Document:

<PAGE>
                                                                   EXHIBIT 10.19

                            LINE OF CREDIT AGREEMENT

        THIS LINE OF CREDIT AGREEMENT (the "Agreement"), is entered into as of
the 6th day of August, 2001, by and between Hyseq, Inc., a Nevada corporation
("Borrower"), and Dr. George B. Rathmann ("Lender").

                                     RECITAL

        Borrower desires to obtain from Lender a line of credit (the "Line of
Credit"), making available to Borrower a principal amount of twenty million
dollars ($20,000,000).

                                    AGREEMENT

        NOW, THEREFORE, Lender and Borrower hereby agree as follows:

                                   ARTICLE I.

                                 LINE OF CREDIT

        1.1 ADVANCES. SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT,
LENDER HEREBY AGREES TO MAKE ADVANCES (EACH, AN "ADVANCE", AND COLLECTIVELY, THE
"ADVANCES"), TO BORROWER FROM TIME TO TIME UP TO AND INCLUDING AUGUST 5, 2003.
THE AGGREGATE AMOUNT OF ALL OUTSTANDING ADVANCES SHALL NOT EXCEED TWENTY MILLION
DOLLARS ($20,000,000) (THE "CREDIT LIMIT"). PROCEEDS OF ADVANCES SHALL BE USED
FOR WORKING CAPITAL AND GENERAL CORPORATE PURPOSES OF BORROWER.

        1.2 Borrowing and Repayment. Borrower may from time to time during the
term of this Agreement borrow, partially or wholly repay its outstanding
borrowings, and reborrow; provided however, that the total outstanding Advances
shall not at any time exceed the Credit Limit. Each time Borrower desires an
Advance, Borrower shall submit to Lender a drawing request in substantially the
form of Exhibit B attached hereto ("Drawing Request"), setting forth the amount
requested to be borrowed. Borrower may submit Drawing Requests no more
frequently than once each week.

        1.3 Promissory Note. Borrower's obligation to repay the Advances and
accrued interest thereon shall be evidenced by a convertible promissory notice
substantially in the form attached hereto as Exhibit A (the "Note"), which may
be converted by mutual agreement of Lender and Borrower into shares of
Borrower's common stock, par value $0.001 per share (the "Common Stock"), at any
time up to and including the Maturity Date (as defined in Section 1.7 herein).
The shares of Common Stock to be issued upon the conversion of the Note are the
"Note Shares". Borrower shall execute and deliver to Lender the Note
concurrently with the execution and delivery of this Agreement. Borrower
authorizes Lender to record on the schedule annexed to the Note, the date and
amount of each Advance made by Lender, the Prime Rate (as defined in Section 1.4
herein) when each Advance is made, and each payment or prepayment of the
Advances, and agrees that all such notations shall constitute prima facie
evidence of the matters noted. Borrower further authorizes Lender to attach to
and make a part of the Note continuations of the schedule as necessary. No
failure to make any such notations, nor any errors in making any such notations,

<PAGE>

shall affect the validity of Borrower's obligations to repay the Advances or
Borrower's obligations under any of the Loan Documents (as defined in Section
2.1 herein).

        1.4 INTEREST AND FEES. Subject to Section 1.5, the outstanding principal
balance of the Line of Credit shall bear interest at a rate per annum equal to
one percent (1%) above the Prime Rate in effect from time to time. The term
"Prime Rate" shall mean at any time the rate of interest most recently announced
by Bank of America National Trust and Savings Association (or such other
financial institution as may be designated by Lender with Borrower's consent,
which consent will not be unreasonably withheld) (the "Reference Bank"), as its
Prime Rate. Each change in the rate of interest shall become effective on the
date each Prime Rate change is announced by the Reference Bank.

        1.5 Default Interest. At all times when an Event of Default has occurred
and is continuing, the outstanding principal balance of the Line of Credit shall
bear interest at a rate per annum equal to two percent (2%) above the Prime Rate
in effect from time to time (the "Default Rate"). In addition, to the extent
permitted by applicable law, any interest payments, fees or other amounts owed
hereunder and not paid when due, in each case whether at stated maturity, by
notice of prepayment, by acceleration or otherwise, shall bear interest at the
Default Rate. Payment or acceptance of the Default Rate is not a permitted
alternative to timely payment and shall not constitute a waiver of any Event of
Default or otherwise prejudice or limit any rights or remedies of Lender.

        1.6 Expiration Date. The Line of Credit shall expire, and Lender shall
have no further obligation to make any Advances to Borrower upon the earlier of
(i) a Change of Control, or (ii) August 5, 2003, the "Expiration Date". The
passage of the Expiration Date does not affect Borrower's repayment obligation.
For purposes of this Section 1.6, a "Change of Control" means (i) Borrower's
sale of all or substantially all of its assets, or (ii) any transaction or
series of related transactions to which Borrower is a party (including, without
limitation, any reorganization, merger or consolidation) that will result in the
holders of Borrower's outstanding voting equity securities immediately prior to
such transaction holding fewer than fifty per cent (50%) of the voting equity
securities of the surviving entity immediately following such transaction(s).

        1.7 Computation and Repayment. Borrower shall pay to the order of
Lender, at any place which Lender designates from time to time in writing, in
lawful money of the United States of America, the principal amount of the
Advances and accrued interest thereon. Interest on the principal amount
outstanding under the Advances shall be computed on the basis of a 360-day year,
actual days elapsed. Except as otherwise set forth in this Agreement, the
outstanding principal amount of the Advances on the Expiration Date shall be
repaid in forty eight (48) equal monthly installments, beginning on the
Expiration Date, and continuing on the first business day of each successive
calendar month until paid in full. Any and all outstanding principal amount,
accrued interest and applicable fees, costs and charges, if any, shall be paid
in full to Lender on the date which is forty eight (48) months after the
Expiration Date, the "Maturity Date".

        1.8 Limitation on Repayment by Note Shares. Notwithstanding any term to
the contrary contained in any of the Loan Documents, Borrower may not repay
Advances, interest accrued thereon and any attendant costs, fees and charges in
the form of Note Shares in excess of an aggregate value of twenty million
dollars ($20,000,000).

                                       2
<PAGE>

        1.9 Application of Payments. Lender shall apply all payments received
from Borrower pursuant to this Agreement as follows: first, to the payment of
applicable fees, costs and charges, if any; second, to accrued and unpaid
interest then due and owing; and third, to the outstanding principal amount of
the Advances.

                                   ARTICLE II.

                                   BORROWER'S
                         REPRESENTATIONS AND WARRANTIES

        Borrower makes the following representations and warranties to Lender,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge of all obligations of Borrower to
Lender, subject to this Agreement.

        2.1 AUTHORIZATION AND VALIDITY. This Agreement, the Note, and each other
document, contract and instrument required by or at any time delivered to Lender
in connection with this Agreement (collectively, the "Loan Documents"), have
been duly authorized by Borrower, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally.

