-59163).
10.13+ Research Collaboration Agreement, dated as of October 29, 1998,
by and between the Company and E.I. Dupont de Nemours and Co.
10.14 Master Loan and Security Agreement, dated as of October 26, 1998,
by and between the Company and Transamerica Business Credit
Corporation.
10.15 Promissory Note No. 7, dated as of September 29, 2000, issued by
the Company to Transamerica Business Credit Corporation.
10.16*+ Collaboration Agreement, dated as of September 30, 1999, by and
between the Company and Hoechst Schering AgrEvo GmbH.
10.17** Employment Agreement dated as of October 18, 1999, by and between
the Company and Norman John Wilkie Russell, Ph.D., incorporated
by reference to Exhibit 10.13 of the Company's Form 10-Q for
the period ended September 30, 1999.
10.18*+ Collaboration Agreement, dated as of October 1, 2000, by and
between the Company and Takara Shuzo Co., Ltd.
10.19 Securities Purchase Agreement, dated as of May 24, 2001, by and
among the Company and the investors listed therein,
incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K, filed on June 4, 2001.
10.20 Registration Rights Agreement, dated as of May 24, 2001, by and
among the Company and the investors listed therein,
incorporated by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K, filed on June 4, 2001.
10.21 Form of Warrant issued by the Company in favor of each
investor thereto, incorporated by reference to Exhibit 10.3 of
the Company's Current Report on Form 8-K, filed on June 4,
2001.
10.22+ Joint Venture Agreement, dated as of June 29, 2001, by and
between the Company and BASF Aktiengesellschaft, incorporated by
reference to Exhibit 10.18 of the Company's Form 10-Q for the
period ended June 30, 2001.
10.23+ Technology License Agreement, dated as of June 1, 2001, by and
between the Company and BASF-LYNX Bioscience AG, incorporated
by reference to Exhibit 10.19 of the Company's Form 10-Q for
the period ended June 30, 2001.
21.1 Subsidiary of the Company.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. Reference is made to the signature page.
------------
* Being filed herewith; all other exhibits previously filed.
** Management contract or compensatory plan or arrangement.
(+) Portions of this agreement have been deleted pursuant to our request for
confidential treatment.
(b) REPORTS ON FORM 8-K
Not applicable.
54
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 to
report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, on the 20th day of September 2001.
LYNX THERAPEUTICS, INC.
By: /s/ NORMAN J.W. RUSSELL, PH.D.
--------------------------------------
Norman J.W. Russell, Ph.D.
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934,
the amendment to this report has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ NORMAN J.W. RUSSELL President, Chief Executive Officer and September 20, 2001
------------------------------- Director (Principal Executive Officer)
Norman J.W. Russell
* Chairman of the Board September 20, 2001
-------------------------------
Craig C. Taylor
/s/ EDWARD C. ALBINI Chief Financial Officer and Secretary September 20, 2001
------------------------------- (Principal Financial and Accounting Officer)
Edward C. Albini
* Director September 20, 2001
-------------------------------
William K. Bowes, Jr.
Director September , 2001
-------------------------------
Sydney Brenner
* Director September 20, 2001
-------------------------------
James C. Kitch
Director September , 2001
-------------------------------
Leroy Hood
* Director September 20, 2001
-------------------------------
David C. U'Prichard
* By: /s/ EDWARD C. ALBINI
--------------------------
Edward C. Albini
ATTORNEY-IN-FACT
55
58
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1+ Acquisition Agreement, dated as of February 4, 1998, by and
between the Company and Inex Pharmaceuticals Corporation,
incorporated by reference to the indicated exhibit of the
Company's Current Report on Form 8-K filed on March 24, 1998.
3.1 Amended and Restated Certificate of Incorporation of the Company,
incorporated by reference to the indicated exhibit of the
Company's Form 10-Q for the period ended June 30, 2000.
3.2 Bylaws of the Company, as amended, incorporated by reference to
the indicated exhibit of the Company's Form 10-Q for the period
ended June 30, 2000.
4.1 Form of Common Stock Certificate, incorporated by reference to
Exhibit 4.2 of the Company's Statement Form 10 (File No.
0-22570), as amended.
10.1 Form of Indemnity Agreement entered into between the Company and
its directors and officers, incorporated by reference to Exhibit
10.7 of the Company's Statement Form 10 (File No. 0-22570), as
amended.
10.2** The Company's 1992 Stock Option Plan (the "Stock Option Plan"),
incorporated by reference to Exhibit 10.8 of the Company's
Statement Form 10 (File No. 0-22570), as amended.
10.3** Form of Incentive Stock Option Grant under the Stock Option Plan,
incorporated by reference to Exhibit 10.9 of the Company's
Statement Form 10 (File No. 0-22570), as amended.
10.4** Form of Nonstatutory Stock Option Grant under the Stock Option
Plan, incorporated by reference to Exhibit 10.10 of the Company's
Statement Form 10 (File No. 0-22570), as amended.
10.5 Agreement of Assignment and License of Intellectual Property
Rights, dated June 30, 1992, by and between the Company and ABI,
incorporated by reference to Exhibit 10.11 of the Company's
Statement Form 10 (File No. 0-22570), as amended.
10.6 Amended and Restated Investor Rights Agreement, dated as of
November 1, 1995, incorporated by reference to Exhibit 10.30 of
the Company's Form 10-K for the period ended December 31, 1995.
10.7+ Technology Development and Services Agreement, dated as of
October 2, 1995, by and among the Company, Hoechst
Aktiengesellschaft and its subsidiary, Hoechst Marion Roussel,
Inc., incorporated by reference to Exhibit 10.28 of the Company's
Form 10-K for the period ended December 31, 1995.
10.7.1+ Amended and Restated First Amendment to Technology Development
and Services Agreement, dated as of May 1, 1998, by and between
the Company and Hoechst Marion Roussel, Inc., incorporated by
reference to Exhibit 10.36 of the Company's Form 10-Q for the
period ended June 30, 1998.
10.7.2*+ Second Amendment to Technology Development and Services
Agreement, dated March 1, 1999, by and among the Company, Hoechst
Marion Roussel, Inc. and its affiliate Hoechst Schering AgrEvo
GmbH.
10.7.3+ Third Amendment to Technology Development and Services Agreement,
dated December 20, 1999, by and among the Company, Aventis
Pharmaceutical Inc. and its affiliate Aventis CropScience GmbH.
10.8** Stock Purchase Agreement, dated as of June 13, 1996, by and
between Spectragen, Inc. and Sam Eletr. The Stock Purchase
Agreement was assumed by the Company pursuant to the Agreement of
Merger between the Company and Spectragen, Inc., incorporated by
reference to Exhibit 10.25 of the Company's Form 10-K for the
period ended December 31, 1996.
10.9** Stock Purchase Agreement dated as of April 14, 1997, by and
between the Company and Edward C. Albini, incorporated by
reference to Exhibit 10.32 of the Company's Form 10-K for the
period ended December 31, 1997.
10.10 Form of Common Stock Purchase Agreement, dated as of September
28, 1997, by and between the Company and the investors listed
therein, incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-3, filed on October
31, 1997 (File No. 333-39171).
10.11 Lease dated as of February 27, 1998, by and between the Company
and SimFirst, L.P., Limited Partnership, incorporated by
reference to Exhibit 10.35 of the Company's Form 10-Q for the
period ended March 31, 1998.
10.12 The Company's 1998 Employee Stock Purchase Plan (the "Purchase
Plan"), incorporated by reference to Exhibit 99.1 of the
Company's Form S-8 (File No. 333-59163).
10.13+ Research Collaboration Agreement, dated as of October 29, 1998,
by and between the Company and E.I. Dupont de Nemours and Co.
10.14 Master Loan and Security Agreement, dated as of October 26, 1998,
by and between the Company and Transamerica Business Credit
Corporation.
10.15 Promissory Note No. 7, dated as of September 29, 2000, issued by
the Company to Transamerica Business Credit Corporation.
10.16*+ Collaboration Agreement, dated as of September 30, 1999, by and
between the Company and Hoechst Schering AgrEvo GmbH.
10.17** Employment Agreement dated as of October 18, 1999, between the
Company and Norman John Wilkie Russell, Ph.D., incorporated by
reference to Exhibit 10.13 of the Company's Form 10-Q for the
period ended September
10.18*+ Collaboration Agreement, dated as of October 1, 2000, by and
between the Company and Takara Shuzo Co., Ltd.
10.19 Securities Purchase Agreement, dated as of May 24, 2001, by and
among the Company and the investors listed therein, incorporated
by reference to Exhibit 10.1 of the Company's Current Report on
Form 8-K, filed on June 4, 2001.
10.20 Registration Rights Agreement, dated as of May 24, 2001, by and
among the Company and the investors listed therein, incorporated
by reference to Exhibit 10.2 of the Company's Current Report on
Form 8-K, filed on June 4, 2001.
10.21 Form of Warrant issued by the Company in favor of each investor
thereto, incorporated by reference to Exhibit 10.3 of the
Company's Current Report on Form 8-K, filed on June 4, 2001.
10.22+ Joint Venture Agreement, dated as of June 29, 2001, by and
between the Company and BASF Aktiengesellschaft, incorporated by
reference to Exhibit 10.18 of the Company's Form 10-Q for the
period ended June 30, 2001.
10.23+ Technology License Agreement, dated as of June 1, 2001, by and
between the Company and BASF-LYNX Bioscience AG, incorporated by
reference to Exhibit 10.19 of the Company's Form 10-Q for the
period ended June 30, 2001.
56
59
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
30, 1999.
21.1 Subsidiary of the Company.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. Reference is made to the signature page.
------------
* Being filed herewith; all other exhibits previously filed.
** Management contract or compensatory plan or arrangement.
+ Portions of this agreement have been deleted pursuant to our request for
confidential treatment.
57
EX-10.7.2
3
f75847a2ex10-7_2.txt
EXHIBIT 10.7.2
1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
EXHIBIT 10.7.2
SECOND AMENDMENT TO
TECHNOLOGY DEVELOPMENT AND SERVICES AGREEMENT
This Second Amendment ("Second Amendment") to the Technology Development and
Services Agreement dated October 2, 1995, as amended through May 1, 1998 (the
"Agreement") is made and entered into as of March 1, 1999 by LYNX THERAPEUTICS,
INC., a Delaware corporation, for itself and its wholly-owned subsidiaries,
including SPECTRAGEN, INC., (collectively referred to as "Lynx"), Hoechst Marion
Roussel, Inc., a Delaware corporation, for itself and its affiliates other than
AgrEvo ("HMRI") and Hoechst Schering AgrEvo GmbH, a German corporation and an
affiliate of HMRI (referred to as "AgrEvo").
RECITALS
WHEREAS, HMRI has the right under the Agreement to secure nonexclusive
access to Lynx's library analysis and other subscription services for itself and
all of its affiliates in accordance with the terms of the Agreement at any time
up to December 31, 1999;
WHEREAS, HMRI and AgrEvo desire to partially exercise such right in
order to enable AgrEvo to activate a subscription for Lynx's services for use in
its agricultural research programs;
WHEREAS, the parties wish to enter into this Second Amendment for the
purpose of enabling such partial activation by AgrEvo.
NOW THEREFORE, in consideration of the foregoing premises and the
covenants and promises contained in this Second Amendment, the parties agree as
follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Second Amendment shall have the meanings
ascribed to them in the Agreement unless otherwise defined in or amended by this
Second Amendment.
1.1 No amendment is made to Section 1.1.
1.2 No amendment is made to Section 1.2.
1.3 No amendment is made to Section 1.3.
1.4 "Analysis" means (i) the activities of Lynx leading to the
generation of a MPSS Library Analysis and/or (ii) any other analysis using Lynx
Technology uncovering, for example,
2
differences in gene expression or genomic composition, offered by Lynx to its
subscription service customers (including HMRI as described in Article 2).
1.5 "Lynx Technology" means Lynx's proprietary technologies for solid
phase cloning on beads of genomic DNA or cDNA and their analytical applications,
such as library comparisons using bead-based sorting or signature sequencing on
beads, as existing on the date hereof and as developed or improved by Lynx
during the term of the Agreement.
1.6 "AgrEvo Field" shall mean the analysis of genomes and gene
expression of plants, or of plant pathogens or plant pests, for the purpose of
developing and commercializing products solely for use in commercial
agricultural applications, including, without limitation, food and feed and
other downstream applications.
ARTICLE 2
DEVELOPMENT OF MPSS TECHNOLOGY
2.1 No amendment is made to Section 2.1.
2.2 No amendment is made to Section 2.2, but Lynx agrees to provide
copies of its reports to HMRI to AgrEvo.
2.3 No amendment is made to Section 2.3.
2.4 PAYMENTS TO LYNX. Lynx acknowledges that Hoechst has paid to Lynx
Three Million U.S. Dollars (US$3,000,000), in part, for Lynx's commitment to
undertake the development of technologies that may be useful to HMRI. Lynx
agrees that no additional payment by HMRI to Lynx shall be required for Lynx's
continued development of Lynx Technology. AgrEvo, having determined that such
technologies are currently useful to AgrEvo, agrees to pay to Lynx on or before
March 31, 1999 a technology access fee of [ * ] in respect of the activation of
a subscription for Lynx's Analysis services for use in the AgrEvo Field for the
benefit solely of AgrEvo. If Lynx is able to establish to HMRI's satisfaction
that the Analysis services offered or to be offered by Lynx to its subscription
customers are applicable for HMRI's purposes and fulfill HMRI's needs as
determined by HMRI at its sole discretion, then HMRI will pay to Lynx an
additional technology access fee to be negotiated but of not more than [ * ]
within thirty (30) days of such determination in order to activate a
subscription for Lynx's Analysis services for use in any field for the benefit
of HMRI and its affiliates other than AgrEvo.
2.5 NOTICE TO HMRI. If Lynx notifies HMRI that it has developed the Lynx
Technology to the extent that it is being accessed and used by any subscription
service customer other than AgrEvo, HMRI will at its sole discretion determine
the usefulness of the technology for HMRI's purposes and decide whether to
activate a subscription for the benefit of HMRI and its affiliates other than
AgrEvo under the conditions outlined under Section 2.4. A decision by HMRI
during the term of this Agreement not to access the technology does not
constitute a termination of the Agreement.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
2
3
ARTICLE 3
LYNX ANALYSIS SERVICES
No amendment is made to Article 3, of which Sections 3.1, 3.2, 3.3, 3.4,
3.6, 3.7 and 3.8 will not pertain to AgrEvo, except that AgrEvo will have the
benefit of Section 3.5 and new Sections 3.9, 3.10, 3.11 and 3.12 are added as
follows:
3.9 AGREVO SUBSCRIPTION. AgrEvo agrees to make a second payment to Lynx
of [ * ] on or before March 31, 1999 in order to activate an initial
subscription period for AgrEvo consisting of the period ending March 31, 2000.
During such initial subscription period, AgrEvo shall be entitled to receive
from Lynx, without further charge, Analyses and the results thereof having an
aggregate Value (as hereinafter defined) of [ * ]. In addition, if during the
initial subscription period AgrEvo desires to engage Lynx to conduct additional
Analyses after the aggregate Value of the Analyses already conducted equals or
exceeds [ * ] AgrEvo may request that Lynx provide such additional requested
Analyses on a timely basis, subject to its other business commitments and
resource allocation, and AgrEvo shall pay Lynx the Value of each such additional
Analysis upon delivery of the results thereof to AgrEvo. The "Value" of any
single Analysis performed by Lynx for AgrEvo under the Agreement shall be equal
to five times Lynx's fully burdened cost of performing such Analysis. AgrEvo
may, at its option and upon thirty (30) days prior written notice, elect to
extend its subscription on the same terms as set forth herein above for up to
three additional subsequent one year periods, by making in respect of each
renewal period a payment to Lynx of a [ * ] renewal fee prior to expiration of
the then current subscription year. This Agreement shall expire as to AgrEvo at
the end of the last subscription period paid for by AgrEvo, unless further
extended pursuant to Section 5.1. Analyses will be performed as described
hereinafter. AgrEvo will provide to Lynx (a) biological and/or biologically
derived sample(s) (e.g. cDNA or genomic DNA) for Analysis, together with an
indication of the desired Analysis results, criteria for Analysis and Analysis
results, and preferred methods(s) of Analysis. Each particular Analysis will
only be performed after Lynx and AgrEvo have jointly agreed in writing on the
estimated Value and estimated duration of such Analysis and the form in which
the results of such Analysis will be delivered. The results of any given
Analysis to be delivered by Lynx to AgrEvo will include any and all information
and/or material generated in the course of such Analysis. Results of any given
Analysis shall be delivered in the form and at the time agreed upon by the
Parties.
3.10 IMPROVEMENTS. Lynx will own any and all improvements to Lynx
Technology, including improvements made while performing Analysis services
pursuant to this Agreement. AgrEvo may from time to time suggest possible
improvements to Lynx Technology that Lynx will consider in good faith. In the
event the parties agree to implement and evaluate such improvements, Lynx's
fully burdened cost of Analyses performed in the development of such improved
Lynx Technology will be charged to AgrEvo without any mark-up. Lynx will own all
intellectual property rights in such improvements and may offer such improved
Lynx Technology or services based thereon to its other subscription customers
and otherwise make use thereof in its business without compensation to AgrEvo.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
3
4
3.11 AGREVO INTELLECTUAL PROPERTY. AgrEvo shall own the entire right,
title and interest in any and all material and information provided by AgrEvo
(or Affiliates of AgrEvo) to Lynx pursuant to this Agreement (including but not
limited to samples, criteria, etc.) and any and all results of Analyses
performed pursuant to this Agreement, excluding however improvements to Lynx
Technology. Lynx Agrees that it shall treat all such material and information
and results owned by AgrEvo as the "Confidential Information" of AgrEvo pursuant
to Article 4 hereof. Nevertheless, AgrEvo agrees to give appropriate credit to
Lynx in any scientific publication of its research that relies on such results.
Only AgrEvo (or its Affiliates) shall have the right to protect any and all of
such material, information and results owned by AgrEvo by patents or other
intellectual property rights. Upon request of AgrEvo, Lynx will provide
reasonable assistance to AgrEvo in connection with filings and procedures to
obtain any such intellectual property rights.
3.12 COLLABORATION AGREEMENT. AgrEvo and Lynx currently expect to enter
into a separate agreement (the "Collaboration Agreement") pursuant to which the
parties, making use of other Lynx technologies, will collaborate in research on
certain crops to be specified (but excluding crops that are exclusive to E.I.
DuPont de Nemours and Company under its agreement with Lynx). It is clearly
understood, however, that neither Party is obliged to enter into any
Collaboration Agreement. The parties agree that any portion of a subscription
fee paid by AgrEvo to Lynx pursuant to Section 3.9 that is not utilized in
respect of Analysis services under this Agreement may be applied to work by Lynx
under the Collaboration Agreement in the same subscription period.
ARTICLE 4
CONFIDENTIALITY
The provisions of this article of the Agreement are not amended by this
Second Amendment and shall apply between Lynx and AgrEvo.
ARTICLE 5
TERM AND TERMINATION
5.1 As to AgrEvo, this Agreement shall expire at the end of the initial
AgrEvo subscription period provided for in Section 3.9 or, if such initial
subscription is renewed under Section 3.9, at the end of the last subscription
period to be paid for by AgrEvo. As to HMRI, this Agreement shall expire on
December 31, 1999 if HMRI has not by that date notified Lynx of its
determination to activate its subscription pursuant to Section 2.4. If such
subscription is activated before such date, this Agreement shall expire as to
HMRI at the end of the initial HMRI subscription period provided for in Section
3.2 or, if such subscription period is renewed under Section 3.3, at the end of
the last subscription period to be paid for by HMRI under Section 3.3. The
subscription of AgrEvo may be further extended by agreement with Lynx on the
terms of conditions of any such further extension prior to expiration of the
last renewal period available under Section 3.9. If the Agreement terminates as
to HMRI on December 31, 1999, Lynx agrees that HMRI shall be entitled to a
credit of [ * ] with regard to any future technology access fee and any such
technology access fee and subscription fee shall be reduced as set forth in this
Second Amendment.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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5.2 Section 5.2 shall be amended by the addition at the end thereof of
the following:
In the event Lynx is or becomes unable, for any reason whatsoever, to provide
Analysis services to AgrEvo (including without limitation as a result of claims
by a third party that the provision of such services infringes proprietary
rights of such third party), AgrEvo shall have the right to terminate this
Agreement pursuant to this Section 5.2. Termination of this Agreement pursuant
to this Section 5.2 by one party shall not result in a termination of this
Agreement as between the remaining parties (i.e., this Agreement shall remain in
effect with respect to AgrEvo and Lynx in the event of termination by HMRI, and
vice versa).
