<PAGE>
As filed with the Securities and Exchange Commission on April 3, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
--------------
ILLUMINA, INC.
(Exact name of Registrant as specified in its charter)
--------------
<TABLE>
<S> <C> <C>
California 3826 33-0804655
(before reincorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C> <C>
Delaware
(after reincorporation)
(State or other jurisdiction of
incorporation or organization)
</TABLE>
9390 Towne Centre Drive, Suite 200
San Diego, CA 92121
(858) 587-4290
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
Jay T. Flatley
President and Chief Executive Officer
9390 Towne Centre Drive, Suite 200
San Diego, CA 92121
(858) 587-4290
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Please send copies of all communications to:
<TABLE>
<S> <C>
Michael J. O'Donnell, Esq. Edwin D. Williamson, Esq.
Martin J. Waters III, Esq. Sullivan & Cromwell
Wilson Sonsini Goodrich & Rosati 1701 Pennsylvania Avenue, N.W.
Professional Corporation Washington, D.C. 20006
650 Page Mill Road (202) 956-7500
Palo Alto, CA 94304
(650) 493-9300
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
Title of Each Class of
Securities to be Proposed Maximum Aggregate
Registered Offering Price(1) Amount of Registration Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Common stock, $0.01 par
value................. $100,000,000 $26,400
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated April 3, 2000.
Shares
Illumina, Inc.
[LOGO] Common Stock
-----------
This is an initial public offering of shares of common stock of Illumina,
Inc. All of the shares of common stock are being sold by Illumina.
Prior to this offering, there has been no market for the common stock. It is
currently estimated that the initial public offering price per share will be
between $ and $ . Application has been made for quotation of the common
stock on the Nasdaq National Market under the symbol "ILMN".
See "Risk Factors" beginning on page 8 to read about certain factors you
should consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to Illumina.......................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from Illumina at the initial public offering price less the underwriting
discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
Goldman, Sachs & Co.
Chase H&Q
SG Cowen
-----------
Prospectus dated , 2000.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and our financial statements and notes to
those statements appearing elsewhere in this prospectus.
Our Business
Overview
We are a leading developer of tools for the large-scale analysis of genetic
variation and function. Understanding genetic variation and function is
critical to the development of personalized medicine, a key goal of genomics.
Our tools will provide information that could be used to improve drugs and
therapies, customize diagnoses and treatment, and cure disease.
Completion of the sequencing of the human genome is imminent, and as a
result, demand is increasing for tools that can assist researchers in
processing the billions of tests necessary to convert raw genetic data into
medically valuable information. This requires functional analysis of highly
complex biological systems, involving a scale of experimentation not practical
using currently available tools and technologies. Using our technologies, we
are developing a comprehensive line of products that can address the scale of
experimentation and the breadth of functional analysis required to achieve the
goals of molecular medicine.
Our patented BeadArray technology uses fiber optics to achieve a level of
array miniaturization that allows for a new scale of experimentation. An array
is a collection of miniaturized test sites arranged on a surface that permits
many tests, or assays, to be performed in parallel. By arranging our arrays in
a pattern that matches the wells of standard microtiter plates, we can
simultaneously process up to 3 million assays, a throughput significantly
beyond the capability of any technology known to us. We assemble our arrays
using relatively inexpensive raw materials. Our proprietary manufacturing
process allows us to easily adapt the arrays to a broad range of applications.
These advances allow us to create next-generation arrays with a unique
combination of high throughput, cost effectiveness and flexibility. In
addition, our complementary Oligator technology permits parallel synthesis of
the millions of different pieces of DNA necessary to perform large-scale
genetic analysis on arrays.
We intend to provide both products and services that utilize our proprietary
technologies. Our first products, developed in partnership with PE Biosystems,
will include disposable BeadArray cassettes, reagent kits for analyzing
variation in genetic sequences, and instruments that automatically read data
from the BeadArray cassettes. An array cassette is a collection of individual
arrays arranged in a pattern, and a reagent kit is a set of chemicals used for
performing specific analyses. We also plan to commercialize services for the
analysis of genetic variation.
3
<PAGE>
Our Market Opportunity
We believe that advances in genomics will underpin the future of medicine.
To date, billions of dollars have been spent on the sequencing of the human
genome. We anticipate that during the next decade, a substantially greater
amount will be spent on efforts to understand the function of the genome and to
apply this information to medicine and related industries. A significant
portion of these funds will likely be used to purchase tools for the analysis
of genetic variation and function. We are initially focusing on the key
techniques for performing these analyses:
.SNP genotyping - a method of determining variation in genetic sequences;
. gene expression profiling - the analysis of which genes are active in a
particular cell or group of cells; and
. proteomics - the process of determining which proteins are present in
cells and how they interact.
The complexity of biology, with combinations of over one hundred thousand
genes and potentially millions of genetic variations, will require an
unprecedented level of experimentation using these techniques. Unlocking the
full potential of the markets for these techniques requires a new generation of
high-throughput, cost-effective technologies.
We believe our technologies will have broad applicability in a variety of
other high-growth markets, such as high-throughput screening of pharmaceutical
candidates and chemical detection. One of our initial collaborations outside of
healthcare is with The Dow Chemical Company.
Our Technologies
Our proprietary BeadArray technology combines fiber optic bundles and
specially prepared beads that self-assemble into an array. Each fiber optic
bundle contains thousands to millions of individual fibers depending on the
diameter of the bundle. In a separate process, we create sensors by affixing a
specific type of molecule to each of the billions of microscopic beads in a
given batch. The particular molecules on a bead define that bead's function as
a sensor. We combine batches of beads coated with specific molecules to form a
pool specific to the type of array we intend to create.
To form an array, we typically dip each fiber optic bundle into a pool of
coated beads. The coated beads are drawn into the wells, one bead per well, on
the end of each fiber in the bundle. The tens of thousands of beads at the end
of the fiber optic bundle comprise our BeadArray. One may perform an experiment
by then dipping the BeadArray into a prepared sample. The molecules in the
sample bind to their matching molecules on the coated bead. Since each bead
performs its own assay, we are able to make tens of thousands of quantitative
measurements simultaneously on each sample.
Using our BeadArray technology, we have addressed the limitations of the
tools for genetic analysis. We achieve high throughput with a high density of
test sites per array and our ability to format arrays in a pattern arranged to
match the wells of standard microtiter plates. We maximize cost effectiveness
by reducing consumption of expensive reagents and valuable samples, and through
the low manufacturing cost associated with our BeadArray technology. Our
ability to vary the size, shape and format of the fiber optic bundles and to
create specific beads for various applications gives us the flexibility to
address multiple markets and market segments.
Our proprietary Oligator technology complements our BeadArray technology.
The Oligator synthesizes in parallel many different short segments of DNA to
meet the requirements of large-scale genomics applications. We believe that our
Oligator technology is substantially more cost effective and provides higher
throughput than available commercial alternatives.
4
<PAGE>
Our Strategy
Our goal is to make our BeadArray platform the industry standard for
products and services utilizing array technologies. We plan to achieve this by:
. focusing on emerging high-growth markets;
. rapidly commercializing our BeadArray technology for SNP genotyping;
. partnering with multiple companies to expand our market opportunity;
. expanding our technologies into multiple product lines; and
. strengthening our technological leadership.
Company Information
We received no revenues during the period from our inception on April 28,
1998 through December 31, 1998 and approximately $0.5 million in revenues
during the year ended December 31, 1999. Our net losses were approximately $1.1
million and $5.5 million, respectively, during the same periods. As of December
31, 1999, our total accumulated deficit was $6.7 million.
We were incorporated in California in April 1998. We intend to reincorporate
in Delaware prior to the completion of this offering. Our principal executive
offices are located at 9390 Towne Centre Drive, Suite 200, San Diego,
California 92121. Our telephone number is (858) 587-4290.
Illumina, BeadArray, Array of Arrays and Oligator are trademarks of our
company. This prospectus also contains brand names, trademarks or service marks
of companies other than Illumina, and these brand names, trademarks and service
marks are the property of their respective holders.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by Illumina..... shares
Shares to be outstanding after
the offering.................. shares
Proposed Nasdaq National Market
symbol........................ ILMN
Use of proceeds................ For general corporate purposes, including
commercialization of our BeadArray and Oligator
technologies, research and development, working
capital, funding our operating losses, capital
expenditures and potential acquisitions.
</TABLE>
The above information is based on 24,921,785 shares outstanding as of March
15, 2000 and excludes:
. 772,295 shares issuable upon exercise of options then outstanding at a
weighted average exercise price of $0.17 per share as of March 15, 2000;
. 43,183 shares issuable upon exercise of warrants then outstanding at a
weighted average exercise price of $0.926 per share as of March 15, 2000;
and
. a total of 1,801,884 shares available for future issuance under our
various stock plans.
Unless otherwise noted, this prospectus assumes:
. our reincorporation in Delaware prior to this offering;
. the automatic conversion of our outstanding convertible preferred stock
into common stock upon the closing of this offering;
. the filing of our amended and restated certificate of incorporation
authorizing a class of 10,000,000 shares of undesignated preferred stock
prior to the closing of this offering; and
. no exercise by the underwriters of their option to purchase additional
shares of our common stock in the offering.
6
<PAGE>
Summary Financial Information
(in thousands, except per share data)
The following tables summarize our financial data for the periods presented.
The pro forma share data in the statement of operations data assumes the
conversion of all of our outstanding preferred stock into 18,836,297 shares of
common stock upon the closing of this offering. The as adjusted balance sheet
data reflects the sale of shares of our common stock in the offering at an
estimated price of $ per share, less estimated expenses payable by us and
the underwriting discount. You should read the following financial information
together with the "Selected Financial Information" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
April 28, 1998
(inception)
through Year ended
December 31, December 31,
1998 1999
-------------- ------------
<S> <C> <C>
Statement of Operations Data:
Total revenue....................................... $ -- $ 474
Total operating expenses............................ 1,194 6,355
------- -------
Operating loss...................................... (1,194) (5,881)
------- -------
Net loss............................................ (1,146) (5,518)
======= =======
Historical net loss per share, basic and diluted.... $ (1.71) $ (3.91)
======= =======
Historical weighted average shares outstanding...... 669 1,410
Pro forma net loss per share........................ $ (0.40)
=======
Pro forma weighted average shares outstanding....... 13,697
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1999
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments........... $33,088 $
Working capital............................................. 32,881
Total assets................................................ 33,895
Deferred revenue............................................ 1,250
Stockholders' equity........................................ 32,032
</TABLE>
7
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and all of the information
contained in this prospectus before deciding whether to purchase our common
stock. If any of the following risks actually occur, our business, financial
condition and results of operations would suffer. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment in our common stock.
We Have Generated No Revenue from Product Sales to Date. We Expect to Continue
to Incur Net Losses and We May Not Achieve or Maintain Profitability.
Since inception, we have recognized no revenue from product sales. We have
incurred net losses since our inception. At December 31, 1999, our accumulated
deficit was approximately $6.7 million. We expect to have increasing net losses
and negative cash flow in the foreseeable future. The magnitude of our net
losses will depend, in part, on the rate of growth, if any, of our revenues and
on the level of our expenses. To date, we have derived all of our revenues from
grants and partnerships and plan to continue to do so in the foreseeable
future, although future revenues from grants and partnerships are uncertain. We
expect to incur significant expenses for research and development, for
developing our manufacturing capabilities and for efforts to commercialize our
products. As a result, we expect that our operating expenses will increase
significantly in the near term and, consequently, we will need to generate
significant additional revenues to achieve profitability. Even if we achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.
Our Success Depends Upon The Increasing Availability of Genetic Information and
The Continued Emergence and Growth of Markets For Analysis of Genetic Variation
and Function.
We design our products primarily for applications in the life sciences and
pharmaceutical industries. The usefulness of our technology depends in part
upon the availability of genetic data. We are initially focusing on certain
markets for analysis of genetic variation and function, namely SNP genotyping,
gene expression profiling and proteomics. These markets are new and emerging,
and they may not develop as we anticipate, or reach their full potential. Other
methods of analysis of genetic variation and function may emerge and displace
the methods we are developing. Also, researchers may not seek or be able to
convert raw genetic data into medically valuable information through the
analysis of genetic variation and function. If genetic data is not available or
if our target markets do not emerge in a timely manner, or at all, demand for
our products will not develop as we expect, and we may never become profitable.
Our Success Depends on Market Acceptance of Our New and Unproven Technology.
Historically, life sciences and pharmaceutical companies have analyzed
genetic variation and function using a variety of technologies. Compared to the
existing technologies, our technologies are new and unproven. In order to be
successful, our products must meet the commercial requirements of the life
sciences and pharmaceutical industries as tools for the large-scale analysis of
genetic variation and function. Market acceptance will depend on many factors,
including:
. our ability and the ability of our collaborative partners to demonstrate
to potential customers the benefits and cost effectiveness of our
products and services relative to others available in the market;
. the extent of our partners' efforts to market, sell and distribute such
products;
8
<PAGE>
. our or our partners' ability to manufacture products in sufficient
quantities with acceptable quality and reliability and at an acceptable
cost; and
. the willingness and ability of customers to adopt new technologies
requiring capital investments.
Because of these and other factors, our products may not gain market
acceptance. If our BeadArray technology does not become widely used in the life
sciences and pharmaceutical industries, demand for our products will not
develop as expected and it is unlikely that we ever will become profitable.
We Are an Early Stage Company Deploying Unproven Technologies. If We Do Not
Develop Commercially Successful Products, We May Be Forced to Cease Operations.
We currently have no commercially available products. Our technologies are
in the early stages of development. You should evaluate us in light of the
uncertainties and complexities affecting an early stage company developing
tools for the life sciences and pharmaceutical industries.
We may not be successful in the commercial development of products. Prior to
their commercialization, products will require significant research and
development and investment, including testing, to demonstrate their technical
benefits and cost effectiveness. We have not proven our ability to develop and
commercialize products. We must conduct a substantial amount of additional
research and development before any of our products will be ready for sale.
Problems frequently encountered in connection with the development of
commercial products using new and unproven technologies might limit our ability
to develop and commercialize our products.
Commercialization of Our Technologies Depends On Partnerships and
Collaborations with Other Companies. If Our Current Partnership and
Collaborations Are Not Successful, or If We Are Not Able to Enter Into
Additional Partnerships and Collaborations in the Future, We May Not Be Able to
Develop Our Technologies or Products.
Since we currently do not possess all of the resources necessary to develop
and commercialize products that may result from our technologies, we will need
either to develop a sales, marketing and support group with relevant experience
or make appropriate arrangements with strategic partners to market and sell our
products. We have chosen to enter into arrangements to develop and
commercialize our initial products. We have entered into an agreement with PE
Biosystems to gain access to their proprietary chemistry format for use with
the initial products of the partnership. PE Biosystems also will fund, in part,
the development of these products. Our partnership agreement provides that
PE Biosystems will develop the detection instrument and reagent kits required
for use with these products, and will provide sales and marketing support for
the products. If our partnership with PE Biosystems is not successful, or if PE
Biosystems elects to terminate our partnership, we may not be able to develop
or successfully commercialize our initial products on a timely basis, or at
all. We intend to rely on other corporate partners and collaborators to develop
other chemistry formats and to gain access to genetic data for use with our
technologies. If we do not enter into additional partnership agreements, or if
such agreements are not successful, our ability to develop and commercialize
products will be impacted negatively and our revenues will decline.
We have limited or no control over the resources that any partner or
collaborator may devote to our products. Any of our present or future partners
or collaborators may not perform their obligations as expected. These partners
or collaborators may breach or terminate their agreements with us or otherwise
fail to meet their obligations or perform their collaborative activities
successfully and in a timely manner. Further, any of our partners or
collaborators may elect not to develop products arising
9
<PAGE>
out of our partnerships or collaborations or devote sufficient resources to the
development, manufacture or commercialization of these products. If any of
these events occur, we may not be able to develop our technologies or
commercialize our products and our ability to generate revenues will decrease.
We Have Limited Manufacturing Experience. If We Are Unable to Find Third-Party
Manufacturers to Manufacture Our Products or Unless We Develop Such Product
Capability, We May Not Be Able to Launch Our Products in a Timely Manner, or at
All.
We have no experience manufacturing our products in the volumes that will be
necessary for us to achieve significant commercial sales. To date, we have
limited our manufacturing activities to the manufacturing of prototype systems
for testing purposes and for internal use by our collaborative partners.
The nature of our products requires customized components that currently are
available from a limited number of sources. For example, we currently obtain
the fiber optic bundles included in our products from a single source. If we
are unable to secure a sufficient supply of fiber optic bundles or other
product components, we will be unable to meet future demand for our products.
We will need to enter into contractual relationships with manufacturers for
commercial scale production of our products, or develop such capabilities, and
we cannot assure you that we will be able to do so on a timely basis, for
sufficient quantities or on commercially reasonable terms. Accordingly, we may
not be able to establish or maintain reliable, high-volume manufacturing at
commercially reasonable costs.
We May Encounter Difficulties in Managing Our Growth That Could Increase Our
Losses.
We have experienced a period of rapid and substantial growth that has
strained our human and capital resources. If our growth continues and we are
unable to manage it effectively, our business will suffer and our stock price
could decline. The number of our employees increased from nine at December 31,
1998 to 50 at March 15, 2000. The need to effectively manage our operations and
growth requires us to continue to expend funds to improve our operational,
financial and management controls, reporting systems and procedures, and to
attract and retain sufficient numbers of talented employees. If we are unable
to successfully implement improvements to our management information and
control systems in an efficient or timely manner, or if we encounter
deficiencies in existing systems and controls, management may receive
inadequate information to manage our day-to-day operations.
We Expect Intense Competition in Our Target Markets, Which Could Render Our
Products Obsolete or Substantially Limit the Volume of Products That We Sell.
This Would Limit Our Ability to Compete and Achieve Profitability.
We compete with life sciences companies that design, manufacture and market
instruments for analysis of genetic variation and function and other
applications using technologies such as two-dimensional electrophoresis,
capillary electrophoresis, mass spectrometry, flow cytometry, microfluidics,
and mechanically deposited, inkjet and photolithographic arrays. We anticipate
that we will face increased competition in the future as new companies enter
the market with new technologies. The markets for our products are
characterized by rapidly changing technology, evolving industry standards,
changes in customer needs, emerging competition and new product introductions.
One or more of our competitors may render our technology obsolete or
uneconomical. Many of our competitors have greater financial and personnel
resources and more experience in research and development than we have.
Furthermore, we cannot be certain that the life sciences and pharmaceutical
companies, which are our potential customers and strategic partners, will not
develop competing products.
10
<PAGE>
Our Technologies Can Be Applied to Many Different Industries, and We May Fail
to Focus on the Most Profitable Areas.
Our technologies may be applicable to numerous, diverse industries. However,
we have limited financial and managerial resources. Therefore, we will be
required to focus on product candidates in selected industries and to forego
efforts with regard to other products and industries. Our decisions may not
produce viable commercial products and may divert our resources from more
profitable market opportunities.
Any Inability to Adequately Protect Our Proprietary Technologies Could Harm Our
Competitive Position.
Our success will depend in part on our ability to obtain patents and
maintain adequate protection of our intellectual property in the United States
and other countries. If we do not protect our intellectual property adequately,
competitors may be able to use our technologies and thereby erode our
competitive advantage. The laws of some foreign countries do not protect
proprietary rights to the same extent as the laws of the United States, and
many companies have encountered significant problems in protecting their
proprietary rights abroad. These problems can be caused by the absence of rules
and methods for defending intellectual property rights.
The patent positions of companies developing tools for the life sciences and
pharmaceutical industries, including our patent position, generally are
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. We will
apply for patents covering our technologies and products, as we deem
appropriate. However, our applications may be challenged and may not 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. There also is risk that others may
independently develop similar or alternative technologies or design around our
patented technologies. In addition, others may challenge or invalidate our
patents, or our patents may fail to provide us with any competitive advantage.
We also rely upon trade secret protection for our confidential and
proprietary information. We have taken security measures to protect our
proprietary information. These measures, however, may not provide adequate
protection for our trade secrets or other proprietary information. We seek to
protect our proprietary information by entering into confidentiality agreements
with employees, collaborators and consultants. Nevertheless, employees,
collaborators or consultants may still disclose our proprietary information,
and we may not be able to meaningfully protect our trade secrets. In addition,
others may independently develop substantially equivalent proprietary
information or techniques or otherwise gain access to our trade secrets.
Litigation or Other Proceedings or Third Party Claims of Intellectual Property
Infringement Could Require Us to Spend Time and Money and Could Shut Down Some
of Our Operations.
Our commercial success depends in part on our non-infringement of the
patents or proprietary rights of third parties. Third parties may assert that
we are employing their proprietary technology without authorization. In
addition, third parties may obtain patents in the future and claim that use of
our technologies infringes these patents. We could incur substantial costs and
divert the attention of our management and technical personnel in defending
ourselves against any of these claims. We may incur the same liabilities in
enforcing our patents against others. Furthermore, parties making claims
against us may be able to obtain injunctive or other equitable relief, which
effectively could block our ability to further develop, commercialize and sell
products, and could result in the award of substantial damages against us. In
the event of a successful claim of infringement against us, we
11
<PAGE>
may be required to pay damages and obtain one or more licenses from third
parties. We may not be able to obtain such licenses at a reasonable cost, or at
all. In that event, we could encounter delays in product introductions while we
attempt to develop alternative methods or products. Defense of any lawsuit or
failure to obtain any of these licenses could prevent us from commercializing
available products.
If We Lose Our Key Personnel or Are Unable to Attract and Retain Additional
Personnel, We May Be Unable to Achieve Our Goals.
We are highly dependent on the principal members of our management and
scientific staff. The loss of their services or the inability to recruit
qualified management and scientific personnel might adversely impact our
ability to achieve our objectives. We currently do not have sufficient
executive management personnel to fully execute our business plan. There
currently is a shortage of skilled executives, which is likely to continue. As
a result, competition for skilled personnel is intense, and the turnover rate
can be high. Although we believe we will be successful in attracting and
retaining qualified personnel, competition for experienced scientists from
numerous companies and academic and other research institutions may limit our
ability to do so on acceptable terms. Failure to attract and retain personnel
would prevent us from pursuing collaborations or developing our products or
technologies.
Our planned activities will require additional expertise in specific
industries and areas applicable to the products developed through our
technologies. Thus, we will need to add new personnel, including management,
and develop the expertise of existing management. The failure to do so could
impair the growth of our business.
Our Collaborations With Outside Scientists May Be Subject to Change, Which
Could Limit Our Access to Their Expertise.
We work with scientific advisors and collaborators at academic and other
institutions. These scientists are not our employees and may have other
commitments that could limit their availability. Although our scientific
advisors generally agree not to do competing work, if a conflict of interest
between their work for us and their work for another entity arises, we may lose
their services. Although our scientific advisors and collaborators sign
agreements not to disclose our confidential information, it is possible that
certain of our valuable proprietary information could become publicly known
through them.
We May Need Additional Capital in the Future. If Additional Capital is Not
Available On Acceptable Terms, We May Have to Curtail or Cease Operations.
Our future capital requirements will be substantial and will depend on many
factors including payments received under collaborative agreements and
government grants, the progress and scope of our collaborative and independent
research and development projects, and the filing, prosecution and enforcement
of patent claims. Changes also may occur that would require our available
capital resources to be consumed significantly sooner than we expect.
We expect that the proceeds from this offering, combined with our current
cash and cash equivalents, investments and funding from existing strategic
alliances and grants, will be sufficient to fund our anticipated operating
needs for at least the next 24 months. If our capital resources are
insufficient to meet future capital requirements, we may have to raise
additional funds to continue the development of our technologies and complete
the commercialization of products, if any, resulting from our technologies. We
may be unable to raise sufficient additional capital. If we fail to do so, we
may have to curtail or cease operations.
12
<PAGE>
Some of Our Programs Depend on Government Grants, Which May Be Withdrawn. The
Government Has License Rights to Technology Developed With Its Funds.
We have received and expect to continue to receive funds under various U.S.
government research and technology development programs. The government may
significantly reduce funding in the future for a number of reasons. For
example, some programs are subject to yearly appropriations by the U.S.
Congress. Additionally, we may not receive funds under existing or future
grants because of budgeting constraints of the federal agencies administering
the programs. There is no assurance that we will receive the entire funding
under our existing or future grants.
Our grants provide the U.S. government a non-exclusive, non-transferable
paid up license to practice, for or on behalf of the United States, inventions
made with federal funds. If the government exercises these rights, it could use
our inventions and our potential market could be reduced.
Management May Invest or Spend the Proceeds of This Offering in Ways With Which
You May Not Agree and in Ways That May Not Yield a Return.
Management will have broad discretion over the use of proceeds from this
offering. Stockholders may not agree with management's decisions, and our use
of the proceeds may not yield a significant return, or any return at all. We
intend to use a majority of the proceeds from this offering for research and
development, working capital and other general corporate purposes and to
finance potential acquisitions. Because of the number and variability of
factors that determine our use of the net proceeds from this offering, we
cannot assure you that our actual use will not vary substantially from our
currently planned uses. Initially, we intend to invest the net proceeds from
this offering in income producing, investment grade securities.
We Expect that Our Quarterly Results of Operations Will Fluctuate. This
Fluctuation Could Cause Our Stock Price to Decline.
Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. These fluctuations could cause our stock price to
fluctuate significantly or decline. Some of the factors which could cause our
operating results to fluctuate include:
. failure to launch new products on schedule;
. acceptance of our technologies and products;
. the introduction of new technologies or products by our competitors;
. our ability to enter into new partnerships and collaborations;
. the termination or non-renewal of existing partnerships and
collaborations; and
. general and industry-specific economic conditions that may affect both
our and our collaborators' research and development expenditures.
A large portion of our expenses is relatively fixed, including expenses for
facilities, equipment and personnel. In addition, we expect operating expenses
to increase significantly in 2000. Accordingly, if revenues do not grow as
anticipated, we may not be able to correspondingly reduce our operating
expenses. Failure to achieve anticipated levels of revenues therefore could
significantly harm our operating results for a particular fiscal period.
Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price probably would decline.
13
<PAGE>
If We Engage in Any Acquisition, We Will Incur a Variety of Costs, and May
Never Realize the Anticipated Benefits of the Acquisition.
If appropriate opportunities become available, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions. If we do undertake any acquisition, the
process of integrating an acquired business, technology, service or product may
result in unforeseen operating difficulties and expenditures and may absorb
significant management attention that would otherwise be available for ongoing
development of our business. Moreover, we may fail to realize the anticipated
benefits of any acquisition. Future acquisitions could reduce your ownership in
Illumina and could cause us to incur debt, expose us to future liabilities and
result in amortization expenses related to goodwill and other intangible
assets.
In addition, recent proposed changes in the Financial Accounting Standards
Board rules for merger accounting may affect the cost of making acquisitions or
of being acquired. For example, if these proposed changes become effective, we
likely would have to record goodwill or other intangible assets that we would
amortize to earnings if we merge with another company. Such amortization would
adversely impact our future operating results. In addition, a prospective
acquiror of Illumina might be less inclined to acquire us if they are required
to amortize goodwill or other intangible assets. Further, accounting rules
changes that reduce the availability of immediate write-offs of the value of
in-process research and development in connection with an acquisition could
result in the capitalization and amortization of these amounts, which would
negatively impact our results of operations in future periods.
Our Stock Price Could Be Extremely Volatile. You May Not Be Able to Resell Your
Shares at or Above the Initial Public Offering Price.
Prior to this offering, there has been no public market for shares of our
common stock. An active trading market may not develop or be sustained
following completion of this offering. The initial public offering price for
the shares will be determined by negotiations between us and representatives of
the underwriters. This price may bear no relationship to the price at which our
common stock will trade upon completion of this offering. The stock market has
experienced significant price and volume fluctuations, and the market prices of
technology companies, particularly life sciences companies, have been highly
volatile. You may not be able to resell your shares at or above the initial
public offering price.
In the past, companies that have experienced volatility in the market price
of their stock have been the objects of securities class action litigation. If
we were the object of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.
Future Sales of Our Common Stock May Depress Our Stock Price.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or the perception that these sales could occur. In addition,
these factors could make it more difficult for us to raise funds through future
offerings of common stock. There will be shares of common stock
outstanding immediately after this offering, or shares if the
representatives of the underwriters exercise their over-allotment option in
full. Of these shares, other than the shares sold in the offering, the
following will be available for sale in the public market as follows:
. 235,458 shares will be available for sale 90 days after the date of this
prospectus;
. 15,858,736 shares will be eligible for sale upon expiration of lock-up
agreements 180 days after the date of this prospectus;
14
<PAGE>
. 114,665 shares will be eligible for sale upon exercise of vested options
90 days after the date of this prospectus and an additional 39,497 shares
will be eligible for sale upon the exercise of vested options 180 days
after the date of this prospectus; and
. 8,827,591 shares will be eligible for sale at various times thereafter
upon the expiration of applicable holding periods.
Some of Our Existing Stockholders Can Exert Control Over Us, and May Not Make
Decisions That Are in the Best Interests of All Stockholders.
After this offering, our officers, directors and principal stockholders
(greater than 5% stockholders) together will control approximately % of our
outstanding common stock. As a result, these stockholders, acting together,
would be able to exert significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, this concentration of
ownership may delay or prevent a change of control of our company, even when a
change may be in the best interests of our stockholders. The interests of these
stockholders may not always coincide with our interests as a company or the
interests of other stockholders. Accordingly, these stockholders could cause us
to enter into transactions or agreements that we would not otherwise consider.
Our Operations Must Comply With Environmental Statutes and Regulations, and Any
Failure to Comply Could Result in Extensive Costs Which Would Harm Our
Business.
The manufacture of our products involves the use, transportation, storage
and disposal of hazardous substances and is subject to related environmental
and health and safety statutes and regulations. Although we currently use
fairly small quantities of hazardous substances, as we expand our operations,
the increased use of hazardous substances will lead to additional and more
stringent requirements. This may cause us to incur substantial costs to
maintain compliance with applicable statutes and regulations. In addition, our
failure to comply with laws and regulations and any costs associated with
unexpected and unintended releases of hazardous substances by us into the
environment, or at disposal sites used by us, could expose us to substantial
liability in the form of fines, penalties, remediation costs or other damages,
or could lead to a shut down of our operations. We are not aware of any current
claims associated with our use of hazardous substances. It is our intent to
remain at all times in full compliance with all applicable environmental and
health and safety laws and regulations.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this prospectus. This
prospectus, including the sections entitled "Prospectus Summary", "Risk
Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business", contains forward-looking statements
within the meaning of the federal securities laws. These statements relate to
future events or our future financial performance and involve known and unknown
risks, uncertainties and other factors that may cause our or our industry's
actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance
or achievements expressed or implied by the forward-looking statements. These
risks and other factors include those listed under "Risk Factors" and elsewhere
in this prospectus. In some cases, you can identify forward-looking statements
by terminology such as "may", "will", "should", "expect", "intend", "plan",
"anticipate", "believe", "estimate", "predict", "potential", "continue" or the
negative of these terms or other comparable terminology. Examples of these
forward-looking statements include, but are not limited to, statements
regarding the following: the introduction and development of new products,
product improvements and new services; the applicability and usefulness of our
technologies in various markets and industries; the success of our
technologies; emerging markets in functional genetic analysis, namely SNP
genotyping, gene expression profiling and proteomics, and the future growth of
such markets; demand for increased throughput in genetic analysis; continued
advances in genomics; the potential to derive medically valuable information
from raw genetic data and the further potential to use such information to
improve drugs and therapies, to customize diagnosis and treatment, and cure
disease; potential future partnerships, collaborations and acquisitions; growth
in our research and development, general and administrative expenses; the
proceeds of this offering, combined with our cash, cash equivalents,
investments, and funding through grants and collaborations being sufficient to
fund our anticipated operating needs for the next 24 months; and the lack of a
material impact of the adoption of SFAS No. 133. These statements are only
predictions. In evaluating these statements, you should consider various
factors, including the risks outlined under "Risk Factors." These factors may
cause actual events or our results to differ materially from those expressed or
implied by any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
forward-looking statements. We are under no duty and do not intend to update
any of the forward-looking statements after the date of this prospectus or to
conform our prior statements to actual results.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock that we are selling in this offering will be approximately $ ($
if the underwriters exercise their over-allotment option in full) based on an
assumed public offering price of $ per share and after deducting the
estimated underwriting discount and estimated offering expenses payable by us.
We intend to use the net proceeds of this offering for general corporate
purposes including:
. commercialization of our BeadArray and Oligator technologies;
. research and development;
. working capital;
. funding our operating losses;
. capital expenditures; and
. possible acquisitions.
The amounts that we actually expend for working capital purposes will vary
significantly depending on a number of factors, including future revenue
growth, if any, and the amount of cash we generate from operations. As a
result, we will retain broad discretion in the allocation of the net proceeds
of this offering. In addition, we may use a portion of the net proceeds for
further development of our products through acquisitions of complementary
businesses, products and technologies. However, we have no present commitments
or agreements with respect to any acquisitions. Initially, we intend to invest
the net proceeds in income producing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain any future earnings for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of December 31,
1999 and as adjusted to reflect the automatic conversion of our outstanding
preferred stock into 18,836,297 shares of common stock upon the closing of this
offering and the sale of shares of our common stock at an estimated price
of $ per share, less estimated expenses payable by us and the underwriting
discount. You should read this table in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the notes to those statements included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Actual As Adjusted
------- -----------
(in thousands,
except share data)
<S> <C> <C>
Stockholders' equity:
Convertible preferred stock, no par value: authorized--
50,000,000 shares actual and 10,000,000 shares, $0.01
par value, as adjusted; issued and outstanding--
18,836,297 shares actual and none as adjusted.......... $37,398 $
Common stock, $0.01 par value: authorized--60,000,000
shares actual and 120,000,000 shares as adjusted;
issued and outstanding--5,139,083 shares actual and
shares as adjusted..................................... 51
Additional paid-in capital.............................. 5,288
Deferred compensation................................... (4,027)
Unrealized loss on investments.......................... (11)
Note receivable......................................... (4)
Accumulated deficit..................................... (6,663)
------- ----
Total stockholders' equity................................ $32,032 $
======= ====
</TABLE>
The outstanding share information excludes the shares issuable upon exercise
of the options and warrants referred to in the paragraph following the table
under "Prospectus Summary--The Offering."
18
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $32.0
million, or $1.33 per share. Pro forma net tangible book value per share
represents the amount of our total tangible assets reduced by the amount of our
total liabilities and divided by the total number of shares of common stock
outstanding after giving effect to the automatic conversion of our convertible
preferred stock. Dilution in pro forma net tangible book value per share
represents the difference between the amount per share paid by purchasers of
shares of common stock in this offering and the pro forma net tangible book
value per share of common stock immediately after the completion of this
offering. After giving effect to the sale of the shares of common stock offered
by us at an assumed initial public offering price of $ per share, and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us, our pro forma net tangible book value as of
December 31, 1999 would have been approximately $ million or $ per share of
common stock. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate dilution
of $ per share to new investors of common stock. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share as of December 31,
1999............................................................. $
Increase per share attributable to new investors..................
---
Pro forma net tangible book value per share after this offering.....
---
Dilution per share to new investors................................. $
===
</TABLE>
The following table summarizes, on a pro forma basis after giving effect to
the offering (based on an assumed initial public offering price of $ per
share), as of December 31, 1999, the differences between the existing
stockholders and new investors with respect to the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 23,975,380 $38,083,333 $1.59
New investors.......... % % $
---------- --- ----------- ---
Total................ 100% 100%
========== === =========== ===
</TABLE>
The foregoing discussion and tables are based upon the number of shares
actually issued and outstanding on December 31, 1999 and assume no exercise of
options or warrants then outstanding, which amounts are set forth in
"Prospectus Summary--The Offering". To the extent these options and warrants
are exercised, there will be further dilution to new investors.
19
<PAGE>
SELECTED FINANCIAL INFORMATION
(in thousands, expect per share data)
The statement of operations data set forth below for the period from April
28, 1998 (inception) to December 31, 1998 and for the year ended December 31,
1999, and with respect to our balance sheets at December 31, 1998 and 1999, are
derived from our financial statements that have been audited by Ernst & Young
LLP, which are included elsewhere in this prospectus, and are qualified by
reference to such financial statements. You should read the selected financial
information set forth below in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
April 28,
1998
(inception)
through Year ended
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Statement of Operations Data:
Grant and collaborative revenue...................... $ -- $ 474
------- -------
Total revenue...................................... -- 474
Operating expenses:
Selling, general and administrative................. 345 1,349
Research and development............................ 771 4,048
Amortization of deferred compensation, and other
non-cash compensation charges...................... 78 958
------- -------
Total operating expenses........................... 1,194 6,355
------- -------
Operating loss....................................... (1,194) (5,881)
Other income, net.................................... 48 363
------- -------
Net loss............................................. $(1,146) $(5,518)
======= =======
Historical net loss per share, basic and diluted..... $ (1.71) $ (3.91)
======= =======
Historical weighted average shares outstanding....... 669 1,410
Pro forma net loss per share......................... $ (0.40)
=======
Pro forma weighted average shares outstanding........ 13,697
<CAPTION>
As of December 31,
1998 1999
------------ ------------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments.... $ 8,234 $33,088
Working capital...................................... 8,231 32,881
Total assets......................................... 8,557 33,895
Deferred revenue..................................... -- 1,250
Convertible preferred stock.......................... 9,398 37,398
Stockholders' equity................................. 8,380 32,032
</TABLE>
See our financial statements for a description of the computation of
historical and pro forma net loss per share and the number of shares used in
the historical and pro forma per share calculations in "Statement of Operations
Data" above.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with "Selected Financial Data" and
our financial statements and related notes included elsewhere in this
prospectus. In addition to historical information, the discussion and analysis
contains certain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated by these forward-looking statements due to factors including, but
not limited to, those factors set forth under "Risk Factors" and elsewhere in
this prospectus.
Overview
We were founded and began operations in April 1998. We are developing next-
generation tools that will permit the large-scale analysis of genetic variation
and function. To date, we have generated revenues primarily from government
grants from the National Institutes of Health. We have entered into a strategic
partnership with PE Biosystems and collaborations with Dow Chemical, Third Wave
Technologies and PyroSequencing.
We have dedicated substantial resources to the development of our
proprietary technologies. We have designed our technologies to provide the
throughput, cost effectiveness and flexibility necessary to investigate and
understand genetic variation and function on the large scale necessary to
extract medically valuable information from raw genetic data.
Our revenues for the year ended December 31, 1999 are primarily attributable
to research funding. We recognize revenues related to research funding as we
incur related research and development expenses. Our strategic partners often
pay us before we recognize the related revenues, and we defer these payments
until we earn them. As of December 31, 1999, we had deferred revenue of $1.3
million.
We have incurred substantial operating losses since our inception. As of
December 31, 1999, our accumulated deficit was $6.7 million, and total
stockholders' equity was $32.0 million. We expect to incur additional operating
losses over the next several years as we continue to fund internal research and
development, develop our technologies and commercialize products based on those
technologies.
Results of Operations
Revenue
Our revenues to date have been primarily from government grants which
accounted for 92% of our total revenues for the year ended December 31, 1999.
Revenues for the year ended December 31, 1999 were $0.5 million. We had no
revenues for the period from our inception on April 28, 1998 through December
31, 1998.
Research and Development
Our research and development expenses consist primarily of salaries and
other personnel expenses, facility costs and supplies. Research and development
expenses increased $3.2 million to $4.0 million for the year ended December 31,
1999, from $0.8 million for the period from our inception on April 28, 1998
through December 31, 1998. The increase was primarily due to increased staffing
and other personnel costs to support the development of our BeadArray and
Oligator technologies. We expect that our research and development expenses
will increase substantially to fund our research programs with partners and
collaborators, as well as our internal product research and development
initiatives.
21
<PAGE>
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel costs
for finance, human resources, business development and general management, as
well as professional fees, such as expenses for legal and accounting services.
General and administrative expenses increased $1.0 million to $1.3 million for
the year ended December 31, 1999 from $0.3 million for the period from our
inception on April 28, 1998 through December 31, 1998. This increase was
primarily attributable to an increase in staffing necessary to manage and
support our growth. We expect that our general and administrative expenses will
increase as we expand our legal and accounting staff, add infrastructure and
incur additional costs to support our growth and requirements as a public
company.
Amortization of Deferred Compensation and Other Non-Cash Compensation Charges
In connection with the grant of stock options and sale of restricted common
stock to employees, founders and directors, we recorded deferred compensation
of approximately $4.3 million in the year ended December 31, 1999. We recorded
this amount as a component of stockholders' equity and will amortize the amount
as a charge to operations over the vesting period of the stock and options. We
recorded amortization of this deferred compensation of approximately $0.6
million for the year ended December 31, 1999 and recorded an additional $0.4
million of expense related to restricted common stock sold to consultants,
which is expensed as our rights to repurchase such common stock lapse. We
anticipate recording additional deferred stock compensation for the sale of
restricted common stock and grant of stock options in the three months ended
March 31, 2000.
For employees, founders and directors, deferred compensation represents the
difference between the exercise price of the option or purchase price of the
stock and the deemed fair value of our common stock on the date of grant in
accordance with Accounting Principles Board Opinion No. 25 and its related
interpretations. For consultants, deferred compensation is recorded at the fair
value of the options granted or stock sold in accordance with Statement of
Financial Accounting Standards No. 123 and Emerging Issues Task Force No. 96-
18.
We recognize compensation expense over the vesting period for employees,
founders and directors, using an accelerated amortization methodology in
accordance with Financial Accounting Standards Board Interpretation No. 28. In
February 2000, we modified all of our consultant agreements to include
assurances that the contracts would be fulfilled. In accordance with these
modifications, we recorded additional deferred compensation of $3.0 million,
which will be amortized to expense over the period the services are performed.
Other Income
Other income, net of expenses, primarily consists of interest income and
interest expense. Interest income, which represents income earned on our cash
and cash equivalents and investments, was $0.4 million for the year ended
December 31, 1999 as compared to $48,000 for the period from our inception on
April 28, 1998 through December 31, 1998. Interest expense was $48,000 for the
year ended December 31, 1999. There was no interest expense for the period from
our inception on April 28, 1998 through December 31, 1998.
Provision for Income Taxes
We incurred net operating losses for the period from our inception on April
28, 1998 through December 31, 1998 and the year ended December 31, 1999, and
accordingly, we did not pay any federal or state income taxes. As of December
31, 1999, we had net operating loss carryforwards for federal tax purposes of
approximately $5.1 million, which begin to expire in 2018.
22
<PAGE>
As of December 31, 1999, we had net operating loss carryforwards for state
tax purposes of approximately $5.3 million, which begin to expire in 2006. We
also had federal and state research and development tax credit carryforwards of
approximately $0.3 million and $0.2 million, respectively, which begin to
expire in 2018, unless previously utilized.
Our utilization of the net operating losses and credits may be subject to
substantial annual limitations pursuant to Section 382 and 383 of the Internal
Revenue Code, and similar state provisions, as a result of changes in our
ownership structure. These annual limitations may result in the expiration of
net operating losses and credits prior to utilization.
Liquidity and Capital Resources
Since inception, we have financed our business primarily through private
placements of preferred stock with net proceeds of $37.4 million, and funding
from strategic partners and government grants. As of December 31, 1999, we had
cash, cash equivalents and investments of approximately $33.1 million. We
currently invest our funds in U.S. investment-grade corporate debt securities
with maturities not exceeding 18 months.
Our operating activities used cash of $1.1 million in the period from our
inception on April 28, 1998 through December 31, 1998 and $2.9 million in the
year ended December 31, 1999. Our use of cash for these periods primarily
resulted from our losses from operations and the changes in our working capital
accounts.
