Document:

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                                                                   EXHIBIT 10.54

                    INTELLECTUAL PROPERTY SECURITY AGREEMENT

      This Intellectual Property Security Agreement (this "IP Agreement") is
made as of the 28th day of December, 2004 by and between LYNX THERAPEUTICS,
INC., a Delaware corporation with its principal place of business at 25861
Industrial Boulevard, Hayward, California 94545 ("Grantor"), and SILICON VALLEY
BANK, a California-chartered bank, with its principal place of business at 3003
Tasman Drive, Santa Clara, California 95054 and with a loan production office
located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton,
Massachusetts 02462, doing business under the name "Silicon Valley East"
("Lender").

                                    RECITALS

      A. Lender has agreed to make advances of money and to extend certain
financial accommodations to Grantor (the "Loan"), pursuant to a certain Loan and
Security Agreement dated as of December 28, 2004 between Grantor and Lender, as
amended from time to time (as amended, the "Loan Agreement"). The Loan is
secured pursuant to the terms of the Loan Agreement. Lender is willing to enter
into certain financial accommodations with Grantor, but only upon the condition,
among others, that Grantor shall grant to Lender a security interest in certain
Copyrights, Trademarks, Patents, and Mask Works, and other assets, to secure the
obligations of Grantor under the Loan Agreement. Defined terms used but not
defined herein shall have the same meanings as in the Loan Agreement.

      B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Lender a security interest in all of Grantor's right title and interest, whether
presently existing or hereafter acquired in, to and under all of the Collateral
(as defined therein).

      NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged and intending to be legally bound, as collateral security
for the prompt and complete payment when due of Grantor's Indebtedness (as
defined below), Grantor hereby represents, warrants, covenants and agrees as
follows:

      1. Grant of Security Interest. As collateral security for the prompt and
complete payment and performance of all of Grantor's present or future
indebtedness, obligations and liabilities to Lender (hereinafter, the
"Indebtedness"), including, without limitation, under the Loan Agreement,
Grantor hereby grants a security interest in all of Grantor's right, title and
interest in, to and under its registered and unregistered intellectual property
collateral (all of which shall collectively be called the "Intellectual Property
Collateral"), including, without limitation, the following:

            (a) Any and all copyright rights, copyright applications, copyright
      registrations and like protections in each work or authorship and
      derivative work thereof, whether published or unpublished, registered or
      unregistered, and whether or not the same also constitutes a trade secret,
      now or hereafter existing, created, acquired or held, including without
      limitation those set forth on EXHIBIT A attached hereto (collectively, the
      "Copyrights");

            (b) Any and all trade secret rights, including any rights to
      unpatented inventions, know-how, operating manuals, license rights and
      agreements, and confidential information, and any and all intellectual
      property rights in computer software and computer software products now or
      hereafter existing, created, acquired or held;

            (c) Any and all design rights which may be available to Grantor now
      or hereafter existing, created, acquired or held;

            (d) All patents, patent applications and like protections including,
      without limitation, improvements, divisions, continuations, renewals,
      reissues, extensions and continuations-in-part of the same, including
      without limitation the patents and patent applications set forth on
      EXHIBIT B attached hereto (collectively, the "Patents");

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            (e) Any trademark and service mark rights, slogans, trade dress, and
      tradenames, trade styles, whether registered or not, applications to
      register and registrations of the same and like protections, and the
      entire goodwill of the business of Grantor connected with and symbolized
      by such trademarks, including without limitation those set forth on
      EXHIBIT C attached hereto (collectively, the "Trademarks");

            (f) All mask works or similar rights available for the protection of
      semiconductor chips, now owned or hereafter acquired, including, without
      limitation those set forth on EXHIBIT D attached hereto (collectively, the
      "Mask Works");

            (g) Any and all claims for damages by way of past, present and
      future infringements of any of the rights included above, with the right,
      but not the obligation, to sue for and collect such damages for said use
      or infringement of the intellectual property rights identified above;

            (h) All licenses or other rights to use any of the Copyrights,
      Patents, Trademarks, or Mask Works and all license fees and royalties
      arising from such use to the extent permitted by such license or rights,
      including, without limitation those set forth on EXHIBIT E attached hereto
      (collectively, the "Licenses");

            (i) All amendments, extensions, renewals and extensions of any of
      the Copyrights, Trademarks, Patents, or Mask Works; and

            (j) All proceeds and products of the foregoing, including without
      limitation all payments under insurance or any indemnity or warranty
      payable in respect of any of the foregoing.

