Exhibit 10.49
LOAN AGREEMENT
This Loan Agreement is made as of August 12, 2004 (this "Agreement") by
and between Lynx Therapeutics, Inc., a Delaware corporation having its principal
place of business at 00000 Xxxxxxxxxx Xxxxxxxxx, Xxxxxxx, Xxxxxxxxxx 00000
("Borrower"), and Solexa Limited., a company registered in England and Wales,
having its principal place of business at Chesterford Research Park, Little
Chesterford, Nr Saffron Walden, Essex, Great Britain CB10 1XL ("Lender").
RECITALS
A. Borrower has requested Lender to make available to Borrower a loan
in an aggregate principal amount of up to two million five hundred thousand
United States dollars ($2,500,000).
B. Lender is willing to make available such loan on the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Borrower hereby agrees with Lender as follows:
1. THE LOANS.
1.1 Advances. Lender agrees, expressly subject in each case to
the further terms and conditions of this Agreement, including the provisions of
Section 2 below, to make (i) an initial advance to Borrower in an aggregate
amount of seven hundred fifty United States dollars ($750,000) within two (2)
business days of the date hereof (the "Initial Advance"); (ii) a subsequent
advance in an aggregate amount of five hundred thousand United States dollars
($500,000) on September 10, 2004; (iii) a further subsequent advance in an
aggregate amount of seven hundred fifty thousand United States dollars
($750,000) contemporaneously with, and only upon, the execution of definitive
agreements between Borrower and Lender setting forth the agreed upon terms of a
proposed business combination transaction (the "Transaction") between Borrower
and Lender (the "Definitive Acquisition Agreement"); and (iv) provided that the
Definitive Acquisition Agreement shall have been executed by Lender and Borrower
on or prior to October 15, 2004, a further subsequent advance in an aggregate
amount of five hundred thousand United States dollars ($500,000) on October 15,
2004 (each of the advances referred to in clauses (ii)-(iv) is referred to
herein as a "Subsequent Advance", and all of such advances taken together are
referred to herein as the "Subsequent Advances"). The Initial Advance and the
Subsequent Advances may each be referred to herein as an "Advance" and, taken
together, as the "Advances". Borrower acknowledges that Lender has no obligation
whatsoever under this Agreement to make or fund any Advances other than as
specifically contemplated by this
Agreement, and that all of the Advances contemplated by this Agreement shall be
made subject to the terms of this Agreement.
1.2 Promissory Notes; Maturity. Borrower shall execute and
deliver to Lender promissory notes prepared by Lender in substantially the form
attached hereto as Exhibit A in the original principal amount of the Initial
Advance and each of the Subsequent Advances at the time that each such advance
is made as evidence of such advance (each, a "Note"). The aggregate principal
amount of the Advances shall bear interest thereon from the funding date of each
such Advance (the "Advance Date"), at the rate of ten percent (10%) per annum,
based upon a 360 day year for the actual number of days elapsed. The entire
amount of outstanding principal, accrued interest and any unpaid fees and
expenses (to the extent that such fees and expenses shall be payable by Borrower
pursuant to Section 8 of this Agreement) under and with respect to the Advances
that shall have been made shall be due and payable on the earlier to occur of
(i) the occurrence of an Event of Default (as defined herein); (ii) the first
anniversary of the date on which the period of exclusivity shall terminate under
the letter agreement between Lender and Borrower (the "Exclusivity Letter")
being executed contemporaneously with the execution of this Agreement regarding,
among other things, an exclusive negotiation period with respect to the
Transaction; (iii) the first anniversary of the date on which any Definitive
Acquisition Agreement that may be entered into between Lender and Borrower shall
have been terminated in accordance with its terms prior to the consummation of
the Transaction contemplated thereby; or (iv) December 31, 2005.
1.3 Maximum Rate of Interest; Default.
(a) Notwithstanding any provision in this Agreement
or the Notes to the contrary, it is the parties intent that in no event shall
any interest collected or charged under this Agreement or the Notes exceed the
maximum rate then permitted by law and if any such payment is made by Borrower,
then such excess sum shall be credited by Lender as a payment of principal.