5.3 Section 5.3 shall be amended by the addition of the following
sentence after the second sentence thereof:
With respect to AgrEvo, upon such expiration or termination, Lynx will (i)
deliver to AgrEvo any results obtained in Analyses performed for AgrEvo pursuant
to this Agreement which have not yet been delivered, and (ii) destroy any copies
of results obtained in Analyses performed for AgrEvo pursuant to this Agreement
which may be in Lynx's possession at the time of such expiration or termination,
except improvements to Lynx Technology, and any material or information provided
by AgrEvo to Lynx pursuant to this Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
No amendment is made to Article 6 of the Agreement, except that the
following sentence is added to Section 6.1:
Lynx further represents and warrants to AgrEvo that the execution and delivery
of this Agreement does not, and the performance by Lynx of its obligations
hereunder will not, result in any breach of or constitute a default under any
other contract, agreement, license or other instrument or obligation to which
Lynx is a party or by which Lynx is bound. Lynx agrees to indemnify and hold
harmless AgrEvo for any and all damage which may be suffered by AgrEvo as a
result of any breach of the foregoing representation and warranty.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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ARTICLE 7
MISCELLANEOUS
The provisions of Article 7 of the Agreement are not amended by this
Second Amendment except that all notices to AgrEvo and Lynx pursuant to Article
7.6 of the Agreement shall be delivered to:
Hoechst Schering AgrEvo GmbH Lynx Therapeutics, Inc.
Miraustrasse 54 25861 Industrial Boulevard
D-13509 Berlin, Germany Hayward, CA 94545
Attention: General Counsel Attention: President
IN WITNESS WHEREOF, the parties hereto have duly executed this Restated
First Amendment as of the date first written above.
LYNX THERAPEUTICS, INC. HOECHST SCHERING AGREVO GMBH
By: /s/ Sam Eletr By: /s/ Bernard Convent
------------------------------- ----------------------------------
Title: Chief Executive Officer Title: Head R & D, Biotechnology Corp.
---------------------------- -------------------------------
Date: 31 March 1999
----------------------------- By: /s/ Jurgen Asshauer
----------------------------------
Title: Board Member
-------------------------------
Date: 31 March 1999
--------------------------------
HOECHST MARION ROUSSEL, INC.
By: /s/ Thomas Hofstaetter
-------------------------------
Title: Sr. Vice President, Business Development & Strategic Planning
--------------------------------------------------------------
Date: 5/3/99
-----------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
6
EX-10.16
4
f75847a2ex10-16.txt
EXHIBIT 10.16
1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
EXHIBIT 10.16
COLLABORATION AGREEMENT
BETWEEN
LYNX THERAPEUTICS, INC. AND HOECHST SCHERING AGREVO GMBH
SEPTEMBER 30, 1999
2
COLLABORATION AGREEMENT
THIS COLLABORATION AGREEMENT (the "Agreement") is made and entered into
effective as of September 30, 1999 (the "Effective Date"), by and between LYNX
THERAPEUTICS, INC., a Delaware corporation ("Lynx"), and HOECHST SCHERING AGREVO
GMBH, a German corporation ("AgrEvo"). Lynx and AgrEvo are sometimes referred to
herein individually as a "Party" and collectively as the "Parties".
RECITALS
WHEREAS, Lynx and AgrEvo are Parties to the Technology Development and
Services Agreement between Lynx and Hoechst Aktiengesellschaft ("Hoechst") of
October 2, 1995, as amended as of March 1, 1999 (the "Services Agreement"),
pursuant to which Hoechst has subscribed on a non-exclusive basis to certain
analytical services provided by Lynx on the terms set forth therein;
WHEREAS, Lynx and AgrEvo are Parties to the Option Agreement between
Lynx and AgrEvo of June 10, 1999, pursuant to which Lynx has agreed to negotiate
in good faith exclusively with AgrEvo a collaboration agreement based on the
terms summarized in Exhibit A thereto during the period ending September 30,
1999;
WHEREAS, Lynx and AgrEvo now desire to enter into a collaboration
agreement pursuant to which Lynx will develop and apply DNA analysis
technologies for the analysis of DNA from certain crop plants to enable the
discovery, development and commercialization of Products; and
WHEREAS, in connection with establishing such collaboration AgrEvo
wishes to obtain and Lynx is willing to grant to AgrEvo certain rights to the
results of such analyses as described more fully herein, under the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the Parties hereto, intending
to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "AFFILIATE" shall mean any entity that directly or indirectly Owns,
is Owned by or is under common Ownership with, a Party to this Agreement, where
"Own" or "Ownership" means direct or indirect possession of at least fifty
percent (50%) of the outstanding voting securities of a corporation or a
comparable ownership in any other type of entity, provided, however, that if the
law of the jurisdiction in which such entity operates does not allow fifty
percent (50%) or greater ownership by a Party to this Agreement, such ownership
interest shall be at least forty percent (40%).
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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1.2 "AGREVO KNOW-HOW" shall mean the information on the
biologically-derived material provided by AgrEvo to Lynx under this Agreement,
which information is Controlled by AgrEvo and which information is reasonably
necessary for the interpretation of the Genotyping Results for a particular Crop
1.3 "AGREVO PATENTS" shall mean any Patents that claim inventions made
by AgrEvo during the Collaboration Term based on the Genotyping Results (but
excluding Patents that are jointly owned pursuant to Section 5.5).
1.4 "CO-EXCLUSIVE CROP" shall mean all plants, parts of plants, seeds
and other planting material, whether known as of the Effective Date or hereafter
created, of [ * ].
1.5 "COLLABORATION TERM" shall have the meaning set forth in Section
6.1.
1.6 "CONFIDENTIAL INFORMATION" shall mean, with respect to a Party, any
Information disclosed by such Party to the other Party under this Agreement,
except as limited by Section 7.2.
1.7 "CONTROL" OR "CONTROLLED" shall mean, with respect to any material,
Information or Intellectual Property hereunder, possession by a Party of the
ability to grant access to and a license or sublicense as provided herein under
such material, information or right without violating the terms of any agreement
or other arrangements with any Third Party.
1.8 "CROPS" shall mean the Exclusive Crops and the Co-Exclusive Crop.
1.9 "DUPONT" shall mean E.I. DuPont de Nemours & Company, Inc., a
Delaware corporation.
1.10 "DUPONT MAP" shall mean the high resolution physical map of the
genome of corn that has been accepted by DuPont.
1.11 "EXCLUSIVE CROPS" shall mean all plants, parts of plants, seeds and
other planting material, whether known as of the Effective Date or hereafter
created, of any of the following: [ * ].
1.12 "EXPERIMENTS" shall mean all experiments on Crops or model species
as agreed to by the Parties performed by Lynx using the Lynx Technology pursuant
to this Agreement other than experiments performed in the course of Technology
Development Projects or the development of any HRP Map.
1.13 "FIELD" shall mean the analysis of genomes and gene expression of
Crops, or of plant pathogens or pests that affect Crops, for the purpose of
developing and commercializing Products.
1.14 "FULLY BURDENED COST" OR "FBC" shall mean the actual cost of the
work performed by Lynx, including, without limitation, direct labor, direct
material and other direct items, and any indirect and overhead costs and
expenses allocatable to such work, as determined by Lynx in accordance with
United States generally accepted accounting principles consistently applied.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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1.15 "GENOTYPING EXPERIMENTS" shall mean all Experiments performed to
identify SNPs associated with a particular characteristic of a Crop in a group
of individuals of a Crop that vary with respect to this characteristic. These
Experiments will include the extraction of one or more reference sets of SNPs
from a group of individuals of a Crop in accordance with the guidelines set
forth in Appendix A.
1.16 "GENOTYPING RESULTS" shall mean any Information resulting from the
Genotyping Experiments on a Crop.
1.17 "HRP MAP" shall mean a high resolution physical DNA map of the
genome of an individual or a group of individuals of a Crop.
1.18 "IMPROVEMENT INVENTIONS" shall mean any inventions constituting
improvements or enhancements to the Lynx Technology that are conceived and/or
reduced to practice by AgrEvo, its agents or employees or jointly by AgrEvo, its
agents or employees and Lynx, its agents or employees in accordance with United
States patent law during the Collaboration Term.
1.19 "INFORMATION" shall mean information, data, databases, know-how,
trade secrets, inventions, developments, results, quality control information
and results, sequences, techniques, procedures, instrument and experimental
designs, knowledge and/or specialized reagents and materials, including costs
and sources thereof.
1.20 "INTELLECTUAL PROPERTY" shall mean any and all intellectual
property rights, including without limitation Patents, trade secrets,
trademarks, service marks, trade names, copyrights, plant breeder's rights and
regulatory registrations/approvals.
1.21 "JOINT RESEARCH COMMITTEE" OR "JRC" shall mean that committee
described in Section 2.2 and having the responsibilities set forth in Article 2.
1.22 "LYNX KNOW-HOW" shall mean any and all Information Controlled by
Lynx as of the Effective Date or during the Collaboration Term that is related
to Lynx's DNA analysis technologies, including, but not limited to, Lynx's high
resolution physical mapping and genotyping technologies and those DNA analysis
technologies which are available to Hoechst on a subscription basis under the
Services Agreement.
1.23 "LYNX PATENTS" shall mean Patents that claim inventions in Lynx
Know-How.
1.24 "LYNX TECHNOLOGY" shall mean the Lynx Patents and the Lynx
Know-How.
1.25 "PATENTS" shall mean any patent applications and patents (including
inventor's certificates and utility models), both foreign and domestic,
including any substitutions, extensions, reissues, reexaminations, renewals,
divisions, continuations or continuations-in-part.
1.26 "PRODUCTS" shall mean (1) plants, parts of plants, seeds or other
plant material (e.g. plants improved with respect to (a) growth, (b) yield, (c)
pest or other pathogen resistance, (d) resistance to chemicals, (e) quality or
quantity of certain proteins, starches, oil or other biological or chemical
substances, and the like), and (2) any other product useful for the
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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5
protection of plants when for example applied to the soil, seed or plant (e.g.,
biological or chemical products for the protection of plants against pests
and/or plant pathogens).
1.27 "SNP" shall mean a fragment of DNA that spans a site which is
polymorphic in a population of genomes supplied by AgrEvo.
1.28 "TECHNOLOGY DEVELOPMENT PROJECT" shall mean any research or
development project approved by the Parties with the goal of developing novel
applications of the Lynx Technology relevant to Crops or model species as agreed
to by the Parties.
1.29 "THIRD PARTY" shall mean any party other than AgrEvo or Lynx or an
Affiliate of either of them.
ARTICLE 2
COLLABORATION MANAGEMENT
2.1 OVERVIEW. The Parties agree to manage the collaboration established
by this Agreement through a Joint Research Committee, which will be responsible
for overseeing the Experiments, the work on HRP Maps and the Technology
Development Projects to be conducted in the course of the collaboration and for
coordinating the activities of the Parties performed in connection therewith.
The general description of the JRC's responsibilities contained in this Section
2.1 shall be subject to the specific agreements of the Parties set forth in this
Agreement.
2.2 JOINT RESEARCH COMMITTEE. The JRC shall be comprised of two (2)
representatives from each Party, each of whom shall be an executive experienced
in a relevant aspect of the subject matter of the collaboration. The Parties
shall designate their representatives to the JRC within ten (10) days of the
Effective Date. Members of the JRC shall serve on such terms as shall be
determined by the Party designating such person for membership on the JRC. An
alternate member designated by a Party may serve temporarily in the absence of a
member designated by such Party. Each Party shall designate one of its
representatives as Co-Chair of the JRC. Each Co-Chair will be responsible for
the agenda and for recording the minutes of alternating meetings of the JRC.
Each Party shall bear its own costs for participating in the JRC. The JRC may
form and disband subcommittees with appropriate and equal representation from
each Party. Each Party may replace any of its representatives to the JRC at any
time, and will inform the other Party thereof in writing.
2.3 MEETINGS OF THE JOINT RESEARCH COMMITTEE. The JRC shall hold
meetings at such times and places as shall be determined by a majority of the
entire membership of the JRC, but no less frequently than every three (3)
months. Subject to the foregoing, the JRC may conduct meetings in person or by
telephone conference or other means of communication, provided however that any
decision made during a meeting held by telephone conference or other remote
means (i.e., not in person) shall be confirmed in a writing signed by each
member of the JRC. Each Party may invite other personnel of their company to
attend meetings of the JRC in a non-voting capacity, subject to the mutual
consent of the Parties. No meetings of the JRC can be held unless both Parties
are represented.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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2.4 FUNCTIONS OF THE JOINT RESEARCH COMMITTEE. The JRC shall manage the
Experiments, the work on HRP Maps and the Technology Development Projects
conducted pursuant to the collaboration, as provided in this Section 2.4. The
JRC shall:
(a) approve the objective and design of all Experiments to be
conducted and the schedule for the performance of those Experiments;
(b) review the Genotyping Results and make recommendations for
further Genotyping Experiments, if appropriate;
(c) review Lynx's progress in the development of its HRP mapping
technology and determine and approve the order, timeframes and criteria for HRP
Maps as set forth in Section 3.4 based on the guidelines set forth in Appendix
A;
(d) review and approve the nature, extent, design, performance
and schedule of any Technology Development Projects; and
(e) perform such other functions as appropriate to further the
purposes of the collaboration under this Agreement as mutually determined by the
Parties.
2.5 DECISION-MAKING OF THE JOINT RESEARCH COMMITTEE. The representatives
of each Party to the JRC shall cumulatively have a single vote by which to
approve or disapprove any proposed action, and all actions by the JRC pursuant
to this Agreement shall be taken only with the unanimous approval of the JRC.
2.6 LIMITATIONS ON JOINT RESEARCH COMMITTEE POWERS. The JRC shall have
no power to amend this Agreement and shall only have such powers as are
specifically delegated to it under this Agreement.
ARTICLE 3
CONDUCT OF COLLABORATION
3.1 GENERAL. Lynx will apply the Lynx Technology for the benefit of a
collaboration between the Parties in the Field directed to the discovery of
genetic, genomic and/or gene expression data and other Information related to
the Crops, and the model species as agreed to by the Parties, useful to the
ultimate discovery, development and commercialization by AgrEvo of Products.
Lynx will use commercially reasonable and diligent efforts to perform the
Experiments, prepare the HRP Maps and perform any Technology Development
Projects, consistent with any schedule established by the JRC. For purposes of
this Agreement, "commercially reasonable and diligent efforts" shall mean,
unless the Parties agree otherwise in writing, those efforts consistent with the
exercise of prudent scientific and business judgment, as applied to other
research efforts and to products of similar scientific and commercial potential
within Lynx's relevant research programs and product lines. Unless otherwise
agreed by the Parties in writing, Lynx shall perform all approved Experiments
and Technology Development Projects and shall construct all HRP Maps ordered by
AgrEvo at Lynx's facilities.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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3.2 LYNX CAPACITY. The Parties will approve the performance by Lynx of a
certain volume of work hereunder each year, and Lynx will make available
sufficient and appropriate personnel and physical resources to perform such work
that is approved by the Parties and for which AgrEvo has agreed to provide
compensation in accordance with Article 4. The Parties also may approve the
performance of additional work as necessary for the purposes of the
collaboration; provided, however, that Lynx's obligation to perform such
additional work shall be subject to AgrEvo's agreement to provide compensation
in accordance with Article 4 for such work and to the availability of sufficient
and appropriate personnel and physical resources of Lynx in light of Lynx's
commitments to its other collaboration partners and such other obligations as
Lynx may have, including its internal business commitments.
3.3 EXPERIMENTS. Upon AgrEvo's agreement to provide compensation for
Experiments approved by the JRC pursuant to Section 2.4, Lynx will use
commercially reasonable and diligent efforts to perform Experiments on samples
of Crops and model species as agreed by the Parties provided by AgrEvo, as
specified and coordinated by the JRC, and to keep AgrEvo informed as to the
progress of Experiments being performed. AgrEvo will compensate Lynx for such
work as set forth in Article 4. Within ten (10) days of the completion of a set
of Genotyping Experiments for a particular Crop, Lynx shall deliver the
Genotyping Results produced in such Genotyping Experiments to AgrEvo. The
results produced in Experiments other than Genotyping Experiments shall be
delivered by Lynx to AgrEvo at such times as are otherwise agreed in writing by
the Parties.
3.4 HRP MAPS. At an appropriate time to be determined by AgrEvo but not
later than thirty (30) days after receipt of confirmation that Lynx has
successfully completed the DuPont Map, the JRC shall meet. If the JRC determines
that the DuPont Map has met the minimum criteria set forth in Appendix A, the
Parties will proceed with construction of an HRP Map of the Co-Exclusive Crop to
meet criteria therefor to be established by the JRC based on the guidelines set
forth in Appendix A. If the DuPont Map has not met such criteria, the JRC will
attempt in good faith to establish criteria to be used in connection with the
HRP Map of the Co-Exclusive Crop; provided, however, that if the JRC is unable
to agree on such criteria, AgrEvo will have no further right or obligation to
order any HRP Map hereunder. Upon the establishment by the JRC of the criteria
for the HRP Map of the Co-Exclusive Crop, AgrEvo shall order and Lynx shall
construct and deliver to AgrEvo such map in accordance with this Agreement.
Following delivery by Lynx of such map, in the event the JRC determines that the
HRP Map for the Co-Exclusive Crop does not meet the applicable criteria
therefor, AgrEvo will have no obligation to pay Lynx for such HRP Map unless it
elects in its discretion not to return such map to Lynx, and AgrEvo will have no
further right or obligation to order any other HRP Map under this Agreement. If,
on the other hand, the HRP Map for the Co-Exclusive Crop meets the applicable
criteria, AgrEvo shall pay Lynx the fee set forth in Section 4.4, and the JRC
shall meet within thirty (30) days in order to determine and approve the
criteria and the estimated time frame for construction of an HRP Map of one of
the Exclusive Crops. Upon the establishment by the JRC of the criteria for such
a map, AgrEvo shall then order, and Lynx shall then construct and deliver to
AgrEvo, the HRP Map for such Exclusive Crop in accordance with this Agreement.
The procedure described above for review of a finished HRP Map and the ordering
of the next HRP Map shall be applied repetitively until HRP Maps for all of the
Exclusive Crops have been constructed or the last of such maps to be delivered
by Lynx does not meet the applicable criteria
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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therefor. Notwithstanding the foregoing, for the avoidance of doubt, AgrEvo
shall not have an obligation to order any HRP Map which map or its equivalent is
already in AgrEvo's possession or is publicly available. So long as AgrEvo
retains its right to order HRP Maps, Lynx shall not construct any HRP Map of a
Crop for any Third Party during the Collaboration Term and for three (3) years
thereafter.
3.5 TECHNOLOGY DEVELOPMENT PROJECTS. Either Party may from time to time
present possible Technology Development Projects to the JRC for its review and
assessment. Upon the recommendation of the JRC and the agreement of the Parties,
including AgrEvo's commitment to fund a Technology Development Project on the
basis set forth in Section 4.3, Lynx will use commercially reasonable and
diligent efforts to perform such Technology Development Project, and will
provide the JRC with regular summary reports on the progress thereof. All
Information provided by one Party to the other in the framework of proposals for
Technology Development Projects shall be treated as Confidential Information.
3.6 COLLABORATION EXCLUSIVITY. In consideration of the sums to be paid
to Lynx and the other terms and conditions of this Agreement, the Parties agree
that during the Collaboration Term, Lynx will not knowingly utilize the Lynx
Technology to collaborate with any Third Parties on Crops, provided that Lynx
may do such work with respect to the Co-Exclusive Crop for a single Third Party,
currently DuPont. Notwithstanding the foregoing, Lynx shall be free to perform
subscription gene sequencing, gene expression analysis and related services on a
non-exclusive basis for Third Parties, provided that Lynx notifies such Third
Parties that they may not utilize Lynx subscription services for the analysis of
DNA samples from Crops except that a single Third Party (currently DuPont) may
utilize such services for the Co-Exclusive Crop. Moreover, nothing in this
Section 3.6 shall be construed to limit or to restrict Lynx in any way from
being able to perform its obligations under the agreements in effect prior to
the date of this Agreement with DuPont (Agreement dated October 29, 1998, as
amended), BASF AG (agreements dated October 23, 1996 and January 1, 1997, as
amended) and Hoechst, whether or not such performance would otherwise be in
violation of this Section 3.6.
3.7 CO-EXCLUSIVE CROP. If DuPont's rights with respect to the
Co-Exclusive Crop expire or terminate prior to the expiration of the
Collaboration Term, Lynx will give AgrEvo written notice of such termination or
expiration within thirty (30) days thereof and give AgrEvo the opportunity to
discuss with Lynx the terms under which Lynx would agree to treat the
Co-Exclusive Crop as an Exclusive Crop under this Agreement.