      2. Authorization and Request. Grantor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this IP Agreement, and any amendments thereto, or copies thereof.

      3. Covenants and Warranties. Grantor represents, warrants, covenants and
agrees as follows:

            (a) Except as set forth in the Perfection Certificate, Grantor is
      now the sole owner of the Intellectual Property Collateral, except for
      non-exclusive licenses granted by Grantor to its customers in the ordinary
      course of business;

            (b) Performance of this IP Agreement does not conflict with or
      result in a breach of any material agreement to which Grantor is bound;

            (c) During the term of this IP Agreement, Grantor will not transfer
      or otherwise encumber any interest in the Intellectual Property
      Collateral, except for non-exclusive licenses granted by Grantor in the
      ordinary course of business or as set forth in this IP Agreement;

            (d) To its knowledge, each of the Patents is valid and enforceable,
      and no part of the Intellectual Property Collateral has been judged
      invalid or unenforceable, in whole or in part, and no claim has been made
      that any part of the Intellectual Property Collateral violates the rights
      of any third party;

            (e) Grantor shall promptly advise Lender of any material adverse
      change in the composition of the Collateral, including but not limited to
      any subsequent ownership right of the Grantor in or to any Trademark,
      Patent, Copyright, or Mask Work specified in this IP Agreement;

            (f) Grantor shall (i) protect, defend and maintain the validity and
      enforceability of the Trademarks, Patents, Copyrights, and Mask Works,
      (ii) use its best efforts to detect infringements of the Trademarks,
      Patents, Copyrights, and Mask Works and promptly advise Lender in writing
      of material infringements detected and (iii) not allow any Trademarks,
      Patents, Copyrights, or Mask Works to be abandoned, forfeited or dedicated
      to the public without the written consent of Lender, which shall not be

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      unreasonably withheld, unless Grantor determines that reasonable business
      practices suggest that abandonment is appropriate;

            (g) Grantor shall take such further actions as Lender may reasonably
      request from time to time to perfect or continue the perfection of
      Lender's interest in the Intellectual Property Collateral;

            (h) This IP Agreement creates, and in the case of after acquired
      Intellectual Property Collateral this IP Agreement will create, at the
      time Grantor first has rights in such after acquired Intellectual Property
      Collateral, in favor of Lender a valid and perfected first priority
      security interest and collateral assignment in the Intellectual Property
      Collateral in the United States securing the payment and performance of
      the obligations evidenced by the Loan Agreement;

            (i) To its knowledge, except for, and upon, the filing of UCC
      financing statements, or other notice filings or notations in appropriate
      filing offices, if necessary to perfect the security interests created
      hereunder, no authorization, approval or other action by, and no notice to
      or filing with, any U.S. governmental authority or U.S. regulatory body is
      required either (a) for the grant by Grantor of the security interest
      granted hereby, or for the execution, delivery or performance of this IP
      Agreement by Grantor in the U.S. or (b) for the perfection in the United
      States or the exercise by Lender of its rights and remedies thereunder;

            (j) All information heretofore, herein or hereafter supplied to
      Lender by or on behalf of Grantor with respect to the Intellectual
      Property Collateral is accurate and complete in all material respects;

            (k) Grantor shall not enter into any agreement that would materially
      impair or conflict with Grantor's obligations hereunder without Lender's
      prior written consent, which consent shall not be unreasonably withheld.
      Grantor shall not permit the inclusion in any material contract to which
      it becomes a party of any provisions that could or might in any way
      prevent the creation of a security interest in Grantor's rights and
      interest in any property included within the definition of the
      Intellectual Property Collateral acquired under such contracts; and

            (l) Upon any executive officer of Grantor obtaining actual knowledge
      thereof, Grantor will promptly notify Lender in writing of any event that
      materially adversely affects the value of any material Intellectual
      Property Collateral, the ability of Grantor to dispose of any material
      Intellectual Property Collateral or the rights and remedies of Lender in
      relation thereto, including the levy of any legal process against any of
      the Intellectual Property Collateral.

