10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

OR

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _________

Commission File Number 000-22873

NUVELO, INC.

(Exact Name of Registrant as Specified in Its Charter)

NEVADA
(State or Other Jurisdiction of
Incorporation or Organization) 36-3855489
(I.R.S. Employer
Identification Number)

675 ALMANOR AVENUE, SUNNYVALE, CA 94085
(Address of Principal Executive Offices, including Zip Code)

408-215-4000
(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]       No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X]       No [  ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Number of Shares Outstanding
Common Stock $0.001 par value	On July 31, 2003: 63,831,329

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TABLE OF CONTENTS

	ITEM 1. FINANCIAL STATEMENTS
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements Of Operations
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
EXHIBIT INDEX
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

NUVELO, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2003

TABLE OF CONTENTS

		PAGE
Part I	Financial Information
	Item 1. Financial Statements (unaudited)		3
	Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002		3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and 2002		4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002		5
	Notes to Condensed Consolidated Financial Statements		6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
	Item 3. Quantitative and Qualitative Disclosures about Market Risk		24
	Item 4. Controls and Procedures		24
Part II	Other Information
	Item 1. Legal Proceedings		25
	Item 2. Change in Securities and Use of Proceeds		25
	Item 3. Defaults Upon Senior Securities		25
	Item 4. Submission of Matters to a Vote of Security Holders		25
	Item 5. Other Information		26
	Item 6. Exhibits and Reports on Form 8-K		26
Signature			27

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ITEM 1.   FINANCIAL STATEMENTS

NUVELO, INC.
Condensed Consolidated Balance Sheets
(unaudited)

				June 30,			December 31,
				2003			2002
				(in thousands, except share data)
		ASSETS
Cash & cash equivalents				$	20,542		$	2,225
Short-term investments					6,034			—
Accounts receivable					355			632
Other current assets					2,357			3,025
	Total Current Assets				29,288			5,882
Restricted cash					2,612			1,106
Equipment, leasehold improvements and capitalized software, net					14,979			15,142
Purchase option deposit					—			2,800
Patents, licenses and other assets, net					2,156			2,142
	Total Assets				49,035			27,072
			LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Accounts payable					2,912			2,235
Accrued professional fees					400			1,240
Accrued license fee					—			1,775
Line of credit					11,000			10,000
Deferred rent					5,388			3,838
Short term note payable					—			2,600
Other current liabilities					3,262			3,181
Deferred revenue					—			525
Current portion of capital lease and loan obligations					2,200			1,216
	Total Current Liabilities				25,162			26,610
Noncurrent portion of capital lease and loan obligations					2,013			1,026
Note payable, long term					6,600			4,000
	Total Liabilities				33,775			31,636
Preferred stock, par value $0.001; 8,000,000 shares authorized; none issued and outstanding as of June 30, 2003 and December 31, 2002					—			—
Common stock, par value $0.001; 100,000,000 shares authorized; 63,667,334 and 23,100,657 shares issued and outstanding as of June 30, 2003 and December 31, 2002, respectively					64			23
Additional paid-in capital					198,449			148,791
Accumulated other comprehensive income					11			—
Deferred stock compensation					(2	)		(6	)
Accumulated deficit					(183,262	)		(153,372	)
	Total stockholders’ equity (deficit)				15,260			(4,564	)
	Total liabilities and stockholders’ equity			$	49,035		$	27,072

See accompanying notes to condensed consolidated financial statements.

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NUVELO, INC.
Condensed Consolidated Statements Of Operations
(in thousands, except per share data)
(unaudited)

	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30,						JUNE 30,
	2003			2002			2003			2002
Contract revenues	$	394		$	6,661		$	1,678		$	11,893
Operating expenses:
Research and development		7,270			10,740			18,072			31,754
General and administrative		7,675			3,165			11,523			6,223
Restucturing		—			610			—			610
Loss on sale of fixed assets		1,518			—			1,562			—
Total operating expenses		16,463			14,515			31,157			38,587
Loss from operations		(16,069	)		(7,854	)		(29,479	)		(26,694	)
Realized gain on investment		—			—			40			—
Interest income		151			40			300			70
Interest expense		(390	)		(254	)		(751	)		(512	)
Net loss before minority interest		(16,308	)		(8,068	)		(29,890	)		(27,136	)
Loss attributable to minority interest		—			—			—			112
Net loss	$	(16,308	)	$	(8,068	)	$	(29,890	)	$	(27,024	)
Basic and diluted net loss per share	$	(0.26	)	$	(0.37	)	$	(0.53	)	$	(1.32	)
Shares used in computing basic and diluted net loss per share		63,149			22,055			56,430			20,399

See accompanying notes to condensed consolidated financial statements.

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NUVELO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

		SIX MONTHS ENDED
		JUNE 30,
		2003			2002
NET CASH USED IN OPERATING ACTIVITIES		$	(24,379	)	$	(16,277	)
Cash flows from investing activities:
Purchases of property and equipment			(202	)		(1,630	)
Maturities of short-term investments			17,536			—
Cash received in conjunction with the acquisition of Variagenics, net of merger costs			25,715			—
Proceeds from sale of fixed assets			78			38
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			43,127			(1,592	)
Cash flows from financing activities:
Payment on capital lease and loan obligations			(1,175	)		(1,279	)
Proceeds from drawdown on line of credit			1,000			4,000
Cash restricted for Letters of Credit			(756	)		—
Proceeds from issuance of common stock, net of issuance costs			—			14,266
Proceeds from issuance of common stock upon exercise of options/ESPP			500			387
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES			(431	)		17,374
Net increase (decrease) in cash			18,317			(495	)
Cash and cash equivalents at beginning of period			2,225			12,329
Cash at end of period		$	20,542		$	11,834
Supplemental disclosures of cash flow information:
	Fair value of common stock, stock options and warrants issued and exchanged in connection with the acquisition of Variagenics	$	48,768		$	—

See accompanying notes to condensed consolidated financial statements.

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NUVELO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)

1.   Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared by Nuvelo, Inc. (“Nuvelo,” the “Company,” “we,” “us,” or “our”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying financial information is unaudited, but includes all adjustments (consisting of normal recurring adjustments) which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. Unless otherwise indicated, the discussions in this report of the results of operations for the three and six months ended June 30, 2003 and financial condition at June 30, 2003 include the results of operations of Variagenics commencing from February 1, 2003. The condensed consolidated balance sheet as of December 31, 2002 is derived from the Company’s audited financial statements. The condensed consolidated financial statements include the accounts of the Company’s majority-owned subsidiary Callida Genomics, Inc. The results of operations for the interim period shown herein are not necessarily indicative of operating results expected for the entire year.

2.   Stock-Based Compensation

     In accordance with the provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), “Accounting for Stock-Based Compensation” as amended by SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure,” the Company has elected to account for stock-based compensation to employees under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations, and to adopt the “disclosure only” alternative described in SFAS No. 123 as amended by SFAS No. 148. The Company’s pro forma information follows (in thousands, except for per share information):

	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002			2003			2002
Net loss as reported	$	(16,308	)	$	(8,068	)	$	(29,890	)	$	(27,024	)
Add: Stock-based employee compensation expense included in reported net income, net of related tax effect		27			—			56			—
Deduct: Total stock-based employee compensation expense determined under fair value base method, net of related tax effects		(1,485	)		(2,531	)		(2,843	)		(5,403	)
Pro forma net loss		(17,766	)		(10,599	)		(32,677	)		(32,427	)
Basic and diluted net loss per share as reported		(0.26	)		(0.37	)		(0.53	)		(1.32	)
Pro forma basic and diluted net loss per share		(0.28	)		(0.48	)		(0.58	)		(1.59	)

3.   Segment Information

     The Company is engaged in research and development of novel biopharmaceutical protein-based products for the treatment of human disease from its collection of proprietary genes discovered using its high-throughput signature-by-hybridization platform. Reportable segments reflect the Company’s structure, reporting responsibilities to the chief executive officer and the nature of the products under development. Reportable segments are Nuvelo Inc., which develops and intends to market therapeutic drugs for the treatment of human diseases; and Callida Genomics, Inc., which develops and intends to commercialize the sequencing-by-hybridization (SBH) technology including the high-speed DNA sequencing chip. Segment operating results are measured based on net loss before tax. There are no inter-segment sales.

RECONCILIATION OF REPORTABLE SEGMENTS’ FINANCIAL INFORMATION
(in thousands)

	THREE MONTHS ENDED									SIX MONTHS ENDED
	JUNE 30, 2003									JUNE 30, 2003
	Nuvelo			Callida			Total			Nuvelo			Callida			Total
Contract revenues	$	198		$	196		$	394		$	957		$	721		$	1,678
Loss from operations		(15,085	)		(984	)		(16,069	)		(26,784	)		(2,695	)		(29,479	)
Net loss		(15,324	)		(984	)		(16,308	)		(27,195	)		(2,695	)		(29,890	)
	THREE MONTHS ENDED									SIX MONTHS ENDED
	JUNE 30, 2002									JUNE 30, 2002
	Nuvelo			Callida			Total			Nuvelo			Callida			Total
Contract revenues	$	6,161		$	500		$	6,661		$	11,378		$	515		$	11,893
Loss from operations		(6,733	)		(1,121	)		(7,854	)		(24,001	)		(2,693	)		(26,694	)
Net loss		(6,947	)		(1,121	)		(8,068	)		(24,331	)		(2,693	)		(27,024	)
	JUNE 30, 2003									DECEMBER 31, 2002
	Nuvelo			Callida			Total			Nuvelo			Callida			Total
Total assets	$	46,450		$	2,585		$	49,035		$	22,739		$	4,333		$	27,072

     The primary sources of the Nuvelo segment revenues in 2003 are amortization of Affymetrix license fee revenue, the license revenue from Celera Diagnostics and the collaboration with Novartis. The primary sources of the Nuvelo segment revenues in 2002 are Affymetrix and BASF Plant Sciences. The source of the Callida segment revenues in 2003 and 2002 are primarily from the National Institute of Standards and Technology

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(NIST) grant and Agilent Technologies, respectively.

4.   Lease Amendment

     On October 25, 2002, the Company and its landlord entered into agreements to terminate the Company’s eleven-year lease for buildings located at 225, 249 and 257 Humboldt Court, Sunnyvale California (originally entered into June 23, 2000) and to grant the Company a six-month option to purchase these properties for a purchase price of $15.3 million. These agreements retroactively terminated the Company’s lease effective October 1, 2002. The Company paid a lease termination fee of $5.4 million (of which $3.1 million was already held by the landlord for prepaid rent and a security deposit). The Company paid approximately $4.5 million for the option to purchase the building, (of which $1.7 million was cash, $2.6 million was in the form of a six-month interest free promissory note guaranteed by Company’s Chairman, Dr. George B. Rathmann (Option Note), and approximately $200,000 was in the form of warrants issued to the landlord). The purchase option fee was creditable against the purchase price of the building if the option was ultimately exercised. Also, the Company was paying additional consideration of $95,000 per month commencing November 1, 2002 until the option was ultimately exercised by the Company or April 30, 2003, whichever occurred first.

     On May 9, 2003 the Company amended the lease termination agreement and terminated the option agreement. As part of this agreement the Company amended the promissory note such that the balance of $2.6 million guaranteed by the Company’s Chairman, Dr. George B. Rathmann, will be due and payable on May 1, 2005. Interest will accrue at an annual rate of 8% and the Company will pay the accrued interest of approximately $17,000 on a monthly basis. In addition, the Company provided to the landlord a warrant to purchase 200,000 shares of the Company’s common stock. The Company recognized lease termination costs totaling $3.5 million and expensed leasehold improvements of $1.5 million associated with this amended lease termination agreement in the second quarter of 2003.

5.   Merger with Variagenics, Inc

     On January 31, 2003, the Company completed its merger with Variagenics, Inc., a publicly traded company incorporated in Delaware. Variagenics developed molecular diagnostic tests by identifying genetic markers associated with response to cancer therapies, with the goal of optimizing patient care. Nuvelo and Variagenics merged because they believed the merger would benefit the stockholders of both companies by leveraging the companies’ assets and management to develop biotherapeutic, pharmacogenomic and molecular diagnostic products and accelerate revenue generation. As a result of the merger, Variagenics shareholders received 1.6451 shares of Company stock in exchange for each Variagenics share for a total of approximately 39.8 million Company shares, at an approximate purchase price of $48.6 million net of estimated transaction costs of $5.0 million which includes $2.3 million in severance and benefits expenses and $0.3 million in stock option expense for research and development and administrative employees terminated as part of the merger plan in accordance with Emerging Issues Task Force No 95-3 “Recognition of Liabilities in Connection with a Purchase Business Combination”. At June 30, 2003 the company had paid $1.2 million of the $2.3 million in accrued severance and benefits expense, resulting in an accrued severance of $1.1 million which is expected to be paid by December 15, 2003. In determining the Variagenics purchase price, Nuvelo (formerly Hyseq) used the estimated value of Hyseq common stock of approximately $1.16 per share based upon the average closing price of Hyseq common stock the two trading days before the merger announcement and the two trading days after the merger announcement.

     The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price was based, in part, on a third party valuation of the fair value of identifiable intangible assets. The Company incurred additional liabilities of $1.2 million in the second quarter of 2003 for additional severance costs as part of its plan to shutdown the Cambridge facility and monetize non core assets acquired in the merger. The table has been updated to reflect these additional liabilities. The Company is in the process of evaluating the value of the property and equipment; thus, the allocation for the purchase price is subject to refinement.

		At January 31, 2003
		(dollars in thousands)
Assets:
	Cash, cash equivalents and short term investments	$	50,867
	Restricted cash		750
	Other current assets		846
	Property and equipment		5,431
	Intangible assets		300
	Capitalized merger costs		3,379
	Total assets acquired		61,573
Liabilities:
	Accounts payable and accrued liabilities		(3,762	)
	Capital lease obligations		(3,146	)
	Total liabilities assumed		(6,908	)
Fair value of net assets acquired		$	54,665

     The fair value of the net assets acquired of $54.7 million exceeded the purchase price of $53.6 million resulting in negative goodwill of $1.1 million that has been proportionately allocated between property and equipment and intangible assets in the amount of $1.0 million and $0.1 million, respectively.

     The Company has accounted for this merger under the purchase method of accounting for business combinations in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 141 “Business Combinations”. The following unaudited pro forma financial information presents the combined results of the operations of Variagenics, and the Company as if the merger had occurred on January 1, 2003 and 2002:

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	Three Months Ended June 30,						Six Months Ended June 30,
	(Dollars in thousands, except per share						(Dollars in thousands, except per share
	2003			2002			2003			2002
Contract revenues	$	394		$	6,819		$	1,717		$	12,757
Net loss		(16,308	)		(17,754	)		(33,869	)		(46,485	)
Basic and diluted net loss per		(0.26	)		(0.29	)		(0.60	)		(0.79	)

6.   Callida Restructuring

     On March 7, 2003, the Company restructured its Callida subsidiary, eliminating 18 of the subsidiary’s 25 employees. Under an ongoing severance plan, the company accrued severance related expenses of $315,000 in the first quarter of 2003, in accordance with SFAS 112 “Employers’ Accounting for Post Employment Benefits an Amendment of FASB Statement No. 5 and 43”. As of June 30, 2003 the Company has paid $277,000 in severance related expenses and has accrued severance related expenses of $38,000.

7.   Recent Accounting Pronouncements

     In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146). SFAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability is incurred. Adoption of this statement is required for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 did not have a material impact on the Company’s financial position or results of operations.

     In November 2002, the Emerging Issues Task Force reached consensus on EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00-21 sets out criteria for whether revenue on a deliverable can be recognized seperately from other deliverables in a multiple deliverable arrangement. The criteria considers whether the delivered item has stand-alone value to the customer, whether the fair value of the delivered item can be reliably determined and the rights of returns for the delivered item. EITF 00-21 must be adopted by the Company by July 1, 2003. The adoption of EITF 00-21 did not have a material impact on the Company’s financial position or results of operations.

     In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS No. 150), effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The impact upon adoption of SFAS No. 150 is not expected to have a material impact on the results of operations or the financial position of the Company.

8.   Subsequent Events

     On August 5, 2003, the Company and Dr. George Rathmann entered into a second amendment of the Amended and Restated Line of Credit Agreement to extend the expiration date set forth in the agreement in order to give the Company and Dr. Rathmann time to engage in discussions regarding potential modifications to the agreement. The original expiration date of August 5, 2003 was extended to September 5, 2003. All other terms under the Amended and Restated Line of Credit Agreement are unchanged.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words including “anticipate,” “believe,” “intends,” “estimates,” “expect,” “should,” “may,” “potential” and similar expressions. Such statements are based on our management’s current expectations and involve risks and uncertainties. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors discussed herein and elsewhere including, in particular, those factors described under “Risk Factors” set forth below, and in our other periodic reports filed from time to time with the Securities and Exchange Commission, “SEC.” Actual results and performance could also differ materially from time to time from those projected in our filings with the SEC.

Acquisition of Variagenics, Inc.

     On January 31, 2003, the Company acquired all of the outstanding common stock of Variagenics, Inc. (Variagenics) in a transaction accounted for as a purchase business combination. Variagenics applied pharmacogenomics technology to the discovery, development and commercialization of personalized drugs and molecular diagnostic products. The acquisition of Variagenics, with its cash resources, is expected to further advance Nuvelo’s most promising biopharmaceutical discovery and development programs.

     Under terms of the merger agreement, each share of Variagenics common stock outstanding at January 31, 2003 was converted into 1.6451 shares of Nuvelo, Inc. (Nuvelo), formerly Hyseq, common stock. As a result, Nuvelo issued approximately 39.8 million shares of common stock to former Variagenics shareholders. Each employee stock option to purchase Variagenics common stock outstanding at January 31, 2003 was assumed by Nuvelo and converted into an option to purchase Nuvelo common stock based on the terms specified in the merger agreement. As a result, approximately 4.7 million options to purchase Nuvelo common stock were assumed, on an as converted basis. In addition, each warrant to purchase Variagenics common stock outstanding at January 31, 2003 was assumed by Nuvelo and converted into warrants to purchase Nuvelo common stock based on the terms specified in the merger agreement. As a result, warrants to purchase approximately 2.1 million shares of Nuvelo common stock were assumed, on an as converted basis. The acquisition is expected to qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

     We were originally incorporated as Hyseq, Inc. in Illinois in 1992 and reincorporated in Nevada in 1993. Upon completion of the merger with Variagenics, Inc., we changed our name to Nuvelo, Inc. Unless otherwise indicated, the discussions in this report of the results of operations for the three and six months ended June 30, 2003 and financial condition at June 30, 2003 include the results of operations of Variagenics commencing from February 1, 2003. Comparisons are made to the results of operations for the three and six months ended June 30, 2002 and financial condition as of December 31, 2002, which include only the historical results of Nuvelo (formerly Hyseq).

Company Overview

     Our Company is strategically focused on the discovery and development of novel biotherapeutics. This strategy resulted from a careful review of all assets and programs at both Hyseq and Variagenics following the close of our merger between the two companies on January 31, 2003.

     As part of this plan, we will dedicate our resources to advancing our most promising biopharmaceutical discovery and development programs, including alfimeprase, our novel acting thrombolytic which entered Phase II trials in the first half of this year.

     We will leverage our proprietary gene collection and opportunistic in-licensing and partnering strategy to build upon our pipeline of attractive therapeutic candidates. We also intend to out-license or partner our immunotherapeutics portfolio and monetize non-core assets including our microarray business, pharmacogenomic technology and molecular diagnostic programs, to further support our biopharmaceutical development programs. Our focus is on building a successful biopharmaceutical business. This strategic initiative reflects our commitment to creating a valuable product-focused company that leverages our drug discovery and development expertise. To execute on this strategy, we will align the company’s assets and resources and efficiently manage our finances to provide our key development programs with the greatest chance of success.

     Alfimeprase, our lead development program, successfully completed its Phase I trial in the first quarter, 2003. This trial was a multi-center, open label, dose-escalation study to evaluate the safety and pharmacokinetics of alfimeprase, and was completed in twenty patients across seven centers in the United States. The results show that alfimephase was safe and well-tolerated. There were no drug related adverse events. In addition we filed an investigational new drug (IND) application for a second indication in catheter occlusion. We initiated two Phase II programs with alfimeprase in the first half of this year in both peripheral arterial occlusion and catheter occlusion and anticipate completion of at least one of these Phase II “proof-of-concept” studies by the end of 2003.

     Our current cash and investment balances resulting from our merger, anticipated business development cash inflows and our line of credit are expected to fund our operations through 2004. As of June 30, 2003, we had approximately $29.2 million in cash, cash equivalents, short-term investments and restricted cash, consisting of $26.6 million cash and investment balances available for future operations and $2.6 million in restricted cash related to collateralization of letters of credit.

     On July 8, 2003, we filed a registration statement on Form S-3 with the Securities and Exchange Commission that allows for the sale of up to $50 million of debt securities, preferred stock and/or common stock. We have not set a date for a proposed sale but we are continually evaluating our financing requirements and expect a sale of one or more of these securities in the near future.

     Our headquarters address is 675 Almanor Avenue Sunnyvale, California 94085. Our telephone number is (408) 215-4000.

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RESULTS OF OPERATIONS

Contract Revenues

Comparison of the Three Months and Six Months Ended June 30, 2003 and 2002.

     Revenues decreased to $0.4 million for the three months ended June 30, 2003 from $6.7 million for the comparable period ended June 30, 2002 due to the completion of our agricultural gene discovery collaboration with BASF Plant Science LLC in January 2003 and conclusion of our collaborations with Chiron and Agilent in 2002, partially offset by increased revenue of $0.1 million from Variagenics’ contracts and $0.2 million from Callida’s new grant obtained from the National Institute of Standards and Technology (NIST) in December 2002 .

     Revenues decreased to $1.7 million for the six months ended June 30, 2003 from $11.9 million for the comparable period ended June 30, 2002 due to the completion of our agricultural gene discovery collaboration with BASF Plant Science LLC in January 2003, conclusion of our collaboration with Chiron and Agilent in 2002, and completion of the recognition of license fee revenue associated with our Affymetrix collaboration for the development of a high speed universal DNA sequencing chip, partially offset by increased revenue of $0.1 million from Variagenics’ contracts and $0.7 million from Callida’s new NIST grant.

     Revenues earned by our Nuvelo segment were $0.2 million and $1.0 million for the three and six months ended June 30, 2003, respectively, compared to $6.2 million and $11.4 million during the same periods of 2002. Our Callida segment had revenues of $0.2 million and $0.7 million for the three and six months ended June 30, 2003, respectively, compared to $0.5 million and $0.5 million in the same periods of 2002.

     Our revenues typically vary from quarter to quarter and may result in significant fluctuations in our operating results from year to year. We expect to add additional revenue generating collaborations in 2003, however, revenues for this year will be reduced substantially as a result of the accelerated completion of our collaboration with BASF, which was completed substantially in January 2003 and accounted for approximately $21.9 million in revenue in 2002. In the future, we may not be able to maintain existing collaborations, obtain additional collaboration partners or obtain revenue from other sources. The failure to maintain existing collaborations or the inability to enter into additional collaborative arrangements or obtain revenues from other sources could have a material adverse effect on our revenues, operating results, and cash flows.

Operating Expenses

Comparison of the Three Months and Six Months Ended June 30, 2003 and 2002.

     Research and development expenses decreased to $7.3 million for the three months ended June 30, 2003 from $10.7 million for the comparable period ended June 30, 2002. The decrease was due primarily to cost savings of approximately $2.2 million as a result of completion of the BASF collaboration in January 2003, rent savings of $1.0 million related to our facility lease termination for the facility on Humboldt Court in Sunnyvale California in October 2002, and general decrease in legal expense resulting from reduced patent activities.

     Research and development expenses decreased to $18.1 million for the six months ended June 30, 2003 from $31.8 million for the comparable period ended June 30, 2002. The decrease was due primarily to cost savings from the completion of our BASF collaboration, the $10.0 million non-cash charge for the fair value of warrants issued to Amgen, Inc. in the first quarter of 2002, rent savings of $1.9 million related to our facility lease termination in October 2002, and a general decrease in legal expense resulting from reduced patent activities.

     General and administrative expenses increased to $7.7 million for the three months ended June 30, 2003 from $3.2 million for the comparable period ended June 30, 2002. The increase in general and administrative expense was primarily due to $3.5 million lease transaction costs related to our decision to not exercise the Humboldt Court facility purchase option and additional staff–related, facilities and other outside costs, including legal and accounting costs, from our acquisition of Variagenics.

     General and administrative expenses increased to $11.5 million for the six months ended June 30, 2003 from $6.2 million for the comparable period ended June 30, 2002. The increase in general and administrative expense was primarily due to $3.5 million lease transaction costs related to our decision to not exercise the Humboldt Court facility purchase option and additional general and administraive costs associated with the addition of Variagenics’ facilities and personnel.

     Our Nuvelo segment had operating expenses of $13.8 million and $26.2 million for the three and six months ended June 30, 2003, respectively, as compared to $12.9 million and $35.4 in the same periods of 2002. Our Callida segment had operating expenses of $1.2 million and $3.4 million for the three and six months ended June 30, 2003, respectively, as compared to $1.6 million and $3.2 million in the same periods of 2002.

     We expect operating expenses during the remainder of 2003 to decrease as a result of streamlining our operations post closing of our merger between Hyseq and Variagenics and as a result of our other cost control efforts including a partial hiring freeze, a freeze on capital expenditures, delay of our facilities expansion plans, and deferral of as many of our contractual financial commitments as possible. We expect that these expense reductions will be partially or completely offset by higher costs of outside clinical research services for Phase II clinical trials for alfimeprase in the second half of 2003.

Interest Income and Expense

Comparison of the Three Months and Six Months Ended June 30, 2003 and 2002.

     Our interest income increased to $151,000 and $300,000 during the three and six months ended June 30, 2003, respectively, compared with $40,000 and $70,000 during the same periods in 2002. The change in interest income was due to higher average cash and investment balances as a

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result of the cash infusion from our acquisition of Varigenics on January 31, 2003. Interest expense increased to $390,000 and $751,000 during the three and six months ended June 30, 2003, respectively, compared with $254,000 and $512,000 during the same periods in 2002. The increase in interest expense was due to an increase in the amount drawn on our line of credit from our chairman, and increased capital equipment leases assumed in our acquisiton of Variagenics.

Net Loss

Comparison of the Three Months and Six Months Ended June 30, 2003 and 2002.

     Since our inception, we have incurred operating losses, and as of June 30, 2003 we had an accumulated deficit of $183.3 million. We incurred a net loss for the three and six months ended June 30, 2003 of $16.3 million and $29.9 million, respectively, compared to a net loss of $8.1 million and $27.0 million in the same periods of 2002. Our Nuvelo segment had net losses of $15.3 million and $27.2 million for the three and six months ended June 30, 2003, respectively, as compared to $6.9 million and $24.3 million in the same periods of 2002. Callida had net losses of $1.0 million and $2.7 million for three and six months ended June 30, 2003, respectively, as compared to $1.1 million and $2.7 million in the same periods of 2002.

     The increased net loss resulted primarily from decreased revenue due to the completion of our collaboration with BASF Plant Sciences in the first quarter of 2003, and increased lease termination and related costs associated with one of our facilities. We expect to continue to incur significant operating losses for the foreseeable future, which may increase substantially as we further expand research and development of our potential biopharmaceutical product candidates and other operations, and as we prosecute and enforce our intellectual property rights.

LIQUIDITY AND CAPITAL RESOURCES

     Our liquidity and capital resources improved significantly as a result of our merger with Variagenics on January 31, 2003. Our cash and short-term investments balance as of June 30, 2003 totaled approximately $26.6 million and our restricted cash is approximately $2.6 million.

     To date our primary source of liquidity is cash from financing activities, from collaboration receipts and our merger with Variagenics. As a result of the completion of our merger with Variagenics we received cash and cash equivalents of $27.3 million and short term investment of $23.5 million for a total infusion of $50.8 million. Since our merger on January 31, 2003, we have incurred costs associated with combining the companies, severance payments to employees and discontinuing our operation in Cambridge Massachusetts. We expect to incur additional costs from discontinuing this operation, primarily related to facility lease termination.

     Our primary use of capital resources has been to fund operating activities and to acquire capital equipment and make leasehold improvements. We used cash of $24.4 million and $16.3 million for operating activities, and cash of $0.2 million and $1.6 million to acquire capital equipment and make leasehold improvements in the first half of 2003 and 2002, respectively.

Cash and Cash Equivalents, Short-Term Investments, and Cash on Deposit

     As of June 30, 2003, we had $26.6 million in cash and short-term investments. This amount reflects a net increase of $24.4 million from the $2.2 million in cash we had as of December 31, 2002.

     In addition, we have $2.6 million in total restricted cash on deposit. This restricted cash is security for a $1.1 million letter of credit in conjunction with a facility lease in our office at 675 Almanor Avenue in Sunnyvale, California and a $1.5 million letter of credit in conjunction with a facilties lease assumed from the Variagenics merger in Cambridge, Massachussetts. The cash on deposit in conjunction with these letters of credit is restricted and cannot be withdrawn. Provided that no default has occurred under the lease for the 675 Almanor facility , the letter of credit and the cash collateralizing it may be reduced by $0.5 million per year in the third quarter of 2003, and the third quarter 2004. We control the investment of the cash and receive the interest earned thereon.

     The primary objectives for our investment portfolio are liquidity and safety of principal. Investments are made to achieve the highest rate of return to us, consistent with these two objectives. Our investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer.

Cash Used in Operating Activities

     Net cash used in operating activities increased $8.1 million to $24.4 million in the first half of 2003 compared to $16.3 million in the first half of 2002. The increase in cash used in operating activities for the first half of 2003 compared to the same period of 2002 was primarily due to expenses related to the merger with Variagenics, including additional staff–related costs, facilities costs and other outside costs, including legal and accounting costs; and a decrease in collaboration revenue, primarily BASF. As we continue our strategy of careful review of all assets and programs at both Hyseq and Variagenics following the close of our merger between the two companies, we may incur additional costs associated with lease termination at our remaining facilities.

     We expect operating expenses to decrease in the second half of 2003 as we continue to balance cost cutting measures with financing, licensing, or collaboration receipts to ensure our available cash will continue to fund our operating activities through 2004. Our strategic plan includes monetization of our non-core assets that we expect will generate additional cash. Not achieving these goals could significantly harm our results of operations, which may require us to delay and scale back one or more of our research or development programs, or relinquish greater rights to products at an earlier stage of development on less favorable terms than we would otherwise seek to obtain, which could materially adversely affect our long term business, our financial condition, and our operating results.

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Cash Provided by (Used in) Investing Activities

     Net cash provided by investing activities was $43.1 million during the first half of 2003, compared to cash used in investing activities of $1.6 million during the same period of 2002. The increase in net cash provided by investing activities was primarily a result of cash received in conjunction with the acquisition of Variagenics and maturities of short-term investments. A reduction in new capital equipment spending also contributed to the decrease in expenditures during 2003. Other than purchases and sales of short term investments, we expect net cash provided by and used in investing activities to stay at low levels for the foreseeable future.

Cash (Used in) Provided by Financing Activities

     We used cash of $0.4 million and generated cash of $17.4 million from financing activities in the first half of 2003 and 2002, respectively. Cash used in financing activities for Nuvelo in the first half of 2003 resulted from payments on our lease and loan obligations and an increase in our restricted cash associated with one of our facilities partially offset by a draw down of $1.0 million on our line of credit with our chairman, Dr. Rathmann and proceeds from exercise of stock options and from the employee stock purchase plan. Cash provided by financing activities in 2002 was a result of issuance of common stock in a private placement on April 5, 2002 with net proceeds of $14.3 million, a draw down on the line of credit with our chairman, Dr. Rathmann and proceeds from exercise of stock options and from the employee stock purchase plan partially offset by payments on our lease and loan obligations. As of July 31, 2003, $9.0 million was available under this line of credit. There was no cash generated by financing activities in the first half of 2003 and 2002 by Callida.

     As of June 30, 2003, 2,411,610 shares of our common stock were issuable upon repayment of our note held by Affymetrix. Affymetrix has the ability to declare all outstanding principal and interest under the note immediately due and payable in the event that our market capitalization is under $50 million and Affymetrix reasonably determines that the loan evidenced by the note is impaired, and we have an obligation to prepay amounts owing under the note to the extent that the amounts outstanding exceed 10% of our market capitalization.

     On July 8, 2003, we filed a registration statement on Form S-3 with the Securities and Exchange Commission that allows for the sale of up to $50 million of debt securities, preferred stock and/or common stock. We have not set a date for a proposed sale but we are continually evaluating our financing requirements and may propose a sale of one or more of these securities in the near future.

     Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Risk Factors - We Must Be Able to Continue to Secure Additional Financing” below. We may not be able to secure additional financing to meet our funding requirements on acceptable terms, if at all. If we raise additional funds by issuing equity securities, substantial dilution to our existing stockholders may result. If we are unable to obtain additional funds we may have to additionally curtail the scope of our operations. We have implemented a plan to delay, scale back or eliminate some of our operating expenditures, including facilities expansion plans, in order to insure we can meet our cash commitments through 2004. This plan includes a partial hiring freeze, a reduction in capital expenditures and a deferral of as many of our contractual financial commitments as possible. We have also implemented a plan to monetize certain non-core assets through license arrangements or partnerships which will bring in additional cash to fund operations. If we are unable to generate sufficient funds through monetizing these non-core assets, we may seek to obtain third party financing prior to the end of 2004.

Operating Leases

     We lease four facilities under operating lease agreements, two that expire in June 2005, one that expires in May 2008 and one that expires in May 2011. The rent is being recognized as expense on a straight-line basis.

     Minimum future rental commitments under non-cancelable operating leases at June 30, 2003 are as follows (dollars in thousands):

		Minimum Rental
		Commitments
For the six months ending December 31, 2003
	2003		2,933
For the year ending December 31,
	2004		6,492
	2005		7,750
	2006		8,236
	2007		8,455
	2008 and thereafter		24,144
		$	58,011

Critical Accounting Policies and Estimates

     Our discussion and analysis of our operating results and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent amounts. While we believe our estimates, judgments, and assumptions are reasonable, the inherent nature of estimates is that actual results will likely be different from the estimates made.

     We have not made changes to our critical accounting policies as presented in our Form 10-K filed on March 31, 2003.

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NEW ACCOUNTING PRONOUNCEMENTS

     In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146). SFAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability is incurred. Adoption of this statement is required for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 did not have a material impact on our financial position or results of operations.

     In November 2002, the Emerging Issues Task Force reached consensus on EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00-21 sets out criteria for whether revenue on a deliverable can be recognized seperately from other deliverables in a multiple deliverable arrangement. The criteria considers whether the delivered item has stand-alone value to the customer, whether the fair value of the delivered item can be reliably determined and the rights of returns for the delivered item. EITF 00-21 must be adopted by June 1, 2003. We are assessing the impact of EITF 00-21 on its consolidated financial position and results of operations.

     In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS No. 150), effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The impact upon adoption of SFAS No. 150 is not expected to have a material impact on the results of operations or the financial position of the Company.

RISK FACTORS

     We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. The following discussion highlights some of these risks.

Our stock price has been volatile, is likely to continue to be volatile and could decline substantially.

     The price of our common stock has been, and is likely to continue to be, highly volatile. That price could fluctuate significantly for the following reasons:

• volatility and uncertainty in the capital markets in general;

• fluctuations in our results of operations;

• sales of our common stock by existing holders;

• loss of key personnel;

• economic and other external factors;

• announcements by governmental agencies that may have, or may be perceived to have, an impact on our potential products;

• changes in our earnings estimates;

• changes in accounting principles;

• lack of trading volume in our common stock;

• fluctuations within the biotechnology sector;

• announcements by competitors; and

• other factors not within our control.

     In addition, the stock market in general, and the market for biotechnology and other life science stocks in particular, has historically been subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. In the past, following periods of volatility in the market price of a company’s securities, class action securities litigation has often been instituted against such a company. Any such litigation instigated against us could result in substantial costs and a diversion of management’s attention and resources, which could significantly harm our business, financial condition and operating results.

We are at risk of having our stock delisted from the Nasdaq National Market, which could have a material adverse impact on our stock price, the market for our stock and our ability to raise capital

     Our common stock is listed on the Nasdaq National Market, which has minimum quantitative listing criteria that are required to be maintained. Two of these criteria are a minimum stock price of one dollar per share and minimum stockholders’ equity of $10 million. For the period commencing on January 1, 2003 through June 30, 2003, the low and high closing sales price of our common stock as reported by the Nasdaq National Market was $0.71 and $2.60, respectively. If our stock price were to again decline to below one dollar per share, the Nasdaq Stock Market may take action to have our common stock delisted from the Nasdaq National Market. As of June 30, 2003, we had shareholders’ equity of approximately $15 million. If we do not continue to satisfy the $10 million shareholders’equity requirement and the other applicable continued

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listing requirements, our common stock may be delisted from the Nasdaq National Market. If this were to happen, it would be more difficult to purchase or sell our common stock or obtain accurate quotations as to its price, and the price of our common stock could suffer a material decline. In addition, any such delisting could have a materially adverse affect on our access to the capital markets, and the limited liquidity of our common stock could materially adversely affect our ability to raise capital through alternative financing sources on terms acceptable to us or at all.

Future sales of our common stock may depress our stock price.

     Sales in the public market of substantial amounts of our common stock could depress prevailing market prices of our common stock. As of June 30, 2003, we had 63,667,334 shares of our common stock outstanding. All of these shares are freely transferable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for shares held by our affiliates and unregistered shares held by non-affiliates. As of June 30, 2003 our affiliates held 12,401,669 shares of our common stock, which are transferable pursuant to Rule 144 or in some cases Rule 145, each as promulgated under the Securities Act. Although we do not believe that our affiliates have any present intentions to dispose of any shares of common stock owned by them, there can be no assurance that such intentions will not change in the future.

     As of June 30, 2003, warrants to purchase 6,389,718 shares of our common stock were outstanding. In addition, under registration statements on Form S-8 under the Securities Act, we have registered approximately 13,768,420 shares of our common stock for sale upon the exercise of outstanding options under our 2002 Equity Incentive Plan, 1995 Stock Option Plan, Non-Employee Director Stock Option Plan, Scientific Advisory Board/Consultants Stock Option Plan, and stock option agreements entered into outside of any of our stock option plans and under our Employee Stock Purchase Plan and the Variagenics, Inc. Amended 1997 Employee, Director and Consultant Stock Option Plan. Shares of our common stock acquired pursuant to these plans and agreements are available for sale in the open market. In addition, we have reserved approximately 2,243,160 shares of our common stock for issuance upon the exercise of outstanding options under stock option agreements entered into outside of any of our stock option plans. As of June 30, 2003, 1,062,205 of these 2,243,160 options were exercisable. Although these shares have not been registered under the Securities Act, and therefore are restricted securities within the meaning of Rule 144 under the Securities Act, we intend to register these shares on a registration statement on Form S-8 under the Securities Act. The exercise of those options or warrants, and the prompt resale of shares of our common stock received, may result in downward pressure on the price of our common stock. The existence of the currently outstanding warrants and options to purchase our common stock may negatively affect our ability to complete future equity financings at acceptable prices and on acceptable terms.

     As of June 30, 2003, 2,411,610 shares of our common stock were issuable upon repayment of our note held by Affymetrix. Affymetrix has the ability to declare all outstanding principal and interest under the note immediately due and payable in the event that our market capitalization is under $50 million and Affymetrix reasonably determines that the loan evidenced by the note is impaired, and we have an obligation to prepay amounts owing under the note to the extent that the amounts outstanding exceed 10% of our market capitalization. Moreover, we have registered for resale a portion of these shares on a registration statement that has been declared effective by the Securities and Exchange Commission, or SEC. If we decide to repay this note with our common stock, whether pursuant to acceleration of the note or otherwise, the prompt resale of shares of our common stock received by Affymetrix may also result in significant downward pressure on the price of our common stock and the possibility of this occurrence may also affect our ability to complete future equity financings at acceptable prices and on acceptable terms.

We have not achieved profitability and have recent and anticipated continuing losses.

     For the years ended December 31, 2002, 2001 and 2000, we had net losses of $45.0 million, $36.5 million and $22.3 million, respectively. As of June 30, 2003, we had an accumulated deficit of $183.3 million. For the years ended December 31, 2002, 2001 and 2000, Variagenics, a company we recently acquired, had net losses of $33.8 million, $25.3 million and $17.8 million, respectively. As of December 31, 2002, Variagenics had an accumulated deficit of $111.8 million.

     The process of developing our therapeutic protein candidates and our molecular diagnostic products will require significant additional research and development, preclinical testing, clinical trials and regulatory approvals. These activities, together with general administrative and other expenses, are expected to result in operating losses for the foreseeable future. We may never generate profits and as a result, the trading price of our common stock could decline. Moreover, utilization of our net operating loss carryforwards and credits may be subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state law provisions. It is possible that certain transactions that we have entered into, including our merger with Variagenics, when considered in connection with other transactions, may result in a “change in ownership” for purposes of these provisions.