        2.2 NO VIOLATION. The execution, delivery and performance by Borrower of
each of the Loan Documents to which it is a party do not violate any provision
of any law or regulation, or contravene any provision of Borrower's Amended and
Restated Articles of Incorporation, as amended or Amended Bylaws, or will not
result in a breach of or constitute a default under any contract, obligation,
indenture or other instrument to which Borrower is a party or by which Borrower
or any of its properties may be bound.

        2.3 Litigation. Except as disclosed to Lender, there is no action,
proceeding or investigation pending or threatened, or any basis therefor known
to Borrower, that questions the validity of this Agreement or the right of
Borrower to enter into this Agreement, or that would have, either individually
or in the aggregate, a Material Adverse Effect. "Material Adverse Effect" shall
mean a material adverse effect upon Borrower's business, operation, properties,
assets or condition (financial or otherwise). There is no judgment, decree or
order of any court in effect against Borrower, and Borrower is not in default
with respect to any order of any governmental authority to which Borrower is a
party or by which Borrower is bound.

        2.4 Governmental Consent. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of Borrower is
required in connection with the consummation of the transactions contemplated by
this Agreement.

        2.5 No Events of Default. Except as disclosed to Lender, Borrower is not
in default under any debt or material obligation of Borrower and no event has
occurred which would become

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<PAGE>

an event of default under any such debt or material obligation with or without
the giving of notice, the lapse of time, or both.

        2.6 Existence and Authority. Borrower is a corporation duly organized
and validly existing under the laws of the State of Nevada. Borrower has the
corporate power and authority, rights and franchises to own its properties and
to carry on its business as now conducted. Borrower has the corporate power and
authority to borrow the Advances and to enter into and perform its obligations
under this Agreement and the other Loan Documents.

                                  ARTICLE III.

                                    LENDER'S
                         REPRESENTATIONS AND WARRANTIES

        Lender makes the following representations and warranties to Borrower,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge of all obligations of Lender to
Borrower, subject to this Agreement.

        3.1 Lender hereby represents and warrants to Borrower as follows:

               (a) Lender understands and acknowledges that the offering and
sale of the Note Shares pursuant to the Note will not be registered under the
Securities Act of 1933, as amended (the "Securities Act".

               (b) Lender covenants that in no event will he make any
disposition of any of the Note Shares, except in accordance with an effective
registration statement under the Securities Act, or Rule 144 (or any successor
rule) as promulgated thereunder.

               (c) Lender acknowledges and understands that the Note Shares must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available, and that
Borrower is under no obligation to register the Note Shares.

               (d) Lender represents that he is an "accredited investor" as such
term is defined in Regulation D promulgated under the Securities Act.

                                   ARTICLE IV.

                              CONDITIONS PRECEDENT

        The obligation of Lender to make any Advances to Borrower under this
Agreement is subject to satisfaction of the conditions precedent of Section 4.1
and 4.2.

        4.1 Documentation. LENDER SHALL HAVE RECEIVED, IN FORM AND SUBSTANCE
SATISFACTORY TO LENDER, THIS AGREEMENT, THE NOTE, A DRAWING REQUEST AND SUCH
OTHER DOCUMENTS AND INSTRUMENTS AS LENDER MAY REASONABLY REQUEST, ALL DULY
EXECUTED BY BORROWER.

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<PAGE>

        4.2 Conditions to Each Advance. AS OF THE DATE OF EACH DRAWING REQUEST,
EXCEPT AS DISCLOSED TO LENDER:

               (a) all of Borrower's representations and warranties contained in
this Agreement shall be true, correct and complete in all material respects to
the same extent as though made on and as of that date;

               (b) no Event of Default (as defined in Section 6.1) shall have
occurred and shall continue, or shall result from, making the Advance;

               (c) no law or regulation shall prohibit, and no order, judgment
or decree of any court, arbitrator or governmental authority shall purport to
enjoin or restrain Lender from making the Advance; and

               (d) no change having a Material Adverse Effect on Borrower,
either individually or in the aggregate, shall have occurred since the date of
this Agreement.

        4.3 Conditions to Issuance of Note Shares. The obligation of Borrower to
issue the Note is subject to satisfaction of the condition precedent of this
Section 4.3. As of the date of the issuance of the Note Shares all of Lender's
representations and warranties contained in this Agreement shall be true,
correct and complete in all material respect to the same extent as though made
on and as of that date.

                                   ARTICLE V.

                              AFFIRMATIVE COVENANTS

        Borrower covenants that so long as any of the Advances, or any portion
thereof, remain outstanding or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Lender under any of the Loan
Documents remain outstanding, and until payment in full of all obligations of
Borrower subject hereto, Borrower shall:

        5.1 PUNCTUAL PAYMENTS. Pay the principal amount of the Advances,
interest, fees, charges or other liabilities due to Lender under the Loan
Documents at or before the times, at the place and in the manner specified in
the Loan Documents.

        5.2 Accounting Records. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied
and in a manner otherwise acceptable to Lender, and permit any representative of
Lender, at any reasonable time, to inspect, audit and examine such books and
records, to make copies of the same, and to inspect the properties of Borrower.

        5.3 Compliance With Laws. Comply with the requirements of all laws,
rules, regulations and orders of any governmental authority applicable to
Borrower or its business.

                                       5
<PAGE>

        5.4 Performance and Compliance with Other Agreements. Perform and comply
in all material respects with each of the provisions of each material indenture,
contract and other agreement by which Borrower or any of its properties is
bound.

        5.5 Taxes and Other Liabilities. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal and
including federal and state income taxes, which in the aggregate the nonpayment
of which would have a Material Adverse Effect, except such as Borrower may in
good faith contest or as to which a bona fide dispute may arise, so long as
provision is made to the satisfaction of Lender for eventual payment thereof if
it is found that payment is an obligation of Borrower.

        5.6 Notices of Lender. Within ten (10) days after Borrower has actual
knowledge of the occurrence of each such event or matter, give written notice to
Lender of: (i) the occurrence of any Event of Default (defined below), or any
condition, event or act which would become an Event of Default with or without
the giving of notice; or (ii) the commencement, or threatened commencement in
which Borrower has received written notice, of any litigation, arbitration or
other proceeding against Borrower which could result in a Material Adverse
Effect.

                                   ARTICLE VI.

                                EVENTS OF DEFAULT

        6.1 The occurrence of any of the following shall constitute an "Event of
Default" under this Agreement:

               (a) Borrower shall fail to pay within five (5) business days of
the date due any principal, interest, fees or other amounts payable under any of
the Loan Documents.

               (b) Any financial statement or certificate furnished to Lender in
connection with this Agreement or any representation or warranty made or deemed
made by Borrower hereunder shall prove to be false, incorrect or incomplete in
any material respect when furnished, made or deemed made.

               (c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein (other than those
referred to in Sections 6.1(a) and (b) above), and with respect to any such
default which by its nature can be cured, such default shall continue for a
period of twenty (20) days from its occurrence.