3.8 [ * ]. AgrEvo shall have the right, exercisable by written notice to
Lynx given any time prior to September 30, 2001, to delete [ * ] from this
Agreement. Effective upon delivery of such notice, [ * ] will no longer be
included within the definition of Exclusive Crops (Section 1.11) and AgrEvo will
no longer have any right or obligation to order an HRP Map of [ * ] under
Section 3.4.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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ARTICLE 4
COMPENSATION
4.1 ACCESS FEE. Within ten (10) days of the Effective Date, AgrEvo shall
pay to Lynx an access fee of [ * ].
4.2 EXPERIMENTS FEES. Lynx's fees for the performance of Experiments
shall be a sum equivalent to [ * ], and shall be due within thirty (30) days of
the completion of the applicable Experiment. There will be no annual minimum and
any Experiments that could be performed under the existing Services Agreement
will be counted toward the applicable minimum requirements of that Agreement.
4.3 TECHNOLOGY DEVELOPMENT PROJECT FEES. Lynx's fees for the performance
of work on a Technology Development Project shall be [ * ] and shall be due
within thirty (30) days of receipt by AgrEvo of Lynx's invoice for any such
work.
4.4 HRP MAP FEES. Within thirty (30) days of confirmation in accordance
with Section 3.4 that Lynx has completed and DuPont has accepted the DuPont Map
and that such map meets the minimum criteria set forth in Appendix A (or, if
not, the JRC has agreed on criteria for the HRP Map of the Co-Exclusive Crop
pursuant to Section 3.4), AgrEvo shall pay Lynx a mapping technology milestone
of [ * ].Within thirty (30) days of confirmation by the JRC that the completed
HRP Map for the Co-Exclusive Crop meets the applicable criteria therefor, AgrEvo
shall pay Lynx a map purchase fee of [ * ]. On the completion of each additional
HRP Map ordered hereunder, AgrEvo shall pay to Lynx a map purchase fee
equivalent to [ * ] within thirty (30) days of the JRC's determination that the
applicable criteria therefor have been met within a time frame which is in
reasonable accordance with the estimated time frame approved by the JRC or, if
not, the election by AgrEvo to retain such map.
4.5 MILESTONE. In addition, with respect to each HRP Map, AgrEvo shall
pay Lynx [ * ] within [ * ] after [ * ] for the applicable Crop discovered
during the performance of the Genotyping Experiments have been located on the
HRP Map of that Crop, provided that [ * ] have met the criteria established by
the JRC in accordance with the guidelines set forth in Appendix A. The above
milestone shall be paid [ * ].
4.6 TECHNOLOGY LICENSING FEE. If AgrEvo determines in accordance with
Sections 5.5(a) and 5.5(b) that it wants to own exclusively any and all
Genotyping Results related to a particular Crop, or if AgrEvo determines in
accordance with Section 5.5(c) that it wants to use Genotyping Results related
to a particular Crop on a non-exclusive basis, then AgrEvo shall pay to Lynx a
technology licensing fee equal to [ * ] (the "Technology Licensing Fee"). Once
the Technology Licensing Fee has been paid for a particular Crop, AgrEvo shall
automatically own in accordance with the provisions of Section 5.5 all the
Genotyping Results of all Genotyping Experiments on the same Crop paid for by
AgrEvo pursuant to the terms of Section 4.2.
4.7 PAYMENTS. All amounts paid hereunder shall be made to Lynx in U.S.
dollars by bank wire transfer of immediately available funds to such account
designated by Lynx. Any payment not made on or before the payment due date shall
bear interest to the extent permitted by applicable law, at two percentage
points (2%) over the prime rate of interest as reported, from
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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time to time, by Bank of America NT & SA in San Francisco, California,
calculated on the number of days such payment is delinquent.
4.8 AUDIT. Lynx agrees to keep, until one (1) year after the end of the
Collaboration Term, records in sufficient detail to permit AgrEvo to confirm the
accuracy of the calculation of FBC for work performed under this Agreement. Once
a year, at the request and the expense of AgrEvo, upon at least ten (10)
business days' prior written notice, Lynx shall permit a nationally recognized,
independent, certified public accountant, appointed by AgrEvo and acceptable to
Lynx, access to these records during regular business hours solely to the extent
necessary to verify such calculations, provided that such accountant has entered
into a confidentiality agreement with Lynx with terms substantially similar to
the confidentiality provisions of this Agreement, limiting the use and
disclosure of such information to purposes germane to this section. Any
adjustment resulting from any such audit shall be paid by Lynx to AgrEvo or by
AgrEvo to Lynx, as applicable, within thirty (30) days after such adjustment is
determined. Moreover, if such examination reveals an adjustment to the
calculation for the benefit of AgrEvo in an amount equal to [ * ] or more of the
FBC amount being examined, Lynx shall pay all costs of such examination.
ARTICLE 5
INTELLECTUAL PROPERTY
5.1 LYNX TECHNOLOGY. Lynx shall own the Lynx Technology, and except as
expressly permitted under this Agreement, AgrEvo shall have no right to use or
otherwise exploit the Lynx Technology. Lynx shall have no obligation to enforce
the Lynx Patents by initiation of litigation or otherwise.
5.2 AGREVO KNOW-HOW AND AGREVO PATENTS. AgrEvo shall own the AgrEvo
Know-How and the AgrEvo Patents, and except as otherwise provided in this
Agreement, Lynx shall have no right to use or otherwise exploit the AgrEvo
Know-How and the AgrEvo Patents. AgrEvo shall have no obligation to enforce the
AgrEvo Patents by initiation of litigation or otherwise.
5.3 IMPROVEMENT INVENTIONS. Improvement Inventions shall be disclosed to
Lynx promptly. Improvement Inventions shall be assigned to Lynx, and Lynx shall
grant to AgrEvo a non-exclusive, worldwide, royalty-free, perpetual, irrevocable
license to use such Improvement Inventions, and any resulting Patents or
copyrights secured by Lynx based on such Improvement Inventions, for all fields.
AgrEvo shall make all appropriate assignments and take all other actions
reasonably necessary to give effect to the ownership interest of Lynx in
Improvement Inventions. Lynx will be entitled, in its sole discretion and at its
expense, to prosecute, maintain and protect any Intellectual Property associated
with such Improvement Inventions. Lynx also shall have the sole and exclusive
right, but not the obligation, to bring an appropriate action against any person
or entity infringing any Patents claiming Improvement Inventions, whether such
infringement is direct or contributory. Upon Lynx's reasonable request and at
Lynx's expense, AgrEvo will provide reasonable assistance to Lynx in obtaining
and managing the prosecution, maintenance, protection and enforcement of
Intellectual Property associated with Improvement Inventions. The foregoing
shall not be construed to grant AgrEvo rights broader
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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than those expressly granted under this Article 5; specifically, but without
prejudice to Section 5.8, the foregoing shall not be construed to grant AgrEvo
an implied or express license under or to Lynx Technology Controlled by Lynx as
of the Effective Date, or Lynx Technology Controlled by Lynx during the
Collaboration Term which is not an Improvement Invention.
5.4 HRP MAPS. All HRP Maps for Crops prepared by Lynx for AgrEvo under
this Agreement for which AgrEvo has paid a map purchase fee pursuant to Section
4.4 will be assigned to AgrEvo for any use or purpose, and Lynx shall make all
appropriate assignments and take all other actions reasonably necessary to give
effect to the ownership interest of AgrEvo in such HRP Maps. AgrEvo will be
entitled, in its sole discretion and at its expense, to prosecute, maintain and
protect any Intellectual Property associated with such HRP Maps. AgrEvo also
shall have the sole and exclusive right, but not the obligation, to bring an
appropriate action against any person or entity infringing any Patents claiming
such Intellectual Property, whether such infringement is direct or contributory.
Upon AgrEvo's reasonable request and at AgrEvo's expense, Lynx will provide
reasonable assistance to AgrEvo in obtaining and managing the prosecution,
maintenance, protection and enforcement of Intellectual Property associated with
such HRP Maps.
5.5 GENOTYPING RESULTS.
(a) DECISION PERIOD. Upon receipt by AgrEvo of Genotyping Results
for a particular Crop pursuant to Section 3.3 and written notice thereof from
Lynx, AgrEvo shall have ninety (90) days (the "Decision Period") to evaluate the
Genotyping Results in good faith and determine whether the Genotyping Results
are valuable to AgrEvo. If AgrEvo believes the Genotyping Results are valuable,
AgrEvo will so notify Lynx in writing and pay Lynx the Technology Licensing Fee
prior to the expiration of the Decision Period. If AgrEvo does not believe the
Genotyping Results for a particular Crop delivered to date are sufficiently
valuable to justify payment of the Technology Licensing Fee and the Decision
Period has not expired, AgrEvo may order [ * ] additional Genotyping Experiments
for the particular Crop, and the Decision Period will be extended until ninety
(90) days after AgrEvo's receipt of the Genotyping Results for the particular
Crop from such additional Genotyping Experiments. This process of ordering
additional Genotyping Experiments and the resulting extension of the Decision
Period may be repeated during the Collaboration Term until the Decision Period
has expired without AgrEvo having ordered additional Genotyping Experiments or
paid the Technology Licensing Fee. Except as otherwise specified in this Section
5.5, the Parties shall jointly own the Genotyping Results, and each Party shall
make all appropriate assignments and take all other actions reasonably necessary
to give effect to the ownership interest of the other Party. Prior to and during
the Decision Period, neither Party will use such Genotyping Results for any
purpose not explicitly permitted under this Agreement or license such Genotyping
Results or any Intellectual Property associated with such Genotyping Results to
any Third Party, without the written consent of the other Party. In addition,
prior to the expiration of the Decision Period, AgrEvo shall have the sole right
to prosecute, maintain, protect and enforce any Intellectual Property associated
with such Genotyping Results, in the name of both Parties and at its expense.
Lynx will provide reasonable assistance to AgrEvo, at AgrEvo's expense, in
obtaining and managing the prosecution, protection and enforcement of
Intellectual Property associated with such Genotyping Results.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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(b) EXCLUSIVITY. If AgrEvo pays the Technology Licensing Fee
prior to the expiration of the Decision Period, Lynx shall assign to AgrEvo all
its rights, title and interest in the Genotyping Results for the particular Crop
and any Intellectual Property associated with such Genotying Results for any use
or purpose in relation to Products and for any other use or purpose subject to
the provisions of Section 5.5(e), and Lynx shall make all appropriate
assignments and take all other actions reasonably necessary to give effect to
the ownership interest of AgrEvo in the Genotyping Results and any Intellectual
Property associated with such Genotying Results. Additionally, Lynx agrees that
it will not perform any experiments comparable to Genotyping Experiments with or
for a Third Party on a Crop for which the Technology Licensing Fee has been
paid, except for a single Third Party (currently DuPont) as such experiments
relate to the Co-Exclusive Crop, until the later of the end of the Collaboration
Term or two (2) years after delivery of the final set of Genotyping Experiments
for a particular Crop. Also, AgrEvo shall have the sole right to prosecute,
maintain, protect and enforce any Intellectual Property associated with such
Genotyping Results, at its own discretion, in its name and at its expense. Lynx
will provide reasonable assistance to AgrEvo, at AgrEvo's expense, in obtaining
and managing the prosecution, protection and enforcement of Intellectual
Property associated with such Genotyping Results.
(c) OPTION PERIOD.
(i) If AgrEvo fails to pay the Technology Licensing Fee
prior to the expiration of the Decision Period: (1) Lynx shall have the right to
grant non-exclusive licenses to the Genotyping Results to Third Parties to use
the Genotyping Results for any purpose and collaborate on a non-exclusive basis
with Third Parties with respect to the Genotyping Results for any use or
purpose; (2) AgrEvo covenants not to use or disclose the Genotyping Results for
any purpose until and unless it pays to Lynx the Technology Licensing Fee prior
to the expiration of [ * ] (the "Option Period"); and (3) AgrEvo shall grant to
Lynx, upon the expiration of the Decision Period, a non-exclusive, worldwide,
royalty-free, perpetual, irrevocable license, with the right to sublicense,
under the AgrEvo Patents and AgrEvo Know-How relating to the Genotyping Results
solely to research, develop, make, have made, use, sell, offer for sale and
import the Genotyping Results and/or any products resulting or derived from, or
arising out of, the Genotyping Results.
(ii) If AgrEvo pays Lynx the Technology Licensing Fee
prior to the expiration of the Option Period, AgrEvo shall have the
non-exclusive, worldwide, royalty-free, perpetual, irrevocable right, with the
right to grant licenses, to use such Genotyping Results for any use or purpose
in relation to Products and for any other use or purpose subject to the
provisions of Section 5.5(e). During the Option Period and after any payment by
AgrEvo of the Technology Licensing Fee, Lynx shall have the sole and exclusive
right to prosecute, maintain, protect and enforce any Intellectual Property
associated with the Genotyping Results, in the name and at the equal expense of
both Parties, subject to the right of either Party to elect by written notice to
the other not to pay its share of the ongoing expenses of any item of
Intellectual Property, in which case the electing Party shall assign all rights,
title and interest in and to such item of Intellectual Property to the other
Party and shall have no further right or license thereto under this Agreement.
(iii) If AgrEvo fails to pay the Technology Licensing Fee
prior to the expiration of the Option Period:
(1) AgrEvo shall (a) assign to Lynx all its rights,
title and interest in the Genotyping Results and any Intellectual Property
associated with such Genotyping
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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Results, and (b) make all appropriate assignments and take all other actions
reasonably necessary to give effect to the ownership interest of Lynx in the
Genotyping Results, and the license set forth in Section 5.5(c)(i)(3) shall
continue in accordance with its terms; and
(2) Lynx shall have (a) no further obligations to
AgrEvo with respect to such Genotyping Results under this Agreement, and (b) the
sole and exclusive right to prosecute, maintain, protect and enforce any
Intellectual Property associated with the Genotyping Results, in its sole name
and at its expense.
(d) PROTECTION OF GENOTYPING RESULTS. The Party with the right to
prosecute Intellectual Property associated with the Genotyping Results pursuant
to Section 5.5 (the "Prosecuting Party"), shall have the sole and exclusive
right, but not the obligation, to bring an appropriate action against any person
or entity infringing such Intellectual Property, whether such infringement is
direct or contributory. The other Party will reasonably cooperate with the
Prosecuting Party to prosecute, maintain, protect and enforce such Intellectual
Property, at the Prosecuting Party's reasonable request and expense.
(e) EXPANDED EXPLOITATION OF GENOTYPING RESULTS. AgrEvo shall
only be permitted to use the Genotyping Results for uses or purposes that are
not related to Products upon the terms and conditions of a separate agreement to
be negotiated in good faith between AgrEvo and Lynx within a period of [ * ]
after written notice from AgrEvo to Lynx that AgrEvo intends to start such use,
taking into account the respective contribution of each Party in obtaining the
Genotyping Results. In the event the Parties are unable to complete such
agreement within the aforesaid term, AgrEvo may refer the matter to the
International Center for technical Expertise of the International Chamber of
Commerce (ICC) in accordance with the ICC Rules for Technical Expertise and the
Parties agree to be bound by the expert's decision.
5.6 TECHNOLOGY DEVELOPMENT PROJECTS.
(a) INTELLECTUAL PROPERTY. Unless otherwise agreed in the context
of a particular Technology Development Project, any Intellectual Property in or
associated with the results of a Technology Development Project directed to the
development of a novel application of Lynx Technology shall be owned by Lynx,
and AgrEvo shall make all appropriate assignments and take all other actions
reasonably necessary to give effect to Lynx's ownership of such Intellectual
Property. Lynx shall have the sole right to prosecute, maintain, protect and
enforce any Intellectual Property associated with such a Technology Development
Project, at its own discretion, in its name and at its expense. AgrEvo will
provide reasonable assistance to Lynx, at Lynx's expense, in obtaining and
managing the prosecution, protection and enforcement of Intellectual Property
associated with such a Technology Development Project. Notwithstanding the
foregoing, in the event a Technology Development Project includes analyses of
samples of a Crop or of a model species relevant to a Crop agreed to by the
Parties, AgrEvo shall have the option, exercisable by written notice to Lynx
[ * ] after completion of the Technology Development Project, to obtain an
exclusive, worldwide, perpetual license, with the right to sublicense, to use
all genomic or gene expression data resulting from such analyses and the related
Intellectual Property for any use or purpose. In the event AgrEvo decides to
exercise its option on the aforementioned license, AgrEvo shall pay to Lynx [*].
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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(b) ROYALTY. Lynx shall pay AgrEvo a royalty of [ * ] on Lynx's
net sales of the services resulting from the Technology Development Project to
Third Parties until [ * ].
(c) PUBLICATIONS. Either Party may publish results obtained from
a Technology Development Project, provided that the other Party is given at
least thirty (30) days to review any abstract, manuscript, or other presentation
materials prior to any submission for publication or presentation in order to
(i) determine whether Confidential Information is disclosed, and (ii) take
action to ensure that suitable patent applications have been filed on any
inventions disclosed in such submissions. If the reviewing Party determines that
an invention it desires to protect is disclosed in the materials to be published
or presented, then after so notifying the other Party in writing within the
initial thirty (30) day review period, the reviewing Party shall have the right
to extend the review period by up to an additional forty-five (45) days to allow
for the filing of a patent application. If the reviewing Party determines that
Confidential Information of the reviewing Party is disclosed in the materials to
be published or presented, then the Parties shall negotiate in good faith the
removal of such Confidential Information.
5.7 AGREVO COVENANT. AgrEvo hereby covenants to use the Genotyping
Results and any other genomic or gene expression data generated by the
Experiments or Technology Development Projects conducted under this Agreement
only for uses and purposes that relate to Products or for such other uses or
purposes as may be covered by an agreement made pursuant to Section 5.5 (e), and
will not permit any division, Affiliate, business unit or subsidiary of AgrEvo
to use such results or data for any purpose or use that is not so authorized.
5.8 LYNX COVENANT. Lynx hereby covenants that it will not assert any
claim for infringement of the Lynx Technology against AgrEvo based upon AgrEvo's
use of the HRP Maps, or AgrEvo's use in relation to Products of the results of
Experiments or Technology Development Projects conducted pursuant to this
Agreement, or for any other use or purpose authorized pursuant to the provisions
of Section 5.5(e), so long as such uses by AgrEvo are permitted under this
Agreement or the Services Agreement and AgrEvo's uses do not include the use of
the Lynx Technology, except to the extent that any Lynx Technology may be
required for the interpretation of Genotyping Results or the results of other
Experiments, Technology Development Projects and/or HRP Maps.
5.9 OTHER RESULTS. Except as otherwise expressly provided in, and
subject to the limitations set forth in this Agreement, AgrEvo shall have full
and exclusive ownership of all genomic or gene expression data generated by
Experiments conducted pursuant to this Agreement. AgrEvo shall have the sole
right to prosecute, maintain, protect and enforce any Intellectual Property
associated with such data, at is own discretion, in its own name and at its own
expense. Lynx will provide reasonable assistance to AgrEvo, at AgrEvo's expense,
in obtaining and maintaining the prosecution, protection and enforcement of
Intellectual Property associated with such data.
5.10 INFRINGEMENT. Each Party shall promptly notify the other in writing
of any alleged or threatened infringement of any Intellectual Property discussed
in this Article 5. In addition, in the event that any Intellectual Property
discussed in this Article 5 becomes the subject of a Third Party claim, the
Party against which such Third Party infringement claim is brought shall defend
against such claim at its sole expense. The other Party shall reasonably
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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cooperate with the defending Party in the defense of any such claim, at the
defending Party's reasonable request and expense. Neither Party shall enter into
any settlement that materially affects the rights or interests of the other
Party without such other Party's written consent, which consent shall not be
unreasonably withheld or delayed.
ARTICLE 6
TERM AND TERMINATION
6.1 TERM.
(a) With regard to Experiments and Technology Development
Projects: the term of this Agreement shall commence upon the Effective Date and,
unless sooner terminated as provided in this Article 6, expire three (3) years
from the Effective Date (the "Collaboration Term"); provided, however, that if
work is commenced on any Experiment and/or Technology Development Project prior
to the expiration of the Collaboration Term and such work is incomplete or
otherwise unfinished upon the expiration of the Collaboration Term, this
Agreement shall remain in effect for such period (not to exceed two (2) years)
and to the extent reasonably required by Lynx to complete any such Experiment or
Technology Development Project, and no other Experiment or Technology
Development Project shall be commenced during such period. Notwithstanding the
above, the Parties also may mutually agree in writing to extend the
Collaboration Term.