      4. Lender's Rights. Lender shall have the right, but not the obligation,
to take, at Grantor's sole expense, any actions that Grantor is required under
this IP Agreement to take but which Grantor fails to take, after fifteen (15)
days' notice to Grantor. Grantor shall reimburse and indemnify Lender for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this section 4.

      5. Inspection Rights. Grantor hereby grants to Lender and its employees,
representatives and agents the right to visit, during reasonable hours upon
prior reasonable written notice to Grantor, any of Grantor's plants and
facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Intellectual Property Collateral, and to inspect the products and quality
control records relating thereto upon reasonable written notice to Grantor and
as often as may be reasonably requested, but not more than once in every six (6)
months; provided, however, nothing herein shall entitle Lender access to
Grantor's trade secrets and other proprietary information.

      6. Further Assurances; Attorney in Fact.

            (a) On a continuing basis, Grantor will, upon request by Lender,
subject to any prior licenses, encumbrances and restrictions and prospective
licenses, make, execute, acknowledge and deliver, and file and record in the
proper filing and recording places in the United States, all such instruments,
including appropriate

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financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademarks Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as requested by Lender, to perfect Lender's security interest in all Copyrights,
Patents, Trademarks, and Mask Works and otherwise to carry out the intent and
purposes of this IP Agreement, or for assuring and confirming to Lender the
grant or perfection of a security interest in all Intellectual Property
Collateral.

            (b) In addition to section 6(a) above, Grantor shall not register
any Copyrights or Mask Works in the United States Copyright Office unless it:
(i) has given at least fifteen (15) days' prior written notice to Lender of its
intent to register such Copyrights or Mask Works and has provided Lender with a
copy of the application it intends to file with the United States Copyright
Office (excluding exhibits thereto); (ii) executes a security agreement or such
other documents as Lender may reasonably request in order to maintain the
perfection and priority of Lender's security interest in the Copyrights proposed
to be registered with the United States Copyright Office; and (iii) records such
security documents with the United States Copyright Office contemporaneously
with filing the Copyright application(s) with the United States Copyright
Office. Grantor shall promptly provide to Lender a copy of the Copyright
application(s) filed with the United States Copyright Office, together with
evidence of the recording of the security documents necessary for Lender to
maintain the perfection and priority of its security interest in such Copyrights
or Mask Works. Grantor shall provide written notice to Lender of any application
filed by Grantor in the United States Patent Trademark Office for a patent or to
register a trademark or service mark within 30 days of any such filing.

            (c) Grantor hereby irrevocably appoints Lender as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in
the name of Grantor, Lender or otherwise, from time to time in Lender's
discretion, upon Grantor's failure or inability to do so, to take any action and
to execute any instrument which Lender may deem necessary or advisable to
accomplish the purposes of this IP Agreement, including:

            (i) To modify, in its sole discretion, this IP Agreement without
      first obtaining Grantor's approval of or signature to such modification by
      amending Exhibit A, Exhibit B, Exhibit C, and Exhibit D hereof, as
      appropriate, to include reference to any right, title or interest in any
      Copyrights, Patents, Trademarks or Mask Works acquired by Grantor after
      the execution hereof or to delete any reference to any right, title or
      interest in any Copyrights, Patents, Trademarks, or Mask Works in which
      Grantor no longer has or claims any right, title or interest; and

            (ii) To file, in its sole discretion, one or more financing or
      continuation statements and amendments thereto, or other notice filings or
      notations in appropriate filing offices, relative to any of the
      Intellectual Property Collateral, without notice to Grantor, with all
      appropriate jurisdictions, as Lender deems appropriate, in order to
      further perfect or protect Lender's interest in the Intellectual Property
      Collateral.

      7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under this IP Agreement:

            (a) An Event of Default occurs under the Loan Agreement; or

      (b) Grantor breaches any warranty or agreement made by Grantor in this IP
Agreement.

