10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009 OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM              TO COMMISSION FILE NUMBER 0-28218

AFFYMETRIX, INC.

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)	77-0319159 (IRS Employer Identification Number)
3420 CENTRAL EXPRESSWAY SANTA CLARA, CALIFORNIA (Address of principal executive offices)	95051 (Zip Code)
(408) 731-5000 (Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Common Stock, $0.01 par value Preferred Stock Purchase Rights Name of Each Exchange on Which Registered The Nasdaq Global Select Market The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant at June 30, 2009, based on the closing price of such stock on the Nasdaq Global Select Market on such date, was approximately $413 million. The number of shares of the registrant’s Common Stock outstanding on February 22, 2010 was 70,901,491.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Proxy Statement to be filed in connection with the 2010 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K where indicated.

AFFYMETRIX, INC.

FORM 10-K

DECEMBER 31, 2009

TABLE OF CONTENTS

Item No.			Page
		PART I	3
	1.	Business	3
	1A.	Risk Factors	15
	1B.	Unresolved Staff Comments	25
	2.	Properties	26
	3.	Legal Proceedings	26
	4.	Submission of Matters to a Vote of Security Holders	26
		PART II	26
	5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities	26
	6.	Selected Financial Data	28
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	7A.	Quantitative and Qualitative Disclosures About Market Risk	43
	8.	Financial Statements and Supplementary Data	44
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	80
	9A.	Controls and Procedures	80
	9B.	Other Information	82
		PART III	82
	10.	Directors, Executive Officers and Corporate Governance	82
	11.	Executive Compensation	82
	12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	82
	13.	Certain Relationships and Related Transactions, and Director Independence	82
	14.	Principal Accounting Fees and Services	83
		PART IV	83
	15.	Exhibits and Financial Statement Schedules	83
		Signatures	87

PART I

ITEM 1.    BUSINESS

Forward-Looking Statements

All statements in this Annual Report on Form 10-K that are not historical are "forward-looking statements" within the meaning of the federal securities laws. These include statements regarding our "expectations," "beliefs," "hopes," "intentions," "strategies" or the like. Such statements are based on our current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. We cannot assure you that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, those discussed in "Risk Factors" contained in Item 1A of this Annual Report on Form 10-K. Unless required by law, we do not undertake to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based.

Overview

We develop, manufacture and sell products and services for genetic analysis to the life science research and clinical healthcare markets. Researchers around the world use our technology to better understand the role that genes play in disease, the effectiveness and safety of therapies and many other biological factors that affect human well-being. We sell our products to some of the world’s largest pharmaceutical, diagnostic and biotechnology companies, as well as leading academic, government and not-for profit research institutions. More than 21,000 peer-reviewed papers have been published based on work using our products. We have approximately 1,000 employees worldwide and maintain sales and distribution operations across the United States, Europe and Asia.

We were incorporated in California in 1992 and reincorporated in Delaware in 1998. Our principal executive offices are located at 3420 Central Expressway, Santa Clara, CA 95051. Our telephone number is (408) 731-5000.

Our Strategy

Our objective is to be the leading provider of genotyping and gene expression products for the analysis of genetic variation. The key elements of our strategy are:

·   Expanding into new markets. Our goal is to generate top-line revenue growth by successfully commercializing our technologies and expanding our customer base, including by leveraging our established and newly acquired technologies to enter new markets. We believe that we can expand our position in the genotyping market with our new AxiomTM Genotyping Solution. We believe that this market will continue to be one of the most attractive growth opportunities in life sciences and new content packaged in versatile formats will drive growth. Other opportunities include emerging cytogenetic and copy number diagnostics and our Drug Metabolizing Enzymes and Transporters product, which we believe addresses a significant unmet need of our pharmaceutical partners. We see opportunities in applications that are downstream from genome-wide analysis, particularly in validation and routine testing where our QuantiGene line of products is used for biomarker validation.

·   Re-engineering our technology platform. We intend to combine automated instrumentation, powerful new biological assays, and new array designs and content to significantly expand our product line. The new GeneTitan® System, our next generation mid-to-high end instrumentation platform enables significantly increased efficiency and throughput for researchers conducting array-based experiments. This fully automated solution enables higher data quality by removing or minimizing many of the sources of variation in the laboratory. We expect to commercially release GeneAtlasTM in 2010, targeted at new and novice users of microarray technology. With these instruments we also introduced an alternative format, the peg array plate, to our cartridge based consumables. We intend to provide an expanded menu of gene expression and genotyping applications for our peg array plates.