Our investing activities used cash of $12.3 million in the year ended
December 31, 1999, substantially all of which consisted of purchases of
investment securities. We had minimal investing activities in 1998.
Our financing activities provided $9.3 million for the period from our
inception on April 28, 1998 through December 31, 1998 and $28.1 million for the
year ended December 31, 1999. Our financing activities have consisted primarily
of the sale of preferred stock to both private investors and strategic
partners.
Our existing facility lease will expire in August 2000, and we are
evaluating whether to exercise our option to renew the lease for one year, as
well as new lease opportunities. Our financial commitment for a new facility is
expected to be significantly higher than existing commitments due to market
conditions in San Diego and our increased space requirements.
We expect that the proceeds from this offering, combined with our current
cash and cash equivalents, investments and funding from existing strategic
alliances and grants will be sufficient to fund our anticipated operating needs
for at least the next 24 months. However, our future capital requirements and
the adequacy of our available funds will depend on many factors, including
scientific progress in our research and development programs, the magnitude of
those programs, competing technological and market developments and our ability
to successfully commercialize our first products in partnership with PE
Biosystems and to establish additional strategic relationships. Therefore, we
may require additional funding within this time frame and such additional
funding, if needed, may not be available on terms that are acceptable to us, or
at all. Further, any additional equity financing may be dilutive to our then
existing stockholders and may adversely affect their rights.
Recently Issued Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
will be effective January 1, 2001. This statement establishes accounting and
reporting standards requiring that every
23
<PAGE>
derivative instrument, including certain derivative instruments imbedded 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 fair value be recognized in earnings unless specific hedge
accounting criteria are met. We believe the adoption of SFAS No. 133 will not
have an effect on our financial statements because we do not engage in
derivative or hedging activities.
Quantitative and Qualitative Disclosure about Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay with respect to our various outstanding debt instruments.
Our risk associated with fluctuating interest expense is limited, however, to
our capital lease obligations, the interest rates under which are closely tied
to market rates, and our investments in interest rate sensitive financial
instruments. Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes. We ensure the safety
and preservation of our invested principal funds by limiting default risk,
market risk and reinvestment risk. We mitigate default risk by investing in
investment grade securities. A hypothetical 100 basis point adverse move in
interest rates along the entire interest rate yield curve would not materially
affect the fair value of our interest sensitive financial instruments at
December 31, 1998 and 1999. Declines in interest rates over time will, however,
reduce our interest income while increases in interest rates over time will
increase our interest expense.
24
<PAGE>
BUSINESS
Overview
We are developing next-generation tools that will permit the large-scale
analysis of genetic variation and function. The information provided by these
analyses will enable the development of personalized medicine, a key goal of
genomics. Our proprietary BeadArray technology will provide the throughput,
cost effectiveness and flexibility necessary to enable researchers in the life
sciences and pharmaceutical industries to perform the billions of tests
necessary to extract medically valuable information from advances in genomics.
This information will correlate genetic variation and gene function with
particular disease states, enhancing drug discovery, allowing diseases to be
detected earlier and more specifically, and permitting better choices of drugs
for individual patients. Our technology will have applicability across a wide
variety of industries beyond life sciences and pharmaceuticals, including
agriculture, food, chemicals and petrochemicals.
The Importance of SNPs, Gene Expression and Proteomics in Modern Medical
Research
Background on Genes and Proteins
The human body is composed of billions of cells each containing
deoxyribonucleic acid, or DNA, which encodes the basic instructions for
cellular function. The complete set of an individual's DNA is called the
genome, and is organized into 23 pairs of chromosomes, which are further
divided into over 100,000 smaller regions called genes. Each cell uses or
expresses only those genes required for its specific functions. Each gene is
comprised of a string of four types of nucleotide bases, known as A, C, G and
T. Human DNA has approximately 3 billion nucleotides and their precise order is
known as the DNA sequence. When a gene is expressed, a copy of its DNA
sequence, called messenger RNA, or mRNA, is used as a template to direct the
synthesis of a protein. Proteins direct cell function and ultimately the
development of individual traits. Any variation in any part of a gene, called a
polymorphism, may result in a change in cell function leading to disease.
Genetic Variation and Function
Every person inherits two copies of each gene, one from each parent. The two
copies of each gene may be identical, or they may be different. These
differences are referred to as genetic variation. Examples of the physical
consequences of genetic variation include differences in eye and hair color.
Genetic variation can also have important medical consequences, including
predisposition to disease and differential response to drugs. Genetic variation
affects diseases such as cancer, diabetes, cardiovascular disease and
Alzheimer's disease. In addition, genetic variation may cause people to respond
differently to the same drug. Some people may respond well, others may not
respond at all, and still others may experience adverse side effects.
The most common form of genetic variation is a Single Nucleotide
Polymorphism, or SNP. A SNP is a variation in a single position in a DNA
sequence. It is estimated that the human genome contains between three and six
million SNPs. The importance of SNPs is illustrated by the recent formation of
the SNP Consortium, which includes nine major pharmaceutical companies,
chartered to discover an initial set of approximately 300,000 SNPs.
While in some cases a single SNP will be responsible for medically important
effects, it is now believed that the genetic component of most major diseases
is the result of the interaction of many SNPs. Therefore, it will be important
to investigate many SNPs together in order to discover medically valuable
information.
25
<PAGE>
In addition to the knowledge gained from the analysis of SNPs, the study of
gene function will significantly contribute to clinical diagnosis and
treatment. This study focuses on the physiological functions that are affected
by medically relevant SNPs.
Current efforts to understand genetic variation and function have centered
around three principal techniques: SNP genotyping, gene expression profiling
and proteomics.
SNP Genotyping
SNP genotyping is the process of determining which SNPs are present in each
of the two copies of a gene, or other portion of DNA sequence, within an
individual or other organism. The use of SNP genotyping to obtain meaningful
statistics on the effect of an individual SNP or a collection of SNPs, and to
apply that information to clinical trials and diagnostic testing, will require
the analysis of millions of SNP genotypes and the testing of large populations
for each disease. For example, a single large clinical trial could involve
genotyping 300,000 SNPs per patient in 1,000 patients, thus requiring
300 million assays. Using available technologies, this scale of SNP genotyping
is both impractical and prohibitively expensive.
Large-scale SNP genotyping, when commercially feasible, will be used for a
variety of applications, such as genomics-based drug development, clinical
trial analysis, disease predisposition testing, and disease diagnosis. SNP
genotyping can also be used outside of healthcare, for example in the
development of plants and animals with desirable commercial characteristics.
These markets will require billions of SNP genotyping assays annually.
Gene Expression Profiling
Gene expression profiling is the process of determining which genes are
active in a specific cell or group of cells and is accomplished by measuring
mRNA, the intermediary between genes and proteins. Variation in gene expression
can cause disease, or act as an important indicator of disease or
predisposition to disease. By comparing gene expression patterns between cells
from different environments, such as normal tissue compared to diseased tissue
or in the presence or absence of a drug, specific genes or groups of genes that
play a role in these processes can be identified. Studies of this type, used in
drug discovery, require monitoring thousands, and preferably tens of thousands,
of mRNAs in large numbers of samples. The high cost of large-scale gene
expression profiling has limited the development of the gene expression
profiling market.
Once gene expression patterns have been correlated to specific diseases,
gene expression profiling is expected to become an important diagnostic tool.
Diagnostic use of expression profiling tools is anticipated to grow rapidly
with the combination of the sequencing of various genomes and the availability
of more cost-effective technologies.
Proteomics
Proteomics is the process of determining which proteins are present in cells
and how they interact with one another. Proteomics is another method of
correlating the molecular state of a cell with disease or reaction to a
stimulus such as a drug. This market remains undeveloped, as low cost, accurate
technologies for analysis have not been available. We expect that proteomics
will become valuable in drug discovery research as the technologies improve and
that array technology will be critical in facilitating the growth of this
market.
26
<PAGE>
Current Technologies and Their Limitations
There are currently a variety of technologies available for analyzing
genetic variation and function. These technologies lack the combination of high
throughput, cost effectiveness and flexibility necessary to adequately address
the rapidly evolving markets of SNP genotyping, gene expression profiling and
proteomics. These technologies can be classified into three distinct groups:
Traditional Technologies. Traditional technologies perform assays
individually, or serially. Serial processing is an inherent limitation to assay
throughput. These technologies often require relatively large sample volumes,
adding significantly to the costs of the assays. Most of them have limited
flexibility to perform different applications. Examples of traditional
technologies include 2D electrophoresis, capillary electrophoresis, mass
spectrometry and flow cytometry.
. 2D Electrophoresis. Two-dimensional electrophoresis, or 2D
electrophoresis, separates proteins on the basis of molecular
characteristics and is the traditional method for detecting the presence
of proteins. This process separates large numbers of proteins within a
sample, but has poor reproducibility and requires an additional process
to identify particular proteins.
. Capillary Electrophoresis. Capillary electrophoresis is a process for
separating DNA in glass tubes and can be applied to SNP genotyping.
While recent advances that include multiple capillaries have improved
throughput, this technology is still fundamentally serial in nature, and
thus has low throughput for genotyping applications. It also uses large
sample sizes, contributing significantly to assay cost.
. Mass Spectrometry. Mass spectrometry, a process that uses a
sophisticated instrument to measure molecular weight, has recently been
applied to SNP genotyping and proteomics. Provided sample preparation
and purification are successful, the sample read out is accurate.
However, as another serial detection process, mass spectrometry has
limited throughput compared to array technologies and requires expensive
instrumentation.
. Flow Cytometry. Flow cytometry, a technique for counting cells, has been
modified for use in SNP genotyping and proteomics. For these
applications, beads flow past a detector one bead at a time. While flow
cytometry is a somewhat flexible and inexpensive technology, it has low
throughput compared to array technologies because it analyzes SNPs and
proteins serially. Moreover, flow cytometry can only perform a limited
number of tests per bead pool.
Microfluidics. Microfluidics, a process for miniaturizing the scale of
experimentation, offers some improvement over traditional techniques, although
it remains a largely serial process with only moderate throughput compared to
array technologies. Although multiple applications are possible using
microfluidic systems, the practical implementation of applications using these
systems is challenging.
Arrays. Arrays, which perform assays in parallel, were developed to achieve
the high throughput required for large-scale genetic analysis. The spacing
between test sites in an array defines the array's density. Higher density
increases parallel processing. In addition to increasing the throughput, higher
density reduces the required sample volume, and thereby lowers costs. Arrays
offer parallel processing by performing multiple assays per sample
simultaneously. However, they currently lack the ability to test multiple
samples simultaneously, one more level of parallel processing necessary for
large-scale genetic analysis. These array technologies also have limited
applications outside of SNP genotyping and gene expression profiling.
Manufacturing limitations have further prevented arrays from reaching their
full potential. There are a number of current methodologies for manufacturing
arrays, such as mechanical deposition, inkjet printing and photolithography,
each with its own set of limitations.
27
<PAGE>
. Mechanical Deposition. This method of manufacturing arrays has centered
around creating test sites by mechanically depositing material on a flat
surface. These arrays can be easily modified and are relatively
inexpensive. However, it is difficult to put the test sites close
together, resulting in relatively low-density arrays that have limited
throughput. In addition, the arrays cannot be mass produced and because
they are made individually, they may vary in quality.
. Inkjet Printing. Inkjet printing is a new method for manufacturing
arrays that deposits DNA on a surface in a manner similar to the way an
inkjet printer deposits ink on paper. Although these arrays are
flexible, they are unlikely to be used for large-scale genetic analysis
because they are difficult to mass produce.
. Photolithography. Photolithography uses a process similar to
semiconductor manufacturing to synthesize DNA on a surface. Test sites
can be placed closer together using this process, creating high-density
arrays, thereby increasing assay throughput. However, the
photolithographic process requires very expensive capital equipment and
has expensive tooling that greatly limits the ability to modify arrays.
Traditional technologies, microfluidics and arrays all use various
chemistries to perform assays in SNP genotyping, gene expression profiling and
proteomics. The specific chemistries and techniques used to perform an assay,
known as an assay format, can be deployed using one or more of the above
technologies. Often, assay formats are designed to perfom only one test per
well of a microtiter plate, resulting in low throughput and adding
significantly to expense.
Thus, while numerous technologies and assay formats are being applied to SNP
genotyping, gene expression and proteomics, growth of these markets is
currently limited by the absence of a cost-effective technology that enables
billions of assays to be carried out annually.
Illumina's Solution
Illumina has developed a proprietary array technology that enables the
large-scale analysis of genetic variation and function. Our BeadArray
technology combines fiber optic bundles and microscopic beads in a simple
proprietary manufacturing process to produce array cassettes that can perform
up to 3 million assays simultaneously. Our BeadArray technology provides a
unique combination of high throughput, cost effectiveness, and flexibility. We
achieve high throughput with a high density of test sites per array and our
ability to format arrays in a pattern arranged to match the wells of standard
microtiter plates. We maximize cost effectiveness by reducing consumption of
expensive reagents and valuable samples, and from the low manufacturing costs
associated with our complementary technologies. Our ability to vary the size,
shape and format of the fiber optic bundles and to create specific beads for
different applications provides the flexibility to address multiple markets and
market segments. We believe that these features will enable our BeadArray
technology to become a leading platform for the emerging high-growth markets of
SNP genotyping, gene expression profiling and proteomics.
Illumina's Strategy
Our goal is to make our BeadArray platform the industry standard for
products and services using array technologies. We plan to achieve this by:
Focusing on Emerging High-Growth Markets
We are initially focusing on the SNP genotyping, gene expression profiling
and proteomics markets. We believe these markets have the potential for high
growth due to increasing demand for therapeutics and diagnostics based on newly
available genomic information. To date, the lack of high-throughput, cost-
effective technologies has limited the growth of these markets.
28
<PAGE>
Rapidly Commercializing Our BeadArray Technology for SNP Genotyping
We intend to rapidly commercialize our BeadArray technology for SNP
genotyping through partnerships. Our first partner, PE Biosystems, contributes
extensive expertise in instrument and reagent development, as well as a large
and experienced worldwide sales and marketing team. We believe that the
combination of our BeadArray technology with PE Biosystems' leadership position
in the genetic analysis market will enable us to capture a significant portion
of the SNP genotyping market.
Partnering With Multiple Companies To Expand Our Market Opportunity
We plan to pursue multiple partnerships to facilitate the expansion of our
BeadArray and Oligator technologies and to exploit large and diverse markets.
We expect to enter into partnerships and collaborations to gain access to
complementary technologies, distribution channels and information content. We
intend to structure partnerships that maximize our long-term commercial benefit
by maintaining control of our technologies.
Expanding Our Technologies into Multiple Product Lines
We intend to utilize the flexibility of our BeadArray and Oligator
technologies to develop multiple product lines. In addition to providing new
sources of revenue, we believe these product lines will further our goal of
establishing our BeadArray technology as the industry standard for array-based
analysis. We expect these product lines to include a lower-throughput array
system, handheld instruments, and a high capacity BeadArray system that will
allow more simultaneous assays per sample. We intend to expand our Oligator
technology by continuing to increase the capacity and cost effectiveness of our
instrumentation.
Strengthening Our Technological Leadership
We plan to continue advancing our proprietary technologies through our
internal research efforts, collaborations with industry leaders and strategic
licensing. We may also pursue opportunistic acquisitions of complementary
technologies and leverage our technologies into other value-added businesses.
Illumina's Technology
BeadArray Technology
Our proprietary BeadArray technology combines fiber optic bundles and
specially prepared beads that self-assemble into an array.
Fiber Optic Bundles. We have the fiber optic bundles manufactured to our
specifications, which we cut into lengths of less than one inch. Each bundle
contains thousands to millions of individual fibers depending on the size of
the bundle. For example, a fiber optic bundle with a diameter of approximately
one millimeter could contain up to 50,000 individual fibers. Dipping the fiber
optic bundles into a chemical solution etches a microscopic well at the end of
each individual fiber within a bundle. In the preceding example, this process
would create 50,000 microscopic wells per bundle.
Microscopic Beads. In a separate process, we create sensors by affixing a
specific type of molecule to each of the billions of microscopic beads in a
batch. We make different batches of beads, with the beads in a given batch
coated with one particular type of molecule. The particular molecules on a bead
define that bead's function as a sensor. For example, we create a batch of SNP
sensors by attaching a particular DNA sequence to each bead in the batch. We
combine
29
<PAGE>
batches of coated beads to form a pool specific to the type of array we intend
to create. A bead pool one milliliter in volume contains sufficient beads to
produce thousands of arrays.
Array Self-Assembly and Decoding. To form an array we typically dip each
fiber optic bundle into a pool of coated beads. The coated beads are drawn into
the wells, one bead per well, on the end of each fiber in the bundle. We call
this process self-assembly. The tens of thousands of beads at the end of the
fiber optic bundle comprise our BeadArray. Because the beads assemble randomly
into the wells, we perform a final procedure called decoding in order to
determine which bead type occupies which well in the array. We employ several
proprietary methods for decoding, a process that requires only a few steps to
identify all the beads in the array. One beneficial by-product of the decoding
process is a validation of each bead in the array. This quality control test
characterizes the performance of each bead and can identify and eliminate use
of any empty wells. We ensure that each bead type on the array is sufficiently
represented by having multiple copies of each bead type. This improves the
reliability and accuracy of the resulting data by allowing statistical
processing of the results of identical beads.
Array Use in Experiments. One performs an experiment on the BeadArray by
preparing a sample, such as DNA from a patient, and introducing it to the
array. The design features of our BeadArray allow it to be simply dipped into a
solution containing the sample. The molecules in the sample bind to their
matching molecules on the coated bead. An analytical instrument detects the
matched molecules by shining a laser through the fiber optic bundle. Since the
molecules in the sample have a structure that causes them to emit light in
response to a laser, detection of a binding event is possible. This allows the
measurement of the number of molecules bound to each coated bead, resulting in
a quantitative analysis of the sample.
Oligator Technology
Genomic applications require many different short pieces of DNA that can be
made synthetically, called oligonucleotides. For example, SNP genotyping
typically requires three to four different oligonucleotides per assay. A SNP
genotyping experiment analyzing 10,000 SNPs may therefore require 30,000 to
40,000 different oligonucleotides, contributing significantly to the expense of
the experiment.
We have designed our proprietary Oligator technology for the parallel
synthesis of many different oligonucleotides to meet the requirements of large-
scale genomics applications. We believe that our Oligator technology is
substantially more cost effective and provides higher throughput than available
commercial alternatives. Our technology utilizes centrifugation for the
automated parallel synthesis of 768 different oligonucleotides per machine per
day. Using a similar approach, we expect to develop instruments in the future
with substantially greater capacity.
Key Advantages of Our BeadArray and Oligator Technologies
We believe that our BeadArray and Oligator technologies provide distinct
advantages, in a variety of applications, over competing technologies, by
creating cost-effective, highly miniaturized arrays with the following
advantages:
High Throughput. The miniaturization of our BeadArray provides a
significantly greater information content per unit area than any other array
known to us. To further increase throughput, we have formatted our arrays in a
pattern arranged to match the wells of standard microtiter plates, allowing
throughput levels of up to 3 million unique assays per microtiter plate. The
Oligator's parallel synthesis capability allows us to manufacture the diversity
of oligonucleotides necessary to support large-scale genomic applications.
Cost Effectiveness. Our BeadArray substantially reduces the cost of
experiments as a result of our proprietary manufacturing process and our
ability to capitalize on cost reductions generated by
30
<PAGE>
advances in fiber optics, digital imaging and bead chemistry. In addition, our
miniaturized BeadArray requires smaller volumes than other array technologies,
and therefore reduces reagent costs. Our Oligator technology further reduces
reagent costs, as well as the cost of coating beads.
Flexibility. A wide variety of conventional chemistries are available for
attaching different molecules, such as DNA, RNA, proteins, and other chemicals
to beads. By using beads, we are able to take advantage of these chemistries to
create a wide variety of sensors, which we assemble into arrays using the same
proprietary manufacturing process. In addition, we can have fiber optic bundles
manufactured in multiple shapes and sizes and organized in various arrangements
to optimize them for different markets and market segments. In combination, the
use of beads and fiber optic bundles provides the flexibility and scalability
for our BeadArray technology to be tailored to perform many applications in
many different market segments, from drug discovery to diagnostics. Our
Oligator technology allows us to manufacture a wide diversity of lengths and
quantities of oligonucleotides.
Accuracy. The high density of beads in each array enables us to have
multiple copies of each individual bead type. We measure the copies
simultaneously and combine them into one data point. This allows us to make a
comparison of each bead against its own population of identical beads, which
permits the statistical calculation of a more reliable and accurate value for
each data point. Finally, the manufacture of the array includes a proprietary
decoding step that also functions as a quality control test of every bead on
every array, improving the overall accuracy of the data.
Potential Fields of Application
We believe that the demand for increased throughput will continue in genetic
analysis and will develop in new areas such as proteomics, high-throughput
screening and chemical detection. The parallel processing capabilities of our
BeadArray technology are applicable to the complex problems of many different
industries, including the following:
Pharmaceutical Discovery and Development
. Cost-effective, rapid methods for gene discovery and function
characterization
. Specific targeting of drug discovery efforts
. Customized drugs for patients
. Toxicological evaluation of potential drugs
. High-throughput screening for pharmaceutical candidates
Medicine
. Diagnostic methods for identifying, classifying and staging diseases
. Predictors of successful drug therapy for a particular patient
. Early recognition of potential adverse response to drug therapy
. Identification of predisposition to disease in order to prescribe
preventative therapies
Agriculture and Food Production
. Development of plants and animals with desirable commercial
characteristics
. Evaluation of foods to ensure safety
31
<PAGE>
Chemical and Petrochemical
. Process monitoring
. Leak detection and environmental monitoring
Food, Beverage and Fragrance
. Quality control monitoring
. Identification of new products with appealing compositions
Products and Services
The first implementation of our BeadArray technology, the Array of Arrays,
will be a disposable cassette with 96 fiber optic bundles arranged in a pattern
that matches the standard 96-well microtiter plate. Each fiber optic bundle
will perform approximately 2,000 unique assays. Therefore, one Array of Arrays
can perform approximately 192,000 individual assays simultaneously, more than
any other array system known to us.
By simply increasing the number of fiber optic bundles in the cassette, we
will expand the Array of Arrays to match standard 384-well and 1,536-well
microtiter plates. In these configurations, the Array of Arrays will be able to
simultaneously perform approximately 768,000 and 3,072,000 unique assays,
respectively.
We intend to provide both products and services using our proprietary
BeadArray platform. In partnership with PE Biosystems, we are developing our
first products based on our Array of Arrays. These products will include
disposable Array of Arrays, reagent kits for SNP genotyping and instruments
that automatically read data from our Array of Arrays. Our services may involve
partnerships for early access to our technology prior to its general commercial
release. In addition to early access, we may commercialize assay development
and genotyping services.
SNP Genotyping
We are designing our first product based on the Array of Arrays for SNP
genotyping. The first SNP genotyping assay format that we intend to
commercialize will be PE Biosystems' proprietary OLA ZipCode assay format. This
assay format enables the creation of a universal Array of Arrays that can be
used to analyze any set of SNPs. We expect to commercialize our first product
using this assay format in 2001. We plan to extend our BeadArray technology to
create products using other assay formats. We expect one or more of these
additional assay formats to be available on the Array of Arrays in 2002.
Gene Expression Profiling
We will design our first product for gene expression profiling to test
selected sets of approximately 100 to 2,000 genes on large numbers of samples.
We believe that there is currently a need for a cost-effective and high-
throughput gene expression profiling technology to analyze the activity of
selected sets of genes from many samples simultaneously. We expect our initial
products in gene expression profiling, based on the Array of Arrays combined
with specific assay formats, to be commercially available in 2001.
High-Throughput Synthesis
We plan to use our Oligator technology to build internal capacity to produce
millions of oligonucleotides per year. In addition to their use to coat beads,
these oligonucleotides may be components of the reagent kits for our BeadArray
products and used for assay development.
32
<PAGE>
Areas of Exploration
The increasing need for high-throughput experimentation will drive the use
of array technology into other potentially large emerging markets, including:
Proteomics. We are currently investigating the use of our BeadArray
technology for the analysis of proteins. This application has the potential to
provide information that is complementary to gene expression profiling, because
many important cellular processes are regulated at the level of proteins rather
than at the level of genes. We have demonstrated the feasibility of carrying
out assays for the detection and analysis of proteins on the BeadArray.
High-Throughput Screening. The synthesis of large libraries of chemicals and
their high-throughput screening for potential as drugs are core technologies in
drug development. These libraries contain more compounds than can be
effectively screened using available technologies. We have developed a strategy
for high-throughput screening using our BeadArray technology. We believe that
we may be able to miniaturize high-throughput screening significantly, increase
the throughput of screens, and increase the amount of information obtained for
each compound.
Chemical Detection. We have demonstrated the use of our BeadArray technology
for the detection of chemicals. For this application, the BeadArray generates a
unique pattern for each chemical that it detects. Currently, we are working
with Dow Chemical to design a system to qualify chemical solvents for use in
manufacturing. We are exploring with Chevron the possibility of using this
system for the detection of leaks at gasoline refineries. There are many other
potential applications for this type of detector such as quality control
monitoring in the food, beverage and fragrance industries.
Partnerships and Collaborations
We have entered into the following strategic agreements with commercial
entities to expand the functionality of our BeadArray technology and to provide
distribution channels for the commercialization of our products and services:
PE Biosystems, a Division of PE Corporation. In November 1999, we entered
into a partnership with PE Biosystems, a leading supplier of instruments and
reagents to the life sciences and pharmaceutical industries. Illumina and PE
Biosystems will jointly implement PE Biosystems' proprietary OLA ZipCode assay
format on Illumina's proprietary Array of Arrays initially for SNP genotyping.
We will develop and manufacture the Array of Arrays and PE Biosystems will
develop and manufacture the detection instrument and the reagent kits. PE
Biosystems and Illumina will co-brand products and PE Biosystems will
distribute them through their worldwide sales channels. Under the agreement,
Illumina has certain rights to use and sell the instruments developed in the
partnership for other applications.
In connection with this partnership, PE Corporation invested $5 million to
purchase shares of our preferred stock and agreed to provide Illumina with
substantial research and development support over two years. Illumina and PE
Biosystems will divide the profits from all partnership products, including
instruments, array cassettes and reagent kits, after both parties have received
repayment for cost-of-goods, sales and marketing expenses, and ongoing research
and development expenses.
The Dow Chemical Company. In June 1999, we entered into a research
collaboration with Dow Chemical to develop a BeadArray designed for the
identification of chemical solvents prior to entry into Dow Chemical's
manufacturing facilities. If successful, Dow Chemical could use our technology
as a rapid and reliable method for performing a quality control check on their
incoming raw materials. We retain all rights to commercialize any resulting
products.
33
<PAGE>
Third Wave Technologies, Inc. In December 1999, we entered into a research
collaboration with Third Wave Technologies to adapt their proprietary assay
format, called Invader, to our BeadArray platform. If the research
collaboration is successful, Illumina and Third Wave Technologies may negotiate
a commercialization agreement. In January 2000, PE Biosystems announced plans
to acquire Third Wave Technologies.
PyroSequencing, Inc. In November 1999, we entered into a research
collaboration with PyroSequencing to adapt their proprietary assay format,
called PyroSequencing, to our BeadArray platform. Pyrosequencing provides
instrumentation and chemistry to perform DNA sequencing and SNP genotyping. If
the research collaboration is successful, Illumina and PyroSequencing may
negotiate a commercialization agreement.
We also have entered into collaborations with Tufts University, The
Australian National University, Stanford University and The University of
California, San Diego to develop new applications for our BeadArray technology.
Intellectual Property
We have an extensive patent portfolio, including ownership of, or exclusive
licenses to, 12 issued U.S. patents and 43 pending U.S. patent applications,
some of which derive from a common parent application. Our issued patents
expire between 2010 and 2017. We are seeking to extend this patent protection
on our BeadArray, Oligator and related technologies. We have received or filed
counterparts for many of these patents and applications in one or more foreign
countries.
We also rely upon copyright protection, trade secrets, know-how, continuing
technological innovation and licensing opportunities to develop and maintain
our competitive position. Our success will depend in part on our ability to
obtain patent protection for our products and processes, to preserve our
copyrights and trade secrets, to operate without infringing the proprietary
rights of third parties and to acquire licenses related to enabling technology
or products used with our BeadArray and Oligator technologies.
We are party to various exclusive and non-exclusive license agreements with
third parties which give us rights to use certain technologies. For example, we
have an exclusive license from Tufts University to patents filed by Dr. David
Walt, a Director, the Chairman of our Scientific Advisory Board, and one of our
founders.
U.S. Government Grants
Government grants allow us to fund internal scientific programs and
exploratory research. We retain ownership of all intellectual property and
commercial rights generated during these projects, subject to a non-exclusive,
non-transferable, paid-up license to practice, for or on behalf of the
United States, inventions made with federal funds. Such a license is retained
by the U.S. government as provided by applicable statutes and regulations. We
have grants from the National Institutes of Health as outlined below.
<TABLE>
<CAPTION>
Grant Title Grant Date
------------------------------------------------------------------------------
<S> <C>
Decoding randomly ordered arrays.............................. February 1999
Gene expression analysis on randomly ordered DNA arrays....... March 1999
Parallel array processor...................................... August 1999
Randomly ordered arrays for SNP genotyping.................... September 1999
Compact device for solvent identification..................... September 1999
Pyrosequencing arrays......................................... March 2000
</TABLE>
34
<PAGE>
Manufacturing
We manufacture our BeadArrays and Array of Arrays in-house and intend to
rely upon PE Biosystems to manufacture the imaging system and reagent kits for
our first product. We currently depend upon outside suppliers for materials
used in the manufacture of our BeadArrays and Array of Arrays. We intend to
continue, and may extend, the outsourcing of portions of our manufacturing
process to subcontractors where we determine it is in our best commercial
interests.
We have designed our manufacturing facility to optimize material flow and
personnel movement. We adhere to access and safety standards required by
federal, state and local health ordinances. This year, we will implement a
company-wide enterprise resource planning system to manage and control our
manufacturing resources.
Competition
We are aware of other life sciences companies or companies with life
sciences divisions, such as Affymetrix, Agilent, Aclara Biosciences, Caliper
Technologies, Ciphergen, Genometrix, Luminex, Orchid Biosciences and Sequenom,
that have, or are developing, assay technologies for the SNP genotyping, gene
expression profiling and proteomics markets. Each of these markets is very
competitive. Many of our potential competitors in these markets have greater
commercial experience and substantially greater financial, technical and
personnel resources than we do. We expect new competitors to emerge and the
intensity of competition to increase in the future.
Employees
As of March 15, 2000, we had a total of 50 employees, 17 of whom hold Ph.D.
or M.D. degrees and 39 of whom are engaged in full-time research and
development activities. We plan to expand our research and development programs
as well as corporate collaborations and will hire additional staff as these
initiatives are implemented. None of our employees is represented by a labor
union. We consider our employee relations to be good.
Facilities
We lease an aggregate of approximately 15,000 square feet of office and
laboratory facilities at 9390 Towne Centre Drive in San Diego, California. Our
lease expires in August 2000. We have an option to extend the term of the lease
for one year. We believe that the facilities we currently lease are sufficient
for approximately the next six months, but that we will require additional
space thereafter. Therefore, we are seeking additional facilities.
Legal Proceedings
We are not currently a party to any material legal proceedings.
35
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers as of March 15, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Jay T. Flatley..................... 47 President, Chief Executive Officer and
Director
David L. Barker, Ph.D.............. 58 Vice President, Chief Scientific
Officer
John R. Stuelpnagel, DVM........... 42 Founder, Vice President of Business
Development and Director
Mark S. Chee, Ph.D. ............... 38 Founder, Vice President of Genomics
Robert C. Kain..................... 39 Vice President of Engineering
Lawrence A. Bock................... 40 Founder
Charles M. Hartman(1).............. 58 Director
Robert T. Nelsen(2)................ 36 Director
George Poste, DVM, Ph.D. .......... 55 Director
William H. Rastetter, Ph.D.(1)(2).. 51 Director
David R. Walt, Ph.D. .............. 47 Founder, Director, Chairman of the
Scientific Advisory Board
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Jay T. Flatley has served as our President, Chief Executive Officer and a
Director since October 1999. Prior to joining Illumina, Mr. Flatley was co-
founder, President, Chief Executive Officer and a Director of Molecular
Dynamics, a life sciences company, from May 1994 to September 1999. He served
in various other positions with that company from 1987 to 1994. From 1985 to
1987, Mr. Flatley was Vice President of Engineering and Vice President of
Strategic Planning at Plexus Computers, a UNIX computer company. Mr. Flatley
holds a B.A. in Economics from Claremont McKenna College and a B.S. and M.S. in
Industrial Engineering from Stanford University.
David L. Barker, Ph.D. has served as our Vice President and Chief Scientific
Officer since March 2000. Prior to joining us, Dr. Barker was Vice President
and Chief Science Advisor at Amersham Pharmacia Biotech, a life sciences
company, from September 1998 to March 2000. From May 1997 to September 1998,
Dr. Barker was Vice President of Research and Business Development of Molecular
Dynamics. From 1992 to 1997, he was Vice President of Scientific Development.
From 1988 to 1995, he held various other positions with that company. Dr.
Barker holds a B.S. in Chemistry from California Institute of Technology and
received his Ph.D. in Biochemistry from Brandeis University.
John R. Stuelpnagel, D.V.M., one of our founders, is our Vice President of
Business Development, acting Chief Financial Officer and a Director since April
1998. From April 1998 to October 1999, he served as Illumina's acting President
and Chief Executive Officer. While founding Illumina, Dr. Stuelpnagel was an
associate with CW Group, a venture capital firm, from June 1997 to September
1998 and with Catalyst Partners, a venture capital firm, from August 1996 to
June 1997. Dr. Stuelpnagel received his B.S. in Biochemistry and his Doctorate
in Veterinary Medicine from the University of California, Davis and his M.B.A.
from the University of California, Los Angeles.
Mark S. Chee, Ph.D., one of our founders, has served as our Vice President
of Genomics since June 1998. Prior to founding Illumina, Dr. Chee served as
Director of Genetics Research at
36
<PAGE>
Affymetrix, a life sciences company, from April 1997 to July 1997 and in other
positions from 1993 to April 1997. Dr. Chee received his B.Sc. in Biochemistry
from the University of New South Wales and his Ph.D. from the University of
Cambridge.
Robert C. Kain has served as our Vice President of Engineering since
December 1999. Prior to joining us, Mr. Kain was Senior Director of Engineering
at Molecular Devices from July 1999 to December 1999. Previously, Mr. Kain
served as Director of Microarray Engineering at Molecular Dynamics from August
1998 to July 1999 and in other positions from August 1996 to August 1998. From
1983 to 1988, Mr. Kain was employed at DatagraphiX, an information technology
equipment company. Mr. Kain received his B.S. in Physics from San Diego State
University and his M.B.A. from St. Mary's College.
Lawrence A. Bock, one of our founders, served as a Director from June 1998
to March 2000. He has been a General Partner of CW Group, a medical venture
capital fund, since June 1998. From 1988 to 1998, Mr. Bock was General Partner
of Avalon Ventures, a venture capital firm. He is also founder and Director of
FastTrack Systems, Inc. Mr. Bock holds a B.S. in Biochemistry from Bowdoin
College and an M.B.A. from the University of California, Los Angeles.
Charles M. Hartman has been a Director since March 2000. He has been a
General Partner of CW Group since April 1983. Mr. Hartman is a Director of
Caliper Technologies Corp. (Nasdaq: CALP). From 1966 to 1983, Mr. Hartman
served in various positions at Johnson & Johnson, a healthcare company, where
he was responsible for identification, evaluation and negotiation of situations
ranging from single product opportunities to company acquisitions, both
domestically and internationally. Mr. Hartman is a Director of The Hastings
Center, a non-profit organization devoted to the study of bioethical issues in
medicine and the life sciences. Mr. Hartman holds a B.S. in Chemistry from the
University of Notre Dame and an M.B.A. from the University of Chicago.
Robert T. Nelsen has been a Director since June 1998. Since July 1994, Mr.
Nelsen has served as a senior principal of venture capital funds associated
with ARCH Venture Partners, a venture capital firm, including ARCH Venture Fund
II, L.P., ARCH Venture Fund III, L.P., and ARCH Venture Fund IV, L.P. From
April 1987 to July 1994, Mr. Nelsen was Senior Manager at ARCH Development
Corporation, a company affiliated with the University of Chicago, where he was
responsible for new company formation. Mr. Nelsen is a Director of Caliper
Technologies Corp. (Nasdaq: CALP). Mr. Nelsen holds a B.S. in Biology and
Economics from the University of Puget Sound and an M.B.A. from the University
of Chicago.
George Poste, D.V.M., Ph.D. has been a Director since February 2000. Dr.
Poste was Chief Science and Technology Officer at SmithKline Beecham, a
biopharmaceutical company, from October 1981 to December 1999. Dr. Poste is a
Director of SmithKline Beecham (Nasdaq: SBH) and Maxygen (Nasdaq: MAXY). Prior
to being appointed Chief Science and Technology Officer, Dr. Poste was
President of Research and Development at SmithKline Beecham. Dr. Poste is also
a Research Professor at the University of Pennsylvania and holds the William
Pitt Fellowship at Pembroke College, Cambridge University. He was awarded a
D.Sc. for meritorious research contributions by the University of Bristol in
1987. Dr. Poste received his Doctorate in Veterinary Medicine and his Ph.D. in
Virology from the University of Bristol.
William H. Rastetter, Ph.D. has been a Director since November 1998. Since
December 1986, Dr. Rastetter has served as President and Chief Executive
Officer of IDEC Pharmaceuticals, a biopharmaceutical company. Dr. Rastetter is
a Director of Spiros Development (Nasdaq: SDCO). Additionally, he has served as
Chairman of the Board of Directors of IDEC Pharmaceuticals since May 1996. From
1982 to 1986, Dr. Rastetter served in various positions at Genentech and
previously he was a professor at the Massachusetts Institute of Technology.
Dr. Rastetter holds a S.B. in Chemistry from the Massachusetts Institute of
Technology and received his M.A. and Ph.D. in Chemistry from Harvard
University.
37
<PAGE>
David R. Walt, Ph.D. has been a Director and Chairman of the Scientific
Advisory Board since June 1998. Dr. Walt has been the Robinson Professor of
Chemistry at Tufts University since September 1995. Dr. Walt has published over
100 papers and holds over 20 patents. Dr. Walt holds a B.S. in Chemistry from
the University of Michigan and received his Ph.D. in Organic Chemistry and
Pharmacology from the State University of New York at Stony Brook.
Scientific Advisory Board
The following individuals are members of our Scientific Advisory Board:
Christopher C. Goodnow, Ph.D. is Professor at the John Curtin School of
Medical Research at The Australian National University where he is the Founder
and Director of the Medical Genome Centre. Previously, he was an Assistant
Investigator of the Howard Hughes Medical Institute and Assistant Professor of
Microbiology and Immunology at Stanford University Medical School. Dr. Goodnow
has been a recipient of numerous awards and honors, including the Searle
Scholar and the University Medal from the University of Sydney. Dr. Goodnow
received his B.V.Sc. and B.Sc. (Vet) in Veterinary Science from the University
of Sydney and his Ph.D. in Immunology from Stanford University.
Leroy Hood, M.D., Ph.D. is the William Gates III Professor of Biomedical
Sciences, Director of a National Science Foundation Science and Technology
Center and Chairman of the Department of Molecular Biotechnology at the
University of Washington School of Medicine. Dr. Hood is a member of the
National Academy of Sciences and the American Association of Arts and Sciences.
Among his numerous honors and awards are the Louis Pasteur Award for Medical
Innovation, the Albert Lasker Basic Medical Research Award, the Cetus Award for
Biotechnology, the American College of Physician Award, Ciba-Geigy/Drew Award,
Lynen Medal and the University Distinguished Alumnus Award from the Johns
Hopkins University School of Medicine. Dr. Hood has a M.D. from the Johns
Hopkins Medical School and a Ph.D. in Biochemistry from the California
Institute of Technology.
Terrence J. Sejnowski, Ph.D. is an Investigator with the Howard Hughes
Medical Institute and a Professor at The Salk Institute for Biological Studies
where he directs the Computational Neurobiology Laboratory. He is also
Professor of Biology and Adjunct Professor in the Departments of Physics,
Neurosciences, Psychology, Cognitive Science, and Computer Science and
Engineering at the University of California, San Diego. Dr. Sejnowski has been
the recipient of numerous honors and awards including the Presidential Young
Investigator Award, the Wright Prize from the Harvey Mudd College and the
Sherman Fairchild Distinguished Scholar Award at the California Institute of
Technology. Dr. Sejnowski received a B.S. in Physics from the Case-Western
Reserve University, a M.A. in Physics from Princeton University, and a Ph.D. in
Physics from Princeton University.
Paul R. Schimmel, Ph.D. is Professor and Member at The Skaggs Institute for
Chemical Biology at The Scripps Research Institute. He formerly was the John D.
and Catherine T. MacArthur Professor of Biochemistry and Biophysics in the
Department of Biology at The Massachusetts Institute of Technology. He received
the Pfizer Award in enzyme chemistry from the American Chemical Society and was
named co-recipient of the Biophysical Society Emily M. Gray Award. Dr. Schimmel
is a member of the National Academy of Sciences and the American Academy of
Arts and Sciences. Dr. Schimmel received his A.B. degree in pre-medicine from
Ohio Weslyan University and his Ph.D. in Biophysical Chemistry from The
Massachusetts Institute of Technology.
W. Clark Still, Ph.D. is Mitchell Professor of Chemistry at Columbia
University. He is a recipient of numerous awards and honors including Science
Digest's 100 Brightest Scientists Under 40, the National Science Foundation's
Alan T. Waterman Award, the American Chemical Society's Cope Scholar and
Computers in Chemistry Awards, California Institute of Technology's Buchman
Award, Frankfurt University's Rolf Sammet Award, and Nagoya University's Nagoya
Medal of Organic
38
<PAGE>
Chemistry. He is a Fellow of the American Academy of Arts and Sciences, the
Japan Society for the Promotion of Science and the Alfred P. Sloan Society. He
received his B.S. in Chemistry and his Ph.D. in Organic Chemistry from Emory
University.
Board Composition and Committees
Our board of directors currently consists of seven members. Prior to the
closing of this offering, our board of directors will be divided into three
classes, with each director serving a three-year term and one class being
elected at each year's annual meeting of stockholders. Directors Hartman and
Walt will be in the class of directors whose initial term expires at the 2001
annual meeting of stockholders. Directors Stuelpnagel and Nelsen will be in the
class of directors whose initial term expires at the 2002 annual meeting of the
stockholders. Directors Flatley, Poste and Rastetter will be in the class of
directors whose initial term expires at the 2003 annual meeting of
stockholders.
Our board of directors currently has an audit committee and a compensation
committee. Directors Hartman and Rastetter are currently members of the audit
committee and we will be appointing a third member. The audit committee reviews
our internal accounting procedures and consults with and reviews the services
provided by our independent accountants. Directors Nelsen and Rastetter
currently are members of the compensation committee. The compensation committee
reviews and recommends to the board of directors the compensation and benefits
for all of our officers and establishes and reviews general policies relating
to compensation and benefits for our other employees.
Director Compensation
We reimburse our non-employee directors for their expenses incurred in
connection with attending board and committee meetings but do not compensate
them for their services as board or committee members. We have in the past
granted non-employee directors options to purchase our common stock pursuant to
the terms of our stock plan, and our board continues to have the discretion to
grant options to new and continuing non-employee directors. In addition,
certain directors have purchased shares of our common stock pursuant to
restricted stock purchase agreements, subject to a repurchase right in our
favor. For a discussion of each director's restricted stock purchase agreement,
see "Related Party Transactions."