(b) With regard to HRP Maps: the term of this Agreement shall
commence upon the Effective date and, unless sooner terminated as provided in
this Article 6, expire on the earlier of (i) delivery of the last HRP Map to be
constructed pursuant to the terms of Section 3.4, or (ii) five (5) years from
the Effective Date.
6.2 TERMINATION FOR BREACH. Each Party shall have the right to terminate
this Agreement and its obligations hereunder for material breach by the other
Party, which breach remains uncured for ninety (90) days after written notice is
provided to the breaching Party, or in the case of an obligation to pay amounts
owing under this Agreement, which breach remains uncured for thirty (30) days
after written notice to the breaching Party unless there exists a bona fide
dispute as to whether such payments are owing. Notwithstanding any termination
under this Section 6.2, any obligation to pay amounts which had accrued or
become payable as of the date of termination shall survive termination of this
Agreement.
6.3 SURVIVAL. Except as otherwise provided in this Section 6.3, Articles
5, 7 and 9 of this Agreement shall survive termination of this Agreement for any
reason (subject to any subsequent dates of termination referred to in such
individual Articles).
6.4 RENEWAL. At or prior to expiration of the Collaboration Term, the
Parties agree to discuss in good faith, taking into account the respective
contributions of the Parties to the collaboration, including AgrEvo's
contributions to any Technology Development Projects, the terms and conditions
under which this Agreement may be renewed or the working relationship of the
Parties otherwise extended. If for any reason the Parties fail to conclude any
such agreement, AgrEvo shall have the option, exercisable by written notice to
Lynx, to secure the right to
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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continue ordering Experiments based on technologies developed in any Technology
Development Projects on the terms and conditions set forth in this Agreement,
but on a nonexclusive basis, for a period of up to two (2) years after the
Collaboration Term.
ARTICLE 7
CONFIDENTIALITY
7.1 CONFIDENTIAL INFORMATION. Each Party will maintain all Confidential
Information received by it under this Agreement in trust and confidence and will
not disclose any such Confidential Information to any Third Party or use any
such Confidential Information for any purposes other than those purposes
permitted under this Agreement. Each Party may use the other Party's
Confidential Information only to the extent explicitly permitted under this
Agreement or required to accomplish the purposes of this Agreement. Confidential
Information shall not be used for any purpose or in any manner that would
constitute a violation of any laws or regulations, including without limitation
the export control laws of the United States. Confidential Information shall not
be reproduced in any form except as required to accomplish the intent of this
Agreement. No Confidential Information shall be disclosed to any employee,
agent, consultant, Affiliate, or sublicensee who does not have a need for such
information permitted under this Agreement. To the extent that disclosure is
authorized by this Agreement, the disclosing Party will obtain prior agreement
from its employees, agents, consultants, Affiliates or sublicensees to whom
disclosure is to be made to hold in confidence and not make use of such
information for any purpose other than those permitted by this Agreement. Each
Party will use at least the same standard of care as it uses to protect its own
Confidential Information of a similar nature to ensure that such employees,
agents, consultants, Affiliates and sublicensees do not disclose or make any
unauthorized use of such Confidential Information, but no less than reasonable
care. Each Party will promptly notify the other upon discovery of any
unauthorized use or disclosure of the Confidential Information.
7.2 EXCEPTIONS. Confidential Information shall not include any
Information which the receiving Party can demonstrate by contemporaneous written
records:
(a) is now, or hereafter becomes, through no act or failure to
act on the part of the receiving Party in breach hereof, generally known or
available;
(b) is known by the receiving Party at the time of receiving such
information, as evidenced by its written records;
(c) is hereafter furnished to the receiving Party by a Third
Party, as a matter of right and without restriction on disclosure;
(d) is independently developed by the receiving Party without any
breach of this Agreement; or
(e) is the subject of a written permission to disclose provided
by the disclosing Party.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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7.3 AUTHORIZED DISCLOSURE. Notwithstanding any other provision of this
Agreement, each Party may disclose Confidential Information if such disclosure:
(a) is in response to a valid order of a court or other
governmental body of the United States or a foreign country, or any political
subdivision thereof; provided, however, that the responding Party shall first
have given notice to the other Party hereto and shall have made a reasonable
effort to obtain a protective order requiring that the Confidential Information
so disclosed be used only for the purposes for which the order was issued;
(b) is otherwise required by law or regulation, including SEC
related documents; provided, however, that the responding Party shall first have
given notice to the other Party hereto and shall have made a reasonable effort
to obtain confidential treatment for the Confidential Information which is the
subject of the required disclosure;
(c) is necessary to enforce a Party's rights under this
Agreement; or
(d) is otherwise necessary to file or prosecute patent
applications, prosecute or defend litigation or comply with applicable
governmental regulations or otherwise establish rights or enforce obligations
under this Agreement, but only to the extent that any such disclosure is
necessary.
7.4 RETURN OF CONFIDENTIAL INFORMATION. In the event this Agreement is
terminated, each Party shall return to the other Party all Confidential
Information received by it from the other Party, provided, however, that each
Party may keep one copy of such Confidential Information for legal archival
purposes. Access to the copy so retained by each Party's legal department shall
be restricted to counsel and such Confidential Information shall not be used
except in the resolution of any claims or disputes arising out of this
Agreement.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party hereby represents
and warrants:
(a) CORPORATE POWER. Such Party is duly organized and validly
existing under the laws of the state of its incorporation and has full corporate
power and authority to enter into this Agreement and to carry out the provisions
hereof.
(b) DUE AUTHORIZATION. Such Party is duly authorized to execute
and deliver this Agreement and to perform its obligations hereunder.
(c) BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon it and is enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement by such Party does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a Party or by which it may be bound, nor violate
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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any law or regulation of any court, governmental body or administrative or other
agency having authority over it.
8.2 UNILATERAL REPRESENTATIONS AND WARRANTIES.
(a) Lynx hereby represents and warrants that it Controls Lynx
Technology and that it has full right to grant the rights that are granted in
this Agreement.
(b) Lynx hereby represents and warrants that in case Lynx is
prevented from operating due to patent infringement or otherwise, any
Intellectual Property that is jointly owned in accordance with Section 5.5 will
be [ * ].
(c) AgrEvo hereby represents and warrants that it Controls the
AgrEvo Patents and AgrEvo Know-How.
8.3 NO OTHER REPRESENTATIONS. THE EXPRESS REPRESENTATIONS AND WARRANTIES
STATED IN THIS ARTICLE 8 ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR ANY WARRANTY THAT
MAKING, USING, OR SELLING ANY MATERIALS OR INFORMATION OBTAINED HEREUNDER,
INCLUDING GENOTYPING RESULTS AND HRP MAPS, WILL NOT INFRINGE ANY INTELLECTUAL
PROPERTY RIGHTS OF THIRD PARTIES.
ARTICLE 9
DISPUTE RESOLUTION AND GOVERNING LAW
9.1 DISPUTES. The Parties recognize that disputes as to certain matters
may from time to time arise during the term of this Agreement which relate to
either Party's rights and/or obligations hereunder or thereunder. It is the
objective of the Parties to establish procedures to facilitate the resolution of
disputes arising under this Agreement in an expedient manner by mutual
cooperation and without resort to litigation. To accomplish this objective, the
Parties agree to follow the procedures set forth in this Article 9 if and when a
dispute arises under this Agreement.
9.2 INITIAL PROCEDURE. In the event of disputes between the Parties
concerning the validity, interpretation or performance of this Agreement, a
Party seeking to resolve such dispute may, by written notice to the other, have
such dispute referred to the Parties' respective executive officers designated
below or their successors, for attempted resolution by good faith negotiations
within thirty (30) days after such notice is received. Said designated officers
are as follows:
For Lynx: Chief Executive Officer
For AgrEvo: Head of Biotechnology Research
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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.
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In the event the designated executive officers are not able to resolve such
dispute, either Party may at any time after the thirty (30) day period invoke
the provisions of Section 9.3 hereinafter.
9.3 ARBITRATION. Any dispute concerning the validity, interpretation or
performance of this Agreement shall be settled under the Rules of Conciliation
and Arbitration of the International Chamber of Commerce (ICC) by no less than
three (3) arbitrators appointed in accordance with said rules. The award to be
rendered shall be final and binding upon the Parties. The place of arbitration
shall be San Francisco, California.
9.4 JUDICIAL ENFORCEMENT. The Parties agree that judgment on any
arbitral award issued pursuant to this Article 9 shall be entered in the United
States District Court for the Northern District of California or, in the event
such court does not have subject matter jurisdiction over the dispute in
question, such judgment shall be entered in the Superior Court of the State of
California, in the County of Alameda.
9.5 GOVERNING LAW. This Agreement is made in accordance with and shall
be governed and construed under the laws of the State of California, as such
laws are applied to contract entered into and to be performed within such state.
ARTICLE 10
MISCELLANEOUS
10.1 AGENCY. Neither Party is, nor will be deemed to be, an employee,
agent or legal representative of the other Party for any purpose. Neither Party
will be entitled to enter into any contracts in the name of, or on behalf of the
other Party, nor will a Party be entitled to pledge the credit of the other
Party in any way or hold itself out as having authority to do so. This Agreement
is an arm's-length research and license agreement between the Parties and shall
not constitute or be construed as a joint venture.
10.2 ASSIGNMENT. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder will be assignable in part or in whole by
any Party without the prior written consent of the other; provided, however,
that either Party may assign this Agreement to any of its Affiliates or to any
successor by merger or sale of all or substantially all of its business assets
to which this Agreement relates in a manner such that the assignor will remain
liable and responsible for the performance and observance of all its duties and
obligations hereunder. This Agreement will be binding upon the successors and
permitted assigns of the Parties and the name of a Party herein will be deemed
to include the names of such Party's successors and permitted assigns to the
extent necessary to carry out the intent of this Agreement. Any assignment which
is not in accordance with this Section 10.2 will be void.
10.3 AMENDMENT. No amendment or modification hereof shall be valid or
binding upon the Parties unless made in writing and signed by both Parties.
10.4 NOTICES. Any notice or other communication required or permitted to
be given to either Party hereto shall be in writing unless otherwise specified
and shall be deemed to have been properly given and to be effective on the date
of delivery if delivered in person or by
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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.
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facsimile or three (3) days after mailing by registered or certified mail,
postage paid, to the other Party at the following address:
In the case of Lynx :
President
Lynx Therapeutics, Inc.
25861 Industrial Boulevard
Hayward, CA 94545
In the case of AgrEvo:
Head of Biotechnology Research
Miraustrasse 54
13509 Berlin, Germany
Either Party may change its address for communications by a notice to
the other Party in accordance with this Section 10.4.
10.5 FORCE MAJEURE. Any prevention, delay or interruption of performance
by any Party under this Agreement shall not be considered a breach of this
Agreement if and to the extent caused by occurrences beyond the reasonable
control of the Party affected, including but not limited to acts of God,
embargoes, governmental restrictions, strikes or other concerted acts of
workers, fire, flood, earthquake, explosion, riots, wars, civil disorder,
rebellion or sabotage. The Party suffering such occurrence shall immediately
notify the other Party and any time for performance hereunder shall be extended
by the actual time of prevention, delay, or interruption caused by the
occurrence.
10.6 EXPORT CONTROL. This Agreement is made subject to any restrictions
concerning the export of products or technical information from the United
States of America or other countries which may be imposed upon or related to
Lynx or AgrEvo from time to time. Each Party agrees that it will comply with all
applicable export laws and regulations in connection with its activities under
this Agreement.
10.7 SEVERABILITY. If any term, condition or provision of this Agreement
is held to be unenforceable for any reason, it shall, if possible, be
interpreted, to achieve the intent of the Parties to this Agreement to the
extent possible rather than voided. If not capable of such interpretation, the
Parties shall in good faith seek to agree on an alternative provision reflecting
the intent of the Parties which is enforceable. In any event, all other terms,
conditions and provisions of this Agreement shall be deemed valid and
enforceable to the full extent.
10.8 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder shall
be in addition to, and not in limitation of, all rights, powers and remedies
provided at law or in equity, or under any other agreement between the Parties.
All of such rights, powers and remedies shall be cumulative, and may be
exercised successively or cumulatively.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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10.9 WAIVER. No waiver by either Party hereto on any breach or default
of any of the covenants or agreements herein set forth shall be deemed a waiver
as to any subsequent or similar breach or default.
10.10 FURTHER ASSURANCES. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, necessary to
carry out the purposes and intent of this Agreement.
10.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
10.12 ENTIRE AGREEMENT. This Agreement embodies the entire understanding
of the Parties with respect to the subject matter hereof and shall supersede all
previous communications, representations or understandings, either oral or
written, between the Parties relating to the subject matter hereof.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by
their respective officers hereunto duly authorized.
LYNX THERAPEUTICS, INC. HOECHST SCHERING AGREVO GMBH
By: /s/ Sam Eletr By: /s/ Bernard Convent
---------------------------------- ---------------------------------
Its: Chairman of the Board Its: Head of Research & Development,
--------------------------------- -------------------------------
Biotechnology
-------------
By: /s/ Jurgen Asshauer
---------------------------------
Its: Member of the Board - AgrEvo
--------------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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APPENDIX A
GUIDELINES FOR THE REFERENCE SETS
It is understood by AgrEvo that Lynx has proprietary technology allowing them to
identify SNPs that affect a specific restriction site in the genome of a Crop.
It is further understood by AgrEvo, that this SNP discovery technology will have
reasonable efficiency such that a significant percentage of the SNPs associated
with a particular restriction site motif will be identified in a single
experiment. Thus, AgrEvo can expect reference sets of SNPs of a complexity that
in principle reflects the average polymorphism percentage of such a restriction
site, in a particular Crop. Specific requirements are:
1. SNP-containing fragments from the reference sets will be sequenced by
MPSS. There should be sufficient sequence diversity among the fragments
to indicate that the set will allow a genomic scan of high density. The
MPSS technology will provide sequence information adjacent to the SNP.
2. MPSS-defined sequence tags of all SNP-containing fragments of the
reference sets will be produced using enzymatic methods that are
compatible with their being placed on the physical map. The sets of DNA
fragments harboring the SNPs will be made available to AgrEvo. AgrEvo
should be able to co-amplify and propagate such DNA fragments by using
PCR primer sequences supplied by Lynx.
MINIMUM CRITERIA FOR THE DUPONT MAP
1. [ * ] base, ordered, nucleotide sequences, spaced [ * ] apart for
low-resolution map (jumps over repetitive sequences).
2. [ * ] base, ordered, nucleotide sequences spaced [ * ] apart for
high-resolution map.
3. High resolution map assembles genes (ESTs) into clusters (or islands)
anchored at multiple sites to the physical/genetic map.
4. Map need not be continuous. It may have multiple break-point islands and
seas.
5. For the [ * ] genome, the map would be created both from random
sequences and from sets of BAC clones, and would consist of [ * ]
islands covering [ * ].
GUIDELINES FOR THE HRP MAP OF THE CROPS
1. HRP Maps will be created preferentially from random sequences, and, if
necessary, with the support of e.g. a BAC library supplied by AgrEvo.
2. Low resolution map will consist of unique, unambiguous sequence tags of
[ * ] in length, ordered, spaced [ * ] (jumps over repetitive
sequences), and should be based also on [ * ].
3. HRP Maps will consist of unique sequence tags [ * ] in length, ordered,
spaced [ * ].
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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.
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4. HRP Maps should aim to anchor up to [ * ] sequence set (cDNAs, EST
contigs) of AgrEvo as verified by a means approved by the JRC.
5. [ * ] of the HRP Map will be colinear with genetic map developed by
AgrEvo, and checked with [ * ] genetic markers.
6. HRP Maps need not be continuous. They may have multiple break-points.
7. HRP Maps will consist of [ * ] covering [ * ] of the non-repetitive
sequences of the genome.
8. [ * ] of contigs will be `free-floating', i.e. not assigned to the major
body of a chromosome
9. Mapping data will be made available in database format
(CORBA-compatible), to be specified by the JRC.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS..................................................1
1.1 "Affiliate".....................................................1
1.2 "AgrEvo Know-How"...............................................2
1.3 "AgrEvo Patents"................................................2
1.4 "Co-Exclusive Crop".............................................2
1.5 "Collaboration Term"............................................2
1.6 "Confidential Information"......................................2
1.7 "Control" or "Controlled".......................................2
1.8 "Crops".........................................................2
1.9 "DuPont"........................................................2
1.10 "DuPont Map"....................................................2
1.11 "Exclusive Crops"...............................................2
1.12 "Experiments"...................................................2
1.13 "Field".........................................................2
1.14 "Fully Burdened Cost" or "FBC"..................................2
1.15 "Genotyping Experiments"........................................3
1.16 "Genotyping Results"............................................3
1.17 "HRP Map".......................................................3
1.18 "Improvement Inventions"........................................3
1.19 "Information"...................................................3
1.20 "Intellectual Property".........................................3
1.21 "Joint Research Committee" or "JRC".............................3
1.22 "Lynx Know-How".................................................3
1.23 "Lynx Patents"..................................................3
1.24 "Lynx Technology"...............................................3
1.25 "Patents".......................................................3
1.26 "Products"......................................................4
1.27 "SNP"...........................................................4
1.28 "Technology Development Project"................................4
1.29 "Third Party"...................................................4
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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.
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TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE 2 COLLABORATION MANAGEMENT.....................................4
2.1 Overview........................................................4
2.2 Joint Research Committee........................................4
2.3 Meetings of the Joint Research Committee........................4
2.4 Functions of the Joint Research Committee.......................5
2.5 Decision-Making of the Joint Research Committee.................5
2.6 Limitations on Joint Research Committee Powers..................5
ARTICLE 3 CONDUCT OF COLLABORATION.....................................5
3.1 General.........................................................5
3.2 Lynx Capacity...................................................6
3.3 Experiments.....................................................6
3.4 HRP Maps........................................................6
3.5 Technology Development Projects.................................7
3.6 Collaboration Exclusivity.......................................7
3.7 Co-Exclusive Crop...............................................7
3.8 [ * ]...........................................................7
ARTICLE 4 COMPENSATION.................................................8
4.1 Access Fee......................................................8
4.2 Experiments Fees................................................8
4.3 Technology Development Project Fees.............................8
4.4 HRP Map Fees....................................................8
4.5 Milestone.......................................................8
4.6 Technology Licensing Fee........................................8
4.7 Payments........................................................9
4.8 Audit...........................................................9
ARTICLE 5 INTELLECTUAL PROPERTY........................................9
5.1 Lynx Technology.................................................9
5.2 AgrEvo Know-How and AgrEvo Patents..............................9
5.3 Improvement Inventions..........................................9
5.4 HRP Maps.......................................................10
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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.
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TABLE OF CONTENTS
(CONTINUED)
PAGE
5.5 Genotyping Results.............................................10
5.6 Technology Development Projects................................12
5.7 AgrEvo Covenant................................................13
5.8 Lynx Covenant..................................................13
5.9 Other Results..................................................14
5.10 Infringement...................................................14
ARTICLE 6 TERM AND TERMINATION........................................14
6.1 Term...........................................................14
6.2 Termination for Breach.........................................14
6.3 Survival.......................................................15
6.4 Renewal........................................................15
ARTICLE 7 CONFIDENTIALITY.............................................15
7.1 Confidential Information.......................................15
7.2 Exceptions.....................................................16
7.3 Authorized Disclosure..........................................16
7.4 Return of Confidential Information.............................16
ARTICLE 8 REPRESENTATIONS AND WARRANTIES..............................17
8.1 Mutual Representations and Warranties..........................17
8.2 Unilateral Representations and Warranties......................17
8.3 No Other Representations.......................................17
ARTICLE 9 DISPUTE RESOLUTION AND GOVERNING LAW........................18
9.1 Disputes.......................................................18
9.2 Initial Procedure..............................................18
9.3 Arbitration....................................................18
9.4 Judicial Enforcement...........................................18
9.5 Governing Law..................................................18
ARTICLE 10 MISCELLANEOUS...............................................18
10.1 Agency.........................................................18
10.2 Assignment.....................................................19
10.3 Amendment......................................................19
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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.
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TABLE OF CONTENTS
(CONTINUED)
PAGE
10.4 Notices........................................................19
10.5 Force Majeure..................................................19
10.6 Export Control.................................................20
10.7 Severability...................................................20
10.8 Cumulative Rights..............................................20
10.9 Waiver.........................................................20
10.10 Further Assurances.............................................20
10.11 Counterparts...................................................20
10.12 Entire Agreement...............................................20
APPENDIX A
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iv.