(b) Any amount overdue under any Note shall bear
interest from and after the date on which such amount first became overdue at an
annual rate equal to the rate per year specified in Section 1.2 hereof. Such
interest on overdue amounts under this Agreement or any Note shall be payable on
demand and shall accrue and be compounded monthly until the obligation of the
Borrower with respect to the payment of such interest has been fully discharged
(whether before or after judgment).
2. TERMS OF FUNDING AND RELATED MATTERS. The Advances and the
commitment of Lender to make any Subsequent Advances shall be subject to the
following terms and conditions:
2.1 Terms of Initial Advance. The parties hereto agree that
immediately upon the execution of this Agreement and the funding by Lender of
the Initial Advance (i) the royalty rate contemplated by Section 9.1 of the
Colony Technology Sharing Agreement dated March 22, 2004 between Lender and
Borrower (the "Colony Technology Sharing Agreement"), as it shall be applicable
to Net Sales (as defined in the Colony Technology Sharing Agreement) by Lender,
and only as to such Net Sales, shall be reduced for all purposes from 11.5% to
5.0% and
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(ii) Borrower shall cause one Lynx third generation Signature sequencing
instrument that has been assembled and validated after October 31, 2003 and
qualified for production (a "Gen-3 Instrument") to be made available at
Borrower's facility in Hayward, California for pick up and shipment by Lender,
at Lender's expense, for use by Lender in its business at its discretion without
further charge.
2.2 Terms of September 10th Subsequent Advance. The parties
hereto agree that immediately upon the funding by Lender of the Subsequent
Advance contemplated by clause (i) of Section 1.1 above (i) the royalty rate
contemplated by Section 9.1 of the Colony Technology Sharing Agreement, as it
shall be applicable to Net Sales (as defined in the Colony Technology Sharing
Agreement) by Lender, and only as to such Net Sales, shall be further reduced
for all purposes from 5.0% to 3.0%, and (ii) Borrower shall cause two additional
Gen-3 Instruments to be made available at Borrower's facility in Hayward,
California for pick up and shipment by Lender, at Lender's expense, for use by
Lender in its business at its discretion without further charge.
2.3 Effect of Termination of Transaction Discussions.
(a) If either (i) the discussions between Lender and
Borrower regarding a possible Transaction between the two companies shall
terminate prior to the execution of the Definitive Acquisition Agreement or (ii)
the Definitive Acquisition Agreement shall be executed but terminated prior to
the consummation of the Transaction contemplated thereby, and in either case
such termination shall have been primarily due to a breach by Borrower of its
representations, warranties, agreements or obligations under this Agreement or,
if applicable, the Definitive Acquisition Agreement or shall have been due to
the breach by Borrower of its commitment regarding exclusive negotiation set
forth in either (A) the Exclusivity Letter or (B) the Definitive Acquisition
Agreement or shall have been due to the unilateral determination of Borrower to
discontinue discussions with Lender regarding a possible Transaction at a time
at which Lender shall not have been in material breach of its representations,
warranties, agreements or obligations under this Agreement or, if applicable,
the Definitive Acquisition Agreement and shall have indicated a willingness to
continue such discussions in good faith, then immediately upon any such
termination (x) the obligation of Lender to make any further Advances under
Section 1.1 and 1.2 shall terminate without penalty to Lender, (y) the royalty
rate contemplated by Section 9.1 of the Colony Technology Sharing Agreement, as
it shall be applicable to Net Sales (as defined in the Colony Technology Sharing
Agreement) by Lender, and only as to such Net Sales, shall be further reduced
for all purposes to 0.0%, and (z) outright ownership, free and clear of all
Liens (as defined herein), of each of the Gen-3 Instruments previously made
available by Borrower to Lender pursuant to the provisions of Sections 2.1 and
2.2 above shall forthwith be transferred from Borrower to Lender. Borrower shall
promptly deliver all appropriate documents to Lender to evidence the transfer of
title contemplated by the preceding sentence. In addition, (1) if any such
termination shall occur after the funding of the Initial Advance but prior to
the funding of the Subsequent Advance to be made on September 10, 2004, then
Lender shall be granted by Borrower a perpetual, fully paid up, royalty-free,
worldwide non-exclusive license to all patents, patent applications,
divisionals, continuations and term extensions, all registered or unregistered
design rights, copyright, know-how, materials, hardware, software, database
rights and all forms of intellectual property of a
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similar nature which may subsist anywhere in the world relating to or deriving
from the sequencing instrumentation hardware and software of Borrower described
inter alia in patent numbers WO9853300A2 and WO0161044A1 on terms and conditions
mutually satisfactory to Lender and Borrower to be negotiated and agreed to by
such parties following the date of this Agreement (the "Instrument Technology
License"), and (2) if any such termination shall occur after the funding of the
Subsequent Advance to be made on September 10, 2004, then Lender shall be
granted by Borrower a perpetual, fully paid up, royalty-free, worldwide
non-exclusive license to all patents, patent applications, divisionals,
continuations and term extensions, all registered or unregistered design rights,
copyright, know-how, materials, hardware, software, database rights and all
forms of intellectual property of a similar nature which may subsist anywhere in
the world relating to or deriving from the sequencing chemistry known as MPSS
(as described inter alia in patent numbers US5552278 and US6013445) on terms and
conditions mutually satisfactory to Lender and Borrower to be negotiated and
agreed to by such parties following the date of this Agreement (the "MPSS
License").