In 2000, our stockholders approved guidelines for the grant of stock options
under our 1998 Stock Option Plan, as amended, to directors who are not our
officers or employees. These guidelines provide that such directors will
receive:
. one-time option grants of 20,000 shares vesting annually over four years
upon joining the board which are to be granted on the date of the first
board meeting attended at the fair market value of one share of our
common stock on the date of grant; and
. annual option grants of 10,000 shares vesting annually over four years
which are to be granted on the date of each annual stockholder meeting
following the closing of this offering at the fair market value of one
share of our common stock on the date of grant.
39
<PAGE>
Executive Compensation
The following table sets forth the compensation earned for services rendered
to us in all capacities by our chief executive officer and our four most highly
compensated executive officers whose total cash compensation exceeded
$100,000--collectively, the "Named Executive Officers"--for the year ended
December 31, 1999.
Summary 1999 Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term
($) Compensation
--------------------- ------------
Securities
Underlying All Other
Name and Principal Positions Salary Bonus Other Options (#) Compensation
- ---------------------------- ------- ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Jay T. Flatley, President
and Chief Executive
Officer(1)................. 55,859 -- 11,179(2) -- --
John R. Stuelpnagel, Vice
President of Business
Development................ 141,500 12,000 -- -- --
Mark S. Chee, Vice President
of Genomics................ 145,000 7,000 -- -- --
Anthony W. Czarnik, Chief
Scientific Officer......... 185,000 -- -- -- --
Richard J. Pytelewski, Vice
President of Operations.... 158,000 -- 55,025(3) -- --
</TABLE>
- --------
(1) Mr. Flatley joined Illumina in October 1999.
(2) This amount represents an allowance for housing.
(3) This amount represents reimbursement for relocation costs.
Purchases of Restricted Common Stock
We have not granted any options to the named executive officers. However,
each named executive officer has purchased shares of our common stock subject
to a repurchase right in our favor. The repurchase right entitles us to
repurchase unvested shares at their original exercise price on termination of
the executive officer's services with us. Our repurchase rights lapse over time
on employment anniversary dates and upon achievement of business milestones.
For a discussion of each executive officer's restricted stock purchase
agreement, see "Related Party Transactions."
Incentive Stock Plans
1998 Incentive Stock Plan
Our 1998 Incentive Stock Plan was adopted by our board of directors in April
1998 and approved by our stockholders in April 1999. The stock plan was amended
in October 1999 and February 2000. A total of 4,500,000 shares of common stock
have been reserved for issuance under our stock plan.
The 1998 Incentive Stock Plan provides for grants of incentive stock options
to our employees including officers and employee directors and nonstatutory
stock options to our consultants including nonemployee directors. The purpose
of our stock plan is to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to our
employees and consultants and to promote the success of our business. At the
request of the board of directors,
40
<PAGE>
the compensation committee administers our stock plan and determines the
optionees and the terms of options granted, including the exercise price,
number of shares subject to the option and the exercisability thereof.
The term of options granted under the 1998 Incentive Stock Plan is stated in
the option agreement. However, the term of an incentive stock option may not
exceed ten years and, in the case of an option granted to an optionee who owns
more than 10 percent of our outstanding stock at the time of grant, the term of
an option may not exceed five years. Options granted under the 1998 Incentive
Stock Plan vest and become exercisable as set forth in each option agreement.
With respect to any optionee who owns more than 10% of our outstanding
stock, the exercise price of any stock option granted must be at least 110% of
the fair market value on the grant date.
No incentive stock options may be granted to an optionee, which, when
combined with all other incentive stock options becoming exercisable in any
calendar year that are held by that person, would have an aggregate fair market
value in excess of $100,000.
The 1998 Incentive Stock Plan will terminate in April 2008, unless our board
of directors terminates it sooner.
As of March 15, 2000, we had issued 363,071 shares of common stock upon the
exercise of options granted under our stock option plan, we had outstanding
options to purchase 772,295 shares of common stock at a weighted average
exercise price of $0.17 per share and 1,301,884 shares remain available for
future option grants under our stock option plan.
2000 Employee Stock Purchase Plan
Our 2000 employee stock purchase plan was adopted by our board of directors
and approved by our stockholders in February 2000 and 2000, respectively,
and will become effective upon the closing of this offering. We have reserved a
total of 500,000 shares of common stock for issuance under the 2000 employee
stock purchase plan, together with an annual increase in the number of shares
reserved thereunder beginning on the first day of our fiscal year commencing
January 1, 2001 in an amount equal to the lesser of:
. shares;
. percent of our outstanding common stock on the last day of the prior
fiscal year; or
. an amount determined by our board of directors.
Our employee stock purchase plan is administered by the board of directors
and is intended to qualify under Section 423 of the Internal Revenue Code. Our
employees, including our officers and employee directors but excluding our five
percent or greater stockholders, are eligible to participate if they are
customarily employed for at least 20 hours per week and for more than five
months in any calendar year. Our employee stock purchase plan permits eligible
employees to purchase common stock through payroll deductions, which may not
exceed the lesser of 15% of an employee's compensation, where compensation is
defined on Form W-2, or $25,000.
Our employee stock purchase plan will be implemented in a series of
overlapping 24 month offering periods, and each offering period consists of
four six month purchase periods. The initial offering period under our employee
stock purchase plan will begin on the effective date of this offering, and the
subsequent offering periods will begin on the first trading day on or after May
1 and November 1 of each year. Each participant will be granted an option on
the first day of the offering period and the option will be automatically
exercised on the date six months later, the end of a
41
<PAGE>
purchase period, throughout the offering period. If the fair market value of
our common stock on any purchase date is lower than such fair market value on
the start date of that offering period, then all participants in that offering
period will be automatically withdrawn from such offering period and
re-enrolled in the immediately following offering period. The purchase price of
our common stock under our employee stock purchase plan will be 85 percent of
the lesser of the fair market value per share on the start date of the offering
period or at the end of the purchase period. Employees may end their
participation in an offering period at any time, and their participation ends
automatically on termination of employment with our company.
Our employee stock purchase plan will terminate in 2009, unless our
board of directors terminates it sooner.
401(k) Plan
In 1998, we adopted a Retirement Savings and Investment Plan, the 401(k)
Plan, covering our full-time employees located in the United States. The 401(k)
Plan is intended to qualify under Section 401(k) of the Internal Revenues Code,
so that contributions to the 401(k) Plan by employees or by us and the
investment earnings thereon are not taxable to the employees until withdrawn.
If our 401(k) Plan qualifies under Section 401(k) of the Internal Revenues
Code, our contributions will be deductible by us when made. Our employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit of $10,500 in 2000 and to have those funds contributed to the
401(k) Plan. The 401(k) Plan permits us, but does not require us, to make
additional matching contributions on behalf of all participants. To date, we
have not made any contributions to the 401(k) Plan.
Employment Agreements and Change in Control Arrangements
We have not entered into employment or severance agreements with any of our
officers or employees other than Dr. Czarnik. We have agreed to provide Dr.
Czarnik with severance compensation for up to twelve months in an amount equal
to his then annual base salary in the event of his termination without cause.
42
<PAGE>
RELATED PARTY TRANSACTIONS
Stock Issuances to our Directors, Officers and Principal Stockholders
In June 1998, we sold 2,499,998 shares of our Series A preferred stock at a
price per share of $0.30. In November 1998, we sold 9,336,299 shares of our
Series B preferred stock at $0.926 per share. In November and December 1999, we
sold 7,000,000 shares of our Series C preferred stock at $4.00 per share. All
of our preferred stock is convertible into shares of our common stock on a one-
for-one basis.
Since our inception, we have from time to time sold shares of our common
stock, at per share prices ranging from $0.01 per share to $0.40, to our
directors, officers and consultants, subject to a repurchase right in our
favor. The repurchase right entitles us to repurchase unreleased shares at
their original purchase price on termination of the director's, officer's or
consultant's services with us. This right lapses over time pursuant to the
terms of each director's, officer' or consultant's restricted stock purchase
agreements with Illumina. Upon the closing of an acquisition of Illumina for
cash or publicly traded securities, the lapsing of our repurchase right
accelerates as to 50% of each officer's then unreleased shares of common stock,
with the remaining shares being released on the first anniversary of the
closing date of the acquisition. If the acquirer terminates the officer without
cause within one year of the closing date, all remaining unreleased shares of
common stock become immediately released from our repurchase right.
Listed below are those persons who participated in the transactions
described above who are our executive officers or directors or who beneficially
own five percent or more of our securities.
<TABLE>
<CAPTION>
Common Stock Convertible Preferred Stock
----------------------- -------------------------------------------
Aggregate Aggregate
Shares Consideration Series A Series B Series C Consideration
(#) ($) (#) (#) (#) ($)
--------- ------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Executive Officers &
Directors
Jay T. Flatley(1)....... 1,000,000 90,000 -- -- 12,500 50,000
David L. Barker,
Ph.D.(2)............... 250,000 100,000 -- -- -- --
John R. Stuelpnagel,
DVM(3)................. 550,000 49,750 72,399 107,959 6,250 146,720
Mark S. Chee, Ph.D.(4).. 550,000 44,750 5,733 367,060 7,500 371,719
Anthony W. Czarnik,
Ph.D.(5)............... 425,000 6,250 6,551 -- -- 1,965
Robert C. Kain(6)....... 150,000 37,500 -- -- -- --
Richard J.
Pytelewski(7).......... 275,000 9,750 -- -- 5,000 20,000
Charles M. Hartman...... 68,750 688 -- -- -- --
George Poste, DVM,
Ph.D(8)................ 100,000 40,000 -- -- -- --
William H. Rastetter,
Ph.D(9)................ 75,000 14,500 -- -- -- --
David R. Walt,
Ph.D.(10).............. 1,000,000 10,000 266,378 107,960 -- 179,914
5% Stockholders
Entities affiliated with
Venrock Associates..... -- -- -- 2,644,997 625,000 4,950,000
TGI Fund II, L.C. ...... -- -- -- 998,621 750,000 3,925,000
PE Corporation.......... -- -- -- -- 1,250,000 5,000,000
Entities affiliated with
CW Group............... -- -- 1,770,302 2,375,099 575,000 5,031,090
ARCH Venture Fund III,
L.P. .................. -- -- 345,302 2,644,997 625,000 5,053,590
</TABLE>
43
<PAGE>
- --------
(1) Mr. Flatley purchased his shares of comon stock in 1999, at a per share
price of $0.09, pursuant to two restricted stock purchase agreements. Our
right to repurchase 750,000 of these shares lapses over a five-year
period. Our right to repurchase 250,000 of these shares lapses over an
eight-year period, however, the release from repurchase accelerates upon
the achievement of certain milestones by Illumina. The right to repurchase
has lapsed as to no shares as of December 31, 1999.
(2) Dr. Barker purchased his shares of common stock in 2000, at a per share
price of $0.40, pursuant to a restricted stock purchase agreement. Our
right to repurchase these shares lapses over a five-year period. The right
to repurchase has lapsed as to no shares as of December 31, 1999.
(3) Dr. Stuelpnagel purchased his shares of common stock in 1998, 1999 and
2000, at a per share price of $0.01 to $0.40, pursuant to one stock
purchase agreement for 100,000 shares and six restricted stock purchase
agreements for the remaining shares. Our right to repurchase 375,000 of
these shares lapses over four- and five-year periods. Our right to
repurchase 75,000 of these shares lapses over an eight-year period;
however, the release from repurchase accelerates upon the achievement of
certain milestones by Illumina. The right to repurchase has lapsed as to
72,393 shares as of December 31, 1999.
(4) Dr. Chee purchased his shares of common stock in 1998, 1999 and 2000 at a
per share price of $0.01 to $0.40, pursuant to six restricted stock
purchase agreements. Our right to repurchase 450,000 of these shares
lapses over four- and five-year periods. Our right to repurchase 100,000
of these shares lapses over an eight-year period; however, the release
from repurchase accelerates upon the achievement of certain milestones by
Illumina. The right to repurchase has lapsed as to 109,166 shares as of
December 31, 1999.
(5) Dr. Czarnik purchased his shares of common stock in 1998 and 1999, at a
per share price of $0.01 to $0.09, pursuant to two restricted stock
purchase agreements. Our right to repurchase 400,000 of these shares
lapses over a five-year period. Our right to repurchase 25,000 of these
shares lapses over an eight-year period; however, the release from
repurchase accelerates upon the achievement of certain milestones by
Illumina. The right to repurchase has lapsed as to 120,000 shares as of
December 31, 1999.
(6) Mr. Kain purchased his shares of common stock in 2000, at a per share
price of $0.25, pursuant to a restricted stock purchase agreement. Our
right to repurchase these shares lapses over a five-year period. The right
to repurchase has lapsed as to no shares as of December 31, 1999.
(7) Mr. Pytelewski purchased his shares of common stock in 1998 and 1999, at a
per share price of $0.03 to $0.09, pursuant to two restricted stock
purchase agreements. Our right to repurchase 250,000 of these shares
lapses over a five-year period. Our right to repurchase 25,000 of these
shares lapses over an eight-year period; however, the release from
repurchase accelerates upon the achievement of certain milestones by
Illumina. The right to repurchase has lapsed as to 54,166 shares as of
December 31, 1999.
(8) Dr. Poste purchased his shares of common stock in 2000, at a per share
price of $0.40, pursuant to a restricted stock purchase agreement. Our
right to repurchase these shares lapses over a four-year period. The right
to repurchase has lapsed as to no shares as of December 31, 1999.
(9) Dr. Rastetter purchased his shares of common stock in 1999 and 2000, at a
per share price of $0.09 to $0.40, pursuant to two restricted stock
purchase agreements. Our right to repurchase these shares lapses over a
four- and five-year period. The right to repurchase has lapsed as to
10,000 shares as of December 31, 1999.
(10) Dr. Walt purchased his shares of common stock in 1998, at a per share
price of $0.01, pursuant to a restricted stock purchase agreement. Our
right to repurchase these shares lapses over a five-year period. The right
to repurchase has lapsed as to 483,333 shares as of December 31, 1999.
Upon closing of this offering, all shares of outstanding preferred stock
will be automatically converted into shares of common stock. We have entered
into an agreement pursuant to which these and other preferred stockholders will
have registration rights with respect to their shares of common stock following
this offering. For a description of these registration rights, see "Description
of Capital Stock."
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 15, 2000 and as adjusted
to reflect the sale of common stock offered hereby by:
. each stockholder known by us to own beneficially more than five percent
of our common stock;
. each of the named executive officers listed in the Summary Compensation
Table on page 40;
. each of our directors; and
.all of our directors and the named executive officers as a group.
Some of the shares of common stock held by our directors, officers and
consultants are subject to repurchase rights in our favor. For a discussion of
these repurchase rights, see "Related Party Transactions."
<TABLE>
<CAPTION>
Number of
Shares Percent of Shares
Beneficially Beneficially Owned(1)
Owned Prior to ---------------------------------
Name and Address the Offering Before Offering(2) After Offering
- ---------------- -------------- ------------------ --------------
<S> <C> <C> <C>
CW Group(3)................... 4,991,464 20.0%
1041 Third Avenue
New York, NY 10021
ARCH Venture Fund III,
L.P.(4)...................... 3,615,299 14.5
8725 West Higgins Road, Suite
290
Chicago, IL 60631
Venrock Associates(5)......... 3,269,997 13.1
30 Rockefeller Plaza, Room
5508
New York, NY 10112
TGI Fund II, L.C. ............ 1,748,621 7.0
6501 Columbia Center
701 Fifth Avenue
Seattle, WA 98104
David R. Walt(6).............. 1,374,338 5.5
62 Talbot Avenue
Medford, MA 02155
PE Corporation................ 1,250,000 5.0
50 Danbury Road
Wilton, CT 06897
Jay T. Flatley(7)............. 992,000 4.0
Mark S. Chee.................. 921,793 3.7
John R. Stuelpnagel........... 716,608 2.9
Anthony W. Czarnik............ 421,551 1.7
Richard J. Pytelewski......... 280,000 1.1
David L. Barker............... 250,000 1.0
Robert C. Kain................ 150,000 *
George Poste.................. 100,000 *
709 Swedeland
King of Prussia, PA 19406
William H. Rastetter.......... 75,000 *
1101 Torreyana Road
San Diego, CA 92121
Charles H. Hartman(3)......... 4,991,464 20.0
1041 Third Avenue
New York, NY 10021
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Percent of Shares
Beneficially Beneficially Owned(1)
Owned Prior to ---------------------------------
Name and Address the Offering Before Offering(2) After Offering
- ---------------- -------------- ------------------ --------------
<S> <C> <C> <C>
Robert T. Nelsen(4)........... 3,615,299 14.5
8725 West Higgins Road, Suite
290
Chicago, IL 60631
All directors and named
executive officers as a group
(12 persons)................. 13,888,053 55.7
</TABLE>
- --------
* Represents beneficial ownership of less than one percent (1%) of the
outstanding shares of our common stock.
(1) Beneficial ownership is determined 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 stock options and
warrants currently exercisable or exercisable within 60 days are deemed to
be outstanding for computing the percentage ownership of the person holding
such options and the percentage ownership of any group of which the holder
is a member, but are not deemed outstanding for computing the percentage of
any other person. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table have sole
voting and investment power with respect to all shares of common stock
shown beneficially owned by them.
(2) Percentage ownership before the offering is based on the 24,921,785 shares
of common stock outstanding on March 15, 2000, after giving effect to the
conversion of all of our preferred stock into shares of our common stock.
(3) Shares shown as owned by CW Group and Charles H. Hartman, a Director of
Illumina and a partner of CW Group, are owned by entities managed by CW
Group, partners of CW Group and members of their families. Mr. Hartman
disclaims beneficial ownership of the shares shown except shares owned
directly or attributable to his partnership interest.
(4) Shares shown as owned by ARCH Venture Fund III, L.P. and Robert T. Nelsen,
a Director of Illumina and a senior principal of venture capital funds
associated with ARCH Venture Fund III, L.P., are owned by one of such
funds. Mr. Nelsen disclaims beneficial ownership of the shares shown.
(5) Held by Venrock Associates or entities managed by it.
(6) Includes 303,980 shares owned by Dr. Walt's wife.
(7) Includes 12,000 shares owned by Mr. Flatley's children.
Except as otherwise noted above, the address of each person listed on the
table is 9390 Towne Centre Drive, San Diego, California 92121.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue 120,000,000 shares of common stock, $0.01 par
value, and 10,000,000 shares of undesignated preferred stock, $0.01 par value.
Common Stock
Assuming the conversion of all of our preferred stock into 18,836,297 shares
of common stock, as of March 15, 2000 we had 24,921,785 shares of common stock
outstanding that were held of record by approximately 95 stockholders.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably any dividends that may be declared from time to
time by the board of directors out of funds legally available for that purpose.
In the event of our liquidation, dissolution or winding up, the holders of
common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock to be issued upon
the closing of this offering will be fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, our board of directors will have the
authority, without action by our stockholders, to designate and issue up to
10,000,000 shares of preferred stock in one or more series. The board of
directors may also designate the rights, preferences and privileges of each
series of preferred stock; any or all of which may be greater than the rights
of the common stock. It is not possible to state the actual effect of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock until the board of directors determines the specific rights of the
holders of the preferred stock. However, these effects might include:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; and
. delaying or preventing a change in control of our company without further
action by the stockholders.
We have no present plans to issue any shares of preferred stock.
Warrants
As of March 15, 2000 we had outstanding warrants to purchase 43,183 shares
of Series B preferred stock at an exercise price of $0.926 per share. The
warrants will expire in November 2005.
Holders of Registration Rights Can Require Us to Register Shares of Our Stock
for Resale
The holders of 18,836,297 shares of common stock and 43,183 shares of common
stock issuable upon the exercise of warrants or their permitted transferees are
entitled to certain rights with respect to registration of such shares under
the Securities Act of 1933, as amended. These rights are provided under the
terms of our agreement with the holders of registrable securities. Under these
47
<PAGE>
registration rights, holders of at least a majority of the then outstanding
registrable securities may require on two occasions that we register their
shares for public resale. We are obligated to register, on two separate
occasions, these shares if the holders of a majority of the eligible shares
request registration and only if the shares to be registered have an
anticipated public offering price of at least $5,000,000. In addition, holders
of registrable securities may require that we register their shares for public
resale on Form S-3 or similar short-form registration, if we are eligible to
use Form S-3 or similar short-form registration, and the value of the
securities to be registered is at least $1,000,000. If we elect to register any
of our shares of common stock for any public offering, the holders of
registrable securities are entitled to include shares of common stock in the
registration. However we may reduce the number of shares proposed to be
registered in view of market conditions. We will pay all expenses in connection
with any registration, other than underwriting discounts and commissions.
Anti-Takeover Effects of Some Provisions of Delaware Law
Certain provisions of Delaware law and our amended and restated certificate
of incorporation and amended bylaws to be in effect upon the closing of this
offering could make the acquisition of our company through a tender offer, a
proxy contest or other means more difficult and could make the removal of
incumbent officers and directors more difficult. We expect these provisions to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of our company to
first negotiate with our board of directors. We believe that the benefits
provided by our ability to negotiate with the proponent of an unfriendly or
unsolicited proposal outweigh the disadvantages of discouraging such proposals.
We believe the negotiation of an unfriendly or unsolicited proposal could
result in an improvement of its terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
an interested stockholder, unless:
. prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
. the stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes
of determining the number of shares outstanding (a) shares owned by
persons who are directors and also officers, and (b) shares owned by
employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or
. on or subsequent to the date of the transaction, the business combination
is approved by the board and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of
at least 66% of the outstanding voting stock which is not owned by the
interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, did own 15% or more of a
corporation's outstanding voting securities. We expect the existence of this
provision to have an anti-takeover effect with respect to transactions our
board of directors does not approve in advance. We also anticipate that Section
203 may also discourage attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
48
<PAGE>
Anti-Takeover Effects of Certain Provisions of Our Charter Documents
Our amended and restated certificate of incorporation to be in effect upon
the closing of this offering provides for our board of directors to be divided
into three classes serving staggered terms. Approximately one-third of the
board of directors will be elected each year. The provision for a classified
board could prevent a party who acquires control of a majority of the
outstanding voting stock from obtaining control of the board of directors until
the second annual stockholders meeting following the date the acquirer obtains
the controlling stock interest. The classified board provision could discourage
a potential acquirer from making a tender offer or otherwise attempting to
obtain control of our company and could increase the likelihood that incumbent
directors will retain their positions. Our amended and restated certificate of
incorporation to be in effect upon the closing of this offering provides that
directors may be removed:
. with cause by the affirmative vote of the holders of at least a majority
of the outstanding shares of voting stock; or
. without cause by the affirmative vote of the holders of at least 66 2/3%
of the then-outstanding shares of the voting stock.
Our amended bylaws to be in effect upon the closing of this offering
establish an advance notice procedure for stockholder proposals to be brought
before an annual meeting of our stockholders, including proposed nominations of
persons for election to the board of directors. At an annual meeting,
stockholders may only consider proposals or nominations specified in the notice
of meeting or brought before the meeting by or at the direction of the board of
directors. Stockholders may also consider a proposal or nomination by a person
who was a stockholder of record on the record date for the meeting, who is
entitled to vote at the meeting and who has given to our Secretary timely
written notice, in proper form, of his or her intention to bring that business
before the meeting. The amended bylaws do not give the board of directors the
power to approve or disapprove stockholder nominations of candidates or
proposals regarding other business to be conducted at a special or annual
meeting of the stockholders. However, our bylaws may have the effect of
precluding the conduct of certain business at a meeting if the proper
procedures are not followed. These provisions may also discourage or deter a
potential acquirer from conducting a solicitation of proxies to elect the
acquirer's own slate of directors or otherwise attempting to obtain control of
our company.
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the amended
and restated certificate of incorporation or the amended bylaws. Our amended
bylaws authorize a majority of our board of directors, the chairman of the
board or the chief executive officer to call a special meeting of stockholders.
Because our stockholders do not have the right to call a special meeting, a
stockholder could not force stockholder consideration of a proposal over the
opposition of the board of directors by calling a special meeting of
stockholders prior to such time as a majority of the board of directors
believed or the chief executive officer believed the matter should be
considered or until the next annual meeting provided that the requestor met the
notice requirements. The restriction on the ability of stockholders to call a
special meeting means that a proposal to replace the board also could be
delayed until the next annual meeting.
Delaware law provides that stockholders may execute an action by written
consent in lieu of a stockholder meeting. However, Delaware law also allows us
to eliminate stockholder actions by written consent. Elimination of written
consents of stockholders may lengthen the amount of time required to take
stockholder actions since actions by written consent are not subject to the
minimum notice requirement of a stockholder's meeting. However, we believe that
the elimination of stockholders' written consents may deter hostile takeover
attempts. Without the availability of stockholder's actions by written consent,
a holder controlling a majority of our capital stock would not be able to amend
our bylaws or remove directors without holding a stockholders meeting. The
holder
49
<PAGE>
would have to obtain the consent of a majority of the board of directors, the
chairman of the board or the chief executive officer to call a stockholders'
meeting and satisfy the notice periods determined by the board of directors.
Our amended and restated certificate of incorporation to be in effect upon the
closing of this offering provides for the elimination of actions by written
consent of stockholders upon the closing of this offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is . located at
. The transfer agent and registrar's telephone number is ( ) .
Nasdaq Stock Market Listing
We have applied to have our common stock listed on the Nasdaq National
Market for quotation under the symbol "ILMN".
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our stock.
Future sales of substantial amounts of our common stock in the public market
following this offering or the possibility of such sales occurring could
adversely affect prevailing market prices for our common stock or could impair
our ability to raise capital through an offering of equity securities.
After this offering, we will have outstanding shares of common stock,
based upon shares outstanding as of March 15, 2000, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options or
warrants after . All of the shares sold in this offering will be freely
tradable without restriction under the Securities Act except for any shares
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. The remaining 24,921,785 shares of common stock held by
existing stockholders are "restricted" shares as that term is defined in Rule
144 under the Securities Act. We issued and sold the restricted shares in
private transactions in reliance upon exemptions from registration under the
Securities Act. Restricted shares may be sold in the public market only if they
are registered under the Securities Act or if they qualify for an exemption
from registration, such as Rule 144 or 701 under the Securities Act, which are
summarized below.
Our officers, directors and some of our stockholders, who collectively hold
an aggregate of 24,498,827 shares, and the underwriters entered into lock-up
agreements in connection with this offering. These lock-up agreements provide
that, with certain limited exceptions, our officers, directors and certain
other stockholders have agreed not to offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any of our shares for a period of
180 days after the effective date of this offering. Goldman, Sachs & Co. may,
in its sole discretion and at any time without prior notice, release all or any
portion of the shares subject to these lock-up agreements. We have also entered
into an agreement with Goldman, Sachs & Co. that we will not offer, sell or
otherwise dispose of our common stock until 180 days after the effective date
of this offering.
Taking into account the lock-up agreements, the number of shares, other than
shares sold in the offering, that will be available for sale in the public
market under the provisions of Rules 144 and 701, will be as follows:
. 235,458 shares will be eligible for sale at various times between the
date of this offering and the date 90 days after the effective date of
this offering;
. 15,858,736 shares will be eligible for sale beginning 180 days after the
effective date of this offering;
. 8,827,591 shares will be eligible for sale at various times thereafter
upon the expiration of applicable holding periods; and
. 114,665 shares will be eligible for sale upon exercise of vested options
90 days after the date of this prospectus and an additional 39,347
shares will be eligible for sale upon the exercise of vested options 180
days after the date of this prospectus.
Following the expiration of the lock-up period, shares issued upon exercise
of options granted by us prior to the completion of this offering will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act unless those shares are held by one of our affiliates, directors
or officers.
Rule 701 permits resale of shares in reliance upon Rule 144 but without
compliance with certain restrictions of Rule 144, including the holding period
requirement. In general, under Rule 144 as currently in effect, a person, or
persons whose shares are aggregated, who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an
51
<PAGE>
affiliate, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after the
offering, or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been an
affiliate of our company at any time during the three months preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years including the holding period of any prior owner except an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares under a written compensatory plan or
contract to resell these shares in reliance upon Rule 144 but without
compliance with specific restrictions. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell these shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
We intend to file, shortly after the effectiveness of this offering, a
registration statement on Form S-8 under the Securities Act covering all shares
of common stock reserved for issuance under the stock plans and subject to
outstanding options under our 1998 Incentive Stock Plan. See "Management--Stock
Plans". Shares of common stock issued upon exercise of options under the Form
S-8 will be available for sale in the public market, subject to Rule 144 volume
limitations applicable to affiliates and subject to the contractual
restrictions described above. As of March 15, 2000, options to purchase 772,995
shares of common stock were outstanding, of which approximately 35,752 options
were then vested and exercisable. Beginning 180 days after the effective date
of this offering, approximately 154,012 shares issuable upon the exercise of
vested stock options will become eligible for sale in the public market, if
such options are exercised.
Following this offering, the holders of an aggregate of shares of
outstanding common stock and shares of common stock issuable upon the
exercise of warrants have the right to require us to register their shares for
sale upon meeting certain requirements. See "Description of Capital Stock--
Registration Rights" for additional information regarding registration rights.
52
<PAGE>
UNDERWRITING
Illumina and the underwriters for the offering named below have entered into
an underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co., Chase
Securities Inc. and SG Cowen Securities Corporation are the representatives of
the underwriters.
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ ------
<S> <C>
Goldman, Sachs & Co. ...............................................
Chase Securities Inc. ..............................................
SG Cowen Securities Corporation ....................................
--------
Total.............................................................
========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from us to cover such sales. They may exercise that option for 30 days.
If any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Illumina. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Illumina
----------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.
Illumina and its directors, officers, and principal shareholders have agreed
with the underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180
days after the date of this prospectus, except with the prior written consent
of the representatives. This restriction does not apply to any issuances under
existing employee benefit plans. See "Shares Eligible For Future Sale" for a
discussion of certain transfer restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Illumina and the
representatives. Among the factors considered in determining the initial public
offering price of the shares, in addition to prevailing market conditions, are
Illumina's historical performance, estimates of Illumina's business potential
and earnings prospects, an assessment of Illumina's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
53
<PAGE>
Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "ILMN".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of this underwriter in stabilizing or short-sale
covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At Illumina's request, the underwriters have reserved up to shares of
the common stock offered hereby for sale, at the initial public offering price,
to customers and other friends of Illumina through a directed share program.
The number of shares available for sale to the general public will be reduced
to the extent these persons purchase the reserved shares. There can be no
assurance that any of the reserved shares will be so purchased. Any reserved
shares not so purchased will be offered by the underwriters to the general
public on the same basis as other shares offered hereby.
Illumina estimates that its share of the total expenses of the offering,
excluding the underwriting discount, will be approximately $ .
Illumina has agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act of 1933.
54
<PAGE>
VALIDITY OF THE SECURITIES
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, and for the underwriters by Sullivan & Cromwell, Washington, D.C.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999, and for the period from April 28,
1998 (inception) through December 31, 1998 and the year ended December 31,
1999, as set forth in their report, which is included in this Prospectus and in
the registration statement. Our financial statements are included in reliance
on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.,
a registration statement on Form S-1 under the Securities Act with respect to
the shares of common stock offered hereby. This prospectus does not contain all
the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and our common
stock, you should refer to the registration statement and to the exhibits and
schedules filed therewith. Statements contained in this prospectus that
describe the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of the contract or
other document filed as an exhibit to the registration statement, each
statement being qualified in all respects by this reference. A copy of the
registration statement may be inspected by anyone without charge at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all or any portion of
the registration statement may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
prescribed fees. The public may obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Balance Sheets as of December 31, 1998 and 1999............................ F-3
Statements of Operations for the period from April 28, 1998 (inception) to
December 31, 1998 and for the year ended December 31, 1999................ F-4
Statements of Stockholders' Equity for the period from April 28, 1998
(inception) to December 31, 1999.......................................... F-5
Statements of Cash Flows for the period from April 28, 1998 (inception) to
December 31, 1998 and for the year ended December 31, 1999................ F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Illumina, Inc.
We have audited the accompanying balance sheets of Illumina, Inc. as of
December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for the period from April 28, 1998
(inception) to December 31, 1998 and for the year ended December 31, 1999.
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 Illumina, Inc. at December
31, 1998 and 1999, and the results of its operations and its cash flows for the
period from April 28, 1998 (inception) to December 31, 1998 and for the year
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
San Diego, California
February 29, 2000,
except for Note 8, as to which the date is
March 3, 2000
F-2
<PAGE>
ILLUMINA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro forma
stockholders'
December 31, equity as of
------------------------ December 31,
1998 1999 1999
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 8,233,729 $21,164,114
Investments, available for sale...... -- 11,924,163
Accounts receivable, net............. -- 49,818
Other receivable..................... 102,988 259,117
Prepaid expenses and other current
assets.............................. 71,532 95,833
----------- -----------
Total current assets............... 8,408,249 33,493,045
Property and equipment, net............ 1,000 291,314
Intangible assets, net................. 113,600 75,733
Other assets........................... 34,566 34,566
----------- -----------
Total assets....................... $ 8,557,415 $33,894,658
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................... $ 129,985 $ 318,219
Accrued liabilities.................. 45,685 292,689
Note payable......................... 1,500 1,500
----------- -----------
Total current liabilities.......... 177,170 612,408
Deferred revenue....................... -- 1,250,000
Commitments
Stockholders' equity:
Convertible preferred stock, no par
value, 50,000,000 shares authorized;
11,836,297 and 18,836,297 shares
issued and outstanding at December
31, 1998 and 1999, respectively;
10,000,000 shares $.01 par value,
authorized: no shares issued and
outstanding pro forma............... 9,397,998 37,397,998 $ --
Common stock, $.01 par value,
60,000,000 shares authorized;
3,456,000 and 5,139,083 shares
issued and outstanding at December
31, 1998 and 1999, respectively;
120,000,000 shares authorized;
23,975,380 shares issued and
outstanding pro forma............... 34,560 51,391 239,754
Additional paid-in capital........... 380,202 5,288,231 42,497,866
Deferred compensation................ (286,895) (4,026,916) (4,026,916)
Unrealized loss on investments....... -- (10,689) (10,689)
Note receivable...................... -- (4,500) (4,500)
Accumulated deficit.................. (1,145,620) (6,663,265) (6,663,265)
----------- ----------- -----------
Total stockholders' equity......... 8,380,245 32,032,250 $32,032,250
----------- ----------- ===========
Total liabilities and stockholders'
equity............................ $ 8,557,415 $33,894,658
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
ILLUMINA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
April 28,
1998
(inception) Year ended
to December December
31, 1998 31, 1999
----------- -----------
<S> <C> <C>
Revenue.............................................. $ -- $ 474,026
Costs and expenses:
General and administrative......................... 345,080 1,348,870
Research and development........................... 770,901 4,047,876
Amortization of deferred compensation and
other non-cash compensation charges............... 78,187 957,822
----------- -----------
Total costs and expenses......................... 1,194,168 6,354,568
----------- -----------
Loss from operations................................. (1,194,168) (5,880,542)
Interest income, net ................................ 48,548 400,764
Amortization expense................................. -- (37,867)
----------- -----------
Net loss............................................. $(1,145,620) $(5,517,645)
=========== ===========
Historical net loss per share, basic and diluted..... $ (1.71) $ (3.91)
=========== ===========
Shares used in calculating historical net loss per
share, basic and diluted............................ 668,748 1,410,225
Pro forma net loss per share, basic and diluted...... $ (0.40)
===========
Shares used in calculating pro forma net loss per
share, basic and diluted............................ 13,696,522
</TABLE>
See accompanying notes.
F-4
<PAGE>
ILLUMINA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Period from April 28, 1998 (inception) to December 31, 1999
<TABLE>
<CAPTION>
Convertible
preferred stock Common stock Additional Unrealized
---------------------- ------------------ paid-in Deferred loss on Note Accumulated
Shares Amount Shares Amount capital compensation investments receivable deficit
---------- ----------- --------- ------- ---------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April
28, 1998......... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock
including sale
of restricted
stock at $.01 to
$.03 per share
for cash........ -- -- 3,456,000 34,560 15,120 -- -- -- --
Issuance of
Series A
preferred stock
at $.30 per
share for cash.. 2,499,998 749,999 -- -- -- -- -- -- --
Issuance of
Series B
preferred stock
at $.926 per
share for cash.. 9,212,147 8,533,000 -- -- -- -- -- -- --
Issuance of
Series B
preferred stock
at $.926 per
share for
nGenetics
acquisition..... 124,152 114,999 -- -- -- -- -- -- --
Deferred
compensation
related to stock
options and
restricted
stock........... -- -- -- -- 319,818 (319,818) -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- 32,923 -- -- --
Deferred
compensation
related to
restricted stock
purchased by
consultants..... -- -- -- -- 45,264 -- -- -- --
Net loss and
comprehensive
loss............ -- -- -- -- -- -- -- -- (1,145,620)
---------- ----------- --------- ------- ---------- ----------- -------- ------- -----------
Balance at
December 31,
1998............. 11,836,297 9,397,998 3,456,000 34,560 380,202 (286,895) -- -- (1,145,620)
Issuance of
common stock
including sale
of restricted
stock and
exercise of
stock options
for cash and
note receivable. -- -- 1,664,416 16,644 109,527 -- -- (4,500) --
Issuance of
common stock for
technology...... -- -- 35,000 350 100,986 -- -- -- --
Repurchase of
restricted
common stock.... -- -- (16,333) (163) (327) -- -- -- --
Issuance of
Series C
preferred stock
at $4.00 per
share for cash.. 7,000,000 28,000,000 -- -- -- -- -- -- --
Deferred
compensation
related to stock
options and
restricted
stock........... -- -- -- -- 4,334,469 (4,334,469) -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- 594,448 -- -- --
Deferred
compensation
related to
restricted stock
purchased by
consultants..... -- -- -- -- 363,374 -- -- -- --
Comprehensive
loss:
Unrealized loss
on investments.. -- -- -- -- -- -- (10,689) -- --
Net loss........ -- -- -- -- -- -- -- -- (5,517,645)
Comprehensive
loss............ -- -- -- -- -- -- -- -- --
---------- ----------- --------- ------- ---------- ----------- -------- ------- -----------
Balance at
December 31,
1999............. 18,836,297 $37,397,998 5,139,083 $51,391 $5,288,231 $(4,026,916) $(10,689) $(4,500) $(6,663,265)
========== =========== ========= ======= ========== =========== ======== ======= ===========
<CAPTION>
Total
stockholders'
equity
-------------
<S> <C>
Balance at April
28, 1998......... $ --
Issuance of
common stock
including sale
of restricted
stock at $.01 to
$.03 per share
for cash........ 49,680
Issuance of
Series A
preferred stock
at $.30 per
share for cash.. 749,999
Issuance of
Series B
preferred stock
at $.926 per
share for cash.. 8,533,000
Issuance of
Series B
preferred stock
at $.926 per
share for
nGenetics
acquisition..... 114,999
Deferred
compensation
related to stock
options and
restricted
stock........... --
Amortization of
deferred
compensation.... 32,923
Deferred
compensation
related to
restricted stock
purchased by
consultants..... 45,264
Net loss and
comprehensive
loss............ (1,145,620)
-------------
Balance at
December 31,
1998............. 8,380, 245
Issuance of
common stock
including sale
of restricted
stock and
exercise of
stock options
for cash and
note receivable. 121,671
Issuance of
common stock for
technology...... 101,336
Repurchase of
restricted
common stock.... (490)
Issuance of
Series C
preferred stock
at $4.00 per
share for cash.. 28,000,000
Deferred
compensation
related to stock
options and
restricted
stock........... --
Amortization of
deferred
compensation.... 594,448
Deferred
compensation
related to
restricted stock
purchased by
consultants..... 363,374
Comprehensive
loss:
Unrealized loss
on investments.. (10,689)
Net loss........ (5,517,645)
-------------
Comprehensive
loss............ (5,528,334)
-------------
Balance at
December 31,
1999............. $32,032,250
=============
</TABLE>
See accompanying notes.
F-5
<PAGE>
ILLUMINA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
April 28, 1998
(inception) to Year ended
December 31, December
1998 31, 1999
-------------- -----------
<S> <C> <C>
Operating activities
Net loss........................................... $(1,145,620) $(5,517,645)
Adjustments to reconcile net loss to net cash used
in operating activities:
Write-off of assets purchased in exchange for
Series B preferred stock........................ 399 --
Issuance of stock for technology................. -- 101,336
Depreciation and amortization.................... -- 42,841
Amortization of premium on investments........... -- 53,526
Amortization of deferred compensation and other
non-cash compensation charges................... 78,187 957,822
Changes in operating assets and liabilities:
Prepaid expenses and other current assets...... (71,532) (24,301)
Accounts receivable............................ -- (49,818)
Other receivable............................... (102,988) (156,129)
Deferred revenue............................... -- 1,250,000
Other assets................................... (34,566) --
Accounts payable............................... 129,985 188,234
Accrued liabilities............................ 45,685 247,004
----------- -----------
Net cash used in operating activities........ (1,100,450) (2,907,130)
Investing activities
Purchase of investment securities.................. -- (16,244,380)
Maturity of investment securities.................. -- 4,256,000
Purchase of property and equipment................. -- (295,286)
----------- -----------
Net cash used in investing activities.............. -- (12,283,666)
Financing activities
Proceeds from note payable......................... 1,500 --
Proceeds from issuance of common stock, net of
repurchased shares................................ 49,680 121,181
Net proceeds from issuance of Series A preferred
stock............................................. 749,999 --
Net proceeds from issuance of Series B preferred
stock............................................. 8,533,000 --
Net proceeds from issuance of Series C preferred
stock............................................. -- 28,000,000
----------- -----------
Net cash provided by financing activities.......... 9,334,179 28,121,181
----------- -----------
Net increase in cash and cash equivalents.......... 8,233,729 12,930,385
Cash and cash equivalents at beginning of the
period............................................ -- 8,233,729
----------- -----------
Cash and cash equivalents at end of the period..... $ 8,233,729 $21,164,114
=========== ===========
Non-cash investing and financing transactions:
Purchase of property and equipment and intangible
assets in exchange for Series B preferred stock... $ 114,999 $ --
=========== ===========
Issuance of stock for stock subscription
receivable........................................ $ -- $ 4,500
=========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Summary of Significant Accounting Policies
Organization and Business
Illumina, Inc. (the "Company") was incorporated on April 28, 1998. The
Company is developing next-generation tools that will permit the large-scale
analysis of genetic variation and function. The Company's proprietary BeadArray
technology will provide the throughput, cost effectiveness and flexibility
necessary to enable researchers in the life sciences and pharmaceutical
industries to perform the billions of tests necessary to extract medically
valuable information from advances in genomics. This information will correlate
genetic variation and gene function with particular disease states, enhancing
drug discovery, allowing diseases to be detected earlier and more specifically
and permitting better choices of drugs for individual patients. In addition to
the life sciences and pharmaceutical industries, the Company's technology will
have applicability across a wide variety of industries, including agriculture,
petrochemicals and food, flavor and beverages.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid investments with an
original maturity of less than three months when purchased.
Investments
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
115, Accounting for Certain Investments in Debt and Equity Securities, to its
investments. Under SFAS No. 115, the Company classifies its investments as
"Available-for-Sale" and records such assets at estimated fair value in the
balance sheet, with unrealized gains and losses, if any, reported in
stockholders' equity.
At December 31, 1999, investments consist of the following:
<TABLE>
<CAPTION>
Unrealized
Amortized Market gain
cost value (loss)
----------- ----------- ----------
<S> <C> <C> <C>
Corporate debt securities................ $11,935,562 $11,924,163 $(11,399)
----------- ----------- --------
$11,935,562 $11,924,163 $(11,399)
=========== =========== ========
</TABLE>
The Company has an unrealized gain of $710 related to cash equivalents,
resulting in total unrealized losses of $10,689 at December 31, 1999.