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·   Improving operating leverage. We expect to see positive operating income in fiscal 2010 as we continue to control costs and work to generate increased revenues. In 2009, we completed a restructuring plan designed to optimize our production capacity and cost structure to enable us to decrease our cost of manufacturing and operating expenses by moving our probe array manufacturing to our Singapore facility, consolidating our reagent manufacturing to our Cleveland facility and outsourcing our instrument manufacturing operations. Additionally, our new peg array plate formats have lower manufacturing costs than the cartridge-based formats. We also expect to incur lower operating expenses as we fully integrate our acquisitions of USB and Panomics and complete the re-engineering of our technology platform.

Our Markets

The market for genetic analysis tools are divided into two primary segments: (1) the discovery and exploration markets and (2) the validation and routine testing markets.

In the discovery and exploration markets:

·   the customer typically is a research scientist;

·   funding comes from a variety of public and private sources;

·   research is project-driven and the project is typically short, but can range from a few months to about two years; and

·   the required technology generally must enable large-scale, high-complexity analysis of genetic variation and biological function.

Our products for large scale genotyping and gene expression applications serve customers in the exploration markets which include academic research centers, government agencies, private research foundations, clinical and industrial reference laboratories and the research departments of pharmaceutical companies.

In the validation and routine-testing markets:

·   the customers include product development scientists and clinicians at pharmaceutical, diagnostic companies or hospitals;

·   funding largely comes from operations or financing;

·   products are used in the validation of workflows, once validated, products will be used in repetitive testing and therefore generate recurring revenue; and

·   the required technology generally must enable cost-effective, flexible analysis of significantly fewer genetic and biological markers.

Our products for genotyping and gene expression applications serve the validation and routine testing markets.  In particular, our genotyping products with molecular diagnostics applications, our targeted genotyping products and our low- to mid-plex gene expression products target the validation and routine markets. Our customers in the validation and routine testing markets include pharmaceutical, biotechnology, agrichemical, diagnostics, industrial and consumer products companies.

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We believe the validation and testing markets are more likely to generate recurring revenue and are growing at a higher compound annual growth rate than the discovery market. We expect that the following factors, among others, will influence the size and development of the markets served by our technologies:

·   the availability of genomic sequence and sequence variation data for the human population and for other organisms;

·   technological innovation that increases throughput and lowers the cost of genomic and genetic analysis;

·   the development of new computational techniques to handle and analyze large amounts of genomic data;

·   the availability of government funding for basic and disease-related research;

·   the amount of capital and ongoing expenditures allocated to research and development and outsourced spending by biotechnology, pharmaceutical and diagnostic companies for products and services;

·   the application of genomics to new areas including molecular diagnostics, agriculture, human identity and consumer goods; and

·   the availability of genetic markers and signatures of diagnostic value.

Scientific Background

Introduction to the Genome and its Opportunity

In the years following the completion of the Human Genome Project in 2003, an explosion of research in genome structure, function and variation has led to an understanding that human genetic variation is common and takes on many structural forms. Among individual humans, genetic variation ranges from single nucleotide changes to gross alterations of entire chromosomes. Subsequent efforts to identify and catalog human genetic variation, including the HapMap Project and the 1000 Genomes Project, continue to generate tremendous amounts of information that is made freely and quickly available to the public. Genetic variation accounts for many of the differences between individuals, such as eye color and blood group, and also affects a person’s susceptibility to certain diseases including cancer, diabetes, stroke and Alzheimer’s disease. Genetic variation can also determine a person’s response to drug therapies. Understanding the genome helps us understand the inheritance of biological characteristics. We believe that this will lead to a new healthcare paradigm where disease is understood at the molecular level, allowing patients to be diagnosed according to genetic information and then treated with drugs designed to work on specific molecular targets.