  We have a relatively short operating history.

     We have a short operating history, as did Variagenics when we merged with it. We commenced operations in the fourth quarter of 1994 with an initial business focused on gene discovery using our signature by hybridization platform, and applications of our sequencing-by-hybridization technology, including the HyChip system. In 1998, we began to transition our business strategy from gene discovery to research and development of potential therapeutic protein candidates. Variagenics commenced operations in 1992 and was in the early stage of commercializing its products and services when we merged with it. As a company with a relatively short operating history, we face risks and uncertainties frequently encountered by companies in new and rapidly evolving markets, including:

• the implementation and successful execution of our business strategy and our sales and marketing initiatives;

• retention of current customers and collaborators and attraction of new customers and collaborators;

• our ability to respond effectively to competitive and technological developments related to our technologies, products and services;

• our ability to attract, retain and motivate qualified personnel; and

• our ability to effectively managing our anticipated growth.

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     If we fail to address these risks and uncertainties successfully, our business, results of operations, financial condition and prospects will be materially adversely affected.

  We may face fluctuations in operating results.

     Our operating results may rise or fall significantly as a result of many factors, including:

• the amount of research and development we engage in;

• the progress we make with research and preclinical studies on our therapeutic protein candidates, and the number of candidates in research and preclinical studies;

• our ability to expand our facilities to support our operations;

• our ability to enter into new strategic relationships;

• the nature, effectiveness, size, timing or termination of our collaborative arrangements;

• the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;

• the possibility that others may have or obtain patent rights that are superior to ours;

• changes in government regulation; and

• release by our competitors of successful products into the market.

     Because substantially all of our potential products currently are in research or preclinical development, revenues from sales of any products will not occur for at least the next several years, if at all. We also have a high percentage of fixed costs such as lease obligations. As a result, we may experience fluctuations in our operating results from quarter to quarter and continue to generate losses. Quarterly comparisons of our financial results may not necessarily be meaningful and investors should not rely upon such results as an indication of our future performance.

  We will need to raise additional capital and such capital may be unavailable to us when we need it or may not be available on acceptable terms.

     We expect to take action to consolidate operations and prioritize projects with the goal of having sufficient cash to fund our operations through 2004. However, unanticipated expenses, or unanticipated opportunities that require financial commitments, could give rise to requirements for additional financing sooner than we expect. Financing may be unavailable when we need it or may not be available on acceptable terms. The unavailability of financing may require us to delay, scale back or eliminate expenditures for our research, development and marketing activities necessary to commercialize our potential biopharmaceutical products. We may also be required to grant rights to third parties to develop and market product candidates that we would prefer to develop and market on our own. If we were required to grant such rights, the ultimate value of these product candidates to us would be reduced.

     If we are unable to obtain additional financing when we need it, the perception in the capital markets that we may not be able to raise the amount of financing we desire, or on terms favorable to us, may have a negative effect on the trading price of our common stock. Additional equity financings could result in significant dilution of current stockholders’ equity interests. If sufficient capital is not available, we will delay, reduce the scope of, eliminate or divest one or more of our subsidiaries or our discovery, research or development programs. Any such action could significantly harm our business, financial condition and results of operations.

     Our future capital requirements and the adequacy of our currently available funds will depend on many factors, including, among others, the following:

• continued scientific progress in our research and development programs, including progress in our research and preclinical studies on our potential therapeutic protein candidates;

• the cost involved in any facilities expansion to support research and development of our potential therapeutic protein candidates;

• our ability and the ability of our subsidiary Callida to attract additional financing on favorable terms;

• the magnitude and scope of our research and development programs, including development of potential therapeutic protein candidates and Callida technology and applications;

• our ability to maintain, and the financial commitments involved in our existing collaborative and licensing arrangements;

• our ability to establish new corporate relationships with other biotechnology and pharmaceutical companies to share costs and expertise of identifying and developing product candidates;

• the cost of prosecuting and enforcing our intellectual property rights;

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• the cost of manufacturing material for preclinical, clinical and commercial purposes;

• The cost of manufacturing material by Amgen progress in our clinical studies of alfimeprase;

• the time and cost involved in obtaining regulatory approvals;

• our need to develop, acquire or license new technologies or products;

• competing technological and market developments;

• future funding commitments to our subsidiary Callida, and our ability to borrow funds from Affymetrix to fund our commitment, under the terms of the Affymetrix settlement;

• our ability to use our common stock to repay the outstanding note to Affymetrix and our line of credit with our Chairman, Dr. George B. Rathmann;

• legal and Nasdaq restrictions that impede our ability to raise funds from private placements of our common stock;

• future funding commitments to our collaborators;

• general conditions in the financial markets and in the biotech sector;

• the uncertain condition of the capital markets; and

• other factors not within our control.

Development of our products will take years; our products require approval before they can be sold.

     Because substantially all of our potential products currently are in research or preclinical or clinical development, revenues from sales of any products will not occur for at least the next several years, if at all. We cannot be certain that any of our products will be safe and effective or that we will obtain regulatory approvals. In addition, any products that we develop may not be economical to manufacture on a commercial scale. Even if we develop a product that becomes available for commercial sale, we cannot be certain that consumers will accept the product. We cannot predict whether we will be able to develop and commercialize any of our protein candidates successfully. If we are unable to do so, our business, results of operations and financial condition will be materially adversely affected.

     We do not yet have products in the commercial markets. We cannot apply for regulatory approval of our potential products until we have performed additional research and development and testing. We cannot be certain that we, or our strategic partners, will be permitted to undertake clinical testing of our potential products or continue clinical testing of alfimeprase and, if we are successful in initiating clinical trials, we may experience delays in conducting them. Our clinical trials may not demonstrate the safety and efficacy of our potential products, and we may encounter unacceptable side effects or other problems in the clinical trials. Should this occur, we may have to delay or discontinue development of the potential product that causes the problem. After a successful clinical trial, we cannot market products in the United States until we receive regulatory approval. Even if we are able to gain regulatory approval of our products after successful clinical trials and then commercialize and sell those products, we may be unable to manufacture enough products to maintain our business, which could have a negative impact on our financial condition.

   The success of our business depends on patents and other proprietary information.

     We currently have patents that cover some of our technological discoveries and patent applications that we expect to cover some of our gene, protein and technological discoveries. We have 20 issued patents relating to our gene and protein discoveries. We also currently have patents and patents pending which cover or describe, respectively, single nucleotide polymorpohisms and their application to pharmacogenetic studies, genotyping and haplotyping methods, and allele specific inhibitors. We own or have rights to 26 issued U.S. patents relating to these methods. We will continue to apply for patents for our discoveries. We cannot assure you that any of our applications will issue as patents, or that any patent issued to us will not be challenged, invalidated, circumvented or held unenforceable by way of an interference proceeding or litigation. The patent positions of biotechnology companies involve complex legal and factual questions. Even though we own patents, it is uncertain whether:

• the patents would be challenged;

• protection against competitors will be provided by such patents; or

• competitors will not independently develop similar products or design around the patents.

     We seek patents on:

• full-length gene sequences;

• partial gene sequences;

• proteins produced by those genes;

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• antibodies to those proteins;

• diagnostic and therapeutic methods involving such genes, proteins or antibodies;

• processes, devices and other technology that enhance our ability to develop and/or manufacture gene-based products;

     To obtain a patent on a novel gene, we need to identify a utility for the novel gene or the encoded protein we seek to protect by patent law. Identifying a utility may require significant research and development with respect to which we may incur a substantial expense and invest a significant amount of time.

     Finally, the timing of the grant of a patent cannot be predicted. Patent applications describing and seeking patent protection of methods, compositions, or processes relating to proprietary inventions involving human therapeutics could require us to generate data, which may involve substantial costs.

     We rely on trade secret protection for our confidential and proprietary information. Although our policy is to enforce security measures to protect our assets, trade secrets are difficult to protect. We expect to require all employees to enter into confidentiality agreements. However:

• competitors may independently develop substantially equivalent proprietary information and techniques;

• competitors may otherwise gain access to our trade secrets;

• persons with whom we have confidentiality agreements may disclose trade secrets; or

• we may be unable to protect our trade secrets meaningfully.

     Certain of the patent applications describing our proprietary methods are filed only in the United States. Even where we have filed our patent applications internationally, for some cases and in certain countries, we have chosen not to maintain foreign patent protection through failure to enter national phase or failure to pay maintenance annuities.

     We may be required to obtain licenses to patents or other proprietary rights of others in order to conduct research, development, or commercialization of some or all our programs. These required licenses may not, however, be made available on terms acceptable to us. If we do not obtain these licenses, we may encounter delays in product market introductions, incur substantial costs while we attempt to design around existing patents or not be able to develop, manufacture or sell products. Any of these obstacles could significantly harm our business, financial condition and operating results. Further, if we do obtain these licenses, the agreed terms may necessitate reevaluation of the potential commercialization of any one of our programs.

We may be subject to litigation and infringement claims that may be costly, divert management’s attention, and materially harm our business.

     Extensive litigation regarding patents and other intellectual property rights has been common in the genomics and biopharmaceutical industries. The defense and prosecution of intellectual property suits, United States Patent and Trademark Office interference proceedings, and related legal and administrative proceedings in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time-consuming to pursue and their outcome is uncertain.

     Litigation may be necessary to:

• Assert claims of infringement;

• Enforce patents that we own or license;

• Protect our trade secrets or know-how; and

• Determine the enforceability, scope and validity of the proprietary rights of others.

     Regardless of merit or outcome, our involvement in any litigation, interference or other administrative proceedings could cause us to incur substantial expense and could significantly divert the efforts of our technical and management personnel. An adverse determination may subject us to the loss of our proprietary position or to significant liabilities, or require us to seek licenses that may include substantial cost and ongoing royalties. Licenses may not be available from third parties, or may not be obtainable on satisfactory terms. An adverse determination or a failure to obtain necessary licenses may restrict or prevent us from manufacturing and selling our products, if any. These outcomes could materially harm our business, financial condition and results of operations.

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   We lack manufacturing experience and intend to rely initially on contract manufacturers.

     We do not currently have significant manufacturing facilities. We are dependent on contract research and manufacturing organizations, and are subject to the risks of finalizing contractual arrangements, transferring technology and maintaining relationships with such organizations in order to file an Investigational New Drug application, or IND, with the Food and Drug Administration, or FDA, and proceed with clinical trials for any of our potential therapeutic protein candidates. We rely on Amgen, Inc. (Amgen) to manufacture our drug product, alfimeprase. The cost of manufacturing our drug product by Amgen is based upon a standard cost which has not been determined. This cost may be more than we are anticipating and may make it difficult or impossible to profitably market Alfimeprase. We are dependent on third-party contract research organizations to conduct certain research, including good laboratory practices toxicology studies in order to gather the data necessary to file INDs with the FDA for any of our potential therapeutic protein candidates. Our potential therapeutic protein candidates have never been manufactured on a commercial scale. Third-party manufacturers may not be able to manufacture such proteins at a cost or in quantities necessary to make them commercially viable. In addition, if any of our potential therapeutic protein candidates enter the clinical trial phase, initially we will be dependent on third-party contract manufacturers to produce the volume of current good manufacturing practices materials needed to complete such trials. We will need to enter into contractual relationships with these or other organizations in order to (1) complete the Good Laboratory Practices, or GLP, toxicology and other studies necessary to file an IND with the FDA, and (2) produce a sufficient volume of current Good Manufacturing Practices (cGMP) material in order to conduct clinical trials of our potential therapeutic protein candidates. We cannot be certain that we will be able to do so on a timely basis or that we will be able to obtain sufficient quantities of material on commercially reasonable terms. In addition, the failure of any of these relationships with third-party contract organizations may result in a delay of our filing for an IND, or our progress through the clinical trial phase. Any significant delay or interruption would have a material adverse effect on our ability to file an IND with the FDA and/or proceed with the clinical trial phase for any of our potential therapeutic protein candidates.

     Moreover, contract manufacturers that we may use must continually adhere to current cGMP regulations enforced by the FDA through a facilities inspection program. If the facilities of such manufacturers cannot pass a pre-approval plant inspection, the FDA premarket approval of our products will not be granted.

   We are dependent upon collaborative arrangements.

     We will focus on new collaborative arrangements where we would share costs of identifying, developing and marketing product candidates. There can be no assurance that we will be able to negotiate new collaboration arrangements of this type on acceptable terms, or at all.

     The success of our business is dependent, in significant part, upon our ability to enter into multiple collaboration arrangements and to manage effectively the numerous issues that arise from such collaborations. Management of our relationships with our collaboration partners will require:

• our management team to devote a significant amount of time and effort to the management of these relationships;

• effective allocation of our resources to multiple projects; and

• an ability to obtain and retain management, scientific and other personnel.

     Our need, including the need of our direct and indirect subsidiaries, to manage simultaneously a number of collaboration arrangements may not be successful, and the failure to manage effectively such collaborations would significantly harm our business, financial condition and results of operations.

FDA regulatory approval of our products is uncertain; we face heavy government regulation.

     Products such as those proposed to be developed by us or our collaboration partners, typically will be subject to an extensive regulatory process by federal, state and local governmental authorities, including the FDA, and comparable agencies in other countries before we may market and sell such products. In order to obtain regulatory approval of a drug product, we or our collaboration partners must demonstrate to the satisfaction of the applicable regulatory agency, among other things, that such product is safe and effective for its intended uses. In addition, we must show that the manufacturing facilities used to produce the products are in compliance with cGMP requirements. In the event we or our collaboration partners, develop products classified as drugs, we and our collaboration partners will be required to obtain appropriate approvals as well.

     The process of obtaining FDA and other required regulatory approvals and clearances is lengthy and will require us to expend substantial capital and resources. We may not ultimately be able to obtain the necessary approvals and clearances. Moreover, if and when our products do obtain such approval or clearances, the marketing, distribution and manufacture of such products would remain subject to extensive ongoing regulatory requirements. Failure to comply with applicable regulatory requirements can result in:

• warning letters;

• fines;

• civil penalties;

• recall or seizure of products;

• total or partial suspension of production;

• refusal of the government to grant approvals, premarket clearance or premarket approval; or

• withdrawal of approvals and criminal prosecution.

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     We also are subject to numerous federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals, the environment and the use and disposal of hazardous substances used in connection with our discovery, research and development work, including radioactive compounds and infectious disease agents. In addition, we cannot predict the extent of government regulations or the impact of new governmental regulations that might significantly harm the discovery, development, production and marketing of our products. We may be required to incur significant costs to comply with current or future laws or regulations and we may be adversely affected by the cost of such compliance.

     Any delay or failure by us or our collaboration partners to obtain regulatory approvals for our products:

• would adversely affect our ability to generate product and royalty revenues;

• could impose significant additional costs on us or our collaboration partners;

• could diminish competitive advantages that we may attain; and

• would adversely affect the marketing of our products.

We face intense competition.

     The genomics and biopharmaceutical industries are intensely competitive. Our strategy as a biopharmaceutical company is to find the genes of the human genome that are most likely to be involved in a disease condition and to focus on identifying product candidates from the proteins produced by genes. There are a finite number of genes in the human genome, virtually all of which have been or will soon be identified. Our competitors include major pharmaceutical, biotechnology and diagnostic firms, not-for-profit entities and United States and foreign government-financed programs, many of which have substantially greater research and product development capabilities and financial, scientific, marketing and human resources than we do. As a result, they may succeed in identifying genes and determining their functions or developing products earlier than we or our current or future collaboration partners do. They also may obtain patents and regulatory approvals for such products more rapidly than we or our current or future collaboration partners, or develop products that are more effective than those proposed to be developed by us or our collaboration partners. Further, any potential products based on genes we identify ultimately will face competition from other companies developing gene-based products as well as from companies developing other forms of treatment for diseases which may be caused by, or related to, the genes we identify.

     In addition, our technologies have undergone and are expected to continue to undergo rapid and significant change. Our competitors may make rapid technological developments which may result in products or technologies becoming obsolete, before we can recover the expenses incurred. The introduction of less expensive or more effective drug discovery and development technologies, including technologies that may be unrelated to genomics, may also make our products and services obsolete. We may not be able to make the necessary enhancements to our technology to compete successfully with newly emerging technologies.

     Many of the companies developing competing products have significantly greater financial resources than we have. Many such companies also have greater expertise than we or our collaboration partners have in discovery, research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and marketing. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to our products. These companies and institutions compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our programs. We will face competition with respect to:

• product efficacy and safety;

• the timing and scope of regulatory approvals;

• availability of resources;

• reimbursement coverage; and

• price and patent position, including potentially dominant patent positions of others.

     There can be no assurance that research and development by others will not render the products that we may develop obsolete or uneconomical, or result in treatments or cures superior to any therapy or diagnostic developed by us or that any therapy we develop will be preferred to any existing or newly developed technologies. While we believe that our technology provides a significant competitive advantage, any one of our competitors may discover and establish a patent position in one or more genes, proteins or antibodies which we designate as a product candidate, before we do.

   We lack marketing experience for biopharmaceutical products.

     We have no sales, marketing or distribution capability. For the foreseeable future, we intend to rely primarily on collaboration partners or licensees, if any, to market our products. Such collaboration partners, however, may not have effective sales forces and distribution systems. If we are unable to maintain or establish such relationships and are required to market any of our products directly, we will have to develop our own marketing and sales force with the appropriate technical expertise and with supporting distribution capabilities. We may not be able to maintain or establish

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such relationships with third parties or develop in-house sales and distribution capabilities. To the extent that we may depend on our collaboration partners or third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such collaboration partners or third parties. Such efforts may not be successful, and we will not be able to control the amount and timing of resources that such collaboration partners or third parties devote to our products.

   Our products may not be accepted in the marketplace.

     Even if they are approved for marketing, products we develop may never achieve market acceptance. Our products, if successfully developed, will compete with a number of traditional drugs and therapies manufactured and marketed by major pharmaceutical and other biotechnology companies. Our products will also compete with new products currently under development by such companies and others. The degree of market acceptance of any products developed by us, alone, or in conjunction with our collaboration partners, will depend on a number of factors, including:

• the establishment and demonstration of the clinical efficacy and safety of the products;

• our products’ potential advantage over alternative treatment methods; and

• reimbursement policies of government and third-party payors.

     Physicians, patients or the medical community in general may not accept and utilize any of the products that we alone, or in conjunction with our collaboration partners, develop. The lack of such market acceptance would significantly harm our business, financial condition and results of operations.

     We may develop diagnostic testing products in the future. Our success in diagnostics will depend in large part upon our ability to obtain customers and upon the ability of these customers to market genetic tests performed with our technology properly. Genetic tests may be difficult to interpret and may lead to misinformation or misdiagnosis. Ethical concerns about genetic testing may adversely affect market acceptance of our technology for diagnostic applications. Impaired market acceptance of our technology could significantly harm our business, financial condition and operating results.

   We face uncertainty with respect to pricing, third-party reimbursements and health care reform.

     Our ability to collect significant royalties from our products may depend on our ability, and the ability of our collaboration partners or customers, to obtain adequate levels of reimbursement from third-party payors such as:

• government health administration authorities;

• private health insurers;

• health maintenance organizations;

• pharmacy benefit management companies; and

• other health care related organizations.

     Currently, third-party payors are increasingly challenging the prices charged for medical products and services, and the overall availability of third-party reimbursement is limited and uncertain for genetic predisposition tests. Third-party payors may deny their insured reimbursement if they determine that a prescribed device or diagnostic test has not received appropriate clearances from the FDA or other government regulators, is not used in accordance with cost-effective treatment methods as determined by the third-party payor, or is experimental, unnecessary or inappropriate. If third-party payors routinely deny reimbursement, we may not be able to market our products effectively. We also face the risk that we will have to offer our diagnostic products at prices lower than anticipated as a result of the current trend in the United States towards managed health care through health maintenance organizations. Prices could be driven down by health maintenance organizations that control or significantly influence purchases of health care services and products. Legislative proposals to reform health care or reduce government insurance programs could also adversely affect prices of our products. The cost containment measures that health care providers are instituting and the results of potential health care reforms may prevent us from maintaining prices for our products that are sufficient for us to realize profits and may otherwise significantly harm our business, financial condition and operating results.

   The success of our potential products in pre-clinical studies does not guarantee that these results will be replicated in humans.

     Even though some of our therapeutic protein candidates have shown results in preclinical studies, these results may not be replicated in our clinical trials with humans. Human clinical results could be different from our expectations following our preclinical studies. Consequently, there is no assurance that the results in our preclinical studies are predictive of the results that we will see in our clinical trials with humans. Also, while we have demonstrated some evidence that our therapeutic protein candidates have utility in preclinical studies, these results do not mean that the resulting products will be safe and effective in humans. Our therapeutic protein candidates may have undesirable and unintended side effects or other characteristics that may prevent or limit their use.

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   Our ability to commercialize gene-based products is unproven.

     We have not developed any therapeutic or diagnostic products using proteins produced by the genes we have discovered. Before we make any products available to the public, we or our collaboration partners will need to conduct further research and development and complete laboratory testing and animal and human studies. Moreover, with respect to biopharmaceutical products, we or our collaboration partners will need to obtain regulatory approval before releasing any such products. We have spent, and expect to continue to spend, significant amounts of time and money in determining the function of genes and the proteins they produce, using our own capabilities and those of our collaboration partners. Such determination process constitutes the first step in developing commercial products. We also have spent and will continue to spend significant amounts of time and money in developing processes for manufacturing of our recombinant proteins under pre-clinical development, yet we may not be able to produce sufficient protein for preclinical studies. A commercially viable product may never be developed from our gene discoveries.

     Our development of gene-based products is subject to several risks, including but not limited to:

• the possibility that a product is toxic, ineffective or unreliable;

• failure to obtain regulatory approval for the product;

• the product may be difficult to manufacture on a large scale, or may not be economically feasible to market;

• competitors may develop a superior product; or

• other persons’ or companies’ patents may preclude our marketing of a product.

     Our internally developed biopharmaceutical development programs are currently in the research stage or in preclinical development. None of our potential therapeutic protein candidates from our own portfolio have advanced to Phase I clinical trials. Our programs may not move beyond their current stages of development. Even if our research does advance, we will need to engage in certain additional preclinical development efforts to determine whether a product is sufficiently safe and efficacious to enter clinical trials. We have little experience with these activities and may not be successful in developing or commercializing products.

     Under our collaboration arrangement with Chiron in the solid tumor cancer field, Chiron maintains responsibility for the development of a product. Under our collaboration arrangement with Kirin Brewery Company, Ltd., Kirin has primary responsibility for clinical development in its territory and we have primary responsibility in our territory. Under our collaboration arrangement with Deltagen, we share responsibility for development of a product. With respect to these arrangements, we run the risk that Chiron or Kirin may not pursue clinical development in a timely or effective manner, if at all, and that Deltagen may not cooperate with us in pursuing clinical development in a timely or effective manner.

     If a product receives approval from the FDA to enter clinical trials, Phases I, II, and III of those trials include multi-phase, multi-center clinical studies to determine the product’s safety and efficacy prior to marketing. We cannot predict the number or extent of clinical trials that will be required or the length of the period of mandatory patient follow-up that will be imposed. Assuming clinical trials of any product are successful and other data appear satisfactory to us, we or our applicable collaboration partner will submit an application to the FDA and appropriate regulatory bodies in other countries to seek permission to market the product. Typically, the review process at the FDA is not predictable and can take up to several years. Upon completion of such review, the FDA may not approve our or our collaboration partner’s application or may require us to conduct additional clinical trials or provide other data prior to approval. Furthermore, even if our products or our collaboration partner’s products receive regulatory approval, delays in the approval process could significantly harm our business, financial condition and results of operations.

     In addition, we may not be able to produce any products in commercial quantities at a reasonable cost or may not be able to market successfully such products. If we do not develop a commercially viable product, then we would suffer significant harm to our business, financial condition and operating results.

   Our subsidiary Callida may not be able to raise third party financing.

     In October 2001, we formed Callida to develop and commercialize our sequencing-by-hybridization or SBH technology. We recognized 90% of Callida’s operating losses in our consolidated results of operations up to the point where Affymetrix’s initial minority interest investment was depleted in the first quarter of 2002. Beyond that point, we absorb 100% of the net losses until Callida generates net income. There is no guarantee, however, that Callida will meet its technical milestone and other requirements to obtain additional funding through Affymetrix and us. There is also no assurance that Callida will be able to obtain any third party financing or that any such financing that Callida obtains will be on favorable terms or that the funding from outside sources will be sufficient to fund Callida’s operations. We cannot assure the success of Callida, and if Callida is unable to obtain sufficient funding from outside sources, we may reduce projects and/or bear the costs of financing Callida ourselves, which will divert our resources from biopharmaceutical projects. In March 2003, Callida reduced its number of employees from 25 to seven in order to preserve cash. As of June 30, 2003, Callida and it’s subsidiary, N-Mer, Inc. had approximately $386,000 in cash and investments balances available for future operations.

   We face uncertainties related to SBH technology applications.

     We have developed applications of our SBH technology, currently in our subsidiary, Callida, including the chip component to be used with the HyChip system. As Callida continues development of SBH technology applications, it may discover problems in the functioning of these applications, including the HyChip system. Callida may be unable to improve applications of our SBH technology enough to be able to market them successfully. Further, SBH technology applications compete against other DNA analysis tools and well-established technologies. The failure of Callida to successfully develop and market applications of SBH technology could result in significant harm to our business, financial condition and operating results.

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   Many corporate actions will be controlled by our officers and directors regardless of the opposition of other stockholders or the desire of other stockholders to pursue an alternative course of action.

     Our executive officers and directors beneficially own, in the aggregate, approximately 24.3% of our common stock outstanding as of June 30, 2003. For purposes of this paragraph, beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. If they act together, these stockholders will be able to exercise substantial influence and control over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in our control.

   We face product liability exposure and potential unavailability of insurance.

     We risk financial exposure to product liability claims in the event that the use of products developed by us or our collaboration partners, if any, result in personal injury. We may experience losses due to product liability claims in the future. We have obtained limited product liability insurance coverage. Such coverage, however, may not be adequate or may not continue to be available to us in sufficient amounts or at an acceptable cost, or at all. We may not be able to obtain commercially reasonable product liability insurance for any product approved for marketing. A product liability claim or other claim, product recalls, as well as any claims for uninsured liabilities or in excess of insured liabilities, may significantly harm our business, financial condition and results of operations.

   We use hazardous materials, chemicals and patient samples in our business and any disputes relating to improper handling, storage or disposal of these materials could be time consuming and costly.

     Our research and development, production and service activities involve the controlled use of hazardous or radioactive materials, chemicals, including oxidizing and reducing reagents, and patient tissue and blood samples. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and certain waste products. We could be liable for accidental contamination or discharge or any resultant injury from hazardous materials, conveyance, processing, and storage of and data on patient samples. If we fail to comply with applicable laws or regulations, we could be required to pay penalties or be held liable for any damages that result and this liability could exceed our financial resources. Further, future changes to environmental health and safety laws could cause us to incur additional expense or restrict our operations.

     In addition, our collaborators may be working with these types of hazardous materials, including viruses and hazardous chemicals, in connection with our collaborations. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of, these patient samples that may contain viruses and hazardous materials. The cost of this liability could exceed our resources.

   We are dependent on key personnel.

     The success of our business is highly dependent on the principal members of our scientific and management staff, including our chairman and senior management team. The loss of the services of any such individual might significantly delay or prevent us from achieving our scientific or business objectives.

   We must attract and retain qualified employees and consultants.

     Our success will depend on our ability to attract and retain qualified employees to help develop our potential products and execute our research and development strategy. We have programs in place to retain personnel, including programs to create a positive work environment and competitive compensation packages. Because competition for employees in our field is intense, however, we may be unable to retain our existing personnel or attract additional qualified employees. Our success also depends on the continued availability of outside scientific collaborators to perform research and develop processes to advance and augment our internal research efforts. Competition for collaborators is intense. If we do not attract and retain qualified personnel and scientific collaborators, and if we experience turnover or difficulties recruiting new employees, our research and development programs could be delayed and we could experience difficulties in generating sufficient revenue to maintain our business.

   Risk of natural disasters and power blackouts.

     Our facilities are located in Sunnyvale, California and Cambridge, Massachusetts. In the event that a fire or other natural disaster (such as an earthquake) disrupts our research or development efforts, our business, financial condition and operating results could be materially, adversely affected. Some of our landlords maintain earthquake coverage for our facilities. Although we maintain personal property and business interruption coverage, we do not maintain earthquake coverage for personal property or resulting business interruption.

   We may merge with or acquire other companies and our failure to receive the anticipated benefits in these transactions could harm our business.

     We recently entered into a merger with Variagenics, and may merge with or acquire other companies in the future. The success of any merger or acquisition depends, in part, on our ability to realize the anticipated synergies, cost savings and growth opportunities from integrating the business of the merged or acquired company with our business. The integration of two independent companies is a complex, costly and time-consuming process. The difficulties of combining the operations of the companies include, among others:

• consolidating research and development operations;

• retaining key employees;

• consolidating corporate and administrative infrastructures;

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• preserving the research and development and other important relationships of the companies;

• integrating and managing the technology of two companies;

• using the merged or acquired company’s liquid capital assets efficiently to develop the business of the combined company;

• minimizing the diversion of management’s attention from ongoing business concerns; and

• coordinating geographically separate organizations.

     Moreover, we have assumed the costs of defending against litigation claims asserted against Variagenics, and anytime we merge with or acquire another company, we will be exposed to similar costs. In addition, we may be exposed to a number of other risks in connection with future transactions, including:

• we may experience unbudgeted expenses in attempting to complete the transaction and integration process; and

• exposure to unknown liabilities of the merged or acquired business; and

• our stock price may suffer if the former stockholders of the merged or acquired entity dispose of significant numbers of shares of our common stock that they receive in the transaction within a short period of time.

     We cannot assure you that we will receive all of the anticipated benefits of our merger with Variagenics or any mergers or acquisitions in the future, or that any of the risks described above will not occur. Our failure to receive anticipated benefits, and our exposure to inherent risks, in any such merger or acquisition transaction could significantly harm our business, financial condition and operating results.

We have incurred costs in connection with discontinuing operations of Variagenics and expect to incur additional costs in the future.

     As a result of our merger with Variagenics, we have incurred costs assocated with combining the companies, severance payments to employees and discontinuing our operation in Cambridge, Massachusetts. We expect to incur additional costs from discontinuing operations of Variagenics, primarily related to the facility lease termination. We may incur similar costs in connection with other mergers and acquisitions in the future.

   Some of our third-party agreements and some of those of Variagenics have change of control or termination provisions.

     Some of our agreements and some of those of Variagenics with third parties have change of control or termination provisions that may be triggered by our merger with Variagenics, but have not yet been waived. These third parties may elect to terminate those agreements as a result of the merger.

   Variagenics was a defendant in a class action suit and defending this litigation could hurt our business.

     Variagenics was a defendant in a securities class action lawsuit alleging the failure to disclose additional and excessive commissions purportedly solicited by and paid to underwriters also named in the lawsuit in exchange for allocating shares of Variagenics’ stock to preferred customers and alleged agreements among the underwriters named in the lawsuit and preferred customers tying the allocation of initial public offering shares to agreements to make additional aftermarket purchases at pre-determined prices. As a result of our merger with Variagenics, we are obligated to continue to defend against this litigation. Currently we are in the process of approving a settlement by and between the issuers that are defendants in the lawsuit, the insurers of those issuers, and the plaintiffs. We believe that any loss or settlement amount will not be material to our financial position or results of operation, and that any settlement payment and attorneys’ fees accrued with respect to the suit will be paid by our insurance provider. However, we cannot assure you that this will be the case until a final settlement is approved.

   We have implemented anti-takeover provisions that may reduce the market price of our common stock.

     Our by-laws provide that members of our board of directors serve staggered three-year terms. Our articles of incorporation provide that all stockholder action must be effected at a duly called meeting and not by a consent in writing. The by-laws provide, however, that our stockholders may call a special meeting of stockholders only upon a request of stockholders owning at least 50% of our capital stock. These provisions of our articles of incorporation and our by-laws could discourage potential acquisition proposals and could delay or prevent a change in control. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by our board of directors. We also intended these provisions to discourage certain types of transactions that may involve an actual or threatened change of control. We designed these provisions to reduce our vulnerability to unsolicited acquisition proposals and to discourage certain tactics that may be used in proxy fights. These provisions, however, could also have the effect of discouraging others from making tender offers for our shares. As a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.

     We are permitted to issue shares of our preferred stock without stockholder approval upon such terms as our board of directors determines. Therefore, the rights of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of our preferred stock that may be issued in the future. In addition, the issuance of preferred stock could have a dilutive effect on the holdings of our current stockholders.

     On June 5, 1998, our board of directors adopted a rights plan and declared a dividend with respect to each share of our common stock then outstanding. This dividend took the form of a right, which entitles the holders to purchase one-one thousandth of a share of our Series B junior participating preferred stock at a purchase price of $175, subject to adjustment from time to time. These rights have also been issued in connection with each share of our common stock issued after June 15, 1998. The rights are exercisable only if a person or entity or affiliated group of persons or entities acquires, or has announced its intention to acquire, 15% (27.5% in the case of certain approved stockholders) or more of our outstanding

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common stock. The adoption of the rights plan makes it more difficult for a third party to acquire control of us without the approval of our board of directors.

     Nevada Revised Statutes Sections 78.411 through 78.444 prohibit an “interested stockholder,” under certain circumstances, from entering into specified combination transactions with a Nevada corporation, unless certain conditions are met. Under the statute, an “interested stockholder” is a person who beneficially owns, directly or indirectly, 10% or more of a corporation’s voting stock or an affiliate or associate of a corporation who at any time within the prior three years beneficially owned, directly or indirectly, 10% or more of a corporation’s voting stock. According to the statute, we may not engage in a combination within three years after an interested stockholder acquires our shares, unless (i) our board of directors approves the combination prior to the interested stockholder becoming an interested stockholder or (ii) holders of a majority of voting power not beneficially owned by the interested stockholder approve the combination at a meeting called no earlier than three years after the date the interested stockholder became an interested stockholder.

     Nevada Revised Statutes Sections 78.378 through 78.3793 further prohibit an acquirer, under certain circumstances, from voting shares of a target corporation’s stock after crossing certain threshold ownership percentages, unless the acquirer obtains the approval of the target corporation’s stockholders. This statute only applies to Nevada corporations that do business directly or indirectly in Nevada. We do not intend to do business in Nevada within the meaning of the statute. Therefore, it is unlikely that the statute will apply to us.

     The provisions of our governing documents, our existing agreements and current Nevada law may, collectively:

• lengthen the time required for a person or entity to acquire control of us through a proxy contest for the election of a majority of our board of directors;

• discourage bids for our common stock at a premium over market price; and

• generally deter efforts to obtain control of us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risk, including changes in interest rates and short term investment prices. We do not use derivative financial instruments in our investment portfolio. We place our investments with high quality issuers and, by policy, limit the amount of credit exposure to any one issuer. We are averse to principal loss and ensure the safety and preservation of our invested funds by limiting default, market and reinvestment risk.

     We also have exposure to changes in interest rates in our line of credit with our Chairman, which bears interest at the prime rate plus one percent. Our interest rate exposure is mitigated by our ability to repay amounts outstanding under the line of credit with our common stock.

     Changes in interest rates do not affect interest income on our restricted cash as it is maintained in commercial paper with fixed rates and maturities of less than 90 days. Changes in interest rates do not affect interest expense on our lease obligations as they bear fixed rates of interest. Changes in interest rates do not affect our note payable as it bears a fixed rate of interest.

     There were no significant changes in our market risk exposures through the second quarter 2003.

ITEM 4. CONTROLS AND PROCEDURES

     We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

     As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

     There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

24

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On or about December 6, 2001, Variagenics was sued in a complaint filed in the United States District Court for the Southern District of New York naming it and certain of its officers and underwriters as defendants. The complaint purportedly is filed on behalf of persons purchasing the Company’s stock between July 21, 2000 and December 6, 2000, and alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended and Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder.

The complaint alleges that, in connection with Variagenics, July 21, 2000 initial public offering, the defendants failed to disclose additional and excessive commissions purportedly solicited by and paid to the underwriter defendants in exchange for allocating shares of Variagenics’ stock to preferred customers and alleged agreements among the underwriter defendants and preferred customers tying the allocation of IPO shares to agreements to make additional aftermarket purchases at predetermined prices. Plaintiffs claim that the failure to disclose these alleged arrangements made Variagenics’ registration statement on Form S-1 filed with the SEC in July 2000 and the prospectus, a part of the registration statement, materially false and misleading. Plaintiffs seek unspecified damages. On or about April 19, 2002 an amended complaint was filed which makes essentially the same allegations. On or about July 15, 2002, Variagenics and the individuals filed a motion to dismiss. We are involved in this litigation as a result of our merger with Variagenics in January 2003.

On July 16, 2003, the Nuvelo Board approved a settlement proposal initiated by the plaintiffs. The final terms of the settlement are still being negotiated.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company held its Annual Meeting of Stockholders on June 19, 2003. At that meeting, a quorum was present and four proposals were voted upon.

1. The following persons were nominees for election as Class I Directors, each to hold office for a term as outlined in the proxy statement or until his or her successor is duly elected and qualified, and at the Annual Meeting of Stockholders on June 19, 2003, each such Director received the number of votes set opposite his respective name and was elected as Class I Director for the term set forth in the proxy statement:

NOMINEE	FOR		AGAINST		WITHHELD
Ted W. Love, M.D.		57,218,734		0		2,252,227
Phillippe O. Chambon, M.D., Ph.D.		57,375,859		0		2,095,102

2. Approval of the reincorporation of Nuvelo from the State of Nevada to the State of Delaware, including the merger agreement by which the reincorporation will occur:

	VOTES
For		34,939,974
Against		1,283,941
Abstain		24,472

3. Approval of the amendments to Nuvelo’s amended and restated articles of incorporation to effect a reverse stock split of all of the outstanding shares of our common stock, whereby each outstanding 3, 4, 5 or 6 shares would be reclassified and changed into one share of common stock:

	VOTES
For		57,276,621
Against		2,124,425
Abstain		69,915

4. Ratification of the selection of KPMG, LLP as our independent auditors for the fiscal year 2003:

	VOTES
For		59,240,102
Against		33,004
Abstain		197,855

25

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit Number	Description
10.1	Amendment of Termination Agreement and Termination of Option Agreement
10.2	Second Amendment of the Amendment of Termination Agreement and Termination of Option Agreement
31.1	Certification of Chieft Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on form 8-K

DATE OF FILING	SUBJECT
May 1, 2003	Form 8-K, Item 5, press release announcing financial results and accomplishments for the first quarter 2003.