There were no material realized gains or losses for the year ended December
31, 1999.
F-7
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The amortized cost and estimated fair value of corporate debt securities at
December 31, 1999, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Cost Fair Value
----------- -----------
<S> <C> <C>
Due in one year or less............................. $ 4,883,296 $ 4,874,765
Due after one year through three years.............. 7,052,266 7,049,398
----------- -----------
$11,935,562 $11,924,163
=========== ===========
</TABLE>
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
short-term investments. The Company limits its exposure to credit loss by
placing its cash and investments with high credit quality financial
institutions.
Fair Value of Financial Instruments
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, are carried at cost,
which management believes approximates fair value.
Property and Equipment
Property and equipment are stated at cost and depreciated over the estimated
useful lives of the assets (generally three to five years) using the straight-
line method. Amortization of leasehold improvements is computed over the
shorter of the lease term or the estimated useful life of the related assets.
Acquired Technology Rights
The intangible assets consist of acquired technology rights related to the
acquisition of nGenetics in 1998. The purchase price was $114,999, consisting
of 124,152 shares of Series B preferred stock, valued at $0.926 per shares, the
selling price paid in cash by outside investors in a contemporaneous selling of
stock.
In accordance with APB 17, Accounting for Intangible Assets, the acquired
technology rights are recorded at cost. The rights related to the acquired
technology are being amortized over its estimated useful life (four years) and
the Company has amortized approximately $38,000 through December 31, 1999.
Long-Lived Assets
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, if indicators of impairment
exist, the Company assess the recoverability of the affected long-lived assets
by determining whether the carrying value of such assets can be recovered
through undiscounted future operating cash flows. If impairment is
F-8
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
indicated, the Company measures the future cash flows associated with the use
of the asset. While the Company's current and historical operating and cash
flow losses are indicators of impairment, the Company believes the future cash
flows to be received from the long-lived assets will exceed the assets'
carrying value, and accordingly the Company has not recognized any impairment
losses through December 31, 1999.
Revenue Recognition
Revenue from grants is recognized on a percentage of completion basis as
related costs are incurred, provided that amounts earned are not subject to
refund if the research is unsuccessful. Payments received in advance of the
performance or product sale requirements are deferred until the related
performance or product sale requirements have been completed.
Research and Development
Expenditures relating to research and development are expensed in the period
incurred.
Income Taxes
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred income tax asset or liability is
computed for the expected future impact of differences between the financial
reporting and tax bases of assets and liabilities, as well as the expected
future tax benefit to be derived from tax loss and credit carryforwards.
Deferred income tax expense is generally the net change during the year in the
deferred income tax asset or liability. Valuation allowances are established
when realizability of deferred tax assets is uncertain. The effect of tax rate
changes is reflected in tax expense during the period in which such changes are
enacted.
Stock-Based Compensation
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company accounts for common stock options granted, and restricted stock sold,
to employees, founders and directors using the intrinsic value method and,
thus, recognizes no compensation expense for options granted, or restricted
stock sold, with exercise prices equal to or greater than the fair value of the
Company's common stock on the date of the grant. The Company has recorded
deferred stock compensation related to certain stock options, and restricted
stock, which were granted with exercise prices below estimated fair value (see
Note 3), which is being amortized on an accelerated amortization methodology in
accordance with FIN 28.
Deferred compensation for options granted, and restricted stock sold, to
consultants has been determined in accordance with SFAS No. 123 and EITF 96-18
as the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measured. Deferred charges for
options granted, and restricted stock sold, to consultants are periodically
remeasured as the underlying options vest.
Comprehensive Loss
In accordance with SFAS No. 130, Reporting Comprehensive Income, the Company
has disclosed comprehensive loss as a component of stockholders' equity.
F-9
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity with
SFAS No. 128, Earnings per Share, and SAB 98, for all periods presented. Under
the provisions of SAB 98, common stock and convertible preferred stock that has
been issued or granted for nominal consideration prior to the anticipated
effective date of the initial public offering must be included in the
calculation of basic and diluted net loss per common share as if these shares
had been outstanding for all periods presented. To date, the Company has not
issued or granted shares for nominal consideration.
In accordance with SFAS No. 128, basic and diluted net loss per share has
been computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Pro forma
basic and diluted net loss per common share, as presented in the statements of
operations, has been computed for the year ended December 31, 1999 as described
above, and also gives effect to the assumed conversion of preferred stock which
will automatically convert to common stock immediately prior to the completion
of the Company's initial public offering (using the "as if converted" method)
from the original date of issuance.
The following table presents the calculation net loss per share:
<TABLE>
<CAPTION>
Period from
April 28,
1998
(inception) Year ended
to December December
31, 1998 31, 1999
----------- -----------
<S> <C> <C>
Net loss............................................. $(1,145,620) $(5,517,645)
=========== ===========
Basic and diluted net loss per share................. $ (1.71) $ (3.91)
=========== ===========
Weighted-average shares used in computing historical
net loss per share, basic and diluted............... 668,748 1,410,225
Pro forma net loss per share, basic and diluted...... $ (0.26) $ (0.40)
=========== ===========
Shares used above.................................... 668,748 1,410,225
Pro forma adjustment to reflect weighted-average
effect of assumed conversion of convertible
preferred stock................................... 3,784,570 12,286,297
----------- -----------
Shares used in computing pro forma net loss per
share, basic and diluted.......................... 4,453,318 13,696,522
</TABLE>
The Company has excluded all convertible preferred stock, outstanding stock
options and warrants, and shares subject to repurchase from the calculation of
diluted loss per common share because all such securities are antidilutive for
all periods presented. The total number of shares excluded from the calculation
of diluted net loss per share, prior to application of the treasury stock
method for options and warrants, was 14,919,900 and 22,649,271 for the period
from April 28, 1998 (inception) through December 31, 1998 and the year ended
December 31, 1999, respectively. Such securities, had they been dilutive, would
have been included in the computation of diluted net loss per share.
Pro Forma Stockholders' Equity
Unaudited pro forma stockholders' equity at December 31, 1999 includes the
conversion of all outstanding shares of preferred stock into common stock.
F-10
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Segment Reporting
The Company has determined that it operates in only one segment.
Effect of New Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
will be effective January 1, 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded 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 fair value be
recognized in earnings unless specific hedge accounting criteria are met. The
Company believes the adoption of SFAS No. 133 will not have an effect on the
financial statements because the Company does not engage in derivative or
hedging activities.
2. Balance Sheet Account Details
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ --------
<S> <C> <C>
Laboratory equipment........................................ $ -- $271,250
Computer equipment.......................................... 1,000 24,487
Furniture and fixtures...................................... -- 549
------ --------
1,000 296,286
Accumulated depreciation and amortization................... -- (4,972)
------ --------
Total..................................................... $1,000 $291,314
====== ========
</TABLE>
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- --------
<S> <C> <C>
Compensation................................................ $19,196 $ 94,236
Professional fees........................................... 26,489 103,771
Other....................................................... -- 94,682
------- --------
Total..................................................... $45,685 $292,689
======= ========
</TABLE>
3. Stockholders' Equity
Common stock
The Company has sold, net of repurchased shares, 2,989,083 shares of common
stock at $0.01 per share, 748,000 shares at $0.03 per share and 1,402,000
shares at $0.09 per share, of which 4,206,667 shares were sold to employees and
consultants and subject to restricted stock agreements. The common shares vest
in accordance with the provisions of the agreements, generally over five years.
All unvested shares are subject to repurchase by the Company at the original
purchase price. As of December 31, 1999, 3,143,447 shares of common stock were
subject to repurchase.
F-11
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Convertible Preferred Stock
A summary of convertible preferred stock issued and outstanding as of
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Liquidation
Shares Preference
---------- -----------
<S> <C> <C>
Series A.............................................. 2,499,998 $ 749,999
Series B.............................................. 9,336,299 8,647,999
Series C.............................................. 7,000,000 28,000,000
---------- -----------
18,836,297 $37,397,998
========== ===========
</TABLE>
At December 31, 1999, the Company had 2,500,000 shares of Convertible Series
A preferred stock and 2,500,000 shares of Convertible Series A-1 preferred
stock authorized, of which 2,499,998 shares of the Series A preferred stock
were issued and outstanding. The Series A preferred stock was issued at $0.30
per share for cash.
In addition, the Company had 12,000,000 shares of Convertible Series B
preferred stock and 12,000,000 shares of Convertible Series B-1 preferred stock
authorized, of which 9,336,299 shares of Series B preferred stock were issued
and outstanding. The Company issued 9,212,147 shares of Series B preferred
stock at $0.926 per share for cash and 124,152 shares of Series B preferred
stock at $0.926 per share in conjunction with the purchase of the net assets of
nGenetics in 1998.
The Company also has 7,000,000 shares of Convertible Series C preferred
stock and 7,000,000 shares of Convertible Series C-1 preferred stock
authorized. During November and December 1999, the Company sold 7,000,000
shares of Series C convertible preferred stock at $4.00 per share for cash. As
more fully discussed in Note 4, the Company sold 1,250,000 of these shares as
part of a collaborative agreement with PE Corporation. The remaining 5,750,000
Series C shares were sold to institutional investors after the completion of
the PE collaboration.
The Series A, A-1, B, B-1, C, and C-1 preferred stock are convertible, at
the option of the holder, at any time after the date of issuance, into shares
of common stock. The preferred stock will automatically be converted into
shares of common stock at the then effective conversion price (currently a one-
for-one conversion ratio) (i) upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933 with a sale price per share of common stock of
at least $4.50 and with aggregate proceeds of at least $15,000,000, or (ii)
upon the approval of the holders of more than 66 2/3% of the outstanding shares
of each series of preferred stock. Each holder of Series A, B and C convertible
preferred stock is entitled to one vote for each share of common stock into
which such convertible preferred share would convert.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of preferred stock are entitled to receive their liquidation value
prior and in preference to any distribution of the assets or surplus funds of
the Company to the holders of common stock. If, upon the occurrence of such
event, the assets and funds distributed among the holders of preferred stock
are insufficient to permit full payment, the entire assets and funds of the
Company would be distributed among the preferred stockholders in proportion to
the product of the liquidation preference of each such share and the number of
such shares owned by each such holder. The holders of Series A, B and C
convertible preferred stock are entitled to receive liquidation preferences
over the common stockholders at the rate of $0.30, $0.926, and $4.00 per share,
respectively.
F-12
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Warrants
In connection with a lease financing facility (Note 5), in 1998 the Company
issued to Comdisco warrants to purchase 43,183 shares of common stock at $.926
per share. Comdisco may exercise the warrants, in whole or in part, until
November 17, 2005, or 3 years after the closing date of the Company's initial
public offering, whichever is later.
Stock Options
In 1998, the Company adopted the 1998 Incentive Stock Plan (the "Plan") and
reserved 3,000,000 shares of common stock for grants under the Plan. The Plan
provides for the grant of incentive and nonstatutory stock options, stock
bonuses and rights to purchase stock to employees, directors or consultants of
the Company. The Plan provides that incentive stock options will be granted
only to employees at no less than the fair value of the Company's common stock
(no less than 110% of the fair value for nonstatutory stock options), as
determined by the board of directors at the date of the grant. Options
generally vest 20% one year from the date of grant and ratably each month
thereafter for a period of 48 months and expire up to ten years from date of
grant.
A summary of the Company's stock option activity from April 28, 1998
(inception) through December 31, 1999 follows:
<TABLE>
<CAPTION>
Weighted-
Average
Options Exercise Price
-------- --------------
<S> <C> <C>
Outstanding at April 28, 1998 (inception)........... -- $ --
Granted............................................. 525,000 $0.02
--------
Outstanding at December 31, 1998.................... 525,000 $0.02
Granted............................................. 495,200 $0.10
Exercised........................................... (297,416) $0.01
Cancelled........................................... (77,584) $0.03
--------
Outstanding at December 31, 1999.................... 645,200 $0.08
========
</TABLE>
At December 31, 1999, options to purchase approximately 45,231 shares were
exercisable and 530,634 shares remain available for future grant.
Following is a further breakdown of the options outstanding as of December
31, 1999:
<TABLE>
<CAPTION>
Weighted
Weighted average
average Weighted exercise price
Range of Options remaining life average Options of options
exercise prices outstanding in years exercise price exercisable exercisable
--------------- ----------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.03 165,000 3.7 $0.03 41,499 $0.03
$0.09 442,200 4.3 $0.09 3,732 $0.09
$0.25 38,000 4.9 $0.25 -- $0.25
------- ------
645,200 45,231
======= ======
</TABLE>
Pro forma information regarding net loss is required by SFAS No. 123 and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that statement. The fair value for these options
was estimated at the dates of grant using the minimum
F-13
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
value option pricing model with the following weighted-average assumptions for
1999 and 1998: (a) weighted average risk-free interest rate of 6.5%, (b)
expected dividend yield of 0%, and (c) five year estimated life of the options.
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the vesting period. The Company's
adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
Period from
April 28, 1998
(inception) to Year ended
December 31, December
1998 31, 1999
-------------- -----------
<S> <C> <C>
Adjusted pro forma net loss...................... $(1,090,810) $(4,868,655)
Adjusted pro forma basic net loss per share...... $ (1.63) $ (3.45)
</TABLE>
The pro forma effect on net loss presented is not likely to be
representative of the pro forma effects on reported net income or loss in
future years because these amounts reflect less than five years of vesting.
Deferred Stock Compensation
Since the inception of the Company, in connection with the grant of certain
stock options and sales of restricted stock to employees, founders and
directors through December 31, 1999, the Company has recorded deferred stock
compensation totaling approximately $4.7 million, representing the difference
between the exercise or purchase price and the fair value of the Company's
common stock as estimated by the Company's management for financial reporting
purposes on the date such stock options were granted or restricted common stock
was sold. Deferred compensation is included as a reduction of stockholders'
equity and is being amortized to expense over the vesting period of the options
and restricted stock. During the year ended December 31, 1999, the Company
recorded amortization of deferred stock compensation expense of approximately
$0.6 million.
Shares Reserved for Future Issuance
At December 31, 1999, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock......................... 18,836,297
1998 Incentive Stock Plan......................................... 1,175,834
Warrants.......................................................... 43,183
----------
20,055,314
==========
</TABLE>
4. Collaborative Agreements
PE Corporation
In November 1999, the Company signed a collaborative agreement with PE
Corporation ("PE") under which the Company will perform certain research
activities with an objective of developing and commercializing products
utilizing the Company's technology. In conjunction with the agreement,
PE purchased 1,250,000 shares of Series C convertible preferred stock, at $4.00
per share. PE and the Company will share the gross margins less certain
expenses on the sales of any products
F-14
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
resulting from the collaboration, and the advances from PE to support the
Company's research and development will be reimbursed to PE out of future
sales, if any, through the gross margin allocation computation, as defined in
the agreement with PE. All payments received are nonrefundable, however, PE is
not obligated to provide additional funding beyond its initial commitment until
the Company has achieved certain scientific milestones. The Company has
deferred these advances, and will recognize them as revenue in conjunction with
the sale of any commercial products resulting from the development efforts.
Other Agreements
The Company has various research agreements with governmental and academic
organizations for which the Company performs research activities. These
organizations fund the research efforts, the revenue for which is recognized as
the procedures are performed.
5. Commitments
Leases
The Company leases its primary office facility under an operating lease with
options to renew under varying terms. In addition, the Company entered into a
$1,000,000 lease financing arrangement with a lease financing corporation. As
of December 31, 1999, the Company had utilized all funds available under the
lease arrangement.
At December 31, 1999, annual future minimum rental payments under the
Company's operating leases for the years ending December 31 are as follows:
<TABLE>
<S> <C>
2000............................................................. $ 656,246
2001............................................................. 379,718
2002............................................................. 177,655
----------
Total minimum lease payments................................... $1,213,619
==========
</TABLE>
Rent expense for the period from April 28, 1998 to December 31, 1998 and the
year ended December 31, 1999 was $138,264 and $620,387, respectively.
6. Income Taxes
At December 31, 1999, the Company has federal and state tax net operating
loss carryforwards of approximately $5,119,000 and $5,262,000, respectively.
The federal and state tax loss carryforwards will begin expiring in 2018 and
2006, respectively, unless previously utilized. The Company also has federal
and state research and development tax credit carryforwards of approximately
$318,000 and $175,000, respectively, which will begin to expire in 2018, unless
previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of
the Company's net operating loss and credit carryforwards may be limited in the
event of a cumulative change in ownership of more than 50% within a three year
period.
F-15
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred tax assets as of December
31, 1999 are shown below. A valuation allowance has been recognized as of
December 31, 1999 to offset the deferred tax assets as realization of such
assets is uncertain.
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 2,094,000
Research and development credit carryforwards............. 431,000
Other..................................................... 224,000
-----------
Total deferred tax assets............................... $ 2,749,000
Valuation allowance for deferred tax assets................. (2,749,000)
-----------
Net deferred taxes.......................................... $ --
===========
</TABLE>
7. Retirement Plan
The Company has a 401(k) savings plan covering substantially all of its
employees. Company contributions to the plan are discretionary and no such
contributions were made in 1999.
8. Subsequent Events
Initial Public Offering
In February 2000, the board of directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the initial public offering is closed under the terms presently
anticipated, all of the preferred stock outstanding will automatically convert
into 18,836,297 shares of common stock. Unaudited pro forma stockholders'
equity, as adjusted for the assumed conversion of the preferred stock, is set
forth on the balance sheet.
2000 Employee Stock Purchase Plan
In February 2000, the board of directors adopted the 2000 Employee Stock
Purchase Plan (the "Purchase Plan"). A total of 500,000 shares of the Company's
common stock have been reserved for issuance under the Purchase Plan. The
Purchase Plan permits eligible employees to purchase common stock at a
discount, but only through payroll deductions, during defined offering periods.
The price at which stock is purchased under the Purchase Plan is equal to 85%
of the fair market value of the common stock on the first or last day of the
offering period, whichever is lower. The initial offering period will commence
on the effective date of the offering. In addition, the Purchase Plan provides
for annual increases of shares available for issuance under the Purchase Plan
beginning with fiscal 2001.
Modification of Consulting Agreements
In February 2000, the Company modified the consulting agreements with all of
its outside consultants. Under the modified consulting agreements, the
consultants agreed to pay a substantial financial penalty if they did not
fulfill their performance obligations under the agreements. The amount of the
penalty was determined for each consultant based on the intrinsic value of the
unvested restricted common stock based on the original purchase price and the
fair value of the common stock as estimated by the Company's management for
financial reporting purposes on the date of modification. Each consultant had
already vested in a portion of the original restricted common stock
F-16
<PAGE>
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
in accordance with the services already provided, and the amounts related to
the vested common stock was expensed. The deferred consultant compensation
related to the unvested stock of $3.0 million will be recorded in February 2000
and amortized ratably over the contracted service periods.
Asset and Technology Purchase Agreement
In December 1999, the Company reached a preliminary agreement to acquire
certain tangible assets and rights to certain in-process technologies in
exchange for $100,000 and 175,000 shares of common stock valued at $3.60 per
share, or 90% of the value of the Series C Preferred Stock sold in December
1999. In March 2000, a final asset purchase agreement was signed and the
transaction closed, at which time the Company recorded the tangible assets at
their fair value of approximately $50,000 and recorded a charge of
approximately $680,000.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any informa-
tion or to represent anything not contained in this prospectus. You must not
rely on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Forward-Looking Statements................................................ 16
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Financial Information............................................ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 25
Management................................................................ 36
Related Party Transactions................................................ 43
Principal Stockholders.................................................... 45
Description of Capital Stock.............................................. 47
Shares Eligible for Future Sale........................................... 51
Underwriting.............................................................. 53
Validity of the Securities................................................ 55
Experts................................................................... 55
Where You Can Find Additional Information................................. 55
Index to Financial Statements............................................. F-1
</TABLE>
----------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospec-
tus. This is in addition to a dealer's obligation to deliver a prospectus when
acting as underwriter and with respect to an unsold allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
Illumina, Inc.
Common Stock
----------------
[LOGO]
----------------
Goldman, Sachs & Co.
Chase H&Q
SG Cowen
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale
of the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq/NMS listing fee.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $26,400
NASD Filing Fee..................................................... 10,500
Nasdaq National Market Listing Fee.................................. *
Printing Costs...................................................... *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Blue Sky Fees and Expenses.......................................... *
Transfer Agent and Registrar Fees................................... *
Miscellaneous....................................................... *
-------
Total............................................................. *
=======
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Amended and Restated Articles of Incorporation eliminate a
director's personal liability for monetary damages to the Registrant and its
shareholders arising from a breach or alleged breach of the director's
fiduciary duty, except for liability arising under Sections 310 and 316 of the
California General Corporation Law or liability for (i) acts or omissions that
involve intentional misconduct or knowing and culpable violation of law, (ii)
acts or omissions that a director believes to be contrary to the best interests
of the Registrant or its shareholders or that involve the absence of good faith
on the part of the director, (iii) any transaction from which a director
derived an improper personal benefit, (iv) acts or omissions that show a
reckless disregard for the director's duty to the Registrant or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the Registrant or its shareholders, (v) acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Registrant or its shareholders, (vi)
interested transactions between the corporation and a director in which a
director has a material financial interest, and (vii) liability for improper
distributions, loans or guarantees. This provision does not eliminate the
directors' duty of care, and in appropriate circumstances equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under California law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Articles of Incorporation and Bylaws contain provisions
covering indemnification to the maximum extent permitted by the California
General Corporation Law of corporate directors, officers and other agents
against certain liabilities and expenses incurred as a result of proceedings
involving such persons in their capacities as directors, officers employees or
agents, including proceedings under the Securities Act or the Securities
Exchange Act of 1934, as amended. Prior to the effective date of this Offering,
the Registrant will enter into indemnification agreements with its directors
and executive officers.
II-1
<PAGE>
In connection with its reincorporation in Delaware, the Registrant will be
subject to Section 145 of the Delaware General Corporation Law ("Section 145").
Section 145 permits indemnification of officers and directors of the Company
under certain conditions and subject to certain limitations. Section 145 also
provides that a corporation has the power to maintain insurance on behalf of
its officers and directors against any liability asserted against such person
and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of Section
145. Upon shareholder approval of such reincorporation, Article VI, Section
6.1, of the Registrant's Bylaws will provide for mandatory indemnification of
its directors and officers and permissible indemnification of employees and
other agents to the maximum extent not prohibited by the Delaware General
Corporation Law. The rights to indemnity thereunder continue as to a person who
has ceased to be a director, officer, employee or agent and inure to the
benefit of the heirs, executors and administrators of the person. In addition,
expenses incurred by a director or executive officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding by reason
of the fact that he or she is or was a director or officer of the Registrant
(or was serving at the Registrant's request as a director or officer of another
corporation) shall be paid by the Registrant in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by
the Registrant as authorized by the relevant section of the Delaware General
Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
the Registrant's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors shall not be personally liable for monetary damages
for breach of the directors' fiduciary duty as directors to the Registrant and
its stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Registrant for acts or omission not in good faith or involving
international misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of Stock repurchases or redemptions that are unlawful under Section
174 of the Delaware General Corporation Law. The provision also does not affect
a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into indemnification agreements with each of its directors and
executive officers. Generally, the indemnification agreements attempt to
provide the maximum protection permitted by Delaware law as it may be amended
from time to time. Moreover, the indemnification agreements provide for certain
additional indemnification. Under such additional indemnification provisions,
however, an individual will not receive indemnification for judgments,
settlements or expenses if he or she is found liable to the Registrant (except
to the extent the court determines he or she is fairly and reasonably entitled
to indemnity for expenses), for settlements not approved by the Registrant or
for settlements and expenses if the settlement is not approved by the court.
The indemnification agreements provide for the Registrant to advance to the
individual any and all reasonable expenses (including legal fees and expenses)
incurred in investigating or defending any such action, suit or proceeding. In
order to receive an advance of expenses, the individual must submit to the
Registrant copies of invoices presented to him or her for such expenses. Also,
the individual must repay such advances upon a final judicial decision that he
or she is not entitled to indemnification.
The Registrant intends to enter into additional indemnification agreements
with each of its directors and executive officers to effectuate these indemnity
provisions and to purchase directors' and officers' liability insurance.
II-2
<PAGE>
In addition to the foregoing, the Underwriting Agreement contains certain
provisions by which the Underwriters have agreed to indemnify the Registrant,
each person, if any, who controls the Registrant within the meaning of Section
15 of the Securities Act, each director of the Registrant, each officer of the
Registrant who signs the Registration Statement, with respect to information
furnished in writing by or on behalf of the Underwriters for use in the
Registration Statement.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our incorporation in April 1998, we have sold and issued the following
securities:
Common Stock
(1) In May 1998 we sold 1,075,000 shares of our Common Stock at a price of
$0.01 per share to a founder and a consultant for $10,750.
(2) In June 1998 we sold 1,125,000 shares of our Common Stock at a price
of $0.01 per share to officers and consultants for $11,250.
(3) In July 1998 we sold 500,000 shares of our Common Stock at a price of
$0.01 per share to an investor for $5,000 and 220,000 shares of our
Common Stock at a price of $0.03 per share to consultants for $6,600.
(4) In August 1998 we sold 20,000 shares of our Common Stock at a price of
$0.03 per share to a consultant for $600.
(5) In September 1998 we sold 250,000 shares of Common Stock at a price of
$0.03 per share to an officer for $7,500.
(6) In November 1998 we sold 266,000 shares of our Common Stock at a price
of $0.03 per share to an officer and consultants for $7,980.
(7) In February 1999 we sold 50,000 shares of our Common Stock at a price
of $0.09 per share to a director for $4,500.
(8) In May 1999 we sold 137,500 shares of our Common Stock at a price of
$0.01 per share to a director and a consultant for $1,357 and 8,333
shares of our Common Stock at $0.03 per share to a consultant for
$250. In connection with a technology purchase we issued 10,000 shares
of our Common Stock valued at a price of $0.09 per share for a total
value of $900.
(9) In June 1999 we sold 8,000 shares of our Common Stock at a price of
$0.09 per share to an employee for $720.
(10) In July 1999 we sold 14,083 shares of our Common Stock at a price of
$0.01 per share to an employee for $141.
(11) In August 1999 we sold 68,750 shares of our Common Stock at a price of
$0.01 per share to an investor and 9,000 shares of our Common Stock at
a price of $0.09 per share to a consultant for $810.
(12) In September 1999 we sold 68,750 shares of our Common Stock at a price
of $0.01 per share to an investor for $688.
II-3
<PAGE>
(13) In October 1999 we sold 1,300,000 shares of our Common Stock at a
price of $0.09 per share to officers for $117,000.
(14) In November 1999 we sold 25,000 shares of our Common Stock at a price
of $0.09 per share to an investor for $2,250.
(15) In January 2000 we sold 175,000 shares of our Common Stock at a price
of $0.25 per share to an investor, consultants and an employee for
$43,750.
(16) In February 2000 we sold 45,082 shares of our Common Stock at a price
of $0.03 per share to employees for $1,352, 10,275 shares of our
Common Stock at a price of $0.09 per share to employees for $925, and
110,299 shares of our Common Stock at a price of $0.40 per share to a
director, a consultant and employees for $44,120.
(17) In March 2000 we sold 9,999 shares of our Common Stock at a price of
$0.09 per share to employees for $900 and 426,000 shares of our Common
Stock at a price of $0.40 per share to a founder, consultants and
employees for $170,400. In connection with an asset purchase
transaction we issued 175,000 shares valued at $0.40 per share for
$70,000.
Preferred Stock
(1) In June 1998 we sold an aggregate of 2,499,998 shares of our Series A
Convertible Preferred Stock to investors at a price of $0.30 per share
for an aggregate purchase price of $749,999.
(2) In November 1998 we sold an aggregate of 9,336,299 shares of our Series
B Convertible Preferred Stock to investors at a price of $0.926 per
share for an aggregate purchase price of $8,648,214.
(3) In November 1999 we sold 1,250,000 shares of our Series C Convertible
Preferred Stock to an investor at a price of $4.00 per share for a
purchase price of $5,000,000.
(4) In December 1999 we sold an aggregate of 5,750,000 shares of our Series
C Convertible Preferred Stock to investors at a price of $4.00 per
share for an aggregate purchase price of $23,000,000.
Stock Options and Stock Purchase Rights
(1) From inception through March 2000, we granted stock options and stock
purchase rights to acquire an aggregate of 3,281,200 shares of our
Common Stock at prices ranging from $0.01 to $0.40 per share to
employees, consultants and directors pursuant to our 1998 Incentive
Stock Plan.
(2) From inception through March 2000, we issued an aggregate of 2,431,071
shares of our Common Stock to employees, consultants and directors
pursuant to the exercise of stock options and stock purchase rights
under our 1998 Incentive Stock Plan, for aggregate consideration of
$428,398.
Warrants
(1) In October 1998 we issued a warrant to acquire 43,183 shares of our
Series B Convertible Preferred Stock at an exercise price of $0.926 per
share to an investor.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such
transactions. All recipients had adequate access, through their relationships
with us, to information about us.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S> <C>
1.1* Form of Underwriting Agreement
2.1* Form of Merger Agreement between Illumina, Inc., a California
corporation, and Illumina, Inc., a Delaware corporation.
3.1* Certificate of Incorporation of the Registrant, as currently in
effect.
3.1.1* Form of Certificate of Incorporation of the Registrant to be
filed after the closing of the offering made under this
Registration Statement.
3.2* Bylaws of the Registrant, as currently in effect.
3.2.1* Form of Bylaws of the Registrant to be in effect after the
closing of the offering made under this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2* Amended and Restated Investors Rights Agreement, dated ,
by and among the Registrant and certain stockholders of the
Registrant.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement between the Registrant and each
of its directors and officers.
10.2* 1998 Incentive Stock Plan.
10.3* 2000 Employee Stock Purchase Plan.
10.4 Sublease Agreement dated August 1998 between Registrant and
Gensia Sicor Inc. for Illumina's principal offices.
+10.5 Joint Development Agreement dated November 1999 between
Registrant and PE Corporation.
+10.6 Asset Purchase Agreement dated November 1998 between Registrant
and nGenetics, Inc.
+10.7 Asset Purchase Agreement dated March 2000 between Registrant and
Spyder Instruments, Inc.
+10.8 License Agreement dated May 1998 between Tufts and Registrant.
23.1 Consent of Ernst & Young, LLP, Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see Page II-7).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other
II-5
<PAGE>
than the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, State of
California on April 3, 2000.
/s/ Jay T. Flatley
By: _________________________________
Jay T. Flatley
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Jay T. Flatley
and John R. Stuelpnagel, and each of them, as his attorney-in-fact, with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this registration statement (including post-effective
amendments), and any and all registration statements filed pursuant to Rule 462
under the Securities Act of 1933, as amended, in connection with or related to
the offering contemplated by this registration statement and its amendments, if
any, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said registration statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jay T. Flatley President, Chief Executive April 3, 2000
______________________________________ Officer and Director
Jay T. Flatley (Principal Executive
Officer)
/s/ John R. Stuelpnagel Vice President of Business April 3, 2000
______________________________________ Development (Principal
John R. Stuelpnagel Accounting Officer)
and Director
/s/ Charles M. Hartman Director April 3, 2000
______________________________________
Charles M. Hartman
/s/ Robert T. Nelsen Director April 3, 2000
______________________________________
Robert T. Nelsen
/s/ George Poste Director April 3, 2000
______________________________________
George Poste, DVM, Ph.D.
/s/ William Rastetter Director April 3, 2000
______________________________________
William Rastetter, Ph.D.
/s/ David R. Walt Director April 3, 2000
______________________________________
David R. Walt, Ph.D.
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S> <C>
1.1* Form of Underwriting Agreement.
2.1* Form of Merger Agreement between Illumina, Inc., a California
corporation, and Illumina, Inc., a Delaware corporation.
3.1* Certificate of Incorporation of the Registrant, as currently in
effect.
3.1.1* Form of Certificate of Incorporation of the Registrant to be
filed after the closing of the offering made under this
Registration Statement.
3.2* Bylaws of the Registrant, as currently in effect.
3.2.1* Form of Bylaws of the Registrant to be in effect after the
closing of the offering made under this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2* Amended and Restated Investors Rights Agreement, dated ,
by and among the Registrant and certain stockholders of the
Registrant.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement between the Registrant and each
of its directors and officers.
10.2* 1998 Incentive Stock Plan.
10.3* 2000 Employee Stock Purchase Plan.
10.4 Sublease Agreement dated August 1998 between Registrant and
Gensia Sicor Inc. for Illumina's principal offices.
+10.5 Joint Development Agreement dated November 1999 between
Registrant and PE Corporation.
+10.6 Asset Purchase Agreement dated November 1998 between Registrant
and nGenetics, Inc.
+10.7 Asset Purchase Agreement dated March 2000 between Registrant and
Spyder Instruments, Inc.
+10.8 License Agreement dated May 1998 between Tufts and Registrant.
23.1 Consent of Ernst & Young, LLP, Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see Page II-7).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested.
<PAGE>
Description of Artwork:
Inside Front Cover:
A series of photographs and illustrations, including (i) a photograph of the
Array of Arrays laid on top of a standard microtiter plate, (ii) a photograph
of the Array of Arrays alone, (iii) a blow up of a fiber optic bundle with
beads in place in the wells at the ends of the fibers, (iv) a scanning electron
mircrograph of a microscopic bead, (v) an illustration depicting how a
microscopic bead interacts with DNA in a sample.
Business Section (p. 32):
Immediately before the subsection tilted "The Oligator" we will insert an
illustration of the composition of our Bead Array and the process in which we
introduce a fiber optic bundle into a pool of microscopic beads.
Back Inside Cover:
Pictures of our three sizes of Array of Arrays matching the three standard
size microtiter plates, followed by a collage of photographs and illustrations
showing how various applications work on the Array of Arrays.
<PAGE>
EXHIBIT 10.4
SUBLEASE AGREEMENT
------------------
This SUBLEASE AGREEMENT ("Sublease") is made and entered into as of August
__, 1998 by and between GENSIA SICOR INC., a Delaware corporation
("Sublandlord") and ILLUMINA, INC., a__________ corporation ("Subtenant").
WHEREAS, GENA PROPERTY COMPANY, a California general partnership, as
landlord ("Landlord"), and Sublandlord, as tenant, are parties to a certain
Lease Agreement dated as of December 21, 1993 ("Master Lease") whereby Landlord
leased to Sublandlord two (2) buildings (the "Buildings") located at 9360 (the
"9360 Building") and 9390 (the "9390 Building") Towne Centre Drive, San Diego,
CA 92121 (collectively, the "Master Premises") as more particularly described in
the Master Lease, upon the terms and conditions contained therein. All
capitalized terms used herein shall have the same meaning ascribed to them in
the Master Lease unless otherwise defined herein. A copy of those portions of
the Master Lease which are applicable to this Sublease is attached hereto as
Exhibit "A" and made a part hereof. Hereinafter, the term "Master Lease" shall
refer to only those portions of the Master Lease which are intended to be
applicable to this Sublease, as attached hereto as Exhibit "A".
WHEREAS, Sublandlord and Subtenant are desirous of entering into a sublease
of that portion of the 9390 Building crosshatched on the demising plan annexed
hereto as Exhibit "B" and made a part hereof ("Sublease Premises") on the terms
and conditions hereafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto mutually covenant and agree as
follows:
1. Demise. Sublandlord hereby subleases and demises to Subtenant and
------
Subtenant hereby hires and subleases from Sublandlord the Sublease Premises
(which, based on Sublandlord's measurement thereof in accordance with its
customary practice, the parties stipulate contain an aggregate of [*] rentable
square feet of laboratory space located in the 9390 Building), upon and subject
to the terms, covenants and conditions hereinafter set forth. Subject to any
existing rights in favor of other subtenants within the Buildings with respect
thereto, Sublandlord shall endeavor to notify Subtenant in the event space
comprising approximately 6000 rentable square feet becomes available for
subleasing on the first floor of the 9390 Building. Subtenant shall have five
(5) business days to respond to such notification with an offer to sublease such
additional space. The foregoing does not constitute an option with respect to
any such space in favor of Subtenant and Sublandlord shall not be required to
enter into exclusive negotiations with Subtenant with respect thereto.
2. Lease Term.
----------
(a) Lease Term. The term of this Sublease ("Term") shall commence on
----------
August 21, 1998, or (ii) the date upon which Subtenant, or any person occupying
any of the Sublease Premises with Subtenant's permission, commences business
operations from the Sublease Premises ("Sublease Commencement Date") and end,
unless sooner terminated as provided herein, on August 20, 2000 ("Sublease
Expiration Date").
TOWNE CENTRE
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
1
<PAGE>
(b) Option to Extend. Notwithstanding the provisions of Section
----------------
2(a) to the contrary and provided Subtenant is not in default under this
Sublease at the time of the exercise thereof or at the time of its occupancy
pursuant thereto, Subtenant shall have one (1) option to extend this Sublease
("Option to Extend") as to the Sublease Premises for an additional one (1) year
period. The Option to Extend shall be exercisable by Subtenant upon delivery of
prior written notice (the "Exercise Notice") thereof to Sublandlord. Each
Exercise Notice shall be given not later than ninety (90) days prior to the
then-expiration of the Term. In the event Subtenant shall exercise its Option to
Extend pursuant to the provisions set forth herein, the Term of this Sublease
shall be extended by the period applicable to such Option to Extend and the
Sublease Expiration Date shall be deemed to be the expiration date of such
extended Term of this Sublease. Such extended Term shall be on all the terms and
conditions of this Sublease, as applicable, including the rental rate applicable
to the Sublease Premises for which occupancy is so extended.
3. Use. The Sublease Premises shall be used and occupied by Subtenant
---
solely for research, development and laboratory uses in compliance with the
Master Lease and for no other purpose.
4. Subrental.
---------
(a) Base Rental. Beginning with the Sublease Commencement Date, and
-----------
thereafter during the Term of this Sublease and ending on the Sublease
Expiration Date, Subtenant shall pay to Sublandlord monthly installments of base
rent in the amount of $_______ each ("Base Rental") calculated at the monthly
rate of [*] per rentable square foot of the Premises. On each anniversary of
the Sublease Commencement Date, the Base Rental shall increase by an amount
equal to [*] of the then-existing Base Rental.
The first monthly installment of Base Rental shall be paid by Subtenant
concurrently with the execution of this Sublease by Subtenant. Base Rental and
additional rent shall hereinafter be collectively referred to as "Rent."
(b) Prorations. If the Sublease Commencement Date is not the first
----------
(1st) day of a month, or if the Sublease Expiration Date is not the last day of
a month, a prorated installment of monthly Base Rental based on a thirty (30)
day month shall be paid for the fractional month during which the Term commenced
or terminated.
(c) Normal Operating Expenses. Beginning with the Sublease
-------------------------
Commencement Date and continuing to the Sublease Expiration Date, Subtenant
shall pay to Sublandlord as additional rent for this subletting the cost of all
additional expenses, costs and charges payable to Landlord or to third party
providers by Sublandlord resulting from Subtenant's use of the Sublease
Premises, which are not Normal Operating Expenses (as defined below) for the
Building and the Sublease Premises. The term "Normal Operating Expenses" shall
mean the full cost of all operating expenses (including Building maintenance,
common area expenses, insurance premiums for casualty insurance maintained by
Sublandlord with respect to the Building, but excluding any insurance coverages
for Subtenant's personal property), security and janitorial services provided by
Sublandlord and real estate taxes, applicable to the Sublease
TOWNE CENTRE
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
2
<PAGE>
Premises which are allocable to Subtenant's normal and customary use of the
Sublease Premises in accordance with this Sublease. Normal Operating Expenses
shall include Subtenant's utility charges for electricity usage to the extent
not separately metered to Subtenant and shall exclude other excess or non-
standard costs, expenses or charges incurred with respect to Subtenant's use or
occupancy of the Sublease Premises which are incurred or requested by Subtenant.
Subtenant shall not be responsible for payment of any Impositions (as defined in
Paragraph 9(a) of the Master Lease) which are part of the Normal Operating
Expenses or which are not otherwise made the responsibility of Subtenant
pursuant to this Sublease.
(d) Payment of Rent. Except as otherwise specifically provided in
---------------
this Sublease, Rent shall be payable in lawful money without demand, and without
offset, counterclaim, or setoff in monthly installments, in advance, on the
first day of each and every month during the Term of this Sublease. All of said
Rent is to be paid to Sublandlord at its office at the address set forth in
Section 13 herein, or at such other place or to such agent and at such place as
Sublandlord may designate by notice to Subtenant. Any additional rent payable on
account of items which are not payable monthly by Sublandlord to Landlord under
the Master Lease is to be paid to Sublandlord as and when such items are payable
by Sublandlord to third parties or to Landlord under the Master Lease, unless a
different time for payment is elsewhere stated herein. Upon written request
therefor, Sublandlord agrees to provide Subtenant with copies of any statements
or invoices received by Sublandlord from Landlord pursuant to the terms of the
Master Lease.
(e) Late Charge. Subtenant shall pay to Sublandlord an
-----------
administrative charge at an annual interest rate equal to the Prime Rate plus
three percent (3%) ("Interest Rate") on all amounts of Rent payable hereunder
which are not paid within three (3) business days of the date on which such
payment is due, such charge to accrue from the date upon which such amount was
due until paid.
5. Security Deposit. Concurrently with the execution of this Sublease,
----------------
Subtenant shall deposit with Sublandlord the sum of __________________________
Dollars ($_____) ("Deposit"), which shall be held by Sublandlord as security
for the full and faithful performance by Subtenant of its covenants and
obligations under this Sublease. The Deposit is not an advance Rent deposit, an
advance payment of any other kind, or a measure of Sublandlord's damage in case
of Subtenant's default. If Subtenant defaults in the full and timely performance
of any or all of Subtenant's covenants and obligations set forth in this
Sublease, then Sublandlord may, from time to time, without waiving any other
remedy available to Sublandlord, use the Deposit, or any portion of it, to the
extent necessary to cure or remedy the default or to compensate Sublandlord for
all or a part of the damages sustained by Sublandlord resulting from Subtenant's
default. Subtenant shall immediately pay to Sublandlord within five (5) days
following demand, the amount so applied in order to restore the Deposit to its
original amount, and Subtenant's failure to immediately do so shall constitute a
default under this Sublease. If Subtenant is not in default with respect to the
covenants and obligations set forth in this Sublease at the expiration or
earlier termination of the Sublease, Sublandlord shall return the Deposit to
Subtenant after the expiration or earlier termination of this Sublease.
Sublandlord's obligations with respect to the Deposit are those of a debtor and
not a trustee. Sublandlord shall not be required to maintain the Deposit
separate and apart from Sublandlord's general or other
TOWNE CENTRE
3
<PAGE>
funds and Sublandlord may commingle the Deposit with any of Sublandlord's
general or other funds. Subtenant shall not at any time be entitled to interest
on the Deposit.
6. Signage. Subtenant shall have no right to maintain Subtenant
-------
identification signs in any location in, on, or about the Premises other than a
listing in the lobby directory for the Building and an identification sign
located at the entry to the Sublease Premises, the size, appearance and location
of such signs to be subject to Sublandlord's prior approval. The cost of such
signs, including the installation, maintenance and removal thereof, shall be at
Subtenant's sole cost and expense. If Subtenant fails to maintain its Sublease
Premises sign, or if Subtenant fails to remove same upon the expiration or
earlier termination of this Sublease and repair any damage caused by such
removal, Sublandlord may do so at Subtenant's expense and Subtenant shall
reimburse Sublandlord for all actual costs incurred by Sublandlord to effect
such removal.