               (d) Any material default in the payment or performance of any
material obligation, or any defined event of default, under the terms of any
contract or instrument (other than the Loan Documents), pursuant to which
Borrower has incurred any debt or other liability to any person or entity,
including Lender.

               (e) Any default in the payment or performance of any obligation,
or any defined event of default, under any of the Loan Documents other than this
Agreement.

               (f) Borrower shall become insolvent, or shall suffer or consent
to or apply for the appointment of a receiver, trustee, custodian or liquidator
of itself or any of its property, or shall

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<PAGE>

generally fail to pay its debts as they become due, or shall make a general
assignment for the benefit of creditors; Borrower shall file a voluntary
petition in bankruptcy, or seeking reorganization, in order to effect a plan or
other arrangement with creditors or any other relief under the Bankruptcy Reform
Act, Title 11 of the United States Code, as amended or recodified from time to
time or any successor statute ("Bankruptcy Code"), or under any state or federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to said Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower, or Borrower shall
file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or shall be adjudicated a bankrupt, or
an order for relief shall be entered by any court of competent jurisdiction
under said Bankruptcy Code or any other applicable state or federal law relating
to bankruptcy, reorganization or other relief for debtors.

        6.2 ACCELERATION. If an Event of Default shall occur, (a) any
indebtedness of Borrower under any of the Loan Documents, any term thereof to
the contrary notwithstanding, shall (at Lender's option and without notice)
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by Borrower; (b)
the obligation, if any, of Lender to permit further borrowings hereunder shall
immediately cease and terminate; and (c) Lender shall have all rights, powers
and remedies available under each of the Loan Documents, or accorded by law,
including without limitation the right to resort to any or all security for any
of the Advances and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. All rights, powers and remedies of
Lender in connection with each of the Loan Documents may be exercised at any
time by Lender and from time to time after the occurrence of an Event of
Default, are cumulative and not exclusive, and shall be in addition to any other
rights, powers or remedies provided by law or equity. Notwithstanding the
foregoing, the occurrence of an Event of Default shall not extinguish Borrower's
right to convert any amount owed to Lender into the Note Shares, as provided for
in Section 1.3 herein.

                                  ARTICLE VII.

                               GENERAL PROVISIONS

        7.1 NO WAIVER. No delay, failure or discontinuance of Lender in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Lender of any breach of or default under any of the Loan Documents must
be in writing and shall be effective only to the extent expressly set forth in
such writing.

                                       7
<PAGE>

        7.2 NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following addresses:

        BORROWER:       Hyseq, Inc.
                        670 Almanor Avenue
                        Sunnyvale, California 94085
                        Facsimile:  (408) 524-8145
                        Attn: Legal Department

        LENDER:         Dr. George B. Rathmann
                        5404 Lake Washington Blvd., N.E., Apt. I
                        Kirkland, Washington  98033

or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
overnight courier, upon the earlier to the date of receipt or two (2) days after
delivery to the courier; (c) if sent by mail, upon the earlier of the date of
receipt or five (5) days after deposit in the U.S. mail, first class and postage
prepaid; or (d) if sent by telecopy, upon receipt.

        7.3 INDEMNITY, COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall
indemnify Lender against, hold Lender harmless from, and pay to Lender
immediately upon demand, the full amount of all costs and expenses, including
reasonable attorneys' fees, incurred by Lender in connection with (a) Lender's
administration of this Agreement and each of the other Loan Documents, and the
preparation of this Agreement and the other Loan Documents and any amendments
and waivers hereto and thereto, (b) the enforcement of Lender's rights and/or
the collection of any amounts which become due to Lender under any of the Loan
Documents (including in connection with any bankruptcy, reorganization,
"work-out" or similar circumstance or proceeding), and (c) the prosecution or
defense of any claim or action in any way related to any of the Loan Documents
or the transactions contemplated thereby, including without limitation any
action for declaratory relief.

        7.4 Successors; Assignment. This Agreement shall be binding on and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interest hereunder without the prior written consent of
Lender. Lender reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Lender's rights and
benefits under this Agreement, the Note and each of the other Loan Documents. In
connection therewith, Lender may disclose all documents and information which
Lender now has or may hereafter acquire relating to any of the Advances,
Borrower or its business, or any collateral required hereunder or granted in
connection herewith.

        7.5 Entire Agreement; Counterparts; Amendment. This Agreement and each
of the other Loan Documents constitute the entire agreement between Borrower and
Lender with respect

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<PAGE>

to the Advances and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be executed in any number of counterparts and may be amended or
modified only by a written instrument executed by each party hereto.

        7.6 No Third Party Beneficiaries. This Agreement is made and entered
into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.

        7.7 Severability of Provisions. If any provision of this Agreement shall
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.

        7.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California, except to the
extent that Lender has greater rights or remedies under federal law, in which
case such choice of California state law shall not be deemed to deprive Lender
of such rights and remedies as may be available under federal law.

        7.9 Arbitration. All disputes arising in connection with this Agreement
shall be finally settled by arbitration. The arbitration shall be held in San
Jose, California, and conducted in accordance with the Rules of the American
Arbitration Association. Judgment upon the award rendered may be entered in any
court having jurisdiction, or application may be made to such court for a
judicial acceptance of the award and an order or enforcement. Each party shall
bear its own expenses of the arbitration, but the arbitrator's fees and costs
shall be borne equally between the parties participating in the arbitration.

                            [Signature Page Follows]

                                       9
<PAGE>

        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.

                                        HYSEQ, INC.

                                        /s/ Ted W. Love
                                        ----------------------------------------
                                        By: Dr. Ted W. Love
                                        Title: President and Chief Executive
                                               Officer

                                        DR. GEORGE B. RATHMANN

                                        /s/ George B. Rathmann
                                        ----------------------------------------
                                        Dr. George B. Rathmann

                   Signature Page to Line of Credit Agreement

<PAGE>

                                    EXHIBIT A

                       FORM OF CONVERTIBLE PROMISSORY NOTE

               THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR
               INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
               OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
               ABSENCE OF SUCH REGISTRATION UNLESS SUCH SALE OR TRANSFER IS
               EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
               OF SAID ACT.

                           CONVERTIBLE PROMISSORY NOTE

    Sunnyvale, California
    August 6, 2001

        $20,000,000.00

        FOR VALUE RECEIVED, Hyseq, Inc., a Nevada corporation (the "Borrower"),
promises to pay to the order of Dr. George B. Rathmann, ("Lender"), the lesser
of (i) $20,000,000 and (ii) the outstanding principal amount of all Advances
made by Lender under that certain Line of Credit Agreement, dated as of August
6, 2001, by and between the Borrower and Lender (the "Agreement").

        The principal amount hereof is payable at the times and in the amounts
set forth in the Agreement. Borrower also promises to pay interest on the
Advances from the date of this Note until paid in full at the rates and at the
times determined in accordance with the Agreement. This Note is subject to
repayment and prepayments at the option of Borrower as, and to the extent,
provided in the Agreement.