26

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Nuvelo, Inc. (Registrant)
	By:	/s/ Peter S. Garcia
		Peter S. Garcia Senior Vice President and Chief Financial Officer
Date: August 13, 2003

27

EXHIBIT INDEX

Exhibit Number	Description
10.1	Amendment of Termination Agreement and Termination of Option Agreement
10.2	Second Amendment of the Amendment of Termination Agreement and Termination of Option Agreement
31.1	Certification of Chieft Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

28 EX-10.1 3 f91029exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 AMENDMENT OF TERMINATION AGREEMENT AND TERMINATION OF OPTION AGREEMENT THIS SECOND AMENDMENT OF TERMINATION AGREEMENT AND TERMINATION OF OPTION AGREEMENT (this "Amendment") is entered into as of May 9, 2003, by and among AMB PROPERTY, L.P., a Delaware limited partnership ("AMB"), NUVELO, INC., a Nevada corporation, successor by merger to Hyseq, Inc., a Nevada corporation ("Nuvelo"), and GEORGE RATHMANN, an individual ("Guarantor"). AMB, Nuvelo and Guarantor are sometimes referred to individually herein as a "Party" and collectively as the "Parties." RECITALS A. AMB, Nuvelo and Guarantor are parties to that certain Conditional Lease Termination Agreement dated as of October 1, 2002 (the "Termination Agreement") pursuant to which the lease between AMB and Nuvelo dated as of June 23, 2000, as amended by that certain First Amendment to Lease Agreement dated December 14, 2000 (as so amended, the "Lease"), relating to, and Nuvelo's right to possession of, the approximately 59,300 rentable square feet located at 225, 249 and 257 Humboldt Court, Sunnyvale, California (the "Property"), was terminated, all as more particularly described in the Termination Agreement. B. In connection with the Termination Agreement, AMB and Nuvelo also entered into that certain Real Property Option and Sale Agreement and Joint Escrow Instructions dated as of October 1, 2002 (the "Option Agreement") pursuant to which AMB granted to Nuvelo an option to purchase the Property on the terms and conditions contained in the Option Agreement (the "Option"). As partial consideration for the Option, Nuvelo also executed a Promissory Note dated November 1, 2002 (the "Original Note") in the principal amount of $2,600,000 in favor of AMB, and issued to AMB a Warrant to Purchase Shares of Common Stock dated November 1, 2002 for up to 195,130 shares of common stock of Nuvelo (the "Original Warrants"). A Memorandum of Option dated November 18, 2002 executed by AMB and Nuvelo was recorded on November 18, 2002 in the Official Records of the County of Santa Clara, State of California (the "Official Records") as Instrument No 16622221. C. Guarantor executed a guaranty (the "Original Guaranty") of Nuvelo's obligations under the Original Note. Under the Original Guaranty, Guarantor also guaranteed and promised to pay any avoidance by Nuvelo, Nuvelo's successors or Nuvelo's creditors of all or any part of the sum of $3,100,00, which amount represents a portion of the termination fee paid to AMB pursuant to the Termination Agreement, or the recovery of any portion of such termination fee directly or indirectly from AMB as a preference, fraudulent transfer or otherwise under the Bankruptcy Code or other similar laws, which guarantee and promise terminated on February 3, 2003. D. The Parties acknowledge that AMB is holding an irrevocable letter of credit number 306S234524 dated November 13, 2002 in the amount of $250,000 (the "Repair Letter of Credit") issued by Union Bank of California (the "Issuing Bank") in favor of AMB, as Beneficiary, for the account of Nuvelo, as Applicant, which letter of credit secures the obligations of Nuvelo to repair the Property set forth in the Termination Agreement and certain side letters executed by the Parties in connection therewith (the "Original Repair Obligations"). The Parties also acknowledge that in accordance with the Termination Agreement, the Existing Letter of Credit (as defined in the Termination Agreement) in the amount of $3,000,000 was previously returned by AMB to the Issuing Bank and has been cancelled. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 1 E. The Termination Agreement, the Option Agreement, the Original Note, the Warrants, the Original Guaranty, the Repair Letter of Credit and the other instruments and documents executed by or entered into among the Parties in connection therewith, are referred to herein sometimes collectively as the "Original Transaction Documents." Capitalized terms used but not otherwise defined herein shall have the same meanings as in the Original Transaction Documents. F. The Parties desire to terminate the Option and the Option Agreement as provided herein and in the other Modification Documents (defined below), all on and subject to the terms and conditions provided herein and in the other Modification Documents. G. Pursuant to the Option Agreement and the Original Note, the principal amount of the Original Note becomes due and payable upon a termination of the Option Agreement. Nuvelo desires to revise the terms of payment and extend the maturity date of the Original Note, and AMB is willing to agree to such revisions notwithstanding the termination of the Option Agreement, all on and subject to the terms and conditions provided herein and in the other Modification Documents. H. The Parties have entered into that certain Pre-Negotiation and Extension Agreement dated as of April 29, 2003, as amended by the letter agreement dated May 7, 2003, providing for, among other things, the extension of the Option Period (as defined in the Option Agreement) until 5:00 p.m. (Pacific Standard Time) on May 9, 2003 (as amended, the "Pre-Negotiation Agreement"). NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and intending to be legally bound hereby, the Parties covenant and agree as follows: AGREEMENT 1. Reaffirmation of Termination of Lease and Termination Fee. Notwithstanding anything to the contrary contained in this Agreement or the other Modification Documents, the Parties acknowledge and reaffirm (a) the termination of the Lease and of Nuvelo's right to possession of the Property under the Lease as of October 1, 2002 pursuant to the Termination Agreement, as revised hereby, and (b) the right of AMB to retain the Termination Fee in the total amount of $5,400,000 paid to AMB under the Termination Agreement (including, without limitation, the cash payment in the amount of $2,300,000 which amount the Parties acknowledge was previously paid by the Guarantor). Nothing contained in this Agreement or the other Modification Documents shall affect or be deemed to affect such prior termination of the Lease or AMB's right to retain the Termination Fee in its entirety, which Termination Fee the Parties acknowledge and agree has been fully earned. 2. Termination of Option and Option Agreement; Reaffirmation of Option Consideration. (a) Nuvelo and Guarantor acknowledge and agree that Nuvelo has elected not to and will not exercise the Option to purchase the Property under the Option Agreement if the transactions contemplated by this Agreement are consummated. Subject to the provisions of Paragraph 11, the Parties agree that from and as of the Effective Date (defined below), the Option Agreement is hereby terminated in its entirety, including without limitation, the Option contained therein, and the Parties have no further rights or obligations thereunder, except those obligations which expressly survive a termination of the Option Agreement or as otherwise expressly provided herein or in the other Modification Documents. Without limitation, subject to the provisions of Paragraph 11, from and as of the Effective Date, the Parties acknowledge and agree that Nuvelo has no further right to exercise the Option and no further rights or interests with respect to the Property (other than the right of Nuvelo specifically contained in this Agreement to access the Property in order to complete its repair obligations in accordance with Paragraph 6 of this Agreement), and that the Loan Documents (as defined in the Option Agreement) will not be [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 2 executed or delivered under the Option Agreement (other than the Amended and Restated Note (as defined in Paragraph 3) and the Amended and Restated Guaranty (as defined in Paragraph 4) if the transactions contemplated hereby are consummated). Nuvelo hereby waives, releases and relinquishes all right, title and interest in and to the Property, including without limitation, pursuant to the Option and the Option Agreement (other than such access rights in accordance with Paragraph 6 of this Agreement and subject to the provisions of Paragraph 11). Concurrently with the execution of this Agreement, Nuvelo agrees to deliver to Escrow Agent (defined below) as provided in Paragraph 11(b), two (2) originals of a Quitclaim Deed and Termination of Option in the form of EXHIBIT A attached hereto and incorporated herein by this reference (the "Quitclaim Deed") duly executed and acknowledged by Nuvelo. Nuvelo further agrees to return to AMB promptly following the Effective Date all due diligence materials and reports in Nuvelo's possession relating to the Property (other than items which are subject to contractual limitations with third parties against disclosure by Nuvelo, documents which are privileged or constitute Nuvelo's internal analysis or appraisal of the Property). (b) Notwithstanding the termination of the Option and the Option Agreement, and notwithstanding anything to the contrary contained in this Agreement or the other Modification Documents, the Parties acknowledge and reaffirm the right of AMB to retain the Initial Option Consideration and the Additional Option Consideration previously paid to AMB pursuant to the Option Agreement (in the total amount of $2,340,000, including, without limitation, the cash payment in the amount of $1,700,000 which amount the Parties acknowledge was previously paid by the Guarantor), as well as the option payments evidenced by and due under the Amended and Restated Note (defined below). Nothing contained in this Agreement or the other Modification Documents shall affect or be deemed to affect AMB's right to such option consideration in its entirety, which option consideration the Parties acknowledge and agree has been fully earned. 3. Amended and Restated Note. The Parties acknowledge and agree that the Original Note shall be amended and restated in its entirety pursuant to the Amended and Restated Promissory Note in the amount of $2,600,000 in the form attached hereto as EXHIBIT B and incorporated herein by this reference (the "Amended and Restated Note"), effective as of the Effective Date and subject to satisfaction of all of the Conditions Precedent set forth in Paragraph 11 of this Agreement. 4. Amended and Restated Guaranty. Concurrently herewith, the Guarantor agrees to execute and deliver (and to cause Mrs. Rathmann to execute and deliver) to AMB, as provided in Paragraph 11(c), the Amended and Restated Guaranty in the form of EXHIBIT C attached hereto and incorporated herein by this reference (the "Amended and Restated Guaranty"), which shall amend and restate the Original Guaranty in its entirety effective as of the Effective Date and subject to satisfaction of all of the Conditions Precedent set forth in Paragraph 11 of this Agreement. 5. Additional Warrants. In consideration for AMB entering into the Modification Documents, concurrently herewith, Nuvelo agrees to execute and deliver to AMB, as provided in Paragraph 11(a), a Stock Purchase Warrant to Purchase Shares of Common Stock for 200,000 shares of common stock of Nuvelo (in addition to the Original Warrants) in the form attached hereto as EXHIBIT D and incorporated herein by this reference (the "Additional Warrants"). Nuvelo hereby reaffirms all of its obligations, as successor by merger to Hyseq, Inc., under the Original Warrants, and represents and warrants to AMB that the Original Warrants are in full force and effect as of the date hereof and as of the Effective Date. 6. Repair Obligations; Access Rights. (a) The Original Repair Obligations set forth in Paragraph 5 of the Termination Agreement and the side letters executed by the Parties in connection therewith are hereby amended and [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 3 restated in their entirety as set forth in this Paragraph 6. Nuvelo agrees to perform, at its sole cost and expense, the repair and restoration obligations described in this Paragraph 6, and as further described in EXHIBIT E and SCHEDULE 1 attached hereto and incorporated herein by this reference (collectively, the "Repair Obligations" or the "Work"), on or before the date that is 90 days after the Effective Date (the "Repair Deadline"). As part of the Repair Obligations, Nuvelo shall, without limitation: (1) remove and restore the items listed on EXHIBIT E and SCHEDULE 1, (2) leave the Premises in a broom-clean condition, free of all materials, supplies, equipment and personal property, (3) repair any damage to the Premises caused by any such removal or restoration, (4) obtain unconditional lien releases in form satisfactory to AMB from all contractors and subcontractors performing any portion of the Work, in each case prior to the Repair Deadline, and (5) otherwise comply with the provisions of this Paragraph 6 and EXHIBIT E. (b) Upon completion of the Work, Nuvelo shall contact AMB's property manager, Amy Pallas or John Baruh of Legacy Partners (at [***]), to inspect the Premises to determine on behalf of AMB if the Repair Obligations have been fully satisfied as provided in this Paragraph 6. Nuvelo shall have the right to have a representative of Nuvelo conduct such inspection with AMB. If Nuvelo fails to fulfill any Repair Obligations on or prior to the Repair Deadline to AMB's reasonable satisfaction, then AMB shall notify Nuvelo in writing which of such obligations are not so satisfied. Nuvelo shall then have 10 days to complete the remaining Repair Obligations to AMB's reasonable satisfaction. If Nuvelo does not so satisfy such remaining Repair Obligations within such 10 day period, then AMB shall have the right (but not the obligation) to perform such obligations on behalf of Nuvelo and to draw on the Repair Letter of Credit and apply the proceeds thereof toward the costs incurred by AMB in connection therewith. AMB shall be entitled to retain the Repair Letter of Credit as security for the lien-free completion of the Repair Obligations as provided in and subject to the provisions of this Paragraph 6. Nuvelo shall give AMB 10 days' prior written notice before commencing the Work to enable AMB to record and post a notice of non-responsibility. (c) Upon completion of the Work, Nuvelo shall also complete and record a Notice of Completion in the Official Records in accordance with California Civil Code Section 3093 or any succeeding law, statute or ordinance now or hereafter in effect. If the Repair Obligations have been completed as provided in this Paragraph 6, then AMB agrees to return the Repair Letter of Credit (or the proceeds thereof, if any, remaining after reimbursing AMB in full for all reasonable costs and expenses incurred by AMB in performing any portion of the Work that is not completed by Nuvelo as provided in subparagraph (b) above, plus any amounts owing to AMB or any AMB Party under Paragraph 9 hereof including, without limitation, reasonable attorneys' fees) to Nuvelo on or before the date which is 90 days after the recordation of such Notice of Completion. (d) Subject to the indemnification provisions of Paragraph 9 of this Agreement, and subject to receipt and approval by AMB of evidence of insurance satisfactory to AMB (including without limitation general liability insurance in the amount of at least $2,000,0000) covering Nuvelo and all contractors and subcontractors performing the Work (which insurance shall name AMB, AMB Property Corporation and AMB Property Capital Partners as additional insureds), Nuvelo and its representatives shall be entitled to access to the Premises upon reasonable advance notice to AMB's property manager, during normal business hours, from the date hereof through the Repair Deadline to perform the Repair Obligations, subject to such rules and regulations as AMB may reasonably impose. At AMB's discretion, a representative of AMB's property manager may accompany Nuvelo and its representatives and contractors. Subject to the indemnification provisions of Paragraph 9, AMB shall provide reasonable access to Nuvelo and its employees, contractors and subcontractors to perform preliminary inspections and bids prior to commencing the Work and delivering the insurance documentation required hereunder. (e) As a Condition Precedent pursuant to Paragraph 11, Nuvelo shall deliver to AMB on or prior to the Effective Date, an amendment to the Repair Letter of Credit, which amendment shall [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 4 revise the statement to be delivered by the Beneficiary in connection with a draw under the Repair Letter of Credit to read as provided in the following paragraph, in form and content satisfactory to AMB in its sole discretion (the "Repair Letter of Credit Amendment"): "The undersigned being an authorized representative or officer of [Name of Beneficiary] (the "Beneficiary") hereby certifies that it is entitled to draw on Union Bank of California, N.A. Letter of Credit No. 306S234524 pursuant to the Conditional Lease Termination Agreement dated October 1, 2002, as amended by the Amendment of Termination Agreement and Termination of Option Agreement, between AMB Property, L.P., a Delaware limited partnership, Nuvelo, Inc., a Nevada corporation, successor by merger to Hyseq, Inc., and George Rathmann, and as the same may be further amended or assigned, or any documents related thereto." (f) All contractors and subcontractors performing any portion of the Work on behalf of Nuvelo shall be duly licensed in the State of California and shall, together with any contracts entered into for any portion of the Work, be subject to the prior written approval of AMB, which approval shall not be unreasonably withheld, conditioned or delayed. Prior to commencement of the Work, Nuvelo shall provide AMB with plans and specifications for the Work for AMB's prior written approval, which approval shall not be unreasonably withheld, and shall obtain and provide to AMB all required permits for the Work. Nuvelo shall and shall cause its contractors to perform the Work in accordance with all applicable laws, rules, ordinances and regulations, including without limitation, local building codes, free of defects and liens, and otherwise in accordance with the provisions of EXHIBIT E. Any delay in the commencement of Work caused by AMB's unreasonable denial of reasonably proposed licensed contractors and subcontractors or plans and specifications or unreasonable delay in the approval of the matters required under this paragraph shall extend the Repair Deadline by the amount of such delay caused by AMB. 7. Representations and Warranties of Nuvelo. Nuvelo represents and warrants that (a) Nuvelo is the successor by merger to, and has succeeded to all of the obligations, debts and liabilities of, Hyseq, Inc., a Nevada corporation, including without limitation the obligations of Hyseq, Inc. under the Original Transaction Documents; (b) Nuvelo has not made (i) any direct or indirect (whether by operation of law or otherwise) disposition, assignment, sublease, conveyance or other transfer of its obligations under the Original Transaction Documents or (ii) any assignment or encumbrance of any of the Original Transaction Documents; (c) Nuvelo has no knowledge of any fact or circumstance which would give rise to any claim, demand, obligation, liability, action or cause of action arising out of or in connection with Nuvelo's occupancy of the Premises; (d) no other person or entity claiming by, through or under Nuvelo has an interest in the Premises, collateral or otherwise; (e) there are no outstanding contracts for the supply of labor or material and no work has been done or is being done in, to or about the Premises which has not been fully paid for and for which appropriate waivers of mechanic's liens have not been obtained; (f) the person or entity executing this Agreement and the other Modification Documents on behalf of Nuvelo has the full right, power and authority to execute this Agreement and the other Modification Documents and to bind Nuvelo without the consent or approval of any other person or entity or all such consents or approvals have been duly obtained; (g) Nuvelo and Guarantor each has the full power, capacity, authority and legal right to execute and deliver this Agreement and the other Modification Documents to which it or he is a party; (h) to the best of Nuvelo's knowledge, this Agreement and the other Modification Documents are legal, valid and binding upon Nuvelo and Guarantor (as applicable), and are enforceable in accordance with their terms; (i) there are no uncured defaults on the part of AMB and neither Nuvelo nor Guarantor has any claim, cause of action, offset, set-off, deduction, counterclaim or other similar [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 5 right against AMB, including, without limitation, for a refund of any Operating Expenses or Property Taxes under the Lease; (j) Guarantor will benefit from the transactions contemplated hereunder and under the other Modification Documents; (k) neither Nuvelo nor Guarantor has taken or is contemplating taking any of the following actions: (1) made a general assignment for the benefit of creditors; (2) filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors; (3) suffered the appointment of a receiver to take possession of all, or substantially, all of its assets; (4) suffered the attachment or other judicial seizure of all, or substantially all, of its assets; (5) admitted in writing to its inability to pay its debts as they become due; or (6) made an offer of settlement, extension or composition to its creditors generally and (l) Nuvelo has received no notice of any material proceeding or investigation by any regulatory agency pending or threatened against Nuvelo. The foregoing representations and warranties shall be deemed to be remade in full as of the Effective Date, and shall survive the termination of the Option Agreement hereunder. 8. Representations and Warranties of AMB. AMB represents and warrants that (a) AMB is the rightful owner of the Property; (b) AMB has not made any direct or indirect (whether by operation of law or otherwise) disposition, assignment, sublease, conveyance or other transfer of the Property or any interest therein or any assignment or encumbrance of any of the Original Transaction Documents; (c) AMB has no knowledge of any fact or circumstance which would give rise to any claim, demand, obligation, liability, action or cause of action arising out of or in connection with the Lease; (d) the person or entity executing this Agreement and the other Modification Documents to which AMB is a party on behalf of AMB has the full right, power and authority to execute this Agreement and such other Modification Documents and to bind AMB, without the consent or approval of any other person or entity; (e) AMB has the full power, capacity, authority and legal right to execute and deliver this Agreement and the other Modification Documents to which AMB is a party; (f) this Agreement and the other Modification Documents to which AMB is a party are legal, valid and binding upon AMB, and this Agreement and the other Modification Documents are enforceable in accordance with their terms; (g) to the best of AMB's knowledge, there are no uncured defaults on the part of Nuvelo or Guarantor and AMB has no claim, cause of action, offset, set-off, deduction, counterclaim or other similar right against Nuvelo or Guarantor except as expressly provided in this Agreement and the other Modification Documents; and (h) AMB has not done and is not contemplating taking any of the following actions: (1) made a general assignment for the benefit of creditors; (2) filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors; (3) suffered the appointment of a receiver to take possession of all, or substantially, all of its assets; (4) suffered the attachment or other judicial seizure of all, or substantially all, of its assets; (5) admitted in writing to its inability to pay its debts as they become due; or (6) made an offer of settlement, extension or composition to its creditors generally. The foregoing representations and warranties shall be deemed to be remade by AMB in full as of the Effective Date, and shall survive the termination of the Option Agreement hereunder. The truth and accuracy of the foregoing representations and warranties as of the date hereof and as of the Effective Date shall be a Condition Precedent hereunder. 9. Indemnity; Release. (a) Nuvelo shall protect, indemnify, defend (with counsel reasonably acceptable to AMB) and hold AMB and the other AMB Parties (defined below) harmless from and against any and all asserted, threatened or actual claims (including third party claims), judgments, damages, penalties, fines, liabilities, losses, liens, suits, administrative proceedings and costs (including, but not limited to, reasonable attorneys', experts' and consultants' fees and court costs), of any nature whatsoever (collectively, the "Claims"), directly or indirectly relating to or arising from (a) any Work performed by or on behalf of Nuvelo at the Premises, including, without limitation, any liens filed in connection therewith or any violations of law or breach of the Repair Obligations, (b) any access or entry on the Property or Premises by Nuvelo or its contractors or representatives, and (c) any brokerage commission, finder's fees or other amount due in connection with this Agreement or the other Modification Documents [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 6 to any person or entity claiming by, through or under Nuvelo or Guarantor, including without limitation Bryce Mason of BC Struxture ("Broker"). This indemnity shall survive any termination of this Agreement and the termination of the Option Agreement hereunder and shall continue in effect for as long as AMB and the other AMB Parties may be subject to any of the Claims described above. "AMB Parties" means AMB and AMB, AMB Property Corporation and AMB Property Capital Partners and their respective partners, members, shareholders, officers, directors, employees, property managers, representatives, agents, successors and assigns. (b) AMB shall protect, indemnify, defend (with counsel reasonably acceptable to Nuvelo) and hold Nuvelo harmless from and against any and all Claims directly or indirectly relating to or arising from any brokerage commission, finder's fees or other amount due in connection with this Agreement or the other Modification Documents to any person or entity claiming by, through or under AMB, provided that AMB shall have no obligation to pay any commission to Broker and such indemnity shall specifically excludes any Claim relating to Broker. This indemnity shall survive any termination of this Agreement and the termination of the Option Agreement hereunder and shall continue in effect for as long as Nuvelo may be subject to any of the Claims described above. (c) Nuvelo and Guarantor hereby reaffirm and restate the releases and waivers contained in Paragraphs 2 and 4 of the Termination Agreement, and each hereby further releases, discharges and waives any claims, demands or causes of action whatsoever, including, without limitation, any and all rights, obligations, liabilities, indebtedness, breaches of contract, breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance, debts, defenses, sums of money, accounts, compensations, contracts, controversies, promises, damages, costs, losses and expenses of every type, kind, nature, description or character, and irrespective of how, why, or by reason of what facts, whether heretofore or now existing, or that could, might, or may be claimed to exist, of whatever kind or name, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, claimed or unclaimed, whether based on contract, tort, breach of any duty, or other legal or equitable theory of recovery, each as though fully set forth herein at length, arising or accruing out of or in connection with the Original Transaction Documents as amended by the Modification Documents or the Pre-Negotiation Agreement that Nuvelo and/or Guarantor may have against AMB or any AMB Parties as of the Effective Date. Notwithstanding the foregoing, nothing contained herein or in the Original Transaction Documents as amended hereby and by the other Modification Documents shall release the Parties from their respective obligations under this Agreement or the Original Transaction Documents as amended hereby and by the other Modification Documents and the Pre-Negotiation Agreement, except as expressly provided herein and therein. (d) AMB hereby reaffirms and restates the releases and waivers contained in Paragraphs 3 and 4 of the Termination Agreement, and hereby further releases, discharges and waives any claims, demands or causes of action whatsoever, including, without limitation, any and all rights, obligations, liabilities, indebtedness, breaches of contract, breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance, debts, defenses, sums of money, accounts, compensations, contracts, controversies, promises, damages, costs, losses and expenses of every type, kind, nature, description or character, and irrespective of how, why, or by reason of what facts, whether heretofore or now existing, or that could, might, or may be claimed to exist, of whatever kind or name, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, claimed or unclaimed, whether based on contract, tort, breach of any duty, or other legal or equitable theory of recovery, each as though fully set forth herein at length, arising or accruing out of or in connection with the Original Transaction Documents as amended by the Modification Documents or the Pre-Negotiation Agreement that AMB may have against Nuvelo as of the Effective Date. (e) Notwithstanding the foregoing, nothing contained herein or in the Original Transaction Documents as amended hereby and by the other Modification Documents shall release the [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 7 Parties from their respective obligations under this Agreement or the Original Transaction Documents as amended hereby and by the other Modification Documents and the Pre-Negotiation Agreement, except as expressly provided herein and therein. 10. Re-Leasing of Premises. Nuvelo acknowledges and agrees that AMB shall have full access to the Premises at all times in order to show the Premises to prospective tenants. Nuvelo agrees that AMB may enter into a new lease for the Premises with any third party and that Nuvelo shall have no right to any amounts received by AMB in connection therewith. AMB's access to the Premises and activities performed in accordance with this Paragraph 10 shall be exercised so as not to unreasonably interfere with the completion of the Repair Obligations prior to the Repair Deadline. 11. Conditions Precedent. All of the following conditions set forth in subparagraphs (a) through (i) of this Paragraph 11 shall constitute conditions precedent to the obligations of AMB under this Agreement and the other Modification Documents (collectively, the "Conditions Precedent"): (a) Nuvelo shall have duly executed and delivered to AMB (care of Steppe, Stone & Lakey LLP, 999 Baker Way, Suite 420, San Mateo, CA 94404, Attention: Sara R. Steppe), three (3) originals of this Agreement, the original Amended and Restated Note, and three (3) originals of the Additional Warrants; (b) Nuvelo shall have duly executed, acknowledged and delivered to each of First American Title Company, at 1737 North First Street, Suite 100, San Jose, CA, Attention: Dian Blair ("Escrow Agent"), and AMB (care of Steppe, Stone & Lakey LLP, 999 Baker Way, Suite 420, San Mateo, CA 94404, Attention: Sara R. Steppe) two (2) originals of the Quitclaim Deed, together with recording instructions consistent with this Agreement authorizing Escrow Agent to record the Quitclaim Deed in the Official Records; (c) Guarantor and Mrs. Rathmann shall have duly executed, acknowledged (where required) and delivered to AMB (care of Steppe, Stone and Lakey at the address set forth above) three (3) originals of each of this Agreement and the Amended and Restated Guaranty; (d) AMB shall have received (care of Steppe, Stone and Lakey at the address set forth above) and approved the original Repair Letter of Credit Amendment which shall have been duly issued by the Issuing Bank as of the Effective Date; (e) AMB shall have received (care of Steppe, Stone and Lakey at the address set forth above) and approved an original legal opinion of Nuvelo's counsel, in form and substance satisfactory to AMB in its sole discretion, opining to AMB that (i) Nuvelo is duly formed, validly existing and in good standing in the state of its formation and is the successor by merger to Hyseq, Inc., a Nevada corporation, (ii) Nuvelo is qualified to do business and is in good standing in the State of California, (iii) Nuvelo has all requisite power and authority to enter into this Agreement, the Amended and Restated Note, the Additional Warrants, the Quitclaim Deed and the other Modification Documents to which Nuvelo is a party, (iv) this Agreement, the Amended and Restated Note, the Additional Warrants, the Quitclaim Deed and the other Modification Documents to which Nuvelo is a party have each been duly authorized, executed and delivered by Nuvelo, (v) the interest rate terms in the Amended and Restated Note do not violate any applicable usury laws, (vi) this Agreement, the Amended and Restated Note, the Additional Warrants, the Quitclaim Deed and the other Modification Documents to which Nuvelo is a party, when executed, are the legal, valid and binding obligations of Nuvelo and are enforceable against Nuvelo in accordance with their terms, this Agreement, and (vi) Nuvelo has received no notice of any material proceeding or investigation by any regulatory agency pending or threatened against Nuvelo, which legal opinion shall be dated as of the Effective Date; [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 8 (f) AMB shall have received (at its address set forth in Paragraph 13 hereof) and approved the most recent financial statements or balance sheet of the Guarantor, certified by the Guarantor to AMB as being true and correct in all material respects and fairly representing the financial condition of the Guarantor; (g) Nuevo and/or Guarantor shall have reimbursed AMB for all legal fees and expenses incurred by AMB in connection with the preparation, negotiation and execution of this Agreement, the other Modification Documents and the Pre-Negotiation Agreement and the transactions contemplated hereby and thereby and the Negotiations (as defined in the Pre-Negotiation Agreement) in an aggregate amount not to exceed $15,000; (h) All of the representations and warranties of the Parties contained in this Agreement and in any of the other Modification Documents shall be true and correct in all material respects as of the date hereof and as of the Effective Date; and (i) All of the foregoing documents and instruments to be executed and delivered as provided in this Paragraph 11 (collectively, the "Modification Documents") shall be in full force and effect as of the Effective Date. Nuvelo and Guarantor acknowledge that the Conditions Precedent are a material inducement to AMB to enter into this Agreement and the other Modification Documents. The date on which the Conditions Precedent are satisfied as required herein shall be referred to herein as the "Effective Date." If any of the Conditions Precedent is not satisfied as required herein and the Effective Date does not occur on or before 5:00 p.m. (Pacific Standard Time) on May 14, 2003 (the "Modification Termination Date"), then, unless AMB elects in writing to waive the same and to continue this Agreement and the other Modification Documents in effect, (1) this Agreement and the other Modification Documents shall terminate and shall be null and void and of no force or effect (other than the provisions contained in Paragraphs 1, 2 and 10 and the provisions of this Paragraph 11 and except those provisions of this Agreement and the other Modification Documents which expressly state that they survive a termination hereof or thereof), (2) the Termination Agreement and the other Original Transaction Documents, including without limitation the Option Agreement, the Original Note and the Original Guaranty, shall be deemed reinstated and reaffirmed as if this Agreement and the other Modification Documents had not been executed, without any further action by the Parties, (3) without limitation, the entire principal amount of the Original Note shall be due and owing as of, and the Option Period shall expire at 5:00 p.m. (Pacific Standard Time) on, the Modification Termination Date, and the provisions of Section 2.4 of the Option Agreement shall otherwise apply, unless Nuvelo duly exercises the Option prior to such expiration of the Option Period and in accordance with all of the provisions of the Option Agreement and (4) the Parties agree that notwithstanding anything to the contrary contained in the Original Transaction Documents, AMB shall have the right (but not the obligation) immediately to perform the Original Repair Obligations under the Termination Agreement itself and the right to draw on the Repair Letter of Credit and apply the proceeds thereof toward the costs and expenses incurred by AMB in performing the Original Repair Obligations. The Conditions Precedent are intended to be solely for the benefit of AMB and thus the Conditions Precedent may only be waived in writing or considered satisfied by AMB (which AMB shall have the right but not the obligation to do in its sole discretion). Upon notice from AMB to Escrow Agent that all of the Conditions Precedent have been satisfied as provided herein, the Parties hereby instruct the Escrow Agent to, and the Escrow Agent by its signature below hereby agrees to, immediately record the Quitclaim Deed in the Official Records without any further notice or actions by the Parties, and despite any contrary instructions from any other party. Notwithstanding the foregoing or anything to the contrary contained herein, the Parties acknowledge and agree that AMB may elect instead to record the original Quitclaim Deed delivered directly to AMB itself, [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 9 and not have it recorded by the Escrow Agent, in accordance with the foregoing sentence without any further notice or actions by the Parties, and despite any contrary instructions from any other party. 12. Confidentiality. Neither Nuvelo nor Guarantor nor any of their respective agents or any other parties acting on their behalf shall disclose any matters set forth in the Termination Agreement as amended hereby or the Original Transaction Documents as amended by the other Modification Documents, or disseminate or distribute any information concerning the terms, details or conditions hereof or thereof to any person, firm or entity without obtaining the express prior written consent of AMB; provided, however, that the foregoing prohibition shall not apply to (a) disclosures to attorneys, accountants, lenders, investors and insurers, provided that such parties are informed of the confidential nature of the terms and conditions thereof and, provided further, that such parties are directed to treat such terms and conditions as confidential, or (b) disclosures required by any applicable law or regulation and, in such event, the disclosing party shall disclose only the specific matters as are required by law to be disclosed. The provisions of this Paragraph 12 shall survive any termination of this Agreement, and the termination of the Option Agreement and the consummation of the other transactions contemplated hereby and by the other Modification Documents. 13. Notices. Any notice, election, communication, request, approval or other document or demand required or permitted under this Agreement shall be in writing to the respective addresses of the Parties set forth below and may be delivered by personal delivery, facsimile transmission during the normal business hours of the recipient with written acknowledgment of receipt, an overnight delivery service, or U.S. mail sent certified with return receipt requested. Notices are effective on the earlier of the date received, the date of the delivery receipt (including in the case of notice by facsimile), or the third day after postmark, as applicable. To AMB: AMB Property, L.P. Pier 1, Bay 1 San Francisco, California 94111 Attn.: John L. Rossi Tel: [***] Fax: [***] With a copy to: Steppe, Stone & Lakey LLP 999 Baker Way, Suite 420 San Mateo, CA 94404 Tel: [***] Fax: [***] To Nuvelo: Nuvelo, Inc. 675 Almanor Avenue Sunnyvale, California 94085 Attn.: Peter S. Garcia Tel: [***] Fax: [***] With a copy to: Dewey Ballantine LLP 333 S. Grand Avenue, 26th Floor Los Angeles, California 90071 [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 10 Attn: Bruce Fraser Tel: [***] Fax: [***] To Guarantor: George Rathmann c/o Nuvelo, Inc. 675 Almanor Avenue Sunnyvale, California 94085 Tel: [***] Fax: [***] With a copy to: Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, Washington, 98101 Attn: Alan D. Smith Tel: [***] Fax: [***] 14. Miscellaneous. (a) Voluntary Agreement. The Parties have read this Agreement and the other Modification Documents to which they are a party and the releases contained in herein and therein, and on advice of counsel they have freely and voluntarily entered into this Agreement and the other Modification Documents to which they are a party. (b) Attorneys' Fees. Nuvelo shall reimburse AMB for all legal fees and expenses incurred by AMB in connection with the preparation, negotiation and execution of this Agreement and the other Modification Documents and the Pre-Negotiation Agreement, whether or not the transactions contemplated hereby are consummated, in an aggregate amount of $15,000. If any Party commences an action against another Party arising out of or in connection with this Agreement or the other Modification Documents or the Pre-Negotiation Agreement, the prevailing party shall be entitled to recover from the losing party reasonable attorneys' fees and costs of suit. The provisions of this subparagraph (b) shall survive any termination of this Agreement and the termination of the Option Agreement. (c) Successors. This Agreement shall be binding upon and inure to the benefit of AMB and Nuvelo and their respective successors, assigns and related entities. (d) Counterparts; Facsimile Signatures. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be a duplicate original, but all of which together shall constitute one and the same instrument. The Parties hereby agree that the facsimile signatures shall be binding upon the parties to this Agreement. (e) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. (f) Additional Documents. Each of the Parties hereto specifically agrees to execute such other and further instruments and documents, as may be reasonably required to effectuate the terms, conditions and objectives of this Agreement. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 11 (g) Entire Agreement. This Agreement and the other Modification Documents together with the Pre-Negotiation Agreement constitute the entire understanding of the Parties and supersedes all prior agreements, understandings, discussions, statements and negotiations of the Parties relating to the subject matter herein contained. (h) Authority. Each person signing this Agreement and the other Modification Documents on behalf of the respective Parties represents and warrants that she, he or it has the capacity and is authorized to execute and deliver this Agreement and the other Modification Documents to which such Party is a party, and that this Agreement and the other Modification Documents to which such Party is a party will thereby become binding on such Party. (i) Headings and Titles. The headings and titles to the Paragraphs of this Agreement are for convenience only and shall have no effect on the interpretation of any part of this Agreement. (j) Deadline for Execution. Submission of this Agreement and the other Modification Documents by AMB is not an offer to enter into this Agreement and the other Modification Documents. AMB shall not be bound by this Agreement and the other Modification Documents until the other Parties thereto have duly executed, acknowledged (where required) and delivered the same and the Conditions Precedent have been satisfied as required under this Agreement. This Agreement shall be null and void and of no force or effect if not fully executed by Nuvelo and Guarantor and delivered to AMB (care of Steppe, Stone and Lakey at the address set forth in Paragraph 11(a))prior to 5:00 p.m. (Pacific Standard Time) on May 9, 2003. The provisions of this subparagraph (j) shall survive any termination of this Agreement. (k) WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THE TERMINATION AGREEMENT AS AMENDED HEREBY OR THE OTHER ORIGINAL TRANSACTION DOCUMENTS AS AMENDED BY THE OTHER MODIFICATION DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION HEREOF OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THE TERMINATION AGREEMENT AS AMENDED BY THIS AGREEMENT OR THE OTHER ORIGINAL TRANSACTION DOCUMENTS AS AMENDED BY THE OTHER MODIFICATION DOCUMENTS (AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. EACH PARTY CONSENTS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT WITHIN THE STATE OF CALIFORNIA HAVING VENUE IN SAN FRANCISCO, CALIFORNIA. THE PROVISIONS OF THIS SUBPARAGRAPH SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT, AND THE TERMINATION OF THE OPTION AGREEMENT. (l) ADVICE OF COUNSEL. THE PARTIES REPRESENT AND DECLARE TO EACH OTHER THAT THEY HAVE CAREFULLY READ THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS AND KNOW THE CONTENTS HEREOF AND THEREOF, AND THAT THEY SIGN THE SAME FREELY AND VOLUNTARILY. EACH OF THE SIGNATORIES HERETO WARRANTS AND REPRESENTS THAT THEY ARE EFFECTING THIS SETTLEMENT AND EXECUTING THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS AFTER [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 12 HAVING RECEIVED FULL LEGAL ADVICE AS TO THEIR RESPECTIVE RIGHTS FROM THEIR COUNSEL. THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS ARE THE PRODUCT OF NEGOTIATIONS AND PREPARATION BY AND AMONG EACH PARTY HERETO AND HIS, HER OR ITS RESPECTIVE COUNSEL. THEREFORE, THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS SHALL NOT BE DEEMED PREPARED OR DRAFTED BY ONE PARTY OR ANOTHER AND SHALL BE CONSTRUED ACCORDINGLY. EACH PARTY TO THIS AGREEMENT HEREBY CONFIRMS AND ADMITS THAT SHE, HE OR IT HAS READ AND UNDERSTANDS THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS AND THAT SHE, HE OR IT HAS BEEN FULLY ADVISED AND REPRESENTED BY COUNSEL WITH RESPECT TO THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS AND ALL NEGOTIATIONS GIVING RISE TO IT, AND THAT SHE, HE OR IT HAS FULLY DISCUSSED THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS AND THEIR TERMS, CONSEQUENCES AND RAMIFICATIONS WITH HER, HIS OR ITS RESPECTIVE COUNSEL. THE PROVISIONS OF THIS SUBPARAGRAPH SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT, AND THE TERMINATION OF THE OPTION AGREEMENT. (m) Limitation of AMB's Liability. Notwithstanding anything to the contrary contained in the Termination Agreement as amended by this Agreement or in the other Original Transaction Documents as amended by the other Modification Documents, Nuvelo and Guarantor hereby agree that recovery against AMB or any AMB Parties for any breach or other action arising out of the Termination Agreement as amended by this Agreement or the Original Transaction Documents as amended by the other Modification Documents shall be limited to AMB's interest in the Property. The provisions of this subparagraph (m) shall survive any termination of this Agreement, and the termination of the Option Agreement. (n) No Third Party Beneficiaries. All of the understandings, covenants, and agreements contained herein are solely for the benefit of AMB and Nuvelo and their respective successors and permitted assigns, and no other person or party is intended to be benefited, in any way, by this Agreement or the other Modification Documents. The provisions of this subparagraph (n) shall survive any termination of this Agreement, and the termination of the Option Agreement. (o) Guarantor Consent. This Agreement and the other Modification Documents shall be of no force or effect unless and until accepted by the Guarantor and his spouse, who each by their signatures below consent to the transactions contemplated by this Agreement and the other Modification Documents, including without limitation, the termination of Nuvelo's Option to purchase the Property and of the Option Agreement pursuant hereto, the extension of the maturity date of the indebtedness evidenced by the Original Note and revised payment terms and other revisions to the Original Note all as set forth in the Amended and Restated Note, and the elimination of the letter of credit and other security as security for the indebtedness evidenced thereby as originally contemplated by the Option Agreement. However, in the event the Effective Date never occurs hereunder or this Agreement is of no force or effect, the Guarantor and his spouse, by their signatures below, each understand that the Amended and Restated Note and the Amended and Restated Guaranty shall be of no force or effect and the Original Note and the Original Guaranty shall remain in full force and effect and in such event, they hereby reaffirm their obligations under the Original Guaranty as if this Agreement and the other Modification Documents had never been executed. The provisions of this subparagraph (o) shall survive any termination of this Agreement and the termination of the Option Agreement, and the consummation of the other transactions contemplated hereby and by the other Modification Documents. (p) No Other Modifications. Except as expressly modified or amended by this Agreement or the other Modification Documents, the provisions, conditions and terms of the Termination [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 13 Agreement shall remain unchanged and in full force and effect. In the case of any inconsistency between the provisions, conditions and terms of the Termination Agreement on the one hand, and this Agreement and the other Modification Documents on the other hand, the provisions of this Agreement and the other Modification Documents shall govern. (q) Time is of the Essence. TIME IS OF THE ESSENCE with respect to all of the obligations and agreements under this Agreement and the other Modification Documents. [SIGNATURE PAGE FOLLOWS] [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 14 IN WITNESS WHEREOF, the parties have executed this Amendment of Termination Agreement and Termination of Option Agreement on the day and year first above written. AMB: AMB PROPERTY, L.P., A DELAWARE LIMITED PARTNERSHIP By: AMB PROPERTY CORPORATION, a Maryland corporation, its general partner By: ______________________________ John L. Rossi Its: Vice President NUVELO: NUVELO, INC., A NEVADA CORPORATION, SUCCESSOR BY MERGER TO HYSEQ, INC., A NEVADA CORPORATION By: _____________________________ Name: Ted W. Love, M.D. Title: President and CEO By: _____________________________ Name: Peter Garcia Title: SVP and CFO [SIGNATURES CONTINUE ON NEXT PAGE] [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 15 GUARANTOR: ________________________________ GEORGE RATHMANN SSN #: [***] The undersigned, the wife of George Rathmann, hereby consents to the foregoing Agreement and acknowledges that such agreement and the other documents entered into by George Rathmann in connection therewith creates binding obligations of George Rathmann and the undersigned, and their individual, joint and community assets. SPOUSE OF GUARANTOR: ________________________________ FRANCES JOY RATHMANN SSN #: [***] [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 16 EXHIBIT A FORM OF QUITCLAIM DEED RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Steppe, Stone & Lakey LLP 999 Baker Way, Suite 420 San Mateo, CA 94111 Attn: Sara R. Steppe _______________________________________________________________________________ Space Above This Line For Recorder's Use QUITCLAIM DEED AND TERMINATION OF OPTION For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, NUVELO, INC., a Nevada corporation, successor by merger to Hyseq, Inc., a Nevada corporation ("Transferor"), hereby does remise, release, and forever quitclaim to AMB PROPERTY, L.P., a Delaware limited partnership ("Transferee"), all right, title and interest Transferor has in that certain real property located in the City of Sunnyvale, County of Santa Clara, State of California, described in attached Exhibit A and incorporated herein by reference (the "Property"). This Quitclaim Deed and Termination of Option (this "Quitclaim Deed") is made with reference to the following facts: A. Transferee and Transferor executed that certain Real Property Option and Sale Agreement and Joint Escrow Instructions dated as of October 1, 2002 by and between Transferor and Transferee (the "Option Agreement"), whereby Transferee granted Transferor an option to purchase the Property (the "Option"). The Option was evidenced of record by that certain Memorandum of Option, executed by Transferee and Transferor, and recorded on title to the Property in the Official Records of the County of Santa Clara (the "Official Records") on November 18, 2002 as Document No.16622221 (the "Memorandum of Option"). B. Transferor is the successor by merger to, and has succeeded to all of the obligations, debts and liabilities of, Hyseq, Inc., a Nevada corporation, including without limitation the rights and obligations of Hyseq, Inc. under the Option Agreement. C. Transferor has elected not to exercise the Option and not to purchase the Property under the Option Agreement. Accordingly, the Option has been terminated. The purpose of this Quitclaim Deed is to provide record notice of the termination of the Option. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 1 NOW, THEREFORE, in consideration of the foregoing, Transferee and Transferor hereby agree as follows: 1. Termination of Option. The Option and Option Agreement are hereby terminated and of no further force and effect. As a result of such termination of the Option Agreement, Transferor agrees that the Memorandum of Option is of no further force and effect, that the Memorandum of Option shall be deemed removed from record title to the Property and that Transferor no longer has any claim nor holds any right, title or interest in the Property pursuant to the Option Agreement or the Memorandum of Option. 2. Purpose of Quitclaim Deed. This Quitclaim Deed is prepared solely for the purpose of providing record notice of the termination of the Option. This Quitclaim Deed is intended to be fully consistent with the Option Agreement and shall not be deemed to modify in any way the provisions of the Option Agreement. Transferor is executing this Quitclaim Deed and authorizes Transferee to record this Quitclaim Deed in the Official Records as evidence that Transferor's right to purchase the Property pursuant to the Option Agreement is terminated, which recordation may be accomplished without any notice to Transferor or any action on the part of Transferor. IN WITNESS WHEREOF, Transferor has executed this instrument as of May ___, 2003. TRANSFEROR: NUVELO, INC., successor by merger to Hyseq, Inc., a Nevada corporation By: ___________________________________ Name: _________________________________ Title: ________________________________ By: ___________________________________ Name: _________________________________ Title: ________________________________ [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 2 STATE OF CALIFORNIA COUNTY OF____________________________ss. On this ___ day of ________________ , 20__ , before me, ______________________, a Notary Public in and for the State of California, personally appeared _____________________ personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal Signature: _________________________________________________________ My commission expires on _____________________________________. STATE OF CALIFORNIA COUNTY OF______________________________________ss. On this ___ day of ________________ , 20__ , before me, ______________________, a Notary Public in and for the State of California, personally appeared _____________________ personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal Signature: ___________________________________ My commission expires on _____________________________________. 3 EXHIBIT A TO QUITCLAIM DEED DESCRIPTION OF PROPERTY Real property in the City of Sunnyvale, County of Santa Clara, State of California, described as follows: Parcel 6, as shown on that certain Parcel Map filed in the office of the Recorder of the County of Santa Clara, State of California on November 9, 1976, in Book 383 of Maps, page 19. APN: 110-34-011 ARB: 110-03-062.04 A-1 EXHIBIT B FORM OF AMENDED AND RESTATED PROMISSORY NOTE AMENDED AND RESTATED PROMISSORY NOTE $2,600,000 San Francisco, California May 9, 2003 The undersigned, NUVELO, INC., a Nevada corporation, successor by merger to Hyseq, Inc., a Nevada corporation ("Maker"), FOR VALUE RECEIVED, promises unconditionally to pay AMB PROPERTY, L.P., a Delaware limited partnership, or its successors or assigns ("Lender"), or to their order, the principal sum of TWO MILLION SIX HUNDRED THOUSAND DOLLARS ($2,600,000) (the "Loan") in lawful money of the United States of America, due and payable as further provided herein. This Amended and Restated Promissory Note (this "Note"), amends and restates in its entirety that certain Promissory Note dated November 1, 2002 and made by Maker, as successor in interest to Hyseq, Inc., a Nevada corporation, in favor of Lender in the original principal amount of $2,600,000 (the "Original Note"). The entire outstanding principal balance under, and all accrued and unpaid interest at the rate specified in, the Original Note shall, from and after the date of this Note, be deemed outstanding and owing by Maker to Lender under this Note. (a) SECTION 1 PAYMENTS 1.1 Maturity. The then outstanding principal balance hereunder and all charges, costs and expenses due hereunder shall be due and payable in full on May 1, 2005 (such date, subject to acceleration as provided herein, is referred to herein as the "Maturity Date"). 1.2 Interest. Interest shall be charged on the outstanding principal balance of this Note until all principal, interest and any other amounts due hereunder have been paid in full, at the fixed interest rate of eight percent (8.0%) per annum (the "Interest Rate"). Interest shall be calculated on the basis of twelve (12) thirty (30) day months, except that interest shall be calculated on the basis of the actual number of days elapsed over a 360 day year. 1.3 Interest Payments. On the first day of each calendar month during the term of this Note, commencing as of the first calendar month following the date of this Note, Maker shall make monthly interest payments in the amount of $17,333.33 per month. The outstanding principal balance of this Note, together with all accrued and unpaid interest, shall be due and payable in full on the Maturity Date. 1.4 Form of Payments. Payments hereunder shall be made in lawful money of the United States of America by wire transfer of immediately available funds, payable to the order of Lender, or to such agent for Lender, as Lender may from time to time direct. 1.5 Application of Payments. Except as otherwise specified herein, each payment or prepayment, if any, made under this Note shall be applied to pay late charges, accrued and unpaid interest, principal, and any other fees, costs and expenses which Maker is obligated to pay under this Note, in such order as Lender may elect from time to time in its sole discretion. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 1 1.6 Tender of Payments. All payments on this Note are payable on or before 2:00 p.m. on the due date thereof, at the office of Lender, as set forth in Section 7 or by wire transfer of immediately available funds in accordance with the wiring instructions attached hereto as Exhibit A, or in accordance with such other instructions as may be provided by Lender from time to time in writing to Maker, and shall be credited on the date the funds become available lawful money of the United States of America. All sums payable to Lender which are due on a day which is not a Business Day (defined below) shall be paid on the next succeeding Business Day and such extended time shall be included in the computation of interest. 1.7 Late Charge. In the event that any installment of interest required to be made by Maker under this Note shall not be received by Lender within five (5) days after its due date, Maker shall pay to Lender, on demand, a late charge of the lesser of (a) five percent (5%) of such delinquent payment and (b) the maximum amount permitted by law. The foregoing right is in addition to, and not in limitation of, any other rights which Lender may have upon Maker's failure to make timely payment of any amount due hereunder. 1.8 No Deductions from Payments of Principal and Interest. All payments of principal and interest under this Note shall be made without deduction from or in respect of any present or future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Maker (other than taxation of the overall net income of Lender). Maker will pay the amounts necessary such that the gross amount of the principal and interest received by Lender is not less than that required by this Note. If Maker shall be required by law to deduct any such amounts (other than taxation of the overall net income of Lender) from or in respect of any principal or interest payment under this Note, then (a) the sum payable to Lender shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this provision) Lender receives an amount equal to the sum it would have received had no deductions been made, (b) Maker shall make such deductions, and (c) Maker shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. All stamp and documentary taxes shall be paid by Maker. If, notwithstanding the foregoing, Lender pays such taxes, Maker shall immediately reimburse Lender for the amount paid. SECTION 2 DEFAULT 2.2 Event of Default. An "Event of Default" shall occur hereunder in the event that: 2.1.1 Maker shall fail to make the full and punctual payment of any monthly amount due under Section 1 of this Note, which failure is not cured within five (5) days after the date due hereunder; or 2.1.2 Maker shall fail to pay the entire outstanding principal balance hereunder on the date when due, whether on the Maturity Date, upon acceleration or otherwise; or 2.1.3 Maker shall fail to make the full and punctual payment of any costs and expenses due hereunder or any other sum of money required to be paid hereunder (other than any payment described in Section 2.1.1 or 2.2.2), which failure is not cured on or before the tenth (10th) day after written notice from Lender to Maker; or 2.1.4 Maker shall (i) become insolvent, (ii) make a transfer in fraud of creditors, (iii) make an assignment for the benefit of its creditors, or (iv) admit in writing its inability to pay its debts as they become due; or [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 2 2.1.5 any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding, or any other proceedings for the relief of debtors, is instituted by or against Maker, and, if instituted against Maker, is allowed, consented to, or not dismissed within the earlier to occur of (i) ninety (90) days after such institution or (ii) the filing of an order for relief; or 2.1.6 Maker shall cause or permit any default to occur under the Conditional Lease Termination Agreement dated as of October 1, 2002 by and among Maker, Lender and George Rathmann, an individual, as amended by the Amendment of Termination Agreement and Termination of Option Agreement dated on or about the date hereof (the "Amendment") (as so amended, the "Termination Agreement") or any other Modification Documents (as defined in the Amendment); or 2.1.7 any default, repudiation or attempted repudiation by George Rathmann, an individual ("Guarantor"), under that certain Amended and Restated Guaranty dated on or about the date hereof and made by Guarantor in favor of Lender; or 2.1.8 the occurrence of any of the events specified in Section 2.1.4 or 2.1.5 as to Guarantor. 2.2 Acceleration. Lender may, at its option exercisable in its sole and absolute discretion by notice to Maker at any time following the occurrence of an Event of Default, declare immediately due and payable the entire principal amount outstanding hereunder together with all interest and other amounts due hereunder. 2.3 Remedies. The remedies of Lender as provided herein and in the other Modification Documents, or at law or in equity, shall be cumulative and concurrent, and may be pursued singly, successively, or together at the sole discretion of Lender, and may be exercised as often as occasion therefor shall occur. The failure at any time to exercise any right or remedy shall not constitute a waiver of the right to exercise the right or remedy at any other time. SECTION 3 DEFAULT RATE From and after the occurrence of an Event of Default hereunder, overdue payments of principal, interest and charges, costs and expenses hereunder shall bear interest, from the date the same became due and payable, at a rate (the "Default Rate") equal to the lesser of (a) the maximum rate allowed by the law or (b) five percent (5%) plus the greater of (i) the Interest Rate or (ii) the prime rate (for corporate loans at large United States money center commercial banks) published in the Wall Street Journal on the first Business Day of the month in which the Event of Default occurs or continues and on the first Business Day of every month thereafter. The foregoing right is in addition to, and not in limitation of, any other rights which Lender may have upon Maker's failure to make timely payment of any amount due hereunder. The term "Business Day" shall mean any day which is not a Saturday, Sunday, or federal legal holiday, or a day on which commercial banks are not authorized or required by law to close in the State of California. SECTION 4 PREPAYMENT Maker may make any prepayment of the outstanding principal balance of this Note, in whole or in part, before the Maturity Date without premium penalty or fee. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 3 SECTION 5 WAIVER Maker shall pay to Lender all sums owing under this Note without deduction, offset or counterclaim of any kind. Maker waives presentment; demand; notice of dishonor; notice of default or delinquency; notice of acceleration; notice of protest and nonpayment; notice of costs, expenses or losses and interest thereon; and diligence on taking any action to collect any sums owing under this Note. Presentation for payment, demand, notice of dishonor, protest, and notice of protest, stay of execution and all other suretyship defenses to payment generally are hereby waived by Maker. No extension or indulgence or release of collateral granted from time to time shall be construed as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of the rights of Lender herein. Maker acknowledges that the provisions of California Civil Code Section 2924(i) are not applicable to this Note and expressly waives any rights thereunder. SECTION 6 GOVERNING LAW; USURY SAVINGS CLAUSE 3. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE APPLICATION OF CHOICE OF LAW PRINCIPLES, AND MAKER HEREBY CONSENTS TO THE PERSONAL JURISDICTION OF ANY STATE COURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA HAVING VENUE IN SAN FRANCISCO, CALIFORNIA, AND ALSO TO SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA OR FEDERAL LAW, IN ANY ACTION THAT MAY BE COMMENCED BY LENDER TO ENFORCE ITS RIGHTS HEREUNDER. IF ANY PROVISION OF THIS NOTE IS HELD TO BE INVALID OR UNENFORCEABLE BY A COURT OF COMPETENT JURISDICTION, THE OTHER PROVISIONS OF THIS NOTE SHALL REMAIN IN FULL FORCE AND EFFECT. SUBJECT TO THE PRECEDING TWO SENTENCES, IT IS THE EXPRESS INTENTION OF MAKER AND LENDER TO CONFORM STRICTLY TO ANY APPLICABLE USURY LAWS. ACCORDINGLY, ALL AGREEMENTS BETWEEN MAKER AND LENDER, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER WRITTEN OR ORAL, ARE HEREBY EXPRESSLY LIMITED SO THAT IN NO CONTINGENCY OR EVENT WHATSOEVER, WHETHER BY REASON OF ACCELERATION OF THE MATURITY OF THIS NOTE OR OTHERWISE, SHALL THE AMOUNT PAID OR AGREED TO BE PAID TO LENDER OR THE HOLDER OF THIS NOTE FOR THE USE, FORBEARANCE OR DETENTION OF THE MONEY LOANED PURSUANT HERETO OR OTHERWISE, OR FOR THE PAYMENT OR PERFORMANCE OF ANY COVENANT OR OBLIGATION CONTAINED HEREIN OR IN ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH, EXCEED THE MAXIMUM AMOUNT PERMISSIBLE UNDER APPLICABLE LAW. IF, FROM ANY CIRCUMSTANCE OR CONTINGENCY WHATSOEVER, FULFILLMENT OF ANY PROVISION HEREOF OR OF ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH, AT THE TIME PERFORMANCE OF SUCH PROVISION SHALL BE DUE, SHALL INVOLVE TRANSCENDING THE LIMIT OF VALIDITY PRESCRIBED BY LAW, THEN, IPSO FACTO, THE OBLIGATION TO BE FULFILLED SHALL BE REDUCED TO THE LIMIT OF SUCH VALIDITY, AND IF FROM ANY SUCH CIRCUMSTANCE OR CONTINGENCY LENDER SHALL EVER RECEIVE AS INTEREST OR OTHERWISE AN AMOUNT WHICH WOULD EXCEED THE MAXIMUM RATE OF INTEREST PERMITTED BY APPLICABLE LAW, THE AMOUNT OF SUCH EXCESS SHALL BE APPLIED TO A REDUCTION OF THE INDEBTEDNESS EVIDENCED BY THIS NOTE, AND NOT TO THE PAYMENT OF INTEREST, AND IF SUCH EXCESSIVE INTEREST EXCEEDS SUCH INDEBTEDNESS, THE AMOUNT OF SUCH EXCESSIVE INTEREST SHALL BE REFUNDED TO MAKER. IF AT ANY TIME THIS NOTE PRESCRIBES A RATE OF INTEREST IN EXCESS OF THE MAXIMUM RATE PERMITTED BY LAW, ALL SUMS PAID OR AGREED TO BE PAID TO [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 4 LENDER FOR THE USE, FORBEARANCE OR DETENTION OF THE MONEY LOANED PURSUANT TO THIS NOTE SHALL BE AMORTIZED, PRORATED, ALLOCATED AND SPREAD THROUGHOUT THE FULL TERM OF SUCH INDEBTEDNESS UNTIL PAYMENT IN FULL, SO THAT THE ACTUAL RATE OF INTEREST ON ACCOUNT OF SUCH INDEBTEDNESS IS UNIFORM THROUGHOUT THE TERM HEREOF. ANY PREPAYMENT OF THE OUTSTANDING PRINCIPAL BALANCE OF THE LOAN MADE PURSUANT TO THE FOREGOING PROVISIONS SHALL BE WITHOUT ANY PREPAYMENT PENALTY OR PREMIUM. SECTION 7 NOTICES Any notice, election, communication, request, approval or other document or demand required or permitted under this Note shall be in writing to the respective addresses set forth below and may be delivered by personal delivery, facsimile transmission during the normal business hours of the recipient, an overnight delivery service, or U.S. mail sent certified with return receipt requested. Notices are effective on the earlier of the date received, the date of the delivery receipt (including the case of notice by facsimile), or the third day after postmark, as applicable. (a) To Maker, as follows: Nuvelo, Inc. 675 Almanor Avenue Sunnyvale, California 94085 Attn.: Peter S. Garcia Tel: [***] Fax: [***] (b) To Lender, as follows: AMB Property, L.P. Pier 1, Bay 1 San Francisco, California 94111 Attn.: John L. Rossi Tel: [***] Fax: [***] Either party may, from time to time, change the address at which such written notices or elections, communications, requests or other documents or demands are to be mailed, by giving the other party written notice of such change, addressed in the manner hereinabove provided. SECTION 8 MISCELLANEOUS 8.1 Costs of Collection; Attorneys' and Consultants' Fees. If this Note is referred to an attorney for the collection of any sum payable hereunder, or to defend or enforce any of Lender's rights hereunder, or as a consequence of any Event of Default, with or without the filing of any legal action or proceeding, Maker agrees to pay to Lender immediately upon demand, all costs and expenses incurred by Lender in connection therewith (including reasonable attorneys' fees and costs, and costs of any experts or other consultants' fees), and in addition to all such costs and expenses, interest thereon from the date of such demand until paid at the Default Rate. 8.2 Modification. Neither this Note nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, but only by an instrument in writing executed by the party against which enforcement of the termination, amendment, supplement, waiver or modification is sought. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 5 8.3 Successors. As used herein, the terms "Maker" and "Lender" shall be deemed to include their respective successors and assigns whether by voluntary action of the parties or by operation of law. All of the rights, privileges and obligations hereof shall inure to the benefit of and bind any such successors and assigns. Notwithstanding the foregoing, Maker's obligations and liability under this Note may not be assigned or transferred in whole or in part without the prior written consent of Lender, which consent may be withheld in Lender's sole discretion. 8.4 No Waiver. No previous waiver and no failure or delay by Lender in acting with respect to the terms of this Note shall constitute a waiver of any breach, Event of Default or failure of condition under this Note. A waiver of any term of this Note must be made in writing and shall be limited to the express written terms of such waiver. In the event of any inconsistencies between the terms of this Note and the terms of any other document related to the loan evidenced by this Note, the terms of this Note shall prevail. 8.5 TRIAL BY JURY WAIVER. TO THE EXTENT PERMITTED BY LAW, EACH OF MAKER AND (BY LENDER'S ACCEPTANCE HEREOF) LENDER HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY ACTION, CAUSE OF ACTION, CLAIM, DEMAND OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS NOTE, OR IN ANY WAY CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE DEALINGS OF MAKER AND LENDER WITH RESPECT TO THIS NOTE OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH OF MAKER AND LENDER HEREBY AGREES THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT EITHER PARTY MAY FILE AN ORIGINAL COUNTERPART OF THIS SECTION WITH ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE OF THE CONSENT OF MAKER TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. (a) 8.6 Severability. Every provision of this Note is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such provision shall be adjusted, rather than voided, if possible, to achieve the intent of the parties to the maximum extent possible; provided that such illegality, invalidity or unenforceability shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain in full force and effect and shall be liberally construed in favor of Lender. (b) 8.7 Replacement Note. Upon receipt by Maker of written notice from Lender of the loss, theft, destruction or mutilation of this Note, Maker will execute and deliver to Lender, in lieu thereof, a replacement note in identical form to this Note and dated as of the date of this Note; provided that Lender shall indemnify Maker from and against any loss Maker may incur as a result of Lender's having endorsed the original note to a third party (but not to exceed the total monetary payments received by Lender with respect to the Loan from and after the delivery of the replacement note) pursuant to a written indemnification agreement acceptable to Lender and Maker. Upon delivery to Lender of such replacement note, all references to this Note in the Guaranty and any of the other Modification Documents shall be deemed to be references to such replacement note. (c) 8.8 Time of Essence. TIME IS OF THE ESSENCE with respect to all of the obligations and agreements under this Note. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 6 (d) 8.9 Maker's Representations and Warranties. Maker hereby represents and warrants to Lender as follows: 8.9.1 Maker is duly formed, validly existing and in good standing under the laws of the State of Nevada and is qualified to do business in and in good standing under the laws of the State of California. 8.9.2 Maker (a) is the successor by merger to, and has succeeded to all of the obligations, debts and liabilities of, Hyseq, Inc., a Nevada corporation, including without limitation the obligations of Hyseq, Inc. under the Original Note; and (b) has not made any direct or indirect (whether by operation of law or otherwise) disposition, assignment, sublease, conveyance or other transfer of the its obligations under the Original Transaction Documents (as defined in the Termination Agreement), as amended by the Modification Documents. 8.9.3 Maker has the power and authority to enter into this Note. Maker's representatives are duly authorized to execute and deliver this Note on behalf of Maker and to generally perform Maker's obligations hereunder. This Note does not violate any provision of any agreement or judicial order to which Maker is a party or to which maker is subject. 8.9.4 Maker has not (a) made a general assignment for the benefit of creditors, (b) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Maker's creditors, (c) suffered the appointment of a receiver to take possession of all, or substantially all, of Maker's assets, (d) suffered the attachment or other judicial seizure of all, or substantially all, of Maker's assets, (e) admitted in writing its inability to pay its debts as they come due, or (f) made an offer of settlement, extension or composition to its creditors generally. SECTION 9: SALE; ASSIGNMENT Maker acknowledges that Lender shall have the right in its sole and absolute discretion during the term of the Loan (i) to sell and assign all or any portion of the Loan or participation interests in the Loan or (ii) to effect a so-called securitization of the Loan, in each instance in such manner and on such terms and conditions as Lender shall deem to be appropriate. Maker shall cooperate, and shall cause each guarantor, indemnitor and other person associated or connected with the Loan or the security therefor to cooperate, in all reasonable respects with Lender, at Lender's expense, in connection with such sale, assignment, participation or securitization, and shall, in connection therewith, execute and deliver such estoppel certificates, instruments, documents and opinions of counsel as may be reasonably requested by Lender; provided that in no event shall any such certificates, instruments and documents materially modify any of the terms or provisions of this Note or otherwise increase Maker's obligations or liability hereunder other than in an immaterial, non-economic manner which is reasonably necessary to effect the sale, assignment or securitization. Maker grants to Lender, and shall cause each guarantor, indemnitor and other person associated or connected with the Loan or the security therefor to grant to Lender, the right to distribute on a confidential basis financial and other information concerning Maker, each such guarantor, indemnitor and other person and other pertinent information with respect to the Loan, to any person who has indicated to Lender an interest in entering into such sale, assignment or securitization of the Loan and to any rating agency or consultant engaged in connection therewith. If Maker shall default in the performance of its obligations under this Section 9, and if such default shall not be remedied by Maker within ten (10) days after notice by Lender, Lender shall have the right in its discretion, without further notice or demand, to declare the Loan immediately due and payable. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 7 [SIGNATURE PAGE FOLLOWS] [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 8 IN WITNESS WHEREOF, the undersigned has caused this Note to be duly executed and delivered as of the date first set forth above. MAKER: NUVELO, INC., a Nevada corporation, successor by merger to Hyseq, Inc. By:_________________________________ Name: ______________________________ Title:______________________________ By:_________________________________ Name:_______________________________ Title:______________________________ [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 9 EXHIBIT A WIRING INSTRUCTIONS [***] [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. A-1 EXHIBIT C FORM OF AMENDED AND RESTATED GUARANTY AMENDED AND RESTATED GUARANTY THIS AMENDED AND RESTATED GUARANTY ("Guaranty") is made as of May 9, 2003 by GEORGE RATHMANN, an individual ("Guarantor"), in favor of AMB PROPERTY, L.P., a Delaware limited partnership ("Lender"). R E C I T A L S A. Lender, as landlord, and Nuvelo, Inc., a Nevada corporation, successor in interest to Hyseq, Inc., a Nevada corporation ("Borrower"), as tenant, were parties to that certain lease dated as of June 23, 2000 (the "Original Lease"), which Original Lease has been previously amended by that certain First Amendment to Lease Agreement dated December 14, 2000 (collectively, the "Lease") relating to certain real property and improvements located at 225, 249 and 257 Humboldt Court, Sunnyvale, California (the "Property"), all as more particularly described in the Lease. B. Pursuant to that certain Termination Agreement dated as of October 1, 2002 by and among Borrower, Lender and Guarantor (the "Termination Agreement"), Lender and Borrower terminated the Lease. C. In connection with the Termination Agreement, Lender and Borrower also entered into that certain Real Property Option and Sale Agreement and Joint Escrow Instructions dated as of October 1, 2002 (the "Option Agreement") pursuant to which Lender granted to Borrower an option to purchase the Property on the terms and conditions contained in the Option Agreement (the "Option"). Borrower also executed, among other things, a Promissory Note dated November 1, 2002 (the "Original Note") in the principal amount of $2,600,000 in favor of Lender. Guarantor also executed a guaranty ("Original Guaranty") of Borrower's obligations under the Original Note. D. Borrower has elected not to exercise the Option, and Lender, Borrower and Guarantor have entered into that certain Amendment of Termination Agreement and Termination of Option Agreement dated on or about the date hereof (the "Amendment to Termination Agreement"), whereby the parties have agreed, among other things, to terminate the Option and the Option Agreement, and to amend and restate the Original Note in its entirety in order to extend the maturity date of the Original Note and to amend the payment terms required thereunder. E. Pursuant to the Amendment to Termination Agreement, Borrower has executed or will execute in favor of Lender an Amended and Restated Promissory Note dated on or about the date hereof (the "Note") in the original principal amount of Two Million Six Hundred Thousand Dollars ($2,600,000). The Note amends and restates in its entirety the Original Note. The Note, the Termination Agreement, as amended by the Amendment to Termination Agreement, and the other Modification Documents (as defined in the Amendment to Termination Agreement) are collectively referred to herein as the "Transaction Documents". F. This Guaranty amends and restates in its entirety the Original Guaranty. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 1 THEREFORE, to induce Lender to enter into the Transaction Documents, and in consideration thereof, the Original Guaranty is hereby amended and restated in its entirety by this Guaranty and Guarantor unconditionally guarantees and agrees as follows: 1. GUARANTY. Guarantor hereby guarantees and promises to pay to Lender or order, on demand, in lawful money of the United States, in immediately available funds, the principal amount of the Note, together with all accrued interest, fees and charges on the entire principal amount of the Note. The obligations of Borrower to Lender described in this Section 1 are sometimes referred to herein as the "Obligations." 2. REMEDIES. If Guarantor fails to promptly perform its obligations under this Guaranty, Lender may from time to time, and without first requiring performance by Borrower, bring any action at law or in equity or both to compel Guarantor to perform its obligations hereunder, and to collect in any such action compensation for all loss, cost, damage, injury and expense sustained or incurred by Lender as a direct or indirect consequence of the failure of Guarantor to perform its obligations together with interest thereon at the default rate of interest applicable to the principal balance of the Note, as specified therein. 3. RIGHTS OF LENDER. Guarantor authorizes Lender, without giving notice to Guarantor or obtaining Guarantor's consent and without affecting the liability of Guarantor, from time to time to: (a) declare all sums owing to Lender under the Note due and payable upon the occurrence of an Event of Default (as defined in the Note); (b) take and hold security for the performance of Borrower's obligations under the Note or the other Transaction Documents and exchange, enforce, waive and release any such security; (c) make extensions in the dates specified for payments of any sums payable in periodic installments under the Note or any other Transaction Document; (d) apply such security and direct the order or manner of sale thereof as Lender in its discretion may determine; (e) release, substitute or add any one or more endorsers of the Note or guarantors of Borrower's obligations under the Note or the other Transaction Documents; (f) except as expressly directed by Borrower in writing to Lender with respect to particular payments, apply payments received by Lender from Borrower to any obligations of Borrower to Lender, in such order as Lender shall determine in its sole discretion, whether or not any such obligations are covered by this Guaranty; (g) assign this Guaranty in whole or in part; and (h) assign, transfer or negotiate all or any part of the indebtedness guaranteed by this Guaranty. 4. GUARANTOR'S WAIVERS. Guarantor waives: (a) any defense based upon the death, incapacity, lack of authority or termination of existence of, or revocation hereof by, any person or entity, or the substitution of any party hereto, or any legal disability or other defense of Borrower, any other guarantor or other person, or by reason of the cessation or limitation of the liability of Borrower from any cause other than full payment of all sums payable under the Note or any of the other Transaction Documents; (b) any defense based upon any lack of authority of the officers, directors, shareholders or agents acting or purporting to act on behalf of Borrower or any principal of Borrower or any defect in the formation of Borrower or any principal of Borrower; (c) any and all rights and defenses arising out of an election of remedies by Lender; (d) any defense based upon Lender's or Borrower's failure to disclose to Guarantor any information concerning Borrower's financial condition or any other circumstances bearing on Borrower's ability to pay all sums payable under the Note or any of the other Transaction Documents; (e) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in any other respects more burdensome than that of a principal; (f) any defense based upon Lender's election, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal Bankruptcy Code or any successor statute; (g) any defense based upon any borrowing or any grant of a security interest under Section 364 of the Federal Bankruptcy Code; (h) any right to enforce any remedy which Lender may have against Borrower and any right to participate in, or benefit from, any security for the Note or the other Transaction Documents now [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 2 or hereafter held by Lender; (i) presentment, demand, protest and notice of any kind; and (j) the benefit of any statute of limitations affecting the liability of Guarantor hereunder or the enforcement hereof. Without limiting the generality of the foregoing or any other provision hereof, Guarantor further expressly waives for the period in which any of the Obligations remain outstanding any and all rights and defenses which might otherwise be available to Guarantor under California Civil Code Sections 2787 to 2855, inclusive, 2899 and 3433, or any of such sections. Finally, Guarantor agrees that the performance of any act or any payment which tolls any statute of limitations applicable to the Note or any of the Transaction Documents shall similarly operate to toll the statute of limitations applicable to Guarantor's liability hereunder. 5. GUARANTOR'S WARRANTIES. Guarantor warrants and acknowledges that: (a) Lender would not enter into the Transaction Documents but for this Guaranty; (b) there are no conditions precedent to the effectiveness of this Guaranty; (c) Guarantor has established adequate means of obtaining from sources other than Lender, on a continuing basis, financial and other information pertaining to Borrower's financial condition and the status of Borrower's performance of obligations under the Transaction Documents, and Guarantor agrees to keep adequately informed from such means of any facts, events or circumstances which might in any way affect Guarantor's risks hereunder and Lender has made no representation to Guarantor as to any such matters; (d) the most recent financial statements of Guarantor previously delivered to Lender are true and correct in all material respects, and fairly present the financial condition of Guarantor as of the respective dates thereof, and no material adverse change has occurred in the financial condition of Guarantor since the respective dates thereof; (e) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer or otherwise dispose of all or substantially all of Guarantor's assets; (f) Guarantor has the capacity and is legally competent to enter into this Guaranty and the other Transaction Documents to which Guarantor is a party; (g) Borrower is the successor by merger to, and has succeeded to all of the obligations, debts and liabilities of, Hyseq, Inc., a Nevada corporation, including without limitation the obligations of Hyseq, Inc. under the Original Transaction Documents (as defined in the Amendment to Termination Agreement); (h) Guarantor has not made any direct or indirect (whether by operation of law or otherwise) disposition, assignment, sublease, conveyance or other transfer of its obligations under the Original Transaction Documents; (i) this Guaranty and the other Transaction Documents to which Guarantor is a party are legal, valid and binding upon Guarantor, and are enforceable in accordance with their terms; (j) Guarantor will benefit from the transactions contemplated hereunder and under the other Transaction Documents; and (k) Guarantor has not done and is not contemplating taking any of the following actions: (i) making a general assignment for the benefit of creditors; (ii) filing any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors; (iii) suffering the appointment of a receiver to take possession of all, or substantially, all of its assets; (iv) suffering the attachment or other judicial seizure of all, or substantially all, of its assets; (v) admitting in writing to its inability to pay its debts as they become due; or (vi) making an offer of settlement, extension or composition to its creditors generally. 6. SUBORDINATION. Guarantor subordinates all present and future indebtedness owing by Borrower to Guarantor to the Obligations. Upon the occurrence of an Event of Default (as defined in the Note), Guarantor agrees to make no claim for such indebtedness until all Obligations have been fully satisfied. Guarantor further agrees not to assign all or any part of such indebtedness unless Lender is given prior notice and the assignee acknowledges to Lender in writing that such indebtedness is subordinated to the Obligations to the same extent as provided under the terms of this Guaranty. Upon the occurrence of an Event of Default, any payment received by Guarantor on account of such indebtedness shall be held in trust by Guarantor for Lender, and forthwith paid over to Lender, until such time as the Obligations have been satisfied in full. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 3 7. BANKRUPTCY OF BORROWER. In any bankruptcy or other proceeding occurring during the period in which any of the Obligations remain outstanding in which the filing of claims is required by law, Guarantor shall file all claims which Guarantor may have against Borrower relating to any indebtedness of Borrower to Guarantor and shall assign to Lender all rights of Guarantor thereunder. If Guarantor does not file any such claim, Lender, as attorney-in-fact for Guarantor, is hereby authorized to do so in the name of Guarantor or, in Lender's discretion, to assign the claim to a nominee and to cause proof of claim to be filed in the name of Lender's nominee. The foregoing power of attorney is coupled with an interest and cannot be revoked. Lender or its nominee shall have the right, in its reasonable discretion, to accept or reject any plan proposed in such proceeding and to take any other action which a party filing a claim is entitled to do. In all such cases, whether in administration, bankruptcy or otherwise, the person or persons authorized to pay such claim shall pay to Lender the amount payable on such claim unless and until the Obligations have been satisfied in full and, to the full extent necessary for that purpose, Guarantor hereby assigns to Lender all of Guarantor's rights to any such payments or distributions; provided, however, Guarantor's obligations hereunder shall not be satisfied except to the extent that Lender receives cash by reason of any such payment or distribution. If Lender receives anything hereunder other than cash, the same shall be held as collateral for amounts due under this Guaranty. If all or any portion of the obligations guaranteed hereunder are paid or performed, the obligations of Guarantor hereunder shall continue and shall remain in full force and effect in the event that all or any part of such payment or performance is avoided or recovered directly or indirectly from Lender as a preference, fraudulent transfer or otherwise under the Bankruptcy Code or other similar laws, irrespective of (a) any notice of revocation given by Guarantor prior to such avoidance or recovery, (b) full payment and performance of all of the indebtedness and obligations evidenced by the Transaction Documents, or (c) Lender's surrender or cancellation or exoneration of this Guaranty. 8. ADDITIONAL, INDEPENDENT AND UNSECURED OBLIGATIONS. This Guaranty is a continuing guaranty of payment and not of collection and cannot be revoked by Guarantor and shall continue to be effective with respect to any indebtedness referenced in Section 1 hereof arising or created after any attempted revocation hereof or after the death of Guarantor, in which event this Guaranty shall be binding upon Guarantor's estate and Guarantor's legal representatives and heirs. The obligations of Guarantor hereunder shall be in addition to and shall not limit or in any way affect the obligations of Guarantor under any other existing or future guaranties unless said other guaranties are expressly modified or revoked in writing. This Guaranty is independent of the obligations of Borrower under the Note and the other Transaction Documents. Lender may bring a separate action to enforce the provisions hereof against Guarantor without taking action against Borrower or any other party or joining Borrower or any other party as a party to such action. This Guaranty is not secured and shall not be deemed to be secured by any security instrument unless such security instrument expressly recites that it secures this Guaranty. 9. ATTORNEYS' FEES; ENFORCEMENT. If any attorney is engaged by Lender to enforce or defend any provision of this Guaranty or the Note, or as a consequence of any default under the Note or this Guaranty with or without the filing of any legal action or proceeding, Guarantor shall pay to Lender, immediately upon demand all reasonable attorneys' fees and costs incurred by Lender in connection therewith, together with interest thereon from the date of such demand until paid at the default rate of interest applicable to the principal balance of the Note as specified therein. 10. RULES OF CONSTRUCTION. The word "Borrower" as used herein shall include both the named Borrower and any other person at any time assuming or otherwise becoming primarily liable for all or any part of the obligation of the named Borrower under the Note and the other Transaction Documents. The term "person" as used herein shall include any individual, company, trust or other legal entity of any kind whatsoever. If this Guaranty is executed by more than one person, the term "Guarantor" shall include all such persons. When the context and construction so require, all words used [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 4 in the singular herein shall be deemed to have been used in the plural and vice versa. All headings appearing in this Guaranty are for convenience only and shall be disregarded in construing this Guaranty. 11. CREDIT REPORTS. Each legal entity and individual obligated under and executing this Guaranty hereby authorizes Lender to order and obtain from time to time, from a credit reporting agency of Lender's choice, a third party credit report on such legal entity and individual. 12. GOVERNING LAW. This Guaranty shall be governed by, and construed and enforced in accordance with, the laws of the State of California, except to the extent preempted by federal laws. Guarantor and all persons and entities in any manner obligated to Lender under this Guaranty consent to the jurisdiction of any federal or state court within the State of California having venue in San Francisco, California, and also consent to service of process by any means authorized by California or federal law. 13. MISCELLANEOUS. The provisions of this Guaranty will bind and benefit the estate heirs, executors, administrators, legal representatives, nominees, successors and assigns of Guarantor and Lender. The liability of all persons and entities who are in any manner obligated hereunder shall be joint and several. If any provision of this Guaranty shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed from this Guaranty and the remaining parts shall remain in full force as though the invalid, illegal or unenforceable portion had never been part of this Guaranty. 14. ENFORCEABILITY. Guarantor hereby acknowledges that: (a) the obligations undertaken by Guarantor in this Guaranty are complex in nature, and (b) numerous possible defenses to the enforceability of these obligations may presently exist and/or may arise hereafter, and (c) as part of Lender's consideration for entering into the transactions contemplated by the Transaction Documents, Lender has specifically bargained for the waiver and relinquishment by Guarantor of all such defenses, and (d) Guarantor has sought and received legal advice from skilled legal counsel in the area of financial transactions of the type contemplated herein. Given all of the above, Guarantor does hereby represent and confirm to Lender that Guarantor is fully informed regarding, and that Guarantor does thoroughly understand: (i) the nature of all such possible defenses, and (ii) the circumstances under which such defenses may arise, and (iii) the benefits which such defenses might confer upon Guarantor, and (iv) the legal consequences to Guarantor of waiving such defenses. Guarantor acknowledges that Guarantor makes this Guaranty with the intent that this Guaranty and all of the informed waivers herein shall each and all be fully enforceable by Lender, and that Lender is induced to enter into this transaction and the Transaction Documents in material reliance upon the presumed full enforceability hereof and thereof. 15. WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS GUARANTY, AND BY ITS ACCEPTANCE HEREOF, LENDER, HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS GUARANTY OR THE OTHER TRANSACTION DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION HEREOF OR THEREOF OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS GUARANTY OR THE OTHER TRANSACTION DOCUMENTS (AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY AND LENDER HEREBY AGREES AND CONSENTS THAT ANY PARTY TO THIS GUARANTY AND LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 5 ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. EACH PARTY HERETO AND LENDER CONSENTS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT WITHIN THE STATE OF CALIFORNIA HAVING VENUE IN SAN FRANCISCO, CALIFORNIA. [SIGNATURE PAGE FOLLOWS] [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 6 IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date appearing on the first page of this Guaranty. GUARANTOR: By: _________________________________ George Rathmann, an individual SSN: ________________________________ c/o Nuvelo, Inc. 675 Almanor Avenue Sunnyvale, CA 94085 Tel: [***] Fax: [***] APPROVED AS TO FORM: __________________________________________ Alan D. Smith, Attorney for Guarantor Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, Washington, 98101 Tel: [***] Fax: [***] CONSENT OF SPOUSE: The undersigned, the wife of George Rathmann, hereby consents to the foregoing Guaranty and acknowledges that such Guaranty creates binding obligations on George Rathmann and the undersigned, and of their individual, joint and community assets. By: _______________________________ Frances Joy Rathmann SSN: ______________________________ c/o Nuvelo, Inc. 675 Almanor Avenue Sunnyvale, CA 94085 Tel: [***] Fax: [***] [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 7 EXHIBIT D ATTACH FORM OF ADDITIONAL WARRANTS D-1 EXHIBIT E REPAIR OBLIGATIONS Nuvelo shall perform the following Work in the Premises in accordance with this Exhibit E and Paragraph 6 of the attached Agreement. 1. Fill in holes and penetrations in concrete flooring which shall be doweled to prevent ripping and shall be adequately tied into the existing structural components of the building. 2. Rebuild and replace all bathroom cores. 3. Restore lighting distribution system and replace lighting fixtures, sufficient to create a minimally acceptable illuminating level compatible with the square footage of the Premises. 4. See additional highlighted items on SCHEDULE 1 attached hereto. The Work shall be performed in a good and workmanlike manner, in accordance with industry standards, by reputable contractors and subcontractors reasonably acceptable to AMB who are licensed in California and who are bonded pursuant to a surety bond in form and issued by a surety acceptable to AMB, in an amount equal to not less than 150% of the total estimated cost of the work, and in a manner so as not to unreasonably interfere with other tenants in the building (if any) and otherwise reasonably acceptable to AMB. All contractors performing any portion of the Work shall maintain Commercial General Liability insurance covering bodily injury and property damage liability occurring in or about the Premises and arising out of performance of the Work. Such insurance shall have a minimum combined single limit of liability of at least Three Million Dollars ($3,000,000) and shall name AMB and AMB Property Corporation and AMB Property Capital Partners as an additional insured. AMB shall provide Nuvelo and Nuvelo's contractors reasonable access to the Premises to perform the Work during the applicable time period for performing the Work specified in Paragraph 6 of this Agreement. Such access shall be during hours reasonably determined by AMB and in accordance with rules and regulations as may be reasonably established by AMB and modified by AMB from time to time. Nuvelo hereby acknowledges that the use of the Premises by Nuvelo and Nuvelo's employees, agents and contractors who perform the Work shall be at their own risk and Nuvelo shall indemnify, defend by counsel reasonably acceptable to AMB, protect and hold AMB and all other AMB Parties (as defined in the Agreement) harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses, including, without limitation, reasonable attorneys' fees and other professional fees, which may be imposed upon, incurred by, or asserted against AMB or any AMB Parties and arising out of or in connection with any damage or injury occurring in connection with the Work. Nuvelo agrees to provide 10 days' written notice to AMB prior to commencement of any portion of the Work to enable AMB to file a Notice of Non-Responsibility with respect to the Work. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. E-1 SCHEDULE 1 TO EXHIBIT E ADDITIONAL REPAIR AND RESTORATION ITEMS SEE HIGHLIGHTED ITEMS