      8. Remedies. Upon the occurrence and continuance of an Event of Default,
Lender shall have the right to exercise all the remedies of a secured party
under the California Uniform Commercial Code, including without limitation the
right to require Grantor to assemble the Intellectual Property Collateral and
any tangible property in which Lender has a security interest and to make it
available to Lender at a place designated by Lender. Lender shall have a
nonexclusive, royalty free license to use the Copyrights, Patents, Trademarks,
and Mask Works to the extent reasonably necessary to permit Lender to exercise
its rights and remedies upon the occurrence of an Event of Default. Grantor will
pay any expenses (including reasonable attorney's fees) incurred by Lender in
connection with the exercise of any of Lender's rights hereunder, including
without limitation any expense incurred

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in disposing of the Intellectual Property Collateral. All of Lender's rights and
remedies with respect to the Intellectual Property Collateral shall be
cumulative.

      9. Indemnity. Grantor agrees to defend, indemnify and hold harmless Lender
and its officers, employees, and agents against: (a) all obligations, demands,
claims, and liabilities claimed or asserted by any other party in connection
with the transactions contemplated by this IP Agreement, and (b) all losses or
expenses in any way suffered, incurred, or paid by Lender as a result of or in
any way arising out of, following or consequential to transactions between
Lender and Grantor, whether under this IP Agreement or otherwise (including
without limitation, reasonable attorneys fees and reasonable expenses), except
for losses arising from or out of Lender's gross negligence or willful
misconduct.

      10. Termination. At such time as Grantor shall completely satisfy all of
the obligations secured hereunder, Lender shall execute and deliver to Grantor
all releases, terminations, and other instruments as may be necessary or proper
to release the security interest hereunder.

      11. Course of Dealing. No course of dealing, nor any failure to exercise,
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.

      12. Amendments. This IP Agreement may be amended only by a written
instrument signed by both parties hereto.

      13. Counterparts. This IP Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.

      14. Law and Jurisdiction. This IP Agreement shall be governed by and
construed in accordance with the laws of the State of California. GRANTOR
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF CALIFORNIA, AND GRANTOR ACCEPTS JURISDICTION OF THE
COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA, IN ANY ACTION, SUIT, OR
PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT. NOTWITHSTANDING THE FOREGOING, THE LENDER SHALL HAVE THE RIGHT TO
BRING ANY ACTION OR PROCEEDING AGAINST THE GRANTOR OR ITS PROPERTY IN THE COURTS
OF ANY OTHER JURISDICTION WHICH THE LENDER DEEMS NECESSARY OR APPROPRIATE IN
ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE THE LENDER'S RIGHTS
AGAINST THE GRANTOR OR ITS PROPERTY.

      GRANTOR AND LENDER EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

      15. Confidentiality. In handling any confidential information, Lender
shall exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Lender's
subsidiaries or affiliates in connection with their present or prospective
business relations with Grantor; (ii) to prospective transferees or purchasers
of any interest in the Loans; (iii) as required by law, regulation, subpoena, or
other order, (iv) as required in connection with Lender's examination or audit;
and (v) as Lender considers appropriate in exercising remedies under this
Agreement. Confidential information does not include information that either:
(a) is in the public domain or in Lender's possession when disclosed to Lender,
or becomes part of the

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public domain after disclosure to Lender; or (b) is disclosed to Lender by a
third party, if Lender reasonably does not know that the third party is
prohibited from disclosing the information.

                  [Remainder of page intentionally left blank]

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      EXECUTED under the laws of the State of California on the day and year
first written above.

ADDRESS OF GRANTOR:                   GRANTOR:

25861 Industrial Boulevard            LYNX THERAPEUTICS, INC.

Hayward, California 94545             By: /s/ Mary L. Schramke
                                          --------------------------------------
                                      Name: Mary L. Schramke

                                      Title: Acting Chief Executive Officer

                                      SILICON VALLEY BANK

                                      By: /s/ Michael J. Hanewich
                                          --------------------------------------
                                      Name: Michael J. Hanewich

                                      Title: Senior Vice President Life Sciences

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      Exhibit "A" attached to that certain Intellectual Property Security
Agreement dated December 28, 2004.

                                   EXHIBIT "A"

                                   COPYRIGHTS

                         SCHEDULE A - ISSUED COPYRIGHTS

Schedule A Omitted.

                   SCHEDULE B - PENDING COPYRIGHT APPLICATIONS

Schedule B Omitted.