        This Note is issued pursuant to and entitled to the benefits of the
Agreement to which reference is hereby made for a more complete statement of the
terms and conditions under which the Advances evidenced hereby were made and are
to be repaid. Capitalized terms used herein without definition shall have the
meanings set forth in the Agreement.

        Borrower shall pay all payments of principal and of interest on the
Advances to the order of Lender at such plan as Lender may from time to time
designate in writing, in lawful money of the United States of America.

               Notwithstanding the foregoing, and subject to the limitation set
forth in Section 1.8 of the Agreement, the total amount outstanding on this Note
may, at any time up to and including the Maturity Date and upon the mutual
agreement of Borrower and Lender (the "Conversion Notice"), be converted into
that number of shares of Borrower's Common Stock as shall equal the quotient
obtained by dividing the amount outstanding on this Note (i) by the average
closing price of the Borrower's Common Stock on the Nasdaq National Market as
reported in the Wall Street Journal for the twenty Trading Days (defined herein)
ending on the second Trading Day immediately prior to the day of such
conversion, or (ii) in connection with an offering Borrower's equity securities,
by the per share price of the Common Stock at which such equity securities shall

                                      A-1
<PAGE>

be offered for sale by Borrower. "Trading Day" shall mean any day on which the
Nasdaq National Market is open and available for at least five hours for the
trading of securities.

               The Note Shares to be issued to Lender upon the conversion of
this Note will not be registered under the Securities Act, or qualified under
any state securities laws on the grounds that the offering and sale of the Note
Shares as contemplated by the Loan Documents are exempt from registration under
the Securities Act and any applicable state securities laws.

               The certificate(s) representing the Note Shares shall bear the
following legend:

               THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
               REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE
               BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
               CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
               OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
               STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM
               SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED
               UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS SOLD
               PURSUANT TO RULE 144 OF SUCH ACT.

        Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note and all other obligations of Borrower under the
Agreement, together with all accrued but unpaid interest thereon, may
automatically become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Agreement.

        This Note shall be governed by and construed and enforced in accordance
with the internal laws of the State of California, without regard to conflicts
of laws provisions. The terms of this Note are subject to amendment only in the
manner provided in the Agreement.

        The obligation of the Borrower to pay the principal of and interest on
the Advances at the place, and at the times, and in the currency prescribed in
this Note and in the Agreement is absolute and unconditional.

        Borrower promises to pay all costs and expenses, including all
attorneys' fees and expenses, all as provided in the Agreement, actually
incurred in the collection and enforcement of this Note, including any such
costs, expenses or fees actually incurred in any appeal in connection with the
collection and enforcement of this Note. Borrower and endorsers of this Note
hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive diligence, presentment, protest, demand
and notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.

                                      A-2
<PAGE>

        IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the day and year and at the
place first above written.

                                             BORROWER

                                             HYSEQ, INC.

                                             By:  /s/ Ted W. Love
                                                  ------------------------------
                                                  Name:
                                                  Title:

                  Signature Page to Convertible Promissory Note

<PAGE>

                       TRANSACTIONS ON LINE OF CREDIT NOTE

<TABLE>
<CAPTION>
                                                      Outstanding
                                      Amount of        Principal
                  Amount of Loan   Principal Paid       Balance       Notation
       Date       Made This Date      This Date        This Date       Made By
----------------- --------------   --------------     -----------    -----------
<S>               <C>              <C>                <C>             <C>

</TABLE>

                     Schedule to Convertible Promissory Note

<PAGE>

                                    EXHIBIT B

                             FORM OF DRAWING REQUEST

                               [HYSEQ LETTERHEAD]

                        _________________________, 200__

Dr. George B. Rathmann
5404 Lake Washington Blvd., N.E., Apt. I
Kirkland, Washington  98033

               Re:    Drawing Request

Dear Dr. Rathmann:

        Please take notice that pursuant to that certain Line of Credit
Agreement, (the "Agreement"), dated as of August 6, 2001, Hyseq, Inc., (the
"Borrower") desires to borrow on Advance of ____________________ Dollars
($________) from Dr. George B. Rathmann, (the "LENDER"), on
______________________, 200__. Capitalized terms not otherwise defined shall
have the meanings assigned to them in the Agreement.

        The Borrower hereby certifies that as of the date of this Drawing
Request, except as disclosed to Lender:

               (a) all of Borrower's representations and warranties contained in
the Agreement shall be true, correct and complete in all material respects to
the same extent as though made on and as of the date hereof;

               (b) no Event of Default shall have occurred and shall continue,
or shall result from, making the Advance;

               (c) no law or regulation shall prohibit, and no order, judgment
or decree of any court, arbitrator or governmental authority shall purport to
enjoin or restrain Lender from making the Advance; and

               (d) no change having a Material Adverse Effect on Borrower,
either individually or in the aggregate, shall have occurred since the date of
the Agreement.

                                            HYSEQ, INC.

                                            By:
                                                 -------------------------------
                                                 Name:
                                                 Title:

                                      B-1<PAGE>
                                                                   EXHIBIT 10.20

                              SETTLEMENT AGREEMENT

                                     between

                                   HYSEQ, INC.

                                       and

                                AFFYMETRIX, INC.

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

<PAGE>

                              SETTLEMENT AGREEMENT

        This Settlement Agreement (this "AGREEMENT") is entered into this 24th
day of October, 2001 (the "Effective Date") by and between Hyseq, Inc., a Nevada
corporation ("HYSEQ") and Affymetrix, Inc., a Delaware corporation
("AFFYMETRIX") (each a "PARTY," collectively the "PARTIES").

W I T N E S S E T H:

        WHEREAS, Hyseq and Affymetrix have had various disputes which in part
have led to the commencement of certain litigation matters, including but not
limited to Hyseq, Inc., Plaintiff/Counterdefendant v. Affymetrix, Inc.,
Defendant/Counterclaimant, Case No. C 97-20188 RMW (ENE), United States District
Court, Northern District of California, San Jose Division; Affymetrix, Inc.,
Plaintiff v. Hyseq, Inc., Defendant, Case No C 99-21163 JF, United States
District Court, Northern District of California, San Jose Division; and Hyseq,
Inc., Plaintiff/Counterdefendant v. Affymetrix, Inc., Defendant/Counterclaimant,
Case No. C 00-20050 RMW, United States District Court, Northern District of
California, San Jose Division (collectively, the "MATTERS"); and

        WHEREAS, the Parties desire to reach an amicable resolution of the
Matters in an efficient and expeditious manner; and

        WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Hyseq and Affymetrix have entered into the [***] and certain Related
Agreements (as such term is defined in the [***]) (collectively the "RELATED
AGREEMENTS");

        NOW THEREFORE, for and in consideration of the promises contained herein
and in the Related Agreements, and for other good and valuable consideration,
the sufficiency of which is hereby acknowledged, the Parties agree as follows:

1. Definitions. For purposes of this Agreement, the following terms have the
meanings hereinafter indicated:

        "AFFYMETRIX PATENTS" means the Affymetrix Patents-In-Suit, all patents
and/or patent applications claiming priority to or common priority with the
Patents-In-Suit; all foreign counterparts of such Patents-In-Suit, patents, and
/or patent applications; all continuations, continuations-in-part and
divisionals of such patents-in-suit, patents, and/or patent applications; and
all reissues and re-examinations of any of the foregoing; and all patents
issuing from such patent applications.