SUITE AREA: 34,160 BUILDING AREA: 11,060 & 23,100 - ---------------------------------------------------------------------------------------------------------------------------- ACTIVITY QUANTITY UNIT UNIT PRICE COST BUDGET BUYOUT SUBCONTRACTOR' - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- DEMOLITION $12,500.00 $0.00 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- INCLUDING HVAC UNTIS, PIPING, CONCRETE, ETC. - ---------------------------------------------------------------------------------------------------------------------------- 1 L/S 12500 12,500 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- RELOCATION $ 0.00 $0.00 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- RELOCATED DOORS/FRAMES 0 L/S 250 0 - ---------------------------------------------------------------------------------------------------------------------------- RELOCATE LIGHT FIXTURES 0 L/S 85 0 - ---------------------------------------------------------------------------------------------------------------------------- RELOCATE CABINETS 0 L/S 0 0 - ---------------------------------------------------------------------------------------------------------------------------- RELOCATE ELECT. PANELS 0 L/S 0 0 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- FRAMING/SKYLIGHT $79,550.00 $0.00 - ---------------------------------------------------------------------------------------------------------------------------- FRAMING FOR BI-FOLD DOOR 0 L/S 750 0 - ---------------------------------------------------------------------------------------------------------------------------- SEISMIC WORK TO BE FINISHED 1 ALLOW 25000 25,000 - ---------------------------------------------------------------------------------------------------------------------------- FRAMING & SHEATHING (STUCCO) 0 L/S 3500 0 - ---------------------------------------------------------------------------------------------------------------------------- ROOF REPAIRS @ OLD HVAC UNITS 1 L/S 9800 9,800 - ---------------------------------------------------------------------------------------------------------------------------- ROOF FRAMING @ OLD HVAC 1 L/S 8750 8,750 - ---------------------------------------------------------------------------------------------------------------------------- ROOF REPAIRS @ HVAC UNIT 10 EA. 900 9,000 - ---------------------------------------------------------------------------------------------------------------------------- SKYLIGHTS (4' X 6') 0 EA. 820 0 - ---------------------------------------------------------------------------------------------------------------------------- HVAC ROOF FRAMING (NEW) 10 EA. 2700 27,000 - ---------------------------------------------------------------------------------------------------------------------------- WALLS $17,750.00 $0.00 - ---------------------------------------------------------------------------------------------------------------------------- SHEET ROCK PERIMETER WALLS 0 L.F. 15 0 - ---------------------------------------------------------------------------------------------------------------------------- UNDER GRID WALLS TO 10' HIGH 0 L.F. 50 0 - ---------------------------------------------------------------------------------------------------------------------------- FULL HEIGHT WALLS 10' HIGH 210 L.F. 65 13,650 - ---------------------------------------------------------------------------------------------------------------------------- PLUMBING WALL 30 L.F. 45 1,350 - ---------------------------------------------------------------------------------------------------------------------------- CORRIDOR WALLS 0 L.F. 50 0 - ---------------------------------------------------------------------------------------------------------------------------- INSULATION (R 11) 2500 SF 0.5 1,250 - ---------------------------------------------------------------------------------------------------------------------------- REPAIR'S AT DEMOLITION 10 EA. 150 1,500 - ---------------------------------------------------------------------------------------------------------------------------- PROJ. SCREEN WALL 0 L.F. 45 0 - ---------------------------------------------------------------------------------------------------------------------------- RELOCATE PHONE BOARD 0 LOT 85 0 - ---------------------------------------------------------------------------------------------------------------------------- GLASS WALLS (SPECIAL) 0 SF 0 0 - ---------------------------------------------------------------------------------------------------------------------------- PROJECTION SCREEN SUPPORTS 0 E.A. 150 0 - ---------------------------------------------------------------------------------------------------------------------------- 0 E.A. 0 0 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- DOORS AND HARDWARE $ 6,800.00 $0.00 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- INTERIOR DOOR'S (3'-0' X 7'0') 8 EA. 675 5,400 - ----------------------------------------------------------------------------------------------------------------------------

E-2 INTERIOR DOOR'S (6'0 X 7'0") 0 EA. 1100 0 - --------------------------------------------------------------------------------------------------------------------- STD. CORRIDOR (FIRE RATED) 0 EA 650 0 - --------------------------------------------------------------------------------------------------------------------- SLIDING POCKET DOOR 0 ALLOW 2750 0 - --------------------------------------------------------------------------------------------------------------------- NEW DOCK DOORS 10' X 10' 0 LOT 250 0 - --------------------------------------------------------------------------------------------------------------------- NEW DRIVE DOORS 12' X 15' 0 PR. 2010 0 - --------------------------------------------------------------------------------------------------------------------- BY-FOLD DOORS 0 EA. 1100 0 - --------------------------------------------------------------------------------------------------------------------- CLOSERS 8 EA. 175 1,400 - --------------------------------------------------------------------------------------------------------------------- NEW GLASS ENTRY DOORS (3' x 7') 0 EA. 1500 0 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- GLASS AND GLAZING $ 0.00 $0.00 - --------------------------------------------------------------------------------------------------------------------- FIXED GLASS (6'-0" X 4'-0") 0 S.F. 18 0 - --------------------------------------------------------------------------------------------------------------------- STORE FRONT GLASS 0 S.F. 18 0 - --------------------------------------------------------------------------------------------------------------------- PASS THRU WINDOWS 0 EA. 400 0 - --------------------------------------------------------------------------------------------------------------------- INTERIOR SIDE LIGHTS 0 S.F. 22 0 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- ELECTRICAL $59,895.00 $0.00 - --------------------------------------------------------------------------------------------------------------------- STD FIXTURES (2' X 4') 0 EA. 235 0 - --------------------------------------------------------------------------------------------------------------------- DUPLEX OUTLETS (120 VOLT) 16 EA. 95 1,520 - --------------------------------------------------------------------------------------------------------------------- PHONE OUTLETS (PULL STRING) 0 EA. 30 0 - --------------------------------------------------------------------------------------------------------------------- SINGLE SWITCHES 4 EA. 90 360 - --------------------------------------------------------------------------------------------------------------------- EXIT LIGHTS 9 EA. 200 1,800 - --------------------------------------------------------------------------------------------------------------------- SEPARATE CKTS. (120 VOLT) 7 EA. 225 1,575 - --------------------------------------------------------------------------------------------------------------------- SEPARATE CKTS. (220 VOLT) 2 EA. 275 550 - --------------------------------------------------------------------------------------------------------------------- SUBFEED PANEL (120/208) 2 EA. 750 1,500 - --------------------------------------------------------------------------------------------------------------------- HVAC HOOK UPS 10 EA. 390 3,900 - --------------------------------------------------------------------------------------------------------------------- EXHAUST FAN HOOK UPS 4 EA. 200 800 - --------------------------------------------------------------------------------------------------------------------- WATER HEATER CONNECTIONS 2 EA. 120 240 - --------------------------------------------------------------------------------------------------------------------- INCANDESCENT LIGHT FIXTURES 4 EA. 175 700 - --------------------------------------------------------------------------------------------------------------------- 400 AMP FEEDER'S (480 L.F.) 2 EA. 17800 35,600 - --------------------------------------------------------------------------------------------------------------------- SUBFEED PANEL (277/480) 2 EA. 1400 2,800 - --------------------------------------------------------------------------------------------------------------------- TRANSFORMERS 2 EA. 2250 4,500 - --------------------------------------------------------------------------------------------------------------------- MOTION SENSOR 0 EA. 225 0 - --------------------------------------------------------------------------------------------------------------------- WAREHOUSE LIGHTING (H-BAY) 9 EA. 450 4,050 - --------------------------------------------------------------------------------------------------------------------- CEILING $22,722.40 $0.00 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- ACCOUSTICAL (2' X 4') T-BAR 0 SF. 2.65 0 - --------------------------------------------------------------------------------------------------------------------- DRYWALL CEILING 480 SF. 5.35 2,568 - --------------------------------------------------------------------------------------------------------------------- INSULATION (R-19) (FSK FLAME) 34160 SF. 0.59 20154.4 - --------------------------------------------------------------------------------------------------------------------- ACCOUSTICAL (2' X 2') 0 SF. 2.6 0 - --------------------------------------------------------------------------------------------------------------------- VAULTED CEILING 0 SF. 3.75 0 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- PLUMBING $64,550.00 $0.00 - --------------------------------------------------------------------------------------------------------------------- TOILET PARTITIONS 4 RMS. 450 1,800 - --------------------------------------------------------------------------------------------------------------------- ROUGH-INS 19 EA. 1450 27,550 - --------------------------------------------------------------------------------------------------------------------- SINKS/LAVS (KITCHEN/TOILET RM) 12 EA. 375 4500 - --------------------------------------------------------------------------------------------------------------------- URINALS 2 EA. 175 350 - --------------------------------------------------------------------------------------------------------------------- WATER CLOSETS 8 EA. 225 1,800 - --------------------------------------------------------------------------------------------------------------------- HOT WATER HEATER 2 EA. 575 1,150 - --------------------------------------------------------------------------------------------------------------------- FLOOR DRAINS 5 EA. 1120 5,600 - --------------------------------------------------------------------------------------------------------------------- TOILET ACCESSORIES 4 RM. 725 2,900 - --------------------------------------------------------------------------------------------------------------------- ADA SHOWER PER PLAN 1 EA. 5500 5,500 - --------------------------------------------------------------------------------------------------------------------- MOP SINKS 2 EA. 1150 2,300 - --------------------------------------------------------------------------------------------------------------------- WATER LINE EXTENTION 220 LF. 30 6,600 - --------------------------------------------------------------------------------------------------------------------- E-3 REMOVE EXISTING PIPING - REPAIR 1 EA. 4500 4,500 - --------------------------------------------------------------------------------------------------------------------- SPRINKLERS $ 7,105.00 $0.00 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- REWORK EXISTING SYSTEM 1 LOT 4580 4,580 - --------------------------------------------------------------------------------------------------------------------- ADD NEW SPRINKLERS 9 EA. 225 2,025 - --------------------------------------------------------------------------------------------------------------------- SYSTEM SHUTDOWN & PERMITS 1 L/S 500 500 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- CABINETS $ 0.00 $0.00 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- CONFERENCE ROOM CABINETS 0 LF. 0 0 - --------------------------------------------------------------------------------------------------------------------- COUNTER TOP WORK W/SUPPORTS 0 LF. 125 0 - --------------------------------------------------------------------------------------------------------------------- UPPER CABINETS 0 LF. 200 0 - --------------------------------------------------------------------------------------------------------------------- LOWER CABINETS 0 LF. 225 0 - --------------------------------------------------------------------------------------------------------------------- PASS THRU WINDOW SHELF 0 LF. 375 0 - --------------------------------------------------------------------------------------------------------------------- WOOD PARTITION CAPS 0 LF. 20 0 - --------------------------------------------------------------------------------------------------------------------- STORAGE SHELVING 0 LF. 12 0 - --------------------------------------------------------------------------------------------------------------------- 0 LF. 0 0 - --------------------------------------------------------------------------------------------------------------------- 0 LF. 0 0 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- WALL FINISH $ 6800.80 $0.00 - --------------------------------------------------------------------------------------------------------------------- PAINT OFFICE WALLS 2500 SF. 0.4 1,000 - --------------------------------------------------------------------------------------------------------------------- WALL COVERINGS 0 SF. 3265 0 - --------------------------------------------------------------------------------------------------------------------- PAINT BATHROOMS 0 SF. 1 0 - --------------------------------------------------------------------------------------------------------------------- PAINT GYPBOARD CEILINGS 0 SF. 0.5 0 - --------------------------------------------------------------------------------------------------------------------- FRP PANELS 0 RMS. 450 0 - --------------------------------------------------------------------------------------------------------------------- CERAMIC TILE 0 SF. 21 0 - --------------------------------------------------------------------------------------------------------------------- PAINT PERIMETER WALLS 12288 SF. 0.35 4,301 - --------------------------------------------------------------------------------------------------------------------- PAINT COLUMNS 20 EA. 75 1,500 - --------------------------------------------------------------------------------------------------------------------- CONCRETE/ASPHALT $ 28,500.00 $0.00 - --------------------------------------------------------------------------------------------------------------------- BACK-FILL TRENCHES 1 LOT 5500 5,500 - --------------------------------------------------------------------------------------------------------------------- POUR BACK CONCRETE SLAB 1 LOT 23000 23,000 - --------------------------------------------------------------------------------------------------------------------- SAW CUT OPENINGS 0 EA. 500 0 - --------------------------------------------------------------------------------------------------------------------- PATIO SLAB (NATURAL) 0 SF. 4 0 - --------------------------------------------------------------------------------------------------------------------- CONCRETE COLUMNS & PIERS 0 EA. 800 0 - --------------------------------------------------------------------------------------------------------------------- STRUCTURAL STEEL 0 EA. 2200 0 - --------------------------------------------------------------------------------------------------------------------- FLOOR COVERING $ 62,427.50 $0.00 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- BLD.STD.CARPET 0 SQYD 25 0 - --------------------------------------------------------------------------------------------------------------------- UP-GRADE CARPET 0 SQYD 40 0 - --------------------------------------------------------------------------------------------------------------------- VINYL COMP. TILE 0 SF. 1.25 0 - --------------------------------------------------------------------------------------------------------------------- SHEET VINYL (TOILETS) 480 SF. 4.5 2160 - --------------------------------------------------------------------------------------------------------------------- CARPET TILE 0 SF. 1755 0 - --------------------------------------------------------------------------------------------------------------------- RUBBER BASE 250 LF. 1.95 487.5 - --------------------------------------------------------------------------------------------------------------------- PARQUET WOOD FLOORING 0 SF. 9427 0 - --------------------------------------------------------------------------------------------------------------------- CERAMIC TILE 0 SF. 21 0 - --------------------------------------------------------------------------------------------------------------------- SCRUB & SEAL FLOOR (BEADED) 34160 SF. 1.75 59,780 - --------------------------------------------------------------------------------------------------------------------- WINDOW COVERING $ 4,500.00 $0.00 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- DRAPES 0 LF. 0 0 - --------------------------------------------------------------------------------------------------------------------- MINI BLINDS 1000 SF. 4.5 4,500 - --------------------------------------------------------------------------------------------------------------------- MYLAR COATING 0 SF. 0 0 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- HV/AC $180,000.00 $0.00 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- MODIFY (E) DUCTWORK 0 LOT 1000 0 - --------------------------------------------------------------------------------------------------------------------- NEW HVAC (PACKAGE UNITS) 90 TON 2000 180,000 - --------------------------------------------------------------------------------------------------------------------- E-4 NEW VAV SYSTEM 0 TON 1600 0 - ------------------------------------------------------------------------------------------------------------------------------------ FIRE/SMOKE DAMPERS 0 EA. 1500 0 - ------------------------------------------------------------------------------------------------------------------------------------ STATS. - ------------------------------------------------------------------------------------------------------------------------------------ MISC. & SPECIAL EQUIP $ 9,150.00 $ 0.00 - ------------------------------------------------------------------------------------------------------------------------------------ REINSTALL (E) WORK SURFACES 0 LOT 680 0 - ------------------------------------------------------------------------------------------------------------------------------------ RE-ROOF/ROOF REPAIRS 0 SF. 1.6 0 - ------------------------------------------------------------------------------------------------------------------------------------ HIGH BAY W/H LIGHTING 0 EA. 750 0 - ------------------------------------------------------------------------------------------------------------------------------------ EXTERIOR WALL PACK LIGHTING 0 EA. 895 0 - ------------------------------------------------------------------------------------------------------------------------------------ CONCRETE WALKWAYS 0 SF. 5 0 - ------------------------------------------------------------------------------------------------------------------------------------ MICROWAVE OVENS & PLUGS 0 EA. 500 0 - ------------------------------------------------------------------------------------------------------------------------------------ FIRE EXTINGUISHERS 10 EA. 100 1,000 - ------------------------------------------------------------------------------------------------------------------------------------ REFRIGIRATOR AND PLUG 0 EA. 900 0 - ------------------------------------------------------------------------------------------------------------------------------------ ROLL-UP DOOR SERVICES 1 LOT 5000 5,000 - ------------------------------------------------------------------------------------------------------------------------------------ METAL CANOPY'S 0 SF. 35 0 - ------------------------------------------------------------------------------------------------------------------------------------ BALLARDS 6 EA. 400 2,400 - ------------------------------------------------------------------------------------------------------------------------------------ WROUGHT IRON FENCE 0 LF. 40 0 - ------------------------------------------------------------------------------------------------------------------------------------ WROUGHT IRON GATE W/ELECT. 0 EA. 4600 0 - ------------------------------------------------------------------------------------------------------------------------------------ JANITORIAL AND CLEAN-UP 1 L/S 750 750 - ------------------------------------------------------------------------------------------------------------------------------------ CHAIN LINK FENCE 0 L/S 21 0 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ SUBTOTALS $562,250.70 $ 0.00 - ------------------------------------------------------------------------------------------------------------------------------------ A & E FEES $ 0.00 BY OWNER - ------------------------------------------------------------------------------------------------------------------------------------ GENERAL CONDITIONS 10 WKS $ 48,000.00 $ 0.00 V & M CONSTRUCTION - ------------------------------------------------------------------------------------------------------------------------------------ PERMITS & FEES N/C $ 0.00 BY OWNER - ------------------------------------------------------------------------------------------------------------------------------------ OVERHEAD AND PROFIT 5% $ 30,512.54 $ 0.00 V & M CONSTRUCTION - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL COST TO AMB $640,763.24 $ 0.00 - ------------------------------------------------------------------------------------------------------------------------------------ $236,465.50 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL COST TO NUVELO REVISED TOTAL OF LIGHTING, SLAB REPAIR $264.841.36 AND RR CORES - ------------------------------------------------------------------------------------------------------------------------------------ EXCLUSIONS - ------------------------------------------------------------------------------------------------------------------------------------ (1) RACK SPRINKLERS - ------------------------------------------------------------------------------------------------------------------------------------ (2) FURNITURE & FURNISHINGS - ------------------------------------------------------------------------------------------------------------------------------------ (3) SPECIAL EQUIPMENT - ------------------------------------------------------------------------------------------------------------------------------------ (4) ANY SPECIAL CITY REQUIREMENTS - ------------------------------------------------------------------------------------------------------------------------------------ (5) COAX CABLE/CRT'S AND COMP. - ------------------------------------------------------------------------------------------------------------------------------------ (6) ADA UP-GRADES NOT LISTED - ------------------------------------------------------------------------------------------------------------------------------------ (7) TOXIC MATERIAL REMOVAL - ------------------------------------------------------------------------------------------------------------------------------------ (8) ANY SECURITY SYSTEMS WORK - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ NOTES - ------------------------------------------------------------------------------------------------------------------------------------ 1) EXISTING CONCRETE SLAB TO BE BEAD BLASTED AND ACRYLIC FLOOR FINISH - ------------------------------------------------------------------------------------------------------------------------------------ 2) ALLOW 4 WEEKS FOR CITY PLAN CHECK COMMENTS - ------------------------------------------------------------------------------------------------------------------------------------ 3) REUSE EXISTING SEISMIC MATERIAL ON SITE - ------------------------------------------------------------------------------------------------------------------------------------ E-5 EX-10.2 4 f91029exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 SECOND AMENDMENT OF TERMINATION AGREEMENT AND TERMINATION OF OPTION AGREEMENT THIS SECOND AMENDMENT OF TERMINATION AGREEMENT AND TERMINATION OF OPTION AGREEMENT (this "Second Amendment") is entered into as of July 1, 2003, by and among AMB PROPERTY, L.P., a Delaware limited partnership ("AMB"), NUVELO, INC., a Nevada corporation, successor by merger to Hyseq, Inc., a Nevada corporation ("Nuvelo"), and GEORGE RATHMANN, an individual ("Guarantor"). AMB, Nuvelo and Guarantor are sometimes referred to individually herein as a "Party" and collectively as the "Parties." RECITALS A. AMB, Nuvelo and Guarantor were parties to that certain Conditional Lease Termination Agreement dated as of October 1, 2002 (the "Termination Agreement") pursuant to which the lease between AMB and Nuvelo dated as of June 23, 2000, as amended by that certain First Amendment to Lease Agreement dated December 14, 2000 (as so amended, the "Lease"), relating to, and Nuvelo's right to possession of, the approximately 59,300 rentable square feet located at 225, 249 and 257 Humboldt Court, Sunnyvale, California (the "Property"), was terminated, all as more particularly described in the Termination Agreement. B. In connection with the Termination Agreement, AMB and Nuvelo also entered into that certain Real Property Option and Sale Agreement and Joint Escrow Instructions dated as of October 1, 2002 (the "Option Agreement") pursuant to which AMB granted to Nuvelo an option to purchase the Property on the terms and conditions contained in the Option Agreement (the "Option"). As partial consideration for the Option, Nuvelo also executed a Promissory Note dated November 1, 2002 (the "Original Note") in the principal amount of $2,600,000 in favor of AMB, and issued to AMB a Warrant to Purchase Shares of Common Stock dated November 1, 2002 for up to 195,130 shares of common stock of Nuvelo (the "Original Warrants"). A Memorandum of Option dated November 18, 2002 executed by AMB and Nuvelo was recorded on November 18, 2002 in the Official Records of the County of Santa Clara, State of California (the "Official Records") as Instrument No 16622221. C. Guarantor executed a guaranty (the "Original Guaranty") of Nuvelo's obligations under the Original Note. Under the Original Guaranty, Guarantor also guaranteed and promised to pay any avoidance by Nuvelo, Nuvelo's successors or Nuvelo's creditors of all or any part of the sum of $3,100,000 which amount represents a portion of the termination fee paid to AMB pursuant to the Termination Agreement, or the recovery of any portion of such termination fee directly or indirectly from AMB as a preference, fraudulent transfer or otherwise under the Bankruptcy Code or other similar laws, which guarantee and promise terminated on February 3, 2003. D. The Parties acknowledge that AMB is holding an irrevocable letter of credit number 306S234524 dated November 13, 2002 in the amount of $250,000 (the "Repair Letter of Credit") issued by Union Bank of California (the "Issuing Bank") in favor of AMB, as Beneficiary, for the account of Nuvelo, as Applicant, which letter of credit secures the obligations of Nuvelo to repair the Property set forth in the Termination Agreement and certain [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 1 of 6 side letters executed by the Parties in connection therewith (the "Original Repair Obligations"). The Parties also acknowledge that in accordance with the Termination Agreement, the Existing Letter of Credit (as defined in the Termination Agreement) in the amount of $3,000,000 was previously returned by AMB to the Issuing Bank and has been cancelled. E. The Termination Agreement, the Option Agreement, the Original Note, the Warrants, the Original Guaranty, the Repair Letter of Credit and the other instruments and documents executed by or entered into among the Parties in connection therewith, are referred to herein sometimes collectively as the "Original Transaction Documents." F. The Parties entered into a certain Pre-Negotiation and Extension Agreement dated as of April 29, 2003, as amended by the letter agreement dated May 7, 2003, providing for, among other things, the extension of the Option Period (as defined in the Option Agreement) until 5:00 p.m. (Pacific Standard Time) on May 9, 2003 (as amended, the "Pre-Negotiation Agreement"). G. The Parties entered into a certain Amendment of Termination Agreement and Termination of Option Agreement (referred to herein as the "Amendment") on May 9, 2003, that became effective on May 16, 2003, and certain Modification Documents (as defined in the Amendment) that also became effective on May 16, 2003. The Amendment and the Modification Documents supersede the Original Transaction Documents. The Amendment provides for amendment of the Repair Letter of Credit and termination of the Option, the Option Agreement and the other Original Transaction Documents, all on and subject to the terms and conditions provided in the Amendment and in the other Modification Documents. The Amendment and the Modification Documents further provide for termination of the Original Note and the issuance of the Amended and Restated Promissory Note, in accordance with which the principal balance under the Amended and Restated Promissory Note and all charges, costs and expenses due under it are due and payable to AMB from Nuvelo in full on May 1, 2005. Further, the Amendment provides for the issuance by Nuvelo of a warrant for AMB to purchase up to 200,000 shares of Nuvelo common stock. The Amendment together with the other Modification Documents are referred to in this Second Amendment collectively as the "Amendment Documents." H. The Parties now desire to amend the Amendment Documents in order to modify the arrangements made for the restoration of the Property. The Parties desire to cancel the Repair Letter of Credit number 306S234534 dated November 13, 2002, as amended, and have Nuvelo pay the sum of $250,000 directly to AMB. The Parties further desire to permit AMB to use certain materials owned by Nuvelo in the restoration of the Property. Nuvelo desires to make arrangements for the payment of $10,000 to Cole Project Management for their services with respect to the restoration project. Finally, AMB desires to terminate Nuvelo's obligation to restore the Property in accordance with the terms of Section 6 of the Amendment. Capitalized terms used but not otherwise defined herein shall have the same meanings as in the Amendment Documents. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and intending to be legally bound hereby, the Parties covenant and agree as follows: AGREEMENT [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 2 of 6 1. Section 6 of the Amendment is hereby deleted in its entirety. 2. Effective as of the Effective Date, as hereinafter defined, the Original Repair Obligations set forth in Paragraph 5 of the Termination Agreement and the side letters executed by the Parties in connection therewith are terminated in their entirety. As of the Effective Date, Nuvelo has no further obligations of any kind whatsoever with respect to the repair or restoration of the Property under the Amendment Documents. Nuvelo agrees to provide AMB with the materials set forth in Exhibit E attached to this Second Amendment solely for the purpose of AMB's restoration of the Property. Nuvelo further agrees to allow AMB and its contractors, solely with the escort of an agent or employee of Nuvelo, reasonable access to [***] for the sole purpose of removing the materials listed on Exhibit E attached to this Second Amendment, and no other materials of any kind whatsoever. The materials listed on Exhibit E attached to this Second Amendment are provided to AMB at no cost to AMB in their current "AS IS" condition, without warranty, express or implied. AMB shall repair any damage to the premises of [***] caused by AMB's removal of the materials. 3. Not more than 1 business day after the Effective Date, AMB shall return the Repair Letter of Credit number 306S234534 dated November 13, 2002, as amended by the Repair Letter of Credit Amendment, to Union Bank for cancellation effective upon the Effective Date. 4. On July 1, 2003, Nuvelo shall wire to AMB $250,000 United States dollars (the "Repair Monies") in accordance with the following instructions: [***] 5. On July 1, 2003, Nuvelo shall pay to Cole Project Management, LLC., care of [***], $10,000 United States dollars ("Cole Monies") as payment in full for all services provided to Nuvelo relating to repair and restoration of the Property. Nuvelo shall promptly provide AMB with a written payment notification ("Payment Notification") which shall include copy of the check for the Cole Monies and evidence of delivery of the Cole Monies to Cole Project Management, LLC. 6. Section 10 of the Amendment is amended by deleting the last sentence of Section 10 of the Amendment. 7. EXHIBIT E of the Amendment is amended by deleting EXHIBIT E in its entirety and replacing it with the Exhibit E attached to this Second Amendment. 8. In addition to the deletion of Section 6 of the Amendment, the Amendment Documents are amended by deleting any and all references to, and obligations associated with, Repair Obligations, Repair Deadline, Work, and any other obligations of any kind whatsoever regarding or otherwise relating to repair or restoration of the Property by Nuvelo, including without limitation such references or obligations set forth or implied in any warranty, indemnity, discussion of liability or in Section 11 of the Amendment. AMB acknowledges and agrees that upon the Effective Date Nuvelo has no obligation to, and no liability with respect to, restoration or repair of the Property. AMB further acknowledges and agrees that upon the Effective Date Nuvelo has no obligation of any kind whatsoever under the Amendment Documents to maintain a letter of credit of any kind whatsoever for the benefit of AMB. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 3 of 6 9. Any failure by AMB to return the original Repair Letter of Credit, as amended, as provided in Section 3 of this Second Amendment is a material breach of the Amendment by AMB. AMB shall execute such additional documents and instruments reasonably requested by Nuvelo or the Issuing Bank to permit the cancellation of the Repair Letter of Credit effective upon the Effective Date. 10. For purposes of this Second Amendment, the term "Effective Date" shall mean the later of (i) the date on which AMB receives the Repair Monies from Nuvelo and (ii) the date on which AMB receives the Payment Notification from Nuvelo. If the Effective Date does not occur on or before July 10, 2003, then, unless AMB elects in writing to waive the same and to continue this Second Amendment, this Second Amendment shall terminate and be of no further force and effect and the Amendment Documents shall remain in full force and effect. 11. This Second Amendment is governed by and construed and enforced in accordance with the laws of the State of California, without giving effect to the principles of conflicts of law. 12. This Second Amendment is binding upon and inures to the benefit of the respective successors and assigns of each of the Parties. 13. This Second Amendment may be executed in one or more counterparts, each of which constitutes an original and all of which taken together constitute one agreement. Any counterpart may be executed by facsimile copy and is binding on the Parties. 14. Each person executing this Second Amendment represents that such person has full authority and legal power to do so and bind the Party on whose behalf he or she has executed this Second Amendment. 15. Except as expressly modified by this Second Amendment, all of the terms and provisions of the Amendment Documents remain in full force and effect and are hereby ratified and confirmed by AMB, Nuvelo and Guarantor. [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 4 of 6 IN WITNESS WHEREOF, the parties have executed this Second Amendment of Termination Agreement and Termination of Option Agreement on the day and year first above written. AMB: AMB PROPERTY, L.P., A DELAWARE LIMITED PARTNERSHIP By: AMB PROPERTY CORPORATION, a Maryland corporation, its general partner By: ______________________________ John L. Rossi Its: Senior Vice President NUVELO: NUVELO, INC., A NEVADA CORPORATION By: _____________________________ Name: Peter S. Garcia Title: Senior Vice President and CFO By: _____________________________ Name: Linda A. Fitzpatrick Title: Senior Vice President, Human Resources GUARANTOR: ___________________________________________ GEORGE RATHMANN SSN #: [***] The undersigned, the wife of George Rathmann, hereby consents to the foregoing Second Amendment and acknowledges that such Second Amendment and the other documents entered into by George Rathmann in connection therewith creates binding obligations of George Rathmann and the undersigned, and their individual, joint and community assets. SPOUSE OF GUARANTOR: ___________________________________ FRANCES JOY RATHMANN [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 5 of 6 SSN #: [***] [***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS. 6 of 6 EXHIBIT E The following itemization details those materials to be provided to AMB from stored inventory at [***] for the sole purpose of completing cold shell improvements at the Property. MATERIAL SCHEDULE - 2 urinals - 4 water closets - 2 floor drains - 20 drain caps - 15 plumbing elbows/connectors - 210 pieces 6" metal studs (18'-0" long) - 50 pieces 3 5/8" metal studs (9'-0" long) - 15 pieces of slotted track (10'-0" long) - 125 sheets of the 4'-0" X 10'-0" sheetrock - Twenty-four 8'-0" suspended 2 bulb light fixtures - 1,500 lineal feet of conduit and wire for lighting circuits - other materials required to complete the cold shell improvements that are mutually identified and mutually agreed upon by the parties Second Amendment AMB/Nuvelo 7 of 5 EX-31.1 5 f91029exv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ted W. Love, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Nuvelo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are resonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 13, 2003 /s/ Ted W. Love ----------------------------------------------- Ted W. Love President, Chief Executive Officer and Director EX-31.2 6 f91029exv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Peter S. Garcia, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Nuvelo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are resonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 13, 2003 /s/ Peter S. Garcia ---------------------------------------------------- Peter S. Garcia Senior Vice President and Chief Financial Officer EX-32.1 7 f91029exv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 NUVELO, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SEC. 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Nuvelo, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ted W. Love, President, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ TED W. LOVE ----------------------------------------------- Ted W. Love President, Chief Executive Officer and Director Date: August 13, 2003 A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO NUVELO, INC., AND WILL BE RETAINED BY NUVELO AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. EX-32.2 8 f91029exv32w2.txt EXHIBIT 32.2 EXHIBIT 32.2 NUVELO, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SEC. 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Nuvelo, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter S. Garcia, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ PETER S. GARCIA ------------------------------------------------- Peter S. Garcia Senior Vice President and Chief Financial Officer Date: August 13, 2003 A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO NUVELO, INC., AND WILL BE RETAINED BY NUVELO AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1

              AMENDMENT OF TERMINATION AGREEMENT AND TERMINATION OF
                                OPTION AGREEMENT

         THIS SECOND AMENDMENT OF TERMINATION AGREEMENT AND TERMINATION OF
OPTION AGREEMENT (this "Amendment") is entered into as of May 9, 2003, by and
among AMB PROPERTY, L.P., a Delaware limited partnership ("AMB"), NUVELO, INC.,
a Nevada corporation, successor by merger to Hyseq, Inc., a Nevada corporation
("Nuvelo"), and GEORGE RATHMANN, an individual ("Guarantor"). AMB, Nuvelo and
Guarantor are sometimes referred to individually herein as a "Party" and
collectively as the "Parties."

                                    RECITALS

         A.       AMB, Nuvelo and Guarantor are parties to that certain
Conditional Lease Termination Agreement dated as of October 1, 2002 (the
"Termination Agreement") pursuant to which the lease between AMB and Nuvelo
dated as of June 23, 2000, as amended by that certain First Amendment to Lease
Agreement dated December 14, 2000 (as so amended, the "Lease"), relating to, and
Nuvelo's right to possession of, the approximately 59,300 rentable square feet
located at 225, 249 and 257 Humboldt Court, Sunnyvale, California (the
"Property"), was terminated, all as more particularly described in the
Termination Agreement.

         B.       In connection with the Termination Agreement, AMB and Nuvelo
also entered into that certain Real Property Option and Sale Agreement and Joint
Escrow Instructions dated as of October 1, 2002 (the "Option Agreement")
pursuant to which AMB granted to Nuvelo an option to purchase the Property on
the terms and conditions contained in the Option Agreement (the "Option"). As
partial consideration for the Option, Nuvelo also executed a Promissory Note
dated November 1, 2002 (the "Original Note") in the principal amount of
$2,600,000 in favor of AMB, and issued to AMB a Warrant to Purchase Shares of
Common Stock dated November 1, 2002 for up to 195,130 shares of common stock of
Nuvelo (the "Original Warrants"). A Memorandum of Option dated November 18, 2002
executed by AMB and Nuvelo was recorded on November 18, 2002 in the Official
Records of the County of Santa Clara, State of California (the "Official
Records") as Instrument No 16622221.

         C.       Guarantor executed a guaranty (the "Original Guaranty") of
Nuvelo's obligations under the Original Note. Under the Original Guaranty,
Guarantor also guaranteed and promised to pay any avoidance by Nuvelo, Nuvelo's
successors or Nuvelo's creditors of all or any part of the sum of $3,100,00,
which amount represents a portion of the termination fee paid to AMB pursuant to
the Termination Agreement, or the recovery of any portion of such termination
fee directly or indirectly from AMB as a preference, fraudulent transfer or
otherwise under the Bankruptcy Code or other similar laws, which guarantee and
promise terminated on February 3, 2003.

         D.       The Parties acknowledge that AMB is holding an irrevocable
letter of credit number 306S234524 dated November 13, 2002 in the amount of
$250,000 (the "Repair Letter of Credit") issued by Union Bank of California (the
"Issuing Bank") in favor of AMB, as Beneficiary, for the account of Nuvelo, as
Applicant, which letter of credit secures the obligations of Nuvelo to repair
the Property set forth in the Termination Agreement and certain side letters
executed by the Parties in connection therewith (the "Original Repair
Obligations"). The Parties also acknowledge that in accordance with the
Termination Agreement, the Existing Letter of Credit (as defined in the
Termination Agreement) in the amount of $3,000,000 was previously returned by
AMB to the Issuing Bank and has been cancelled.

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                        1



         E.       The Termination Agreement, the Option Agreement, the Original
Note, the Warrants, the Original Guaranty, the Repair Letter of Credit and the
other instruments and documents executed by or entered into among the Parties in
connection therewith, are referred to herein sometimes collectively as the
"Original Transaction Documents." Capitalized terms used but not otherwise
defined herein shall have the same meanings as in the Original Transaction
Documents.

         F.       The Parties desire to terminate the Option and the Option
Agreement as provided herein and in the other Modification Documents (defined
below), all on and subject to the terms and conditions provided herein and in
the other Modification Documents.

         G.       Pursuant to the Option Agreement and the Original Note, the
principal amount of the Original Note becomes due and payable upon a termination
of the Option Agreement. Nuvelo desires to revise the terms of payment and
extend the maturity date of the Original Note, and AMB is willing to agree to
such revisions notwithstanding the termination of the Option Agreement, all on
and subject to the terms and conditions provided herein and in the other
Modification Documents.

         H.       The Parties have entered into that certain Pre-Negotiation and
Extension Agreement dated as of April 29, 2003, as amended by the letter
agreement dated May 7, 2003, providing for, among other things, the extension of
the Option Period (as defined in the Option Agreement) until 5:00 p.m. (Pacific
Standard Time) on May 9, 2003 (as amended, the "Pre-Negotiation Agreement").

         NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and intending to be legally bound hereby, the Parties covenant
and agree as follows:

                                    AGREEMENT

         1.       Reaffirmation of Termination of Lease and Termination Fee.
Notwithstanding anything to the contrary contained in this Agreement or the
other Modification Documents, the Parties acknowledge and reaffirm (a) the
termination of the Lease and of Nuvelo's right to possession of the Property
under the Lease as of October 1, 2002 pursuant to the Termination Agreement, as
revised hereby, and (b) the right of AMB to retain the Termination Fee in the
total amount of $5,400,000 paid to AMB under the Termination Agreement
(including, without limitation, the cash payment in the amount of $2,300,000
which amount the Parties acknowledge was previously paid by the Guarantor).
Nothing contained in this Agreement or the other Modification Documents shall
affect or be deemed to affect such prior termination of the Lease or AMB's right
to retain the Termination Fee in its entirety, which Termination Fee the Parties
acknowledge and agree has been fully earned.