7. Parking. At no additional rent or charge, Subtenant shall have the
-------
right, during the Term of this Sublease, to use on a non-reserved basis parking
spaces in the parking facilities of the Buildings in number equal to 3.6 spaces
per 1,000 square feet of rentable area of the Sublease Premises. All such
parking privileges shall be subject to the terms and conditions set forth in the
Master Lease.
8. Incorporation of Terms of Master Lease.
--------------------------------------
(a) This Sublease is subject and subordinate to the Master Lease.
Subject to the modifications set forth in this Sublease, the terms of the Master
Lease are incorporated herein by reference, and shall, as between Sublandlord
and Subtenant (as if they were "Landlord" and "Tenant," respectively, under the
Master Lease) constitute the terms of this Sublease except to the extent that
they are inapplicable to, inconsistent with, or modified by, the terms of this
Sublease. Notwithstanding the foregoing, to the extent provisions of the Master
Lease are unique and personal to Sublandlord's interest in the Buildings
pursuant to the Master Lease or are indicated on the attached Exhibit "A" as
intentionally omitted from the Master Lease, Subtenant shall not be required to
comply with such provisions. Provisions which are personal and unique to
Sublandlord under the Master Lease include, but are not limited to, Paragraphs
17, 18 and 19 of the Master Lease. In the event of any inconsistencies between
the terms and provisions of the Master Lease and the terms and provisions of
this Sublease, the terms and provisions of this Sublease shall govern. Subtenant
acknowledges that it has reviewed the Master Lease and is familiar with the
terms and conditions thereof.
(b) For the purposes of incorporation herein, the terms of the
Master Lease are subject to the following additional modifications:
(i) In all provisions of the Master Lease (under the terms
thereof and without regard to modifications thereof for purposes of
incorporation into this Sublease) requiring the approval or consent of
Landlord, Subtenant shall be required to obtain the approval or consent of
both Sublandlord and Landlord.
(ii) In all provisions of the Master Lease requiring Tenant to
submit, exhibit to, supply or provide Landlord with evidence, certificates,
or any other matter or thing, including, without limitation, the provisions
of Sections 10(c) and 10(f) thereof,
TOWNE CENTRE
4
<PAGE>
Subtenant shall be required to submit, exhibit to, supply or provide, as
the case may be, the same to both Landlord and Sublandlord. In any such
instance, Sublandlord shall determine if such evidence, certificate or
other matter or thing shall be satisfactory.
(iii) In the event of any taking by eminent domain or casualty to
the Sublease Premises such that Subtenant is deprived of the use and
occupancy of greater than fifty percent (50%) of the Sublease Premises for
a period in excess of ninety (90) days, Subtenant and Sublandlord shall
each have the right to terminate this Sublease upon not less than thirty
(30) days written notice to the other. In the event of any such taking by
eminent domain or casualty such that Subtenant is deprived of fifty percent
(50%) or less of the use and occupancy of the Sublease Premises, or in the
event Subtenant elects to continue occupancy of the remaining portion of
the Sublease Premises after the occurrence of a taking or casualty giving
Subtenant a right to terminate this Sublease, the Rent shall be
proportionally reduced for the portion of the Term during which Subtenant
is prevented from using and occupying the damaged or taken portion of the
Sublease Premises. Sublandlord shall have no obligation to restore or
rebuild any portion of the Sublease Premises after any destruction or
taking by eminent domain, and Subtenant shall have no rights to any portion
of the award in any eminent domain proceeding affecting the Sublease
Premises.
(c) During the Term, Subtenant shall not be required to maintain
casualty insurance policies and coverages with respect to the Sublease
Premises and Subtenant shall be named as an additional insured under such
policies maintained by Sublandlord (to the extent of Subtenant's interest
in the Sublease Premises), evidence of such coverage to be in the form of a
certificate of insurance provided by Sublandlord to Subtenant; provided,
---------
however, such policies and coverages maintained by Sublandlord with respect
-------
to the Buildings and the Sublease Premises shall not include coverage for
Subtenant's personal property and Subtenant, at its sole cost and expense,
shall maintain such policies and coverages with respect to its personal
property as it may elect. During the Term, Subtenant shall maintain a
policy of comprehensive general liability insurance with respect to its
occupancy of, and activities on, the Sublease Premises and related common
areas, which coverage shall be subject to any required waivers of
subrogation as are described under Paragraph 16 of the Master Lease and
shall have a minimum policy limit of $4,000,000 and shall otherwise meet
the requirements of the Master Lease for such insurance coverage. All such
policies shall name Sublandlord, Landlord and any other party required to
be so named under the Master Lease as additional insureds thereunder and
shall be with carriers reasonably acceptable to Sublandlord and, in all
events, in accordance with the requirements of the Master Lease except as
otherwise provided hereinabove. In the event Subtenant elects to carry its
own policies of casualty insurance with respect to the Sublease Premises,
all such policies shall name Sublandlord as an additional insured
thereunder.
9. Subtenant's Obligations. Subtenant covenants and agrees that all
-----------------------
obligations of Sublandlord under the Master Lease shall be done or performed by
Subtenant with respect to the Sublease Premises, except as otherwise provided by
this Sublease, and Subtenant's obligations shall run to Sublandlord and Landlord
as Sublandlord may determine to be appropriate or be required by the respective
interests of Sublandlord and Landlord. Subtenant agrees to indemnify
Sublandlord, and hold it harmless, from and against any and all claims, damages,
losses, expenses and liabilities, except for special or consequential damages
(including reasonable
TOWNE CENTRE
5
<PAGE>
attorneys' fees), incurred as a result of the non-performance, non-observance or
non-payment of any of Sublandlord's obligations under the Master Lease which, as
a result of this Sublease, became an obligation of Subtenant. If Subtenant makes
any payment to Sublandlord pursuant to this indemnity, Subtenant shall be
subrogated to the rights of Sublandlord concerning said payment. Subtenant shall
not do, nor permit to be done, any act or thing which is, or with notice or the
passage of time would be, a default under this Sublease or the Master Lease.
10. Sublandlord's Obligations. Sublandlord covenants and agrees that all
-------------------------
obligations of Sublandlord under the Master Lease, other than those which are to
be done or performed by Subtenant, with respect to the Sublease Premises shall
be done or performed by Sublandlord. Sublandlord agrees that Subtenant shall be
entitled to receive all services and repairs to be provided by Landlord to
Sublandlord under the Master Lease with respect to the Sublease Premises.
Subtenant shall look solely to Landlord for all such services and shall not,
under any circumstances, seek nor require Sublandlord to perform any of such
services, nor shall Subtenant make any claim upon Sublandlord for any damages
which may arise by reason of Landlord's default under the Master Lease;
provided, however, Sublandlord shall provide all necessary assistance and
cooperation to Subtenant (at no material cost or liability to Sublandlord) to
enforce Sublandlord's rights under the Master Lease to compel performance by
Landlord with respect to such services or repairs to which Subtenant is
entitled. Any condition resulting from a default by Landlord shall not
constitute as between Sublandlord and Subtenant an eviction, actual or
constructive, of Subtenant and no such default shall excuse Subtenant from the
performance or observance of any of its obligations to be performed or observed
under this Sublease, or entitle Subtenant to receive any reduction in or
abatement of the Rent provided for in this Sublease unless, and to the extent,
Sublandlord is excused from performance, or entitled to a reduction or abatement
of its rental obligations to Landlord under the Master Lease also. In
furtherance of the foregoing, Subtenant does hereby waive any cause of action
and any right to bring any action against Sublandlord by reason of any act or
omission of Landlord under the Master Lease, subject to the right of assistance
and cooperation from Sublandlord described above. Sublandlord covenants and
agrees with Subtenant that Sublandlord will pay all fixed rent and additional
rent payable by Sublandlord pursuant to the Master Lease to the extent that
failure to perform the same would adversely affect Subtenant's use or occupancy
of the Sublease Premises. Sublandlord shall extend all reasonable cooperation to
Subtenant (at no material cost or liability to Sublandlord) to enable Subtenant
to receive the benefits under this Sublease, as the same are dependent upon
performance under the Master Lease.
11. Default by Subtenant. In the event Subtenant shall be in default of
--------------------
any covenant of, or shall fail to honor any obligation under, this Sublease,
Sublandlord shall have available to it against Subtenant all of the remedies
available (a) to Landlord under the Master Lease in the event of a similar
default on the part of Sublandlord thereunder or (b) at law.
12. Quiet Enjoyment. So long as Subtenant pays all of the Rent due
---------------
hereunder and performs all of Subtenant's other obligations hereunder,
Sublandlord shall do nothing to affect Subtenant's right to peaceably and
quietly have, hold and enjoy the Sublease Premises.
13. Notices. Anything contained in any provision of this Sublease to the
-------
contrary notwithstanding, Subtenant agrees, with respect to the Sublease
Premises, to comply with and remedy any default in this Sublease or the Master
Lease which is Subtenant's obligation to cure,
TOWNE CENTRE
6
<PAGE>
within the period allowed to Sublandlord under the Master Lease, even if such
time period is shorter than the period otherwise allowed therein due to the fact
that notice of default from Sublandlord to Subtenant is given after the
corresponding notice of default from Landlord to Sublandlord. Sublandlord agrees
to forward to Subtenant, promptly upon receipt thereof by Sublandlord, a copy of
each notice of default with respect to Subtenant's obligations under this
Sublease received by Sublandlord in its capacity as Tenant under the Master
Lease. Subtenant agrees to forward to Sublandlord, promptly upon receipt
thereof, copies of any notices received by Subtenant from Landlord or from any
governmental authorities. All notices, demands and requests shall be in writing
and shall be sent either by hand delivery or by a nationally recognized
overnight courier service (e.g., Federal Express), in either case return receipt
requested, to the address of the appropriate party. Notices, demands and
requests so sent shall be deemed given when the same are received.
Notices to Sublandlord shall be sent to the attention of:
Gensia Sicor, Inc.
19 Hughes
Irvine, CA 92628
Attn: Chief Financial Officer
Notices to Subtenant shall be sent to the attention of:
Illumina, Inc.
2187 Newcastle Avenue, Suite 101
Cardiff, CA 92007
Attn: President
14. Broker. Sublandlord and Subtenant represent and warrant to each
------
other that no brokers were involved in connection with the negotiation or
consummation of this Sublease other than John Burnham & Company. Each party
agrees to indemnify the other, and hold it harmless, from and against any and
all claims, damages, losses, expenses and liabilities (including reasonable
attorneys' fees) incurred by said party as a result of a breach of this
representation and warranty by the other party.
15. Condition of Premises. Subtenant acknowledges that it is subleasing
the Sublease Premises "as- is" in an unfurnished condition and that Sublandlord
is not making any representation or warranty concerning the condition of the
Sublease Premises and that Sublandlord is not obligated to perform any work to
prepare the Sublease Premises for Subtenant's occupancy. Subtenant acknowledges
that it is not authorized to make or do any alterations or improvements in or to
the Sublease Premises without Sublandlord's prior written consent, which consent
may not be unreasonably withheld and which may impose additional reasonable and
customary requirements applicable to the construction and completion of such
alterations or improvements in addition to requiring Subtenant's compliance with
requirements of the Master Lease. Sublandlord shall not be deemed to be
unreasonable in withholding its consent to any alteration or improvement which
does not conform with the use requirements under this Sublease or which is
materially different from alterations or improvements customarily seen in first
class laboratory space. Subtenant further acknowledges that it must
TOWNE CENTRE
7
<PAGE>
deliver the Sublease Premises to Sublandlord on the Sublease Expiration Date in
the condition substantially the same as that on the Sublease Commencement Date
subject to ordinary wear and tear and damage due to a taking or casualty (other
than arising from Subtenant's failure to maintain the Sublease Premises or due
to the negligence or intentional misconduct of Subtenant). Sublandlord may
require Subtenant to remove, and to repair all damage to the Sublease Premises
in connection therewith, any alterations made by Subtenant during the Term, at
Subtenant's sole cost and expense, in connection with any vacation of the
Sublease Premises by Subtenant under the terms of this Sublease.
16. Notice to Landlord. Section 21(b) of the Master Lease requires
------------------
Sublandlord to provide thirty (30) days' written notice of this Sublease to
Landlord. Sublandlord shall provide such notice promptly following the execution
and delivery of this Sublease by Sublandlord and Subtenant. In the event
Landlord asserts that Landlord's written consent to this Sublease is required
under the Master Lease and such consent (without regard to the merit of
Landlord's assertion) has not been obtained within thirty (30) days of
Sublandlord's receipt of written notice from Landlord thereof, then this
Sublease may be terminated by either party hereto upon notice to the other, and
upon such termination neither party hereto shall have any further rights against
or obligations to the other party hereto. The Sublease Term shall not be deemed
to have commenced until such 30-day notice period has run and/or, if applicable,
Landlord's consent has been obtained. If Subtenant has commenced occupation of
the Sublease Premises pursuant to a right to do so under this Sublease prior to
the expiration of such notice period or receipt of such consent, such occupancy
shall be deemed to be pursuant to a revocable license which is otherwise on all
the terms and conditions of this Sublease, including payment of Rent, from
Sublandlord to Subtenant, which license Sublandlord may revoke at any time.
17. Termination of the Lease. If for any reason the term of the Master
------------------------
Lease shall terminate prior to the Sublease Expiration Date, this Sublease shall
automatically be terminated. Sublandlord shall not be liable to Subtenant by
reason of Subtenant's loss of occupancy in the Sublease Premises due to such
termination unless (i) such termination shall have been caused by the default of
Sublandlord under the Master Lease, and said Sublandlord default was not as a
result of a Subtenant default hereunder, or (ii) Subtenant is not given at least
one (1) calendar month's prior written notice of the effective date of a
termination of the Master Lease if such termination is the result of any
election or exercise of a right or option held by Sublandlord under the Master
Lease to effect such termination, or is the result of Sublandlord's mutual
agreement with Landlord to terminate the Master Lease outside the parameters of
the Master Lease. In the event of any voluntary termination of the Master Lease
by Sublandlord, Sublandlord shall use reasonable efforts to endeavor to preserve
Subtenant's occupancy of the Sublease Premises, substantially on the terms and
provisions of this Sublease, for the remaining Sublease Term notwithstanding
such termination. Sublandlord shall not be required to incur any cost or
liability in connection with such endeavor and shall, in no event, be liable to
Subtenant for any failure on the part of Sublandlord to secure such continued
occupancy.
18. Assignment and Subletting.
-------------------------
(a) Independent of and in addition to any provisions of the Master
Lease, including without limitation the obligation to obtain Landlord's consent
to any assignment, it is understood and agreed that Subtenant shall have no
right to sublet the Sublease Premises or any
TOWNE CENTRE
8
<PAGE>
portion thereof or any right or privilege appurtenant thereto; provided,
however, that Subtenant shall have the right to assign this Sublease or any
interest therein, and to suffer or permit any other person (other than agents,
servants or associates of the Subtenant) to occupy or use the Sublease Premises,
only upon the prior written consent of Sublandlord and Landlord, which consent
shall not be unreasonably withheld. Any assignment by Subtenant without
Sublandlord's prior written consent shall be void and shall, at the option of
Sublandlord, terminate this Sublease.
(b) Subtenant shall advise Sublandlord by notice of (i) Subtenant's
intent to assign this Sublease, (ii) the name of the proposed assignee and
evidence reasonably satisfactory to Sublandlord that such proposed assignee is
comparable in reputation, stature and financial condition to tenants then
leasing comparable space in comparable buildings, and (iii) the terms of the
proposed assignment. Sublandlord shall, within twenty (20) days of receipt of
such notice, and any additional information requested by Landlord concerning the
proposed assignee's financial responsibility, elect one of the following:
(i) Consent to such proposed assignment; or
(ii) Refuse such consent, which refusal shall be on reasonable
grounds.
(c) In the event that Sublandlord shall consent to an assignment
under the provisions of this Section 18, Subtenant shall pay Sublandlord's
reasonable processing costs and reasonable attorneys' fees incurred in giving
such consent (not to exceed $3,000 in any one instance). Notwithstanding any
permitted assignment, Subtenant shall at all times remain directly, primarily
and fully responsible and liable for all payments owed by Subtenant under the
Sublease and for compliance with all obligations under the terms, provisions and
covenants of the Sublease. If for any proposed assignment, Subtenant receives
Rent or other consideration, either initially or over the term of the
assignment, in excess of the Rent required by this Sublease, after a deduction
for the following: (a) any brokerage commission paid by Subtenant in connection
therewith and (b) any reasonable attorneys' fees in connection with preparing
and negotiating an assignment document ("Profit"), Subtenant shall pay to
Sublandlord as additional Rent, fifty percent (50%) of such Profit or other
consideration received by Subtenant within five (5) days of its receipt by
Subtenant or, in the event the assignee makes payment directly to Sublandlord,
Sublandlord shall refund fifty percent (50%) of the Profit to Subtenant after
deducting (a) and (b) above.
(d) Occupancy of all or part of the Sublease Premises by parent,
subsidiary, or affiliated companies or a joint venture partnership of Subtenant
shall not be deemed an assignment or subletting provided that such parent,
subsidiary or affiliated companies or a joint venture partnership were not
formed as a subterfuge to avoid the obligation of this Section 18. If Subtenant
is a corporation, unincorporated association, trust or general or limited
partnership, then the sale, assignment, transfer or hypothecation of any shares,
partnership interest, or other ownership interest of such entity or the
dissolution, merger, consolidation, or other reorganization of such entity, or
the sale, assignment, transfer or hypothecation of the assets of such entity,
shall not be deemed an assignment or sublease subject to the provisions of this
Section 18.
TOWNE CENTRE
9
<PAGE>
19. Limitation of Estate. Subtenant's estate shall in all respects be
--------------------
limited to, and be construed in a fashion consistent with, the estate granted to
Sublandlord by Landlord. Subtenant shall stand in the place of Sublandlord and
shall defend, indemnify and hold Sublandlord harmless with respect to all
covenants, warranties, obligations, and payments made by Sublandlord under or
required of Sublandlord by the Master Lease with respect to the Subleased
Premises. In the event Sublandlord is prevented from performing any of its
obligations under this Sublease by a breach by Landlord of a term of the Master
Lease, then Sublandlord's sole obligation in regard to its obligation under this
Sublease shall be to use reasonable efforts in diligently pursuing the
correction or cure by Landlord of Landlord's breach.
20. Environmental Condition.
-----------------------
(a) Base Line Study. Subtenant shall conduct a Phase I
---------------
Environmental Assessment (the "Base Line Study") with respect to the Sublease
Premises in accordance with ASTM Standard E 1257-94 which, pursuant to such
Standard, shall not include any surface or subsurface testing on the Sublease
Premises. The Base Line Study shall assess the condition of the Sublease
Premises as it exists prior to any occupancy thereof by Subtenant and shall be
completed and approved by Subtenant as soon as possible. If the Base Line Study
is not completed and approved by Subtenant on or prior to the Sublease
Commencement Date, such completion and approval shall have occurred not later
than thirty (30) days following the Sublease Commencement Date. Subtenant's
failure to approve the results of such Base Line Study within five (5) days of
its completion shall permit Subtenant to terminate this Sublease, subject,
however, to Sublandlord's right (without any obligation of exercise) to cure
such disapproved matter to Subtenant's reasonable satisfaction within a
reasonable period of time after Sublandlord's receipt of notice of such
disapproval. Subtenant shall deliver a copy of the Base Line Study to
Sublandlord upon its completion. During the Term of the Sublease, Subtenant
shall deliver to Sublandlord, upon Sublandlord's request therefor, copies of all
notices, filings and permits delivered to, or received from, regulatory and
governmental entities having jurisdiction over Subtenant's operations on the
Sublease Premises with respect to the use, storage or disposal of Hazardous
Substances and a current inventory of all Hazardous Substances used and/or
stored on the Sublease Premises.
(b) Vacation. Subtenant shall also conduct an exit environmental
--------
assessment (the "Subtenant Exit Study") substantially the same in scope as the
Base Line Study (collectively, the "Studies"). The Subtenant Exit Study shall be
conducted not earlier than fifteen (15) days prior to Subtenant's vacation of
the Sublease Premises. In the event the Subtenant Exit Study reveals
contamination not described in the Base Line Study, then, to the extent such
contamination is the result of the act or omission of Subtenant, its agents,
employees, contractors, invitees or licensees, Subtenant shall promptly
remediate or remove such contamination in its entirety. Subtenant shall maintain
the results of the Base Line Study and the Subtenant Exit Study in strict
confidence and shall not, without Sublandlord's prior written consent, which may
be withheld in its sole discretion, disclose the results thereof, or any portion
thereof to any third party, excepting Subtenant's directors, officers,
employees, representatives and consultants on a need-to-know basis, unless
Subtenant is compelled under applicable law to disclose all or any portion of
said Studies. All such Studies shall be delivered to Sublandlord.
TOWNE CENTRE
10
<PAGE>
21. Sublandlord Entry and Inspection Rights. In addition to all other
---------------------------------------
rights under the provisions of the Master Lease incorporated into this Sublease,
Sublandlord expressly reserves the right to enter onto the Sublease Premises to
inspect the Sublease Premises during the Term, which right shall include the
right to conduct the inspections and testing in the Sublease Premises during the
Term as described in Paragraph 10 of the Master Lease. Notwithstanding the
foregoing, Sublandlord shall use reasonable, good faith efforts to provide
Subtenant with at least twenty-four hours' prior notice (which may be
telephonic) of any entry onto the Sublease Premises and to provide the names of
the individuals who will be entering onto the Sublease Premises on Sublandlord's
behalf. Entry onto the Sublease Premises for the purpose of showing such space
to prospective subtenants or third party brokers shall be limited to the last
three (3) months of the Term unless Subtenant reasonably consents to each such
entry.
22. Entire Agreement. It is understood and acknowledged that there are
----------------
no oral agreements between the parties hereto affecting this Sublease and this
Sublease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Sublandlord to Subtenant with respect to the subject matter
thereof, and none thereof shall be used to interpret or construe this Sublease.
This Sublease, and the exhibits and schedules attached hereto, contain all of
the terms, covenants, conditions, warranties and agreements of the parties
relating in any manner to the rental, use and occupancy of the Sublease Premises
and shall be considered to be the only agreements between the parties hereto and
their representatives and agents. None of the terms, covenants, conditions or
provisions of this Sublease can be modified, deleted or added to except in
writing signed by the parties hereto. All negotiations and oral agreements
acceptable to both parties have been merged into and are included herein. There
are no other representations or warranties between the parties, and all reliance
with respect to representations is based totally upon the representations and
agreements contained in this Sublease. This Sublease may be executed in multiple
counterparts.
IN WITNESS WHEREOF, the parties have entered into this Sublease as of the
date first written above.
<TABLE>
<CAPTION>
<S> <C>
SUBLANDLORD:
-----------
GENSIA SICOR INC.,
a Delaware corporation
By: _____________________________
Its: _____________________________
SUBTENANT:
---------
ILLUMINA, INC.,
a ______ corporation
By: _____________________________
Its: _____________________________
</TABLE>
TOWNE CENTRE
11
<PAGE>
EXHIBIT "A"
COPY OF MASTER LEASE
--------------------
[Attached]
TOWNE CENTRE
12
<PAGE>
EXHIBIT "B"
DEMISING PLAN
-------------
[Attached]
TOWNE CENTRE
13
<PAGE>
AMENDMENT NO. 1 TO SUBLEASE AGREEMENT
-------------------------------------
This Amendment No. 1 to Sublease Agreement (this "Amendment") is made as of
March ___, 2000 ("Effective Date") by and between SICOR INC. (formerly known as
GENSIA SICOR INC.), a Delaware corporation ("Sublandlord") and ILLUMINA, INC., a
California corporation ("Subtenant").
RECITALS
--------
A. Sublandlord and Subtenant are parties to that certain Sublease
Agreement dated as of August 24, 1998 (the "Sublease") covering certain premises
("Sublease Premises") located at 9390 Towne Centre Drive, San Diego, California
92121, as more particularly described in the Sublease. All defined terms used in
this Amendment, unless otherwise indicated herein, shall have the meanings
ascribed to them in the Sublease.
B. The Sublease Premises originally consisted of approximately 9,876
rentable square feet of premises on the first floor of the Building ("Existing
Space"), as more particularly described in the Sublease. Subtenant desires to
expand into approximately 5,260 rentable square feet of additional space located
on the first floor of the Building ("Expansion Space"), as more particularly
described in Exhibit A attached hereto.
---------
C. Sublandlord and Subtenant wish to hereby modify certain terms and
provisions under the Sublease and are executing this Agreement to effectuate the
modification of the same.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants hereafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Amendment to Sublease. Effective as of the "Expansion Space
---------------------
Commencement Date" (defined below), the Sublease is hereby amended as follows:
a. Sublease Premises. The Sublease Premises are hereby amended to
-----------------
mean and refer to the Existing Space and the Expansion Space (collectively, the
"Sublease Premises"), which Sublease Premises shall be deemed by the parties to
equal 15,136 rentable square feet.
b. Condition of Expansion Space. Subtenant acknowledges (i) that it
----------------------------
is subleasing the Expansion Space "as-is" in an unfurnished condition, (ii) that
Sublandlord is not making any representation or warranty concerning the
condition of the Expansion Space, and (iii) that Sublandlord is not obligated to
perform any work to prepare the Expansion Space for Subtenant's occupancy other
than to deliver the same in broom-clean condition.
c. Demising Plan. The Demising Plan attached to the Sublease as
-------------
Exhibit B is hereby deleted and replaced with the Demising Plan attached hereto
- ---------
as Exhibit B.
---------
d. Base Rental. Section 4(a) of the Sublease is hereby amended to
-----------
provide that, beginning as of the Expansion Space Commencement Date, and
thereafter during the Term
-1-
<PAGE>
of the Sublease and ending on the Sublease Expiration Date, unless extended
pursuant to Section 2(b) of the Sublease, Subtenant shall pay to Sublandlord
monthly installments of Base Rental in the amount of Three and 50/100 Dollars
($3.50) per rentable square foot of Sublease Premises each month (i.e.,
$52,976).
e. Expansion Space Commencement Date. The Expansion Space
---------------------------------
Commencement Date shall be the earlier of (i) the date the existing subtenant of
the Expansion Space vacates such Expansion Space and Sublandlord delivers the
same to Subtenant in the condition required hereunder or (ii) the date upon
which Subtenant, or any person occupying any of said Expansion Space with
Subtenant's permission, commences business operations from the Expansion Space
("Expansion Space Commencement Date") and end on the Sublease Expiration Date.
f. Security Deposit. On or before the Effective Date, Subtenant shall
----------------
deposit with Sublandlord, in immediately available funds, an additional Deposit
equal to Three and 50/100 Dollars per rentable square foot of the Expansion
Space (i.e., $18,410). Such additional sum, along with the Deposit described in
Section 5 of the Sublease shall be collectively referred to as the "Deposit" and
shall be held on the same terms and conditions set forth in Section 5 of the
Sublease.
2. Effect of Amendment. Except as expressly amended under this Amendment,
-------------------
all provisions of the Sublease shall remain in full force and effect. In the
event of any conflict between this Amendment and the Sublease, this Amendment
shall control to the extent of such conflict.
3. Entire Agreement. This Amendment constitutes the entire agreement
----------------
between the parties pertaining to the subject matter hereof, and the final,
complete and exclusive expression of the terms and conditions thereof. All prior
agreements, representations, negotiations and understandings of the parties
hereto, oral or written, express or implied, are hereby superseded and merged
herein. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same binding agreement.
[Remainder of page intentionally left blank]
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 to
Sublease as of the date written below:
Dated: March __, 2000
"Subtenant" "Sublandlord"
ILLUMINA, INC., SICOR INC.,
a California corporation a Delaware corporation
By: _____________________ By: _____________________
Name: ___________________ Name: ___________________
Its: ____________________ Its: ____________________
-3-
<PAGE>
EXHIBIT A
---------
Expansion Space
---------------
[Attached]
-4-
<PAGE>
EXHIBIT B
---------
Demising Plan
-------------
[Attached]
-5-
<PAGE>
EXHIBIT 10.5
JOINT DEVELOPMENT AGREEMENT
This Joint Development Agreement ("Agreement") dated as of the _____day of
November, 1999 ("Effective Date") is by and between ILLUMINA, INC., a California
corporation, located at 9390 Towne Centre Drive, Suite 200, San Diego, CA 92121-
3015 ("Illumina"), and PE CORPORATION, a Delaware corporation, through its PE
Biosystems Group, located at 850 Lincoln Centre Drive, Foster City, CA 94404
("PEB").
Background
Illumina has certain skills, proprietary technology and know-how related to
the manufacture, design and use of Assembled Arrays.
PEB has certain skills, proprietary technology and know-how related to the
development of bioanalytical instrumentation systems and associated reagents,
and the marketing, sales and support of products incorporating such systems.
Illumina and PEB desire to enter into a Joint Development Program with the
objective of developing and commercializing products based on bioanalytical
instrumentation systems incorporating Assembled Arrays.
Illumina and PEB will enter into a Series C Stock Purchase Agreement as of
the Effective Date, whereby PEB will purchase 1,250,000 shares of Illumina's
stock at a share price of $4.00 per share (the "Equity Agreement").
Agreement
1. Definitions
1.1. "Affiliate" means
(A) an organization of which 50% or more of the voting stock is
controlled or owned directly or indirectly by either Party;
(B) an organization that directly or indirectly owns or controls 50%
or more of the voting stock of a Party;
(C) an organization, the majority ownership of which is directly or
indirectly common to the majority ownership of either Party; or
(D) an organization under (A), (B), or (C) immediately above in which
the amount of the ownership is less than 50% and that amount is
the maximum amount permitted by law.
1
<PAGE>
1.2. "Intellectual Property Rights" means all intellectual property rights
worldwide arising under statutory or common law, and whether or not
perfected, including, without limitation, the following:
(A) all patents, patent applications and patent rights, including
divisions, continuations, renewals, reissues, continuing prosecution,
and extensions of the foregoing (as and to the extent applicable) now
existing, hereafter filed, issued or acquired;
(B) all rights associated with works of authorship including copyrights,
copyright applications, copyright registrations, mask works, mask
work applications, and mask work registrations;
(C) all rights relating to the protection of trade secrets and
confidential information; and
(D) all know-how.
1.3. "Pre-Collaboration Illumina Intellectual Property" means all Intellectual
Property Rights that are owned by, either partially or wholly, or licensed
to, or otherwise controlled by, Illumina as of the Effective Date.
1.4. "Collaboration Illumina Intellectual Property" means all Intellectual
Property Rights arising out of work performed under this Agreement that
are conceived solely by one or more employees or agents of Illumina or its
Affiliates.
1.5. "Collaboration Joint Intellectual Property" means all Intellectual
Property Rights arising out of work performed under this Agreement, that
are jointly conceived by one or more employees or agents of Illumina, and
by one or more employees or agents of PEB or its Affiliates.
1.6. "Pre-Collaboration PEB Intellectual Property" means all Intellectual
Property Rights that are owned by, either partially or wholly, or licensed
to, or otherwise controlled by, PEB or its Affiliates as of the Effective
Date, and that are necessarily infringed by the manufacture or use of
Instruments.
1.7. "Collaboration PEB Intellectual Property" means all Intellectual Property
Rights arising out of work performed under this Agreement that are
conceived solely by one or more employees or agents of PEB or its
Affiliates.
1.8. "Subject Patent" means any patent or patent application claiming or
disclosing Pre-Collaboration Illumina Intellectual Property, Collaboration
Illumina Intellectual Property, Collaboration Joint Intellectual Property,
2
<PAGE>
Pre-Collaboration PE Intellectual Property or Collaboration PEB
Intellectual Property, including any Related Patents.
1.9. "Subject Intellectual Property" means Pre-Collaboration Illumina
Intellectual Property, Collaboration Illumina Intellectual Property,
Collaboration Joint Intellectual Property, Pre-Collaboration PEB
Intellectual Property, or Collaboration PEB Intellectual Property,
including Subject Patents.
1.10. "Net Sales" means:
(A) with respect to sales by a Party, or an Affiliate of a Party, to non-
affiliated third party purchasers, the actual amount of gross sales
of Collaboration Product to a third party, less: trade, cash and
quantity discounts, if any, actually allowed, amounts refunded for
faulty or defective product, returns, rejections, freight, insurance
and other transportation costs, tariffs, duties and similar
governmental charges paid (except income taxes);
(B) with respect to sales by a Party made to any Affiliate, the Net Sales
will be determined as if such Collaboration Product had been sold to
a non-affiliated third party purchaser at an average Net Sales for
such Collaboration Product during the immediately preceding 120 days;
and
(C) with respect to Collaboration Product that is used by a Party, or an
Affiliate of a Party, to supply services or information to a third
party for commercial purposes, or are otherwise disposed of,
excluding demonstration or other marketing activities performed for
no or de minimis compensation, the Net Sales will be determined as if
such Collaboration Product had been sold to a non-affiliated third
party purchaser at the average Net Sales for such Collaboration
Product during the immediately preceding 120 days.
1.11. "Manufacturing Cost" means the fully-burdened manufacturing cost of a
product as determined using a Party's customary practices and procedures
in accordance with United States generally accepted accounting principles
("GAAP") including the following: direct material cost, material overhead
cost, direct labor cost, fixed manufacturing overhead cost, variable
manufacturing overhead cost, manufacturing variance cost, and third-party
royalties (excluding up-front payments).
1.12. "Gross Margin" means Net Sales less Manufacturing Cost.
3
<PAGE>
1.13. "Sales and Marketing Cost" means the fully-burdened cost associated with
marketing, selling, distributing and supporting a product as determined
using a Party's customary practices and procedures in accordance with
GAAP including the following: installation cost, warranty cost,
distribution cost, direct marketing cost, marketing overhead cost, direct
selling cost, and selling overhead cost, and subject to Sections 4.1.3
and 5.1(C).
1.14. "Ongoing R&D Cost" means the fully-burdened cost associated with ongoing
research and development to improve or develop new Collaboration Product
after the New Product Release of a Collaboration Product, and subject to
Sections 4.1.4 and 5.1 (D).
1.15. "Residual Gross Margin" means Gross Margin less (A) Sales and Marketing
Cost and (B) Ongoing R&D Cost.
1.16. "Party" means Illumina or PEB and, when used in the plural, means
Illumina and PEB.
1.17. "Related Patent" means any patent or patent application that:
(A) claims substantially the same subject matter as a Subject Patent;
(B) claims improvements to inventions disclosed or claimed in a Subject
Patent and requires rights under the Subject Patent to exploit such
improvements;
(C) claims priority to a Subject Patent, including but not limited to
continuation applications and patents, continuation-in-part
applications and patents, divisional applications and patents,
reexamination applications and patents, reissue applications and
patents, and continuing prosecution applications and patents;
(D) is a parent of a Subject Patent; or
(E) any foreign equivalents of a Subject Patent or any patent or patent
application set forth in (A), (B), (C) or (D) immediately above.
1.18. "PEB DNA Synthesis and Purification Patents" means U.S. Patent Nos.
4,997,927 (GBF), 4,458,066, 5,132,418, 5,153,319, 4,973,679 (Caruthers
Process), and 4,415,732, 4,668,777, 4,500,707 (Caruthers Reagents),
including any Related Patent.
1.19. "Start Development Checkpoint" means that point in a project at which,
under PEB's ISO 9001 procedures, a report is produced which documents
4
<PAGE>
that the following parameters have been established with respect to a
Collaboration Product:
(A) technical feasibility;
(B) determination of funding and staffing levels required to effect New
Product Release;
(C) product definition and specifications, including a target minimum
sales price; and
(D) a schedule for New Product Release.
1.20. "New Product Release" means that stage in the development of a
Collaboration Product at which, under PEB's ISO 9001 procedures,
unrestricted sale of the Collaboration Product to unaffiliated third-
party customers is authorized.
1.21. "Quarter" means a three month period beginning on or about the first day
of January, April, July or October next following the Effective Date, and
each three month period thereafter, except that the first Quarter will
include the period from the Effective Date to the first day of the
nearest such three month period after the Effective Date. Precise dates
for the beginning and ending of Quarters may vary in accordance with
PEB's customary accounting practices and procedures in accordance with
GAAP. Upon Illumina's request, PEB will provide Illumina with a schedule
of PEB's fiscal Quarters.
1.22. "Assembled Array" means an array of microspheres having chemical
functionality attached thereto distributed on a patterned substrate, as
generally described in U.S Patent Application No.08/818,199.
1.23. "Zip Code Chemistry" means a nucleic acid sequence detection method
employing a sequence-specific hybridization pull-out step subsequent to a
chemical or enzymatic polynucleotide ligation reaction, as generally
described in International Patent Application No. WO 97/31256.
1.24. "Instrument" means a device, including software required to operate the
device and image assembly software, designed to perform assays in
combination with an Assembled Array, and that is developed under the
Joint Development Program.
1.25. "Reagent" means a composition comprising enzymes, probes, PCR primers, or
buffers necessary to effect Zip Code Chemistry used in combination with
an Assembled Array, and that is developed under the Joint Development
Program.
5
<PAGE>
1.26. "Early Access Program" means a program in which one or more third parties
or Affiliates are given access to Beta Prototype Collaboration Product
prior to New Product Release in return for a fee, including the providing
of service or information to a third party by Illumina.
1.27. "Beta Prototype" means a prototype Instrument that is assembled during
the development of a Collaboration Product under the Joint Development
Program for the purpose of design verification. Beta Prototype units are
built by hand by the manufacturing department in consultation with the
research department in limited numbers using few or no tooled parts. With
respect to PEB's ISO 9001 procedures, the terms "Beta Prototype" and VTS
Instrument" may be used interchangeably.
1.28. "Collaboration Product" means Instrument, Reagent, or Assembled Array.
1.29. "Collaboration Field" means the field of Zip Code Chemistry used in
combination with Assembled Arrays.
1.30. "Nucleic Acid Analysis Field" means the field of characterization of a
nucleic acid sample including but not limited to the determination of the
relative abundance of the nucleic acid, all or part of a sequence of the
nucleic acid, or variations in the sequence of the nucleic acid. The
Nucleic Acid Analysis Field excludes the Collaboration Field.
1.31. "Joint Development Program" means the collaborative development and
commercialization program to be conducted by Illumina and PEB as defined
herein.
1.32. "Confidential Information" means confidential knowledge, know-how,
practices, processes, equipment, or other information that:
(A) is disclosed by a Party in a tangible form and is clearly labeled as
confidential or proprietary at the time of disclosure; or,
(B) is disclosed by a Party in nontangible form, and is summarized in a
writing that is delivered to the other Party within 30 days after
disclosure; or,
(C) is disclosed by a Party under circumstances in which a reasonable
person would understand that such information is confidential and
proprietary to the disclosing Party.
Notwithstanding (A), (B), and (C) immediately above, Confidential
Information will not include, and nothing in Section 7 will in any way
restrict the rights of either Illumina or PEB to use, disclose or
otherwise
6
<PAGE>
deal with, any information that:
(A) was in the public domain as of the Effective Date or comes into the
public domain during the term of this Agreement through no act of
the receiving Party; or,
(B) was independently known to the receiving Party prior to the receipt
thereof, or made available to the receiving Party as a matter of
lawful right by a third party; or,
(C) is independently conceived, invented or acquired by the receiving
Party by persons who were not exposed to the information.
2. Exclusivity; Costs; Diligence
2.1. Exclusivity. Except as may be expressly permitted herein, during the
-----------
term of this Agreement neither Party nor its Affiliates will design,
develop, manufacture, market, sell, distribute or service any
Collaboration Product within the Collaboration Field except in
accordance with the terms and conditions of this Agreement.
2.2. Responsibility for Costs. Except as provided in Section 3.7, each
------------------------
Party will be responsible for its own costs and expenses in connection
with its activities in furtherance of the Joint Development Program.
2.3. Diligence. The Parties will use commercially reasonable efforts to
---------
conduct the Joint Development Program in accordance with the terms and
conditions of this Agreement.
3. Development of Collaboration Product
3.1. Responsibilities. In consultation with Illumina, PEB will have primary
----------------
responsibility for definition of Collaboration Product, and
development of Instruments and Reagents. In consultation with PEB,
Illumina will have primary responsibility for development of Assembled
Arrays. Illumina and PEB will share responsibility for development of
particular assays to be used in conjunction with Collaboration
Product. Primary responsibilities may be reallocated by the Joint
Steering Committee.
3.2. Information Exchange. The Parties will keep each other informed with
--------------------
respect to all activities directly related to the Joint Development
Program, including without limitation access to design plans and
drawings, specifications, engineering change orders, software,
supplier information, nucleic acid sequences, processes, materials,
and chemistries directly related to Collaboration Product. Both
Parties will participate in engineering milestone reviews for
Collaboration Product.
7
<PAGE>
3.3. Work Plan. Development of Collaboration Product may be conducted by
---------
the Parties in accordance with a Work Plan The Work Plan may be
modified as required from time to time by the Joint Steering
Committee.
3.4. Development Teams. Each Party will assign personnel to its
-----------------
development team with the appropriate skills and experience to
accomplish the work established in the Work Plan. It is expected that
such teams will work together to accomplish the objectives of the
Joint Development Program including, if appropriate, conducting
efforts at the same facility.
3.5. Exchange of Instruments, Reagents and Assembled Arrays for Internal
-------------------------------------------------------------------
Use Within the Collaboration Field.
----------------------------------
3.5.1. Provision of Instruments and Reagents to Illumina. PEB will
-------------------------------------------------
provide Instruments and Reagents to Illumina, as such
Instruments and Reagents become available to PEB, for
Illumina's internal use in furtherance of the Joint Development
Program and not for resale, services, or other use except as
provided in Section 3.6. The number of Instruments and the
quantity of Reagents so provided will be determined by the
Joint Steering Committee.
3.5.2. Provision of Assembled Arrays to PEB. Illumina will provide
------------------------------------
Assembled Arrays to PEB, as such Assembled Arrays become
available to Illumina, for PEB's internal use in furtherance of
the Joint Development Program and not for resale, services, or
other use except as provided in Section 3.6. The number of
Assembled Arrays so provided will be determined by the Joint
Steering Committee.
3.6. Early Access Program. Illumina and PEB may manage the release of Beta
--------------------
Prototype Instrument through an Early Access Program. Illumina will,
in consultation with PEB, have the primary responsibility for
identifying participants in the Early Access Program. Illumina will
receive any income derived from the Early Access Program. Illumina
will reimburse PEB for PEB's direct manufacturing and support costs
relating to the provision of Beta Prototype Instrument and any
associated Reagents used in the Early Access Program to the extent
that PEB's expenses do not exceed Illumina's income. No more than [*]
Beta Prototype Instruments will be provided for use in the Early
Access Program. At the conclusion of the Early Access Program, all
Beta Prototype Instruments will be returned to PEB. Unless otherwise
agreed to by the Parties in writing, the term of the Early Access
Program will end upon the New Product Release of the relevant
Instrument. Except, in no event will the term of the Early Access
Program be less than 6 months from the time at which each Beta
Prototype Instrument first become available.
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
8
<PAGE>
3.7. Development Funding to Illumina. PEB [*] to Illumina [*] in
-------------------------------
development funding to be used by Illumina to partially finance
Illumina's activities in furtherance of the Joint Development Program.
The [*] will be paid out to Illumina according to the schedule and
conditions set forth in Exhibit 1. If the conditions are not achieved
by Illumina on schedule as set forth in Exhibit 1, development funding
will accrue according to the schedule. At such time as Illumina
achieves the conditions set forth in Exhibit 1 and provided that the
Agreement has not been terminated, PEB will pay Illumina all accrued
development funding and continue paying future development funding
according to the schedule set forth in Exhibit 1. PEB [*] for such
development funding [*] for a given Quarter as set forth in Section
4.3.