All known genomes are composed of either deoxyribonucleic acid (“DNA”) or ribonucleic acid (“RNA”). The human genome is composed of DNA and RNA. The instructions required for every living cell to develop its characteristic form and function are believed to be represented within discrete regions of the genome known as genes. DNA molecules consist of two long complementary strands held together by base pairs. Four nucleotide bases—adenine-A, cytosine-C, guanine-G and thymine-T form the chemical building blocks of DNA. The two DNA strands are held together by hydrogen bonds between nucleotide bases on one strand to complementary nucleotide bases on the other strand. Only certain pairs of the bases can form these complementary bonds: C pairs with G, and A pairs with T. Therefore, a single DNA strand containing bases in the sequence CGTACGGAT can form a bond with a DNA strand containing bases in the sequence GCATGCCTA. Such paired DNA strands are said to be "complementary" and can form a double helix structure in a process called "hybridization." Our technology uses the principle of hybridization to recognize the presence of specific gene sequences and to analyze genetic information.

Through the process of transcription RNA, copies of the DNA are made from the regions containing genes. Many copies of RNA can be made from each DNA region. The amount of RNA made from any given gene is a measure of the expression level of that gene. Many copies of RNA can be made from the same region of DNA. In the cell, RNA is typically single-stranded, while DNA is double-stranded. One type of RNA, the messenger RNA ("mRNA") is central to protein synthesis. There are RNAs with other roles, such as regulating which genes are expressed and carrying genetic information of viruses.

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Genotyping

Genotyping is the process of determining the genetic constitution of a cell, organism or individual in order to determine how it is specialized or differs from a group. Typically, each cell in an individual contains a complete copy of its genome. In a population, individuals vary from one another because of differences in gene sequences which are inherited from each parent and sometimes through the introduction of sequence changes due to environmental damage or biological errors in processes like gene replication. Common forms of genetic variation include single-nucleotide polymorphisms, or SNPs, and copy number variations, or CNVs. A SNP is a variation in a single position in a DNA sequence and a CNV is a variation in the number of copies of a segment of the DNA.

Genotyping is a valuable tool for studying genetic contributions to diseases and the efficacy of drug therapies in specified patient populations. While, in some cases, genetic variations, or polymorphisms, have little detectable effect on the biology of the organism, in other cases they may result in a predisposition to disease or an altered biological response to the environment. By screening for these polymorphisms, researchers seek to identify those that might be implicated in specific diseases. Sometimes it is not a single SNP or CNV, but the combination of certain variations, that leads to a diseased state. For this reason, researchers look at the patterns of these polymorphisms in a large number of healthy and diseased individuals in order to correlate specific variants with specific diseases or phenotypes. Large scale genotyping can be used, for example, in studies designed to elucidate the genetic contributions to disease and in clinical trials to categorize drug responses.

Gene Expression Monitoring

Gene expression monitoring is the process of determining which genes are active in a specific cell or group of cells. Timing and level of gene expression is an important mechanism by which the fate and function of cells are regulated. Although most cells contain an organism's full set of genes, each cell expresses only a subset of genes at any given time and the level of expression also varies with the state of that cell. The expression pattern or profile of genes can be correlated with many human diseases such as cancer, as well as with the effectiveness of treatment in specific patient populations. By identifying genes that are differentially expressed in particular diseases or patient populations, novel molecular targets and treatments may be identified and validated. In addition, gene expression signatures may be identified that provide early identification of a predisposition to disease or allow the selection of treatments optimized for an individual.

Gene expression monitoring is a valuable tool for identifying correlations between genes, determining their biological functions and identifying patterns that might be useful in classifying diseases. To monitor gene expression, we design and manufacture arrays with single-stranded DNA molecules that are complementary to sequences within genes or exons of interest. By synthesizing specific probes for multiple genes or exons on a single probe array, we enable researchers to quickly, quantitatively and simultaneously monitor the expression of a large number of genes or exons of interest. By monitoring the expression of such genes under different conditions and at different times, researchers can use the arrays to understand the dynamic relationship between gene expression and biological activity. We believe such information will be an important tool in understanding gene function and for the development of new drugs and diagnostic tools. Increasingly, clinical research is showing that gene expression patterns in tissue samples, particularly those from cancerous tissues, can be used to characterize disease sub-types and hopefully to predict therapeutic responses and likely outcomes.

In order to understand the impact of genomics on health, disease and other aspects of the human condition, scientists must compare both the sequence variation and the gene expression patterns of healthy and diseased individuals, tissues and cells. The use of arrays to identify correlations of gene expression patterns and sequence variation with specific diseases is expected to become increasingly important for gene marker validation, exploration and routine testing for diagnosis of disease.