(b) If either (i) the discussions between Lender and
Borrower regarding a possible Transaction between the two companies shall
terminate prior to the execution of the Definitive Acquisition Agreement or (ii)
the Definitive Acquisition Agreement shall be executed but terminated prior to
the consummation of the Transaction contemplated thereby, and in either case
such termination (1) shall have been primarily due to a breach by Lender of its
representations, warranties, agreements or obligations under this Agreement or,
if applicable, the Definitive Acquisition Agreement or (2) shall have been due
to the unilateral determination of Lender to discontinue discussions with
Borrower regarding a possible Transaction at a time at which Borrower shall not
have been in material breach of its representations, warranties, agreements or
obligations under this Agreement or, if applicable, the Definitive Acquisition
Agreement and shall have indicated a willingness to continue such discussions in
good faith, or (3) shall have been due to a determination on the part of Lender
to materially alter the relative ownership percentages for the shareholders of
Lender and Borrower in the combined company following consummation of the
Transaction, as expressed in the Summary of Proposed Terms dated August 12, 2004
between Lender and Borrower, then, (x) the obligation of Lender to make any
further Advances under Section 1.1 and 1.2 shall terminate without penalty to
Lender, (y) the period of exclusive negotiations contemplated by the Exclusivity
Letter shall be immediately terminated, and (z) any Gen-3 Instruments previously
made available by Borrower to Lender for use pursuant Sections 2.1 and 2.2 above
shall be promptly returned to Borrower at Lender's expense.
(c) If (i) Lender and Borrower shall terminate their
discussions regarding a potential Transaction prior to the execution of a
Definitive Acquisition Agreement or (ii) the Definitive Acquisition Agreement
shall be executed but terminated prior to the consummation of the Transaction
contemplated thereby, and such termination shall have been for any reason not
contemplated by either Section 2.3(a) or Section 2.3(b) above, then (x) the
obligation of Lender to make any further Advances under Section 1.1 and 1.2
shall terminate without penalty to Lender, and (y) any reduction(s) in the
royalty rate in effect under the Colony Technology Sharing Agreement at the time
of the termination for Net Sales (as defined in the Colony Technology Sharing
Agreement) by Lender shall continue in effect following such termination.
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(d) If for any reason (i) Lender and Borrower shall
terminate their discussions regarding a potential Transaction prior to the
execution of a Definitive Acquisition Agreement or (ii) the Definitive
Acquisition Agreement shall be executed but terminated prior to the consummation
of the Transaction contemplated thereby, then in connection with any such
termination, Lender and Borrower shall cause the Colony Technology Sharing
Agreement to be restructured in a manner reasonably satisfactory to Lender such
that Lender shall be granted sole and outright ownership, free and clear of all
Liens, of the "Colony Technology" under such agreement and Borrower shall be
granted a license sufficiently broad in scope to provide Borrower the same
effective rights as a joint owner to exploit commercially such technology and
grant licenses to third parties as contemplated in the Colony Technology Sharing
Agreement.