4. Commercialization of Collaboration Product
4.1. Responsibilities.
----------------
4.1.1. Manufacture of Assembled Arrays. Assembled Arrays will be
-------------------------------
exclusively manufactured by Illumina or its designate in
consultation with PEB and transferred to PEB as provided under
Section 4.2.
4.1.2. Manufacture of Instruments and Reagents. Instruments and
---------------------------------------
Reagents will be exclusively manufactured by PEB or its
designate in consultation with Illumina. Subject to any
required licenses, Illumina may manufacture oligonucleotides
for its internal use within the Collaboration Field. For the
avoidance of doubt, it is understood by Illumina that no
rights under PEB DNA Synthesis and Purification Patents are
granted by this Agreement, either expressly, impliedly, or by
estoppel.
4.1.3. Marketing, Sales and Support. Collaboration Product will be
----------------------------
exclusively marketed, sold and supported (including service,
customer training and application support) through the
marketing, sales and service organizations of PEB, its
Affiliates and distributors, in accordance with a marketing
plan to be developed by PEB in consultation with Illumina.
Budgets for marketing, sales, and support activities relating
to Collaboration Product will be subject to the approval of
the Joint Steering Committee. Unless decided otherwise by the
Joint Steering Committee, Sales and Marketing Cost will be at
least 15% of annual Net Sales but no more than 30% of annual
Net Sales. Marketing literature dedicated to Collaboration
Product will be marked so as to indicate that the
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
9
<PAGE>
Collaboration Product is a product of both PEB and Illumina,
and PEB and Illumina will be referenced in the dedicated
marketing literature with equal prominence.
4.1.4. Ongoing Research and Development. After the New Product
--------------------------------
Release of a Collaboration Product, the Joint Steering
Committee may elect to support ongoing research and
development to improve the Collaboration Product. The
allocation of such research and development between Parties
will be decided by the Joint Steering Committee and reimbursed
to each Party pro rata to each Party's share of the research
and development expenses for such year.
4.2 Transfer of Assembled Arrays to PEB for Resale by PEB.
-----------------------------------------------------
4.2.1. Supply Agreement. Illumina will transfer to PEB Assembled
----------------
Arrays for use in Collaboration Product used to generate Net
Sales. Prior to 90 days before a New Product Release of a
Collaboration Product, the Parties will enter into a supply
agreement to be negotiated in good faith between the Parties
which, consistent with this Agreement, will govern the
transfer of Assembled Arrays from Illumina to PEB. The supply
agreement will contain provisions which, in addition to
customary warranty, representations and indemnification
provisions, will set forth a commercially reasonable plan for
Illumina to supply Assembled Arrays to PEB in satisfaction of
PEB's reasonable requirements as to volume, cost, physical
specifications, regulatory requirements and schedule, and
obligate Illumina to provide technical support to PEB (but not
directly to PEB's customers).
4.2.2. Forecasts. Within 90 days prior to the date of a New Product
---------
Release, and prior to the end of each calendar month
thereafter, PEB will submit to Illumina a 6 month rolling
forecast of PEB's estimated requirements for Assembled Arrays.
The forecast is an estimate only, and does not constitute an
order by PEB or any commitment by PEB to purchase the amount
of Assembled Arrays shown in the forecast. Any order of
Assembled Arrays by PEB will be in the form of a purchase
order. The Joint Steering Committee will determine an
appropriate level of inventory for Assembled Arrays based upon
forecasts and Illumina's demonstrated manufacturing capacity.
If the Joint Steering Committee elects to maintain more than 3
months of inventory of Assembled Arrays ("Excess Inventory"),
PEB will assume the financial burden for the Excess Inventory
by reimbursing Illumina for its Manufacturing Cost associated
with the Excess Inventory within 30 days of the date of
delivery by Illumina to PEB of the Excess Inventory.
10
<PAGE>
4.2.3. Illumina Unwilling or Unable to Supply Assembled Arrays. If
-------------------------------------------------------
Illumina is unwilling or unable to supply Assembled Arrays to
PEB in accordance with this Section 4.2, or, if Illumina
refuses to negotiate in good faith with respect to entering
into such an agreement, the Assembled Arrays may be
manufactured by PEB or its designate, under the conditional no
exclusive license set forth in Section 6.3.3, and subject to
the payment obligations of Section 4.3. Illumina will provide
PEB reasonable assistance with respect to PEB's or its
designate's manufacture of Assembled Arrays, including the
transfer of know-how and documentation directly related to
manufacture of Assembled Arrays.
4.3. Value Sharing. After first reimbursing each Party's Manufacturing
-------------
Cost, next reimbursing each Party's Sales and Marketing Costs and
then reimbursing each Party's Ongoing R&D Costs, PEB will pay
Illumina [*] of Residual Gross Margin of Collaboration Product sold
by PEB, its Affiliates, and distributors ("Illumina Share"), less
monies owed to PEB for reimbursement of development funding provided
to Illumina under Section 3.7. The balance of Gross Margin will be
retained by PEB. If Residual Gross Margin becomes negative in any
Quarter, PEB will accrue such losses. These accrued losses will be
repaid to PEB from future Illumina Share before any future Residual
Gross Margin is paid to Illumina. Illumina Share will be paid to
Illumina as set forth in Sections 4.3.1, 4.3.2, 4.3.3, and 13.4.
4.3.1. Payment to Illumina of Actual Illumina Share. At the end of
--------------------------------------------
each Quarter in which Net Sales are realized ("Revenue
Quarter"), PEB will pay to Illumina the actual Illumina Share
earned for that Quarter.
4.3.2. Pre-payment to Illumina of Estimated Illumina Share.
---------------------------------------------------
Beginning with the second Revenue Quarter, and for each
Quarter thereafter, in addition to payment to Illumina of the
actual Illumina Share for the previous Quarter under Section
4.3.1, PEB will pay to Illumina an estimated Illumina Share
for the Quarter. The amount of the estimated Illumina Share
will be equal to the actual Illumina Share for the previous
Quarter. The estimated Illumina Share will be paid to
Illumina in equal monthly installments during the Quarter.
4.3.3. Reconciliation. At the end of the second Revenue Quarter, and
--------------
at the end of each Quarter thereafter, PEB will determine the
difference between the actual Illumina Share for that Quarter
and the estimated Illumina Share for that Quarter. Illumina
will be charged or credited depending on whether the
estimated Illumina Share represents an overpayment or an
underpayment, respectively, for that Quarter.
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
11
<PAGE>
4.4. Supply of Instruments to Illumina for Use by Illumina Outside of the
--------------------------------------------------------------------
Collaboration Field. PEB will supply Instruments to Illumina for use
-------------------
by Illumina outside of the Collaboration Field ("OEM Instruments")
under a supply agreement to be negotiated in good faith between the
Parties. Except as otherwise provided for in Section 4.4.1 or in the
supply agreement, Illumina or its designate will be solely
responsible for all marketing, sales and support (including without
limitation service, customer training and application support) of OEM
Instruments. The transfer price for OEM Instrument will be the lower
of (i) [*] below the then-current list price or (ii) [*] below the
average selling price charged for Instruments sold to non-affiliated
third party purchasers during the preceding Quarter.
4.4.1. OEM Instrument for Use Inside the Nucleic Acid Field.
----------------------------------------------------
[*]
4.4.2. PEB Unwilling or Unable to Supply OEM Instruments. If PEB is
-------------------------------------------------
unwilling or unable to supply OEM Instrument to Illumina in
accordance with this Section 4.4, or, if PEB refuses to
negotiate in good faith with respect to entering into such an
agreement [*] and subject to the royalty obligations of
Section 6.3.8. PEB will provide Illumina reasonable
assistance with respect to Illumina's or its designate's
manufacture of OEM Instruments, including the transfer of
know-how and documentation directly related to manufacture of
OEM Instruments.
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
12
<PAGE>
5. Joint Steering Committee
5.1. Purpose. A joint steering committee will be established to oversee
-------
the Joint Development Program established by this Agreement ("Joint
Steering Committee"). The duties of the Joint Steering Committee will
include, but not be limited to, the following:
(A) oversight of all aspects of the Joint Development Program,
including definition, development, manufacturing (supply),
marketing, sales, and support of Collaboration Product;
(B) implementation of changes to the Work Plan;
(C) approval of annual sales and marketing budgets for Sales and
Marketing Cost;
(D) approval and allocation of annual budgets for Ongoing R&D Cost;
(E) allocation of Instruments, Assembled Arrays, and Reagents to
Affiliates should either be in limited supply;
(F) organization of development teams and oversight of their
activities;
(G) review of forecasts for Net Sales of Collaboration Products
provided by PEB at least 90 days prior to New Product Release
and Quarterly thereafter; and
(H) resolution of disputes arising under this Agreement as set forth
in Section 5.4.
5.2. Membership. The Joint Steering Committee will be comprised of 3
----------
employees from Illumina and 3 employees from PEB, appointed at the
sole discretion of the respective Parties. Substitute employees may
be appointed at any time. The Joint Steering Committee will be
chaired in the first year by a senior representative from PEB, and
thereafter on a rotating annual basis, by a senior representative
from Illumina or PEB. The initial composition of the Joint Steering
Committee will be as follows:
For Illumina: John R. Stuelpnagel
Mark S. Chee
Richard J. Pytelewski
For PEB: J. William Efcavitch
Dawn E. Madden
13
<PAGE>
Elaine J. Heron
5.3. Meetings. The Joint Steering Committee will meet as often as is
--------
reasonably necessary to accomplish its purpose but at least
quarterly, on a mutually agreeable date and at a place selected
initially by PEB and then by each Party in turn thereafter.
Representatives of Illumina or PEB, or both, in addition to members
of the Joint Steering Committee, may attend such meetings at the
invitation of either Party.
5.4. Joint Steering Committee Decisions and Dispute Resolution. Decisions
---------------------------------------------------------
by the Joint Steering Committee will be made by consensus. If the
Joint Steering Committee is unable to reach agreement, within 10
business days the matter will be submitted for resolution to the
President of Illumina and the President of the PE Biosystems Group.
In the event that the Presidents of each Party cannot reach agreement
within 10 business days after receiving notice from the Joint
Steering Committee, which period may be extended by mutual agreement
of the Parties, then either Party may initiate arbitration in
accordance with the rules and procedures set forth in Exhibit 2.
5.5. Expenses. The Parties will each bear all expenses of their respective
--------
members related to their participation on the Joint Steering
Committee.
6. Intellectual Property; Patent Prosecution and Litigation; Licenses;
Trademarks
6.1. Ownership of Intellectual Property.
----------------------------------
6.1.1. Pre-Collaboration Illumina Intellectual Property and
----------------------------------------------------
Collaboration Illumina Intellectual Property. All rights and
--------------------------------------------
title to Pre-Collaboration Illumina Intellectual Property and
Collaboration Illumina Intellectual Property, whether
patentable or copyrightable or not, will belong to Illumina
and will be subject to the terms and conditions of this
Agreement.
6.1.2. Collaboration Joint Intellectual Property. All rights and
-----------------------------------------
title to Collaboration Joint Intellectual Property, whether
patentable or copyrightable or not, will belong jointly to
PEB and Illumina and will be subject to the terms and
conditions of this Agreement. Each Party will have the right
to independently practice the Collaboration Joint
Intellectual Property, without accounting to the other Party,
only to the extent that the practice of the Collaboration
Joint Intellectual Property by PEB does not require rights
under Pre-Collaboration Illumina Intellectual Property,
Collaboration Illumina Intellectual Property, or any other
Intellectual Property Rights owned by, either partially or
wholly, or licensed to Illumina
14
<PAGE>
(subject to Sections 6.3.1, 6.3.2, and 6.3.3), and that
practice of the Collaboration Joint Intellectual Property by
Illumina does not require rights under Pre-Collaboration PEB
Intellectual Property, Collaboration PEB Intellectual
Property, or any other Intellectual Property Rights owned by,
either partially or wholly, or licensed to PEB (subject to
Sections 6.3.5, 6.3.6 and 6.3.7). Additionally, each Party
will have the right but not the obligation to bring, at its
own expense, an infringement action against any third party
under its interest in Joint Collaboration Intellectual
Property, subject to the same limitations set forth above
with respect to the practice of the Joint Collaboration
Intellectual Property by Illumina or PEB. The Parties will
assist one another and cooperate in any such litigation at
the other's reasonable request, and, if a Party is necessary
in order to institute or maintain an infringement suit by the
other Party as defined by law, that Party agrees to be joined
in the suit.
6.1.3. Pre-Collaboration PEB Intellectual Property and Collaboration
-------------------------------------------------------------
PEB Intellectual Property. All rights and title to Pre-
-------------------------
Collaboration PEB Intellectual Property and Collaboration PEB
Intellectual Property, whether patentable or copyrightable or
not, will belong to PEB and will be subject to the terms and
conditions of this Agreement.
6.2. Filing of Patent Applications.
------------------------------
6.2.1. Collaboration Illumina Intellectual Property. Illumina will
--------------------------------------------
have the first right, using in-house or outside legal counsel
selected by Illumina's sole discretion, to prepare, file,
prosecute, maintain and extend patent applications for
Collaboration Illumina Intellectual Property in countries of
Illumina's choosing. Illumina will bear all costs relating to
such activities. Illumina will solicit PEB's advice and
review of the patent applications, and Illumina will take
into consideration PEB's advice thereon. If Illumina elects
not to prepare, file, prosecute or maintain certain of the
patent applications or certain claims encompassed within the
patent applications, in one or more countries, Illumina will
give PEB notice thereof within a reasonable period prior to
allowing the patents or claims to lapse or become abandoned
or unenforceable, and PEB will thereafter have the right, at
its sole expense and discretion, to prepare, file, prosecute,
and maintain the patent applications in the name of PEB in
the one or more countries. Illumina will, at Illumina's
expense, assign the patent applications to PEB and provide
reasonable assistance to PEB to facilitate the filing and
prosecution of all the patent applications that Illumina has
elected not to pursue, and Illumina will execute all
documents
15
<PAGE>
deemed necessary or desirable therefor. Subject to any future
license agreement between the Parties, PEB will provide to
Illumina a royalty-free non-exclusive license, with right to
sublicense, under all the patent applications that Illumina
has elected not to pursue and PEB has elected to pursue under
this Section 6.2.1. If claims describing Collaboration
Illumina Intellectual Property are combined in a patent
application with claims describing Pre-Collaboration Illumina
Intellectual Property, PEB's rights under this Section 6.2.1
will be limited to those claims describing Collaboration
Illumina Intellectual Property. PEB and Illumina will each
hold all information it presently knows or acquires under
this Section 6.2.1 as Confidential Information in accordance
with Section 7.
6.2.2. Collaboration PEB Intellectual Property. PEB will have the
---------------------------------------
first right, using in-house or outside legal counsel selected
by PEB's sole discretion, to prepare, file, prosecute,
maintain and extend patent applications for Collaboration PEB
Intellectual Property in countries of PEB's choosing. PEB
will bear all costs relating to such activities. PEB will
solicit Illumina's advice and review of the patent
applications, and PEB will take into consideration Illumina's
advice thereon. If PEB elects not to prepare, file, prosecute
or maintain certain of the patent applications or certain
claims encompassed within the patent applications, in one or
more countries, PEB will give Illumina notice thereof within
a reasonable period prior to allowing the patents or claims
to lapse or become abandoned or unenforceable, and Illumina
will thereafter have the right, at its sole expense and
discretion, to prepare, file, prosecute, and maintain the
patent applications in the name of Illumina in the one or
more countries. PEB will, at PEB expense, assign said patent
applications to Illumina and provide reasonable assistance to
Illumina to facilitate the filing and prosecution of all the
patent applications that PEB has elected not to pursue, and
PEB will execute all documents deemed necessary or desirable
therefor. Subject to any future license agreement between the
Parties, Illumina will provide to PEB a royalty-free non-
exclusive license, with right to sublicense, under all the
patent applications that PEB has elected not to pursue and
Illumina has elected to pursue under this Section 6.2.2. If
claims describing Collaboration PEB Intellectual Property are
combined in a patent application with claims describing Pre-
Collaboration PEB Intellectual Property, Illumina's rights
under this Section 6.2.2 will be limited to those claims
describing Collaboration PEB Intellectual Property. PEB and
Illumina will each hold all information it presently knows or
acquires under this Section 6.2.2 as Confidential Information
in accordance with Section 7.
16
<PAGE>
6.2.3. Collaboration Joint Intellectual Property. PEB and Illumina
-----------------------------------------
will jointly have the right, using in-house or outside legal
counsel selected by both Parties, to prepare, file,
prosecute, maintain and extend patent applications for
Collaboration Joint Intellectual Property in countries of the
Party's choosing. But, if the practice of the Collaboration
Joint Intellectual Property would necessarily infringe claims
of patents or patent applications claiming Pre-Collaboration
PEB Intellectual Property, the Collaboration Joint
Intellectual Property will, for the purposes of this Section
6.2.3 only, be treated as Collaboration PEB Intellectual
Property under Section 6.2.2; and, if the practice of the
Collaboration Joint Intellectual Property would necessarily
infringe claims of patents or patent applications claiming
Pre-Collaboration Illumina Intellectual Property, the
Collaboration Joint Intellectual Property will, for the
purposes of this Section 6.2.3 only, be treated as
Collaboration Illumina Intellectual Property under Section
6.2.1. If only one Party ("Filing Party") desires to file a
patent application in one or more countries, then the Filing
Party will thereafter have the right, at its sole expense, to
prepare, file, prosecute, and maintain the applications in
its own name in the one or more countries. The other Party
will, at its own expense, assign said patent applications to
the Filing Party and provide reasonable assistance to the
Filing Party to facilitate the filing and prosecution of all
the patent applications that the other Party has elected not
to pursue, and the other Party will execute all documents
deemed necessary or desirable therefor. The Filing Party will
provide to the other Party a royalty-free non-exclusive
license, with right to sublicense, under all the patent
applications that the other Party has elected not to pursue
and the Filing Party has elected to pursue under this Section
6.2.3. PEB and Illumina will each hold all information it
presently knows or acquires under this Section 6.2.3 as
Confidential Information in accordance with Section 7.
6.3. Licenses of Intellectual Property.
---------------------------------
6.3.1. Exclusive License to PEB for Instruments and Reagents.
-----------------------------------------------------
Subject to the exclusivity obligations of Section 2, payment
obligations under Section 4.3, and Illumina's reservation of
rights under Section 6.3.4, Illumina grants to PEB an
exclusive royalty-free license under Illumina's interest in
Subject Intellectual Property to make, have made, import,
use, offer to sell, and sell Instruments and Reagents in the
Collaboration Field.
6.3.2. Exclusive License to PEB for Assembled Arrays. Subject to the
---------------------------------------------
exclusivity obligations of Section 2, payment obligations
under
17
<PAGE>
Section 4.3, and Illumina's reservation of rights under
Section 6.3.4, Illumina grants to PEB an exclusive royalty-
free license under Illumina's interest in Subject
Intellectual Property to use, offer to sell, and sell
Assembled Arrays in the Collaboration Field.
6.3.3. Conditional Non-Exclusive License to PEB for Assembled
-------------------------------------------------------
Arrays. In the event that Illumina is unwilling or unable to
------
supply Assembled Arrays to PEB under Section 4.2.3, or if
this Agreement is terminated by PEB under Section 11.2.2 and
subject to payment obligations under Section 4.3, Illumina
grants to PEB an exclusive royalty-free world-wide license
under Illumina's interest in Subject Intellectual Property to
make, have made, and import Assembled Arrays in the
Collaboration Field.
6.3.4. Illumina's Reservation of Rights. Notwithstanding the license
--------------------------------
grants of Sections 6.3.1, 6.3.2, and 6.3.3, Illumina retains
the right to use Instruments, Reagents, and Assembled Arrays
in the Collaboration Field for Illumina's internal use in
furtherance of the Joint Development Program and not for
resale, services or other use except as provided for in the
Early Access Program set forth in Section 3.6.
6.3.5. Non-Exclusive License to Illumina for Instruments. Subject to
-------------------------------------------------
the distribution restrictions of Section 4.4.1, PEB grants to
Illumina a non-exclusive royalty-free world-wide license
under PEB's interest in Subject Intellectual Property to use,
offer to sell, and sell Instruments outside of the
Collaboration Field.
6.3.6. Conditional Non-Exclusive License to Illumina for
-------------------------------------------------
Instruments. Subject to the royalty obligation of Section
-----------
6.3.8, and in the event that PEB is unwilling or unable to
supply OEM Instrument to Illumina under Section 4.4.2, or if
this Agreement is terminated by Illumina under Section
11.2.2, PEB grants to Illumina a non-exclusive royalty-
bearing world-wide license under PEB's interest in Subject
Intellectual Property to make, have made, and import,
Instruments outside of the Collaboration Field.
6.3.7. Non-Exclusive License to Illumina for Instruments Developed
-----------------------------------------------------------
Outside the Joint Development Program. Subject to the royalty
-------------------------------------
obligation of Section 6.3.8, PEB grants to Illumina a non-
exclusive royalty-bearing world-wide license under PEB's
interest in Collaboration PEB Intellectual Property to make,
have made, use, import, offer to sell, and sell instruments
(other than Instruments) outside the Collaboration Field.
18
<PAGE>
6.3.8. Royalties. Illumina will pay to PEB a royalty of [*] of Net
---------
Sales of Instruments or other instruments sold or otherwise
disposed of under the non-exclusive license granted to
Illumina under Section 6.3.6 or 6.3.7.
6.3.9. No rights other than those expressly granted in this Section
6.3 are hereby granted or intended to be granted to or by
either Party, either expressly, impliedly, or by estoppel,
under Subject Intellectual Property, or any other
Intellectual Property Rights, of either Party.
6.4. Interfering Third Party Intellectual Property. If a Party believes
---------------------------------------------
that any activities within the Joint Development Program infringe any
Intellectual Property Rights of a third party, that Party will
promptly notify the other Party, and the Joint Steering Committee
will seek to agree upon the appropriate response to be taken.
6.5. Patent Litigation.
-----------------
6.5.1. Defense Against Third Party Claims. In the event of the
----------------------------------
institution of any suit by a third party against Illumina or
PEB alleging that the manufacture, use, sale, distribution or
marketing of Collaboration Product infringes a third party
patent, the Party sued will promptly notify the other Party
in writing. The other Party will have the right but not the
obligation to defend or participate in the defense of such
suit at its own expense. Illumina and PEB will assist one
another and cooperate in any such litigation at the other's
reasonable request without expense to the requesting Party.
The Party conducting such action will have full control over
its conduct, including settlement thereof. But, no settlement
of an action will be made without the prior written consent
of the other Party if such settlement would adversely affect
the rights of the other Party, the consent not to be
unreasonably withheld or delayed.
6.5.2. Prosecution of Infringement Action. In the event that
----------------------------------
Illumina or PEB becomes aware of actual or threatened
infringement of a patent resulting from Collaboration
Illumina Intellectual Property, Collaboration PEB
Intellectual Property, or Collaboration Joint Intellectual
Property, that Party will promptly notify the other Party in
writing. Either owner of a patent resulting from the
intellectual property will have the first right but not the
obligation to bring, at its own expense, an infringement
action against any third party and to use the other Party's
name in connection therewith. If an owner of the patent does
not commence a particular infringement action within 90 days,
the other Party, after
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
19
<PAGE>
notifying the owner in writing, will be entitled to bring the
infringement action at its own expense. The Party conducting
the action will have full control over its conduct, including
settlement thereof. But, no settlement of an action will be
made without the prior written consent of the other Party if
such settlement would adversely affect the rights of the
other Party, such consent not to be unreasonably withheld or
delayed. In any event, Illumina and PEB will assist one
another and cooperate in any such litigation at the other's
reasonable request without expense to the requesting Party,
and, if a Party is necessary in order to institute or
maintain an infringement suit by the other Party as defined
by law, that Party will join such suit, represented by its
own counsel.
6.5.3. Expenses. Illumina and PEB have the right to recover their
-------
respective actual out-of-pocket expenses, or proportionate
share thereof, in connection with any litigation or
settlement thereof from any recovery made by any Party. Any
excess amount will be shared between PEB and Illumina in an
amount proportional to their respective expenses.
6.5.4. Information. The Parties will keep one another reasonably
-----------
informed of the status of their respective activities
regarding any such litigation or settlement thereof.
6.6. Effect of Bankruptcy. All rights and licenses granted under this
--------------------
Agreement by one Party to the other Party are, and will irrevocably
be deemed to be, "intellectual property" as defined in Section
101(56) of Title 11, U.S. Code ("Bankruptcy Code"). In the event of
the commencement of a case by or against either Party under any
Chapter of the Bankruptcy Code, this Agreement will be deemed an
executory contract and all rights and obligations hereunder will be
determined in accordance with Section 365(n) thereof.
6.7. Trademarks and Non-Proprietary Names. The Joint Steering Committee,
------------------------------------
at equally shared expense between each Party, will be responsible for
the selection, registration and maintenance of all trademarks that it
employs in connection with Collaboration Product, and both Parties
will own and control such trademarks jointly for use in the
Collaboration Field. Nothing in this agreement will be construed as a
grant of rights, by license or otherwise, to either Party to use any
trademarks for any purpose other than co-promotion of Collaboration
Product as provided in this Agreement. PEB, at its expense, will be
responsible for the selection of non-proprietary names for
Collaboration Product sold by PEB.
7. Confidentiality and Non-Solicitation
20
<PAGE>
7.1. Non-Disclosure. Because Illumina and PEB will be cooperating with
--------------
each other under this Agreement, each may reveal Confidential
Information to the other. The Parties agree, by using the same degree
of care as each uses for its own information of like importance, but
not less than a reasonable degree of care, to hold in confidence any
Confidential Information disclosed by the other Party hereunder, and
not to disclose any Confidential Information to any third party
without the express written consent of the other Party. Each Party
will disclose Confidential Information only to its employees or
agents who have a need to know. Each Party will use Confidential
Information only for purposes of furthering the Joint Development
Program. With respect to any Confidential Information that is
revealed by a Party to the other Party, this confidentiality
requirement will remain in force for a period of 5 years following
the date the Confidential Information is revealed.
7.2. Responsibility over Employees and Agents. Each Party will assume
----------------------------------------
individual responsibility for the actions and omissions of its
respective employees, agents and assigns, and to inform same of the
responsibilities for confidentiality under this Agreement, and to
obtain their agreement to be bound in the same manner that the Party
is bound.
7.3. Affiliates. Nothing herein will be construed as preventing either
----------
Party from disclosing any information to an Affiliate of PEB or
Illumina for the purpose of furthering the Joint Development Program,
provided such Affiliate has undertaken a similar obligation of
confidentiality with respect to the Confidential Information.
7.4. Bankruptcy. All Confidential Information disclosed by one Party to
----------
the other will remain the intellectual property of the disclosing
Party. The bankrupt or insolvent Party will, to the extent permitted
by law, take all steps necessary or desirable to maintain the
confidentiality of the other Party's Confidential Information and to
ensure that the court or other tribunal maintain such information in
confidence in accordance with the terms of this Agreement. In the
event that a court or other legal or administrative tribunal,
directly or through an appointed master, trustee or receiver, assumes
partial or complete control over the assets of a Party to this
Agreement based on the insolvency or bankruptcy of such Party, the
bankrupt or insolvent Party will promptly notify the court or other
tribunal
(A) that Confidential Information received from the other Party
under this Agreement remains the property of the other Party;
and,
(B) of the confidentiality obligations under this Agreement.
7.5. Publication. Neither PEB nor Illumina will submit for written or oral
-----------
publication any manuscript, abstract or the like that includes data
or other
21
<PAGE>
information generated and provided by the other Party or otherwise
developed by either Party under the Joint Development Program without
first obtaining the prior written consent of the other Party, which
consent will not be unreasonably withheld or delayed. If written
consent or written denial is not provided by the other Party within
90 days, the first Party will have the right to publish. But, the
foregoing will not apply to customary literature that is prepared for
marketing and sales purposes and that does not contain Confidential
Information.
7.6. Publicity. Neither Party nor any of its Affiliates will originate any
---------
news relating to this Agreement without the prior written approval of
the other Party, which approval will not be unreasonably withheld or
delayed. However, within 30 days after the execution of this
Agreement the Parties will mutually agree on a joint press release
announcing the existence of this Agreement.
7.7. Compliance with Statutory Requirements. Nothing in this Agreement
--------------------------------------
will be construed as preventing or in any way inhibiting either Party
from complying with statutory or regulatory requirements governing
the development, manufacture, use, sale, or other distribution, of
Collaboration Product in any manner that it reasonably deems
appropriate, including, for example, by disclosing to regulatory
authorities Confidential Information or other information received
from a Party or third parties. The Parties will take reasonable
measures to assure that no unauthorized use or disclosure is made by
others to whom access to such information is granted under this
Section 7.7.
7.8. Non-Solicitation. During the term of the Agreement, and for a period
----------------
of 1 year thereafter, a Party will not solicit any person who is
employed by or is an exclusive consultant to the other Party, and
directly involved with the Joint Development Collaboration to
terminate that person's employment by or consultantcy to the other
Party. As used herein, the term "solicit" will mean requesting,
directly or indirectly, any employee or consultant to terminate his
employment by or consultantcy to a Party.
8. Representations, Warranties and Covenants
Each Party represents, warrants and covenants to the other Party that:
(A) it has the corporate power and authority and legal right to
enter into this Agreement and to perform its obligations
hereunder;
(B) the execution and delivery of this Agreement and the performance
of the transactions contemplated thereby have been duly
authorized by all necessary corporate action of the Party;
22
<PAGE>
(C) the execution and delivery of this Agreement and the performance
by the Party of any of its obligations under this Agreement do
not and will not:
(1) conflict with, or constitute a breach or violation of, any
other contractual obligation to which it is a party, any
judgment of any court or governmental body applicable to
the Party or its properties, or, to the Party's knowledge,
any statute, decree, order, rule or regulation of any court
or governmental agency or body applicable to the Party or
its properties, and
(2) require any consent or approval of any governmental
authority or other person;
(D) each Party will, to the best of its knowledge without
undertaking a special investigation, disclose to the other Party
any material adverse proceedings, claims or actions that arise
that would materially interfere with that Party's performance of
its obligations under this Agreement; and
(E) each Party's employees have executed or will execute agreements
whereby all right, title and interest in any Intellectual
Property Rights will be assigned to their respective employers.
9. Indemnification
9.1. PEB's Indemnity. PEB will defend and indemnify Illumina against any
---------------
judgement, damage, liability, loss, cost or other expense, including
legal fees ("Liability"), resulting from any third-party claims made
or proceedings brought against Illumina to the extent that the
Liability arises from the following:
(A) PEB's negligent or willful act or omission in the manufacture,
storage, handling, distribution, use or sale of Collaboration
Product; or,
(B) from PEB's breach of any warranty set forth in Section 8.
9.2. Illumina's Indemnity. Illumina will defend and indemnify PEB against
--------------------
any Liability, resulting from any third-party claims made or
proceedings brought against PEB to the extent that the Liability
arises from the following:
(A) Illumina's negligent or willful act or omission in the
manufacture, storage, handling, distribution, use or sale of
Collaboration Product; or,
23
<PAGE>
(B) from Illumina's breach of any warranty set forth in Section 8.
9.3. Notice; Choice of Attorney. A Party that intends to claim
--------------------------
indemnification under this Section 9 (the "Indemnitee") will promptly
notify the other Party (the "Indemnitor") of any Liability in respect
of which the Indemnitee intends to claim indemnification. The
Indemnitor, after it determines that indemnification is required of
it, will assume the defense and settlement thereof with counsel of its
choice, reasonably satisfactory to the other Party. But, an Indemnitee
will have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitor if Indemnitor does not assume
the defense; or, if representation of such Indemnitee by the counsel
retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other
Party represented by counsel. The Indemnitee's failure to deliver
notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to Indemnitor's
ability to defend the action, will relieve the Indemnitor of any
liability to the Indemnitee under this Section 9, but the omission to
deliver notice to the Indemnitor will not relieve it of any liability
that it may have to any Indemnitee otherwise than under this Section
9.
9.4. Consent Required. The indemnity provisions in this Section 9 will not
----------------
apply to amounts paid in settlement of any Liability if the settlement
is effected without the consent of the Indemnitor.
9.5. Cooperation. The Indemnitee under this Section 9, its employees and
-----------
agents, will cooperate fully with the Indemnitor and its legal
representatives in the investigations of any action, claim or
liability covered by this indemnification. In the event that each
Party claims indemnity from the other and one Party is finally held
liable to indemnify the other, the Indemnitor will additionally be
liable to pay the reasonable legal costs and attorneys' fees incurred
by the Indemnitee in establishing its claim for indemnity.
9.6. Limitation on Liability. In no event will either Party be liable to
-----------------------
the other for incidental, special, consequential, or punitive damages.
10. Quiet Period
During the period beginning on the Effective Date and ending 6 months
thereafter, and inside the Nucleic Acid Field, Illumina will not negotiate
with, or enter into any agreement with, a third party with respect to the
commercialization of Illumina Pre-Collaboration Intellectual Property,
Illumina Collaboration Intellectual Property, or Illumina's interest in
Collaboration Joint Intellectual Property.
24
<PAGE>
11. Term and Termination
11.1. Term. Unless terminated earlier as provided herein, this Agreement
----
will commence on the Effective Date and will remain in full force
until the expiration of the last to expire Subject Patent.
11.2. Termination.
-----------
11.2.1. This Agreement may be terminated without cause by mutual
written agreement of the Parties, effective as of the time
specified in such written agreement.
11.2.2. This Agreement may be terminated by either Party,
(A) in the event the other Party files in any court or
agency under any statute or regulation of any state or
country, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or
trustee of the other Party or of its assets, or if the
other Party proposes a written agreement of composition
or extension of its debts, or if the other Party will be
served with an involuntary petition against it, filed in
any insolvency proceeding, and the petition is not
dismissed within 60 days after the filing thereof, or if
the other Party will propose or be a Party to any
dissolution or liquidation, or if the other Party will
make an assignment for the benefit of creditors; or
(B) upon any material breach of this Agreement by the other
Party; except that,
(1) the Party alleging such breach must first give the
other Party written notice thereof, which notice
must state the nature of the breach in reasonable
detail and the other Party must have failed to cure
such alleged breach within 60 days after receipt of
the notice; and
(2) the Party alleging the breach terminates the
Agreement within 1 year of first giving the other
Party such written notice.
11.2.3 Survival of Obligations. Upon any termination of this
-----------------------
Agreement, by expiration of the term or otherwise, neither
Party will be relieved of any obligations incurred prior to
such termination. Despite any termination of this Agreement,
the obligations of the Parties under Sections 4.4, 6.1, 7, 8,
9, 11.2.3, and 13, as well as
25
<PAGE>
any other provisions that by their nature are intended to
survive any termination, will survive and continue to be
enforceable. With respect to the survival of licenses granted in
Section 6.3,
(A) if termination of this Agreement is by PEB under Section
11.2.2, licenses granted to PEB under Section 6.3 will survive
termination of this Agreement only to the extent that the
licenses relate to Collaboration Product that has reached New
Product Release prior to such material breach; or
(B) if termination of this Agreement is by Illumina under Section
11.2.2, licenses granted to Illumina under Section 6.3 will
survive termination.
11.2.4 Refund of Unused Development Funding. In the event that the
------------------------------------
Agreement is terminated by PEB under Section 11.2.2, Illumina will refund
to PEB any portion of development funding given to Illumina under Section
3.7 that is unspent at the time of termination.
12. Use of Collaboration Product by PEB or Affiliates
In the event that PEB or an Affiliate of PEB uses Collaboration Product to
supply services or information to a third party for commercial purposes,
PEB shall make such Collaboration Product available for sale to third
parties on commercially reasonable terms and without restriction, by way of
license or otherwise, on the ability of such customers to themselves use
such Collaboration Product to supply services or information to third
parties for commercial purposes. An Affiliate of a Party who desires to
purchase or use Collaboration Product will not receive (i) any preferences
over and above those granted to preferred third-party customers with
respect to price of, the use of, or access to Collaboration Product, or
(ii) any rights under Collaboration Illumina Intellectual Property,
Collaboration Joint Intellectual Property, or Collaboration PEB
Intellectual Property, beyond those granted to third party customers with
the sale of Collaboration Product.
13. General Provisions
13.1. Force Majeure. If the performance of any part of this Agreement by
-------------
either Party, or of any obligation under this Agreement, is
prevented, restricted, interfered with or delayed by reason of any
cause beyond the reasonable control of the Party liable to perform,
unless conclusive evidence to the contrary is provided, the Party so
affected will, upon giving written notice to the other Party, be
excused from the performance to the extent of the prevention,
restriction, interference or delay; provided, however, the affected
Party will use its reasonable best efforts to avoid or remove the
26
<PAGE>
causes of non-performance and will continue performance with the
utmost dispatch whenever the causes are removed. When the
circumstances arise, the Parties will discuss what, if any,
modification of the terms of this Agreement may be required in order
to arrive at an equitable solution.
13.2. Governing Law. This Agreement will be deemed to have been made in
-------------
the State of California and its form, execution, validity,
construction and effect will be determined in accordance with the
laws of the State of California.
13.3. Books and Records. Using a Party's customary practices and
-----------------
procedures in accordance with GAAP, each Party will keep and
maintain proper and complete records and books of account sufficient
in detail to enable the verification of monies spent and received by
each Party in connection with each Party's obligations under this
Agreement. The books and records will be retained for a period of at
least 6 years. Each Party will provide to the other Party detailed
quarterly statements for monies spent and received by each Party in
connection with each Party's obligations under this Agreement. Each
Party will have the right from time to time (not to exceed once
during each calendar year) during normal business hours and upon
reasonable notice to inspect in confidence, or have an agent,
accountant or other representative inspect in confidence, the books
and records. The Party initiating the inspection will bear the costs
thereof unless the inspection reveals a discrepancy unfavorable to
that Party of at least 10%, in which case the other Party will pay
the costs of the inspection. If the inspection results in a final
determination that amounts have been overstated or understated, the
applicable amount will be refunded or paid promptly by the
appropriate Party.
13.4. Payments. All payments due under this Agreement will be due 30 days
--------
following the start or end, as the case may be, of the relevant
Quarter. All payments under this Agreement will be made in United
States dollars by wire transfer to a bank account designated by the
Party receiving the payment, without deductions of taxes charges and
any other duties that may be imposed. For converting payments due on
sales made in currencies other than United States dollars into
United States dollars, the payments will be converted at the closing
commercial sell rate of exchange for United States dollars and each
currency involved as quoted by Citibank, N.A., or any successor
thereto, in New York on the last business day of the relevant
period.
13.5. Severability. If a court or an arbitrator of competent jurisdiction
------------
holds any provision of this Agreement to be illegal, unenforceable,
or invalid, in whole or in part for any reason, the validity and
enforceability of the remaining provisions, or portions thereof,
will not be affected.
27
<PAGE>
13.6. Entire Agreement. This Agreement and the Equity Agreement, and
----------------
exhibits, and schedules referred to in this Agreement constitute the
final, complete, and exclusive statement of the terms of the
agreement between the Parties pertaining to the subject matter of
this Agreement and supersedes all prior and contemporaneous
understandings or agreements of the Parties. However, confidential
disclosures made under previously executed Confidentiality
Agreements between Illumina and PEB will remain subject to the terms
of those Confidentiality Agreements. No Party has been induced to
enter into this Agreement by, nor is any Party relying on, any
representation or warranty outside those expressly set forth in this
Agreement.
13.7. Modification of Agreement. No terms or conditions of this Agreement
-------------------------
will be varied or modified by any prior or subsequent statement,
conduct or act of either of the Parties, except that the Parties may
supplement, amend, or modify this Agreement by written instruments
specifically referring to and executed in the same manner as this
Agreement.
13.8. Assignment. Neither Party has the power to assign this Agreement nor
----------
any interest hereunder without the written consent of the other
Party. Except that either Party may assign this Agreement or any of
its rights or obligations to any Affiliate or to any third party
with which it may merge or consolidate, or to which it may transfer
all or substantially all of its assets to which this Agreement
relates, without obtaining the consent of the other Party.
13.9. Construction.
------------
13.9.1. Headings; Sections and Exhibits. Headings contained in this
-------------------------------
Agreement are for convenience only and will not be used in
the interpretation of this Agreement. References herein to
sections and exhibits are to the sections and exhibits,
respectively, of this Agreement. The exhibits are hereby
incorporated herein by reference and made a part of this
Agreement. Should any inconsistency exist or arise between
a provision of this Agreement and a provision of any
exhibit, schedule, or other incorporated writing, the
provision of this Agreement will prevail.
13.9.2. No Construction Against Drafter. Each Party and its counsel
-------------------------------
have participated fully in the review and revision of this
Agreement. Any rule of construction to the effect that
ambiguities are to be resolved against the drafting Party
will not apply in interpreting this Agreement.
13.9.3. Certain Words and Terms. Unless the context clearly
----------------------
requires otherwise,
28
<PAGE>
(A) the plural and singular numbers will each be deemed to
include the other;
(B) the masculine, feminine, and neuter genders will each
be deemed to include the others;
(C) "will," "will agree," or "agrees" are mandatory, and
"may" is permissive;
(D) "or" is not exclusive; and
(E) "includes" and "including" are not limiting.
13.10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each counterpart will be deemed an original
instrument, but all counterparts together will constitute but one
agreement.
13.11. Notices.
-------
13.11.1. Sufficient Notice. All notices, requests, demands, or
-----------------
other communications under this Agreement will be in
writing. Notice will be sufficiently given for all
purposes as follows:
(A) when personally delivered to the recipient, notice is effective
on delivery;
(B) when mailed certified mail, return receipt requested, notice is
effective on receipt, if delivery is confirmed by a return
receipt;
(C) when delivered by Federal Express/Airborne/United Parcel
Service/DHL WorldWide, or United States Express Mail, charges
prepaid or charged to the sender's account, notice is effective
on delivery, if delivery is confirmed by the delivery service;
and
(D) when sent by telex or fax to the last telex or fax number of the
recipient known to the Party giving notice, notice is effective
on receipt, provided that
(1) a duplicate copy of the notice is promptly given by first-
class or certified mail or by overnight delivery, or
(2) the receiving Party delivers a written confirmation of
receipt. Any notice given by telex or fax will be deemed
received on the next business day if it is received after
5:00 p.m. (recipient's time) or on a nonbusiness day.
29
<PAGE>
13.11.2. Notice Refused, Unclaimed, Or Undeliverable. Any correctly
-------------------------------------------
addressed notice that is refused, unclaimed, or undeliverable
because of an act or omission of the Party to be notified
will be deemed effective as of the first date that said
notice was refused, unclaimed, or deemed undeliverable by the
postal authorities, messenger, or overnight delivery service.
13.11.3. Addresses. Addresses for purpose of giving notice are as
---------
follows:
If to Illumina: Illumina, Inc.
9390 Towne Centre Drive, Suite 200
San Diego, CA 92121-3015
FAX No.: 858-587-4297
Attn.: President
If to PEB PE Biosystems
850 Lincoln Centre Drive
Foster City, CA 94404
FAX No.: 650-638-6677
Attn.: President, PE Biosystems
[Signature Page Follows]
30
<PAGE>
The Parties , through their authorized officers, have executed this Agreement as
of the Effective Date.