         2.       Termination of Option and Option Agreement; Reaffirmation of
Option Consideration.

                  (a)      Nuvelo and Guarantor acknowledge and agree that
Nuvelo has elected not to and will not exercise the Option to purchase the
Property under the Option Agreement if the transactions contemplated by this
Agreement are consummated. Subject to the provisions of Paragraph 11, the
Parties agree that from and as of the Effective Date (defined below), the Option
Agreement is hereby terminated in its entirety, including without limitation,
the Option contained therein, and the Parties have no further rights or
obligations thereunder, except those obligations which expressly survive a
termination of the Option Agreement or as otherwise expressly provided herein or
in the other Modification Documents. Without limitation, subject to the
provisions of Paragraph 11, from and as of the Effective Date, the Parties
acknowledge and agree that Nuvelo has no further right to exercise the Option
and no further rights or interests with respect to the Property (other than the
right of Nuvelo specifically contained in this Agreement to access the Property
in order to complete its repair obligations in accordance with Paragraph 6 of
this Agreement), and that the Loan Documents (as defined in the Option
Agreement) will not be

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                        2



executed or delivered under the Option Agreement (other than the Amended and
Restated Note (as defined in Paragraph 3) and the Amended and Restated Guaranty
(as defined in Paragraph 4) if the transactions contemplated hereby are
consummated). Nuvelo hereby waives, releases and relinquishes all right, title
and interest in and to the Property, including without limitation, pursuant to
the Option and the Option Agreement (other than such access rights in accordance
with Paragraph 6 of this Agreement and subject to the provisions of Paragraph
11). Concurrently with the execution of this Agreement, Nuvelo agrees to deliver
to Escrow Agent (defined below) as provided in Paragraph 11(b), two (2)
originals of a Quitclaim Deed and Termination of Option in the form of EXHIBIT A
attached hereto and incorporated herein by this reference (the "Quitclaim Deed")
duly executed and acknowledged by Nuvelo. Nuvelo further agrees to return to AMB
promptly following the Effective Date all due diligence materials and reports in
Nuvelo's possession relating to the Property (other than items which are subject
to contractual limitations with third parties against disclosure by Nuvelo,
documents which are privileged or constitute Nuvelo's internal analysis or
appraisal of the Property).

                  (b)      Notwithstanding the termination of the Option and the
Option Agreement, and notwithstanding anything to the contrary contained in this
Agreement or the other Modification Documents, the Parties acknowledge and
reaffirm the right of AMB to retain the Initial Option Consideration and the
Additional Option Consideration previously paid to AMB pursuant to the Option
Agreement (in the total amount of $2,340,000, including, without limitation, the
cash payment in the amount of $1,700,000 which amount the Parties acknowledge
was previously paid by the Guarantor), as well as the option payments evidenced
by and due under the Amended and Restated Note (defined below). Nothing
contained in this Agreement or the other Modification Documents shall affect or
be deemed to affect AMB's right to such option consideration in its entirety,
which option consideration the Parties acknowledge and agree has been fully
earned.

         3.       Amended and Restated Note. The Parties acknowledge and agree
that the Original Note shall be amended and restated in its entirety pursuant to
the Amended and Restated Promissory Note in the amount of $2,600,000 in the form
attached hereto as EXHIBIT B and incorporated herein by this reference (the
"Amended and Restated Note"), effective as of the Effective Date and subject to
satisfaction of all of the Conditions Precedent set forth in Paragraph 11 of
this Agreement.

         4.       Amended and Restated Guaranty. Concurrently herewith, the
Guarantor agrees to execute and deliver (and to cause Mrs. Rathmann to execute
and deliver) to AMB, as provided in Paragraph 11(c), the Amended and Restated
Guaranty in the form of EXHIBIT C attached hereto and incorporated herein by
this reference (the "Amended and Restated Guaranty"), which shall amend and
restate the Original Guaranty in its entirety effective as of the Effective Date
and subject to satisfaction of all of the Conditions Precedent set forth in
Paragraph 11 of this Agreement.

         5.       Additional Warrants. In consideration for AMB entering into
the Modification Documents, concurrently herewith, Nuvelo agrees to execute and
deliver to AMB, as provided in Paragraph 11(a), a Stock Purchase Warrant to
Purchase Shares of Common Stock for 200,000 shares of common stock of Nuvelo (in
addition to the Original Warrants) in the form attached hereto as EXHIBIT D and
incorporated herein by this reference (the "Additional Warrants"). Nuvelo hereby
reaffirms all of its obligations, as successor by merger to Hyseq, Inc., under
the Original Warrants, and represents and warrants to AMB that the Original
Warrants are in full force and effect as of the date hereof and as of the
Effective Date.

         6.       Repair Obligations; Access Rights.

                  (a)      The Original Repair Obligations set forth in
Paragraph 5 of the Termination Agreement and the side letters executed by the
Parties in connection therewith are hereby amended and

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restated in their entirety as set forth in this Paragraph 6. Nuvelo agrees to
perform, at its sole cost and expense, the repair and restoration obligations
described in this Paragraph 6, and as further described in EXHIBIT E and
SCHEDULE 1 attached hereto and incorporated herein by this reference
(collectively, the "Repair Obligations" or the "Work"), on or before the date
that is 90 days after the Effective Date (the "Repair Deadline"). As part of the
Repair Obligations, Nuvelo shall, without limitation: (1) remove and restore the
items listed on EXHIBIT E and SCHEDULE 1, (2) leave the Premises in a
broom-clean condition, free of all materials, supplies, equipment and personal
property, (3) repair any damage to the Premises caused by any such removal or
restoration, (4) obtain unconditional lien releases in form satisfactory to AMB
from all contractors and subcontractors performing any portion of the Work, in
each case prior to the Repair Deadline, and (5) otherwise comply with the
provisions of this Paragraph 6 and EXHIBIT E.

                  (b)      Upon completion of the Work, Nuvelo shall contact
AMB's property manager, Amy Pallas or John Baruh of Legacy Partners (at [***]),
to inspect the Premises to determine on behalf of AMB if the Repair Obligations
have been fully satisfied as provided in this Paragraph 6. Nuvelo shall have the
right to have a representative of Nuvelo conduct such inspection with AMB. If
Nuvelo fails to fulfill any Repair Obligations on or prior to the Repair
Deadline to AMB's reasonable satisfaction, then AMB shall notify Nuvelo in
writing which of such obligations are not so satisfied. Nuvelo shall then have
10 days to complete the remaining Repair Obligations to AMB's reasonable
satisfaction. If Nuvelo does not so satisfy such remaining Repair Obligations
within such 10 day period, then AMB shall have the right (but not the
obligation) to perform such obligations on behalf of Nuvelo and to draw on the
Repair Letter of Credit and apply the proceeds thereof toward the costs incurred
by AMB in connection therewith. AMB shall be entitled to retain the Repair
Letter of Credit as security for the lien-free completion of the Repair
Obligations as provided in and subject to the provisions of this Paragraph 6.
Nuvelo shall give AMB 10 days' prior written notice before commencing the Work
to enable AMB to record and post a notice of non-responsibility.

                  (c)      Upon completion of the Work, Nuvelo shall also
complete and record a Notice of Completion in the Official Records in accordance
with California Civil Code Section 3093 or any succeeding law, statute or
ordinance now or hereafter in effect. If the Repair Obligations have been
completed as provided in this Paragraph 6, then AMB agrees to return the Repair
Letter of Credit (or the proceeds thereof, if any, remaining after reimbursing
AMB in full for all reasonable costs and expenses incurred by AMB in performing
any portion of the Work that is not completed by Nuvelo as provided in
subparagraph (b) above, plus any amounts owing to AMB or any AMB Party under
Paragraph 9 hereof including, without limitation, reasonable attorneys' fees) to
Nuvelo on or before the date which is 90 days after the recordation of such
Notice of Completion.

                  (d)      Subject to the indemnification provisions of
Paragraph 9 of this Agreement, and subject to receipt and approval by AMB of
evidence of insurance satisfactory to AMB (including without limitation general
liability insurance in the amount of at least $2,000,0000) covering Nuvelo and
all contractors and subcontractors performing the Work (which insurance shall
name AMB, AMB Property Corporation and AMB Property Capital Partners as
additional insureds), Nuvelo and its representatives shall be entitled to access
to the Premises upon reasonable advance notice to AMB's property manager, during
normal business hours, from the date hereof through the Repair Deadline to
perform the Repair Obligations, subject to such rules and regulations as AMB may
reasonably impose. At AMB's discretion, a representative of AMB's property
manager may accompany Nuvelo and its representatives and contractors. Subject to
the indemnification provisions of Paragraph 9, AMB shall provide reasonable
access to Nuvelo and its employees, contractors and subcontractors to perform
preliminary inspections and bids prior to commencing the Work and delivering the
insurance documentation required hereunder.

                  (e)      As a Condition Precedent pursuant to Paragraph 11,
Nuvelo shall deliver to AMB on or prior to the Effective Date, an amendment to
the Repair Letter of Credit, which amendment shall

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                                       4



revise the statement to be delivered by the Beneficiary in connection with a
draw under the Repair Letter of Credit to read as provided in the following
paragraph, in form and content satisfactory to AMB in its sole discretion (the
"Repair Letter of Credit Amendment"):

                           "The undersigned being an authorized representative
                           or officer of [Name of Beneficiary] (the
                           "Beneficiary") hereby certifies that it is entitled
                           to draw on Union Bank of California, N.A. Letter of
                           Credit No. 306S234524 pursuant to the Conditional
                           Lease Termination Agreement dated October 1, 2002, as
                           amended by the Amendment of Termination Agreement and
                           Termination of Option Agreement, between AMB
                           Property, L.P., a Delaware limited partnership,
                           Nuvelo, Inc., a Nevada corporation, successor by
                           merger to Hyseq, Inc., and George Rathmann, and as
                           the same may be further amended or assigned, or any
                           documents related thereto."

                  (f)      All contractors and subcontractors performing any
portion of the Work on behalf of Nuvelo shall be duly licensed in the State of
California and shall, together with any contracts entered into for any portion
of the Work, be subject to the prior written approval of AMB, which approval
shall not be unreasonably withheld, conditioned or delayed. Prior to
commencement of the Work, Nuvelo shall provide AMB with plans and specifications
for the Work for AMB's prior written approval, which approval shall not be
unreasonably withheld, and shall obtain and provide to AMB all required permits
for the Work. Nuvelo shall and shall cause its contractors to perform the Work
in accordance with all applicable laws, rules, ordinances and regulations,
including without limitation, local building codes, free of defects and liens,
and otherwise in accordance with the provisions of EXHIBIT E. Any delay in the
commencement of Work caused by AMB's unreasonable denial of reasonably proposed
licensed contractors and subcontractors or plans and specifications or
unreasonable delay in the approval of the matters required under this paragraph
shall extend the Repair Deadline by the amount of such delay caused by AMB.

         7.       Representations and Warranties of Nuvelo. Nuvelo represents
and warrants that (a) Nuvelo is the successor by merger to, and has succeeded to
all of the obligations, debts and liabilities of, Hyseq, Inc., a Nevada
corporation, including without limitation the obligations of Hyseq, Inc. under
the Original Transaction Documents; (b) Nuvelo has not made (i) any direct or
indirect (whether by operation of law or otherwise) disposition, assignment,
sublease, conveyance or other transfer of its obligations under the Original
Transaction Documents or (ii) any assignment or encumbrance of any of the
Original Transaction Documents; (c) Nuvelo has no knowledge of any fact or
circumstance which would give rise to any claim, demand, obligation, liability,
action or cause of action arising out of or in connection with Nuvelo's
occupancy of the Premises; (d) no other person or entity claiming by, through or
under Nuvelo has an interest in the Premises, collateral or otherwise; (e) there
are no outstanding contracts for the supply of labor or material and no work has
been done or is being done in, to or about the Premises which has not been fully
paid for and for which appropriate waivers of mechanic's liens have not been
obtained; (f) the person or entity executing this Agreement and the other
Modification Documents on behalf of Nuvelo has the full right, power and
authority to execute this Agreement and the other Modification Documents and to
bind Nuvelo without the consent or approval of any other person or entity or all
such consents or approvals have been duly obtained; (g) Nuvelo and Guarantor
each has the full power, capacity, authority and legal right to execute and
deliver this Agreement and the other Modification Documents to which it or he is
a party; (h) to the best of Nuvelo's knowledge, this Agreement and the other
Modification Documents are legal, valid and binding upon Nuvelo and Guarantor
(as applicable), and are enforceable in accordance with their terms; (i) there
are no uncured defaults on the part of AMB and neither Nuvelo nor Guarantor has
any claim, cause of action, offset, set-off, deduction, counterclaim or other
similar

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                                       5



right against AMB, including, without limitation, for a refund of any Operating
Expenses or Property Taxes under the Lease; (j) Guarantor will benefit from the
transactions contemplated hereunder and under the other Modification Documents;
(k) neither Nuvelo nor Guarantor has taken or is contemplating taking any of the
following actions: (1) made a general assignment for the benefit of creditors;
(2) filed any voluntary petition in bankruptcy or suffered the filing of an
involuntary petition by its creditors; (3) suffered the appointment of a
receiver to take possession of all, or substantially, all of its assets; (4)
suffered the attachment or other judicial seizure of all, or substantially all,
of its assets; (5) admitted in writing to its inability to pay its debts as they
become due; or (6) made an offer of settlement, extension or composition to its
creditors generally and (l) Nuvelo has received no notice of any material
proceeding or investigation by any regulatory agency pending or threatened
against Nuvelo. The foregoing representations and warranties shall be deemed to
be remade in full as of the Effective Date, and shall survive the termination of
the Option Agreement hereunder.

         8.       Representations and Warranties of AMB. AMB represents and
warrants that (a) AMB is the rightful owner of the Property; (b) AMB has not
made any direct or indirect (whether by operation of law or otherwise)
disposition, assignment, sublease, conveyance or other transfer of the Property
or any interest therein or any assignment or encumbrance of any of the Original
Transaction Documents; (c) AMB has no knowledge of any fact or circumstance
which would give rise to any claim, demand, obligation, liability, action or
cause of action arising out of or in connection with the Lease; (d) the person
or entity executing this Agreement and the other Modification Documents to which
AMB is a party on behalf of AMB has the full right, power and authority to
execute this Agreement and such other Modification Documents and to bind AMB,
without the consent or approval of any other person or entity; (e) AMB has the
full power, capacity, authority and legal right to execute and deliver this
Agreement and the other Modification Documents to which AMB is a party; (f) this
Agreement and the other Modification Documents to which AMB is a party are
legal, valid and binding upon AMB, and this Agreement and the other Modification
Documents are enforceable in accordance with their terms; (g) to the best of
AMB's knowledge, there are no uncured defaults on the part of Nuvelo or
Guarantor and AMB has no claim, cause of action, offset, set-off, deduction,
counterclaim or other similar right against Nuvelo or Guarantor except as
expressly provided in this Agreement and the other Modification Documents; and
(h) AMB has not done and is not contemplating taking any of the following
actions: (1) made a general assignment for the benefit of creditors; (2) filed
any voluntary petition in bankruptcy or suffered the filing of an involuntary
petition by its creditors; (3) suffered the appointment of a receiver to take
possession of all, or substantially, all of its assets; (4) suffered the
attachment or other judicial seizure of all, or substantially all, of its
assets; (5) admitted in writing to its inability to pay its debts as they become
due; or (6) made an offer of settlement, extension or composition to its
creditors generally. The foregoing representations and warranties shall be
deemed to be remade by AMB in full as of the Effective Date, and shall survive
the termination of the Option Agreement hereunder. The truth and accuracy of the
foregoing representations and warranties as of the date hereof and as of the
Effective Date shall be a Condition Precedent hereunder.

         9.       Indemnity; Release.

                  (a)      Nuvelo shall protect, indemnify, defend (with counsel
reasonably acceptable to AMB) and hold AMB and the other AMB Parties (defined
below) harmless from and against any and all asserted, threatened or actual
claims (including third party claims), judgments, damages, penalties, fines,
liabilities, losses, liens, suits, administrative proceedings and costs
(including, but not limited to, reasonable attorneys', experts' and consultants'
fees and court costs), of any nature whatsoever (collectively, the "Claims"),
directly or indirectly relating to or arising from (a) any Work performed by or
on behalf of Nuvelo at the Premises, including, without limitation, any liens
filed in connection therewith or any violations of law or breach of the Repair
Obligations, (b) any access or entry on the Property or Premises by Nuvelo or
its contractors or representatives, and (c) any brokerage commission, finder's
fees or other amount due in connection with this Agreement or the other
Modification Documents

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to any person or entity claiming by, through or under Nuvelo or Guarantor,
including without limitation Bryce Mason of BC Struxture ("Broker"). This
indemnity shall survive any termination of this Agreement and the termination of
the Option Agreement hereunder and shall continue in effect for as long as AMB
and the other AMB Parties may be subject to any of the Claims described above.
"AMB Parties" means AMB and AMB, AMB Property Corporation and AMB Property
Capital Partners and their respective partners, members, shareholders, officers,
directors, employees, property managers, representatives, agents, successors and
assigns.

                  (b)      AMB shall protect, indemnify, defend (with counsel
reasonably acceptable to Nuvelo) and hold Nuvelo harmless from and against any
and all Claims directly or indirectly relating to or arising from any brokerage
commission, finder's fees or other amount due in connection with this Agreement
or the other Modification Documents to any person or entity claiming by, through
or under AMB, provided that AMB shall have no obligation to pay any commission
to Broker and such indemnity shall specifically excludes any Claim relating to
Broker. This indemnity shall survive any termination of this Agreement and the
termination of the Option Agreement hereunder and shall continue in effect for
as long as Nuvelo may be subject to any of the Claims described above.

                  (c)      Nuvelo and Guarantor hereby reaffirm and restate the
releases and waivers contained in Paragraphs 2 and 4 of the Termination
Agreement, and each hereby further releases, discharges and waives any claims,
demands or causes of action whatsoever, including, without limitation, any and
all rights, obligations, liabilities, indebtedness, breaches of contract,
breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance,
debts, defenses, sums of money, accounts, compensations, contracts,
controversies, promises, damages, costs, losses and expenses of every type,
kind, nature, description or character, and irrespective of how, why, or by
reason of what facts, whether heretofore or now existing, or that could, might,
or may be claimed to exist, of whatever kind or name, whether known or unknown,
suspected or unsuspected, liquidated or unliquidated, claimed or unclaimed,
whether based on contract, tort, breach of any duty, or other legal or equitable
theory of recovery, each as though fully set forth herein at length, arising or
accruing out of or in connection with the Original Transaction Documents as
amended by the Modification Documents or the Pre-Negotiation Agreement that
Nuvelo and/or Guarantor may have against AMB or any AMB Parties as of the
Effective Date. Notwithstanding the foregoing, nothing contained herein or in
the Original Transaction Documents as amended hereby and by the other
Modification Documents shall release the Parties from their respective
obligations under this Agreement or the Original Transaction Documents as
amended hereby and by the other Modification Documents and the Pre-Negotiation
Agreement, except as expressly provided herein and therein.

                  (d)      AMB hereby reaffirms and restates the releases and
waivers contained in Paragraphs 3 and 4 of the Termination Agreement, and hereby
further releases, discharges and waives any claims, demands or causes of action
whatsoever, including, without limitation, any and all rights, obligations,
liabilities, indebtedness, breaches of contract, breaches of duty or any
relationship, acts, omissions, misfeasance, malfeasance, debts, defenses, sums
of money, accounts, compensations, contracts, controversies, promises, damages,
costs, losses and expenses of every type, kind, nature, description or
character, and irrespective of how, why, or by reason of what facts, whether
heretofore or now existing, or that could, might, or may be claimed to exist, of
whatever kind or name, whether known or unknown, suspected or unsuspected,
liquidated or unliquidated, claimed or unclaimed, whether based on contract,
tort, breach of any duty, or other legal or equitable theory of recovery, each
as though fully set forth herein at length, arising or accruing out of or in
connection with the Original Transaction Documents as amended by the
Modification Documents or the Pre-Negotiation Agreement that AMB may have
against Nuvelo as of the Effective Date.

                  (e)      Notwithstanding the foregoing, nothing contained
herein or in the Original Transaction Documents as amended hereby and by the
other Modification Documents shall release the

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Parties from their respective obligations under this Agreement or the Original
Transaction Documents as amended hereby and by the other Modification Documents
and the Pre-Negotiation Agreement, except as expressly provided herein and
therein.

         10.      Re-Leasing of Premises. Nuvelo acknowledges and agrees that
AMB shall have full access to the Premises at all times in order to show the
Premises to prospective tenants. Nuvelo agrees that AMB may enter into a new
lease for the Premises with any third party and that Nuvelo shall have no right
to any amounts received by AMB in connection therewith. AMB's access to the
Premises and activities performed in accordance with this Paragraph 10 shall be
exercised so as not to unreasonably interfere with the completion of the Repair
Obligations prior to the Repair Deadline.

         11.      Conditions Precedent. All of the following conditions set
forth in subparagraphs (a) through (i) of this Paragraph 11 shall constitute
conditions precedent to the obligations of AMB under this Agreement and the
other Modification Documents (collectively, the "Conditions Precedent"):

                  (a)      Nuvelo shall have duly executed and delivered to AMB
(care of Steppe, Stone & Lakey LLP, 999 Baker Way, Suite 420, San Mateo, CA
94404, Attention: Sara R. Steppe), three (3) originals of this Agreement, the
original Amended and Restated Note, and three (3) originals of the Additional
Warrants;

                  (b)      Nuvelo shall have duly executed, acknowledged and
delivered to each of First American Title Company, at 1737 North First Street,
Suite 100, San Jose, CA, Attention: Dian Blair ("Escrow Agent"), and AMB (care
of Steppe, Stone & Lakey LLP, 999 Baker Way, Suite 420, San Mateo, CA 94404,
Attention: Sara R. Steppe) two (2) originals of the Quitclaim Deed, together
with recording instructions consistent with this Agreement authorizing Escrow
Agent to record the Quitclaim Deed in the Official Records;

                  (c)      Guarantor and Mrs. Rathmann shall have duly executed,
acknowledged (where required) and delivered to AMB (care of Steppe, Stone and
Lakey at the address set forth above) three (3) originals of each of this
Agreement and the Amended and Restated Guaranty;

                  (d)      AMB shall have received (care of Steppe, Stone and
Lakey at the address set forth above) and approved the original Repair Letter of
Credit Amendment which shall have been duly issued by the Issuing Bank as of the
Effective Date;

                  (e)      AMB shall have received (care of Steppe, Stone and
Lakey at the address set forth above) and approved an original legal opinion of
Nuvelo's counsel, in form and substance satisfactory to AMB in its sole
discretion, opining to AMB that (i) Nuvelo is duly formed, validly existing and
in good standing in the state of its formation and is the successor by merger to
Hyseq, Inc., a Nevada corporation, (ii) Nuvelo is qualified to do business and
is in good standing in the State of California, (iii) Nuvelo has all requisite
power and authority to enter into this Agreement, the Amended and Restated Note,
the Additional Warrants, the Quitclaim Deed and the other Modification Documents
to which Nuvelo is a party, (iv) this Agreement, the Amended and Restated Note,
the Additional Warrants, the Quitclaim Deed and the other Modification Documents
to which Nuvelo is a party have each been duly authorized, executed and
delivered by Nuvelo, (v) the interest rate terms in the Amended and Restated
Note do not violate any applicable usury laws, (vi) this Agreement, the Amended
and Restated Note, the Additional Warrants, the Quitclaim Deed and the other
Modification Documents to which Nuvelo is a party, when executed, are the legal,
valid and binding obligations of Nuvelo and are enforceable against Nuvelo in
accordance with their terms, this Agreement, and (vi) Nuvelo has received no
notice of any material proceeding or investigation by any regulatory agency
pending or threatened against Nuvelo, which legal opinion shall be dated as of
the Effective Date;

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                  (f)      AMB shall have received (at its address set forth in
Paragraph 13 hereof) and approved the most recent financial statements or
balance sheet of the Guarantor, certified by the Guarantor to AMB as being true
and correct in all material respects and fairly representing the financial
condition of the Guarantor;

                  (g)      Nuevo and/or Guarantor shall have reimbursed AMB for
all legal fees and expenses incurred by AMB in connection with the preparation,
negotiation and execution of this Agreement, the other Modification Documents
and the Pre-Negotiation Agreement and the transactions contemplated hereby and
thereby and the Negotiations (as defined in the Pre-Negotiation Agreement) in an
aggregate amount not to exceed $15,000;

                  (h)      All of the representations and warranties of the
Parties contained in this Agreement and in any of the other Modification
Documents shall be true and correct in all material respects as of the date
hereof and as of the Effective Date; and

                  (i)      All of the foregoing documents and instruments to be
executed and delivered as provided in this Paragraph 11 (collectively, the
"Modification Documents") shall be in full force and effect as of the Effective
Date.

Nuvelo and Guarantor acknowledge that the Conditions Precedent are a material
inducement to AMB to enter into this Agreement and the other Modification
Documents. The date on which the Conditions Precedent are satisfied as required
herein shall be referred to herein as the "Effective Date." If any of the
Conditions Precedent is not satisfied as required herein and the Effective Date
does not occur on or before 5:00 p.m. (Pacific Standard Time) on May 14, 2003
(the "Modification Termination Date"), then, unless AMB elects in writing to
waive the same and to continue this Agreement and the other Modification
Documents in effect, (1) this Agreement and the other Modification Documents
shall terminate and shall be null and void and of no force or effect (other than
the provisions contained in Paragraphs 1, 2 and 10 and the provisions of this
Paragraph 11 and except those provisions of this Agreement and the other
Modification Documents which expressly state that they survive a termination
hereof or thereof), (2) the Termination Agreement and the other Original
Transaction Documents, including without limitation the Option Agreement, the
Original Note and the Original Guaranty, shall be deemed reinstated and
reaffirmed as if this Agreement and the other Modification Documents had not
been executed, without any further action by the Parties, (3) without
limitation, the entire principal amount of the Original Note shall be due and
owing as of, and the Option Period shall expire at 5:00 p.m. (Pacific Standard
Time) on, the Modification Termination Date, and the provisions of Section 2.4
of the Option Agreement shall otherwise apply, unless Nuvelo duly exercises the
Option prior to such expiration of the Option Period and in accordance with all
of the provisions of the Option Agreement and (4) the Parties agree that
notwithstanding anything to the contrary contained in the Original Transaction
Documents, AMB shall have the right (but not the obligation) immediately to
perform the Original Repair Obligations under the Termination Agreement itself
and the right to draw on the Repair Letter of Credit and apply the proceeds
thereof toward the costs and expenses incurred by AMB in performing the Original
Repair Obligations. The Conditions Precedent are intended to be solely for the
benefit of AMB and thus the Conditions Precedent may only be waived in writing
or considered satisfied by AMB (which AMB shall have the right but not the
obligation to do in its sole discretion). Upon notice from AMB to Escrow Agent
that all of the Conditions Precedent have been satisfied as provided herein, the
Parties hereby instruct the Escrow Agent to, and the Escrow Agent by its
signature below hereby agrees to, immediately record the Quitclaim Deed in the
Official Records without any further notice or actions by the Parties, and
despite any contrary instructions from any other party. Notwithstanding the
foregoing or anything to the contrary contained herein, the Parties acknowledge
and agree that AMB may elect instead to record the original Quitclaim Deed
delivered directly to AMB itself,

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and not have it recorded by the Escrow Agent, in accordance with the foregoing
sentence without any further notice or actions by the Parties, and despite any
contrary instructions from any other party.

         12.      Confidentiality. Neither Nuvelo nor Guarantor nor any of their
respective agents or any other parties acting on their behalf shall disclose any
matters set forth in the Termination Agreement as amended hereby or the Original
Transaction Documents as amended by the other Modification Documents, or
disseminate or distribute any information concerning the terms, details or
conditions hereof or thereof to any person, firm or entity without obtaining the
express prior written consent of AMB; provided, however, that the foregoing
prohibition shall not apply to (a) disclosures to attorneys, accountants,
lenders, investors and insurers, provided that such parties are informed of the
confidential nature of the terms and conditions thereof and, provided further,
that such parties are directed to treat such terms and conditions as
confidential, or (b) disclosures required by any applicable law or regulation
and, in such event, the disclosing party shall disclose only the specific
matters as are required by law to be disclosed. The provisions of this Paragraph
12 shall survive any termination of this Agreement, and the termination of the
Option Agreement and the consummation of the other transactions contemplated
hereby and by the other Modification Documents.

         13.      Notices. Any notice, election, communication, request,
approval or other document or demand required or permitted under this Agreement
shall be in writing to the respective addresses of the Parties set forth below
and may be delivered by personal delivery, facsimile transmission during the
normal business hours of the recipient with written acknowledgment of receipt,
an overnight delivery service, or U.S. mail sent certified with return receipt
requested. Notices are effective on the earlier of the date received, the date
of the delivery receipt (including in the case of notice by facsimile), or the
third day after postmark, as applicable.

                  To AMB:           AMB Property, L.P.
                                    Pier 1, Bay 1
                                    San Francisco, California 94111
                                    Attn.: John L. Rossi
                                    Tel: [***]
                                    Fax: [***]

                                    With a copy to:

                                    Steppe, Stone & Lakey LLP
                                    999 Baker Way, Suite 420
                                    San Mateo, CA 94404
                                    Tel: [***]
                                    Fax: [***]

                  To Nuvelo:        Nuvelo, Inc.
                                    675 Almanor Avenue
                                    Sunnyvale, California 94085
                                    Attn.: Peter S. Garcia
                                    Tel: [***]
                                    Fax: [***]

                                    With a copy to:

                                    Dewey Ballantine LLP
                                    333 S. Grand Avenue, 26th Floor
                                    Los Angeles, California 90071

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
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                                       10



                                    Attn: Bruce Fraser
                                    Tel: [***]
                                    Fax: [***]

                  To Guarantor:     George Rathmann
                                    c/o Nuvelo, Inc.
                                    675 Almanor Avenue
                                    Sunnyvale, California 94085
                                    Tel: [***]
                                    Fax: [***]

                                    With a copy to:

                                    Perkins Coie LLP
                                    1201 Third Avenue, 40th Floor
                                    Seattle, Washington, 98101
                                    Attn: Alan D. Smith
                                    Tel: [***]
                                    Fax: [***]

         14.      Miscellaneous.

                  (a)      Voluntary Agreement. The Parties have read this
Agreement and the other Modification Documents to which they are a party and the
releases contained in herein and therein, and on advice of counsel they have
freely and voluntarily entered into this Agreement and the other Modification
Documents to which they are a party.

                  (b)      Attorneys' Fees. Nuvelo shall reimburse AMB for all
legal fees and expenses incurred by AMB in connection with the preparation,
negotiation and execution of this Agreement and the other Modification Documents
and the Pre-Negotiation Agreement, whether or not the transactions contemplated
hereby are consummated, in an aggregate amount of $15,000. If any Party
commences an action against another Party arising out of or in connection with
this Agreement or the other Modification Documents or the Pre-Negotiation
Agreement, the prevailing party shall be entitled to recover from the losing
party reasonable attorneys' fees and costs of suit. The provisions of this
subparagraph (b) shall survive any termination of this Agreement and the
termination of the Option Agreement.

                  (c)      Successors. This Agreement shall be binding upon and
inure to the benefit of AMB and Nuvelo and their respective successors, assigns
and related entities.

                  (d)      Counterparts; Facsimile Signatures. This Agreement
may be executed in two or more counterparts, each of which shall be deemed to be
a duplicate original, but all of which together shall constitute one and the
same instrument. The Parties hereby agree that the facsimile signatures shall be
binding upon the parties to this Agreement.

                  (e)      Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.

                  (f)      Additional Documents. Each of the Parties hereto
specifically agrees to execute such other and further instruments and documents,
as may be reasonably required to effectuate the terms, conditions and objectives
of this Agreement.

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
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TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                       11



                  (g)      Entire Agreement. This Agreement and the other
Modification Documents together with the Pre-Negotiation Agreement constitute
the entire understanding of the Parties and supersedes all prior agreements,
understandings, discussions, statements and negotiations of the Parties relating
to the subject matter herein contained.

                  (h)      Authority. Each person signing this Agreement and the
other Modification Documents on behalf of the respective Parties represents and
warrants that she, he or it has the capacity and is authorized to execute and
deliver this Agreement and the other Modification Documents to which such Party
is a party, and that this Agreement and the other Modification Documents to
which such Party is a party will thereby become binding on such Party.

                  (i)      Headings and Titles. The headings and titles to the
Paragraphs of this Agreement are for convenience only and shall have no effect
on the interpretation of any part of this Agreement.

                  (j)      Deadline for Execution. Submission of this Agreement
and the other Modification Documents by AMB is not an offer to enter into this
Agreement and the other Modification Documents. AMB shall not be bound by this
Agreement and the other Modification Documents until the other Parties thereto
have duly executed, acknowledged (where required) and delivered the same and the
Conditions Precedent have been satisfied as required under this Agreement. This
Agreement shall be null and void and of no force or effect if not fully executed
by Nuvelo and Guarantor and delivered to AMB (care of Steppe, Stone and Lakey at
the address set forth in Paragraph 11(a))prior to 5:00 p.m. (Pacific Standard
Time) on May 9, 2003. The provisions of this subparagraph (j) shall survive any
termination of this Agreement.

                  (k)      WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THE TERMINATION AGREEMENT AS
AMENDED HEREBY OR THE OTHER ORIGINAL TRANSACTION DOCUMENTS AS AMENDED BY THE
OTHER MODIFICATION DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR
FUTURE MODIFICATION HEREOF OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
THE TERMINATION AGREEMENT AS AMENDED BY THIS AGREEMENT OR THE OTHER ORIGINAL
TRANSACTION DOCUMENTS AS AMENDED BY THE OTHER MODIFICATION DOCUMENTS (AS NOW OR
HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR THE TRANSACTIONS RELATED
HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES
AND CONSENTS THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. EACH PARTY CONSENTS TO THE
JURISDICTION OF ANY FEDERAL OR STATE COURT WITHIN THE STATE OF CALIFORNIA HAVING
VENUE IN SAN FRANCISCO, CALIFORNIA. THE PROVISIONS OF THIS SUBPARAGRAPH SHALL
SURVIVE ANY TERMINATION OF THIS AGREEMENT, AND THE TERMINATION OF THE OPTION
AGREEMENT.

                  (l)      ADVICE OF COUNSEL. THE PARTIES REPRESENT AND DECLARE
TO EACH OTHER THAT THEY HAVE CAREFULLY READ THIS AGREEMENT AND THE OTHER
MODIFICATION DOCUMENTS AND KNOW THE CONTENTS HEREOF AND THEREOF, AND THAT THEY
SIGN THE SAME FREELY AND VOLUNTARILY. EACH OF THE SIGNATORIES HERETO WARRANTS
AND REPRESENTS THAT THEY ARE EFFECTING THIS SETTLEMENT AND EXECUTING THIS
AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS AFTER

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
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                                       12



HAVING RECEIVED FULL LEGAL ADVICE AS TO THEIR RESPECTIVE RIGHTS FROM THEIR
COUNSEL. THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS ARE THE PRODUCT OF
NEGOTIATIONS AND PREPARATION BY AND AMONG EACH PARTY HERETO AND HIS, HER OR ITS
RESPECTIVE COUNSEL. THEREFORE, THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT
THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS SHALL NOT BE DEEMED PREPARED
OR DRAFTED BY ONE PARTY OR ANOTHER AND SHALL BE CONSTRUED ACCORDINGLY. EACH
PARTY TO THIS AGREEMENT HEREBY CONFIRMS AND ADMITS THAT SHE, HE OR IT HAS READ
AND UNDERSTANDS THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS AND THAT
SHE, HE OR IT HAS BEEN FULLY ADVISED AND REPRESENTED BY COUNSEL WITH RESPECT TO
THIS AGREEMENT AND THE OTHER MODIFICATION DOCUMENTS AND ALL NEGOTIATIONS GIVING
RISE TO IT, AND THAT SHE, HE OR IT HAS FULLY DISCUSSED THIS AGREEMENT AND THE
OTHER MODIFICATION DOCUMENTS AND THEIR TERMS, CONSEQUENCES AND RAMIFICATIONS
WITH HER, HIS OR ITS RESPECTIVE COUNSEL. THE PROVISIONS OF THIS SUBPARAGRAPH
SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT, AND THE TERMINATION OF THE
OPTION AGREEMENT.

                  (m)      Limitation of AMB's Liability. Notwithstanding
anything to the contrary contained in the Termination Agreement as amended by
this Agreement or in the other Original Transaction Documents as amended by the
other Modification Documents, Nuvelo and Guarantor hereby agree that recovery
against AMB or any AMB Parties for any breach or other action arising out of the
Termination Agreement as amended by this Agreement or the Original Transaction
Documents as amended by the other Modification Documents shall be limited to
AMB's interest in the Property. The provisions of this subparagraph (m) shall
survive any termination of this Agreement, and the termination of the Option
Agreement.

                  (n)      No Third Party Beneficiaries. All of the
understandings, covenants, and agreements contained herein are solely for the
benefit of AMB and Nuvelo and their respective successors and permitted assigns,
and no other person or party is intended to be benefited, in any way, by this
Agreement or the other Modification Documents. The provisions of this
subparagraph (n) shall survive any termination of this Agreement, and the
termination of the Option Agreement.

                  (o)      Guarantor Consent. This Agreement and the other
Modification Documents shall be of no force or effect unless and until accepted
by the Guarantor and his spouse, who each by their signatures below consent to
the transactions contemplated by this Agreement and the other Modification
Documents, including without limitation, the termination of Nuvelo's Option to
purchase the Property and of the Option Agreement pursuant hereto, the extension
of the maturity date of the indebtedness evidenced by the Original Note and
revised payment terms and other revisions to the Original Note all as set forth
in the Amended and Restated Note, and the elimination of the letter of credit
and other security as security for the indebtedness evidenced thereby as
originally contemplated by the Option Agreement. However, in the event the
Effective Date never occurs hereunder or this Agreement is of no force or
effect, the Guarantor and his spouse, by their signatures below, each understand
that the Amended and Restated Note and the Amended and Restated Guaranty shall
be of no force or effect and the Original Note and the Original Guaranty shall
remain in full force and effect and in such event, they hereby reaffirm their
obligations under the Original Guaranty as if this Agreement and the other
Modification Documents had never been executed. The provisions of this
subparagraph (o) shall survive any termination of this Agreement and the
termination of the Option Agreement, and the consummation of the other
transactions contemplated hereby and by the other Modification Documents.

                  (p)      No Other Modifications. Except as expressly modified
or amended by this Agreement or the other Modification Documents, the
provisions, conditions and terms of the Termination

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
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                                       13



Agreement shall remain unchanged and in full force and effect. In the case of
any inconsistency between the provisions, conditions and terms of the
Termination Agreement on the one hand, and this Agreement and the other
Modification Documents on the other hand, the provisions of this Agreement and
the other Modification Documents shall govern.

                  (q)      Time is of the Essence. TIME IS OF THE ESSENCE with
respect to all of the obligations and agreements under this Agreement and the
other Modification Documents.

                            [SIGNATURE PAGE FOLLOWS]

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                                       14



         IN WITNESS WHEREOF, the parties have executed this Amendment of
Termination Agreement and Termination of Option Agreement on the day and year
first above written.

                              AMB:

                              AMB PROPERTY, L.P., A DELAWARE LIMITED PARTNERSHIP

                              By: AMB PROPERTY CORPORATION, a Maryland
                                  corporation, its general partner

                                  By: ______________________________
                                      John L. Rossi

                                  Its: Vice President

                              NUVELO:

                              NUVELO, INC., A NEVADA CORPORATION, SUCCESSOR BY
                              MERGER TO HYSEQ, INC., A NEVADA CORPORATION

                              By: _____________________________

                              Name: Ted W. Love, M.D.

                              Title: President and CEO

                              By: _____________________________

                              Name: Peter Garcia

                              Title: SVP and CFO

                       [SIGNATURES CONTINUE ON NEXT PAGE]

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
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                                       15



                                             GUARANTOR:

                                             ________________________________
                                             GEORGE RATHMANN

                                             SSN #: [***]

                                             The undersigned, the wife of George
                                             Rathmann, hereby consents to the
                                             foregoing Agreement and
                                             acknowledges that such agreement
                                             and the other documents entered
                                             into by George Rathmann in
                                             connection therewith creates
                                             binding obligations of George
                                             Rathmann and the undersigned, and
                                             their individual, joint and
                                             community assets.

                                             SPOUSE OF GUARANTOR:

                                             ________________________________
                                             FRANCES JOY RATHMANN

                                             SSN #: [***]

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                                       16



                                    EXHIBIT A

                             FORM OF QUITCLAIM DEED

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

Steppe, Stone & Lakey LLP
999 Baker Way, Suite 420
San Mateo, CA 94111
Attn: Sara R. Steppe

_______________________________________________________________________________
                                      Space Above This Line For Recorder's Use

                    QUITCLAIM DEED AND TERMINATION OF OPTION

         For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, NUVELO, INC., a Nevada corporation, successor by merger
to Hyseq, Inc., a Nevada corporation ("Transferor"), hereby does remise,
release, and forever quitclaim to AMB PROPERTY, L.P., a Delaware limited
partnership ("Transferee"), all right, title and interest Transferor has in that
certain real property located in the City of Sunnyvale, County of Santa Clara,
State of California, described in attached Exhibit A and incorporated herein by
reference (the "Property").