SCHEDULE C - UNREGISTERED COPYRIGHTS (Where No Copyright Application is Pending)

Schedule C Omitted.
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      Exhibit "B" attached to that certain Intellectual Property Security
Agreement dated December 28, 2004.

                                   EXHIBIT "B"

                                     PATENTS

Exhibit B Omitted.

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      Exhibit "C" attached to that certain Intellectual Property Security
Agreement dated December 28, 2004.

                                   EXHIBIT "C"

                                   TRADEMARKS

Exhibit C Omitted.

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      Exhibit "D" attached to that certain Intellectual Property Security
Agreement dated December 28, 2004.

                                   EXHIBIT "D"

                                   MASK WORKS

Exhibit D Omitted.

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      Exhibit "E" attached to that certain Intellectual Property Security
Agreement dated December 28, 2004.

                                   EXHIBIT "E"

                                    LICENSES

Exhibit E Omitted.

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                                                                   EXHIBIT 10.55

                            WARRANT TO PURCHASE STOCK

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE
OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS
EXEMPT FROM REGISTRATION.

                            WARRANT TO PURCHASE STOCK

Company: Lynx Therapeutics, Inc., a Delaware corporation
Number of Shares: 95,541, subject to adjustment
Class of Stock: Common Stock, $0.01 par value per share
Warrant Price: $3.140 per share, subject to adjustment
Issue Date: December 28, 2004
Expiration Date: December 27, 2007

      THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
common stock, $0.01 par value per share (the "Shares") of Lynx Therapeutics,
Inc., a Delaware corporation (the "Company") at the Warrant Price, all as set
forth above and as adjusted pursuant to Article 2 of this Warrant, subject to
the provisions and upon the terms and conditions set forth in this Warrant.

ARTICLE 1. EXERCISE.

            1.1 Method of Exercise. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Article 1.2, Holder shall also
deliver to the Company a check, wire transfer (to an account designated by the
Company), or other form of payment acceptable to the Company for the aggregate
Warrant Price for the Shares being purchased.

            1.2 Conversion Right. In lieu of exercising this Warrant as
specified in Article 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Article 1.3.

<PAGE>

            1.3 Fair Market Value. If the Company's common stock is traded in a
public market and the shares are common stock, the fair market value of each
Share shall be the closing price of a Share reported for the business day
immediately before Holder delivers its Notice of Exercise to the Company. If the
Company's common stock is not traded in a public market, the Board of Directors
of the Company shall determine fair market value in its reasonable good faith
judgment.

            1.4 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant and, if applicable, the Company receives
payment of the aggregate Warrant Price, the Company shall deliver to Holder
certificate(s) for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.

            1.5 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor.

            1.6 Treatment of Warrant Upon Acquisition of Company.

                1.6.1 "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, exclusive license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than a majority of the
outstanding voting securities of the surviving entity after the transaction;
provided, that the transactions contemplated by that certain Acquisition
Agreement dated as of September 28, 2004 by and between the Company and Solexa
Limited, a company registered in England and Wales, shall not constitute an
"Acquisition" for purposes of this Warrant, provided that the Company is the
surviving entity following consummation of such transactions.

                1.6.2 Treatment of Warrant at Acquisition.

A) Upon the written request of the Company, Holder agrees that, in the event of
an Acquisition in which the sole consideration is cash, either (a) Holder shall
exercise its conversion or purchase right under this Warrant and such exercise
will be deemed effective immediately prior to the consummation of such
Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant
will expire upon the consummation of such Acquisition. The Company shall provide
the Holder with written notice of its request relating to the foregoing
(together with such reasonable information as the Holder may request in
connection with such contemplated Acquisition giving rise to such notice), which
is to be delivered to Holder not less than ten (10) days prior to the closing of
the proposed Acquisition.

B) Upon the written request of the Company, Holder agrees that, in the event of
an Acquisition that is an "arms length" sale of all or substantially all of the
Company's assets (and only its assets) to a third party that is not an Affiliate
(as defined below) of the Company (a "True Asset Sale"), either (a) Holder shall
exercise its conversion or purchase right under this Warrant and such exercise
will be deemed effective

<PAGE>

immediately prior to the consummation of such Acquisition or (b) if Holder
elects not to exercise the Warrant, this Warrant will continue until the
Expiration Date if the Company continues as a going concern following the
closing of any such True Asset Sale. The Company shall provide the Holder with
written notice of its request relating to the foregoing (together with such
reasonable information as the Holder may request in connection with such
contemplated Acquisition giving rise to such notice), which is to be delivered
to Holder not less than ten (10) days prior to the closing of the proposed
Acquisition.