ILLUMINA, INC. PE CORPORATION, THROUGH ITS PE
BIOSYSTEMS GROUP
By: _______________________________ By: _______________________________
Name: _____________________________ Name: _____________________________
Title: ____________________________ Title: ____________________________
Date: _____________________________ Date: _____________________________
31
<PAGE>
EXHIBIT 1
Technical Milestones and Development Funding
--------------------------------------------
Technical Milestones
[*]
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
1
<PAGE>
Development Funding
[*]
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
2
<PAGE>
EXHIBIT 2
Alternative Dispute Resolution
In the event of any dispute, difference or question arising between the Parties
in connection with this Agreement, the construction thereof, or the rights,
duties or liabilities of either Party excluding any dispute or controversy for
which arbitration is prohibited by any applicable law or treaty, and which
dispute is not amicably resolved by the good faith efforts of the Parties under
Section 5.4, then such dispute will be resolved by binding Alternative Dispute
Resolution ("ADR") in the manner described below:
1) If any Party intends to begin an ADR to resolve a dispute, such Party will
provide written notice to counsel for the other Party informing the other
Party of such intention and the issues to be resolved. Within 10 business
days after the receipt of such notice, the other Party may by written notice
to the counsel for the Party initiating ADR, add additional issues to be
resolved. From the date of receipt of the ADR notice and until such time as
any matter has been finally settled by ADR, the running of the time periods
in which a Party must cure a breach of this Agreement will be suspended as
to the subject matter of the dispute.
2) Within 5 business days following the receipt of the original ADR notice
("Notice Date") a neutral will be selected by the then President of the
Center for Public Resources ("CPR"), 14th Floor, 366 Madison Avenue, New
York, New York 10017. The neutral will be an individual who will preside in
resolution of any disputes between the Parties. The neutral selected will be
a member of the Judicial Panel of the CPR and will not be an employee,
director or shareholder of either a Party or of an Affiliate of either
Party.
3) Each Party will have 10 business days from the date the neutral is selected
to object in good faith to the selection of that person. If either Party
makes such an objection, the then president of the CPR will as soon as
possible thereafter, select another neutral under the same conditions set
forth above. This second selection will be final.
4) No later than 90 business days after selection, the neutral will hold a
hearing to resolve each of the issues identified by the Parties.
a) Each Party will have the right to be represented by counsel at the
hearing.
b) The hearing will be held at such place as agreed upon by the Parties or
if they are unable to agree at a place designated by the neutral.
5) The ADR proceeding will be confidential and the neutral will issue
appropriate protective orders to safeguard each Parties' Confidential
Information. Except as required by law, no Party will make (or instruct the
neutral to make) any public
1
<PAGE>
announcement with respect to the proceedings or decision of the neutral
without the prior written consent of each other Party. The existence of any
dispute submitted to ADR, and the award of the neutral, will be kept in
confidence by the Parties and the neutral, except as required in connection
with the enforcement of such award or as otherwise required by applicable
law.
6) It is the intention of the Parties that discovery, although permitted as
described herein, will be limited except in exceptional circumstances. The
neutral will permit such limited discovery necessary for an understanding of
any legitimate issue raised in the ADR, including the production of
documents. Each Party will be permitted but not required to take the
deposition of not more than 5 persons, each such deposition not to exceed 6
hours in length. If the neutral believes that exceptional circumstances
exist, and additional discovery is necessary for a full and fair resolution
of the issue, the neutral may order such additional discovery as the neutral
deems necessary. At the hearing the Parties may present testimony (either by
live witness or deposition) and documentary evidence. The neutral will have
sole discretion with regard to the admissibility of any evidence and all
other materials relating to the conduct of the hearing.
7) Each Party will be entitled to no more than 4 hours of hearing to present
testimony or documentary evidence. The testimony of both Parties will be
presented during the same calendar day. Such time limitation will include
any direct, cross or rebuttal testimony, but such time limitation will only
be charged against the Party conducting such direct, cross or rebuttal
testimony. It will be the responsibility of the neutral to determine whether
the Parties have had the 4 hours to which they are entitled. If the neutral
believes that exceptional circumstances exist, and additional hearing time
is necessary for a full and fair resolution of the issue, the neutral may
order such additional hearing time as the neutral deems necessary.
8) At least 15 business days prior to the date set for the hearing, each Party
will submit to each other Party and the neutral a list of all documents on
which such Party intends to rely in any oral or written presentation to the
neutral and a list of all witnesses, if any, such Party intends to call at
such hearing and a brief summary of each witnesses testimony.
9) At least 5 business days prior to the hearing, each Party must submit to the
neutral and serve on each other Party a proposed ruling on each issue to be
resolved. Such writing will be limited to presenting the proposed ruling,
will contain no argument or analysis of the facts or issues, and will be
limited to not more than 10 pages.
10) Not more than 5 business days following the close of hearings, the Parties
may each submit post hearing briefs to the neutral addressing the evidence
and issues to be resolved. Such post hearing briefs will not be more than 50
pages.
2
<PAGE>
11) The neutral will rule on each disputed issue after the hearing as
expeditiously as possible, but in no event more than 30 days after the
close of the hearing. The neutral will, in rendering his decision, apply
the substantive law of the state of California, U.S.A., and without giving
effect to its principles of conflicts of law, and without giving effect to
any rules or laws relating to arbitration. The neutral is not empowered
with the remedy of termination of the Agreement.
12) Any judgment upon the award rendered by the neutral may be entered in any
court having jurisdiction thereof. The decision rendered in any such ADR
will be final and not appealable, except in cases of fraud or bad faith on
the part of the neutral or any Party to the ADR proceeding in connection
with the conduct of such proceedings, and will be enforceable in any court
of competent jurisdiction.
13) The neutral will have the option to assess costs and expenses to the non-
prevailing Party, otherwise the Parties will pay their own costs
(including, without limitation, attorneys fees) and expenses in connection
with such ADR.
3
<PAGE>
EXHIBIT 10.6
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is made as of _________, 1998 by and between
Illumina, Inc., a California corporation ("Buyer") and nGenetics, Inc., a
California corporation ("Seller"). This Asset Purchase Agreement, including all
schedules and exhibits, is referred to as the "Purchase Agreement."
RECITALS
--------
A. Seller develops technology related to high throughput genetic decoding
(the "Business").
B. Seller desires to sell and Buyer desires to purchase all of the assets
of Seller used in the Business.
AGREEMENT
---------
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES
------------------------------------------------
1.1 Purchase of Assets. At the Closing, Seller will sell, transfer,
------------------
and convey to Buyer, and Buyer will purchase from Seller the following assets as
listed in Schedule 1.1 (the "Assets"):
(a) Equipment. All equipment, furniture and other tangible
---------
personal property owned by Seller.
(b) Intellectual Property. All right, title and interest of
---------------------
Seller in and to all patents, copyrights, trademarks, service marks, trade
names, trade secrets, mask works, proprietary information, technology rights and
licenses, proprietary rights and processes, know-how, research and development
in progress, all domestic and foreign applications, registrations and renewals
of any of the foregoing, and any and all other intellectual property including,
without limitation, all things authored, discovered, developed, made, perfected,
improved, designed, engineered, devised, acquired, produced, conceived or first
reduced to practice by Seller or any of its employees in the course of their
employment by Seller, including but not limited to those that are relevant to an
understanding or the continuation of the Business, whether tangible or
intangible, improvements, inventions, works of authorship, formulas, processes,
routines, subroutines, techniques, concepts, object code, flow charts, diagrams,
coding sheets, source code, listings and annotations, programmers' notes,
information, work papers, work product and other materials of any types
whatsoever, and all rights of any kind in or to any of the foregoing
(collectively, the "Intellectual Property") which are relevant or applicable to
the Business.
(c) Claims. All claims of Seller against any parties relating to
------
items included in the Assets, including, without limitation, unliquidated rights
under manufactures' and
<PAGE>
vendors' warranties or guaranties, claims for trade secret misappropriation and
infringement of the Intellectual Property, and claims for breach of employee
proprietary information agreements.
(d) Permits and Licenses. Government permits and licenses used in
--------------------
the conduct of the Business, to the extent transferable.
(e) Books and Records. All information, files and records
-----------------
directly relating to the foregoing and which Buyer reasonably expects may be
useful to Buyer. In case of any disagreement as to whether an item directly
relates to the foregoing, Buyer shall be permitted to copy such item.
1.2 Assumption of Liabilities. Buyer shall not assume and shall not
-------------------------
be obligated to pay, discharge, or indemnify any party, with respect to any
obligations or liabilities of, or claims against, Seller, whether now or
hereafter existing or created (collectively, "Claims"), including but not
limited to:
(i) Any Claims under any expressed or implied contracts
relating to products or services, including without limitation Claims with
respect to product warranties or product liabilities;
(ii) taxes of any nature whatsoever of Seller arising from
the operation of the Business or the ownership of the Assets for any period (or
portion of any period) ending on or prior to the Closing Date ("Seller Taxes");
(iii) Claims under any employee agreements, including profit
sharing, pension, or other equity benefit or ERISA plan for Seller's employees;
and
(iv) Any other Claims arising out of the operation of the
Business or the ownership of the Assets prior to the date of this Purchase
Agreement.
1.3 Consideration. In consideration for the transfer of the Assets,
-------------
Buyer shall covenant to pay to Seller [*] worth of Series B Preferred Stock of
the Buyer, issued immediately upon the closing of the Buyer's next round of
equity financing and at the same price and on the same terms as are offered to
the other purchasers therein.
2. CLOSING
-------
2.1 The Closing. The closing of the purchase of the Assets (the
-----------
"Closing") shall be held at the offices of Illumina, Inc., 9390 Towne Center
Drive, Suite 200, San Diego, California on _________, 1998, or such other place
and date as the parties shall agree (the "Closing Date").
2.2 Actions at the Closing. At the Closing, Seller shall execute and
----------------------
deliver to Buyer any bills of sale, endorsements, assignments and other
instruments as Buyer shall reasonably request, or as necessary or appropriate,
to sell, convey, assign, transfer and deliver to Buyer good title to all the
Assets, free and clear of any security interest, mortgage, lien, charge, adverse
claim or
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-2-
<PAGE>
restriction of any kind, and to evidence the due execution, delivery and
performance of this Purchase Agreement.
2.3 Taking of Necessary Action; Further Action. If, at any time after
------------------------------------------
the Closing Date, any further action is necessary or desirable to carry out the
purposes of this Purchase Agreement and to vest Buyer with full right, title and
possession to all Assets, the officers and directors of Seller are fully
authorized in the name of Seller or otherwise to take, and will take, all such
lawful and necessary and/or desirable action.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyer as follows:
3.1 Authority, Approval and Enforceability.
--------------------------------------
(a) Corporate Existence. Seller is a corporation duly
-------------------
organized, validly existing and in good standing under the laws of California.
Seller has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as conducted before the Closing.
(b) Power to Execute Purchase Agreement. Seller has full
-----------------------------------
power and authority to execute and to deliver this Purchase Agreement, and to
perform its obligations under this Purchase Agreement. All actions of Seller
necessary for such execution, delivery and performance have been duly taken.
(c) Enforceability. Upon the due execution and delivery by
--------------
the parties, this Purchase Agreement will be a binding obligation of Seller
enforceable against Seller in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally.
3.2 Compliance with Applicable Laws. Seller has duly complied with all
-------------------------------
applicable laws, rules, regulations, ordinances, and all judgments, orders,
rulings, and decrees of all federal, state and local governmental authorities
(collectively, "Laws"), subject to such exceptions as shall have no material
adverse affect on the Assets or the Business. Seller has not received
notification of any asserted present or past failure to so comply with any Laws.
Seller is not aware of any pending or threatened legal or administrative
proceedings or investigations, which, if determined adversely to Seller, would
result in any material adverse change to the Business or to any of the Assets or
would materially affect the ability of Seller to perform its obligations
hereunder.
3.3 Absence of Conflicts. The execution and delivery by Seller of
--------------------
this Purchase Agreement does not, and the performance and consummation of the
transactions contemplated by this Purchase Agreement will not, result in any
conflict with, breach or violation of or default, termination or forfeiture
under (or upon the failure to give notice or the lapse of time, or both, result
in any conflict with, breach or violation of, or default, termination or
forfeiture under) any terms or provisions of the Articles of Incorporation, as
amended, or Bylaws, as amended, of Seller, or any statute, rule, regulation,
judicial or governmental decree, order, judgment, agreement, lease, loan
-3-
<PAGE>
agreement, debenture, indenture, mortgage or other instrument binding upon
Seller or to which Seller is a party.
3.4 No Third Party Options. There are no existing agreements,
----------------------
options, commitments or rights with, of or to any person to acquire any of
Seller's assets or rights included in the Assets or any interest therein,
subject to such exceptions as shall have no material adverse effect on Seller's
ability to transfer to Buyer the Assets or the Business in conformity with the
terms and provisions of this Purchase Agreement.
3.5 Taxes. The Seller has prepared and filed all required federal,
-----
state, local and foreign returns, estimates, information statements and reports
relating to any and all federal, state, local and foreign taxes, assessments and
other governmental charges, duties, impositions and liabilities, together with
all interest, penalties and additions imposed with respect to such amounts and
any obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity ("Taxes"). Seller has paid all Taxes it is required to pay and has
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld.
3.6 Litigation. There is no suit, action (equitable, legal,
----------
administrative or otherwise), proceeding or investigation of any kind pending
or, to Seller's knowledge, threatened against Seller that would have a material
adverse effect on the value of the Assets, the operation of the Business by
Buyer or the transactions contemplated by this Purchase Agreement, nor does
Seller know of any reasonably likely basis for any such suit, action, proceeding
or investigation.
3.7 Licenses and Other Rights. To Seller's knowledge, Seller has all
-------------------------
permits, licenses and similar authority from governmental authorities necessary
for the conduct of the Business as presently conducted. To Seller's knowledge,
Seller is not in default under any of such permits, licenses or other similar
authority.
3.8 Required Consents and Approvals. All governmental and other third
-------------------------------
party consents or approvals required to be obtained by Seller to consummate the
transactions contemplated hereby have been obtained.
3.9 Title to Assets. The Assets are not held under any leases,
---------------
security agreements, conditional sales contracts, or other title retention
arrangements.
3.10 Tangible Assets. All material items of tangible property
---------------
included in the Assets are in good operating condition and repair, subject to
normal wear and maintenance and are currently usable in the ordinary course of
business.
3.11 Agreements. Seller has made available or provided Buyer complete
----------
and accurate copies of all agreements, written and oral, to which Seller is a
party, or of which Seller is aware, and which affect the operation of the
Business by Buyer.
-4-
<PAGE>
3.12 Intellectual Property Rights.
----------------------------
(a) Seller owns all right, title and interest in (including the
right to assign or transfer) and to all of the Intellectual Property and the
Intellectual Property is so owned free and clear of all liens, claims and
encumbrances and no other person, including without limitation, any present or
former employee, consultant, officer, or director of Seller, has any right
whatsoever therein. Seller does not have any obligation to compensate any person
or entity for the use of any Intellectual Property nor has Seller granted to any
person or entity any license, option or other right to use in any manner any
Intellectual Property whether requiring the payment of royalties or not. Seller
has the exclusive right to use, sell, license and dispose of, the exclusive
right to bring actions for the infringement of, and otherwise exercise, all of
the Intellectual Property.
(b) The Intellectual Property is freely transferable and
assignable to Buyer and the execution, delivery and performance of this Purchase
Agreement, and documentation related to this Purchase Agreement delivered by
Seller contemporaneously herewith, and the consummation of the transactions
hereby and thereby, will not breach, violate or conflict with any instrument or
agreement governing any of the Intellectual Property, or impair the right of
Buyer to use, sell, license or dispose of the Intellectual Property, or to bring
any action for, the infringement of, any of the Intellectual Property.
(c) To the Seller's knowledge, the Intellectual Property does
not violate any copyright, patent, trade secret or other intellectual property
rights or other rights of any other person or entity. To the Seller's knowledge,
neither Seller nor any present or former employee or consultant thereof has
violated any intellectual property rights of any other person or entity and
Buyer's conducting the Business in the ordinary course shall not violate any
such third party rights.
(d) To the knowledge of Seller, no third party is infringing any
of the Intellectual Property.
(e) Seller has taken all reasonable steps necessary or
appropriate (including, without limitation, entering into appropriate
confidentiality, nondisclosure and noncompetition agreements with all officers,
directors, subcontractors, employees, licensees and entities that serve Seller)
to safeguard and maintain the secrecy and confidentiality of, and establish
Seller's proprietary rights in, all of the Intellectual Property.
(f) All trade secrets and all embodiments thereof which are
related to the Business are presently and as of the Closing Date will be located
at Seller's facilities except for those which have been or will be delivered to
Buyer pursuant to this Purchase Agreement.
3.13 Brokers. Seller has not employed any investment bankers, finders
-------
or brokers or incurred any liability for brokerage fees, commissions or similar
payments in connection with this transaction contemplated hereby.
3.14 Disclosure. No representation or warranty by Seller contained in
----------
this Purchase Agreement and no statement contained in any certificate, schedule
or exhibit or list furnished to Buyer in connection with this Purchase Agreement
or the transactions contemplated
-5-
<PAGE>
hereby contains or will contain any untrue statement of fact or omits to state a
material fact necessary to make the statements or information therein not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller as follows:
4.1 Approval, Authorization and Enforceability.
------------------------------------------
(a) Corporate Existence. Buyer is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the State of California.
(b) Power to Execute Agreement. Buyer has full power and
--------------------------
authority to execute, deliver and perform its obligations under this Purchase
Agreement. All actions of Buyer necessary for such execution, delivery and
performance have been or, as of the Closing Date, will have been duly taken.
(c) Absence of Conflicts. The execution and delivery by Buyer of
--------------------
this Purchase Agreement does not, and the performance and consummation of the
transactions contemplated by this Purchase Agreement will not, result in any
conflict with, breach or violation of or default, termination or forfeiture
under (or upon the failure to give notice or the lapse of time, or both, result
in any conflict with, breach or violation of, or default, termination or
forfeiture under) any terms or provisions of the Articles of Incorporation, as
amended, or Bylaws, as amended, of Buyer, or any statute, rule, regulation,
judicial or governmental decree, order, judgment, agreement, lease, loan
agreement, debenture, indenture, mortgage or other instrument binding upon Buyer
or to which Buyer is a party.
(d) Enforceability. Upon the due execution and delivery by the
--------------
parties, this Purchase Agreement will be a binding obligation of Buyer
enforceable against Buyer in accordance with its terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally.
4.2 Litigation. There is no suit, action (equitable, legal,
----------
administrative or otherwise), proceeding or investigation of any kind pending or
threatened against Buyer, and there is no factual basis for any such suit,
action, proceeding or investigation of which Buyer is aware, which could
materially affect the ability of Buyer to carry out the transactions
contemplated hereunder in accordance with the terms hereof.
4.3 Required Consents and Approvals. All governmental and other third
-------------------------------
party consents or approvals required to be obtained by Buyer to consummate the
transactions contemplated hereby have been obtained.
4.4 Brokers. Buyer has not employed any broker or finder or incurred
-------
any liability for any brokerage fees, commissions or similar payments in
connection with the transactions contemplated hereby.
-6-
<PAGE>
5. ADDITIONAL COVENANTS RELATING TO THE SALE OF ASSETS
---------------------------------------------------
5.1 Allocation of Consideration. The amount paid by Buyer shall be
---------------------------
allocated among the Assets, as described on Schedule 5.1 in accordance with
------------
Section 1060 of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder. No party to this Purchase Agreement will
take a position on any federal or state tax return, before any governmental
agency charged with the collection of any income tax, or in any judicial
proceeding that is in any way inconsistent with Schedule 5.1.
------------
5.2 Sales Taxes. Buyer will be solely responsible for and will pay
-----------
the cost of any sales taxes payable in connection with the sale, assignment, and
transfer of the Assets pursuant to this Purchase Agreement.
5.3 Tax Liability and Returns. Buyer shall not assume and Seller
-------------------------
shall be responsible for and pay when due (i) all Seller Taxes relating or
attributable to the Assets or the Business for the period (or that portion of
any period) ending on or prior to the Closing Date and (ii) all Taxes
attributable to or incurred in connection with the operations of Seller.
5.4 Cooperation and Records Retention. Seller and Buyer shall (i)
---------------------------------
each provide the other with such assistance as may reasonably be requested by
them in connection with the preparation of any tax return, or in connection with
any audit or other examination by any taxing authority or any judicial or
administrative proceedings relating to liability for taxes or in connection with
any litigation or financial audit involving the Business, (ii) each retain and
provide the other, with any records or other information which may be relevant
to any such tax return, audit or examination, suit, proceeding or determination,
and (iii) each provide the other with any final determination of any such audit
or examination, suit, proceeding or determination that affects any amount
required to be shown on any tax return of the other for any period or otherwise.
5.5 Bulk Sales Law. Buyer understands that Seller will not comply
--------------
with any bulk sales or similar laws applicable to the purchase and sale of the
Assets.
6. GENERAL PROVISIONS.
------------------
6.1 Notices. Any notice, demand or request required or permitted to
-------
be given by either party pursuant to the terms of this Purchase Agreement shall
be in writing and shall be deemed given when delivered personally or by
facsimile transmission to the party to be notified, or three (3) days after
deposit in the U.S. mail, by registered or certified mail with postage prepaid,
and addressed to the parties at the addresses of the parties set forth below or
at such other address as a party may request by notifying the other in writing.
BUYER:
Illumina, Inc.
9390 Towne Center Drive, Ste. 200
San Diego, California 92121
Attention: John R. Stuelpnagel
---------
-7-
<PAGE>
SELLER:
nGenetics, Inc.
Attention: Mark Chee
---------
6.2 Entire Agreement; Amendment. This Purchase Agreement may be
---------------------------
amended by the parties only by an instrument in writing signed on behalf of each
of the parties. This Purchase Agreement constitutes the entire agreement and
supersedes all prior and contemporaneous agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
6.3 Governing Law. This Purchase Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California as applied to
agreements made and performed in California by residents of California.
6.4 Counterparts. This Purchase Agreement may be executed in
------------
counterparts, each of which shall be deemed an original and together shall
constitute one agreement.
6.5 Specific Performance. The parties acknowledge that damages would
--------------------
be an inadequate remedy for any breach of the provisions of this Purchase
Agreement and agree that the obligations of the parties hereunder shall be
specifically enforceable.
6.6 Third Parties. This Purchase Agreement is not intended, and
-------------
shall not been construed, to confer upon any person other than the parties any
rights or remedies.
6.7 Headings. The headings contained in this Purchase Agreement are
--------
for reference only and shall not affect the meaning of any section.
6.8 Fees, Costs and Expenses. Unless specifically stated to the
------------------------
contrary in this Purchase Agreement, all expenses incurred in connection with
the consummation of the transactions contemplated by this Purchase Agreement
shall be the sole responsibility of the party incurring such expenses.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Purchase Agreement as of
the date first written above.
"BUYER" ILLUMINA, INC.
By:______________________________
John R. Stuelpnagel, President
"SELLER" nGENETICS, INC.
By:_____________________________
Title:__________________________
SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT
-9-
<PAGE>
Schedule 1.1
nGenetics Assets
1. Intellectual Property
[*]
2. PPE Assets
Computers:
Dell Inspiron 233 MHz Pentium laptop computer. Service tag B331K.
Dell Inspiron 266 MHz Pentium laptop computer. Service tag CFXNF.
Software:
Microsoft Office (2 copies), Virus Scan, Norton Utilities (2 copies), Adobe
Photoshop.
Other:
Brother Fax 1270
4 Drawer File Cabinets (2)
Palm Pilot
Zip Drive
Prototypes of Magnetic Bead Array Synthesizer Flow-Cell
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-10-
<PAGE>
EXHIBIT 10.7
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is made as of March ___, 2000 by and between
Illumina, Inc., a California corporation ("Buyer") and Spyder Instruments, Inc.,
a California corporation ("Seller"). This Asset Purchase Agreement, including
all schedules and exhibits, is referred to as the "Purchase Agreement."
RECITALS
--------
A. Seller develops technology related to high throughput chemical
synthesis (the "Business").
B. Seller desires to sell and Buyer desires to purchase all of the assets
of Seller.
C. Seller and Buyer are parties to an Option Agreement dated January 8,
1999, pursuant to which the parties made certain agreements regarding the
licensing of certain of the Seller's intellectual property ("Option Agreement").
D. Seller and Buyer desire to terminate the Option Agreement and to accept
the rights and obligations created pursuant hereto in lieu of the rights granted
to them under the Option Agreement.
AGREEMENT
---------
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES
------------------------------------------------
1.1 Purchase of Assets. At the Closing, Seller will sell, transfer, and
------------------
convey to Buyer, and Buyer will purchase from Seller the following assets as
listed in Schedule 1.1 (the "Assets"):
(a) Equipment. All equipment, furniture and other tangible personal
---------
property owned by Seller.
(b) Intellectual Property. All right, title and interest of Seller in and
---------------------
to all patents, copyrights, trademarks, service marks, trade names, trade
secrets, mask works, proprietary information, technology rights andlicenses,
proprietary rights and processes, know-how, research and development in
progress, all domestic and foreign applications, registrations and renewals of
any of the foregoing, and any and all other intellectual property including,
without limitation, all things authored, discovered, developed, made, perfected,
improved, designed, engineered, devised, acquired, produced, conceived or first
reduced to practice by Seller or any of its employees in the course of their
employment by Seller, whether tangible or intangible, improvements, inventions,
works of authorship, formulas, processes, routines, subroutines, techniques,
concepts, object code, flow charts, diagrams, coding sheets, source code,
listings and annotations, programmers' notes, information, work papers, work
product and other materials of any types whatsoever, and all rights
<PAGE>
of any kind in or to any of the foregoing (collectively, the "Intellectual
Property") which are relevant or applicable to the Business.
(c) Claims. All claims of Seller against any parties relating to items
------
included in the Assets, including, without limitation, unliquidated rights under
manufactures' and vendors' warranties or guaranties, claims for trade secret
misappropriation and infringement of the Intellectual Property, and claims for
breach of employee proprietary information agreements.
(d) Permits and Licenses. Government permits and licenses used in the
--------------------
conduct of the Business, to the extent transferable.
(e) Books and Records. All information, files and records directly
-----------------
relating to the foregoing and which Buyer reasonably expects may be useful to
Buyer. In case of any disagreement as to whether an item directly relates to the
foregoing, Buyer shall be permitted to copy such item.
1.2 Assumption of Liabilities. Buyer hereby agrees to assume, satisfy and
-------------------------
perform when due those liabilities and obligations listed on Schedule 1.2 (the
"Assumed Liabilities") arising after the Closing Date (other than any liability
or obligation for a breach or default which occurred prior to the Closing Date).
Except for the Assumed Liabilities, Buyer shall not assume and shall not be
obligated to pay, discharge, or indemnify any party, with respect to any
obligations or liabilities of, or claims against, Seller, whether now or
hereafter existing or created (collectively, "Claims"), including but not
limited to:
(i) any Claims under any expressed or implied contracts relating to
products or services, including without limitation Claims with respect to
product warranties or product liabilities;
(ii) taxes of any nature whatsoever of Seller arising from the
operation of the Business or the ownership of the Assets for any period (or
portion of any period) ending on or prior to the Closing Date ("Seller Taxes");
(iii) Claims under any employee agreements, including profit
sharing, pension, or other equity benefit or ERISA plan for Seller's employees;
and
(iv) any other Claims arising out of the operation of the Business
or the ownership of the Assets prior to the date of this Purchase Agreement.
1.3 Consideration. In consideration for the transfer of the Assets at the
-------------
Closing, Buyer shall pay to Seller [*] and shall issue to Seller [*] of Common
Stock of Buyer (the "Shares").
1.4 Additional Consideration. In the event Buyer receives a research grant
------------------------
from the National Institutes of Health ("NIH") as a result of a grant
application submitted by Seller prior to the Closing Date (as defined below),
and such grant is approved within twelve months of the Closing Date, Buyer shall
pay to Seller additional cash consideration equal to [*] of the grant funding
actually received by Buyer from NIH. Each such payment shall be made to Seller
within thirty (30) days of receipt of the grant funds by Buyer.
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-2-
<PAGE>
2. CLOSING
-------
2.1 The Closing. The closing of the purchase of the Assets (the "Closing")
-----------
shall be held at the offices of Illumina, Inc., 9390 Towne Centre Drive, Suite
200, San Diego, California on March ___, 2000, or such other place and date as
the parties shall agree (the "Closing Date").
2.2 Actions at the Closing. At the Closing, the parties shall execute and
----------------------
deliver any bills of sale, endorsements, assignments and other instruments as
Buyer shall reasonably request, or as necessary or appropriate, to sell, convey,
assign, transfer and deliver to Buyer good title to all the Assets, free and
clear of any security interest, mortgage, lien, charge, adverse claim or
restriction of any kind, and to evidence the due execution, delivery and
performance of this Purchase Agreement.
2.3 Taking of Necessary Action; Further Action. If, at any time after the
------------------------------------------
Closing Date, any further action is necessary or desirable to carry out the
purposes of this Purchase Agreement and to vest Buyer with all of Seller's
right, title and possession to the Assets, the officers and directors of Seller
are fully authorized in the name of Seller or otherwise to take, and will take,
all such lawful and necessary and/or desirable action.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyer as follows, except as set forth in
the Disclosure Schedule attached hereto, which exceptions shall be deemed to be
representations and warranties as if made in this Section 3:
3.1 Authority, Approval and Enforceability.
--------------------------------------
(a) Corporate Existence. Seller is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of California. Seller has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as conducted before the Closing.
(b) Power to Execute Purchase Agreement. Seller has full power and
-----------------------------------
authority to execute and to deliver this Purchase Agreement, and to perform its
obligations under this Purchase Agreement. All actions of Seller necessary for
such execution, delivery and performance have been duly taken.
(c) Enforceability. Upon the due execution and delivery by the parties,
--------------
this Purchase Agreement will be a binding obligation of Seller enforceable
against Seller in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally.
3.2 Compliance with Applicable Laws. Seller has duly complied with all
-------------------------------
applicable laws, rules, regulations, ordinances, and all judgments, orders,
rulings, and decrees of all federal, state and local governmental authorities
(collectively, "Laws"), subject to such exceptions as shall have no material
adverse affect on the Assets or the Business. Seller has not received
notification of any asserted present or past failure to so comply with any Laws.
Seller is not aware of any pending or threatened legal or administrative
proceedings or investigations, which, if determined adversely to
-3-
<PAGE>
Seller, would result in any material adverse change to the Business or to any of
the Assets or would materially affect the ability of Seller to perform its
obligations hereunder.
3.3 Absence of Conflicts. The execution and delivery by Seller of this
--------------------
Purchase Agreement does not, and the performance and consummation of the
transactions contemplated by this Purchase Agreement will not, result in any
conflict with, breach or violation of or default, termination or forfeiture
under (or upon the failure to give notice or the lapse of time, or both, result
in any conflict with, breach or violation of, or default, termination or
forfeiture under) any terms or provisions of the Articles of Incorporation, as
amended, or Bylaws, as amended, of Seller, or any statute, rule, regulation,
judicial or governmental decree, order, judgment, agreement, lease, loan
agreement, debenture, indenture, mortgage or other instrument binding upon
Seller or to which Seller is a party, subject to such exceptions as shall have
no adverse effect on the Assets or the Business.
3.4 No Third Party Options. There are no existing agreements, options,
----------------------
commitments or rights with, of or to any person to acquire any of the Assets or
any interest therein, subject to such exceptions as shall have no material
adverse effect on Seller's ability to transfer to Buyer the Assets or the
Business in conformity with the terms and provisions of this Purchase Agreement.
3.5 Taxes. The Seller has prepared and filed all required federal, state,
-----
local and foreign returns, estimates, information statements and reports
relating to any and all federal, state, local and foreign taxes, assessments and
other governmental charges, duties, impositions and liabilities, together with
all interest, penalties and additions imposed with respect to such amounts and
any obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity ("Taxes"). Seller has paid all Taxes it is required to pay and has
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld.
3.6 Litigation. There is no suit, action (equitable, legal, administrative
----------
or otherwise), proceeding or investigation of any kind pending or, to Seller's
knowledge, threatened against Seller that would have a material adverse effect
on the value of the Assets, the operation of the Business by Buyer or the
transactions contemplated by this Purchase Agreement, nor does Seller know of
any reasonably likely basis for any such suit, action, proceeding or
investigation.
3.7 Licenses and Other Rights. To Seller's knowledge, Seller has all
-------------------------
permits, licenses and similar authority from governmental authorities necessary
for the conduct of the Business as presently conducted. To Seller's knowledge,
Seller is not in default under any of such permits, licenses or other similar
authority.
3.8 Required Consents and Approvals. All governmental and other third party
-------------------------------
consents or approvals required to be obtained by Seller to consummate the
transactions contemplated hereby have been obtained.
3.9 Title to Assets. The Assets are not held under any leases, security
---------------
agreements, conditional sales contracts, or other title retention arrangements.
-4-
<PAGE>
3.10 Tangible Assets. All material items of tangible property included in
---------------
the Assets are in good operating condition and repair, subject to normal wear
and maintenance and are currently usable in the ordinary course of business.
3.11 Agreements. Seller has made available or provided Buyer complete and
----------
accurate copies of all agreements, written and oral, to which Seller is a party,
or of which Seller is aware, and which affect the operation of the Business by
Buyer.
3.12 Intellectual Property Rights.
----------------------------
(a) Seller owns all right, title and interest in (including the right
to assign or transfer) and to all of the Intellectual Property (or, except as
indicated in Schedule 3.12, has exclusively licensed such Intellectual Property)
and the Intellectual Property is so owned (or exclusively licensed) free and
clear of all liens, claims and encumbrances and no other person, including
without limitation, any present or former employee, consultant, officer, or
director of Seller, has any right whatsoever therein. Seller does not have any
obligation to compensate any person or entity for the use of any Intellectual
Property nor has Seller granted to any person or entity any license, option or
other right to use in any manner any Intellectual Property whether requiring the
payment of royalties or not. Seller has the exclusive right to use, sell,
license and dispose of, the exclusive right to bring actions for the
infringement of, and otherwise exercise, all of the Intellectual Property.
(b) The Intellectual Property is freely transferable and assignable
(or sublicenseable) to Buyer and the execution, delivery and performance of this
Purchase Agreement, and documentation related to this Purchase Agreement
delivered by Seller contemporaneously herewith, and the consummation of the
transactions hereby and thereby, will not breach, violate or conflict with any
instrument or agreement governing any of the Intellectual Property, or impair
the right of Buyer to use, sell, license or dispose of the Intellectual
Property, or to bring any action for, the infringement of, any of the
Intellectual Property.
(c) To the Seller's knowledge, the Intellectual Property does not
violate any copyright, patent, trade secret or other intellectual property
rights or other rights of any other person or entity. To the Seller's knowledge,
neither Seller nor any present or former employee or consultant thereof has
violated any intellectual property rights of any other person or entity and
Buyer's conducting the Business in the ordinary course shall not violate any
such third party rights.
(d) To the knowledge of Seller, no third party is infringing any of
the Intellectual Property.
(e) Seller has taken all reasonable steps necessary or appropriate
(including, without limitation, entering into appropriate confidentiality,
nondisclosure and noncompetition agreements with all officers, directors,
subcontractors, employees, licensees and entities that serve Seller) to
safeguard and maintain the secrecy and confidentiality of, and establish
Seller's proprietary rights in, all of the Intellectual Property.
-5-
<PAGE>
(f) All trade secrets and all embodiments thereof which are related
to the Business are presently and as of the Closing Date will be located at
Seller's facilities except for those which have been or will be delivered to
Buyer pursuant to this Purchase Agreement.
3.13 Brokers. Seller has not employed any investment bankers, finders or
-------
brokers or incurred any liability for brokerage fees, commissions or similar
payments in connection with this transaction contemplated hereby.
3.14 Disclosure. No representation or warranty by Seller contained in this
----------
Purchase Agreement and no statement contained in any certificate, Schedule or
exhibit or list furnished to Buyer in connection with this Purchase Agreement or
the transactions contemplated hereby contains or will contain any untrue
statement of fact or omits to state a material fact necessary to make the
statements or information therein not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller as follows:
4.1 Approval, Authorization and Enforceability.
------------------------------------------
(a) Corporate Existence. Buyer is a corporation duly organized, validly
-------------------
existing and in good standing under the laws of the State of California.
(b) Power to Execute Agreement. Buyer has full power and authority to
--------------------------
execute, deliver and perform its obligations under this Purchase Agreement. All
action on the part of Buyer, its officers, directors and shareholders necessary
for the authorization, execution, delivery and performance of this Agreement by
Buyer, the authorization, sale, issuance and delivery of the Shares and the
performance of the Buyer's obligations hereunder has been taken or will be taken
prior to the Closing.
(c) Absence of Conflicts. The execution and delivery by Buyer of this
--------------------
Purchase Agreement does not, and the performance and consummation of the
transactions contemplated by this Purchase Agreement will not, result in any
conflict with, breach or violation of or default, termination or forfeiture
under (or upon the failure to give notice or the lapse of time, or both, result
in any conflict with, breach or violation of, or default, termination or
forfeiture under) any terms or provisions of the Articles of Incorporation, as
amended, or Bylaws, as amended, of Buyer, or any statute, rule, regulation,
judicial or governmental decree, order, judgment, agreement, lease, loan
agreement, debenture, indenture, mortgage or other instrument binding upon Buyer
or to which Buyer is a party.
(d) Enforceability. Upon the due execution and delivery by the
--------------
parties, this Purchase Agreement will be a binding obligation of Buyer
enforceable against Buyer in accordance with its terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally.
(e) Validity of Shares. The Shares, when issued and delivered in
------------------
compliance with the provisions of this Agreement, will be duly and validly
authorized and issued and will be fully
-6-
<PAGE>
paid and nonassessable and free and clear of all liens and encumbrances and
restrictions on transfer other than as set forth in this Agreement; provided,
however, that the Shares may be subject to restrictions on transfer under state
and/or federal securities laws.
(f) Capitalization. The authorized capital stock of Buyer consists of
--------------
60,000,000 shares of Common Stock and 50,000,000 shares of Preferred Stock, of
which 2,500,000 are designated as Series A Preferred Stock, 2,500,000 are
designated as Series A-1 Preferred Stock, 12,000,000 are designated as Series B
Preferred Stock, 12,000,000 are designated as Series B-1 Preferred Stock,
7,000,000 are designated as Series C Preferred Stock, and 7,000,000 are
designated as Series C-1 Preferred Stock. Immediately prior to the Closing, the
issued and outstanding stock of Buyer shall consist of 5,464,489 shares of
Common Stock, 2,499,998 Shares of Series A Preferred Stock, no shares of Series
A-1 Preferred Stock, 9,336,299 shares of Series B Preferred Stock, no shares of
Series B-1 Preferred Stock, 7,000,000 shares of Series C Preferred Stock, and no
shares of Series C-1 Preferred Stock. All such issued and outstanding shares
have been duly and validly authorized and issued, and are fully paid and
nonassessable. Except for (i) the conversion privileges of the Series A
Preferred Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series B-
1 Preferred Stock, Series C Preferred Stock, and Series C-1 Preferred Stock,
(ii) currently outstanding options to purchase 720,544 shares of Common Stock
granted to employees pursuant to the Buyer's 1998 Incentive Stock Plan (the
"Option Plan"), and (iii) warrants to purchase 43,183 shares of Series A
Preferred Stock, there are not outstanding any options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Buyer of any shares of its capital stock. In addition to
the aforementioned options, the Buyer has reserved an additional 1,799,634
shares of its Common Stock for purchase upon exercise of options to be granted
in the future under the Option Plan.
4.2 Litigation. There is no suit, action (equitable, legal, administrative
----------
or otherwise), proceeding or investigation of any kind pending or threatened
against Buyer, and there is no factual basis for any such suit, action,
proceeding or investigation of which Buyer is aware, which could materially
affect the ability of Buyer to carry out the transactions contemplated hereunder
in accordance with the terms hereof.
4.3 Required Consents and Approvals. All governmental and other third party
-------------------------------
consents or approvals required to be obtained by Buyer to consummate the
transactions contemplated hereby have been obtained.
4.4 Brokers. Buyer has not employed any broker or finder or incurred any
-------
liability for any brokerage fees, commissions or similar payments in connection
with the transactions contemplated hereby.
5. ADDITIONAL COVENANTS RELATING TO THE SALE OF ASSETS
---------------------------------------------------
5.1 Allocation of Consideration. The amount paid by Buyer shall be allocated
---------------------------
among the Assets, as described on Schedule 5.1 in accordance with Section 1060
------------
of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder. No party to this Purchase Agreement will take a position
on any federal or state tax return, before any governmental agency
-7-
<PAGE>
charged with the collection of any income tax, or in any judicial proceeding
that is in any way inconsistent with Schedule 5.1.
------------
5.2 Sales Taxes. Buyer will be solely responsible for and will pay the cost
-----------
of any sales taxes payable in connection with the sale, assignment, and transfer
of the Assets pursuant to this Purchase Agreement.
5.3 Tax Liability and Returns. Buyer shall not assume and Seller shall be
-------------------------
responsible for and pay when due all Seller Taxes relating or attributable to
the Assets or the Business for the period (or that portion of any period) ending
on or prior to the Closing Date. Buyer shall be responsible for and pay when
due all Taxes relating or attributable to the Assets or the Business for the
period (or that portion of any period) commencing after the Closing Date.
5.4 Cooperation and Records Retention. Seller and Buyer shall (i) each
---------------------------------
provide the other with such assistance as may reasonably be requested by them in
connection with the preparation of any tax return, or in connection with any
audit or other examination by any taxing authority or any judicial or
administrative proceedings relating to liability for taxes or in connection with
any litigation or financial audit involving the Business, (ii) each retain and
provide the other, with any records or other information which may be relevant
to any such tax return, audit or examination, suit, proceeding or determination,
and (iii) each provide the other with any final determination of any such audit
or examination, suit, proceeding or determination that affects any amount
required to be shown on any tax return of the other for any period or otherwise.
5.5 Bulk Sales Law. Buyer understands that Seller will not comply with any
--------------
bulk sales or similar laws applicable to the purchase and sale of the Assets.
5.6 Restrictions on Transfer. Seller shall not sell or otherwise transfer or
------------------------
dispose of any of the Shares prior to the date that is (i) one year after the
Closing Date, with respect to [*] of the Shares, and (ii) two years after the
Closing Date with respect to the remaining [*]. The certificates representing
the Shares shall bear a legend indicating the existence of the restrictions
imposed by this Section 5.6. Nothing in this Agreement shall be construed as a
modification or amendment of any restrictions on transfer under applicable
federal or state securities laws.
6. INDEMNIFICATION AND RELATED MATTERS.
-----------------------------------
6.1 Indemnification of Buyer. Seller will indemnify and hold harmless
------------------------
Buyer and its officers and directors from and against any claims, actions,
damage, expense, liability, loss or deficiency, including without limitation,
reasonable attorneys' fees and other costs and expenses incident to any suit,
action, claim or proceeding (collectively, the "Damages"), in excess of Twenty-
Five Thousand Dollars ($25,000) in aggregate, arising out of or resulting from:
(i) any inaccuracy in any representation or the breach of any warranty
made by Seller in this Agreement;
(ii) any failure of Seller to perform or observe any term of this
Agreement; or
(iii) any liabilities or obligations of Seller other than Assumed
Liabilities.
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-8-
<PAGE>
Should Buyer suffer any Damages, it may seek payment from Seller or offset
Damages against payments due Seller under this Agreement; provided, however,
that in no event shall Seller's liability exceed the lesser of (a) the aggregate
consideration received by Seller hereunder (including amounts paid pursuant to
Section 1.4 hereof) and (b) [*]. In the event that Buyer suffers Damages
hereunder, Seller shall have the right, in its sole discretion, to indemnify
Buyer for such Damages by either (x) paying to Buyer an amount equal to such
Damages in cash, (y) returning to Buyer a number of Shares with a value (as
determined by Buyer's Board of Directors in good faith at the time such Shares
are returned) equal to the amount of such Damages, or (z) doing any combination
of (x) and (y).