3. DEFAULT. Borrower shall be in default under this Agreement and under
any other agreement of Borrower with the Lender upon the happening of any of the
following events or conditions, without demand or notice from Lender (each, an
"Event of Default"):
(1) Failure of Borrower to pay within 30 days of when due any
amount due hereunder or under any Note (an "Obligation"),
whether by maturity, acceleration or otherwise under this
Agreement or the Notes.
(2) Material breach by Borrower of any its representations or
warranties set forth in this Agreement.
(3) Failure of Borrower to perform in any material respect any of
its material commitments or agreements set forth in this
Agreement.
(4) Dissolution, liquidation or termination of existence of
Borrower or the failure of Borrower to pay its debts as they
mature on a reasonably timely basis or the appointment of a
custodian or receiver of any material part of Borrower's
property, the institution by or against Borrower or any
indorser or guarantor of any Note of any proceedings under the
United States Bankruptcy Code or any other federal or state
bankruptcy, reorganization, receivership, insolvency or other
similar law affecting the rights of creditors generally or the
making by the Borrower or any indorser or guarantor of any
Note of an assignment or trust mortgage for the benefit of
creditors, or a declaration of intent by the Borrower to
effect any of the foregoing.
4. LENDER'S RIGHTS UPON DEFAULT. Lender shall, upon the occurrence of
an Event of Default and during the continuance of an Event of Default, without
presentment, demand, notice, protest or advertisement of any kind have all of
the rights and remedies of Lender at law or equity arising under this or any
other agreement between the parties or otherwise or afforded by the Uniform
Commercial Code as from time to time in effect in the State of California or
afforded by other applicable law. Lender may make all Obligations immediately
due and payable without presentment, demand, protest, hearing or notice of any
kind and may exercise the rights of a secured party under law or under the terms
of this or any other agreement with the Borrower. In addition, upon the
occurrence of an Event of Default, Lender shall, if such Event of Default shall
occur following the funding of the Initial Advance by
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Lender, be immediately granted the Instrument Technology License and
additionally, if such Event of Default shall occur following the funding of both
the Initial Advance and the Subsequent Advance to be made on September 10, 2004
by Lender, shall be immediately granted the MPSS License.
5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Except as set forth on
the Borrower Disclosure Schedule dated the date hereof and delivered by Borrower
to Lender, Borrower represents and warrants that the following representations
and warranties are true and correct as of the date hereof (other than the
representations and warranties set forth in Section 5.3 and the first sentence
of Section 5.2 below, which shall remain true and correct for so long as any
Obligations shall remain outstanding and unpaid):
5.1 Subsidiaries. Borrower has no direct or indirect
subsidiaries other than those listed on Exhibit 21.1 to the Borrower's Annual
Report on Form 10-K filed for the year ended December 31, 2003. Borrower owns,
directly or indirectly, all of the capital stock or comparable equity interests
of each subsidiary free and clear of any lien, charge, claim, security interest,
encumbrance, right of first refusal or other restriction ("Lien"), and all the
issued and outstanding shares of capital stock or comparable equity interests of
each subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights.
5.2 Organization and Qualification. Each of Borrower and it
subsidiaries is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither Borrower nor any subsidiary is in violation of any of the provisions of
its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of Borrower and the subsidiaries is
duly qualified to do business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (i) adversely affect the legality,
validity or enforceability of this Agreement, (ii) have or be reasonably likely
to result in a material adverse effect on the results of operations, assets,
prospects, business or condition (financial or otherwise) of Borrower and the
subsidiaries, taken as a whole, or (iii) adversely impair Borrower's ability to
perform fully on a timely basis its obligations under this Agreement (any of
(i), (ii) or (iii), a "Material Adverse Effect").
5.3 Authorization; Enforcement. Borrower has the requisite
corporate power and authority to enter into this Agreement and the other
documents and agreements contemplated hereby, including the Notes (together, the
"Loan Documents") and to carry out its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the other Loan Documents by
Borrower and the performance of its obligations hereunder and thereunder have
been duly authorized by all necessary action on the part of Borrower and no
further consent or action is required by Borrower, its Board of Directors or its
stockholders. This Agreement has been, and the other Loan Documents, when
executed and delivered, will be, duly executed by Borrower and are the valid and
binding obligations of Borrower, enforceable against Borrower in accordance with
there respective terms.