        "AFFYMETRIX PATENTS-IN-SUIT" means U.S. Patent Nos. 5,795,716, 5,744,305
and 5,800,992.

        "AFFILIATES" means any present or former company, partnership,
corporation or like entity, in any country, which, directly or indirectly (i)
wholly or substantially owns or controls an entity, directly or indirectly, or
(ii) is wholly or substantially owned or controlled by that entity, directly or
indirectly. As used herein, substantial ownership or control includes, but is
not limited to, ownership or control of more than fifty percent (50%) of the

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

                                       1
<PAGE>

voting stock or equity of an entity or effective management control by contract
or otherwise. Affiliates that may become affiliated in the future are explicitly
excluded from this definition.

        "CLAIMS" means any and all causes of action, demands, agreements,
contracts, covenants, representations, warranties, promises, undertakings,
actions, obligations, controversies, debts, costs, expenses, attorneys' fees,
expert witness fees, court costs, accounts, damages, losses, injuries and
liabilities, of whatever kind or nature, in law, equity, administrative
proceeding, or otherwise, present and future, whether known or unknown,
suspected or unsuspected, for or by reason of any matter, cause or thing
whatsoever from the beginning of time through and including the date hereof,
whether sounding in contract, tort or otherwise.

        "HYSEQ PATENTS" means the Hyseq Patents-In-Suit, all patents and/or
patent applications claiming priority to or common priority with the
Patents-In-Suit; all foreign counterparts of such Patents-In-Suit, patents, and
/or patent applications; all continuations, continuations-in-part and
divisionals of such patents-in-suit, patents, and/or patent applications; and
all reissues and re-examinations of any of the foregoing; and all patents
issuing from such patent applications.

        "HYSEQ PATENTS-IN-SUIT" means U.S. Patent Nos. 5,202,231, 5,525,464,
5,695,940, 6,018,041 and 5,972,619.

        "MATTERS" has the meaning specified in the Recitals, above.

        "PTO" means the United States Patent and Trademark Office.

2.      Representations, Warranties, and Indemnities.

        2.1 Each of Hyseq and Affymetrix represents and warrants to the other
that, as of the date hereof, it is a corporation, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority, corporate or otherwise,
to execute, deliver and perform this Agreement. This Agreement is a legal, valid
and binding obligation enforceable against each of Affymetrix and Hyseq in
accordance with its terms and conditions, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws, from time to time in effect, affecting creditors rights generally.

        2.2 Hyseq represents and warrants to Affymetrix that it is the exclusive
owner of the Hyseq Patents and has the sole and exclusive right to assert each
of the Hyseq Patents without limitation, free and clear of any and all claims,
rights, liens or encumbrances of any nature whatsoever, including any claims of
any university or other educational institution or any governmental agency, and
has the full right and authority to license or assign such Patents.

        2.3 Affymetrix represents and warrants to Hyseq that it is the exclusive
owner of the Affymetrix Patents and has the sole and exclusive right to assert
each of the Affymetrix

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

                                       2
<PAGE>

Patents without limitation, free and clear of any and all claims, rights, liens
or encumbrances of any nature whatsoever, including any claims of any university
or other educational institution or any governmental agency, and has the full
right and authority to license or assign such Patents.

        2.4 Except for the representations and covenants expressly set forth in
this Agreement and the Related Agreements, no Party has made any statement or
representation to any other Party regarding a fact relied upon by the other
Party in entering into this Agreement or the Related Agreements and no Party has
relied upon any statement, representation, or promise of any other Party, or of
any representative or attorney for any other Party, in executing this Agreement
or in making the settlement provided for in this Agreement and the Related
Agreements.

        2.5 Each Party to this Agreement represents and warrants that it has not
assigned or transferred any portion of the Claims being released hereunder to
any other person, individual, firm, corporation or entity, and that no other
person, individual, firm, corporation or entity has any lien, right, claim or
interest in any such Claims. Furthermore, each Party represents and warrants
that this Agreement and the Related Agreements do not and shall not conflict
with or constitute a default under the terms, conditions or provisions of its
charter documents or any other agreement, understanding or commitment of such
Party nor is the authorization, consent or approval of any other person or
entity required for the execution and performance hereof. Without limiting the
generality of the foregoing, Hyseq represents and warrants that nothing
contained in this Settlement Agreement or the Related Agreements conflicts with
or constitutes a default under the terms, conditions, or provisions of [***].
Each Party to this Agreement shall indemnify, defend, and hold harmless any
other Party to [***] this Agreement from and against any and all of such Claims
arising out of, related to, or connected with any prior assignment or transfer,
or any purported assignment or transfer, of any of such Claims or the breach of
any other representation in this Section 2.

3.      Mutual Release of Claims.

        3.1 Release by Hyseq. Hyseq, on behalf of itself and its present and
former officers, directors, employees, agents, attorneys, assigns, predecessors,
subsidiaries, Affiliates, divisions and successors-in-interest (collectively,
the "HYSEQ RELEASING PARTIES"), does hereby forever and irrevocably release,
acquit, and discharge, and covenant not to sue or bring or maintain any Claim,
action or proceeding against, Affymetrix, its present and former officers,
directors, employees, predecessors, subsidiaries, Affiliates and divisions (the
"AFFYMETRIX RELEASED PARTIES") and/or any of them, from or regarding any and all
Claims that the Hyseq Releasing Parties have, had, or may have against any of
the Affymetrix Released Parties arising up to the Effective Date. This release
includes, without limitation, any Claims asserted in the Matters, any Claims
relating to the filing or prosecution of the Matters, and any other Claims
whatsoever, whether arising from negligent or intentional acts or omissions or
otherwise. Hyseq, for itself and the other Hyseq Releasing Parties, also hereby
forever and irrevocably releases, acquits, and discharges, and covenants not to
sue or bring or maintain any Claim, action or proceeding against, any [***] of
the Affymetrix Released Parties and/or any of them, from or regarding any and
all Claims

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

                                       3
<PAGE>

that the Hyseq Releasing Parties have, had, or may have against any of them
exclusively arising out of their making, using, importing, selling, or offering
to sell any Affymetrix [***] product up to the Effective Date.