Our Technologies

Array Technology

Our array technology leverages semiconductor-based photolithographic fabrication techniques, which enables us to synthesize a large variety of predetermined DNA sequences simultaneously in predetermined locations on a small glass chip called an "array."

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Photolithography is a technique which uses light to create exposure patterns on the glass chip and to direct chemical reactions. The process begins by coating the chip with light-sensitive chemical compounds that prevent chemical coupling. These light-sensitive compounds are called "protecting groups." Lithographic masks, which consist of predetermined transparent patterns etched into a glass plate that block or transmit light, are used to selectively illuminate the glass surface of the chip. Only those areas exposed to light are deprotected, and thus activated for chemical coupling through removal of the light-sensitive protecting groups. The entire surface is then flooded with a solution containing the first in a series of DNA building blocks (A, C, G or T). Coupling only occurs in those regions that have been deprotected through illumination. The new DNA building block also bears a light-sensitive protecting group so that the cycle can be repeated.

This process of exposure to light and subsequent chemical coupling can be repeated many times on the same chip in order to generate a complex array of DNA sequences of defined length. The intricate illumination patterns allow us to build high-density arrays of many diverse DNA sequences in a small area. Unlike conventional synthesis techniques, which generally use a linear process to create compounds, our synthesis technique is combinatorial, in that the number of different compounds synthesized grows exponentially with the number of cycles in the synthesis. Currently, our commercial arrays contain over six million unique sequences. Each unique sequence is 25 to 50 nucleotides in length and is represented millions of times within a specified area of the array. Just as in the semiconductor industry, we manufacture arrays in a wafer format. Each wafer is approximately five inches square and can contain over 300 million unique probe sequences based on current technology. For our commercial array products, we can manufacture a large number of identical or different DNA probe arrays on a glass wafer, which is then diced into individual chips. The number of chips manufactured per wafer can be varied depending on the desired amount of information on each chip. The chips can be packaged individually, in our cartridge format, in our strip format or in our peg format. A strip format can have four arrays packaged together on a strip and a peg format can have up to 96 arrays packaged together for automated and parallel processing. Given the large amount of unique sequences represented in our arrays, our technology enables the efficient analysis of a multitude of DNA probes to analyze DNA or RNA sequences in a test sample.

The function of each single-stranded sequence on our array is to bind to its complementary single strand of DNA or RNA from a biological sample. Each unique feature on the array contains multiple copies of the same single strand of DNA. The nucleic acid (DNA or RNA) to be tested is isolated from a sample, such as blood, saliva or biopsy tissue, amplified and prepared for hybridization to the array. The test sample is then washed over the array, where the individual nucleic acid sequences that represent the genetic content or expressed genes of the sample hybridize to their complementary sequences bound on the array. The molecules in the test sample may be labeled with fluorescent dye either before or after hybridization. When scanned by a laser in the scanner instrument, the test sample generates a fluorescent signal. The locations where a fluorescent signal is detected by an optical detection system on the scanner instrument correspond to sequences complementary to the test sample. Sequence variation, or the quantification of specific sequences of nucleic acids in the sample, can be determined by detecting the relative strength of these signals since the sequence and position of each complementary DNA probe on the probe array is known. The combination of a particular array, together with an optimized set of reagents and a user protocol describing how to carry out the procedure, is referred to as an "assay."

bDNA Technology

We offer customers a suite of assay products for a wide variety of low- to mid-plex genetic, protein and cellular analysis applications using branched DNA, or bDNA, technology. These assays measure RNA levels directly from samples using a novel signal amplification method without the need for RNA purification, providing customers with improved accuracy, scale and workflow relative to traditional methods based on polymerase chain reaction, or PCR.

Our Products

Overview

We offer a comprehensive line of products for two principal applications: genotyping and gene expression. The majority of our product sales consist of sales of instruments and related consumables. Our GeneChip® and GeneTitan® families of products are whole systems that include instruments, consumables and software. We recently re-engineered our platform and launched our GeneTitan® family of products. Our GeneChip® instruments run arrays packaged in cartridges and our GeneTitan® instrument runs arrays packaged in a peg format for automated high throughput processing.

Through our acquisition of USB, we now offer a range of reagent kits that are compatible with our platforms as well as the products of other vendors. Through our acquisition of Panomics, we offer a variety of low-to mid-plex assays for gene expression.