C) Upon the closing of any Acquisition other than those particularly described
in subsections (A) and (B) above, the successor entity shall assume the
obligations of this Warrant, and this Warrant shall be exercisable for the same
securities, cash, and property as would be payable for the Shares issuable upon
exercise of the unexercised portion of this Warrant as if such Shares were
outstanding on the record date for the Acquisition and subsequent closing. The
Warrant Price and/or number of Shares shall be adjusted accordingly.

As used herein "Affiliate" shall mean, with respect to any person or entity, any
other person or entity controlling, controlled by or under common control with
such person or entity.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

            2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on the Shares payable in common stock, or other securities, then upon
exercise of this Warrant, for each Share acquired, Holder shall receive, without
cost to Holder, the total number and kind of securities to which Holder would
have been entitled had Holder owned the Shares of record as of the date the
dividend occurred. If the Company subdivides the Shares by reclassification or
otherwise into a greater number of shares or takes any other action which
increase the amount of stock into which the Shares are convertible, the number
of shares purchasable hereunder shall be proportionately increased and the
Warrant Price shall be proportionately decreased. If the outstanding shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased and the number
of Shares shall be proportionately decreased.

            2.2 Reclassification, Exchange, Combinations or Substitution. Upon
any reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder an
amendment or supplement to this Warrant setting forth the number and kind of
such new securities or other property issuable upon exercise or conversion of
this Warrant as a result of such reclassification, exchange, substitution or
other event that results in a change of the number and/or class of securities
issuable upon exercise or conversion of this Warrant. The amendment or
supplement to this Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article 2 including, without limitation, adjustments to the Warrant Price and to
the number of securities or property issuable upon exercise of the

<PAGE>

new Warrant. The provisions of this Article 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.

            2.3 Anti-Dilution. In the event that the Company at any time and
from time to time sells or issues (a "Dilutive Issuance") additional shares of
its Common Stock, or options, warrants, convertible securities, instruments or
other rights to purchase or acquire shares of its Common Stock, at a purchase,
exercise, conversion or other acquisition price per Common Stock share less than
both (a) the then-effective Warrant Price, and (b) the average closing price of
a share of the Company's Common Stock on the national securities exchange,
national inter-dealer quotation system or over-the-counter market on which the
Company's Common Stock is then listed or quoted for trading over the five (5)
trading days immediately preceding the date of such sale or issuance (the
"Dilutive Price"), then upon such issuance, the Warrant Price shall
automatically be reduced to such Dilutive Price, and the number of shares of
Common Stock for which this Warrant shall thereafter be exercisable shall be
increased to equal the quotient obtained by dividing (i) the product resulting
from multiplying (A) the number of Shares issuable upon exercise of the Warrant
and (B) the Warrant Price, in each case as in effect immediately before such
Dilutive Issuance, by (ii) such Dilutive Price.

            2.4 No Impairment. The Company shall not, by amendment of its
Articles or Certificate (as applicable) of Incorporation or through a
reorganization, transfer of assets, consolidation, merger, dissolution, issue,
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed under
this Warrant by the Company, but shall at all times in good faith assist in
carrying out of all the provisions of this Article 2 and in taking all such
action as may be necessary or appropriate to protect Holder's rights under this
Article against impairment.

            2.5 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder the amount computed by
multiplying the fractional interest by the fair market value of a full Share.

            2.6 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company shall promptly notify Holder in writing, and, at the
Company's expense, promptly compute such adjustment, and furnish Holder with a
certificate of its Chief Financial Officer setting forth such adjustment and the
facts upon which such adjustment is based. The Company shall, upon written
request, furnish Holder a certificate setting forth the Warrant Price in effect
upon the date thereof and the series of adjustments leading to such Warrant
Price.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

            3.1 Representations and Warranties. The Company represents and
warrants to the Holder as follows:

                  (a) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon

<PAGE>

conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.