        3.2 Release by Affymetrix. Affymetrix, on behalf of itself and its
present and former officers, directors, employees, agents, attorneys, assigns,
predecessors, subsidiaries, Affiliates, divisions and successors-in-interest
(collectively, the "AFFYMETRIX RELEASING PARTIES"), does hereby forever and
irrevocably release, acquit, and discharge, and covenant not to sue or bring or
maintain any Claim, action or proceeding against, Hyseq, its present and former
officers, directors, employees, predecessors, subsidiaries, Affiliates and
divisions (the "HYSEQ RELEASED PARTIES") and/or any of them, from or regarding
any and all Claims that the Affymetrix Releasing Parties have, had, or may have
against any of the Hyseq Released Parties arising up to the Effective Date. For
purposes of this release provision, [***]. This release includes, without
limitation, any Claims asserted in the Matters, any Claims relating to the
filing or prosecution of the Matters, and any other Claims whatsoever, whether
arising from negligent or intentional acts or omissions or otherwise.
Affymetrix, for itself and the other Affymetrix Releasing Parties, also hereby
forever and irrevocably releases, acquits, and discharges, and covenants not to
sue or bring or maintain any Claim, action or proceeding against, any [***] of
the Hyseq Released Parties and/or any of them, from or regarding any and all
Claims that the Affymetrix Releasing Parties have, had, or may have against any
of them exclusively arising out of their making, using, importing, selling, or
offering to sell any Hyseq [***] product up to the Effective Date.

        3.3 Section 1542 Waiver. Affymetrix and Hyseq have each been fully
advised by its respective attorneys of the contents and meaning of Section 1542
of the Civil Code of the State of California, which reads as follows:

               "SECTION 1542. (GENERAL RELEASE- CLAIMS EXTINGUISHED.) A GENERAL
               RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
               KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
               THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
               HIS SETTLEMENT WITH THE DEBTOR."

        Affymetrix and Hyseq each expressly waive and relinquish all rights and
benefits under Section 1542, and any similar law or common law principle of
similar effect of any state or territory of the United States and any foreign
jurisdiction, with respect to the Claims released hereby, and expressly consent
that this Agreement will be given full force and effect according to each and
all of its express terms and provisions, including with respect to the release
of any claims that are unknown or unsuspected that Affymetrix or Hyseq may have
against each other.

        3.4 Finality of Waiver. The Parties hereby expressly and knowingly
acknowledge that each may, after execution of this Agreement, discover facts
different from or in addition to those which each knows or believes to be true
with respect to the claims released in this Agreement. Nonetheless, each Party
agrees that this Agreement shall be and remain in full force and effect in all
respects, notwithstanding such different or additional

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

                                       4
<PAGE>

facts. It is the intention hereby fully, finally, and forever to settle all such
matters, and release any and all Claims relating to those matters, which do now
exist or previously have existed by and among the Parties. In furtherance of
such intention, the releases given in this Agreement shall be and remain in
effect as full and completed releases of such Matters, notwithstanding the
discovery by any of the Parties of the existence of any additional or different
Claims or facts relating to the Claims. Similarly, in entering into this
Agreement, each Party assumes the risk of mistake, and if any Party should
subsequently discover that any fact it relied upon in entering into this
Agreement was untrue, or that its understanding of the facts or law was
incorrect, such Party shall not be entitled to set aside this Agreement or be
entitled to recover any damages on that account unless the mistake was due to an
intentional misrepresentation by the other Party. This Agreement, and the
Releases it contains, is intended, pursuant to the advice of independently
selected legal counsel, to be final and binding between and among the Parties to
this Agreement regardless of any claims of mistake of fact or law or of any
other circumstances whatsoever.

        3.5 The Releases provided for in this Section 3 shall survive the
termination of this Agreement and the termination of any or all of the Related
Agreements. No dispute or claimed breach of any of such Agreements nor failure
of consideration nor the inadequacy of the remedies therefor shall in any way
affect the full enforceability of such releases which the parties acknowledge
and agree are final, binding and not subject to termination or modification
after the Effective Date.

4.      Dismissal with Prejudice/Withdrawal.

        4.1 Each of Affymetrix and Hyseq acknowledges and agrees that the
Patents-In-Suit asserted by the other Party are valid and enforceable, except as
otherwise determined by the Court or the PTO.

        4.2 The Parties agree that they jointly will within two days of the
Effective Date sign and file with the United States District Court for the
Northern District of California, (i) a Stipulation and Proposed Order of
Dismissal and Final Judgment substantially in the form attached hereto as
Exhibit A in Cases No. 97-20188 and 00-20050 and (ii) a Stipulation and Proposed
Order of Dismissal and Final Judgment substantially in the form attached hereto
as Exhibit B in Case No. 99-21163.

        4.3 Affymetrix and Hyseq mutually agree to settle the interference
proceedings titled Chee v. Drmanac, Interference No. 104,552 in the form
attached hereto as Exhibit C.

        4.4 In the event that the Court declines to enter the Final Judgments in
substantially the forms set forth in Exhibits A and B, each Party shall have the
right for a period of seven (7) days to terminate this Agreement and the Related
Agreements.

        4.5 The Parties represent and warrant that there are no adverse
proceedings between them that are filed, pending or planned other than the
Matters and Interference No. 104,552. It is the intention of the Parties to
settle all outstanding disputes between them. If any pending adverse proceeding
was omitted from the Matters, the parties intend to settle

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

                                       5
<PAGE>

any such litigation, proceeding or action and therefore agree to take all
necessary steps to withdraw from, discontinue, terminate or dismiss such omitted
adverse proceeding.

        4.6 (a) Hyseq has reviewed and analyzed the Affymetrix Patents-In Suit,
and agrees that it will not in the future, directly or indirectly, oppose,
contest, or dispute the priority, validity or enforceability of any Affymetrix
Patents in any United States or foreign court, agency, or other tribunal, now or
in the future, and that it will not seek reexamination or modification of any
Affymetrix Patents. Hyseq agrees not to actively seek [***] interferences with
[***]. Hyseq further agrees that it [***].

               (a) Affymetrix has reviewed and analyzed the Hyseq
Patents-In-Suit, and agrees that it will not in the future, directly or
indirectly, oppose, contest, or dispute the priority, validity or enforceability
of any Hyseq Patents in any United States or foreign court, agency, or other
tribunal, now or in the future, and that it will not seek reexamination or
modification of any Hyseq Patents. Affymetrix agrees not to actively seek [***]
interferences with [***]. Affymetrix further agrees that it [***].

5.      Miscellaneous.

        5.1 The Parties agree to keep the terms of this Agreement confidential,
and agree not to disclose the terms of this Agreement, except pursuant to a
mutually-agreed press release, and except as may be (i) necessary for the
purpose of enforcing any provision of this Agreement, or (ii) lawfully required
by any governmental agency. Notwithstanding the foregoing, both Parties may
agree to inform any court with jurisdiction over a Matter of the existence of a
settlement and the Parties may file this Agreement and any other related
agreements in the PTO as required under 35 U.S.C. Section 135(c). If this
Agreement or any of the Related Agreements is sought in discovery, the Party
responding to discovery shall promptly notify all Parties and shall do
everything possible to maintain the confidentiality of the Agreement.