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5.4 No Conflicts. The execution, delivery and performance of
this Agreement and the other Loan Documents by Borrower and the performance by
Borrower of its obligations hereunder and thereunder do not and will not (i)
conflict with or violate any provision of Borrower's or any subsidiary's
certificate or articles of incorporation, bylaws or other organizational or
charter documents, (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Borrower or subsidiary debt or otherwise)
or other understanding to which Borrower or any subsidiary is a party or by
which any property or asset of Borrower or any subsidiary is bound or affected,
except to the extent that such conflict, default or termination right could not
reasonably be expected to have a Material Adverse Effect, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which Borrower or a
subsidiary is subject (including federal and state securities laws and
regulations and the rules and regulations of any self-regulatory organization to
which Borrower or its securities are subject), or by which any property or asset
of Borrower or a subsidiary is bound or affected.
5.5 SEC Reports; Financial Statements. Borrower has filed all
reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (the foregoing materials being collectively referred
to herein as the "SEC Reports") on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. Borrower has made available to Lender (i)
copies of all SEC Reports filed as of the date hereof and (ii) a copy of
Borrower's draft Quarterly Report on Form 10-Q for the quarter ended June 30,
2004 (the "Draft 10-Q"). As of their respective dates, the SEC Reports and the
Draft 10-Q complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports or the Draft
10-Q, when filed, contained or will contain any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The financial
statements of Borrower included in the SEC Reports and the Draft 10-Q comply in
all material respects with applicable accounting requirements and the rules and
regulations of the Securities and Exchange Commission (the "Commission") with
respect thereto as in effect at the time of filing or, in the case of the Draft
10-Q, in effect at the time of preparation of such Draft 10-Q. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved ("GAAP"), except as may be otherwise specified in such financial
statements or the notes thereto or in the case of unaudited financial
statements, as permitted by Form 10-Q of the Commission, and fairly present in
all material respects the financial position of Borrower and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. All material
agreements, as such contracts are defined in Section 601(a)(10) of Regulation
S-K under the Securities Act of 1933, as amended (the "Securities Act"), to
which Borrower or any
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subsidiary is a party or to which the property or assets of Borrower or any
subsidiary are subject are included as part of or specifically identified in the
SEC Reports.
5.6 Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that, individually or in the aggregate, has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) Borrower has
not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in Borrower's financial statements pursuant to GAAP or required to be disclosed
in filings made with the Commission, (iii) Borrower has not altered its method
of accounting or the identity of its auditors, (iv) Borrower has not declared or
made any dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock, and (v) Borrower has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Borrower stock
option and stock purchase plans.
5.7 Absence of Litigation. Except as set forth in the SEC
Reports, there is no action, suit, claim, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of Borrower, overtly
threatened against or affecting Borrower or any of its subsidiaries that could
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
5.8 Compliance. Neither Borrower nor any subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
Borrower or any subsidiary under), nor has Borrower or any subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws relating
to taxes, environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each case as
could not, individually or in the aggregate, have or could reasonably be
expected to result in a Material Adverse Effect.
5.9 Title to Assets. Borrower and the subsidiaries have good
and marketable title in fee simple to all real property owned by them that is
material to the business of Borrower and the subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of Borrower and the subsidiaries, in each case free and clear of all
Liens. Any real property and facilities held under lease by Borrower and the
subsidiaries are held by them under valid, subsisting and enforceable leases of
which Borrower and the subsidiaries are in compliance.
5.10 Disclosure. All disclosure provided to Lender regarding
Borrower, its business and the transactions contemplated hereby furnished by or
on behalf of Borrower are true
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and correct and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
5.11 Patents and Trademarks. Borrower and the subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights that are necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have could reasonably be expected to have a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). Neither Borrower nor
any subsidiary has received a written notice that the Intellectual Property
Rights used by Borrower or any subsidiary violates or infringes upon the rights
of any person or entity. To the knowledge of Borrower, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
person or entity of any of the Intellectual Property Rights.