         This Quitclaim Deed and Termination of Option (this "Quitclaim Deed")
is made with reference to the following facts:

         A.       Transferee and Transferor executed that certain Real Property
Option and Sale Agreement and Joint Escrow Instructions dated as of October 1,
2002 by and between Transferor and Transferee (the "Option Agreement"), whereby
Transferee granted Transferor an option to purchase the Property (the "Option").
The Option was evidenced of record by that certain Memorandum of Option,
executed by Transferee and Transferor, and recorded on title to the Property in
the Official Records of the County of Santa Clara (the "Official Records") on
November 18, 2002 as Document No.16622221 (the "Memorandum of Option").

         B.       Transferor is the successor by merger to, and has succeeded to
all of the obligations, debts and liabilities of, Hyseq, Inc., a Nevada
corporation, including without limitation the rights and obligations of Hyseq,
Inc. under the Option Agreement.

         C.       Transferor has elected not to exercise the Option and not to
purchase the Property under the Option Agreement. Accordingly, the Option has
been terminated. The purpose of this Quitclaim Deed is to provide record notice
of the termination of the Option.

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                                       1



         NOW, THEREFORE, in consideration of the foregoing, Transferee and
Transferor hereby agree as follows:

         1.       Termination of Option. The Option and Option Agreement are
hereby terminated and of no further force and effect. As a result of such
termination of the Option Agreement, Transferor agrees that the Memorandum of
Option is of no further force and effect, that the Memorandum of Option shall be
deemed removed from record title to the Property and that Transferor no longer
has any claim nor holds any right, title or interest in the Property pursuant to
the Option Agreement or the Memorandum of Option.

         2.       Purpose of Quitclaim Deed. This Quitclaim Deed is prepared
solely for the purpose of providing record notice of the termination of the
Option. This Quitclaim Deed is intended to be fully consistent with the Option
Agreement and shall not be deemed to modify in any way the provisions of the
Option Agreement. Transferor is executing this Quitclaim Deed and authorizes
Transferee to record this Quitclaim Deed in the Official Records as evidence
that Transferor's right to purchase the Property pursuant to the Option
Agreement is terminated, which recordation may be accomplished without any
notice to Transferor or any action on the part of Transferor.

         IN WITNESS WHEREOF, Transferor has executed this instrument as of May
___, 2003.

                                    TRANSFEROR:

                                    NUVELO, INC., successor by merger to Hyseq,
                                    Inc., a Nevada corporation

                                    By: ___________________________________
                                    Name: _________________________________
                                    Title: ________________________________

                                    By: ___________________________________
                                    Name: _________________________________
                                    Title: ________________________________

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                                       2



STATE OF CALIFORNIA

COUNTY OF____________________________ss.

On this ___ day of ________________ , 20__ , before me, ______________________,
a Notary Public in and for the State of California, personally appeared
_____________________ personally known to me (or proved on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.

WITNESS my hand and official seal

Signature: _________________________________________________________

My commission expires on _____________________________________.

STATE OF CALIFORNIA

COUNTY OF______________________________________ss.

On this ___ day of ________________ , 20__ , before me, ______________________,
a Notary Public in and for the State of California, personally appeared
_____________________ personally known to me (or proved on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.

WITNESS my hand and official seal

Signature: ___________________________________

My commission expires on _____________________________________.

                                       3



                           EXHIBIT A TO QUITCLAIM DEED

                             DESCRIPTION OF PROPERTY

Real property in the City of Sunnyvale, County of Santa Clara, State of
California, described as follows:

Parcel 6, as shown on that certain Parcel Map filed in the office of the
Recorder of the County of Santa Clara, State of California on November 9, 1976,
in Book 383 of Maps, page 19.

APN: 110-34-011
ARB: 110-03-062.04

                                      A-1



                                    EXHIBIT B

                  FORM OF AMENDED AND RESTATED PROMISSORY NOTE

                      AMENDED AND RESTATED PROMISSORY NOTE

$2,600,000                                             San Francisco, California
                                                                     May 9, 2003

         The undersigned, NUVELO, INC., a Nevada corporation, successor by
merger to Hyseq, Inc., a Nevada corporation ("Maker"), FOR VALUE RECEIVED,
promises unconditionally to pay AMB PROPERTY, L.P., a Delaware limited
partnership, or its successors or assigns ("Lender"), or to their order, the
principal sum of TWO MILLION SIX HUNDRED THOUSAND DOLLARS ($2,600,000) (the
"Loan") in lawful money of the United States of America, due and payable as
further provided herein. This Amended and Restated Promissory Note (this
"Note"), amends and restates in its entirety that certain Promissory Note dated
November 1, 2002 and made by Maker, as successor in interest to Hyseq, Inc., a
Nevada corporation, in favor of Lender in the original principal amount of
$2,600,000 (the "Original Note"). The entire outstanding principal balance
under, and all accrued and unpaid interest at the rate specified in, the
Original Note shall, from and after the date of this Note, be deemed outstanding
and owing by Maker to Lender under this Note.

         (a)      SECTION 1 PAYMENTS

         1.1      Maturity. The then outstanding principal balance hereunder and
all charges, costs and expenses due hereunder shall be due and payable in full
on May 1, 2005 (such date, subject to acceleration as provided herein, is
referred to herein as the "Maturity Date").

         1.2      Interest. Interest shall be charged on the outstanding
principal balance of this Note until all principal, interest and any other
amounts due hereunder have been paid in full, at the fixed interest rate of
eight percent (8.0%) per annum (the "Interest Rate"). Interest shall be
calculated on the basis of twelve (12) thirty (30) day months, except that
interest shall be calculated on the basis of the actual number of days elapsed
over a 360 day year.

         1.3      Interest Payments. On the first day of each calendar month
during the term of this Note, commencing as of the first calendar month
following the date of this Note, Maker shall make monthly interest payments in
the amount of $17,333.33 per month. The outstanding principal balance of this
Note, together with all accrued and unpaid interest, shall be due and payable in
full on the Maturity Date.

         1.4      Form of Payments. Payments hereunder shall be made in lawful
money of the United States of America by wire transfer of immediately available
funds, payable to the order of Lender, or to such agent for Lender, as Lender
may from time to time direct.

         1.5      Application of Payments. Except as otherwise specified herein,
each payment or prepayment, if any, made under this Note shall be applied to pay
late charges, accrued and unpaid interest, principal, and any other fees, costs
and expenses which Maker is obligated to pay under this Note, in such order as
Lender may elect from time to time in its sole discretion.

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                                       1



         1.6      Tender of Payments. All payments on this Note are payable on
or before 2:00 p.m. on the due date thereof, at the office of Lender, as set
forth in Section 7 or by wire transfer of immediately available funds in
accordance with the wiring instructions attached hereto as Exhibit A, or in
accordance with such other instructions as may be provided by Lender from time
to time in writing to Maker, and shall be credited on the date the funds become
available lawful money of the United States of America. All sums payable to
Lender which are due on a day which is not a Business Day (defined below) shall
be paid on the next succeeding Business Day and such extended time shall be
included in the computation of interest.

         1.7      Late Charge. In the event that any installment of interest
required to be made by Maker under this Note shall not be received by Lender
within five (5) days after its due date, Maker shall pay to Lender, on demand, a
late charge of the lesser of (a) five percent (5%) of such delinquent payment
and (b) the maximum amount permitted by law. The foregoing right is in addition
to, and not in limitation of, any other rights which Lender may have upon
Maker's failure to make timely payment of any amount due hereunder.

         1.8      No Deductions from Payments of Principal and Interest. All
payments of principal and interest under this Note shall be made without
deduction from or in respect of any present or future taxes, levies, imposts,
deductions, charges or withholdings, which amounts shall be paid by Maker (other
than taxation of the overall net income of Lender). Maker will pay the amounts
necessary such that the gross amount of the principal and interest received by
Lender is not less than that required by this Note. If Maker shall be required
by law to deduct any such amounts (other than taxation of the overall net income
of Lender) from or in respect of any principal or interest payment under this
Note, then (a) the sum payable to Lender shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this provision) Lender receives an amount equal to
the sum it would have received had no deductions been made, (b) Maker shall make
such deductions, and (c) Maker shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law. All stamp and documentary taxes shall be paid by Maker. If, notwithstanding
the foregoing, Lender pays such taxes, Maker shall immediately reimburse Lender
for the amount paid.

         SECTION 2 DEFAULT

         2.2      Event of Default. An "Event of Default" shall occur hereunder
in the event that:

                  2.1.1    Maker shall fail to make the full and punctual
payment of any monthly amount due under Section 1 of this Note, which failure is
not cured within five (5) days after the date due hereunder; or

                  2.1.2    Maker shall fail to pay the entire outstanding
principal balance hereunder on the date when due, whether on the Maturity Date,
upon acceleration or otherwise; or

                  2.1.3    Maker shall fail to make the full and punctual
payment of any costs and expenses due hereunder or any other sum of money
required to be paid hereunder (other than any payment described in Section 2.1.1
or 2.2.2), which failure is not cured on or before the tenth (10th) day after
written notice from Lender to Maker; or

                  2.1.4    Maker shall (i) become insolvent, (ii) make a
transfer in fraud of creditors, (iii) make an assignment for the benefit of its
creditors, or (iv) admit in writing its inability to pay its debts as they
become due; or

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                                       2



                  2.1.5    any bankruptcy, reorganization, arrangement,
insolvency, or liquidation proceeding, or any other proceedings for the relief
of debtors, is instituted by or against Maker, and, if instituted against Maker,
is allowed, consented to, or not dismissed within the earlier to occur of (i)
ninety (90) days after such institution or (ii) the filing of an order for
relief; or

                  2.1.6    Maker shall cause or permit any default to occur
under the Conditional Lease Termination Agreement dated as of October 1, 2002 by
and among Maker, Lender and George Rathmann, an individual, as amended by the
Amendment of Termination Agreement and Termination of Option Agreement dated on
or about the date hereof (the "Amendment") (as so amended, the "Termination
Agreement") or any other Modification Documents (as defined in the Amendment);
or

                  2.1.7    any default, repudiation or attempted repudiation by
George Rathmann, an individual ("Guarantor"), under that certain Amended and
Restated Guaranty dated on or about the date hereof and made by Guarantor in
favor of Lender; or

                  2.1.8    the occurrence of any of the events specified in
Section 2.1.4 or 2.1.5 as to Guarantor.

         2.2      Acceleration. Lender may, at its option exercisable in its
sole and absolute discretion by notice to Maker at any time following the
occurrence of an Event of Default, declare immediately due and payable the
entire principal amount outstanding hereunder together with all interest and
other amounts due hereunder.

         2.3      Remedies. The remedies of Lender as provided herein and in the
other Modification Documents, or at law or in equity, shall be cumulative and
concurrent, and may be pursued singly, successively, or together at the sole
discretion of Lender, and may be exercised as often as occasion therefor shall
occur. The failure at any time to exercise any right or remedy shall not
constitute a waiver of the right to exercise the right or remedy at any other
time.

         SECTION 3 DEFAULT RATE

         From and after the occurrence of an Event of Default hereunder, overdue
payments of principal, interest and charges, costs and expenses hereunder shall
bear interest, from the date the same became due and payable, at a rate (the
"Default Rate") equal to the lesser of (a) the maximum rate allowed by the law
or (b) five percent (5%) plus the greater of (i) the Interest Rate or (ii) the
prime rate (for corporate loans at large United States money center commercial
banks) published in the Wall Street Journal on the first Business Day of the
month in which the Event of Default occurs or continues and on the first
Business Day of every month thereafter. The foregoing right is in addition to,
and not in limitation of, any other rights which Lender may have upon Maker's
failure to make timely payment of any amount due hereunder. The term "Business
Day" shall mean any day which is not a Saturday, Sunday, or federal legal
holiday, or a day on which commercial banks are not authorized or required by
law to close in the State of California.

         SECTION 4 PREPAYMENT

         Maker may make any prepayment of the outstanding principal balance of
this Note, in whole or in part, before the Maturity Date without premium penalty
or fee.

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                                       3



         SECTION 5 WAIVER

         Maker shall pay to Lender all sums owing under this Note without
deduction, offset or counterclaim of any kind. Maker waives presentment; demand;
notice of dishonor; notice of default or delinquency; notice of acceleration;
notice of protest and nonpayment; notice of costs, expenses or losses and
interest thereon; and diligence on taking any action to collect any sums owing
under this Note. Presentation for payment, demand, notice of dishonor, protest,
and notice of protest, stay of execution and all other suretyship defenses to
payment generally are hereby waived by Maker. No extension or indulgence or
release of collateral granted from time to time shall be construed as a novation
of this Note or as a reinstatement of the indebtedness evidenced hereby or as a
waiver of the rights of Lender herein. Maker acknowledges that the provisions of
California Civil Code Section 2924(i) are not applicable to this Note and
expressly waives any rights thereunder.

         SECTION 6 GOVERNING LAW; USURY SAVINGS CLAUSE

         3.       THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE SUBSTANTIVE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE
APPLICATION OF CHOICE OF LAW PRINCIPLES, AND MAKER HEREBY CONSENTS TO THE
PERSONAL JURISDICTION OF ANY STATE COURTS OF THE STATE OF CALIFORNIA AND OF THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA HAVING
VENUE IN SAN FRANCISCO, CALIFORNIA, AND ALSO TO SERVICE OF PROCESS BY ANY MEANS
AUTHORIZED BY CALIFORNIA OR FEDERAL LAW, IN ANY ACTION THAT MAY BE COMMENCED BY
LENDER TO ENFORCE ITS RIGHTS HEREUNDER. IF ANY PROVISION OF THIS NOTE IS HELD TO
BE INVALID OR UNENFORCEABLE BY A COURT OF COMPETENT JURISDICTION, THE OTHER
PROVISIONS OF THIS NOTE SHALL REMAIN IN FULL FORCE AND EFFECT. SUBJECT TO THE
PRECEDING TWO SENTENCES, IT IS THE EXPRESS INTENTION OF MAKER AND LENDER TO
CONFORM STRICTLY TO ANY APPLICABLE USURY LAWS. ACCORDINGLY, ALL AGREEMENTS
BETWEEN MAKER AND LENDER, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
WRITTEN OR ORAL, ARE HEREBY EXPRESSLY LIMITED SO THAT IN NO CONTINGENCY OR EVENT
WHATSOEVER, WHETHER BY REASON OF ACCELERATION OF THE MATURITY OF THIS NOTE OR
OTHERWISE, SHALL THE AMOUNT PAID OR AGREED TO BE PAID TO LENDER OR THE HOLDER OF
THIS NOTE FOR THE USE, FORBEARANCE OR DETENTION OF THE MONEY LOANED PURSUANT
HERETO OR OTHERWISE, OR FOR THE PAYMENT OR PERFORMANCE OF ANY COVENANT OR
OBLIGATION CONTAINED HEREIN OR IN ANY OTHER DOCUMENT EXECUTED IN CONNECTION
HEREWITH, EXCEED THE MAXIMUM AMOUNT PERMISSIBLE UNDER APPLICABLE LAW. IF, FROM
ANY CIRCUMSTANCE OR CONTINGENCY WHATSOEVER, FULFILLMENT OF ANY PROVISION HEREOF
OR OF ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH, AT THE TIME
PERFORMANCE OF SUCH PROVISION SHALL BE DUE, SHALL INVOLVE TRANSCENDING THE LIMIT
OF VALIDITY PRESCRIBED BY LAW, THEN, IPSO FACTO, THE OBLIGATION TO BE FULFILLED
SHALL BE REDUCED TO THE LIMIT OF SUCH VALIDITY, AND IF FROM ANY SUCH
CIRCUMSTANCE OR CONTINGENCY LENDER SHALL EVER RECEIVE AS INTEREST OR OTHERWISE
AN AMOUNT WHICH WOULD EXCEED THE MAXIMUM RATE OF INTEREST PERMITTED BY
APPLICABLE LAW, THE AMOUNT OF SUCH EXCESS SHALL BE APPLIED TO A REDUCTION OF THE
INDEBTEDNESS EVIDENCED BY THIS NOTE, AND NOT TO THE PAYMENT OF INTEREST, AND IF
SUCH EXCESSIVE INTEREST EXCEEDS SUCH INDEBTEDNESS, THE AMOUNT OF SUCH EXCESSIVE
INTEREST SHALL BE REFUNDED TO MAKER. IF AT ANY TIME THIS NOTE PRESCRIBES A RATE
OF INTEREST IN EXCESS OF THE MAXIMUM RATE PERMITTED BY LAW, ALL SUMS PAID OR
AGREED TO BE PAID TO

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                                       4



LENDER FOR THE USE, FORBEARANCE OR DETENTION OF THE MONEY LOANED PURSUANT TO
THIS NOTE SHALL BE AMORTIZED, PRORATED, ALLOCATED AND SPREAD THROUGHOUT THE FULL
TERM OF SUCH INDEBTEDNESS UNTIL PAYMENT IN FULL, SO THAT THE ACTUAL RATE OF
INTEREST ON ACCOUNT OF SUCH INDEBTEDNESS IS UNIFORM THROUGHOUT THE TERM HEREOF.
ANY PREPAYMENT OF THE OUTSTANDING PRINCIPAL BALANCE OF THE LOAN MADE PURSUANT TO
THE FOREGOING PROVISIONS SHALL BE WITHOUT ANY PREPAYMENT PENALTY OR PREMIUM.

         SECTION 7 NOTICES

         Any notice, election, communication, request, approval or other
document or demand required or permitted under this Note shall be in writing to
the respective addresses set forth below and may be delivered by personal
delivery, facsimile transmission during the normal business hours of the
recipient, an overnight delivery service, or U.S. mail sent certified with
return receipt requested. Notices are effective on the earlier of the date
received, the date of the delivery receipt (including the case of notice by
facsimile), or the third day after postmark, as applicable.

         (a)      To Maker, as follows:      Nuvelo, Inc.
                                             675 Almanor Avenue
                                             Sunnyvale, California 94085
                                             Attn.: Peter S. Garcia
                                             Tel: [***]
                                             Fax: [***]

         (b)      To Lender, as follows:     AMB Property, L.P.
                                             Pier 1, Bay 1
                                             San Francisco, California 94111
                                             Attn.: John L. Rossi
                                             Tel: [***]
                                             Fax: [***]

         Either party may, from time to time, change the address at which such
written notices or elections, communications, requests or other documents or
demands are to be mailed, by giving the other party written notice of such
change, addressed in the manner hereinabove provided.

         SECTION 8 MISCELLANEOUS

         8.1      Costs of Collection; Attorneys' and Consultants' Fees. If this
Note is referred to an attorney for the collection of any sum payable hereunder,
or to defend or enforce any of Lender's rights hereunder, or as a consequence of
any Event of Default, with or without the filing of any legal action or
proceeding, Maker agrees to pay to Lender immediately upon demand, all costs and
expenses incurred by Lender in connection therewith (including reasonable
attorneys' fees and costs, and costs of any experts or other consultants' fees),
and in addition to all such costs and expenses, interest thereon from the date
of such demand until paid at the Default Rate.

         8.2      Modification. Neither this Note nor any of the terms hereof
may be terminated, amended, supplemented, waived or modified orally, but only by
an instrument in writing executed by the party against which enforcement of the
termination, amendment, supplement, waiver or modification is sought.

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                                       5



         8.3      Successors. As used herein, the terms "Maker" and "Lender"
shall be deemed to include their respective successors and assigns whether by
voluntary action of the parties or by operation of law. All of the rights,
privileges and obligations hereof shall inure to the benefit of and bind any
such successors and assigns. Notwithstanding the foregoing, Maker's obligations
and liability under this Note may not be assigned or transferred in whole or in
part without the prior written consent of Lender, which consent may be withheld
in Lender's sole discretion.

         8.4      No Waiver. No previous waiver and no failure or delay by
Lender in acting with respect to the terms of this Note shall constitute a
waiver of any breach, Event of Default or failure of condition under this Note.
A waiver of any term of this Note must be made in writing and shall be limited
to the express written terms of such waiver. In the event of any inconsistencies
between the terms of this Note and the terms of any other document related to
the loan evidenced by this Note, the terms of this Note shall prevail.

         8.5      TRIAL BY JURY WAIVER. TO THE EXTENT PERMITTED BY LAW, EACH OF
MAKER AND (BY LENDER'S ACCEPTANCE HEREOF) LENDER HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY ACTION, CAUSE OF ACTION, CLAIM, DEMAND OR
PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS NOTE, OR IN ANY WAY CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE DEALINGS OF MAKER AND LENDER WITH RESPECT
TO THIS NOTE OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE, WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE. TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH OF MAKER AND LENDER
HEREBY AGREES THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR
PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT EITHER
PARTY MAY FILE AN ORIGINAL COUNTERPART OF THIS SECTION WITH ANY COURT OR OTHER
TRIBUNAL AS WRITTEN EVIDENCE OF THE CONSENT OF MAKER TO THE WAIVER OF ITS RIGHT
TO TRIAL BY JURY.

         (a)      8.6 Severability. Every provision of this Note is intended to
be severable. If any term or provision hereof is declared by a court of
competent jurisdiction to be illegal, invalid or unenforceable for any reason
whatsoever, such provision shall be adjusted, rather than voided, if possible,
to achieve the intent of the parties to the maximum extent possible; provided
that such illegality, invalidity or unenforceability shall not affect the
balance of the terms and provisions hereof, which terms and provisions shall
remain in full force and effect and shall be liberally construed in favor of
Lender.

         (b)      8.7 Replacement Note. Upon receipt by Maker of written notice
from Lender of the loss, theft, destruction or mutilation of this Note, Maker
will execute and deliver to Lender, in lieu thereof, a replacement note in
identical form to this Note and dated as of the date of this Note; provided that
Lender shall indemnify Maker from and against any loss Maker may incur as a
result of Lender's having endorsed the original note to a third party (but not
to exceed the total monetary payments received by Lender with respect to the
Loan from and after the delivery of the replacement note) pursuant to a written
indemnification agreement acceptable to Lender and Maker. Upon delivery to
Lender of such replacement note, all references to this Note in the Guaranty and
any of the other Modification Documents shall be deemed to be references to such
replacement note.

         (c)      8.8 Time of Essence. TIME IS OF THE ESSENCE with respect to
all of the obligations and agreements under this Note.

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                                       6



         (d)      8.9 Maker's Representations and Warranties. Maker hereby
represents and warrants to Lender as follows:

                  8.9.1 Maker is duly formed, validly existing and in good
standing under the laws of the State of Nevada and is qualified to do business
in and in good standing under the laws of the State of California.

                  8.9.2 Maker (a) is the successor by merger to, and has
succeeded to all of the obligations, debts and liabilities of, Hyseq, Inc., a
Nevada corporation, including without limitation the obligations of Hyseq, Inc.
under the Original Note; and (b) has not made any direct or indirect (whether by
operation of law or otherwise) disposition, assignment, sublease, conveyance or
other transfer of the its obligations under the Original Transaction Documents
(as defined in the Termination Agreement), as amended by the Modification
Documents.

                  8.9.3 Maker has the power and authority to enter into this
Note. Maker's representatives are duly authorized to execute and deliver this
Note on behalf of Maker and to generally perform Maker's obligations hereunder.
This Note does not violate any provision of any agreement or judicial order to
which Maker is a party or to which maker is subject.

                  8.9.4 Maker has not (a) made a general assignment for the
benefit of creditors, (b) filed any voluntary petition in bankruptcy or suffered
the filing of any involuntary petition by Maker's creditors, (c) suffered the
appointment of a receiver to take possession of all, or substantially all, of
Maker's assets, (d) suffered the attachment or other judicial seizure of all, or
substantially all, of Maker's assets, (e) admitted in writing its inability to
pay its debts as they come due, or (f) made an offer of settlement, extension or
composition to its creditors generally.

         SECTION 9: SALE; ASSIGNMENT

         Maker acknowledges that Lender shall have the right in its sole and
absolute discretion during the term of the Loan (i) to sell and assign all or
any portion of the Loan or participation interests in the Loan or (ii) to effect
a so-called securitization of the Loan, in each instance in such manner and on
such terms and conditions as Lender shall deem to be appropriate. Maker shall
cooperate, and shall cause each guarantor, indemnitor and other person
associated or connected with the Loan or the security therefor to cooperate, in
all reasonable respects with Lender, at Lender's expense, in connection with
such sale, assignment, participation or securitization, and shall, in connection
therewith, execute and deliver such estoppel certificates, instruments,
documents and opinions of counsel as may be reasonably requested by Lender;
provided that in no event shall any such certificates, instruments and documents
materially modify any of the terms or provisions of this Note or otherwise
increase Maker's obligations or liability hereunder other than in an immaterial,
non-economic manner which is reasonably necessary to effect the sale, assignment
or securitization. Maker grants to Lender, and shall cause each guarantor,
indemnitor and other person associated or connected with the Loan or the
security therefor to grant to Lender, the right to distribute on a confidential
basis financial and other information concerning Maker, each such guarantor,
indemnitor and other person and other pertinent information with respect to the
Loan, to any person who has indicated to Lender an interest in entering into
such sale, assignment or securitization of the Loan and to any rating agency or
consultant engaged in connection therewith. If Maker shall default in the
performance of its obligations under this Section 9, and if such default shall
not be remedied by Maker within ten (10) days after notice by Lender, Lender
shall have the right in its discretion, without further notice or demand, to
declare the Loan immediately due and payable.

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                                       7



                            [SIGNATURE PAGE FOLLOWS]

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                                       8



         IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed and delivered as of the date first set forth above.

                                    MAKER:

                                    NUVELO, INC., a Nevada corporation,
                                    successor by merger to Hyseq, Inc.

                                    By:_________________________________
                                    Name: ______________________________
                                    Title:______________________________

                                    By:_________________________________
                                    Name:_______________________________
                                    Title:______________________________

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                                       9



                                    EXHIBIT A

                               WIRING INSTRUCTIONS

                                      [***]

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                                       A-1



                                    EXHIBIT C

                      FORM OF AMENDED AND RESTATED GUARANTY

                          AMENDED AND RESTATED GUARANTY

         THIS AMENDED AND RESTATED GUARANTY ("Guaranty") is made as of May 9,
2003 by GEORGE RATHMANN, an individual ("Guarantor"), in favor of AMB PROPERTY,
L.P., a Delaware limited partnership ("Lender").

                                 R E C I T A L S

         A.       Lender, as landlord, and Nuvelo, Inc., a Nevada corporation,
successor in interest to Hyseq, Inc., a Nevada corporation ("Borrower"), as
tenant, were parties to that certain lease dated as of June 23, 2000 (the
"Original Lease"), which Original Lease has been previously amended by that
certain First Amendment to Lease Agreement dated December 14, 2000
(collectively, the "Lease") relating to certain real property and improvements
located at 225, 249 and 257 Humboldt Court, Sunnyvale, California (the
"Property"), all as more particularly described in the Lease.

         B.       Pursuant to that certain Termination Agreement dated as of
October 1, 2002 by and among Borrower, Lender and Guarantor (the "Termination
Agreement"), Lender and Borrower terminated the Lease.

         C.       In connection with the Termination Agreement, Lender and
Borrower also entered into that certain Real Property Option and Sale Agreement
and Joint Escrow Instructions dated as of October 1, 2002 (the "Option
Agreement") pursuant to which Lender granted to Borrower an option to purchase
the Property on the terms and conditions contained in the Option Agreement (the
"Option"). Borrower also executed, among other things, a Promissory Note dated
November 1, 2002 (the "Original Note") in the principal amount of $2,600,000 in
favor of Lender. Guarantor also executed a guaranty ("Original Guaranty") of
Borrower's obligations under the Original Note.

         D.       Borrower has elected not to exercise the Option, and Lender,
Borrower and Guarantor have entered into that certain Amendment of Termination
Agreement and Termination of Option Agreement dated on or about the date hereof
(the "Amendment to Termination Agreement"), whereby the parties have agreed,
among other things, to terminate the Option and the Option Agreement, and to
amend and restate the Original Note in its entirety in order to extend the
maturity date of the Original Note and to amend the payment terms required
thereunder.

         E.       Pursuant to the Amendment to Termination Agreement, Borrower
has executed or will execute in favor of Lender an Amended and Restated
Promissory Note dated on or about the date hereof (the "Note") in the original
principal amount of Two Million Six Hundred Thousand Dollars ($2,600,000). The
Note amends and restates in its entirety the Original Note. The Note, the
Termination Agreement, as amended by the Amendment to Termination Agreement, and
the other Modification Documents (as defined in the Amendment to Termination
Agreement) are collectively referred to herein as the "Transaction Documents".

         F.       This Guaranty amends and restates in its entirety the Original
Guaranty.

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                                       1



         THEREFORE, to induce Lender to enter into the Transaction Documents,
and in consideration thereof, the Original Guaranty is hereby amended and
restated in its entirety by this Guaranty and Guarantor unconditionally
guarantees and agrees as follows:

         1. GUARANTY. Guarantor hereby guarantees and promises to pay to Lender
or order, on demand, in lawful money of the United States, in immediately
available funds, the principal amount of the Note, together with all accrued
interest, fees and charges on the entire principal amount of the Note. The
obligations of Borrower to Lender described in this Section 1 are sometimes
referred to herein as the "Obligations."

         2. REMEDIES. If Guarantor fails to promptly perform its obligations
under this Guaranty, Lender may from time to time, and without first requiring
performance by Borrower, bring any action at law or in equity or both to compel
Guarantor to perform its obligations hereunder, and to collect in any such
action compensation for all loss, cost, damage, injury and expense sustained or
incurred by Lender as a direct or indirect consequence of the failure of
Guarantor to perform its obligations together with interest thereon at the
default rate of interest applicable to the principal balance of the Note, as
specified therein.

         3. RIGHTS OF LENDER. Guarantor authorizes Lender, without giving notice
to Guarantor or obtaining Guarantor's consent and without affecting the
liability of Guarantor, from time to time to: (a) declare all sums owing to
Lender under the Note due and payable upon the occurrence of an Event of Default
(as defined in the Note); (b) take and hold security for the performance of
Borrower's obligations under the Note or the other Transaction Documents and
exchange, enforce, waive and release any such security; (c) make extensions in
the dates specified for payments of any sums payable in periodic installments
under the Note or any other Transaction Document; (d) apply such security and
direct the order or manner of sale thereof as Lender in its discretion may
determine; (e) release, substitute or add any one or more endorsers of the Note
or guarantors of Borrower's obligations under the Note or the other Transaction
Documents; (f) except as expressly directed by Borrower in writing to Lender
with respect to particular payments, apply payments received by Lender from
Borrower to any obligations of Borrower to Lender, in such order as Lender shall
determine in its sole discretion, whether or not any such obligations are
covered by this Guaranty; (g) assign this Guaranty in whole or in part; and (h)
assign, transfer or negotiate all or any part of the indebtedness guaranteed by
this Guaranty.

         4. GUARANTOR'S WAIVERS. Guarantor waives: (a) any defense based upon
the death, incapacity, lack of authority or termination of existence of, or
revocation hereof by, any person or entity, or the substitution of any party
hereto, or any legal disability or other defense of Borrower, any other
guarantor or other person, or by reason of the cessation or limitation of the
liability of Borrower from any cause other than full payment of all sums payable
under the Note or any of the other Transaction Documents; (b) any defense based
upon any lack of authority of the officers, directors, shareholders or agents
acting or purporting to act on behalf of Borrower or any principal of Borrower
or any defect in the formation of Borrower or any principal of Borrower; (c) any
and all rights and defenses arising out of an election of remedies by Lender;
(d) any defense based upon Lender's or Borrower's failure to disclose to
Guarantor any information concerning Borrower's financial condition or any other
circumstances bearing on Borrower's ability to pay all sums payable under the
Note or any of the other Transaction Documents; (e) any defense based upon any
statute or rule of law which provides that the obligation of a surety must be
neither larger in amount nor in any other respects more burdensome than that of
a principal; (f) any defense based upon Lender's election, in any proceeding
instituted under the Federal Bankruptcy Code, of the application of Section
1111(b)(2) of the Federal Bankruptcy Code or any successor statute; (g) any
defense based upon any borrowing or any grant of a security interest under
Section 364 of the Federal Bankruptcy Code; (h) any right to enforce any remedy
which Lender may have against Borrower and any right to participate in, or
benefit from, any security for the Note or the other Transaction Documents now

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                                       2



or hereafter held by Lender; (i) presentment, demand, protest and notice of any
kind; and (j) the benefit of any statute of limitations affecting the liability
of Guarantor hereunder or the enforcement hereof. Without limiting the
generality of the foregoing or any other provision hereof, Guarantor further
expressly waives for the period in which any of the Obligations remain
outstanding any and all rights and defenses which might otherwise be available
to Guarantor under California Civil Code Sections 2787 to 2855, inclusive, 2899
and 3433, or any of such sections. Finally, Guarantor agrees that the
performance of any act or any payment which tolls any statute of limitations
applicable to the Note or any of the Transaction Documents shall similarly
operate to toll the statute of limitations applicable to Guarantor's liability
hereunder.

         5. GUARANTOR'S WARRANTIES. Guarantor warrants and acknowledges that:
(a) Lender would not enter into the Transaction Documents but for this Guaranty;
(b) there are no conditions precedent to the effectiveness of this Guaranty; (c)
Guarantor has established adequate means of obtaining from sources other than
Lender, on a continuing basis, financial and other information pertaining to
Borrower's financial condition and the status of Borrower's performance of
obligations under the Transaction Documents, and Guarantor agrees to keep
adequately informed from such means of any facts, events or circumstances which
might in any way affect Guarantor's risks hereunder and Lender has made no
representation to Guarantor as to any such matters; (d) the most recent
financial statements of Guarantor previously delivered to Lender are true and
correct in all material respects, and fairly present the financial condition of
Guarantor as of the respective dates thereof, and no material adverse change has
occurred in the financial condition of Guarantor since the respective dates
thereof; (e) Guarantor has not and will not, without the prior written consent
of Lender, sell, lease, assign, encumber, hypothecate, transfer or otherwise
dispose of all or substantially all of Guarantor's assets; (f) Guarantor has the
capacity and is legally competent to enter into this Guaranty and the other
Transaction Documents to which Guarantor is a party; (g) Borrower is the
successor by merger to, and has succeeded to all of the obligations, debts and
liabilities of, Hyseq, Inc., a Nevada corporation, including without limitation
the obligations of Hyseq, Inc. under the Original Transaction Documents (as
defined in the Amendment to Termination Agreement); (h) Guarantor has not made
any direct or indirect (whether by operation of law or otherwise) disposition,
assignment, sublease, conveyance or other transfer of its obligations under the
Original Transaction Documents; (i) this Guaranty and the other Transaction
Documents to which Guarantor is a party are legal, valid and binding upon
Guarantor, and are enforceable in accordance with their terms; (j) Guarantor
will benefit from the transactions contemplated hereunder and under the other
Transaction Documents; and (k) Guarantor has not done and is not contemplating
taking any of the following actions: (i) making a general assignment for the
benefit of creditors; (ii) filing any voluntary petition in bankruptcy or
suffered the filing of an involuntary petition by its creditors; (iii) suffering
the appointment of a receiver to take possession of all, or substantially, all
of its assets; (iv) suffering the attachment or other judicial seizure of all,
or substantially all, of its assets; (v) admitting in writing to its inability
to pay its debts as they become due; or (vi) making an offer of settlement,
extension or composition to its creditors generally.

         6. SUBORDINATION. Guarantor subordinates all present and future
indebtedness owing by Borrower to Guarantor to the Obligations. Upon the
occurrence of an Event of Default (as defined in the Note), Guarantor agrees to
make no claim for such indebtedness until all Obligations have been fully
satisfied. Guarantor further agrees not to assign all or any part of such
indebtedness unless Lender is given prior notice and the assignee acknowledges
to Lender in writing that such indebtedness is subordinated to the Obligations
to the same extent as provided under the terms of this Guaranty. Upon the
occurrence of an Event of Default, any payment received by Guarantor on account
of such indebtedness shall be held in trust by Guarantor for Lender, and
forthwith paid over to Lender, until such time as the Obligations have been
satisfied in full.

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                       3



         7. BANKRUPTCY OF BORROWER. In any bankruptcy or other proceeding
occurring during the period in which any of the Obligations remain outstanding
in which the filing of claims is required by law, Guarantor shall file all
claims which Guarantor may have against Borrower relating to any indebtedness of
Borrower to Guarantor and shall assign to Lender all rights of Guarantor
thereunder. If Guarantor does not file any such claim, Lender, as
attorney-in-fact for Guarantor, is hereby authorized to do so in the name of
Guarantor or, in Lender's discretion, to assign the claim to a nominee and to
cause proof of claim to be filed in the name of Lender's nominee. The foregoing
power of attorney is coupled with an interest and cannot be revoked. Lender or
its nominee shall have the right, in its reasonable discretion, to accept or
reject any plan proposed in such proceeding and to take any other action which a
party filing a claim is entitled to do. In all such cases, whether in
administration, bankruptcy or otherwise, the person or persons authorized to pay
such claim shall pay to Lender the amount payable on such claim unless and until
the Obligations have been satisfied in full and, to the full extent necessary
for that purpose, Guarantor hereby assigns to Lender all of Guarantor's rights
to any such payments or distributions; provided, however, Guarantor's
obligations hereunder shall not be satisfied except to the extent that Lender
receives cash by reason of any such payment or distribution. If Lender receives
anything hereunder other than cash, the same shall be held as collateral for
amounts due under this Guaranty. If all or any portion of the obligations
guaranteed hereunder are paid or performed, the obligations of Guarantor
hereunder shall continue and shall remain in full force and effect in the event
that all or any part of such payment or performance is avoided or recovered
directly or indirectly from Lender as a preference, fraudulent transfer or
otherwise under the Bankruptcy Code or other similar laws, irrespective of (a)
any notice of revocation given by Guarantor prior to such avoidance or recovery,
(b) full payment and performance of all of the indebtedness and obligations
evidenced by the Transaction Documents, or (c) Lender's surrender or
cancellation or exoneration of this Guaranty.

         8. ADDITIONAL, INDEPENDENT AND UNSECURED OBLIGATIONS. This Guaranty is
a continuing guaranty of payment and not of collection and cannot be revoked by
Guarantor and shall continue to be effective with respect to any indebtedness
referenced in Section 1 hereof arising or created after any attempted revocation
hereof or after the death of Guarantor, in which event this Guaranty shall be
binding upon Guarantor's estate and Guarantor's legal representatives and heirs.
The obligations of Guarantor hereunder shall be in addition to and shall not
limit or in any way affect the obligations of Guarantor under any other existing
or future guaranties unless said other guaranties are expressly modified or
revoked in writing. This Guaranty is independent of the obligations of Borrower
under the Note and the other Transaction Documents. Lender may bring a separate
action to enforce the provisions hereof against Guarantor without taking action
against Borrower or any other party or joining Borrower or any other party as a
party to such action. This Guaranty is not secured and shall not be deemed to be
secured by any security instrument unless such security instrument expressly
recites that it secures this Guaranty.

         9. ATTORNEYS' FEES; ENFORCEMENT. If any attorney is engaged by Lender
to enforce or defend any provision of this Guaranty or the Note, or as a
consequence of any default under the Note or this Guaranty with or without the
filing of any legal action or proceeding, Guarantor shall pay to Lender,
immediately upon demand all reasonable attorneys' fees and costs incurred by
Lender in connection therewith, together with interest thereon from the date of
such demand until paid at the default rate of interest applicable to the
principal balance of the Note as specified therein.

         10. RULES OF CONSTRUCTION. The word "Borrower" as used herein shall
include both the named Borrower and any other person at any time assuming or
otherwise becoming primarily liable for all or any part of the obligation of the
named Borrower under the Note and the other Transaction Documents. The term
"person" as used herein shall include any individual, company, trust or other
legal entity of any kind whatsoever. If this Guaranty is executed by more than
one person, the term "Guarantor" shall include all such persons. When the
context and construction so require, all words used

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                       4



in the singular herein shall be deemed to have been used in the plural and vice
versa. All headings appearing in this Guaranty are for convenience only and
shall be disregarded in construing this Guaranty.

         11. CREDIT REPORTS. Each legal entity and individual obligated under
and executing this Guaranty hereby authorizes Lender to order and obtain from
time to time, from a credit reporting agency of Lender's choice, a third party
credit report on such legal entity and individual.

         12. GOVERNING LAW. This Guaranty shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, except to
the extent preempted by federal laws. Guarantor and all persons and entities in
any manner obligated to Lender under this Guaranty consent to the jurisdiction
of any federal or state court within the State of California having venue in San
Francisco, California, and also consent to service of process by any means
authorized by California or federal law.