        5.2 Each Party represents and acknowledges that it has read this
Agreement and fully understands and agrees to its terms, and that each Party has
been represented by counsel in connection with the negotiation and execution of
this Agreement.

        5.3 This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.

        5.4 The Parties agree that this Agreement will be governed by and
construed in accordance with the internal laws of the State of California
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of laws principles of such State.

        5.5 This Agreement and the Related Agreements contain the entire set of
agreements among the Parties with respect to the matters contained herein, and
may be amended only by written agreement signed by the Parties to the Agreement.
The provisions of all of such agreements shall be construed together so as to
give effect to the provisions of each of the agreements to the greatest extent
possible, except that under no circumstances

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

                                       6
<PAGE>

will the releases granted to the Parties in Section 3 above be terminated or
modified in any manner whatsoever.

        5.6 This Agreement is intended only for the benefit of the Parties
hereto, the Hyseq Released Parties and the Affymetrix Released Parties, and the
beneficiaries expressly referenced in this Agreement. No other person or entity
is entitled to any rights or benefits hereunder.

        5.7 Each Party shall perform any further acts, and sign and deliver any
further instruments and documents, as may be required to accomplish the purposes
of this Agreement; provided, however, that nothing in this provision shall be
interpreted to modify any of the specific terms of this Agreement.

        5.8 Any notice, requests, delivery, approval or consent required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been sufficiently given if delivered in person, transmitted by
commercial overnight courier, or transmitted by telex telegram or telecopy
(facsimile, with confirmed receipt) to the Party to whom it is directed at its
address shown below or such other address as such Party shall have last given by
notice to the other Party (referred to herein as "NOTICE"). All notices shall be
effective upon receipt.

               If to Hyseq, addressed to:

               Hyseq, Inc.
               675 Almanor Ave.
               Sunnyvale, CA 94085
               Attn: General Counsel
               Fax: (408) 524-8145

               If to Affymetrix, addressed to:

               Affymetrix, Inc.
               3380 Central Expressway
               Santa Clara, California 95051
               Attn: General Counsel
               Fax: (408) 481-4709

        5.9 Neither Party shall assign any of its rights or obligations
hereunder without the prior, written consent of the other Party, which other
Party may [***], except that no such consent shall be required with respect to a
merger, consolidation, reorganization, sale of stock or sale or transfer of
substantially all of the business and assets of a Party related to the Matters,
provided that [***]. This Agreement shall be binding upon the permitted
successors and permitted assigns of the Parties. Any assignment not in
accordance with the above shall be void.

        5.10 The prevailing Party in any action to enforce this Agreement will
be entitled to recover its attorneys fees and costs in connection with such
action.

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

                                       7
<PAGE>

        5.11 In the event that one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable in any respect, such provision
will nevertheless remain valid, legal and enforceable in all other respects and
to such extent as may be permissible. In addition, any such invalidity,
illegality or unenforceability will not affect any other provision hereof, and
this Agreement will be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.

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

                                       8
<PAGE>

        IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed in counterparts as of the date first written above.

                                        AFFYMETRIX, INC.

                                        By: /s/ Barbara A. Caulfield
                                            ------------------------------------
                                            Name:  Barbara A. Caulfield
                                                   -----------------------------
                                            Title: Executive Vice President and
                                                   General Counsel
                                                   -----------------------------

                                        HYSEQ, INC.

                                        By: /s/ Ted Love
                                            ------------------------------------
                                            Name: Ted Love
                                                   -----------------------------
                                            Title: President and Chief Executive
                                                   Officer
                                                   -----------------------------

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

                                       9
<PAGE>

                                   Exhibit A

MARSHALL, O'TOOLE, GERSTEIN, MURRAY & BORUN
Kevin M. Flowers, Ph.D. (Ill. Bar No. 06242895)
William K. Merkel, Ph.D. (Ill. Bar No. 06225636)
6300 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606-6402

Attorneys for Plaintiff/Counterdefendant Hyseq, Inc.

IRELL & MANELLA LLP
Morgan Chu (SBN 70446)
Richard de Bodo (SBN 128199)
Jeffrey L. Arrington  (SBN 139435)
1800 Avenue of the Stars
Los Angeles, California 90067-4276

Attorneys for Defendant/Counterclaimant Affymetrix, Inc.

                          UNITED STATES DISTRICT COURT
                         NORTHERN DISTRICT OF CALIFORNIA
                                SAN JOSE DIVISION

HYSEQ, INC.,                                   Case No. C 97-20188 RMW (ENE)

               Plaintiff/Counterdefendant,     Case No. C 00-20050 RMW

        v.                                     STIPULATION AND PROPOSED ORDER OF

AFFYMETRIX, INC.,                              DISMISSAL AND FINAL  JUDGMENT

               Defendant/Counterclaimant.

                                               Honorable Ronald M. Whyte

                                           STIPULATION OF DISMISSAL AND JUDGMENT
                               CASE NOS. C 97-20188 RMW (ENE) AND C 00 20050 RMW

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

<PAGE>

               Plaintiff and Counterdefendant Hyseq, Inc. ("Hyseq") and
Defendant and Counterclaimant Affymetrix, Inc. ("Affymetrix") have entered into
a confidential settlement which provides a basis for settlement and judgment of
the claims and counterclaims in these actions. Pursuant to this settlement,
Hyseq and Affymetrix, by and through their respective counsel, hereby stipulate
to the dismissal with prejudice and conclusion of all claims and counterclaims
in these actions.

               The Court having duly deliberated thereon,

               IT IS HEREBY ORDERED, ADJUDGED AND DECREED that final judgment is
hereby entered as follows:

               1. The parties admit that all claims of the asserted patents are
valid and enforceable.

               2. This Court shall retain jurisdiction over the implementation
of or disputes arising out of the parties' settlement, including the
jurisdiction to order any appropriate remedy under law or equity. The settlement
also encompasses another case involving the parties, Affymetrix, Inc. v. Hyseq,
Inc., Case No. C 99-21163 JF.

               3. Case Nos. C 97-20188 RMW and C 00-20050 are dismissed with
prejudice.

               4. Each party shall bear its own attorneys' fees and costs of
suit.

Dated:                             MARSHALL, O'TOOLE, GERSTEIN, MURRAY & BORUN
      --------------------

                                   By:
                                      ------------------------------------------
                                      Kevin M. Flowers Ph.D.
                                      Attorneys for Plaintiff/Counterdefendant
                                      Hyseq, Inc.

Dated:                             IRELL & MANELLA LLP
      --------------------

                                   By:
                                      ------------------------------------------
                                      Richard de Bodo
                                      Attorneys for Defendant/Counterclaimant
                                      Affymetrix, Inc.

IT IS SO ORDERED.