EX-10.18
5
f75847a2ex10-18.txt
EXHIBIT 10.18
1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
EXHIBIT 10.18
COLLABORATION AGREEMENT
This Collaboration Agreement ("Agreement") is effective as of the 1st
day of October, 2000 ("Effective Date"), by and between Takara Shuzo Co., Ltd.,
a Japanese corporation having its principal office at SETA 3-4-1, Otsu, Shiga,
520-2193 JAPAN ("Takara"), and Lynx Therapeutics, Inc., a Delaware corporation,
having its principal office at 25861 Industrial Blvd., Hayward, California, USA
("Lynx").
RECITALS
WHEREAS, Lynx owns and is an exclusive licensee of unique proprietary
technologies for genetic analysis, including Megaclone(TM) technology for
generating libraries of microbeads each containing a clone of a distinct DNA
molecule, Megasort(TM) technology for isolating genes carried on Megaclone(TM)
microbeads that are differentially expressed in two different cell or tissue
sources, and MPSS(TM) technology for simultaneously generating signature
sequences of DNA molecules carried on Megaclone(TM) microbeads;
WHEREAS, Takara has extensive experience as a provider of biomedical
research products in Asia and worldwide, and is in the business of manufacturing
and marketing kits and reagents, including microarrays, for molecular biology
research and genetic analysis; and
WHEREAS, Takara desires to acquire from Lynx, and Lynx desires to grant
to Takara in exchange for the consideration described below, the right to use
Lynx's proprietary technologies to manufacture, distribute, and sell microarrays
worldwide and to provide Megasort(TM) and MPSS(TM) services to customers in
Japan, China, and Korea.
NOW, THEREFORE, in view of the foregoing premises and in consideration
of the mutual promises and covenants contained in the Agreement, Lynx and Takara
agree as follows:
ARTICLE 1 DEFINITIONS.
1.1 "Affiliate" means a corporation, partnership, entity, person, firm,
company or joint venture that controls, is controlled by or is under the common
control with the referenced Party. For the purposes of this definition the word
"control" means the power to direct or cause the direction of the management and
policies of such entity, or the ownership of at least fifty percent (50%) of the
voting stock of such entity.
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1.2 "Confidential Information" of a Disclosing Party shall mean the
following, to the extent previously, currently, or subsequently disclosed to the
other party hereunder or otherwise: information relating to each Party's
technology and business including, without limitation, reagents, computer
programs, algorithms, names and expertise of employees and consultants,
know-how, formulas, processes, ideas, inventions (whether patentable or not),
schematics and other technical, business, financial, customer and product
development plans, forecasts, strategies and information. In particular, but
without limitation, information, including information regarding costs, relating
to Lynx Technology, Proprietary Reagents, MPSS(TM) Instruments, Manufacturing
Information, Lynx Software, Patent Rights, Lynx Know-How, and improvements and
additions made by Lynx thereto shall be considered Confidential Information of
Lynx. In particular, but without limitation, information relating to Microarray
technology, including Microarray composition, fabrication, production, quality
control and improvements thereto made by Takara, sales and distribution
information relating to Microarrays and services based on Lynx Technology,
including customer lists, marketing plans forecasts and the like, shall be
considered Confidential Information of Takara.
1.3 "Licensed Microarray" means a Microarray which has at least one
Microarray Spot containing a nucleic acid sequence identified by Megasort(TM) or
MPSS(TM) technology.
1.4 "Lynx Know-How" means procedures, reagents, materials, or other
Confidential Information owned and/or controlled by Lynx, which is not generally
known to the public, necessary or desirable for the practice of Megaclone(TM),
Megasort(TM), and MPSS(TM) technologies, including standard operating procedures
(SOPs), quality control procedures and data, software for control and data
acquisition, software for data analysis and display, and the like.
1.5 "Lynx Technology" means Megaclone(TM), Megasort(TM), and/or MPSS(TM)
technologies.
1.6 "Lynx Software" means any data acquisition, processing, or display
software owned, controlled, and developed by Lynx which is used in process
control, sample handling, operation, or data acquisition or analysis in the
Megaclone(TM), Megasort(TM), and MPSS(TM) technologies.
1.7 "Manufacturing Information" in reference to Proprietary Materials
means procedures, reagents, materials, or other Confidential Information
necessary or desirable for manufacture or synthesis of Proprietary Materials,
including standard operating procedures (SOPs), quality control procedures and
data, designs, and the like, related to such synthesis or manufacture.
1.8 "Marketing Plan" means a commercially reasonable written plan
including the elements set forth in Exhibit 8.
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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.
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1.9 "Megaclone(TM) technology" means the technology owned and/or
controlled by Lynx for generating a population of microbeads having
complementary DNA (cDNA) molecules attached wherein substantially every
different cDNA molecule is attached to a different microbead of the population.
A "Megaclone(TM) Library" means a cDNA library which has been transformed using
Megaclone(TM) technology into a population of microbeads each having attached a
clonal population of a distinct cDNA molecule. As used herein, Megaclone(TM)
technology does not include any process for attaching genomic fragments of DNA
to microbeads or any other solid phase support.
1.10 "Megasort(TM) Service" means the analysis of genes expressed in
different cell or tissue sources by Megasort(TM) technology.
1.11 "Megasort(TM) technology" means the technology owned and/or
controlled by Lynx for detecting and isolating gene products, such as cDNA
molecules, differentially expressed in two different cell or tissue sources by
fluorescence activated cell sorting (FACS) analysis of a Megaclone(TM) Library
to which differently labeled probes derived from the two different cell or
tissue sources have been competitively hybridized.
1.12 "Microarray" means a solid phase support containing a plurality of
discrete regions such that within each discrete region a single species of
nucleic acid is attached. Said nucleic acid may be attached covalently or
non-covalently by any method, including, but not limited to, deposition of a
solution containing a separately synthesized cDNA, polynucleotide, or
oligonucleotide, or in situ synthesis using ink-jet, photolithographic, or any
other chemical technologies.
1.13 "Microarray Spot" means a discrete region of a Microarray in which
a single species of nucleic acid is attached.
1.14 "MPSS(TM) Instrument" means an apparatus for carrying out the
process steps of MPSS(TM) technology. An MPSS(TM) Instrument consists of the
following modules: Flow Cell including housing with heating and cooling system,
optical/imaging system, fluid delivery system, control/monitoring system, and
data collection software.
1.15 "MPSS(TM) Service" means the analysis of genes expressed in a cell
or tissue by MPSS(TM) technology.
1.16 "MPSS(TM) technology" means the technology owned and/or controlled
by Lynx for simultaneously generating signature sequences of cDNAs in a
Megaclone(TM) Library disposed in a
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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.
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flow cell using the ligation-based sequencing method described in Brenner et al,
Nature Biotechnology, 18: 630-634 (2000).
1.17 "Party" or "Parties" shall mean Lynx or Takara or their Affiliates.
1.18 "Patent Rights" shall mean the patents and patent applications
listed in Exhibit 1; and with respect to U.S. patents and applications, all
foreign equivalents thereof, if not already listed in Exhibit 1; and patents
issuing on said foreign and U.S. patent applications. "Patent Rights" shall also
include any divisional, continuation, reissue, reexamination or extension of the
above-described patent applications and resulting patents, along with any
extended or restored term, and any confirmation patent, registration patent, or
patent of addition. Patent Rights shall include Lynx's rights under the Harvard
Patents (defined below).
1.19 "Process Improvement" means any improvement in Lynx Technology that
is covered by a Valid Claim.
1.20 "Proprietary Reagents" shall mean any material, compositions of
matter, or article of manufacture which is covered by one or more Valid Claims
of a patent or patent application listed in Exhibit 1 or which is part of Lynx
Know-How. Proprietary Reagents include Flow Cells, Tagged Microbeads, Tag
Vectors, Encoded Adaptors, Decoder Probes, and Pac I restriction endonuclease.
As used herein, "Flow Cell" means an optically transmissive article comprising
an inlet, an outlet, and a planar chamber for substantially immobilizing
microbeads in a closely packed planar array and through which processing
reagents may be passed so that chemical or enzymatic reactions may be carried
out on the microbeads and optical signals generated as a result thereof may be
detected. Flow Cells are described and claimed in International patent
publication WO 98/53300, and related patent applications. As used herein,
"Tagged Microbeads" mean populations of microbeads each member of which has a
single kind of oligonucleotide tag attached from a defined repertoire of
oligonucleotide tags. Tagged Microbeads, oligonucleotide tags, and repertoires
of oligonucleotide tags are described in U.S. patents 5,635,400 and 5,654,413,
and related patents and patent applications. As used herein, "Tag Vector" means
a population of cloning vectors which are identical, except for a double
stranded segment consisting of an oligonucleotide tag, usually adjacent to a
clone insertion site or a polylinker region. Tag Vectors are described in U.S.
patents 5,635,400; 5,846,719; 5,149,625, and related patents and patent
applications. As used herein, "Encoded Adaptor" means a double stranded adaptor
molecule having a single stranded portion containing an oligonucleotide tag for
detection with a complementary Decoder Probe. Encoded Adaptors are described in
U.S. patent 6,013,445 and related patents and patent applications. As used
herein, "Decoder Probe" means a fluorescently labeled single
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stranded oligonucleotide tag complementary to a single stranded portion of an
Encoded Adaptor. Decoder Probes are described in U.S. patent 6,013,445 and
related patents and patent applications.
1.21 "Qualified Improvement" means a Process Improvement that [ * ].
1.22 "Revenue" means the total amount of compensation in any form earned
or recognized by Takara or its Affiliates for the performance of any service,
project, contract research, collaboration, or the like, that involves the use of
Lynx Technology, including Megasort(TM) or MPSS(TM) Services. Revenue also
includes a) the fair market value of any non-cash consideration received by
Takara or Affiliates for the use of Lynx Technology or for the performance of
Megasort(TM) or MPSS(TM) Services, where fair market value will be calculated as
of the time of transfer of such non-cash consideration to Takara or its
Affiliate, and b) any deferred income or payments, such as royalties or
milestone payments, received from projects, contract research, or collaborations
involving the use of Lynx Technology.
1.23 "Territory" means Japan, Korea, and China including Taiwan.
1.24 "Valid Claim" means any claim(s) in an unexpired patent or pending
in a patent application included within the Patent Rights which has not been
held unenforceable, unpatentable, or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been admitted to be invalid or
unenforceable through reissue or disclaimer.
ARTICLE 2 TECHNOLOGY RIGHTS.
Subject to all the terms and limitations of this Agreement, Lynx hereby
grants to Takara the following rights:
2.1 EXCLUSIVE LICENSE. Subject to satisfaction of the Performance
Criteria and for a period of five (5) years beginning from the Effective Date of
the Agreement ("Period of Exclusivity"), Lynx hereby grants to Takara and its
Affiliates an exclusive royalty-bearing license under Patent Rights and Lynx
Know-How, without rights to sublicense, to use Megaclone(TM) technology to
provide MPSS(TM) Services and Megasort(TM) Services to customers in the
Territory and to make and sell Microarrays containing nucleic acid sequences
identified by Megasort(TM) or MPSS(TM) technologies to customers in the
Territory, whether or not such nucleic acid sequences were known or described
prior to such identification. From and after the fifth anniversary of the
Effective Date or upon failure to satisfy the Performance Criteria, whichever
occurs sooner, the license rights of this paragraph shall become non-exclusive
for the remainder of the term of the Agreement.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 5.
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2.2 EXCEPTIONS TO EXCLUSIVE LICENSE. Notwithstanding paragraph 2.1, the
following shall be exceptions to the exclusive rights granted under this
Article:
a) Upon notice to Takara, Lynx may install Lynx Technology for a
customer's internal use in the Territory, provided that in
respect of such transaction Lynx would share with Takara [ * ]
of any profits received by Lynx for installation or operation
of such Lynx Technology, including [ * ].
b) In the event that a customer from the Territory requests
MPSS(TM) or Megasort(TM) Services from Lynx, then Lynx will
promptly notify Takara in writing and will refer such customer
to Takara. If for any reason Takara is unable to provide, or
will not provide, MPSS(TM) or Megasort(TM) Services to such
customer, then thirty (30) days after the above notification,
Lynx may provide MPSS(TM) or Megasort(TM) Services to such
customer under the following conditions:
i) Lynx shall charge [ * ] of any access and/or service
fees charged to customers in the Territory by Takara
for like services;
ii) Lynx shall share with Takara [ * ] of any profits
received by Lynx for performing such services,
including [ * ]; and
iii) Lynx shall impose a contractual obligation on the
customer not to use information obtained from such
services to manufacture Microarrays for sale in the
Territory, unless such customer pays a royalty of at
least [ * ] per Microarray Spot for sales in the
Territory, of which Lynx shall share [ * ] with
Takara as a third party beneficiary under such
contract.
2.3 PERFORMANCE CRITERIA. In order to maintain the exclusive rights
under this Article, Takara shall use its best efforts to accomplish the
indicated tasks by the indicated target dates and to perform any other necessary
or desirable acts to meet all the criteria set forth in Exhibit 2. In the event
that Takara does not satisfy the Performance Criteria during the Period of
Exclusivity, Lynx shall so notify Takara in writing. Such notice shall include
the reasons for finding that the Performance Criteria were not met by Takara.
Takara shall then have sixty (60) days to cure its performance so that the
Performance Criteria are met. If after such sixty (60) day period, Takara is
unable or unwilling to cure its performance in order to meet the Performance
Criteria, then the exclusive license under paragraph 2.1 shall become
non-exclusive.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 6.
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2.4 MICROARRAYS. Lynx hereby grants to Takara a non-exclusive
royalty-bearing license under Patent Rights and Lynx Know-How, without rights to
sublicense, to use Lynx Technologies to make and sell Licensed Microarrays to
customers outside of the Territory.
2.5 INTERNAL RESEARCH. Lynx hereby grants to Takara a non-exclusive
royalty-free license under Patent Rights and Lynx Know-How, without rights to
sublicense, to use Lynx Technologies for internal research in the Territory.
2.6 SOFTWARE. Solely in connection with Takara's use of MPSS(TM)
Instruments, Lynx hereby grants to Takara a personal, nontransferable,
non-exclusive license to use Lynx Software in the Territory, subject to the
following conditions:
a) Takara shall (i) not reverse engineer, disassemble, decompile,
decrypt, modify, alter, translate, make additions to, derive
works from, transfer, or sublicense Lynx Software; (ii) take
all reasonable steps to ensure that Confidential Information
included in Lynx Software are not disclosed, duplicated,
misappropriated or used in any manner not expressly permitted
by the terms of this Agreement by or to any employee,
consultant or agent of Takara or by or to any third party; and
(iii) not remove, or allow to be removed, any copyright, trade
secret or other proprietary protection legends or notices from
Lynx Software or any portion thereof. Takara agrees to
disclose Confidential Information included in Lynx Software
only to employees, consultants and agents of Takara with a
need to know.
b) Copyright in and title to the Lynx Software at all times
remains vested exclusively in Lynx or, as applicable, a third
party licensor.
2.7 CONDITIONAL DISTRIBUTORSHIP. Conditional on a decision by Lynx to
distribute MPSS(TM) Instruments to customers in the Territory prior to the
expiration of the Period of Exclusivity, Lynx will appoint and grant to Takara
an exclusive and nonassignable right to sell MPSS(TM) Instruments and
Proprietary Reagents to buyers of MPSS(TM) Instruments in the Territory for the
remainder of the Period of Exclusivity; provided, however, that if such decision
is made after the third anniversary of the Effective Date, the parties shall
negotiate in good faith a term of such a distributorship that is conventional in
the trade under the circumstances, which circumstances include recognition that
a primary purpose of the present conditional right is the protection of Takara's
exclusivity during the Period of Exclusivity. Promptly upon written notice to
Takara by Lynx of its decision to distribute MPSS(TM) Instruments in the
Territory, the Parties shall negotiate in good faith an
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 7.
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agreement to implement the right of this paragraph. Such agreement shall contain
terms and conditions conventional in the trade of distributing scientific
instrumentation and shall not contain any term that requires Takara to pay any
access fee or up-front payment in order to exercise the right of this paragraph.
2.8 HARVARD SUBLICENSE. The licenses granted under this Article include
a sublicense in respect of U.S. Patent No. 4,942,124, U.S. Patent No. 5,149,625,
Japanese Patent No. 2,665,775, European Patent Application No. 88307391.8,
Canadian Patent No. 1,339,727 (the "Harvard Patents"). The sublicense under the
Harvard Patents are subject to the further terms and conditions set forth in
Exhibit 9, as applicable.
ARTICLE 3 RIGHTS NOT LICENSED.
3.1 This Agreement does not grant to Takara any right to use
Megaclone(TM) technology to attach genomic DNA fragments to microbeads such that
substantially every different genomic DNA fragment is attached to a different
microbead, or any right to use Megaclone(TM) or Megasort(TM) technologies to
analyze genomic DNA fragments.
3.2 Except as provided in paragraph 2.7, this Agreement does not grant
to Takara any right to re-sell or distribute Proprietary Reagents or MPSS(TM)
Instruments or components thereof, whether or not manufactured or assembled by,
or on behalf of, Lynx for practicing Lynx Technologies.
3.3 Takara hereby covenants to not practice any Lynx Technology outside
of the specific scope of the licenses provided under Article 2.
ARTICLE 4 EXTENSION OF THE PERIOD OF EXCLUSIVITY.
4.1 On or before the fourth anniversary of the Effective Date, the
Parties shall discuss the possibility of extending the Period of Exclusivity
under paragraph 2.1 beyond the five (5) year term. In determining whether or not
to extend the Period of Exclusivity, Lynx shall consider the amount of revenue
generated by Takara in the Territory from the time of the Effective Date using
Lynx Technology and whether Takara met or exceeded the Performance Criteria.
Lynx shall be under no obligation to extend the Period of Exclusivity beyond the
five (5) year term of paragraph 2.1.
ARTICLE 5 TRADEMARK AND SERVICE MARK LICENSE; OBLIGATION TO MARK.
5.1 LICENSE. Subject to all the terms and limitations of this Agreement,
Lynx hereby grants to Takara a worldwide non-exclusive license, without a right
to sublicense, to use the
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 8.
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trademarks and service marks "LYNX," "MEGACLONE," "MPSS," and "MEGASORT"
(collectively, the "Licensed Marks") in advertising and other promotional
materials related to the use of Lynx Technology hereunder and in packaging,
advertising and other promotional materials related to the sale, distribution,
and marketing of Microarrays containing nucleic acid sequences identified by
Megasort(TM) or MPSS(TM) technologies.
5.2 QUALITY AND MAINTENANCE OF STANDARDS; PERFORMANCE REVIEW. Takara
shall maintain quality control and quality assurance programs for reagent and
sample preparation, sample analysis, and data analysis and delivery at least
equivalent to those maintained by Lynx for its service customers. Upon
reasonable notice by Lynx, Takara shall permit Lynx to inspect during normal
business hours the facilities of any premises of Takara's where Lynx Technology
is being practiced for providing services to customers in order to determine
whether Takara's quality control and quality assurance programs are in
compliance with the above standard. Quality control and assurance shall be a
topic on the agenda of each meeting of the Performance Review Committee, and the
minutes of each meeting shall include a review and evaluation of Takara's
quality control and quality assurance programs as they relate to Lynx
Technology.
5.3 APPROVAL AND FORM OF USE. Takara shall use only labeling, packaging,
advertising and promotional materials containing the Licensed Marks which have
been approved by Lynx in response to a written request by Takara. Such approval
shall not unreasonably be withheld. In the event that within thirty (30) days of
the submission by Takara of a request for approval of any labeling, packaging,
advertising, or promotional materials, Lynx shall not have advised Takara that
such approval is withheld and the reasons therefor, such approval shall be
deemed to have been given. Takara shall use the Licensed Marks in the same
stylized form and color as used by Lynx.
5.4 OBLIGATION TO MARK. Takara shall prominently display one or more
Licensed Marks in all advertising and other promotional materials related to
providing services based on the application of Lynx Technology, and Takara shall
prominently display in all advertising, packaging, and other promotional
materials relating to Microarrays containing nucleic acid sequences identified
by Megasort(TM) or MPSS(TM) technologies the marks "LYNX Megasort(TM) Content"
or "LYNX MPSS(TM) Content" as appropriate.
5.5 TERM AND TERMINATION. The license under paragraph 5.1 shall run for
the term of this Agreement, unless terminated earlier due to Takara's failure to
conform to the quality control and assurance standards of paragraph 5.2. Such
termination shall be effective only after reasonable notice
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 9.
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by Lynx in writing and a reasonable period not in excess of ninety (90) days for
Takara to correct its quality control and quality assurance programs.
ARTICLE 6 TECHNOLOGY TRANSFER.