5.12 Insurance. Borrower and the subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as it believes in its reasonable discretion are prudent and
customary in the businesses in which Borrower and the subsidiaries are engaged.
Neither Borrower nor any subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business.
5.13 Regulatory Permits. Borrower and the subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected, individually or in the
aggregate, to have or result in a Material Adverse Effect ("Material Permits"),
and neither Borrower nor any subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
5.14 Transactions With Affiliates and Employees. Except as set
forth in the Borrower's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003, none of the officers or directors of Borrower and, to the
knowledge of Borrower, none of the employees of Borrower is presently a party to
any transaction with Borrower or any subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of
Borrower, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
5.15 Internal Accounting Controls. Borrower and the
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability,
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(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
5.16 Senior Indebtedness. Schedule 5.16 of the Borrower
Disclosure Schedule sets forth (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including, without limitation,
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations ("Indebtedness"), in each case to the extent that such Indebtedness
is secured by any asset or assets of Borrower or would be otherwise senior in
priority to the Advances contemplated by this Agreement. For purposes of this
Section 5.16, "Contingent Obligations" shall mean any direct or indirect
liability, contingent or otherwise, with respect to (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed,
co-made or discounted or sold with recourse or in respect of which Borrow is
otherwise directly or indirectly liable; (ii) any obligations with respect to
undrawn letters of credit, corporate credit cards, or merchant services issued
or provided for the account of Borrower; and (iii) all obligations arising under
any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement or other agreement or arrangement
designed to protect Borrower against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligations" shall not include endorsements for collection or deposit made in
the ordinary course of business. The amount of any Contingent Obligation shall
be deemed to be an amount equal to the stated or determined amount of the
primary obligation in respect of which such Contingent Obligation is made or, if
not stated or determinable, the maximum reasonably anticipated liability in
respect thereof as determined by Borrower in good faith; provided, however, that
such amount shall not in any event exceed the maximum amount of the obligation s
under the guarantee or other support arrangement.
6. AFFIRMATIVE COVENANTS OF BORROWER. Borrower will do all of the following for
so long as any Advances remain unfunded hereunder or there are any outstanding
Obligations:
6.1 Government Compliance. Borrower will maintain its and all
of its subsidiaries' legal existence and good standing in its jurisdiction of
formation and maintain qualification in each jurisdiction in which the failure
to so qualify would reasonably be expected to cause a Material Adverse Effect on
Borrower's business or operations. Borrower will comply, and have each of its
subsidiaries comply, in each case in all material respects, with all laws,
ordinances and regulations to which it is subject.
6.2 Financial Statements, Reports, Certificates. Borrower will
deliver to Lender: (i) as soon as available, but no later than 10 days after the
last day of each month, a company prepared consolidated balance sheet and income
statement covering Borrower's consolidated operations during the period
certified by an authorized officer and in a form acceptable to Lender; (ii) as
soon as available, but no later than 120 days after the last day of Borrower's
fiscal year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an
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independent certified public accounting firm reasonably acceptable to Lender;
(iii) within 5 days of filing, copies of all statements, reports and notices
made available to Borrower's security holders or to any holders of subordinated
debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission; (iv) a prompt report of any legal actions pending or
threatened against Borrower or any of its subsidiaries that could result in
damages or costs to Borrower or any Subsidiary of $50,000 or more; (v) within 30
days of fiscal year end, Board approved operating and financial forecasts for
the new fiscal year; (vi) budgets, sales projections, operating plans or other
financial information Lender reasonably requests; and (vii) prompt notice of any
material change in the composition of Borrower's intellectual property,
including any subsequent ownership right of Borrower in or to any copyright,
patent or trademark or knowledge of an event that materially adversely affects
the value of Borrower's intellectual property (provided, however, that the
reports and information contemplated by clauses (i), (iv), (v), (vi) and (vii)
need only be provided by Borrower to Lender for so long as discussions shall be
continuing between the parties regarding a possible Transaction and, following
the execution of the Definitive Acquisition Agreement until the earlier of the
consummation of the Transaction or the termination of the Definitive Acquisition
Agreement in accordance with its terms).