6.2 Indemnification of Seller. Buyer will indemnify and hold harmless
-------------------------
Seller from and against any Damages in excess of Twenty-Five Thousand Dollars
($25,000) in aggregate, arising out of or resulting from:
(i) any inaccuracy in any representation or the breach of any warranty
made by Buyer in this Agreement;
(ii) any failure of Buyer to perform or observe any term of this
Agreement; or
(iii) the ownership of the Assets after Closing, including the Assumed
Liabilities.
6.3 Survival of Representations and Warranties. The representations and
-------------------------------------------
warranties of the parties shall survive until two years after the Closing Date,
except for representations and warranties concerning Taxes, which shall survive
until the applicable statute of limitations has expired.
6.4 Arbitration.
-----------
(a) All disputes under this Article 6 shall be settled by arbitration
in San Diego, California, before a single arbitrator pursuant to the rules of
the American Arbitration Association. Arbitration may be commenced at any time
by any party hereto giving written notice to each other party to a dispute that
such dispute has been referred to arbitration under this Section 6.4. The
arbitrator shall be selected by the joint agreement of Seller and Buyer, but if
they do not so agree within 20 days after the date of the notice referred to
above, the selection shall be made pursuant to the rules from the panels of
arbitrators maintained by such Association. Any award rendered by the arbitrator
shall be conclusive and binding upon the parties hereto; provided, however, that
any such award shall be accompanied by a written opinion of the arbitrator
giving the reasons for the award. This provision for arbitration shall be
specifically enforceable by the parties and the decision of the arbitrator in
accordance herewith shall be final and binding and there shall be no right of
appeal therefrom. Each party shall pay its own expenses of arbitration and the
expenses of the arbitrator shall be equally shared; provided, however, that if
in the opinion of the arbitrator any claim for indemnification or any defense or
objection thereto was unreasonable, the arbitrator may assess, as part of his
award, all or any part of the arbitration expenses of the other party (including
reasonable attorneys' fees) and of the arbitrator against the party raising such
unreasonable claim, defense or objection.
(b) To the extent that arbitration may not be legally permitted
hereunder and the parties to any dispute hereunder may not at the time of such
dispute mutually agree to submit such
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-9-
<PAGE>
dispute to arbitration any party may commence a civil action in a court of
appropriate jurisdiction to solve disputes hereunder. Nothing contained in this
Section 6.4 shall prevent the parties from settling any dispute by mutual
agreement at any time.
6.5 Compliance with Bulk Sales Laws. Buyer and Seller hereby waive
-------------------------------
compliance by Buyer and Seller with the bulk sales law and any other similar
laws in any applicable jurisdiction in respect of the transactions contemplated
by this Agreement. Seller shall indemnify Buyer from, and hold it harmless
against, any liabilities, damages, costs and expenses resulting from or arising
out of (i) the parties' failure to comply with any of such laws in respect of
the transactions contemplated by this Agreement, or (ii) any action brought or
levy made as a result thereof, other than those liabilities which have been
expressly assumed, on such terms as expressly assumed, by Buyer pursuant to this
Agreement.
6.6 Other Rights and Remedies Not Affected. The indemnification rights of
--------------------------------------
the parties under this Article 6 are independent of and in addition to such
rights and remedies as the parties may have at law or in equity or otherwise for
any misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any party hereto, including without limitation
the right to seek specific performance, rescission or restitution, none of which
rights or remedies shall be affected or diminished hereby; provided, however,
that the maximum liability of Seller for claims for breaches of the
representations, warranties and covenants contained herein shall be as set forth
in Section 6.1 hereof.
7. GENERAL PROVISIONS
------------------
7.1 Notices. Any notice, demand or request required or permitted to be
-------
given by either party pursuant to the terms of this Purchase Agreement shall be
in writing and shall be deemed given when delivered personally or by facsimile
transmission to the party to be notified, or three (3) days after deposit in the
U.S. mail, by registered or certified mail with postage prepaid, and addressed
to the parties at the addresses of the parties set forth below or at such other
address as a party may request by notifying the other in writing.
BUYER:
Illumina, Inc.
9390 Towne Center Drive, Ste. 200
San Diego, California 92121
Attention: John R. Stuelpnagel
---------
SELLER:
Spyder Instruments, Inc.
3550 General Atomics Court
San Diego, California 92121
Attention: Michael Lebl
---------
7.2 Entire Agreement; Amendment. This Purchase Agreement may be amended
---------------------------
by the parties only by an instrument in writing signed on behalf of each of the
parties. This Purchase
-10-
<PAGE>
Agreement constitutes the entire agreement and supersedes all prior and
contemporaneous agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, including, without
limitation, the Option Agreement.
7.3 Governing Law. This Purchase Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California as applied to
agreements made and performed in California by residents of California.
7.4 Counterparts. This Purchase Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and together shall constitute one
agreement.
7.5 Specific Performance. The parties acknowledge that damages would be an
--------------------
inadequate remedy for any breach of the provisions of this Purchase Agreement
and agree that the obligations of the parties hereunder shall be specifically
enforceable.
7.6 Third Parties. This Purchase Agreement is not intended, and shall not
-------------
be construed, to confer upon any person other than the parties any rights or
remedies.
7.7 Headings. The headings contained in this Purchase Agreement are for
--------
reference only and shall not affect the meaning of any section.
7.8 Fees, Costs and Expenses. Unless specifically stated to the contrary in
------------------------
this Purchase Agreement, all expenses incurred in connection with the
consummation of the transactions contemplated by this Purchase Agreement shall
be the sole responsibility of the party incurring such expenses.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Purchase Agreement as of
the date first written above.
"BUYER" ILLUMINA, INC.
By:
-------------------------------
Jay Flatley, President
"SELLER" SPYDER INSTRUMENTS, INC.
By:
-------------------------------
Title:
----------------------------
<PAGE>
Schedule 1.1
Spyder Instruments Assets
1. Equipment
Compas 768.3
Cover Plate
Multiprobe II
Ball Plate Covers
IC Programmers
HPLC Column
2. Expensed Consumables
Miscellaneous Chemicals
3. In-Process Research & Development and Intellectual Property
[*]
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Schedule 1.2
Assumed Liabilities
[*]
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Schedule 5.1
Allocation of Purchase Price
[*]
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.8
LICENSE AGREEMENT
Effective as of May ____, 1998 (the "Effective Date"), TUFTS UNIVERSITY, a
body having corporate powers under the laws of the State of Massachusetts
("TUFTS"), and ILLUMINA, Inc., a California corporation having a principal place
of business at 2187 Newcastle Avenue, Suite 101, Cardiff, California 92007,
("LICENSEE") enter into this license agreement ("Agreement") and thereby agree
as follows:
1 BACKGROUND
1.1 TUFTS is the owner of the patents and patent applications listed in
Exhibit 1 and any Licensed Patents, as hereinafter defined, which may issue
therefrom.
1.2 TUFTS desires to have its technology developed and marketed in order
that products resulting therefrom may be available for public use and benefit.
1.3 LICENSEE desires a worldwide, exclusive license, including the right
to sublicense, to develop, market and sell products under the Licensed Patents
and Know How (collectively, "Exclusive Technology") in all fields.
2 DEFINITIONS
2.1 "Affiliate" means any corporation or other entity that is directly or
indirectly controlling, controlled by or under common control with LICENSEE.
For the purpose of this definition, "control" shall mean the direct or indirect
beneficial ownership of at least fifty percent (50%) in the income or stock of
such corporation or business.
2.2 "Exclusive" means that, subject to the provision in Section 3.3, TUFTS
shall not grant further licenses to the Licensed Patents.
2.3 "Know-How" means trade secrets, know-how, data and other information
(whether or not patentable or qualifying as a trade secret) relating to the
field of use relating to Licensed Patents discovered or developed at Tufts, or
revealed to LICENSEE pursuant to the research agreement referred to in Section 3
of the Master Agreement of even date herewith ("Research Agreement") between
Tufts and LICENSEE. Know-How shall not include Licensed Patents.
2.4 "Licensed Product" means any product, the manufacture or sale of which
is within a Valid Claim within the Licensed Patents in the country of
manufacture or sale.
-1-
<PAGE>
2.5 "Licensed Patents" means (i) the U.S. and foreign patents and patent
applications listed on Exhibit 1 hereto, (ii) all U.S. or foreign patent
applications filed after the Effective Date owned by TUFTS or which TUFTS has
the right to license which claim one or more inventions which would be dominated
by any patent issuing on a patent application within the Licensed Patents
pending as of the Effective Date (or a division, or continuation in whole or
part of such a pending application), (iii) all divisions, and continuations in
whole or part of any of the preceding, (iv) all foreign patent applications
corresponding to or claiming priority from any of the preceding, and (v) all
U.S. and foreign patents issuing on any of the preceding, including patents of
addition, reexaminations, and reissues.
2.6 "Licensed Territory" means worldwide.
2.7 "LICENSEE" shall mean Illumina, Inc. and its Affiliates.
2.8 "Net Sales" means the gross revenue actually received by LICENSEE from
sales of Licensed Products, less the following items, but only insofar as they
are included in such gross revenue and are separately stated on the invoice:
(a) Import, export, value-added, excise and sales taxes, and custom
duties, all to the extent separately identified on the invoice;
(b) Cost of insurance, packing, and transportation from the place of
manufacture to the customer's premises;
(c) normal and customary rebates, and cash and trade discounts,
actually taken; and
(d) Credit for returns, allowances, or trades actually allowed.
2.9 "Valid Claim" means a claim of (i) an issued, unexpired patent which
has not been held unenforceable or invalid by a court or other governmental
entity of competent jurisdiction, and which has not been disclaimed, or
withdrawn or found invalid or unenforceable in a reissue application or re-
examination proceeding; or (ii) a patent application, provided that not more
than five (5) years have elapsed from the date the claim takes priority for
filing purposes.
3 GRANT
3.1 Subject to Public Law 96-517 and Public Law 98-620, TUFTS hereby
grants, to the extent that it lawfully may, to LICENSEE and LICENSEE hereby
accepts an exclusive license under the Exclusive Technology to make, have made,
import, have imported, use, lease, sell and offer for sale, have sold and
otherwise commercialize and exploit Licensed Products, and to practice any
method, process, or procedure within the Exclusive Technology, in the Licensed
Territory.
-2-
<PAGE>
3.2 Said license is Exclusive, including the right to sublicense pursuant
to Section 12, in the Licensed Territory for a term commencing as of the
Effective Date, and ending upon expiration of the last to expire of Licensed
Patents.
3.3 LICENSEE agrees that TUFTS shall have the right to practice the
Exclusive Technology both on its own and/or in collaboration with third party
academic or not-for-profit research institutions, solely for non-commercial
purposes, and not for sale, license, or other distribution.
4 DILIGENCE
4.1 LICENSEE will use reasonable best efforts to diligently and
continuously commercialize the Exclusive Technology. To support the
commercialization of the Exclusive Technology, LICENSEE will raise $500,000 in
equity financing from third parties during the first year after the Effective
Date and use its best efforts to raise $2,000,000 in total financing (including
but not limited to equity or debt financing, government grant funding, sponsored
research and development funding, etc.) ("First Financing") during the second
year after the Effective Date. If LICENSEE fails to meet any one of the
foregoing milestones within the time specified, TUFTS shall have the right to
terminate the license granted hereunder, provided that such action by TUFTS is
consistent with a determination of the arbitrators pursuant to Section 15 hereof
that LICENSEE has failed to exercise due diligence in the commercialization of
the Exclusive Technology pursuant to its obligations under this Section 4.1.
4.2 LICENSEE shall further use its best efforts to bring one or more
Licensed Products to market through a thorough, vigorous and diligent
exploitation of Licensed Patents and to continue thereafter active, diligent
marketing of more Licensed Products throughout the life of this Agreement.
4.3 In addition LICENSEE shall adhere to the following milestones:
(a) LICENSEE shall deliver to TUFTS on or before the first anniversary
of this Agreement an operating plan showing the amount of money,
number and kind of personnel, and time budgeted and planned for
each phase of development of the Licensed Products and shall
provide similar reports to TUFTS on or before each subsequent
anniversary. TUFTS agrees to keep this operating plan
confidential.
(b) The following expenditures shall be made by the LICENSEE, its
Affiliates or its sublicensees on a calendar-year basis in order
to develop and commercialize Licensed Products:
1999 - an expenditure of [*]
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-3-
<PAGE>
2000 - an expenditure of [*]
2001 - an expenditure of [*]
2002 - an expenditure of [*]
(c) Of the expenditures listed in Section 4.3(b), the following
minimum expenditures shall be made by LICENSEE, its Affiliates or
its sublicensees on a calendar-year basis in order to develop and
commercialize a product dominated by US Patent Number 5,512,490:
1999 - an expenditure of [*]
2000 - an expenditure of [*]
2001 - an expenditure of [*]
2002 - an expenditure of [*]
(d) LICENSEE shall permit an in-plant inspection by TUFTS on or before
July 1, 1999 and thereafter permit in-plant inspections by TUFTS
at regular intervals with at least six (6) months between
inspections.
(e) LICENSEE shall provide TUFTS with an annual report of research and
development expenditures required under this Section 4.3.
4.4 If LICENSEE fails to meet any of the milestones in this Section 4,
and the default has not been remedied within ninety (90) days after the date of
notice in writing of such default by TUFTS, TUFTS shall have the right to change
the license granted hereunder to a non-exclusive license.
5 PAYMENTS
5.1 LICENSEE shall pay to TUFTS royalties equal to [*] of the Net Sales
received by LICENSEE from the sale of Licensed Products. In the event that a
Licensed Product under this Agreement is sold in a combination product
containing one or more other active ingredients or components which are or could
be separately available on a commercial basis, then Net Sales on the combination
product shall be calculated as follows:
By multiplying the net selling price of the combination product by the
fraction A/A+B, where A is the gross selling price, during the
royalty-paying period being considered, of the Licensed Product sold
separately, and B is the gross selling price, during the royalty
period in question, of the other active ingredients or components sold
separately.
5.2 In the event that LICENSEE is required to take a license from any
third party in order to commercialize any Licensed Product, and LICENSEE must
make royalty payments to such third
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-4-
<PAGE>
party ("Third Party Royalty Payment"), the royalties payable to TUFTS pursuant
to Section 5.1 above shall be reduced by an amount equal to fifty percent (50%)
of the Third Party Royalty Payment, provided, however, that such reduction shall
not reduce the royalty payment owed to Tufts in any single year to an amount
which is less than fifty per cent (50%) of that which would have been due to
TUFTS in the absence of Third Party Royalty Payments.
5.3 LICENSEE shall pay TUFTS a sublicensing fee (the "Sublicensing Fee")
equal to [*] of the net revenue received from sublicensing of Licensed Patents
and Licensed Products covered by one or more valid claims of the Licensed
Patents in the country in which such Product is sold. The Sublicensing Fee shall
be based upon the amount actually paid to LICENSEE by a sublicensee, including
fees, royalties and milestone payments, provided that the Sublicensing Fee shall
not include research and development support payments, payments in compensation
for the grant of rights to any other intellectual property of LICENSEE, or
equity or debt financing received by LICENSEE from such sublicensee.
5.4 LICENSEE hereby grants to TUFTS the right to purchase [*] shares of
LICENSEE'S common stock which represents [*] of the founding capitalization
(see Exhibit 2), at fair market value as determined by LICENSEE's Board of
Directors as of the date of purchase (such fair market value is currently $0.01
per share) pursuant to a separate stock purchase agreement ("Stock Agreement").
5.5 The royalty on Net Sales made in currencies other than U.S. Dollars
shall be calculated using the appropriate foreign exchange rate for such
currency quoted by the Bank of America (San Francisco) foreign exchange desk, on
the close of business on the last banking day of each calendar quarter.
Royalties and payments to TUFTS shall be made in U.S. Dollars.
5.6 Within thirty (30) days after receipt of a statement from TUFTS,
LICENSEE shall reimburse TUFTS for all costs incurred by TUFTS after the
Effective Date in connection with the preparation, filing and prosecution of all
patent applications and maintenance of Licensed Patents.
5.7 In the event that in any country all of the valid claims within the
Licensed Patents which cover a particular Licensed Product are held invalid or
unenforceable, then LICENSEE's obligation to pay royalties on Net Sales with
respect to such Licensed Product shall terminate in such country. LICENSEE's
obligation to pay royalties on Net Sales shall terminate on a country-by-country
basis upon the expiration of the last to expire of any issued Licensed Patent in
each country.
6 ROYALTY REPORTS, PAYMENTS AND ACCOUNTING
6.1 Beginning with the first sale of a Licensed Product, LICENSEE shall
make written reports (even if there are no further sales) of royalty payments
due, if any, to TUFTS within thirty (30) days after the end of each calendar
quarter. This report shall state the number, description, and aggregate Net
Sales of Licensed Products during such completed calendar quarter by LICENSEE,
its
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-5-
<PAGE>
Affiliates and Sublicensees, and resulting calculations of earned royalty
payments due TUFTS pursuant to Section 5 for such completed calendar quarter.
Each such statement shall be certified by an officer of the LICENSEE as being
true, correct and complete. Concurrent with the submission of each such report,
LICENSEE shall pay TUFTS any royalties due for the calendar quarter covered by
such report.
6.2 LICENSEE agrees to keep and maintain records for a period of three (3)
years showing the manufacture, sale, use and other disposition of products sold
or otherwise disposed of under the license herein granted. Such records will
include sufficient detail to enable the royalties payable hereunder by LICENSEE
to be determined. LICENSEE further agrees to permit its books and records to be
examined by an independent certified public accountant selected by TUFTS and
acceptable to LICENSEE once per calendar year during the term of this Agreement,
for the sole purpose of verifying the reports and royalty payments made by
LICENSEE. Such examination shall be made at LICENSEE'S place of business during
ordinary business hours with at least thirty (30) days prior written notice.
The accountant shall report to TUFTS only whether there has been a royalty
underpayment and, if so, the amount thereof. Such examination is to be at the
expense of TUFTS except in the event that the results of the audit reveal an
under reporting of royalties due TUFTS of five percent (5%) or more, then the
audit costs shall be paid by LICENSEE within thirty (30) days of notice by TUFTS
to LICENSEE.
7 REPRESENTATIONS AND WARRANTIES
7.1 TUFTS Disclaimer. TUFTS MAKES NO REPRESENTATIONS, EXTENDS NO
----------------
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED (INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR PURPOSE), AND
ASSUMES NO RESPONSIBILITIES WHATSOEVER, WITH RESPECT TO THE LICENSED PATENTS OR
KNOW-HOW OR THE USE THEREOF, OR THE MANUFACTURE, POSSESSION, USE, MARKETING,
SALE, OR OTHER DISPOSITION BY TUFTS, LICENSEE, OR ANYONE ELSE, OF LICENSED
PRODUCT(S) OR ANY OTHER PRODUCTS OF SERVICES (INCLUDING, WITHOUT LIMITATION,
PRODUCTS MADE BY TUFTS, AND TUFTS SERVICES, THAT ARE OR WERE FURNISHED TO
LICENSEE AT ANY TIME BEFORE, ON, OR AFTER THE DATE HEREOF), EXCEPT ONLY AS
EXPRESSLY STATED HEREIN. Without limitation of the foregoing generality,
nothing contained herein or in any disclosure of the Licensed Patents or Know-
How made by or on behalf of TUFTS shall be construed as extending any
representation or warranty with respect to the Licensed Patents or Know-How or
Licensed Products or the results to be obtained by the use of the Licensed
Patents or Know-How or any Licensed Products, or that anything made, used, or
sold by use of the Licensed Patents or Know-How or any part thereof, alone or in
combination, will be free from infringement of patents of third parties. TUFTS
SHALL NOT BE LIABLE TO LICENSEE, ITS AFFILIATES, ITS SUBLICENSEES, OR ANY OTHER
PARTY, REGARDLESS OF THE FORM OR THEORY OF ACTION (WHETHER CONTRACT, TORT,
INCLUDING NEGLIGENCE, STRICT LIABILITY, OR OTHERWISE), FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL, PUNITIVE, OR
-6-
<PAGE>
OTHER EXTRAORDINARY DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT,
LICENSED PATENTS, THE KNOW-HOW, THE LICENSED PRODUCTS, OR ANY PRODUCTS OR
SERVICES FURNISHED OR NOT FURNISHED BY TUFTS, EVEN IF TUFTS HAS BEEN ADVISED OF
THE POSSIBILITY THEREOF.
LICENSEE agrees that all warranties, if any, in connection with the sale or
other disposition of any Licensed Products (or any products made by TUFTS and
furnished at any time to LICENSEE) by LICENSEE, its Affiliates, or its
sublicensees will be made by them and will not directly or impliedly obligate
TUFTS.
7.2 TUFTS Representations. Notwithstanding the first sentence of
---------------------
Section 7.1, TUFTS:
(a) Warrants to LICENSEE that TUFTS has good title to the
Exclusive Technology and any tangible personal property furnished hereunder by
TUFTS to LICENSEE, including any quantities of materials similar to the products
to be made by LICENSEE as Licensed Products (but TUFTS makes no infringement or
other representations or warranties with respect thereto).
(b) Represents that TUFTS is a corporation organized and existing
under the laws of the Commonwealth of Massachusetts and has the power and
authority to enter into this Agreement and the right to grant all the rights
described in this Agreement, including the rights to the Licensed Patents and
Know-How described herein.
(c) Represents that TUFTS has taken all necessary action to
authorize its execution and delivery of this Agreement by the representatives of
TUFTS who carried out such execution and delivery, and to authorize the
performance by TUFTS of its obligations hereunder.
(d) Represents that execution and delivery of this Agreement and
its performance by TUFTS will not result in any breach or violation of, or
constitute a default under, any agreement, instrument, judgment, or order to
which TUFTS is a party or by which it is bound.
(e) Represents that TUFTS is not aware of any other intellectual
property right owned by TUFTS for which a license is necessary to practice the
rights to the Licensed Patents as set forth herein.
7.3 LICENSEE Representations. LICENSEE represents and warrants to TUFTS
------------------------
that:
(a) LICENSEE is a corporation organized and existing under the
laws of California and has the power and authority to enter into this Agreement.
-7-
<PAGE>
(b) LICENSEE has taken all necessary action to authorize its
execution and delivery of this Agreement by the representatives of LICENSEE who
carried out such execution and delivery, and to authorize the performance by
LICENSEE of its obligations hereunder.
(c) Execution and delivery of this Agreement and its Agreement
and its performance by LICENSEE will not result in any breach or violation of,
or constitute a default under, any agreement, instrument, judgment, or order to
which LICENSEE is a party or by which it is bound.
8 INDEMNITY
8.1 Indemnity. LICENSEE agrees to indemnify and hold harmless TUFTS, its
---------
trustees, officers and employees, from all costs, expenses (including reasonable
attorneys' fees), interest, losses, obligations, liabilities, and damages paid
or liability for which is incurred by any of said parties ("Losses"), and which
arise out of or are in connection with or are for the purpose of avoiding any
and all claims, demands, actions, causes of action, suits, appeals, and
proceedings ("Claims"), all whether groundless or not, or the settlement
thereof, based on any actual or alleged injuries, damages, or liability of any
kind whatsoever (including, without limitation, personal injury, death, property
damage, breach of warranty, or breach of contract) arising, directly or
indirectly, out of any one or more of: any breach of LICENSEE of its
representations, warranties, or agreements hereunder; or out of any manufacture,
marketing, possession, use, sale or other disposition of Licensed Products or
products furnished by TUFTS to LICENSEE in connection herewith or in connection
with the Research Agreement (whether same occurs during or after the License or
during or after the License Period) by LICENSEE, its Affiliates, its
sublicensees, or anyone claiming by, through, or under any of them; or any
acquisition, possession, disclosure, or use of the Exclusive Technology or any
thereof, by LICENSEE, its Affiliates, its sublicensees, or anyone claiming by,
through, or under any of them; or the presence of LICENSEE's or its Affiliates'
or its sublicensees' officers, agents, employees, invitees, or property or any
thereof on TUFTS' premises, provided that the obligations of LICENSEE under this
Section 8.1 shall not apply if the Claims and any Losses resulted in whole or in
part from the intentional misconduct or gross negligence of TUFTS or any other
party indemnified under this Section.
8.2 Defense; Settlement. LICENSEE shall defend and control negotiation of
-------------------
settlement of any Claim, as defined in Section 8.1. TUFTS agrees to cooperate
fully in the defense of any Claim and may participate in the defense with
counsel of TUFTS' choosing, such separate counsel to be at TUFTS' expense unless
a conflict of interest exists between LICENSEE and TUFTS with respect to the
defense in which case LICENSEE shall pay the reasonable fees and expenses of
TUFTS' separate counsel. Any settlement by which TUFTS would incur any
obligation or liability, whether for the payment of money, the taking of any
action, the refraining from any action, or otherwise, shall require the advance
written consent of TUFTS, which may be withheld in the sole discretion of TUFTS
without relieving LICENSEE of any of its indemnification or other obligations
hereunder.
-8-
<PAGE>
8.3 Insurance. Not later than thirty (30) days before the time when
---------
LICENSEE, any subsidiary, or any sublicensee of LICENSEE shall use in humans or
sell any Licensed Products or any products furnished to LICENSEE by TUFTS at any
time (before, on or after the date hereof) in connection herewith or in
connection with the Research Agreement, and at all times thereafter until the
expiration of all applicable statutes of limitation pertaining to any such use,
sale or other disposition of any Licensed Products or the aforesaid products
furnished by TUFTS (whether same occurs or exists before or after the Effective
Date), LICENSEE will at LICENSEE's expense, obtain and maintain in full force
and effect, comprehensive general liability insurance, including product
liability insurance, protecting TUFTS against all claims, suits, obligations,
liabilities and damages, based upon or arising out of actual or alleged bodily
injury, personal injury, death, or any other damage to or loss of persons or
property, caused by any such use, sale, or other disposition. Such insurance
policy or policies shall be issued by companies rated by A. M. Best as A VIII or
better (or other companies acceptable to TUFTS), shall name TUFTS as an
additional named insured, shall have limits of at least one million dollars
($1,000,000) per occurrence with an aggregate of three million dollars
($3,000,000), shall be non-cancelable except upon thirty (30) days prior written
notice to TUFTS, and shall provide that as to any loss covered thereby and also
by any policies obtained by TUFTS itself, LICENSEE's policies shall provide
primary coverage for TUFTS and TUFTS' policies shall be considered excess
coverage for TUFTS.
8.4 Certificates; Policies. LICENSEE will forthwith after the obtaining
----------------------
of such insurance required by Section 8.3, obtain and deliver to TUFTS
certificates of and copies of, and at all times thereafter deliver without
further demand replacement certificates and copies of, all such insurance
policies that are in force and effect, as reasonably requested by TUFTS.
9 MARKING
Prior to the issuance of patents under Licensed Patents, LICENSEE agrees to
mark Licensed Product(s) (or their containers or labels) made, sold, or
otherwise disposed of by it under the license granted in this Agreement with the
words "Patent Pending," and following the issuance of one or more patents, with
the numbers of any applicable Licensed Patents.
10 USE OF NAMES
10.1 Use of Names. LICENSEE, its Affiliates and sublicensees agrees not
------------
to use the name of TUFTS or any TUFTS participant in the Research, as defined in
the Research Agreement, in any form of publicity or disclosure without TUFTS'
prior written consent, which may be withheld or withdrawn in TUFTS' discretion
at any time, provided however, that no such consent will be required with regard
to: (i) any proper reference by LICENSEE to published technical publications by
such participants; (ii) disclosures to potential investors and corporate
collaborators; and (iii) TUFTS will make no objection to LICENSEE's such other
disclosures as are required as a matter of law (including disclosures made under
applicable securities regulation) and such general disclosures
-9-
<PAGE>
of this Agreement as may be desired by LICENSEE for purposes of grant
solicitations from governmental authorities.
11 PATENT PROSECUTION AND INFRINGEMENT
11.1 TUFTS shall have the primary responsibility for the prosecution,
filing and maintenance of all Licensed Patents, including the conduct of all
interference, opposition, nullity and revocation proceedings, using counsel of
its choice; provided, however, that LICENSEE shall have reasonable opportunity
to advise and consult with TUFTS on such matters and may recommend TUFTS to take
such action as LICENSEE reasonably believes necessary to protect the Licensed
Patents. Counsel shall concurrently provide TUFTS and LICENSEE with copies of
all material correspondence related to the prosecution of the patent
applications within the Licensed Patents. Should TUFTS elect to abandon any
patent or patent application in any country, it shall give timely notice to
LICENSEE, who may continue prosecution or maintenance, at its sole expense and
TUFTS shall have no further rights with respect to such patent application or
patent in such country. In the event that a conflict arises with respect to
patent counsel selected by TUFTS, LICENSEE may, with just cause and after
consulting with TUFTS, select new patent counsel reasonably acceptable to TUFTS.
11.2 Payment of all reasonable fees and costs relating to the filing,
prosecution and maintenance of Licensed Patents which are incurred by TUFTS
after the Effective Date (including interference and/or opposition, nullity and
revocation proceedings) shall be the responsibility of LICENSEE. TUFTS shall
periodically send LICENSEE invoices for any such patent expenses incurred by
TUFTS and LICENSEE shall pay such invoices within thirty (30) days of receipt
thereof.
11.3 Each party shall inform the other promptly in writing of any alleged
infringement of the Licensed Patents by a third party, including all detail then
available. TUFTS shall have the right, but shall not be obligated, to prosecute
at its own expense any such infringements, and LICENSEE agrees that TUFTS may
join LICENSEE as a plaintiff at the expense of TUFTS. In any infringement
action commenced or defended solely by TUFTS, all expenses and all recovery for
infringement shall be those of TUFTS.
11.4 If TUFTS has not taken legal action or been successful in obtaining
cessation of the infringement, within one hundred eighty (180) days of written
notification from LICENSEE of such infringement, or if TUFTS elects not to
continue prosecuting any legal action against an infringer, LICENSEE shall have
the right (while the LICENSEE is the exclusive licensee), but shall not be
obligated, to prosecute at its own expense any such infringement. LICENSEE may
join TUFTS as a plaintiff in any such infringement suit at LICENSEE's expense.
No settlement, consent judgment or other voluntary final disposition of the suit
may be entered into without TUFTS' consent, which shall not be unreasonably
withheld or delayed. In any such action by LICENSEE, after LICENSEE is first
reimbursed for LICENSEE's costs and expenses (including attorney's and expert
fees) and
-10-
<PAGE>
then TUFTS is reimbursed for any credited royalties pursuant to Section 11.8,
TUFTS shall be entitled to receive an amount equal to the applicable royalties
on any recovery of profits and damages that is in excess of LICENSEE's costs and
expenses and TUFTS' royalty reimbursement. LICENSEE shall indemnify TUFTS
against any order for costs or other payments that may be made against TUFTS in
such proceedings.
11.5 If any declaratory judgment action alleging invalidity or non-
infringement of any of the Licensed Patents shall be brought against LICENSEE,
TUFTS shall have the right at its election made within sixty (60) days after
commencement of that action, to intervene and take over the sole defense of the
action at its expense.
11.6 In any infringement suit that either party brings to enforce the
Licensed Patents, the other party shall at the request and expense of the party
bringing the suit, cooperate in al reasonable respects, including, to the extent
possible, obtaining the testimony of its employees and making available physical
evidence in the possession of that party.
11.7 LICENSEE, during the exclusive period of this Agreement, shall have
the exclusive right in accordance with the provisions of Section 12, to
sublicense any alleged infringer in the Licensed Territory for future use of the
Licensed Patents.
11.8 If LICENSEE pay any amounts in fees, expenses or costs to maintain,
prosecute, bring or defend any proceeding relating to any infringement by a
third party of any Licensed Patents, any declaratory action alleging invalidity
or non-infringement of any Licensed Patents, or any interference, opposition,
nullity or revocation proceeding relating to any Licensed Patents pursuant to
this Section 11 (the "Section 11 Costs"), TUFTS agrees that 50% of the amount of
such Section 11 Costs may be credited as they are incurred by LICENSEE against
royalties due to TUFTS under Section 5 of this Agreement.
12 SUBLICENSES
12.1 LICENSEE may grant sublicenses under the Exclusive Technology to
make, have made, import, have imported, use, lease, sell and offer for sale,
have sold and otherwise commercialize and exploit Licensed Products, and to
practice any method, process or procedure within the Exclusive Technology in the
Licensed Territory. The terms and conditions of each sublicense shall be
consistent with the terms and conditions of this Agreement and shall contain,
among other things (by way of example but not limitation), provisions
substantially similar to and consistent with: the "Net Sales" definition;
Section 6; Section 7.1 (so that no representations or warranties inconsistent
with that Section shall be extended to or by any sublicensee); Section 10; and
Section 18.
12.2 Any sublicense granted by LICENSEE under this Agreement shall remain
in effect in the event of any termination of this Agreement and shall provide
for the assignment of such
-11-
<PAGE>
sublicense to TUFTS or its designee in the event that this Agreement is
terminated; provided, that the financial obligations of each sublicensee to
TUFTS shall be limited to the amounts such sublicensee would be obligated to pay
to LICENSEE had this Agreement not been terminated.
12.3 Each sublicense shall provide that the obligations to TUFTS of
Sections 6, 7.1, 8.1, 10.1, 11.3, 11.4, 13.4, and 18 shall be binding on the
sublicensee and enforceable by both TUFTS and LICENSEE.
12.4 LICENSEE shall furnish to TUFTS a true and complete copy of each
sublicense agreement and each amendment thereto, promptly after the sublicense
or amendment has been agreed upon. TUFTS agrees that it will keep each
agreement confidential.
12.5 No sublicense shall relieve LICENSEE of any of its obligations
hereunder, and LICENSEE shall be responsible for the acts or omissions of its
Affliliates and sublicensees and for compliance by them with their obligations,
and LICENSEE shall take all steps necessary to enforce that compliance to the
extent required to allow LICENSEE to fully comply with all of its obligations
under this Agreement.
13 TERM AND TERMINATION
13.1 Unless sooner terminated in a manner provided herein, this Agreement
shall continue in force on a country-by-county and Licensed Product-by-Licensed
Product basis until the expiration of the last to expire of all Valid Claims in
such country included in the Licensed Patents. Following such an expiration,
LICENSEE shall have a non-exclusive, royalty-free, irrevocable license in such
country, to the Know-How.
13.2 LICENSEE shall have the right to terminate the Agreement at any time
following ninety (90) days written notice to TUFTS. LICENSEE may terminate this
Agreement with respect to any country or any Licensed Patent by giving TUFTS
notice in writing at least sixty (60) days in advance of the effective date of
termination selected by LICENSEE.
13.3 TUFTS may terminate this Agreement if LICENSEE:
(a) Is in default in payment of royalty;
(b) Is in material breach of any provision hereof;
and LICENSEE fails to remedy any such default, or breach, or fails to act
reasonably to remedy any default, or breach, within thirty (30) days after
receipt of written notice thereof by TUFTS.
-12-
<PAGE>
13.4 TUFTS may terminate this Agreement if LICENSEE fails to cure any
default on the diligence milestones in Section 4 after a twelve month period
commencing upon LICENSEE's receipt of written notification from TUFTS of
LICENSEE's default of such milestones.
13.5 Surviving any termination are:
(a) LICENSEE's obligation to pay royalties accrued or accruable;
(b) Any cause of action or claim of LICENSEE or TUFTS, accrued or to
accrue, because of any breach or default by the other party; and
(c) The provisions of Articles 8, 10, 15, 17 and Sections 7.1, 12.2
and 13.4.
14 ASSIGNMENT
Neither party may assign this Agreement or any part hereof without the
express written consent of the other, which consent shall not be unreasonably
withheld; provided, however, LICENSEE may assign this Agreement or any portion
hereof to an Affiliate or to a successor of all or substantially all its
business relating to the Licensed Patents or Know-How without the written
consent of TUFTS and shall provide TUFTS notice of any such assignment.
However, no assignment or other transfer by LICENSEE shall relieve LICENSEE of
any obligations hereunder and LICENSEE shall continue to be primarily and
jointly and severally liable (along with such assignee or other transferee) for
the performance of all obligations of LICENSEE and such assignee or other
transferee hereunder.
15 ARBITRATION
15.1 Any controversy arising under or related to this Agreement, and any
disputed claim by either party against the other under this Agreement excluding
any dispute relating to patent validity or infringement arising under this
Agreement, shall be settled by arbitration in accordance with the Rules of
Commercial Arbitration of the American Arbitration Association.
15.2 Upon request by either party, arbitration will be initiated by a
third party arbitrator mutually agreed upon in writing by LICENSEE and TUFTS
within thirty (30) days of such arbitration request. Judgment upon the award
rendered by the arbitrator shall be final and nonappealable and may be entered
in a court having jurisdiction thereof. The parties agree that any provision of
applicable law notwithstanding, they will not request and the arbitrators shall
have no authority to award punitive or exemplary damages against any party. The
costs of the arbitration, including administrative fees and fees of the
arbitrators shall be shared equally by the parties. Each party shall bear the
cost of its own attorneys' fees and expert fees.
-13-
<PAGE>
15.3 The parties shall be entitled to discovery in like manner as if the
arbitration were a civil suit in a Superior Court of the Commonwealth of
Massachusetts; provided, however, the arbitrator may limit the scope, time
and/or issues involved in discovery.
15.4 Any arbitration shall be held at a location mutually agreed upon in
writing by LICENSEE and TUFTS.
16 NOTICES
All notices under this Agreement shall be deemed to have been fully given
when done in writing and deposited in the United States mail, registered or
certified, or overnight deliver service (e.g., DHL, Federal Express) and
addressed as follows:
<TABLE>
<S> <C> <C>
To TUFTS: Tufts University
136 Harrison Avenue (75K-1520)
Boston, Massachusetts 02111
Attention: Associate Provost for Research
with a copy to: Massachusetts Biomedical Inititatives
20 Hampden Street
Roxbury, Massachusetts 02119
Attention: Director, Unified Office for Technology Transfer
To LICENSEE: Illumina, Inc.
2187 Newcastle Ave
Suite 101
Cardiff, California 92007
Attention: John R. Stuelpnagel
</TABLE>
Either party may change its address upon written notice to the other party.
17 CONFIDENTIALITY
TUFTS shall maintain this Agreement and the reports and any information
provided by LICENSEE to TUFTS in confidence and not disclose such information or
reports to any third party, except as required by law and disclosed after notice
to LICENSEE and after requesting confidential treatment and a protective order,
if available. TUFTS may, however, disclose to third parties total annual
royalty payments and general statistical information regarding payments made
hereunder in
-14-
<PAGE>
the context of disclosing statistical information pertaining to the performance
of the TUFTS Office of Technology Licensing.
18 COMPLIANCE WITH LAWS
18.1 Export Controls. The Export Control Regulations of the U.S.
---------------
Department of Commerce prohibit, except under special validated license, the
exportation from the United States of technical data relating to certain
commodities (listed in the Regulations), unless the exporter has received
certain written assurance from the foreign importer. In order to facilitate the
exchange of technical information under this Agreement, LICENSEE therefore
hereby agrees and gives its assurance to TUFTS that LICENSEE will not, unless
any required prior authorization is obtained from the U.S. Office of Export
Control, re-export directly or indirectly any technical data received from TUFTS
under this Agreement and will not export directly the Licensed Products or such
technical data to any country listed on either the Commodity Control List or
Militarily-Critical Technologies List. TUFTS makes no representation as to
whether any such license is required or, if one is required, as to whether it
will be issued by the U.S. Department of Commerce.
18.2 Other Laws. In addition to the foregoing export control
----------
requirements, LICENSEE agrees that it, its Affiliates, and its sublicensees will
comply with all applicable mandatory or permissive patent marking laws, rules,
and regulations and comply with all other laws, rules, and regulations of all
governmental authorities applicable to any of their activities contemplated by
this Agreement, and will comply with all necessary and desirable practices in
connection and compliance with safety recommendations of trade associations or
governmental authorities.
19 MISCELLANEOUS
19.1 Governing Law. This Agreement shall be governed by the laws of in
-------------
the Commonwealth of Massachusetts, without reference to principles of conflicts
of laws.
19.2 Waiver. None of the terms of this Agreement can be waived except by
------
the written consent of the party waiving compliance.
19.3 Entire Agreement. This Agreement and any Exhibits attached hereto
----------------
(each of which is hereby made part hereof by this reference), and the Master
Agreement entered into by the parties on even date herewith constitute the
entire agreement between the parties concerning the subject matter hereof, and
all prior negotiations, representations, warranties, agreements, and
understandings related thereto superseded hereby.
19.4 Force Majeure. Neither party shall not be considered in breach of
-------------
this Agreement to the extent any failure to perform any term or provision is
caused by any reason beyond such party's reasonable control, or by reason of any
of the following circumstances: labor or employee disturbances or disputes of
any kind; accidents; laws, rules or regulations of any government
-15-
<PAGE>
(including, without limitation, export and import regulations); failure of any
government approval required; disease; failure of utilities, mechanical
breakdowns, material shortages or other similar occurrences; civil disorders or
commotions, acts of aggression, vandalism or other similar occurrences; or fire,
floods, earthquakes, or acts of God.
19.5 Independent Contractors. The parties hereto shall be independent
-----------------------
contractors with respect to each other, and neither shall be deemed to be the
agent, principal, employee, servant, joint venturer, or partner of the other for
any purpose.
19.6 Severability. If any provision of this Agreement shall to any extent
------------
be found to be invalid or unenforceable, the remainder of this Agreement shall
not be affected thereby, and any such invalid or unenforceable provision shall
be reformed so as to be valid and enforceable to the fullest extent permitted by
law.
19.7 Headings. Headings of Articles, Sections, and subsections included
--------
herein for convenience for reference only and shall not be used to construe this
Agreement.
19.8 Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and which together shall constitute
one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the Effective Date set forth above.
TUFTS UNIVERSITY ILLUMINA, INC.
("TUFTS") ("LICENSEE")
By: __________________________________ By: __________________________________
Title:________________________________ Title:________________________________
-16-
<PAGE>
Exhibit 1
[*]
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-17-
<PAGE>
Exhibit 2
Founding Capitalizaton
[*]
____________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-18-
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our opinion dated February 29,
2000, except for Note 8, as to which the date is March 3, 2000, in the
Registration Statement (Form S-1) and related Prospectus of Illumina, Inc. for
the registration of shares of its common stock.
/s/ Ernst & Young LLP
San Diego, California
March 31, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ILLUMINA,
INC.'S BALANCE SHEETS AS OF DECEMBER 31, 1998 AND DECEMBER 31, 1999 AND RELATED
STATEMENTS OF OPERATIONS STOCKHOLDERS' EQUITY, AND CASH FLOWS FOR THE PERIOD
FROM APRIL 28, 1998 (INCEPTION) TO DECEMBER 31, 1998 AND FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 8-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> APR-28-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 8,233,729 21,164,114
<SECURITIES> 0 11,924,163
<RECEIVABLES> 0 49,818
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,408,249 33,493,045
<PP&E> 1,000 296,286
<DEPRECIATION> 0 (4,972)
<TOTAL-ASSETS> 8,557,415 33,894,658
<CURRENT-LIABILITIES> 177,170 612,408
<BONDS> 0 0
0 0
9,397,998 37,397,998
<COMMON> 34,560 51,391
<OTHER-SE> (1,052,313) (5,417,139)
<TOTAL-LIABILITY-AND-EQUITY> 8,557,415 33,894,658
<SALES> 0 0
<TOTAL-REVENUES> 0 474,026
<CGS> 0 0
<TOTAL-COSTS> 1,194,168 6,354,568
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 48,517
<INCOME-PRETAX> (1,145,620) (5,517,645)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,145,620) (5,517,645)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,145,620) (5,517,645)
<EPS-BASIC> (1.71) (3.91)
<EPS-DILUTED> (1.71) (3.91)
</TABLE>