            3.2 Notice of Certain Events. Copies of all notices and other
communications by the Company to its stockholders generally shall be provided by
the Company to Holder as and when the Company provides same to its stockholders.

            3.3 Registration Under Securities Act of 1933, as amended. In the
event that the Company at any time determines or agrees to effect a registration
under the Act (or any successor statute) of shares of its Common Stock for the
account of any person or entity (other than a registration in which the Company
registers shares solely for its own account, including that certain registration
statement on Form S-4 filed by the Company on October 29, 2004, as amended), the
Company shall provide at least twenty (20) days prior written notice thereof to
Holder and shall permit the Holder to include Shares in such registration pari
passu with each other person and entity participating therein, on the same terms
and conditions applicable to such other persons and/or entities.

            3.4 No Shareholder Rights. Except as provided in this Warrant, the
Holder will not have any rights as a shareholder of the Company until the
exercise of this Warrant.

ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and
warrants to the Company as follows:

            4.1 Purchase for Own Account. This Warrant and the securities to be
acquired upon exercise of this Warrant by the Holder will be acquired for
investment for the Holder's account, not as a nominee or agent, and not with a
view to the public resale or distribution within the meaning of the Act. Holder
also represents that the Holder has not been formed for the specific purpose of
acquiring this Warrant or the Shares.

            4.2 Disclosure of Information. The Holder has received or has had
full access to all the information it considers necessary or appropriate to make
an informed investment decision with respect to the acquisition of this Warrant
and its underlying securities. The Holder further has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of this Warrant and its underlying securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Holder or to which the
Holder has access.

            4.3 Investment Experience. The Holder understands that the purchase
of this Warrant and its underlying securities involves substantial risk. The
Holder has experience as an investor in securities of companies in the
development stage and acknowledges that the Holder can bear the economic risk of
such Holder's investment in this Warrant and its underlying securities and has
such knowledge and experience in financial or business matters that the Holder
is capable of evaluating the merits and risks of its investment in this Warrant
and its underlying securities and/or has a preexisting personal or business
relationship with the Company and certain of its officers, directors or
controlling persons of a nature and duration that enables the Holder

<PAGE>

to be aware of the character, business acumen and financial circumstances of
such persons.

            4.4 Accredited Investor Status. The Holder is an "accredited
investor" within the meaning of Regulation D promulgated under the Act.

            4.5 The Act. The Holder understands that this Warrant and the Shares
issuable upon exercise or conversion hereof have not been registered under the
Act in reliance upon a specific exemption therefrom, which exemption depends
upon, among other things, the bona fide nature of the Holder's investment intent
as expressed herein. The Holder understands that this Warrant and the Shares
issued upon any exercise or conversion hereof must be held indefinitely unless
subsequently registered under the Act and qualified under applicable state
securities laws, or unless exemption from such registration and qualification
are otherwise available.

ARTICLE 5. MISCELLANEOUS.

            5.1 Term: This Warrant is exercisable in whole or in part at any
time and from time to time on or before the Expiration Date.

            5.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:

            THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN
            REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND,
            EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 OF THAT CERTAIN
            WARRANT TO PURCHASE STOCK ISSUED BY THE COMPANY TO SILICON VALLEY
            BANK DATED AS OF DECEMBER 28, 2004, MAY NOT BE OFFERED, SOLD OR
            OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
            REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN
            THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
            THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE
            OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

            5.3 Compliance with Securities Laws on Transfer. This Warrant and
the Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to Silicon Valley Bancshares (Holder's
parent company) or any other affiliate of Holder, provided that each such
transferee is an "accredited investor" as defined in Regulation D promulgated
under the Act.

<PAGE>

            5.4 Transfer Procedure. Upon receipt by Holder of the executed
Warrant, Holder will transfer all of this Warrant to Silicon Valley Bancshares,
Holder's parent company, by execution of an Assignment substantially in the form
of Appendix 2. Subject to the provisions of Article 5.3 and upon providing the
Company with written notice, Silicon Valley Bancshares and any subsequent Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the Shares issuable directly or indirectly, upon conversion of
the Shares, if any) to any transferee, provided, however, in connection with any
such transfer, Silicon Valley Bancshares or any subsequent Holder will give the
Company notice of the portion of the Warrant being transferred with the name,
address and taxpayer identification number of the transferee and Holder will
surrender this Warrant to the Company for reissuance to the transferee(s) (and
Holder if applicable).