6.3 Taxes. Borrower will make, and cause each of its
subsidiaries to make, timely payment of all material federal, state, and local
taxes or assessments and will deliver to Lender, on demand, appropriate
certificates attesting to the payment.
6.4 Insurance. Borrower will maintain its program of insurance
as in effect on the date hereof. As soon as reasonably practicable following the
execution of this Agreement, Borrower shall use its reasonable best efforts to
cause all of its property insurance policies to have a lender's loss payable
endorsement showing Lender as an additional loss payee and all liability
policies to show the Lender as an additional insured and provide that the
insurer must give Lender at least 20 days notice before canceling its policy. At
Lender's request, Borrower will deliver certified copies of policies and
evidence of all premium payments. Proceeds payable under any policy will, at
Lender's option, be payable to Lender on account of the Obligations.
6.5 Intellectual Property. Borrower will use its reasonable
best efforts to (i) protect, defend and maintain the validity and enforceability
of its intellectual property and promptly advise Lender in writing of material
infringements and (ii) not allow any such material intellectual property to be
abandoned, forfeited or dedicated to the public without Lender's written
consent.
6.6 Access. For so long as the period of exclusivity
contemplated by the Exclusivity Letter shall remain in effect and not have
lapsed, Borrower shall allow Lender and its agents and advisors access at
reasonable times to the files, books, records, technology, contracts, personnel
and offices of Borrower, including any and all information relating to the
Company's taxes, contracts, liabilities, financial condition and real, personal
and intangible property, subject to the terms of the Mutual Non-Disclosure
Agreement between Borrower and Lender dated August 12, 2004.
6.7 Advice of Changes. Prior to the time any Subsequent
Advance shall be funded by Lender, Lender and Borrower shall arrange for an oral
bring down due diligence
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discussion regarding the status of the business of Borrower between senior
officers of each of them.
7. NEGATIVE COVENANTS. Borrower will not do any of the following
without Lender's prior written consent, which will not be unreasonably withheld,
for so long as any Advances remain unfounded hereunder or there are any
outstanding Obligations:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively "Transfer"), or permit any of its subsidiaries to
Transfer, all or any part of its business or property, except in the ordinary
course of business. For purposes of the foregoing, and the foregoing only, a
Transfers of assets with an aggregate fair market value of less than $10,000 by
Borrower shall not be deemed to be outside Borrower's ordinary course of
business.
7.2 Changes in Business. Engage in, or permit any of its
subsidiaries to engage in, any material business other than the businesses
currently engaged in by Borrower or reasonably related thereto.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit
any of its subsidiaries to merge or consolidate, with any other entity, or
acquire, or permit any of its subsidiaries to acquire, all or substantially all
of the capital stock or property of another entity, except where (i) Borrower is
the surviving entity, (ii) no Event of Default has occurred and is continuing or
would result from such action during the term of this Agreement and (iii) such
transaction would not result in a decrease of more than 10% of the net asset
balance of Borrower as compared to immediately prior to the consummation of the
transaction; provided, however, that the foregoing restriction shall not
restrict the ability of Borrower to negotiate and consummate a Transaction with
Lender.
7.4 Indebtedness. Create, incur, assume, or be liable for any
indebtedness, or permit any of its subsidiaries to do so, other than
indebtedness that ranks junior in priority to the Obligations created under this
Agreement.
7.5 Encumbrance. Create, incur, or allow any lien or other
encumbrance on any of its property, other than Permitted Liens or assign or
convey any right to receive income, or permit any of its subsidiaries to do so.
For purposes of this Section 7.5, the term "Permitted Liens" shall mean: (a)
Liens for taxes, fees, assessments or other government charges or levies, either
not delinquent or being contested in good faith and for which Borrower maintains
adequate reserves on its financial statements; (b) Purchase money Liens (i) on
equipment acquired or held by Borrower or its subsidiaries incurred for
financing the acquisition of the equipment, or (ii) existing on equipment when
acquired, if the Lien is confined to the property and improvements and the
proceeds of the equipment; (c) Licenses or sublicenses granted in the ordinary
course of Borrower's business and any interest or title of a licensor or under
any license or sublicense; (d) leases or subleases granted in the ordinary
course of Borrower's business, including in connection with Borrower's leased
premises or leased property; and (e) statutory Liens of carriers, warehousemen,
mechanics and materialmen and other Liens imposed by law incurred in the
ordinary course of business securing obligations that are not yet delinquent or
that are being contested in good faith and for which appropriate reserves have
been created in
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accordance with GAAP, not exceeding $50,000 individually or in the aggregate at
any one time outstanding.