         13. MISCELLANEOUS. The provisions of this Guaranty will bind and
benefit the estate heirs, executors, administrators, legal representatives,
nominees, successors and assigns of Guarantor and Lender. The liability of all
persons and entities who are in any manner obligated hereunder shall be joint
and several. If any provision of this Guaranty shall be determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable, that portion
shall be deemed severed from this Guaranty and the remaining parts shall remain
in full force as though the invalid, illegal or unenforceable portion had never
been part of this Guaranty.

         14. ENFORCEABILITY. Guarantor hereby acknowledges that: (a) the
obligations undertaken by Guarantor in this Guaranty are complex in nature, and
(b) numerous possible defenses to the enforceability of these obligations may
presently exist and/or may arise hereafter, and (c) as part of Lender's
consideration for entering into the transactions contemplated by the Transaction
Documents, Lender has specifically bargained for the waiver and relinquishment
by Guarantor of all such defenses, and (d) Guarantor has sought and received
legal advice from skilled legal counsel in the area of financial transactions of
the type contemplated herein. Given all of the above, Guarantor does hereby
represent and confirm to Lender that Guarantor is fully informed regarding, and
that Guarantor does thoroughly understand: (i) the nature of all such possible
defenses, and (ii) the circumstances under which such defenses may arise, and
(iii) the benefits which such defenses might confer upon Guarantor, and (iv) the
legal consequences to Guarantor of waiving such defenses. Guarantor acknowledges
that Guarantor makes this Guaranty with the intent that this Guaranty and all of
the informed waivers herein shall each and all be fully enforceable by Lender,
and that Lender is induced to enter into this transaction and the Transaction
Documents in material reliance upon the presumed full enforceability hereof and
thereof.

         15. WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS GUARANTY, AND
BY ITS ACCEPTANCE HEREOF, LENDER, HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
GUARANTY OR THE OTHER TRANSACTION DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY
PRESENT OR FUTURE MODIFICATION HEREOF OR THEREOF OR (B) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF
THEM WITH RESPECT TO THIS GUARANTY OR THE OTHER TRANSACTION DOCUMENTS (AS NOW OR
HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR THE TRANSACTIONS RELATED
HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY AND LENDER
HEREBY AGREES AND CONSENTS THAT ANY PARTY TO THIS GUARANTY AND LENDER MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                       5



ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO AND LENDER TO
THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. EACH PARTY HERETO AND LENDER
CONSENTS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT WITHIN THE STATE OF
CALIFORNIA HAVING VENUE IN SAN FRANCISCO, CALIFORNIA.

                            [SIGNATURE PAGE FOLLOWS]

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                       6



         IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
appearing on the first page of this Guaranty.

                                    GUARANTOR:

                                    By: _________________________________
                                        George Rathmann, an individual

                                    SSN: ________________________________

                                    c/o Nuvelo, Inc.
                                    675 Almanor Avenue
                                    Sunnyvale, CA 94085
                                    Tel: [***]
                                    Fax: [***]

                                    APPROVED AS TO FORM:

                                    __________________________________________
                                    Alan D. Smith, Attorney for Guarantor
                                    Perkins Coie LLP
                                    1201 Third Avenue, 40th Floor
                                    Seattle, Washington, 98101
                                    Tel: [***]
                                    Fax: [***]

CONSENT OF SPOUSE:

         The undersigned, the wife of George Rathmann, hereby consents to the
foregoing Guaranty and acknowledges that such Guaranty creates binding
obligations on George Rathmann and the undersigned, and of their individual,
joint and community assets.

By: _______________________________
         Frances Joy Rathmann

SSN: ______________________________

c/o Nuvelo, Inc.
675 Almanor Avenue
Sunnyvale, CA 94085
Tel: [***]
Fax: [***]

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                       7



                                    EXHIBIT D

                       ATTACH FORM OF ADDITIONAL WARRANTS

                                       D-1



                                    EXHIBIT E

                               REPAIR OBLIGATIONS

Nuvelo shall perform the following Work in the Premises in accordance with this
Exhibit E and Paragraph 6 of the attached Agreement.

1.   Fill in holes and penetrations in concrete flooring which shall be doweled
     to prevent ripping and shall be adequately tied into the existing
     structural components of the building.

2.   Rebuild and replace all bathroom cores.

3.   Restore lighting distribution system and replace lighting fixtures,
     sufficient to create a minimally acceptable illuminating level compatible
     with the square footage of the Premises.

4.   See additional highlighted items on SCHEDULE 1 attached hereto.

         The Work shall be performed in a good and workmanlike manner, in
accordance with industry standards, by reputable contractors and subcontractors
reasonably acceptable to AMB who are licensed in California and who are bonded
pursuant to a surety bond in form and issued by a surety acceptable to AMB, in
an amount equal to not less than 150% of the total estimated cost of the work,
and in a manner so as not to unreasonably interfere with other tenants in the
building (if any) and otherwise reasonably acceptable to AMB.

         All contractors performing any portion of the Work shall maintain
Commercial General Liability insurance covering bodily injury and property
damage liability occurring in or about the Premises and arising out of
performance of the Work. Such insurance shall have a minimum combined single
limit of liability of at least Three Million Dollars ($3,000,000) and shall name
AMB and AMB Property Corporation and AMB Property Capital Partners as an
additional insured.

         AMB shall provide Nuvelo and Nuvelo's contractors reasonable access to
the Premises to perform the Work during the applicable time period for
performing the Work specified in Paragraph 6 of this Agreement. Such access
shall be during hours reasonably determined by AMB and in accordance with rules
and regulations as may be reasonably established by AMB and modified by AMB from
time to time.

         Nuvelo hereby acknowledges that the use of the Premises by Nuvelo and
Nuvelo's employees, agents and contractors who perform the Work shall be at
their own risk and Nuvelo shall indemnify, defend by counsel reasonably
acceptable to AMB, protect and hold AMB and all other AMB Parties (as defined in
the Agreement) harmless from and against any and all claims, liabilities,
losses, costs, loss of rents, liens, damages, injuries or expenses, including,
without limitation, reasonable attorneys' fees and other professional fees,
which may be imposed upon, incurred by, or asserted against AMB or any AMB
Parties and arising out of or in connection with any damage or injury occurring
in connection with the Work.

         Nuvelo agrees to provide 10 days' written notice to AMB prior to
commencement of any portion of the Work to enable AMB to file a Notice of
Non-Responsibility with respect to the Work.

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                       E-1



                             SCHEDULE 1 TO EXHIBIT E
                     ADDITIONAL REPAIR AND RESTORATION ITEMS

                              SEE HIGHLIGHTED ITEMS



                                                                                       SUITE AREA:                    34,160
                                                                                       BUILDING AREA:
                                                                                                             11,060 & 23,100
- ----------------------------------------------------------------------------------------------------------------------------
            ACTIVITY             QUANTITY   UNIT    UNIT PRICE    COST      BUDGET       BUYOUT         SUBCONTRACTOR'
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                   
- ----------------------------------------------------------------------------------------------------------------------------
           DEMOLITION                                                     $12,500.00     $0.00
- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------
INCLUDING HVAC UNTIS, PIPING,
CONCRETE, ETC.
- ----------------------------------------------------------------------------------------------------------------------------
                                      1     L/S          12500   12,500
- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------
           RELOCATION                                                     $     0.00     $0.00
- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------
RELOCATED DOORS/FRAMES                0     L/S            250        0
- ----------------------------------------------------------------------------------------------------------------------------
RELOCATE LIGHT FIXTURES               0     L/S             85        0
- ----------------------------------------------------------------------------------------------------------------------------
RELOCATE CABINETS                     0     L/S              0        0
- ----------------------------------------------------------------------------------------------------------------------------
RELOCATE ELECT. PANELS                0     L/S              0        0
- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------
        FRAMING/SKYLIGHT                                                  $79,550.00     $0.00
- ----------------------------------------------------------------------------------------------------------------------------
FRAMING FOR BI-FOLD DOOR              0     L/S            750        0
- ----------------------------------------------------------------------------------------------------------------------------
SEISMIC WORK TO BE FINISHED           1     ALLOW        25000   25,000
- ----------------------------------------------------------------------------------------------------------------------------
FRAMING & SHEATHING (STUCCO)          0     L/S           3500        0
- ----------------------------------------------------------------------------------------------------------------------------
ROOF REPAIRS @ OLD HVAC UNITS         1     L/S           9800    9,800
- ----------------------------------------------------------------------------------------------------------------------------
ROOF FRAMING @ OLD HVAC               1     L/S           8750    8,750
- ----------------------------------------------------------------------------------------------------------------------------
ROOF REPAIRS @ HVAC UNIT             10     EA.            900    9,000
- ----------------------------------------------------------------------------------------------------------------------------
SKYLIGHTS (4' X 6')                   0     EA.            820        0
- ----------------------------------------------------------------------------------------------------------------------------
HVAC ROOF FRAMING (NEW)              10     EA.           2700   27,000
- ----------------------------------------------------------------------------------------------------------------------------
              WALLS                                                       $17,750.00     $0.00
- ----------------------------------------------------------------------------------------------------------------------------
SHEET ROCK PERIMETER WALLS            0     L.F.            15        0
- ----------------------------------------------------------------------------------------------------------------------------
UNDER GRID WALLS TO 10' HIGH          0     L.F.            50        0
- ----------------------------------------------------------------------------------------------------------------------------
FULL HEIGHT WALLS 10' HIGH          210     L.F.            65   13,650
- ----------------------------------------------------------------------------------------------------------------------------
PLUMBING WALL                        30     L.F.            45    1,350
- ----------------------------------------------------------------------------------------------------------------------------
CORRIDOR WALLS                        0     L.F.            50        0
- ----------------------------------------------------------------------------------------------------------------------------
INSULATION (R 11)                  2500     SF             0.5    1,250
- ----------------------------------------------------------------------------------------------------------------------------
REPAIR'S AT DEMOLITION               10     EA.            150    1,500
- ----------------------------------------------------------------------------------------------------------------------------
PROJ. SCREEN WALL                     0     L.F.            45        0
- ----------------------------------------------------------------------------------------------------------------------------
RELOCATE PHONE BOARD                  0     LOT             85        0
- ----------------------------------------------------------------------------------------------------------------------------
GLASS WALLS (SPECIAL)                 0     SF               0        0
- ----------------------------------------------------------------------------------------------------------------------------
PROJECTION SCREEN SUPPORTS            0     E.A.           150        0
- ----------------------------------------------------------------------------------------------------------------------------
                                      0     E.A.             0        0
- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------
       DOORS AND HARDWARE                                                 $ 6,800.00     $0.00
- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------
INTERIOR DOOR'S (3'-0' X 7'0')        8     EA.            675    5,400
- ----------------------------------------------------------------------------------------------------------------------------


                                      E-2



                                                                   
INTERIOR DOOR'S (6'0 X 7'0")          0   EA.      1100         0
- ---------------------------------------------------------------------------------------------------------------------
STD. CORRIDOR (FIRE RATED)            0   EA        650         0
- ---------------------------------------------------------------------------------------------------------------------
SLIDING POCKET DOOR                   0   ALLOW    2750         0
- ---------------------------------------------------------------------------------------------------------------------
NEW DOCK DOORS 10' X 10'              0   LOT       250         0
- ---------------------------------------------------------------------------------------------------------------------
NEW DRIVE DOORS 12' X 15'             0   PR.      2010         0
- ---------------------------------------------------------------------------------------------------------------------
BY-FOLD DOORS                         0   EA.      1100         0
- ---------------------------------------------------------------------------------------------------------------------
CLOSERS                               8   EA.       175     1,400
- ---------------------------------------------------------------------------------------------------------------------
NEW GLASS ENTRY DOORS
(3' x 7')                             0   EA.      1500         0
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
        GLASS AND GLAZING                                           $     0.00   $0.00
- ---------------------------------------------------------------------------------------------------------------------
FIXED GLASS (6'-0" X 4'-0")           0   S.F.       18         0
- ---------------------------------------------------------------------------------------------------------------------
STORE FRONT GLASS                     0   S.F.       18         0
- ---------------------------------------------------------------------------------------------------------------------
PASS THRU WINDOWS                     0   EA.       400         0
- ---------------------------------------------------------------------------------------------------------------------
INTERIOR SIDE LIGHTS                  0   S.F.       22         0
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
           ELECTRICAL                                               $59,895.00   $0.00
- ---------------------------------------------------------------------------------------------------------------------
STD FIXTURES (2' X 4')                0   EA.       235         0
- ---------------------------------------------------------------------------------------------------------------------
DUPLEX OUTLETS (120 VOLT)            16   EA.        95     1,520
- ---------------------------------------------------------------------------------------------------------------------
PHONE OUTLETS (PULL STRING)           0   EA.        30         0
- ---------------------------------------------------------------------------------------------------------------------
SINGLE SWITCHES                       4   EA.        90       360
- ---------------------------------------------------------------------------------------------------------------------
EXIT LIGHTS                           9   EA.       200     1,800
- ---------------------------------------------------------------------------------------------------------------------
SEPARATE CKTS. (120 VOLT)             7   EA.       225     1,575
- ---------------------------------------------------------------------------------------------------------------------
SEPARATE CKTS. (220 VOLT)             2   EA.       275       550
- ---------------------------------------------------------------------------------------------------------------------
SUBFEED PANEL (120/208)               2   EA.       750     1,500
- ---------------------------------------------------------------------------------------------------------------------
HVAC HOOK UPS                        10   EA.       390     3,900
- ---------------------------------------------------------------------------------------------------------------------
EXHAUST FAN HOOK UPS                  4   EA.       200       800
- ---------------------------------------------------------------------------------------------------------------------
WATER HEATER CONNECTIONS
                                      2   EA.       120       240
- ---------------------------------------------------------------------------------------------------------------------
INCANDESCENT LIGHT FIXTURES
                                      4   EA.       175       700
- ---------------------------------------------------------------------------------------------------------------------
400 AMP FEEDER'S (480 L.F.)           2   EA.     17800    35,600
- ---------------------------------------------------------------------------------------------------------------------
SUBFEED PANEL (277/480)               2   EA.      1400     2,800
- ---------------------------------------------------------------------------------------------------------------------
TRANSFORMERS                          2   EA.      2250     4,500
- ---------------------------------------------------------------------------------------------------------------------
MOTION SENSOR                         0   EA.       225         0
- ---------------------------------------------------------------------------------------------------------------------
WAREHOUSE LIGHTING (H-BAY)            9   EA.       450     4,050
- ---------------------------------------------------------------------------------------------------------------------
             CEILING                                                $22,722.40   $0.00
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
ACCOUSTICAL (2' X 4') T-BAR           0   SF.      2.65         0
- ---------------------------------------------------------------------------------------------------------------------
DRYWALL CEILING                     480   SF.      5.35     2,568
- ---------------------------------------------------------------------------------------------------------------------
INSULATION (R-19) (FSK FLAME)     34160   SF.      0.59   20154.4
- ---------------------------------------------------------------------------------------------------------------------
ACCOUSTICAL (2' X 2')                 0   SF.       2.6         0
- ---------------------------------------------------------------------------------------------------------------------
VAULTED CEILING                       0   SF.      3.75         0
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
            PLUMBING                                                $64,550.00   $0.00
- ---------------------------------------------------------------------------------------------------------------------
TOILET PARTITIONS                     4   RMS.      450     1,800
- ---------------------------------------------------------------------------------------------------------------------
ROUGH-INS                            19   EA.      1450    27,550
- ---------------------------------------------------------------------------------------------------------------------
SINKS/LAVS (KITCHEN/TOILET RM)       12   EA.       375      4500
- ---------------------------------------------------------------------------------------------------------------------
URINALS                               2   EA.       175       350
- ---------------------------------------------------------------------------------------------------------------------
WATER CLOSETS                         8   EA.       225     1,800
- ---------------------------------------------------------------------------------------------------------------------
HOT WATER HEATER                      2   EA.       575     1,150
- ---------------------------------------------------------------------------------------------------------------------
FLOOR DRAINS                          5   EA.      1120     5,600
- ---------------------------------------------------------------------------------------------------------------------
TOILET ACCESSORIES                    4   RM.       725     2,900
- ---------------------------------------------------------------------------------------------------------------------
ADA SHOWER PER PLAN                   1   EA.      5500     5,500
- ---------------------------------------------------------------------------------------------------------------------
MOP SINKS                             2   EA.      1150     2,300
- ---------------------------------------------------------------------------------------------------------------------
WATER LINE EXTENTION                220   LF.        30     6,600
- ---------------------------------------------------------------------------------------------------------------------



                                      E-3



                                                                     
REMOVE EXISTING PIPING - REPAIR        1   EA.     4500     4,500
- ---------------------------------------------------------------------------------------------------------------------
           SPRINKLERS                                               $  7,105.00   $0.00
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
REWORK EXISTING SYSTEM                 1   LOT     4580     4,580
- ---------------------------------------------------------------------------------------------------------------------
ADD NEW SPRINKLERS                     9   EA.      225     2,025
- ---------------------------------------------------------------------------------------------------------------------
SYSTEM SHUTDOWN & PERMITS              1   L/S      500       500
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
            CABINETS                                                $      0.00   $0.00
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
CONFERENCE ROOM CABINETS               0   LF.        0         0
- ---------------------------------------------------------------------------------------------------------------------
COUNTER TOP WORK W/SUPPORTS            0   LF.      125         0
- ---------------------------------------------------------------------------------------------------------------------
UPPER CABINETS                         0   LF.      200         0
- ---------------------------------------------------------------------------------------------------------------------
LOWER CABINETS                         0   LF.      225         0
- ---------------------------------------------------------------------------------------------------------------------
PASS THRU WINDOW SHELF                 0   LF.      375         0
- ---------------------------------------------------------------------------------------------------------------------
WOOD PARTITION CAPS                    0   LF.       20         0
- ---------------------------------------------------------------------------------------------------------------------
STORAGE SHELVING                       0   LF.       12         0
- ---------------------------------------------------------------------------------------------------------------------
                                       0   LF.        0         0
- ---------------------------------------------------------------------------------------------------------------------
                                       0   LF.        0         0
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
           WALL FINISH                                              $   6800.80   $0.00
- ---------------------------------------------------------------------------------------------------------------------
PAINT OFFICE WALLS                  2500   SF.      0.4     1,000
- ---------------------------------------------------------------------------------------------------------------------
WALL COVERINGS                         0   SF.     3265         0
- ---------------------------------------------------------------------------------------------------------------------
PAINT BATHROOMS                        0   SF.        1         0
- ---------------------------------------------------------------------------------------------------------------------
PAINT GYPBOARD CEILINGS                0   SF.      0.5         0
- ---------------------------------------------------------------------------------------------------------------------
FRP PANELS                             0   RMS.     450         0
- ---------------------------------------------------------------------------------------------------------------------
CERAMIC TILE                           0   SF.       21         0
- ---------------------------------------------------------------------------------------------------------------------
PAINT PERIMETER WALLS              12288   SF.     0.35     4,301
- ---------------------------------------------------------------------------------------------------------------------
PAINT COLUMNS                         20   EA.       75     1,500
- ---------------------------------------------------------------------------------------------------------------------
        CONCRETE/ASPHALT                                            $ 28,500.00   $0.00
- ---------------------------------------------------------------------------------------------------------------------
BACK-FILL TRENCHES                     1   LOT     5500     5,500
- ---------------------------------------------------------------------------------------------------------------------
POUR BACK CONCRETE SLAB                1   LOT    23000    23,000
- ---------------------------------------------------------------------------------------------------------------------
SAW CUT OPENINGS                       0   EA.      500         0
- ---------------------------------------------------------------------------------------------------------------------
PATIO SLAB (NATURAL)                   0   SF.        4         0
- ---------------------------------------------------------------------------------------------------------------------
CONCRETE COLUMNS & PIERS               0   EA.      800         0
- ---------------------------------------------------------------------------------------------------------------------
STRUCTURAL STEEL                       0   EA.     2200         0
- ---------------------------------------------------------------------------------------------------------------------
         FLOOR COVERING                                             $ 62,427.50   $0.00
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
BLD.STD.CARPET                         0   SQYD      25         0
- ---------------------------------------------------------------------------------------------------------------------
UP-GRADE CARPET                        0   SQYD      40         0
- ---------------------------------------------------------------------------------------------------------------------
VINYL COMP. TILE                       0   SF.     1.25         0
- ---------------------------------------------------------------------------------------------------------------------
SHEET VINYL (TOILETS)                480   SF.      4.5      2160
- ---------------------------------------------------------------------------------------------------------------------
CARPET TILE                            0   SF.     1755         0
- ---------------------------------------------------------------------------------------------------------------------
RUBBER BASE                          250   LF.     1.95     487.5
- ---------------------------------------------------------------------------------------------------------------------
PARQUET WOOD FLOORING                  0   SF.     9427         0
- ---------------------------------------------------------------------------------------------------------------------
CERAMIC TILE                           0   SF.       21         0
- ---------------------------------------------------------------------------------------------------------------------
SCRUB & SEAL FLOOR (BEADED)        34160   SF.     1.75    59,780
- ---------------------------------------------------------------------------------------------------------------------
         WINDOW COVERING                                            $  4,500.00   $0.00
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
DRAPES                                 0   LF.        0         0
- ---------------------------------------------------------------------------------------------------------------------
MINI BLINDS                         1000   SF.      4.5     4,500
- ---------------------------------------------------------------------------------------------------------------------
MYLAR COATING                          0   SF.        0         0
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
              HV/AC                                                 $180,000.00   $0.00
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
MODIFY (E) DUCTWORK                    0   LOT     1000         0
- ---------------------------------------------------------------------------------------------------------------------
NEW HVAC (PACKAGE UNITS)              90   TON     2000   180,000
- ---------------------------------------------------------------------------------------------------------------------



                                      E-4



                                                                        
NEW VAV SYSTEM                     0       TON    1600       0
- ------------------------------------------------------------------------------------------------------------------------------------
FIRE/SMOKE DAMPERS                 0       EA.    1500       0
- ------------------------------------------------------------------------------------------------------------------------------------
STATS.
- ------------------------------------------------------------------------------------------------------------------------------------
      MISC. & SPECIAL EQUIP                                      $  9,150.00   $      0.00
- ------------------------------------------------------------------------------------------------------------------------------------
REINSTALL (E) WORK SURFACES        0       LOT     680       0
- ------------------------------------------------------------------------------------------------------------------------------------
RE-ROOF/ROOF REPAIRS               0       SF.     1.6       0
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH BAY W/H LIGHTING              0       EA.     750       0
- ------------------------------------------------------------------------------------------------------------------------------------
EXTERIOR WALL PACK LIGHTING        0       EA.     895       0
- ------------------------------------------------------------------------------------------------------------------------------------
CONCRETE WALKWAYS                  0       SF.       5       0
- ------------------------------------------------------------------------------------------------------------------------------------
MICROWAVE OVENS & PLUGS            0       EA.     500       0
- ------------------------------------------------------------------------------------------------------------------------------------
FIRE EXTINGUISHERS                10       EA.     100   1,000
- ------------------------------------------------------------------------------------------------------------------------------------
REFRIGIRATOR AND PLUG              0       EA.     900       0
- ------------------------------------------------------------------------------------------------------------------------------------
ROLL-UP DOOR SERVICES              1       LOT    5000   5,000
- ------------------------------------------------------------------------------------------------------------------------------------
METAL CANOPY'S                     0       SF.      35       0
- ------------------------------------------------------------------------------------------------------------------------------------
BALLARDS                           6       EA.     400   2,400
- ------------------------------------------------------------------------------------------------------------------------------------
WROUGHT IRON FENCE                 0       LF.      40       0
- ------------------------------------------------------------------------------------------------------------------------------------
WROUGHT IRON GATE W/ELECT.         0       EA.    4600       0
- ------------------------------------------------------------------------------------------------------------------------------------
JANITORIAL AND CLEAN-UP            1       L/S     750     750
- ------------------------------------------------------------------------------------------------------------------------------------
CHAIN LINK FENCE                   0       L/S      21       0
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTALS                                                        $562,250.70   $      0.00
- ------------------------------------------------------------------------------------------------------------------------------------
A & E FEES                                                                     $      0.00   BY OWNER
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL CONDITIONS                10 WKS                         $ 48,000.00   $      0.00   V & M CONSTRUCTION
- ------------------------------------------------------------------------------------------------------------------------------------
PERMITS & FEES                                             N/C                 $      0.00   BY OWNER
- ------------------------------------------------------------------------------------------------------------------------------------
OVERHEAD AND PROFIT                5%                            $ 30,512.54   $      0.00   V & M CONSTRUCTION
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COST TO AMB                                                $640,763.24   $      0.00
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                               $236,465.50
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COST TO NUVELO                                                                         REVISED TOTAL OF LIGHTING, SLAB REPAIR
                                                                               $264.841.36   AND RR CORES
- ------------------------------------------------------------------------------------------------------------------------------------
EXCLUSIONS
- ------------------------------------------------------------------------------------------------------------------------------------
(1) RACK SPRINKLERS
- ------------------------------------------------------------------------------------------------------------------------------------
(2) FURNITURE & FURNISHINGS
- ------------------------------------------------------------------------------------------------------------------------------------
(3) SPECIAL EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
(4) ANY SPECIAL CITY
REQUIREMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
(5) COAX CABLE/CRT'S AND COMP.
- ------------------------------------------------------------------------------------------------------------------------------------
(6) ADA UP-GRADES NOT LISTED
- ------------------------------------------------------------------------------------------------------------------------------------
(7) TOXIC MATERIAL REMOVAL
- ------------------------------------------------------------------------------------------------------------------------------------
(8) ANY SECURITY SYSTEMS WORK
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
NOTES
- ------------------------------------------------------------------------------------------------------------------------------------
1) EXISTING CONCRETE SLAB TO BE
BEAD BLASTED AND ACRYLIC FLOOR
FINISH
- ------------------------------------------------------------------------------------------------------------------------------------
2) ALLOW 4 WEEKS FOR CITY PLAN
CHECK COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
3) REUSE EXISTING SEISMIC
MATERIAL ON SITE
- ------------------------------------------------------------------------------------------------------------------------------------



                                      E-5

EX-10.2

                                                                    EXHIBIT 10.2

          SECOND AMENDMENT OF TERMINATION AGREEMENT AND TERMINATION OF
                                OPTION AGREEMENT

         THIS SECOND AMENDMENT OF TERMINATION AGREEMENT AND TERMINATION OF
OPTION AGREEMENT (this "Second Amendment") is entered into as of July 1, 2003,
by and among AMB PROPERTY, L.P., a Delaware limited partnership ("AMB"), NUVELO,
INC., a Nevada corporation, successor by merger to Hyseq, Inc., a Nevada
corporation ("Nuvelo"), and GEORGE RATHMANN, an individual ("Guarantor"). AMB,
Nuvelo and Guarantor are sometimes referred to individually herein as a "Party"
and collectively as the "Parties."

                                    RECITALS

         A.       AMB, Nuvelo and Guarantor were parties to that certain
Conditional Lease Termination Agreement dated as of October 1, 2002 (the
"Termination Agreement") pursuant to which the lease between AMB and Nuvelo
dated as of June 23, 2000, as amended by that certain First Amendment to Lease
Agreement dated December 14, 2000 (as so amended, the "Lease"), relating to, and
Nuvelo's right to possession of, the approximately 59,300 rentable square feet
located at 225, 249 and 257 Humboldt Court, Sunnyvale, California (the
"Property"), was terminated, all as more particularly described in the
Termination Agreement.

         B.       In connection with the Termination Agreement, AMB and Nuvelo
also entered into that certain Real Property Option and Sale Agreement and Joint
Escrow Instructions dated as of October 1, 2002 (the "Option Agreement")
pursuant to which AMB granted to Nuvelo an option to purchase the Property on
the terms and conditions contained in the Option Agreement (the "Option"). As
partial consideration for the Option, Nuvelo also executed a Promissory Note
dated November 1, 2002 (the "Original Note") in the principal amount of
$2,600,000 in favor of AMB, and issued to AMB a Warrant to Purchase Shares of
Common Stock dated November 1, 2002 for up to 195,130 shares of common stock of
Nuvelo (the "Original Warrants"). A Memorandum of Option dated November 18, 2002
executed by AMB and Nuvelo was recorded on November 18, 2002 in the Official
Records of the County of Santa Clara, State of California (the "Official
Records") as Instrument No 16622221.

         C.       Guarantor executed a guaranty (the "Original Guaranty") of
Nuvelo's obligations under the Original Note. Under the Original Guaranty,
Guarantor also guaranteed and promised to pay any avoidance by Nuvelo, Nuvelo's
successors or Nuvelo's creditors of all or any part of the sum of $3,100,000
which amount represents a portion of the termination fee paid to AMB pursuant to
the Termination Agreement, or the recovery of any portion of such termination
fee directly or indirectly from AMB as a preference, fraudulent transfer or
otherwise under the Bankruptcy Code or other similar laws, which guarantee and
promise terminated on February 3, 2003.

         D.       The Parties acknowledge that AMB is holding an irrevocable
letter of credit number 306S234524 dated November 13, 2002 in the amount of
$250,000 (the "Repair Letter of Credit") issued by Union Bank of California (the
"Issuing Bank") in favor of AMB, as Beneficiary, for the account of Nuvelo, as
Applicant, which letter of credit secures the obligations of Nuvelo to repair
the Property set forth in the Termination Agreement and certain

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                     1 of 6



side letters executed by the Parties in connection therewith (the "Original
Repair Obligations"). The Parties also acknowledge that in accordance with the
Termination Agreement, the Existing Letter of Credit (as defined in the
Termination Agreement) in the amount of $3,000,000 was previously returned by
AMB to the Issuing Bank and has been cancelled.

         E.       The Termination Agreement, the Option Agreement, the Original
Note, the Warrants, the Original Guaranty, the Repair Letter of Credit and the
other instruments and documents executed by or entered into among the Parties in
connection therewith, are referred to herein sometimes collectively as the
"Original Transaction Documents."

         F.       The Parties entered into a certain Pre-Negotiation and
Extension Agreement dated as of April 29, 2003, as amended by the letter
agreement dated May 7, 2003, providing for, among other things, the extension of
the Option Period (as defined in the Option Agreement) until 5:00 p.m. (Pacific
Standard Time) on May 9, 2003 (as amended, the "Pre-Negotiation Agreement").

         G.       The Parties entered into a certain Amendment of Termination
Agreement and Termination of Option Agreement (referred to herein as the
"Amendment") on May 9, 2003, that became effective on May 16, 2003, and certain
Modification Documents (as defined in the Amendment) that also became effective
on May 16, 2003. The Amendment and the Modification Documents supersede the
Original Transaction Documents. The Amendment provides for amendment of the
Repair Letter of Credit and termination of the Option, the Option Agreement and
the other Original Transaction Documents, all on and subject to the terms and
conditions provided in the Amendment and in the other Modification Documents.
The Amendment and the Modification Documents further provide for termination of
the Original Note and the issuance of the Amended and Restated Promissory Note,
in accordance with which the principal balance under the Amended and Restated
Promissory Note and all charges, costs and expenses due under it are due and
payable to AMB from Nuvelo in full on May 1, 2005. Further, the Amendment
provides for the issuance by Nuvelo of a warrant for AMB to purchase up to
200,000 shares of Nuvelo common stock. The Amendment together with the other
Modification Documents are referred to in this Second Amendment collectively as
the "Amendment Documents."

         H.       The Parties now desire to amend the Amendment Documents in
order to modify the arrangements made for the restoration of the Property. The
Parties desire to cancel the Repair Letter of Credit number 306S234534 dated
November 13, 2002, as amended, and have Nuvelo pay the sum of $250,000 directly
to AMB. The Parties further desire to permit AMB to use certain materials owned
by Nuvelo in the restoration of the Property. Nuvelo desires to make
arrangements for the payment of $10,000 to Cole Project Management for their
services with respect to the restoration project. Finally, AMB desires to
terminate Nuvelo's obligation to restore the Property in accordance with the
terms of Section 6 of the Amendment. Capitalized terms used but not otherwise
defined herein shall have the same meanings as in the Amendment Documents.

         NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and intending to be legally bound hereby, the Parties covenant
and agree as follows:

                                    AGREEMENT

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                     2 of 6



         1.       Section 6 of the Amendment is hereby deleted in its entirety.

         2.       Effective as of the Effective Date, as hereinafter defined,
the Original Repair Obligations set forth in Paragraph 5 of the Termination
Agreement and the side letters executed by the Parties in connection therewith
are terminated in their entirety. As of the Effective Date, Nuvelo has no
further obligations of any kind whatsoever with respect to the repair or
restoration of the Property under the Amendment Documents. Nuvelo agrees to
provide AMB with the materials set forth in Exhibit E attached to this Second
Amendment solely for the purpose of AMB's restoration of the Property. Nuvelo
further agrees to allow AMB and its contractors, solely with the escort of an
agent or employee of Nuvelo, reasonable access to [***] for the sole purpose of
removing the materials listed on Exhibit E attached to this Second Amendment,
and no other materials of any kind whatsoever. The materials listed on Exhibit E
attached to this Second Amendment are provided to AMB at no cost to AMB in their
current "AS IS" condition, without warranty, express or implied. AMB shall
repair any damage to the premises of [***] caused by AMB's removal of the
materials.

         3.       Not more than 1 business day after the Effective Date, AMB
shall return the Repair Letter of Credit number 306S234534 dated November 13,
2002, as amended by the Repair Letter of Credit Amendment, to Union Bank for
cancellation effective upon the Effective Date.

         4.       On July 1, 2003, Nuvelo shall wire to AMB $250,000 United
States dollars (the "Repair Monies") in accordance with the following
instructions: [***]

         5.       On July 1, 2003, Nuvelo shall pay to Cole Project Management,
LLC., care of [***], $10,000 United States dollars ("Cole Monies") as payment in
full for all services provided to Nuvelo relating to repair and restoration of
the Property. Nuvelo shall promptly provide AMB with a written payment
notification ("Payment Notification") which shall include copy of the check for
the Cole Monies and evidence of delivery of the Cole Monies to Cole Project
Management, LLC.

         6.       Section 10 of the Amendment is amended by deleting the last
sentence of Section 10 of the Amendment.

         7.       EXHIBIT E of the Amendment is amended by deleting EXHIBIT E in
its entirety and replacing it with the Exhibit E attached to this Second
Amendment.

         8.       In addition to the deletion of Section 6 of the Amendment, the
Amendment Documents are amended by deleting any and all references to, and
obligations associated with, Repair Obligations, Repair Deadline, Work, and any
other obligations of any kind whatsoever regarding or otherwise relating to
repair or restoration of the Property by Nuvelo, including without limitation
such references or obligations set forth or implied in any warranty, indemnity,
discussion of liability or in Section 11 of the Amendment. AMB acknowledges and
agrees that upon the Effective Date Nuvelo has no obligation to, and no
liability with respect to, restoration or repair of the Property. AMB further
acknowledges and agrees that upon the Effective Date Nuvelo has no obligation of
any kind whatsoever under the Amendment Documents to maintain a letter of credit
of any kind whatsoever for the benefit of AMB.

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                     3 of 6



         9. Any failure by AMB to return the original Repair Letter of Credit,
as amended, as provided in Section 3 of this Second Amendment is a material
breach of the Amendment by AMB. AMB shall execute such additional documents and
instruments reasonably requested by Nuvelo or the Issuing Bank to permit the
cancellation of the Repair Letter of Credit effective upon the Effective Date.

         10. For purposes of this Second Amendment, the term "Effective Date"
shall mean the later of (i) the date on which AMB receives the Repair Monies
from Nuvelo and (ii) the date on which AMB receives the Payment Notification
from Nuvelo. If the Effective Date does not occur on or before July 10, 2003,
then, unless AMB elects in writing to waive the same and to continue this Second
Amendment, this Second Amendment shall terminate and be of no further force and
effect and the Amendment Documents shall remain in full force and effect.

         11. This Second Amendment is governed by and construed and enforced in
accordance with the laws of the State of California, without giving effect to
the principles of conflicts of law.

         12. This Second Amendment is binding upon and inures to the benefit of
the respective successors and assigns of each of the Parties.

         13. This Second Amendment may be executed in one or more counterparts,
each of which constitutes an original and all of which taken together constitute
one agreement. Any counterpart may be executed by facsimile copy and is binding
on the Parties.

         14. Each person executing this Second Amendment represents that such
person has full authority and legal power to do so and bind the Party on whose
behalf he or she has executed this Second Amendment.

         15. Except as expressly modified by this Second Amendment, all of the
terms and provisions of the Amendment Documents remain in full force and effect
and are hereby ratified and confirmed by AMB, Nuvelo and Guarantor.

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                     4 of 6



         IN WITNESS WHEREOF, the parties have executed this Second Amendment of
Termination Agreement and Termination of Option Agreement on the day and year
first above written.

                      AMB:

                      AMB PROPERTY, L.P., A DELAWARE LIMITED PARTNERSHIP

                      By: AMB PROPERTY CORPORATION, a Maryland corporation, its
                          general partner

                          By: ______________________________
                              John L. Rossi

                          Its: Senior Vice President

                      NUVELO:

                      NUVELO, INC., A NEVADA CORPORATION

                      By: _____________________________

                      Name: Peter S. Garcia

                      Title: Senior Vice President and CFO

                      By: _____________________________

                      Name: Linda A. Fitzpatrick

                      Title: Senior Vice President, Human Resources

                      GUARANTOR:

                      ___________________________________________
                      GEORGE RATHMANN

                      SSN #: [***]

                      The undersigned, the wife of George Rathmann, hereby
                      consents to the foregoing Second Amendment and
                      acknowledges that such Second Amendment and the other
                      documents entered into by George Rathmann in connection
                      therewith creates binding obligations of George Rathmann
                      and the undersigned, and their individual, joint and
                      community assets.

                      SPOUSE OF GUARANTOR:

                      ___________________________________
                      FRANCES JOY RATHMANN

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                     5 of 6



                      SSN #: [***]

[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMMITTED AND
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMMITTED PORTIONS.

                                     6 of 6



                                    EXHIBIT E

The following itemization details those materials to be provided to AMB from
stored inventory at [***] for the sole purpose of completing cold shell
improvements at the Property.

         MATERIAL SCHEDULE

                  - 2 urinals

                  - 4 water closets

                  - 2 floor drains

                  - 20 drain caps

                  - 15 plumbing elbows/connectors

                  - 210 pieces 6" metal studs (18'-0" long)

                  - 50 pieces 3 5/8" metal studs (9'-0" long)

                  - 15 pieces of slotted track (10'-0" long)

                  - 125 sheets of the 4'-0" X 10'-0" sheetrock

                  - Twenty-four 8'-0" suspended 2 bulb light fixtures

                  - 1,500 lineal feet of conduit and wire for lighting circuits

                  - other materials required to complete the cold shell
                  improvements that are mutually identified and mutually agreed
                  upon by the parties

 Second Amendment AMB/Nuvelo         7 of 5

EX-31.1

                                                                    EXHIBIT 31.1

                                  CERTIFICATION
                           OF CHIEF EXECUTIVE OFFICER
                         PURSUANT TO SECTION 302 OF THE
                           SARBANES-OXLEY ACT OF 2002

I, Ted W. Love, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nuvelo, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

c) disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are resonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.

Date: August 13, 2003

                                 /s/ Ted W. Love
                                 -----------------------------------------------
                                 Ted W. Love
                                 President, Chief Executive Officer and Director

EX-31.2

                                                                    EXHIBIT 31.2

                                  CERTIFICATION
                           OF CHIEF FINANCIAL OFFICER
                         PURSUANT TO SECTION 302 OF THE
                           SARBANES-OXLEY ACT OF 2002

I, Peter S. Garcia, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nuvelo, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

c) disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are resonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.

Date: August 13, 2003

                            /s/ Peter S. Garcia
                            ----------------------------------------------------
                            Peter S. Garcia
                            Senior Vice President and Chief Financial Officer

EX-32.1

                                                                    EXHIBIT 32.1

                                  NUVELO, INC.

                            CERTIFICATION PURSUANT TO
                               18 U.S.C. SEC. 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly Report of Nuvelo, Inc. (the "Company")
on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Ted W. Love,
President, Chief Executive Officer and Director of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to my knowledge that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.

                     /s/ TED W. LOVE
                     -----------------------------------------------
                     Ted W. Love
                     President, Chief Executive Officer and Director

Date: August 13, 2003

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN
PROVIDED TO NUVELO, INC., AND WILL BE RETAINED BY NUVELO AND FURNISHED TO THE
SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

EX-32.2

                                                                    EXHIBIT 32.2

                                  NUVELO, INC.

                            CERTIFICATION PURSUANT TO
                               18 U.S.C. SEC. 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly Report of Nuvelo, Inc. (the "Company")
on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Peter S. Garcia,
Senior Vice President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to my knowledge that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.

                     /s/ PETER S. GARCIA
                     -------------------------------------------------
                     Peter S. Garcia
                     Senior Vice President and Chief Financial Officer

Date: August 13, 2003

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN
PROVIDED TO NUVELO, INC., AND WILL BE RETAINED BY NUVELO AND FURNISHED TO THE
SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.