6.1 TRAINING. Within sixty (60) days of the Effective Date, Lynx and
Takara shall agree on a plan for training Takara employees in the use of
Megaclone(TM) and Megasort(TM) technologies, and Lynx shall provide such Takara
employees reasonable access to and training for Megaclone(TM) and Megasort(TM)
technologies at Lynx's facility in Hayward, California. Such training shall be
consistent with the recommendations set forth in Exhibit 3. At a time agreed to
by the Parties, but in no event later than twelve (12) months after the
Effective Date, Lynx and Takara shall agree on a plan for training Takara
employees in the use of MPSS(TM) technology, and Lynx shall provide reasonable
access to and training for MPSS(TM) technology at Lynx's facility in Hayward,
California. Each Party shall bear its own costs for the training under this
paragraph. In particular, Takara shall bear all food, lodging, and travel costs
of its employees.
6.2 INSTALLATION OF MPSS(TM) INSTRUMENTS. Lynx shall use commercially
reasonable efforts to install Takara's requirements of MPSS(TM) Instrument(s) at
Takara's facilities in Japan in Lynx's recommended operating configuration, as
set forth in Exhibit 4. Installation shall be scheduled to take place within
three months of initial commercial deployment of such MPSS(TM) Instruments at
Lynx's facility in Hayward, California. Lynx shall sell such instruments to
Takara at [ * ].
6.3 SERVICE AND SUPPORT. Lynx shall provide limited warranty and support
for a period of one (1) year from the completion of installation of an MPSS(TM)
Instrument as set forth in Exhibit 7.
6.4 UP-GRADES. For a period of two (2) years following the initial
installation of MPSS(TM) Instruments, Lynx shall provide Takara with up-grades
to installed MPSS(TM) Instruments, Lynx Software, and any process improvements
relating to Lynx Technology at [ * ]; thereafter, Lynx shall provide MPSS(TM)
Instruments and up-grades thereto at [ * ].
ARTICLE 7 INTERIM MPSS(TM) SERVICES.
7.1 In order to permit Takara to begin providing customers in the
Territory with MPSS(TM) services as soon as possible after the Effective Date,
Lynx shall use commercially reasonable efforts to provide MPSS(TM) Services for
Takara's customers until such time as one or more MPSS(TM) Instruments are
installed and made operational at Takara's facility in the Territory. For each
sample analyzed using Lynx's MPSS(TM) Service, Takara shall pay Lynx a fee of
[ * ]; provided, however, that
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 10.
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if Takara carries out part of the MPSS(TM) process without Lynx's assistance,
then the above-mentioned fee shall be adjusted to reflect Takara's proportionate
contribution to such process.
ARTICLE 8 CONSIDERATION FOR EXCLUSIVE ACCESS TO LYNX TECHNOLOGY.
8.1 In partial consideration of the rights and licenses granted to it,
Takara shall pay to Lynx a non-refundable non-creditable technology access fee
of [ * ] payable as follows:
a) Within sixty (60) days of the Effective Date, Takara shall pay
to Lynx [ * ] in cash by bank wire transfer in immediately
available funds to such account designated by Lynx; and
b) On each of the first through fifth anniversary dates after the
Effective Date, Takara shall pay to Lynx [ * ] in cash by bank
wire transfer in immediately available funds to such account
designated by Lynx.
8.2 GRANTBACK RIGHTS IN IMPROVEMENTS. Takara hereby grants to Lynx a
paid-up royalty-free worldwide non-exclusive license, with right to sublicense,
in any Process Improvement. In the event that Takara demonstrates with
convincing evidence that a Process Improvement is a Qualified Improvement, the
Parties shall negotiate in good faith a reduction in the royalty of paragraph
9.1 a), such reduction to reflect the cost savings attributable to the Process
Improvement; provided, however, that the total of such reductions shall not
reduce the royalty of paragraph 9.1 a) to below [ * ] .
ARTICLE 9 ROYALTIES, ACCOUNTING, AND RECORDS.
9.1 In partial consideration of the rights and licenses granted to it,
Takara shall pay to Lynx the following royalties for the term of the Agreement:
a) a [ * ] royalty on all Revenue generated from its use of Lynx
Technology, except for the sale of Licensed Microarrays which
is provided for in b) and c) of this paragraph;
b) a royalty of [ * ] per Microarray Spot times the total number
of Microarray Spots on each Licensed Microarray sold, and the
following additional royalties, if applicable: for such
Microarrays priced above [ * ] a royalty of [ * ] and
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 11.
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c) an annual minimum royalty due on the indicated anniversary
date, against which earned royalties under b) for a given year
may be credited, in accordance with the following table:
Anniversary Minimum Royalty
Date Amount (in U.S. Dollars)
----------- ------------------------
1st [ * ]
2nd [ * ]
3rd [ * ]
4th [ * ]
5th [ * ]
9.2 Takara shall require customers of MPSS(TM) and Megasort(TM) Services
to undertake a contractual obligation not to use information obtained from such
services to manufacture Microarrays for sale, unless such user pays Takara a
royalty of at least [ * ] per Microarray Spot, of which Takara would share [ * ]
with Lynx as a third party beneficiary under such contract.
9.3 Payments of royalties (other than the minimum annual royalties whose
payment schedule is set forth above) under this Article are to be made to Lynx
within forty-five (45) days of the end of each quarter of the calendar year.
Royalties shall be accompanied by a statement that shall include for each
country in which sales of services or Licensed Microarrays occurred: the gross
sales in each country's currency of services rendered and Licensed Microarrays
sold, the Licensed Microarrays being classified according to the number of
Microarray Spots; the related amounts payable in each country's currency; the
applicable exchange rate to convert from each country's currency to U.S.
dollars; and the amounts payable in U.S. dollars. Royalties shall first be
calculated in the currency of the country in which sales took place and then
directly converted to U.S. Dollars using the exchange rate as reported in the
Wall Street Journal for the last business day of the calendar quarter of sales.
All payments hereunder shall be made to Lynx in U.S. dollars by bank wire
transfer in immediately available funds to such account designated by Lynx. The
paying party shall provide notice at least five (5) business days prior to the
wire transfer date of the amount of payment, the nature of the payment (with
reference to the applicable section of the subject agreement) and the date of
receipt of good funds. Such notice should be given to the Controller of Lynx at
the address set forth at the beginning of this Agreement or such other address
directed by Lynx.
9.4 Any payment under this Article not paid by the payment due date
shall bear interest at the rate which is the lesser of eighteen percent (18%)
per annum or the maximum rate permitted by applicable law, calculated on the
number of days such payment is delinquent.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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9.5 The payments under this Article shall be free and clear of any
taxes, duties, levies, fees or charges, except for withholding taxes (to the
extent applicable). The paying party shall make any withholding payments due on
behalf of Lynx and shall promptly provide Lynx with written documentation of any
such payment sufficient to satisfy the reasonable requirements of an appropriate
tax authority concerning an application by Lynx for a foreign tax credit for
such payment or for similar treatment. The paying party agrees to take such
reasonable and lawful steps as Lynx may request to minimize the amount of tax to
which the payments to Lynx are subject.
9.6 If by law, regulations or fiscal policy of a particular country,
remittance of payments in U.S. Dollars is restricted or forbidden, notice
thereof will be promptly given to Lynx, and payments shall be made by deposit
thereof in local currency to the credit of Lynx in a recognized banking
institution designated by Lynx. When in any country the law or regulations
prohibit both the transmittal and deposit of payments based on sales in such a
country, such payments shall be suspended for as long as such prohibition is in
effect and as soon as such prohibition ceases to be in effect, all payments that
the paying party would have been under obligation to transmit or deposit but for
the prohibition, shall forthwith be deposited or transmitted promptly to the
extent allowable.
9.7 Takara shall keep, for at least three (3) years, research and
development records related to Takara's Process Improvements and business
records of all sales of products in sufficient detail to permit Lynx to confirm
the accuracy of Takara's payment calculations. Once a year, at the request and
the expense of Lynx, upon at least five (5) days prior written notice, Takara
shall permit a nationally recognized, independent, certified public accountant,
appointed by Lynx and acceptable to Takara, access to these records during
regular business hours solely to the extent necessary to verify such
calculations, provided that such an accountant has entered into a
confidentiality agreement with Takara with terms substantially similar to the
confidentiality provisions of this Agreement, limiting the use and disclosure of
such information to purposes germane to this section. Results of any such
examination shall be made available to both parties to this Agreement. If such
examination reveals an underpayment of amounts by five percent (5%) or more,
Takara shall pay all costs of such examination. In the event such accountant
concludes that additional payments are owed, the additional payments shall be
paid within thirty (30) days of the date Lynx delivers to Takara the
accountant's written report reflecting such conclusion. This section shall
survive any termination of this Agreement for five (5) years.
ARTICLE 10 EQUITY INVESTMENT.
10.1 On each of the first through fifth anniversary dates after the
Effective Date, Takara shall make an equity investment in Lynx of One Million
U.S. Dollars ($1,000,000). For each such equity investment by Takara, Lynx
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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shall authorize new shares of Lynx common stock in a number sufficient to equal
One Million U.S. Dollars ($1,000,000) in market value at the then determined
market price. Such shares shall then be issued to Takara in exchange for the One
Million U.S. Dollar ($1,000,000) investment. The market price of Lynx common
stock for computing the number of shares to be issued on each such anniversary
shall be the average for ten (10) trading days immediately prior to the
pertinent anniversary, of the average of the daily high and the daily low, as
reported on the Nasdaq National Market or other nationally-recognized primary
market on which the Company's common stock is traded. The purchase of shares
under this paragraph shall be made under a Common Stock Purchase Agreement
having substantially the form as the contract attached as Exhibit 10.
ARTICLE 11 PERFORMANCE REVIEW.
11.1 MARKETING PLAN. Within six (6) months of the Effective Date, Takara
shall provide a five (5) year Marketing Plan containing the elements set forth
in Exhibit 8 acceptable to Lynx for commercializing the licensed technologies in
the Territory and worldwide in the case of Licensed Microarrays.
11.2 PERFORMANCE REVIEW COMMITTEE ("PRC"). A PRC shall be formed by the
Parties which shall comprise two (2) representatives from each Party. The
Parties shall designate their representatives to the PRC within ten (10) days of
the Effective Date. An alternate member designated by a Party may serve
temporarily in the absence of a member designated by such Party. Each Party
shall designate one of its representatives as Co-Chair of the PRC. Each Co-Chair
will be responsible for the agenda and for recording the minutes of alternating
meetings of the PRC. Each Party shall bear its own costs for participating in
the PRC. Each Party may replace any of its representatives to the PRC at any
time, and will inform the other Party thereof in writing.
11.3 MEETINGS. The PRC shall hold meetings at such times and places as
shall be determined by a majority of the entire membership of the PRC, but no
less frequently than once every six (6) months. Subject to the foregoing, the
PRC may conduct meetings in person or by telephone conference or other means of
communication. Each Party may invite other personnel of their company to attend
meetings of the PRC, subject to the mutual consent of the Parties. No meetings
of the PRC can be held unless both Parties are represented. Every meeting shall
have an agenda of topics to be discussed prepared alternatively by the Parties
and distributed to PRC members at least ten (10) business days prior to the
meeting. Every meeting shall have minutes recorded and distributed within five
(5) business days to the Parties for approval.
11.4 FUNCTIONS. The PRC shall assess performance of the parties,
including, but not limited to, conformance with the Marketing Plan and other
Performance Criteria, reagent delivery, instrumentation and process performance,
quality control, and trademark and service mark usage. The PRC may make
recommendations to the Parties with respect to performance, but the PRC shall
not
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 14.
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have the authority to make determinations or findings as to whether the
Performance Criteria have been, or have not been, met.
ARTICLE 12 SUPPLY OF PROPRIETARY REAGENTS.
12.1 Subject to the terms and conditions of this Agreement, Lynx shall
supply Takara with its requirements of Proprietary Reagents under the terms and
conditions of Exhibit 5 for the prices set forth in Exhibit 6, and as amended
from time to time as provided in Exhibit 5.
ARTICLE 13 CONFIDENTIALITY.
13.1 Subject to the terms and conditions of this Agreement, Takara and
Lynx each agree that, during the term of this Agreement and for five (5) years
thereafter, each will use all reasonable efforts to keep confidential, and will
cause its Affiliates to use reasonable efforts to keep confidential, all Lynx
Confidential Information or Takara Confidential Information, as the case may be,
that is disclosed to it or to any of its Affiliates by the other party in
connection with the performance of this Agreement. Neither Takara nor Lynx nor
any of their respective Affiliates shall use the other party's Confidential
Information except as expressly permitted in this Agreement.
13.2 Takara and Lynx each agree that any disclosure of the other's
Confidential Information to any officer, employee, contractor, consultant,
sublicensee, or agent of the other party or of any of its Affiliates shall be
made only if and to the extent necessary to carry out its responsibilities under
this Agreement and to exercise the rights granted to it hereunder, shall be
limited to the extent consistent with such responsibilities and rights, and
shall be provided only to such persons or entities who are bound to maintain
same in confidence in a like manner as the party receiving same hereunder is so
required. Each party shall use reasonable efforts to take such action, and to
cause its Affiliates to take such action, to preserve the confidentiality of
each other's Confidential Information, including not less than such efforts as
it would customarily take to preserve the confidentiality of its own
Confidential Information. Each party, upon the other's request, will return all
the Confidential Information disclosed to the other party pursuant to this
Agreement, including all copies and extracts of documents, within sixty (60)
days of the request of the other party following any termination of this
Agreement, except for one (1) copy which may be kept for the purpose of
ascertaining and complying with continuing confidentiality obligations under
this Agreement, and except for such copies as a party may retain in order to
continue to exercise its rights hereunder after termination of this Agreement.
13.3 Confidential Information shall not include any information which
the receiving party can prove by competent evidence:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 15.
16
a) is now, or hereafter becomes, through no act or failure to act
on the part of the receiving party, generally known or
available;
b) is known by the receiving party at the time of receiving such
information, as evidence by its records;
c) is hereafter furnished to the receiving party without
restriction as to disclosure or use by a third party lawfully
entitled to so furnish same;
d) is independently developed by the employees, agents or
contractors of the receiving party without the aid,
application or use of the disclosing party's Confidential
Information; or
e) is the subject of a written permission to disclose provided by
the disclosing party; or
f) is provided by the disclosing party to a third party without
restriction as to confidentiality.
13.4 A Party may also disclose Confidential Information of the other
where required to do so by law or legal process, provided that, in such event,
the party required to so disclose shall give maximum practical advance notice of
same to the other party and will cooperate with the other party's efforts to
seek, at the request and expense of the other party, all Proprietary treatment
and protection for such disclosure as is permitted by applicable law.
13.5 The Parties agree that the material financial terms of this
Agreement will be considered Confidential Information of both parties.
Notwithstanding the foregoing, either party may disclose such terms in legal
proceedings or as are required to be disclosed in its financial statements, by
law. Either party shall have the further right to disclose the material
financial terms of this Agreement under strictures of confidentiality to any
potential acquiror, merger partner, bank, venture capital firm, or other
financial institution to obtain financing, or other bona fide potential
strategic partner or collaborator.
ARTICLE 14 PATENT LITIGATION.
14.1 THIRD PARTY INFRINGEMENT. In the event Takara or its Affiliates or
Lynx becomes aware of any actual or threatened infringement of the Patent Rights
or the violation of any other intellectual property right of Lynx, that Party
shall promptly notify the other Party in writing. Lynx
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 16.
17
and its Affiliates shall have the sole and exclusive right, but not the
obligation, to bring, at Lynx's expense and in its sole control, an infringement
action against any third party and Lynx shall be entitled to retain any award
made in such suit. If a continuing unlicensed infringement (within the Period of
Exclusivity) of Patent Rights licensed hereunder directly and materially damages
Takara's business regarding services bearing royalties hereunder, Takara may
request that Lynx take action towards licensing or enforcement with respect to
such infringement. If Lynx has not commenced action within ninety (90) days of
Takara's request and has not obtained termination of the infringement or
licensed the infringer, then the royalties with respect to adversely affected
services will be prospectively reduced (until such infringement ceases or is
licensed) to reflect the reduced value (if any) of Takara's license upon
agreement by the Parties (which the Parties will attempt to reach reasonably and
in good faith, or if the Parties cannot agree with ninety (90) days, upon
arbitration under Article 18 ("Dispute Resolution")) as to the amount, if any,
of the reduction.
14.2 DEFENSE OF INFRINGEMENT CLAIMS. In the event of the institution of
any suit by a third party against Lynx or Takara or any of their Affiliates for
patent infringement involving the manufacture, use, sale, distribution or
marketing of products or services based on Lynx Technology or trademark
infringement in connection with the use of a Licensed Mark anywhere in the
world, the Party sued shall promptly notify the other Parties in writing. Lynx
shall assume the responsibility for the conduct of the defense of such suits in
the United States, Canada, Japan, the European Economic Community, and in any
other country in which it chooses to defend. Takara may assume responsibility in
all other countries in which it or its Affiliates sell Microarrays or provide
services based on Lynx Technology. The Party not assuming responsibility shall
have the right to participate in the defense of each suit at its own expense.
Upon the request of one Party, the other Party shall reasonably assist and
cooperate in any such litigation. The Party having responsibility for the suit
shall bear the costs of the defense of such suit. In the event the Parties
should not prevail in such a suit, or prior to suit the Party having
responsibility shall have determined that it is unlikely to prevail in such a
suit, and thereby Takara shall be required to pay royalties to a third party in
order to practice Lynx Technology, the royalties thereafter due and payable to
Lynx with respect to such practice and such country shall be reduced by [ * ].
ARTICLE 15 REPRESENTATIONS AND WARRANTIES.
15.1 Lynx warrants and represents to Takara that a) it has the lawful
right to grant the license under this Agreement, including the license to the
Licensed Marks and the sublicense under the Harvard Patents, and that Lynx has
made all filings and paid all fees and done all such other things as to maintain
the Patent Rights in good standing, and b) it has no knowledge of any current or
threatened
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 17.
18
infringement or inconsistent claims by third parties of any of the rights and
licenses granted to Takara and its Affiliates.
15.2 This license and the associated inventions are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. LYNX MAKES NO REPRESENTATION OR WARRANTY THAT THE
PRACTICE OF LYNX TECHNOLOGY WILL NOT INFRINGE ANY PATENT OR OTHER PROPERTY
RIGHT.
ARTICLE 16 TERM AND TERMINATION.
16.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement shall be
in force from the Effective Date and shall remain in effect for the life of the
last-to-expire patent licensed under this Agreement, or until the last patent
application licensed under this Agreement is abandoned.
16.2 Any termination of this Agreement will not affect the rights and
obligations set forth in the following Articles:
Par. 8.2 Grantback Rights
Article 9. Royalties, Accounting, Records
Article 13. Confidentiality
Article 17. Indemnification and Limitation of Liability
16.3 If either Party should violate or fail to perform any material term
or covenant of this Agreement, then the other Party may give written notice of
such default ("Notice of Default") to the defaulting Party. If the defaulting
Party should fail to repair such default within thirty (30) days after the date
of such Notice of Default, the notifying Party shall have the right to terminate
this Agreement and the licenses herein by a second written notice ("Notice of
Termination") to the defaulting Party. If a Notice of Termination is sent to the
notifying Party, this Agreement shall automatically terminate on the date such
notice takes effect. Such termination shall not relieve the defaulting Party of
its obligation to pay any royalty or license fees owing at the time of such
termination and will not impair any accrued right of the notifying Party.
Material terms under this Agreement include, but are not limited to, Article 2
(Grant), Article 3 (Rights Not Licensed), Article 5 (Trademarks), Article 6
(Technology Transfer), Article 8 (Technology Access), Article 9 (Royalties,
Accounting, and Records), Article 10 (Equity Investment), Article 11
(Performance), Article 12 (Supply), Article 13 (Confidentiality), and Article 17
(Indemnification).
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 18.
19
16.4 After three (3) years from the Effective Date, Takara shall have
the right at any time to terminate this Agreement by giving notice in writing to
Lynx. Such Notice of Termination shall be effective ninety (90) days after the
date thereof. Any termination pursuant to this paragraph shall not relieve
Takara, Lynx, or their respective Affiliates of any obligation or liability
accrued hereunder prior to such termination or rescind anything done by Takara,
Lynx, or their respective Affiliates of any payments made to Lynx by Takara
hereunder prior to the time such termination becomes effective, and such
termination shall not affect in any manner rights of Lynx or Takara arising
under this Agreement prior to such termination.
16.5 Lynx shall have the right at its option to repurchase all or any
part of the inventories of MPSS(TM) Instruments and Proprietary Reagents in
Takara's possession at the time of the termination of this Agreement at [ * ].
Lynx shall exercise its option by notifying Takara in writing no later than
thirty (30) days after the effective termination date.