7.6 Distributions; Investments. Directly or indirectly acquire
or own any entity, or make any investment in excess of $10,000 in any entity, or
permit any of its subsidiaries to do so, or pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock.
7.7 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated person.
7.8 Subordinated Debt. Make or permit any payment on any
subordinated debt or commercial lease, except under the terms of the
subordinated debt or commercial lease, as the case may be, or amend any
provision in any document relating to the subordinated debt without Lender's
prior written consent.
7.9 Compliance. Fail to meet the minimum funding requirements
of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in
ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, if the violation could reasonably be
expected to have a material adverse effect on Borrower's business or operations
or would reasonably be expected to cause a material adverse change in Borrower's
business or operations, or permit any of its subsidiaries to do so.
8. BORROWER'S OBLIGATION TO PAY EXPENSES OF LENDER. Borrower shall pay
to Lender on demand any and all fees and expenses (including, but not limited
to, a collection charge on all accounts collected, all attorney's fees and
expenses, and all other expenses of like or unlike nature) that may be incurred
or paid by the Lender to obtain or enforce payment of any account against the
account debtor, Borrower or any guarantor or surety of Borrower, or in the
prosecution or defense of any action taken in connection with pursuing remedies
under Section 4 of this Agreement, including (without limiting the generality of
the foregoing) any counsel fees or expenses incurred in any bankruptcy or
insolvency proceedings. All such expenses may be added to the principal amount
of any indebtedness owed by Borrower to Lender and shall constitute part of the
Obligations secured hereby.
9. NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the U.S. mail as certified or
registered mail with postage prepaid, if such notice is addresses to the party
to be notified at such party's address or facsimile number as set forth on the
signature page hereto or as subsequently modified by written notice.
10. WAIVERS. Borrower waives demand, presentment, protest, and notice
of protest notice of nonpayment and all other notices. No delay or omission by
Lender in exercising any
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rights shall operate as a waiver of such right or any other right. Waiver on any
one occasion shall not be construed as a bar to or waiver of any right or remedy
on any future occasion. All Lender's rights and remedies, whether evidenced
hereby or by any other agreement, instrument or paper, shall be cumulative and
may be exercised singularly or concurrently.
10. FURTHER ASSURANCES. From and after the date hereof, Borrower agrees
to execute and deliver such other documents and instruments as the Lender may
reasonably request with regard to the subject matter of this Agreement in order
to permit the parties to carry out the terms hereof.
11. TERMINATION. This Agreement shall terminate when all the
Obligations have been paid in full.
12. TAX WITHHOLDING. All payments to Lender under this Agreement shall
be made free and clear of, and without deduction or withholding for or on
account of, any present or future U.S. income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings ("U.S. Taxes"). The
right of Lender to receive payments free and clear of U.S. Taxes shall apply
whether or not payments hereunder qualify for exemption from U.S. Taxes;
provided that Lender shall furnish to Borrower upon request appropriate
certifications to establish that Lender is a resident of the United Kingdom for
purposes of Article 11 of the United Kingdom-United States Income Tax Treaty.
13. GOVERNING LAW AND CONSTRUCTION. The laws of the State of California
and the California Uniform Commercial Code, as enacted and amended from time to
time, shall govern the construction of this Agreement and the rights and duties
of the parties hereto; this Agreement shall be deemed to be under seal and
executed as of the day and date referred to above. All references in this
Agreement to "dollars" shall be deemed to refer to United States dollars.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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(Signature Page to Loan Agreement)
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be executed and delivered as of the date first set forth above.
BORROWER: LENDOR:
LYNX THERAPEUTICS, INC. SOLEXA LIMITED
By: /s/ Xxxxx X. Xxxxxxxx By: /s/ Xxxx Xxxx
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Title: President and Chief Executive Officer Title: Chief Executive Officer
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Address: Address:
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Facsimile: Facsimile:
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