DATED:
      --------------------

                                   ---------------------------------------------
                                      Honorable Ronald M. Whyte
                                      United States District Judge

                                           STIPULATION OF DISMISSAL AND JUDGMENT
                               CASE NOS. C 97-20188 RMW (ENE) AND C 00 20050 RMW

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

<PAGE>

                                   Exhibit B

IRELL & MANELLA LLP
Morgan Chu (SBN 70446)
Richard de Bodo (SBN 128199)
Jeffrey L. Arrington  (SBN 139435)
1800 Avenue of the Stars
Los Angeles, California  90067-4276

Attorneys for Plaintiff Affymetrix, Inc.

MARSHALL, O'TOOLE, GERSTEIN, MURRAY & BORUN
Kevin M. Flowers, Ph.D. (Ill. Bar No. 06242895)
William K. Merkel, Ph.D. (Ill. Bar No. 06225636)
6300 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606-6402

Attorneys for Defendant Hyseq, Inc.

                          UNITED STATES DISTRICT COURT
                         NORTHERN DISTRICT OF CALIFORNIA
                                SAN JOSE DIVISION

AFFYMETRIX, INC.,                              Case No. C 99-21163 JF

               Plaintiff,                      STIPULATION AND PROPOSED ORDER OF

        v.                                     DISMISSAL AND FINAL  JUDGMENT

HYSEQ, INC.,

               Defendant.                      Honorable Jeremy Fogel

                                           STIPULATION OF DISMISSAL AND JUDGMENT
                                                          CASE NO. C 99-21163 JF

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

<PAGE>

               Plaintiff Affymetrix, Inc. ("Affymetrix") and Defendant Hyseq,
Inc. ("Hyseq") have entered into a confidential settlement which provides a
basis for settlement and judgment of the claims in this action. Pursuant to the
settlement, Affymetrix and Hyseq, by and through their respective counsel,
hereby stipulate to the dismissal with prejudice and conclusion of all claims in
this action, with each party to bear its own attorneys' fees and costs of suit.

               The Court having duly deliberated thereon,

               IT IS HEREBY ORDERED, ADJUDGED AND DECREED that final judgment is
hereby entered as follows:

               1. The parties admit that all claims of the asserted patents are
valid and enforceable.

               2. The Court, Honorable Ronald M. Whyte, shall retain
jurisdiction over the implementation of or disputes arising out of the parties'
settlement, including the jurisdiction to order any appropriate remedy under law
or equity. The settlement also encompasses two other cases involving the
parties, Hyseq, Inc. v. Affymetrix, Inc., Case No. C 97-20188 RMW (ENE) and
Hyseq, Inc. v. Affymetrix, Inc., Case No. C 00-20050 RMW.

               3. Case No. C 99-20163 is dismissed with prejudice.

               4. Each party shall bear its own attorneys' fees and costs of
suit.

Dated:                             IRELL & MANELLA LLP
      --------------------

                                   By:
                                      ------------------------------------------
                                        Richard de Bodo
                                        Attorneys for Plaintiff Affymetrix, Inc.

Dated:                             MARSHALL, O'TOOLE,GERSTEIN, MURRAY & BORUN
      --------------------

                                   By:
                                      ------------------------------------------
                                        Kevin M. Flowers Ph.D.
                                        Attorneys for Defendant Hyseq, Inc.

IT IS SO ORDERED.

Dated:
      --------------------

                                   ---------------------------------------------
                                        Honorable Jeremy Fogel
                                        United States District Judge

                                           STIPULATION OF DISMISSAL AND JUDGMENT
                                                          CASE NO. C 99-21163 JF

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

<PAGE>

                                    Exhibit C

                        INTERFERENCE SETTLEMENT AGREEMENT
                   (BETWEEN HYSEQ, INC. AND AFFYMETRIX, INC.)

        This Settlement of Interference Agreement is made as of this 24th day of
October, 2001 (the "Effective Date") by and among Hyseq, Inc., a Nevada
corporation (herein "Hyseq"), having a place of business in Sunnyvale, CA, and
Affymetrix, Inc., a Delaware corporation (herein "Affymetrix"), having a place
of business in Santa Clara, California.

        WHEREAS, the United States Patent and Trademark Office ("PTO") has
        declared Interference No. 104,552 between US Patent Nos. 5,795,716 and
        5,974,164 of Affymetrix, and Application No. 09/358,875 of Hyseq, in
        order to determine priority between the parties with respect to
        inventions; and

        WHEREAS, Hyseq and Affymetrix have been involved in litigation,
        opposition, interference, attempted interference and other adverse
        proceedings involving their respective patents and patent applications
        in various countries; referred to herein as "Litigation Proceedings";
        and

        WHEREAS, Hyseq and Affymetrix have resolved and settled the Litigation
        Proceedings on an amicable basis and have entered into a Settlement
        Agreement, which agreement includes a provision that the parties will
        enter into a Interference Settlement Agreement to resolve Interference
        No. 104,552.

        Hyseq and Affymetrix do hereby agree as follows:

        1.     PRELIMINARY MOTIONS

               1.1    The parties agree that no preliminary motions or
                      preliminary statements will be filed in this interference.

        2.     TERMINATION OF INTERFERENCE

               2.1    On or before November 15, 2001 Hyseq, through its
                      attorneys, shall file an abandonment of contest in
                      Interference No. 104,552.

        3.     FUTURE INTERFERENCES

               3.1    Affymetrix agrees not to actively seek [***] interferences
                      with [***].

               3.2    Hyseq agrees not to actively seek [***] interferences with
                      [***].

               3.3    The parties are [***].

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

<PAGE>

        4.     FILING OF AGREEMENT

               4.1    Promptly after this agreement is executed by both parties
                      Affymetrix will file a copy of this Interference
                      Settlement Agreement and all collateral agreements with
                      the PTO as required by 35 U.S.C. Section 135(c) and 37
                      C.F.R. Section 1.666(b), requesting that the copies of
                      this Interference Settlement Agreement and any collateral
                      agreement filed therewith be held separate from the file
                      of the interference, and made available only to Government
                      agencies upon written request, or to any person upon
                      petition and showing of good cause. In the event that such
                      a written request is made or such a petition is filed, it
                      is respectfully requested that the persons identified
                      below be notified before such request or petition is
                      granted:

               Edward J. Keeling, Esq.                Michael R. Weiner
               Townsend and Townsend and Crew LLP     Marshall, Gerstein & Borun
               Two Embarcadero Center, 8th Floor      6300 Sears Tower
               8th Floor                              233 South Wacker Drive
               San Francisco, CA 94111-3834           Chicago, IL 60606-6402
               Phone: (415) 576-0200                  Phone: (312) 474-6300
               Fax: (415) 576-0300                    Fax: (312) 474-0448

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

                                       2
<PAGE>

               IN WITNESS WHEREOF, the parties have caused this Interference
Settlement Agreement to be executed by their authorized officials.

               AGREED TO:

Hyseq, Inc.

By:
   -------------------------------------

----------------------------------------
Printed Name

----------------------------------------
Title

----------------------------------------
Date

Affymetrix, Inc.

By:
   -------------------------------------

----------------------------------------
Printed Name

----------------------------------------
Title

----------------------------------------
Date

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

                                        3

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