ARTICLE 17 INDEMNIFICATION AND LIMITATION OF LIABILITY.
17.1 Takara will indemnify, hold harmless, and defend Lynx, its
officers, employees, and agents against any and all claims, suits, losses,
damage, costs, fees, and expenses resulting from or arising out of exercise of
this license or the purchase of Proprietary Reagents, unless otherwise provided
in this Agreement (including Exhibits). This indemnification will include, but
will not be limited to, any product liability.
17.2 Lynx will promptly notify Takara in writing of any claim or suit
brought against Lynx in respect of which Lynx intends to invoke the provisions
of this Article (Indemnification). Takara will keep Lynx informed on a current
basis of its defense of any claims pursuant to this Article (Indemnification.)
17.3 In no event shall Lynx be liable for any incidental, special, or
consequential damages resulting from exercise of the license granted herein, or
the purchase of Proprietary Reagents hereunder, or the use of any invention
described in any of the Patent Rights.
ARTICLE 18 DISPUTE RESOLUTION.
18.1 If a dispute or controversy regarding any right or obligation under
this Agreement arises between the Parties, the Parties will seek to resolve such
dispute or controversy by good faith negotiation between senior management
representatives of the Parties, to be commenced promptly after such dispute or
controversy arises. If such dispute or controversy is not resolved by such
negotiation within thirty (30) days of notice by one party to the other, then
the Parties shall proceed as
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 19.
20
follows. Any unresolved dispute, controversy, action, claim or proceeding
initiated by either Party (other than a third party action, claim, or
proceeding) relating to, arising out of, or resulting from this Agreement, or
the performance by either Party of its obligations hereunder, whether before or
after termination of this Agreement, shall be finally resolved by binding
arbitration. Whenever a Party shall decide to institute arbitration proceeding,
it shall give written notice to that effect to the other Party. If initiated by
Lynx, any arbitration hereunder shall be held in Osaka, Japan, pursuant to the
Rules of Conciliation and Arbitration of the International Chamber of Commerce.
If initiated by Takara, any arbitration hereunder shall be held in San
Francisco, California, pursuant to the Rules of Conciliation and Arbitration of
the International Chamber of Commerce. Each such arbitration shall be conducted
in the English language by a panel of three arbitrators appointed in accordance
with such rules. The arbitrators shall have the authority to grant specific
performance, and to allocate between the Parties the costs of arbitration in
such equitable manner as they determine. Judgment upon the award so rendered may
be entered in any court having jurisdiction or application may be made to such
court for judicial acceptance of any award and an order of enforcement, as the
case may be. In no event shall a demand for arbitration be made after the date
when institution of a legal or equitable proceeding based upon such claim,
dispute or other matter in question would be barred by the applicable statute of
limitations.
ARTICLE 19 NOTICES.
19.1 Any notice or payment required or permitted to be given under this
Agreement shall be in writing, shall specifically refer to this Agreement, and
shall be effective on receipt, when given by registered airmail or overnight
courier and addressed, unless otherwise specified in writing, to the respective
addresses given below.
As to Lynx: Lynx Therapeutics, Inc.
25861 Industrial Blvd.
Hayward, CA 94545
USA
Attn: Chief Executive Officer
As to Takara: Takara Shuzo Co., Ltd.
Biomedical Group
Seta 3-4-1, Otsu, Shiga
520-2193 JAPAN
Attn: President
ARTICLE 20 MISCELLANEOUS.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 20.
21
20.1 HEADINGS. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
20.2 ENTIRE AGREEMENT. This Agreement embodies the entire understanding
of the parties and will supersede all previous communication, representations or
understandings, either oral or written, between the parties relating to the
subject matter hereof. However, confidential disclosures made under previously
executed Nondisclosure Agreements between Lynx and Takara will remain subject to
the terms of those Nondisclosure Agreements. No amendment or modification hereof
will be valid or binding upon the parties unless made in writing and signed on
behalf of each party.
20.3 SEVERABILITY. In case any of the provisions contained in the
Agreement are held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability will not affect any other provisions
hereof, but this Agreement will be construed as if such invalid or illegal or
unenforceable provisions had never been contained herein.
20.4 WAIVER. It is agreed that no waiver by either party hereto of any
breach or default of any of the covenants or agreements herein set forth will be
deemed a waiver as to any subsequent and /or similar breach or default.
20.5 ASSIGNMENT. Neither this Agreement nor any rights or benefits
hereunder shall be assigned or transferred by Takara without the written consent
of Lynx, except that Takara may assign its rights and obligations under this
Agreement as a part of the sale or transfer of its entire business and assets of
its biomedical, research, and genomics business including, but not limited to,
its Biomedical Group.
20.6 GOVERNING LAW. This Agreement shall be considered to have been made
in the United States, and shall be governed by the laws of the United States of
America and the State of California.
20.7 FORCE MAJEURE. The parties to this Agreement will be excused from
any performance required hereunder if such performance is rendered impossible or
unfeasible due to any acts of God, catastrophes, or other major events beyond
their reasonable control, including, without limitation, war, riot, and
insurrection; laws, proclamations, edicts, ordinances, or regulations; strikes,
lock-outs, or other serious labor disputes; and floods, fires, explosions, or
other natural disasters.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 21.
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20.8 NO AGENCY. Nothing herein shall be deemed to create an agency,
joint venture, or partnership relationship between Takara and Lynx.
20.9 GOVERNMENT APPROVAL OR REGISTRATION. If this Agreement or any
associated transaction is required by the law of any nation to be either
approved or registered with any governmental agency, Takara will assume all
legal obligations to do so. Takara will notify Lynx if it becomes aware that
this Agreement is subject to a United States or foreign government reporting or
approval requirement. Takara will make all necessary filings and pay all costs
including fees, penalties, and all other out -of-pocket costs associated with
such reporting or approval process.
20.10 EXPORT CONTROL LAWS. Takara will observe all applicable United
States and foreign laws with respect to the transfer of Lynx Technology,
Licensed Microarrays and related technical data to foreign countries, including,
without limitation, the International Traffic in Arms Regulations (ITAR) and the
Export Administration Regulations, subject to a proper and timely instruction as
to any such law or regulation.
20.11 OFFICIAL LANGUAGE. The official text of this Agreement and any
appendices, exhibits and schedules hereto, shall be made, written and
interpreted in English. Any notices, accounts, reports, documents, disclosures
of information or statements required by or made under this Agreement, whether
during its term or upon expiration or termination thereof, shall be in English.
In the event of any dispute concerning the construction or meaning of this
Agreement, reference shall be made only to this Agreement as written in English
and not to any other translation into any other language.
20.12 PATENT MARKING. Takara will mark all Licensed Microarrays made,
used , or sold under the terms of this Agreement, or their containers, in
accordance with the applicable patent marking laws.
In Witness Whereof, Takara and Lynx have caused this Agreement to be
duly executed by their duly authorized representatives as of the date first
shown herein.
LYNX THERAPEUTICS, INC. TAKARA SHUZO CO., LTD.
By: /s/ Norman Russell By: /s/ Ikunoshin Kato
-------------------------------- ------------------
Name: Norman J.W. Russell, Ph.D. Name: Ikunoshin Kato, Ph.D.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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Title: President and Title: Senior Managing Director and
Chief Executive Officer President, Biomedical Group
Date: 7th November 2000 Date: 8th Nov. 2000
---------------------------- -------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 23.
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EXHIBIT 1
PATENT RIGHTS
[*]
[*] = 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.
25
EXHIBIT 2
PERFORMANCE CRITERIA FOR PERIOD OF EXCLUSIVITY
I. Scheduling and building facilities for conducting Megasort(TM) and
MPSS(TM) services.
Target Date Task
--------------------------------------------------------------------------------
[ * ] months after Effective Begin construction of MPSS(TM) laboratory.
Date(1)
--------------------------------------------------------------------------------
[ * ] months after Effective Complete construction of MPSS(TM) laboratory.
Date
--------------------------------------------------------------------------------
1. This assumes that the second generation MPSS instrument is
available no later than 18 months after the Effective Date.
II. Purchasing and installing required instrumentation.
Target Date Task
-------------------------------------------------------------------------------
[ * ] months after Effective MoFlo FACS instrument installed and operating.
Date(2)
-------------------------------------------------------------------------------
2. This assumes that there would be no delays caused by Cytomation,
Inc.
III. Training of employees in Megasort(TM) and MPSS(TM) technologies.
Target Date Task
-------------------------------------------------------------------------------
[ * ] months after Effective At least one Takara employee starts Megasort
Date(3) training at Lynx.
-------------------------------------------------------------------------------
At least [ * ] months prior to At least one Takara employee starts MPSS
the delivery of second generation training at Lynx.
MPSS instruments to Takara.
--------------------------------- ---------------------------------------------
3. This assumes that training at Cytomation can be accomplished by
this time.
IV. Implementation of Marketing Plan.
V. Monetary commitments for advertising and promotion.
Journal Number of Advertisements per Year
-------------------------------------------------------------------------------
Japanese-language Scientific or Trade [ * ]
Journals (combined)
-------------------------------------------------------------------------------
VI. Purchase of reagents under supply agreement.
----------------------------------------------------------------------------------------------
Minimal Reagent Purchases Minimal Reagent Purchases
Time Interval for the Following Number for the Following Number
From: To: of Megasort(TM) analyses of MPSS(TM) analyses
----------------------------------------------------------------------------------------------
Effective Date 1st Anniversary [ * ] [ * ]
----------------------------------------------------------------------------------------------
1st Anniversary 2nd Anniversary [ * ] [ * ]
----------------------------------------------------------------------------------------------
2nd Anniversary 3rd Anniversary [ * ] [ * ]
----------------------------------------------------------------------------------------------
3rd Anniversary 4th Anniversary [ * ] [ * ]
----------------------------------------------------------------------------------------------
4th Anniversary 5th Anniversary [ * ] [ * ]
----------------------------------------------------------------------------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 25.
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EXHIBIT 3
RECOMMENDED INITIAL MEGASORT(TM) TRAINING
Instrumentation: 1 MoFlo flow sorter (see attached Purchase Order for exact
configuration).
Size of group: 2 individuals (1 flow system operator, 1 molecular
biologist)
Training: 1 week MoFlo training with Cytomation (1 individual)
After MoFlo training:
6 weeks Megaclone/Megasort training at Lynx (2
individuals)
I. Flow system operator training prior to training at Lynx (1 week at
Cytomation facility):
o Flow systems theory.
o "Summit" software (MoFlo instrument control and data analysis).
o Standardization and calibration of instrument.
o Rudimentary trouble shooting.
II. Additional flow system training at Lynx (1-2 weeks):
o Analysis and sorting of Megaclone(TM) microbeads.
o Sorting experience for enriching Megaclone(TM) microbead libraries
(1-color sorting).
o Megasort(TM) experience using second laser (2-color sorting).
III. Bead loading & sorting (6 weeks recommended; can be carried out
concurrently with II.)
o Optional: Trainees should bring two samples for analysis (to follow through
process).
o Lynx will concurrently provide standard samples that will go through
analysis also.
o Trainees will go through each step with an experienced Lynx employee (In
case of any inadvertent failures of trainees' sample, they will take over
Lynx sample).
[GRAPH]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 26.
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EXHIBIT 4
RECOMMENDED EQUIPMENT AND FACILITIES FOR
MEGASORT(TM) AND MPSS(TM) TECHNOLOGIES
I. Computer Requirements for Megasort(TM) and MPSS(TM) Technology.
(1) Fileserver/RAID
a. Images are automatically stored and processed on a fileserver
b. Need approximately 100 GB per MPSS instrument
c. Support for LINUX (RedHat 6.X) preferred, Sun (Solaris 2.5 or
greater) also supported
(2) Relational Database Server
a. MultiCPU (SMP), with 1 - 2 GB RAM preferred
b. Small RAID or mirrored disks (15-30 GB's)
c. Running Sybase Adaptive Server Enterprise 11.9.2 on LINUX
(3) Compute Server
a. LINUX cluster running PBS (Parallel Batch System)
b. Current system is VALinux FullOn 2x2 Cluster
c. Each node is 2-processor Pentium III with 1GB RAM
(4) Analysis QC/Clients
a. NT Workstations with 512 MB RAM, large screen, with good fast
video preferred
b. Most software requires Java (Java 1.3 or greater)
c. You could use several of these clients
(5) Network
a. Transfer of many large images files requires at least 100BaseT
networking
II. Facilities Requirements for MPSS(TM) Technology.
o 15-25% humidity.
o Vacuum source for each instrument.
o "Dry" fire extinguisher system (water would damage the instrumentation).
o Nitrogen is used to operate some mechanical components of the instrument
(e.g. rotary valve, valve blocks)
o Back-up power system.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 27.
28
EXHIBIT 5
TERMS AND CONDITIONS FOR SUPPLYING PROPRIETARY REAGENTS
1. Definitions.
1.1 "Purchase Order" shall mean a Purchase Order of Takara issued
in accordance with the terms of this Agreement.
2. Pricing.
2.1 Prices for Proprietary Reagents purchased hereunder are set
forth in Exhibit 6.
2.2 The prices of Exhibit 6 may be adjusted by Lynx from time to
time, but no more than once for each Proprietary Reagent in any two-year period
after the Effective Date, to reflect increases in costs of labor and/or
materials and design, manufacturing, or process changes. Such adjustments shall
not exceed [ * ] of the then current price of the Proprietary Reagent.
2.3 Prices stated are exclusive of any taxes, fees, duties, or
levies now or later imposed upon the storage, sale, transportation or use of the
Proprietary Reagents.
3. Orders.
3.1 Shipments of Proprietary Reagents to Takara shall be made in
response to Takara's written Purchase Orders identifying the Proprietary
Reagents to be purchased, the quantity, price, shipping instructions, delivery
dates, and any other special information.
3.2 Lynx shall make commercially reasonable efforts to meet
requested delivery dates, but shall have no obligation to meet requested
delivery dates earlier than thirty (30) days from the date of receipt of such
Purchase Order.
3.3 Title and risk of loss shall pass from Lynx to Takara upon
delivery. Delivery shall be deemed made upon transfer of possession to a common
carrier of Takara's selection "F.O.B." at Lynx's facility in Hayward,
California, or other location that Lynx may designate in writing to Takara.
"F.O.B." shall have the definition as given in the Uniform Commercial Code of
the United States.
3.4 All customs, duties, costs, taxes, insurance premiums, and
other expenses relating to transportation and delivery shall be at Takara's
expense.
3.5 Payment shall be remitted by Takara net thirty (30) days from
receipt of an invoice from Lynx and in the currency specified on such invoice.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 28.
29
4. Changes or Improvements.
4.1 During the term of this Agreement, Lynx shall inform Takara
on a timely basis of any changes or improvements in the Proprietary Reagents,
and of any new related products being developed. However, before any changes are
made to existing Proprietary Reagents, Lynx agrees that Takara will be given the
opportunity to purchase adequate quantities of unaltered material to carry it
through a reasonable period to develop new protocols for use with the altered
Proprietary Reagents.
5. Delays in Supplies.
5.1 In the event that Lynx is unable to supply Takara's
reasonable requirements of the Proprietary Reagents, Lynx and Takara agree to
work together in good faith to identify a third party supplier to which Lynx
will transfer under appropriate safeguards Manufacturing Information necessary
and desirable for such third party supplier to make Proprietary Reagents
necessary to satisfy Takara's requirements.
6. Limited Warranty.
6.1 Lynx warrants to Takara that, for a period of one (1) year
from the date of delivery of any Proprietary Reagent, or such other periods
indicated for particular Proprietary Reagents, such Proprietary Reagent will be
free from defects in material, workmanship, design and title, and will
substantially meet the specifications required for use in Lynx Technology.
6.2 If any Proprietary Reagent fails to meet the foregoing
warranty, Lynx will replace such deficient Proprietary Reagent in the most
timely manner possible at its own expense or Lynx will refund to Takara all
costs associated with the purchase and shipping of that Proprietary Reagent.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 29.
30
EXHIBIT 6
TRANSFER PRICES FOR PROPRIETARY AND NON-PROPRIETARY REAGENTS
-------------------------------------------------------------------------------------------------------
Transfer
Material Comments Estimated Estimated Price
Per Run Shipment Unit Runs for Unit for Unit
Usage Conc. Amount Amount Amount
=======================================================================================================
-------------------------------------------------------------------------------------------------------
PROPRIETARY:
-------------------------------------------------------------------------------------------------------
5 (u)m GMA tagged [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
microbeads
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Encoded adaptor mix [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
PE-labeled decoder Each probe [ * ] [ * ] [ * ] [ * ] [ * ]
probes(1) provided
separately.
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Tag vector (pNCV2) [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Flow cell [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Pac I Under license [ * ] [ * ] [ * ] [ * ] [ * ]
from NEB.
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
NON-PROPRIETARY:
-------------------------------------------------------------------------------------------------------
MPSS:
-------------------------------------------------------------------------------------------------------
C4 carrier DNA single stranded [ * ] [ * ] [ * ] [ * ] [ * ]
(ss)
-------------------------------------------------------------------------------------------------------
PCR F-biotin ss [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
PCR R-FAM ss [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
MPSS 2-step adaptor ds + label [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
MPSS 4-step adaptor ds + label [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
Cap adaptor top ss + [ * ] [ * ] [ * ] [ * ] [ * ]
non-natural base
-------------------------------------------------------------------------------------------------------
Cap adaptor bottom ss [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
MEGASORT:
-------------------------------------------------------------------------------------------------------
Competitive oligo(dT) ss [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
F Lin Cy5 ss [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
F Lin FAM ss [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
Comptop primer 500 ss [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
Compbot primer 500 ss [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
G+ATC comparator ds [ * ] [ * ] [ * ] [ * ] [ * ]
-------------------------------------------------------------------------------------------------------
1. PE-labeled probes have a shelf life of form 1-3 months; therefore, monthly
orders are recommended.
2. [ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 30.
31
EXHIBIT 7
LIMITED WARRANTY AND SUPPORT FOR MPSS(TM) INSTRUMENT
Lynx warrants to Takara that, for a period ending on the date one year
from the completion of installation ("Warranty Period"), an MPSS(TM) Instrument
will be free from defects in material and workmanship and will perform in
accordance with specifications.
During the Warranty Period, if the MPSS(TM) Instrument's hardware
becomes damaged or contaminated or if the MPSS(TM) Instrument otherwise fails to
meet its specifications, Lynx will repair or replace the MPSS(TM) Instrument so
that it meets specifications, at Lynx's expense. However, if the liquid handling
pumps and delivery lines, or Flow Cell become damaged or contaminated, or if the
chemical or enzymatic performance of the MPSS(TM) Instrument otherwise
deteriorates due to solvents and/or reagents other than those supplied or
expressly recommended by Lynx, Lynx will return the MPSS(TM) Instrument to
specification at Takara's request and at Takara's expense. After this service is
performed, coverage of the parts repaired will be restored thereafter for the
remainder of the original Warranty Period.
This Warranty does not extend to any MPSS(TM) Instrument or part which
has been (a) the subject of an accident, misuse, or neglect (including but not
limited to failure to follow the recommended maintenance procedures), (b)
modified or repaired by a party other than Lynx, or (c) used in a manner not in
accordance with the instructions provided with the MPSS(TM) Instrument.
Lynx shall not be liable for any incidental, special, or consequential
loss, damage, or expense directly or indirectly arising from the purchase or use
of the MPSS(TM) Instrument. Lynx makes no warranty whatsoever with regard to
products or part furnished by third parties.
This warranty is limited to Takara and is not transferable without the
prior written consent of Lynx.
THIS WARRANTY IS THE SOLE AND EXCLUSIVE WARRANTY AS TO THE MPSS(TM)
INSTRUMENT AND IS IN LIEU OF ANY OTHER EXPRESS OR IMPLIED WARRANTIES, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND IS IN LIEU OF ANY OTHER OBLIGATION ON THE PART OF LYNX.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 31.
32
EXHIBIT 8
OUTLINE OF MARKETING PLAN
I. Description of market opportunities in each of the three major sub-regions
of the Territory: Japan, Korea, and China.
a) Who are the customers?
b) Plan for accessing and/or communicating with customers of each
sub-region?
c) Sales goals for services and microarray products in each
sub-region, or number of prospective customers created for each
sub-region?
d) What are the competitive products and services?
e) Special circumstances or conditions in each sub-region that would
affect marketing?
II. Description of promotional plan required to carry out I. a)-c).
III. Time schedule for carrying out I. a)-c).
IV. Decisions regarding products and services to be promoted in each
sub-region.
a) Pricing?
b) Distribution?
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 32.