            5.5 Notices. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may (or on the first business day after transmission by
facsimile) be, in writing by the Company or such holder from time to time.
Effective upon receipt of the fully executed Warrant and the initial transfer
described in Article 5.4 above, all notices to the Holder shall be addressed as
follows until the Company receives notice of a change of address in connection
with a transfer or otherwise:

                               Silicon Valley Bancshares
                               Attn:  Treasury Department
                               3003 Tasman Drive, HA 200
                               Santa Clara, CA 95054
                               Telephone: 408-654-7400
                               Facsimile: 408-496-2405

      Notice to the Company shall be addressed as follows until the Holder
receives notice of a change in address:

                               Lynx Therapeutics, Inc.
                               Attn: Chief Executive Officer
                               25861 Industrial Blvd.
                               Hayward, CA 94545
                               Telephone: 510-670-9300
                               Facsimile: 510-670-9302

            5.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.

            5.7 Attorney's Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorney's fees.

<PAGE>

            5.8 Automatic Conversion upon Expiration. In the event that, upon
the Expiration Date, the fair market value of one Share (or other security
issuable upon the exercise hereof) as determined in accordance with Section 1.3
above is greater than the Exercise Price in effect on such date, then this
Warrant shall automatically be deemed on and as of such date to be converted
pursuant to Section 1.2 above as to all Shares (or such other securities) for
which it shall not previously have been exercised or converted, and the Company
shall promptly deliver a certificate representing the Shares (or such other
securities) issued upon such conversion to the Holder.

<PAGE>

            5.9 Counterparts. This Warrant may be executed in counterparts, all
of which together shall constitute one and the same agreement.

            5.10 Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.

"COMPANY"

LYNX THERAPEUTICS, INC.

By: /s/ Mary L. Schramke
    ---------------------------------------
Name: Mary L. Schramke
      (Print)
Title: Acting Chief Executive Officer

"HOLDER"

SILICON VALLEY BANK

By: /s/ Michael J. Hanewich
    ---------------------------------------
Name: Michael J. Hanewich
      (Print)
Title: Senior Vice President Life Sciences

<PAGE>

                                   APPENDIX 1

                               NOTICE OF EXERCISE

      1. Holder elects to purchase ___________ shares of the Common Stock of
Lynx Therapeutics, Inc. pursuant to the terms of the attached Warrant, and
tenders payment of the purchase price of the shares in full.

            [or]

      1. Holder elects to convert the attached Warrant into Shares/cash [strike
one] in the manner specified in the Warrant. This conversion is exercised for
_____________________ of the Shares covered by the Warrant.

      [Strike paragraph that does not apply.]

      2. Please issue a certificate or certificates representing the shares in
the name specified below:

                               ___________________________________________
                                          Holders Name

                               ___________________________________________

                               ___________________________________________
                                          (Address)

      3. By its execution below and for the benefit of the Company, Holder
hereby restates each of the representations and warranties in Article 4 of the
Warrant as the date hereof.

                                                        HOLDER:

                                                        ________________________

                                                        By:_____________________

                                                        Name:___________________

                                                        Title:__________________

                                                        (Date):_________________

<PAGE>

                                   APPENDIX 2

                                   ASSIGNMENT

FOR VALUE RECEIVED, SILICON VALLEY BANK HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO

                  NAME:      SILICON VALLEY BANCSHARES
                  ADDRESS:   3003 TASMAN DRIVE (HA-200)
                             SANTA CLARA, CA 95054

                  TAX ID:    91-1962278

     THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY LYNX THERAPEUTICS, INC.
     (THE "COMPANY"), ON [INSERT ISSUE DATE] (THE "WARRANT") TOGETHER WITH  ALL
     RIGHTS, TITLE AND INTEREST THEREIN.

                                             SILICON VALLEY BANK

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________

Date: [insert Issue Date]____________________

By its execution below, and for the benefit of the Company, Silicon Valley
Bancshares makes each of the representations and warranties set forth in Article
4 of the Warrant as of the date hereof.

                                             SILICON VALLEY BANCSHARES

                                             By:________________________________
                                             Name:______________________________
                                             Title: ____________________________

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