33
EXHIBIT 9
CONDITIONS IN RESPECT OF THE HARVARD PATENTS
1.1 The rights granted under the Harvard Patents are subject to the following
conditions: (a) HARVARD's "Statement of Policy in Regard to Inventions,
Patents and Copyrights" (dated November 3, 1975 and amended on March 17,
1986, February 9, 1998 and August 10, 1998), Public Law 96-517, Public Law
98-620, and HARVARD's obligations under agreements with other sponsors of
research. Any right granted in this Agreement greater than that permitted
under Public Law 96-517, or Public Law 98-620, shall be subject to
modification as may be required to conform to the provisions of those
statutes.
(b) HARVARD reserves the right to make and use, and grant to others
non-exclusive licenses to make and use for NON-COMMERCIAL RESEARCH PURPOSES
the subject matter described and claimed in PATENT RIGHTS.
(c) Howard Hughes Medical Institute reserves certain rights listed below.
(d) LICENSEE shall use diligent efforts to effect introduction of the
LICENSED PRODUCTS into the commercial market as soon as practicable,
consistent with sound and reasonable business practice and judgment;
thereafter, until the expiration of this Agreement, LICENSEE shall endeavor
to keep LICENSED PRODUCTS reasonably available to the public.
(e) At any time after three (3) years from the effective date of this
Agreement, HARVARD may render this license non-exclusive if, in HARVARD's
reasonable judgment, the Progress Reports furnished by LICENSEE do not
demonstrate that LICENSEE:
(i) has put the licensed subject matter into commercial use in the
country or countries hereby licensed, directly or through a
sublicense, and is keeping the licensed subject matter reasonably
available to the public, or
(ii) is engaged in research, development, manufacturing, marketing or
sublicensing activity appropriate to meeting the requirements of
subparagraph 2.2(e)(i).
(f) In order to meet the requirements of subparagraphs 2.2(e)(i) and (ii),
LICENSEE shall:
(i) within thirty-six (36) months of the Effective Date of the
Agreement, develop at least one nucleic acid analysis process within
the FIELD using one or more LICENSED PRODUCT(s).
(ii) within forty-eight (48) months of the Effective Date of the
Agreement, develop at least one non-service LICENSED PRODUCT, wherein
such LICENSED PRODUCT and any method, reagent or apparatus essential
for the use thereof is suitable for commercial use or sale.
(iii) commence commercial sales or service by the year 2005.
(g) A license in any other field of use in addition to the FIELD shall be
the subject of a separate agreement and shall require LICENSEE's submission
of evidence, satisfactory to HARVARD, demonstrating LICENSEE's willingness
and ability to develop and
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 33.
34
commercialize in such other field of use the kinds of products or processes
likely to be encompassed in such other field.
(h) During the period of exclusivity of this license in the United States,
LICENSEE shall cause any LICENSED PRODUCT produced for sale in the United
States to be manufactured substantially in the United States.
1.2 All rights reserved to the United States Government and others under Public
Law 96-517, and Public Law 98-620, shall remain and shall in no way be
affected by this Agreement.
1.3 Requirements of Howard Hughes Medical Institute in respect of the Harvard
Patents based on the "Collaboration Agreement between Howard Hughes Medical
Institute and President and Fellows of Harvard College", dated January 1,
1986:
"4.1 Ownership and Assignment of Rights and Obligations. The rights and
obligations with respect to inventions, discoveries, improvements, and other
intellectual property, whether or not patentable or copyrightable (each a
"Subject Invention"), conceived or reduced to practice at the Premises by
employees of the Institute participating in the Research Program will be
assigned to and be the sole property of the University, and will be determined
in accordance with the applicable policies and procedures of the University
subject to the other provisions of this Article 4.
4.2 Mutual Objective. The parties agree that their mutual objective in
respect of intellectual property conceived or developed pursuant to this
Agreement is to disseminate such property for public use and benefit on a
non-discriminatory basis. The parties will consult periodically with respect to
any potential changes in their respective intellectual property policies.
4.3 Paid-Up License. The University will grant the Institute a paid-up,
non-exclusive, irrevocable license to use each Subject Invention for its
research and academic purposes, but with no right to sub-license for commercial
purposes.
4.4 Use of the Property. The University will have the right to determine
how best to utilize a Subject Invention; provided that (a) the Institute will,
upon request, be given annual reports by the University on the utilization
thereof, (b) the Institute will have the right to require licensing to others
where, in its judgment, effective steps to achieve practical application of
Subject Inventions have not been taken within a reasonable time or such
licensing is necessary to meet the needs of public health or safety, and the
University, within 90 days following notice from the Institute, fails to take
such effective steps or otherwise to meet the needs of public health and safety
through the enforcement of contractual rights or by other action; and (c) any
license or sub-license by the University of any Subject Invention to a third
party (i) will not relieve the University of its obligations to the Institute
under Sections 4.3, 4.5 and 4.6 in respect of the Subject Invention and (ii)
will provide that the Institute shall be indemnified and held harmless against
any claims, liability, costs, loss or obligation, including without limitation,
reasonable attorney's fees and costs, in connection with such license or
sub-license."
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 34.
35
EXHIBIT 10
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as
of October 1, 200_, by and between TAKARA SHUZO CO., LTD., a Japanese
corporation having its principal office at SETA 3-4-1, Otsu, Shiga, 520-2193
JAPAN ("Purchaser"), and LYNX THERAPEUTICS, INC., a Delaware corporation, having
its principal office at 25861 Industrial Blvd., Hayward, California, USA (the
"Company").
RECITALS
WHEREAS, Company and Purchaser have entered into that certain License
Agreement effective as of the 1st day of October, 2000 (the "License Agreement")
for the right to use the Company's proprietary technologies to manufacture,
distribute and sell microarrays worldwide and to provide Megasort(TM) and
MPSS(TM) services to customers in Japan, China and Korea;
WHEREAS, the Company has authorized the sale and issuance of up to
____________ (__________) {to be calculated as the number of shares equal to
$1,000,000 divided by the current market price per share as set forth in Section
1.1 below} shares of its common stock to purchase in a private placement; and
WHEREAS, in connection with the License Agreement, the Company desires to
issue and sell shares of its common stock to Purchaser, and Purchaser desires to
purchase shares of Company's common stock on the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
following mutual promises and covenants, the parties hereto agree as follows:
SECTION 1. SALE AND ISSUANCE OF STOCK
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and
conditions set forth in this Agreement and the License
Agreement, on the Closing Date (as defined below), the Company
agrees to sell and issue to Purchaser, and Purchaser agrees to
purchase, the number of shares of the Company's common stock
(the "Shares") determined by dividing the applicable One
Million U.S. Dollars ($1,000,000) ("Purchase Price") by the
current market price per share of the Company's common stock.
The "current market price per share" shall be the average for
ten (10) trading days immediately prior to October 1, 200_, of
the average of the daily high and the daily low, as reported on
the Nasdaq National Market or other nationally-recognized
primary market on which the Company's common stock is traded.
1.2 PAYMENT OF PURCHASE PRICE. The Purchase Price is payable by
Purchaser to the Company on the Closing Date by wire transfer
of immediately available funds to an account or accounts to be
designated by the Company, or by bank certified or cashier's
check made payable to the Company.
1.3 TRANSFER TAXES. Any transfer taxes, stamp duties, filing fees,
registration fees, recordation expenses, escrow fees or other
similar taxes, fees, charges or expenses incurred by the
Company, Purchaser or any other party in connection with the
purchase or in connection with any of the other transactions
contemplated by this Agreement shall be borne and paid
exclusively by the party incurring such expenses.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 35.
36
SECTION 2. CLOSING; DELIVERY.
The consummation of the transaction contemplated by this Agreement (the
"Closing") shall be held on the date hereof ("Closing Date"). The Closing shall
be held at the offices of Cooley Godward LLP, 3175 Hanover Street, Palo Alto,
California 94306-2155 or at such other time or place as Purchaser and the
Company may mutually agree. At the Closing, the Company shall cause to be issued
to Purchaser a stock certificate, in the name of Purchaser, representing the
Shares being purchased against receipt of the payment of the Purchase Price. The
Company shall deliver such stock certificate to Purchaser at the Closing or
promptly thereafter.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF COMPANY.
THE COMPANY HEREBY REPRESENTS, WARRANTS AND COVENANTS TO PURCHASER AS FOLLOWS:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all
requisite corporate power and authority to carry on its
business as now conducted and as presently proposed to be
conducted. The Company is duly qualified to transact business
and is in good standing as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
3.2 AUTHORIZATION. All corporate action on the part of Company, its
officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the
performance of all obligations of Company hereunder and the
authorization, issuance and delivery of the Shares has been
taken or will be taken prior to the Closing, and this
Agreement, when executed and delivered will constitute valid
and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other laws of general
application affecting enforcement of creditors' rights
generally, as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable
remedies.
3.3 VALID ISSUANCE OF COMMON STOCK. The Shares that are being
purchased by Purchaser hereunder, when issued, sold and
delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly
authorized and issued, fully paid and nonassessable and free of
restrictions on transfer other than restrictions on transfer
under this Agreement and applicable state and federal
securities laws.
3.4 LEGAL PROCEEDINGS AND ORDERS. There is no action, suit,
proceeding or investigation ("Legal Proceeding") pending or
threatened against the Company that questions the validity of
this Agreement or the right of the Company to enter into this
Agreement or to consummate the transactions contemplated
hereby, nor is the Company aware of any basis for any of the
forgoing. The Company is neither a party nor subject to the
provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality that would
affect the ability of the Company to enter into this Agreement
or to consummate the transactions contemplated hereby.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 36.
37
Purchaser hereby represents, warrants and covenants to the Company as
follows:
4.1 AUTHORIZATION. Purchase has full power and authority to enter
into this Agreement, and this Agreement, when executed and
delivered, will constitute valid and legally binding
obligations of Purchaser, enforceable in accordance with their
terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and any other
laws of general application affecting enforcement of creditors'
rights generally, and as limited by laws relating to the
availability of a specific performance, injunctive relief or
other equitable remedies.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Purchaser in reliance upon Purchaser's representation to the
Company, which by Purchaser's execution of this Agreement
Purchaser hereby confirms, that the Shares to be purchased by
Purchaser will be acquired for investment for Purchaser's own
account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof. Purchaser has no
present intention of selling, granting any participation in or
otherwise distributing the same. By executing this Agreement,
Purchaser further represents that Purchaser does not presently
have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the
Shares and Purchaser has not been formed for the specific
purpose of acquiring the Shares.
4.3 RECEIPT OF INFORMATION. Purchaser has had an opportunity to
discuss the Company's business, management and financial
affairs and the terms and conditions of the offering of the
Shares with the Company's management and has had an opportunity
to review the Company's facilities. Purchaser has also had an
opportunity to ask questions of and receive answers from the
Company regarding the terms and conditions of its investment.
Purchaser understands that such discussions, as well as the
written information issued by the Company, were intended to
describe the aspects of the Company's business which it
believes to be material.
4.4 RESTRICTED SECURITIES. Purchaser understands that the Shares
have not been, and will not be, registered under the Securities
Act of 1933, as amended (the "Securities Act"), by reason of a
specific exemption from the registration provisions of the
Securities Act, which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of
Purchaser's representations as expressed herein. Purchaser
understands that the Shares are "restricted securities" under
applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares
indefinitely unless they are registered with the Securities and
Exchange Commission and qualified by state authorities, or an
exemption from such registration and qualification requirements
is available. Purchaser further acknowledges that if an
exemption from registration or qualification is available, it
may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for
the Shares, and on requirements relating to the Company which
are outside of Purchaser's control, and which the Company is
under no obligation and may not be able to satisfy.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 37.
38
4.5 LEGENDS. Purchaser understands that the Shares and any
securities issued in respect of or exchange for the Shares, may
bear one or all of the following legends:
(a) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by
the certificate so legended.
4.6 ACCREDITED INVESTOR. Purchaser is either (a) an accredited
investor as defined in Rule 501(a) of Regulation D promulgated
under the Act or (b) not an accredited investor and neither
such Investor nor any beneficiary of any trust or any
investment client for whose account such Investor is purchasing
is a citizen or resident of the United States or Canada, or any
state, territory or possession thereof, including but not
limited to any estate of any such person, or any corporation,
partnership, trust or other entity created or existing under
the laws thereof, or any entity controlled or owned by any of
the foregoing (a "U.S. Person").
INVESTMENT EXPERIENCE. Purchaser is experienced in evaluating and
investing in private placement transactions of securities of companies in a
similar stage of development and acknowledges that Purchaser is able to fend for
himself, herself or itself, can bear the economic risk of such investment and
has such knowledge and experience in financial and business matters that
Purchaser is capable of evaluating the merits and risks of the investment in the
Shares.
FURTHER REPRESENTATION BY FOREIGN INVESTORS. If Purchaser is not a U.S.
Person, Purchaser hereby represents that Purchaser is satisfied as to the full
observance of the laws of Purchaser's jurisdiction in connection with any
invitation to subscribe for the Shares or any use of this Agreement, including
(i) the legal requirements of Purchaser's jurisdiction for the purchase of the
Shares, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained and (iv)
the income tax and other tax consequences, if any, which may be relevant to the
purchase, holding, redemption, sale or transfer of the Shares. Purchaser's
subscription and payment for, and Purchaser's continued beneficial ownership of,
the Shares will not violate any applicable securities or other laws of
Purchaser's jurisdiction.
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATION OF PURCHASER TO CLOSE
The obligation of Purchaser to purchase the Shares and otherwise
consummate the transactions that are contemplated by this Agreement is subject
to the satisfaction, as of the Closing Date, of the following conditions (any of
which may be waived by Purchaser in whole or in part):
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company set forth in Section 3 shall be
accurate and true in all material respects on and as of the
Closing Date.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 38.
39
5.2 PERFORMANCE. All of the covenants and obligations that the
Company is required to perform or to comply with pursuant to
this Agreement and the license agreement between Lynx and
Takara as of November 2, at or prior to the Closing, must have
been duly performed and complied with in all material respects.
5.3 SHARES AVAILABLE. The Company shall have available under its
Amended and Restated Certificate of Incorporation sufficient
authorized shares of capital stock to issue and sell the Shares
to Purchaser.
SECTION 6. CONDITIONS TO OBLIGATION OF THE COMPANY TO CLOSE
The obligation of the Company to cause the Shares to be sold to
Purchaser and otherwise consummate the transactions that are contemplated by
this Agreement is subject to the satisfaction, as of the Closing Date, of the
following conditions (any of which may be waived by Company in whole or in
part):
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Purchaser set forth in Section 4 shall be
accurate and true in all material respects on and as of the
Closing Date.
6.2 PERFORMANCE. All of the covenants and obligations that
Purchaser is required to perform or to comply with pursuant to
this Agreement, at or prior to the Closing, must have been duly
performed and complied with in all material respects.
6.3 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation
of the Purchase shall have been issued by any court of
competent jurisdiction and remain in effect, and there shall
not be any law, rule, regulation, order, judgment or decree
enacted or deemed applicable to the Purchase that makes
consummation of the Purchase illegal.
6.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection
with the lawful issuance and sale of the Shares pursuant to
this Agreement shall be duly obtained and effective as of the
Closing.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 TIME OF ESSENCE. Time is of the essence of this Agreement.
7.2 FURTHER ACTIONS. The Company shall execute such agreements and
other documents, and shall take such other actions, as
Purchaser may reasonably request (prior to, at or after the
Closing) for the purpose of ensuring that the transactions
contemplated by this Agreement are carried out in full
compliance with the provisions of all applicable laws and
regulations.
7.3 PUBLICITY. No press release, publicity, disclosure or notice to
any Person concerning any of the transactions contemplated by
this Agreement shall be issued, given, made or otherwise
disseminated at any time (whether prior to, at or after the
Closing) without the prior written approval of the other party.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 39.
40
7.4 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of California as such laws are applied to agreements
between California residents entered into and performed
entirely in California.
7.5 VENUE AND JURISDICTION. If any legal proceeding or other legal
action relating to this Agreement is brought or otherwise
initiated, the venue therefor shall be in California, which
shall be deemed to be a convenient forum. Purchaser and the
Company hereby expressly and irrevocably consent and submit to
the jurisdiction of the courts in California.
7.6 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed effectively
given: (a) upon personal delivery to the party to be notified,
(b) when sent by confirmed telex or facsimile if sent during
normal business hours, if not, then on the next business day,
(c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid or (d) one day
after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of
receipt. All communications shall be sent to the addresses set
forth on the signature page hereto or at such other address as
the Company or Purchaser may designate by ten days advance
written notice to the other parties thereto.
7.7 FEES AND EXPENSES. All fees, costs and expenses incurred in
connection with the transactions contemplated by this Agreement
shall be paid by the party incurring such fees, costs and
expenses.
7.8 ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the
prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing
any right of such prevailing party under or with respect to
this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall
include, without limitation, all fees, costs and expenses of
appeals.
7.9 TABLE OF CONTENTS AND HEADINGS. The table of contents of this
Agreement and the Section headings contained in this Agreement
are for convenience of reference only, shall not be deemed to
be a part of this Agreement and shall not be referred to in
connection with the construction or interpretation of this
Agreement.
7.10 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the respective successors, assigns, heirs,
executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each of the
parties hereto. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
7.11 SEVERABILITY. In the event that any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 40.
41
7.12 ENTIRE AGREEMENT. This Agreement and the License Agreement
referred to herein and therein constitute the entire agreement
between the parties hereto pertaining to the subject matter
hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.
This Agreement and the License Agreement are intended to define
the full extent of the legally enforceable undertakings of the
Company and Purchaser, and no promise or representation,
whether written or oral, which is not set forth explicitly in
this Agreement or the License Agreement is intended by either
party to be legally binding.
7.13 WAIVER. No failure on the part of either party hereto to
exercise any power, right, privilege or remedy under this
Agreement, and no delay on the part of either party hereto in
exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver thereof; and no single or
partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any
other power, right, privilege or remedy.
7.14 AMENDMENTS. This Agreement may not be amended, modified,
altered or supplemented except by means of a written instrument
executed on behalf of both Purchaser and the Company.
7.15 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY
PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION
IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION
BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
7.16 CONFIDENTIALITY. Each party hereto agrees that, except with the
prior written permission of the other party, it shall at all
times keep confidential and not in any way divulge, furnish or
make accessible to anyone any confidential information,
knowledge or data concerning or relating to the business or
financial affairs of the other parties to which such party has
been or shall become privy by reason of this Agreement,
discussions or negotiations relating to this Agreement, the
performance of its obligations hereunder or the ownership of
the Shares purchased hereunder. The provisions of this Section
7.16 shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed by
the parties hereto with respect to the transactions
contemplated hereby.
7.17 INTERPRETATION OF AGREEMENT.
(a) Each party hereto acknowledges that it has participated in the
drafting of this Agreement, and any applicable rule of
construction to the effect that ambiguities are to be resolved
against the drafting party shall not be applied in connection
with the construction or interpretation of this Agreement.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 41.
42
(b) Whenever required by the context hereof, the singular number
shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; and the neuter
gender shall include the masculine and feminine genders.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of
limitation, and shall be deemed to be followed by the words
"without limitation."
(d) References herein to "Sections" and "Schedules" are intended to
refer to Sections of and Schedules to this Agreement.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 42.
43
IN WITNESS WHEREOF, each of the parties hereto has caused this Common
Stock Purchase Agreement to be executed and delivered by its duly authorized
officer on the date set forth above.
ACCEPTED AND ACKNOWLEDGED BY PURCHASER:
TAKARA SHUZO CO., LTD.
By:
-----------------------------------------
Printed Name:
-------------------------------
Title:
--------------------------------------
Address:
------------------------------------
---------------------------------------------
ACCEPTED AND ACKNOWLEDGED BY THE COMPANY:
LYNX THERAPEUTICS, INC.
By:
-----------------------------------------
Printed Name:
-------------------------------
Title:
--------------------------------------
Address:
------------------------------------
---------------------------------------------
---------------------------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Page 43.
EX-23.1
6
f75847a2ex23-1.txt
EXHIBIT 23.1
1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-39171 and No. 333-62890) and the Registration
Statements on Form S-8 (No. 333-59163, No. 333-59157, No. 333-21997, No.
333-86634, No. 333-94872, and No. 333-63804) pertaining to the 1992 Stock Option
Plan and 1998 Employee Stock Purchase Plan of Lynx Therapeutics, Inc. of our
report dated February 2, 2001, with respect to the consolidated financial
statements of Lynx Therapeutics, Inc. included in its Annual Report (Form
10-K/A) for the year ended December 31, 2000.
/s/ ERNST & YOUNG LLP
-------------------------------
Palo Alto, California
September 19, 2001
56