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GeneChip® Family of Products

Our GeneChip® system provides an integrated solution for gene expression and genotyping analysis. It consists of instruments and consumables that provide for the robust preparation and analysis of samples using our GeneChip® cartridge arrays. The components of the GeneChip® system include (1) disposable probe arrays containing genetic information on a chip, (2) reagents for extracting, amplifying and labeling target nucleic acids, (3) a fluidics station for introducing the test sample to the probe arrays, (3) a hybridization oven for optimizing the binding of samples to the probe arrays, (4) a scanner to read the fluorescent image from the probe arrays, and (5) software to analyze and manage the resulting genetic information.

Our major GeneChip® instrument products include:

Product	Product Description
GeneChip® Scanner 3000	Instrument for scanning higher-density arrays, including SNP arrays with up to 900,000 SNPs, tiling arrays for transcription and all-exon arrays for whole-genome analysis.
GeneChip® Scanner 3000Dx	This instrument is a version of the GeneChip® Scanner 3000 that is cleared by the United States Food and Drug Administration as an in vitro diagnostic device (“IVD”) for use and can be used in conjunction with the Roche Diagnostics AmpliChip CYP450 Test.
GeneChip® Fluidics Station	Instrument for the wash and stain of GeneChip® arrays.
GeneChip® Hybridization Oven	This instrument provides temperature and rotation control to ensure the successful hybridization of cartridge arrays before scanning.

Our major GeneChip® array and reagent products include:

Product	Product Description
Genotyping Catalog Cartridge Arrays	·SNP 6.0 Array – This single chip array is a robust tool for studying variation. It enables genotyping of approximately 906,600 SNPs and assaying of approximately 945,800 non-polymorphic probes for detection of copy number.
	·500K Set – The 500K Set genotypes over 500,000 SNPs on a two array set.
	·DMET™ Plus – This array features drug markers in FDA-validated genes and enables discovery and measurement of genetic variation associated with drug response.
	·Universal Taq Arrays – These arrays enable targeted genotyping for the analysis of between 1,500 to 20,000 SNPs per sample.
Gene Expression Catalog Cartridge Arrays	·U133 – This array analyzes the expression level of over 47,000 transcripts and variants of the human genome.
	·Other Arrays – We also offer a range of catalog expression arrays for the study of rat, mouse and other mammalian and model organisms.
Custom Arrays	·MyGeneChip™ and CustomSeq™ products are custom expression and sequence arrays designed by our customers to study organisms of interests to them.

GeneTitan® Family of Products

Our GeneTitan® family of products consists of the GeneTitan® instrument system that runs genotyping and gene expression array plates. The GeneTitan® family of products provides a hands-free, automated solution for monitoring gene expression and genome-wide SNP genotyping.

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Our GeneTitan® products include:

Product	Product Description
GeneTitan®	The GeneTitan® instrument automates array processing from target hybridization to data generation by combining a hybridization oven, fluidics processing and imaging device into a single bench-top instrument. It runs array plates and supports both gene expression and genotyping studies.
Axiom™ Genotyping Solution	The Axiom™ Genotyping Solution includes array plates with validated genomic content, complete reagent kits, data analysis tools and a fully automated workflow utilizing the GeneTitan®. ·Axiom™ Human Array Plates – these arrays are designed to maximize genomic coverage of common and novel SNPs and insertions and deletions in Caucasian, Asian and African populations. We are currently offering the Caucasian array plate and expect to offer the others later in 2010. ·Axiom™ Custom Arrays – Customers can make custom arrays utilizing a proprietary database of validated genomic markers.
Gene Expression Array Plates	We offer a catalog of gene expression array plates similar to our catalog gene expression cartridge arrays. These arrays are available for the study of human, rat, mouse and a broad range of other mammalian and model organisms.

Low- to Mid-plex Products

We also offer an extensive line of multiplex assays to serve the both the discovery and the validation markets. Multiplex assays measure many different targets from the same sample. These products enable drug target identification through analysis of gene silencing, cell signaling and biomarker validation. Our QuantiGene line of products is based on bDNA technology and delivers quantitative gene expression analysis. These products are compatible with a wide variety of samples and tissues.

Reagents

We offer researchers with an extensive line of reagent kits, enzymes and biochemicals. Our reagents are complementary to our array portfolio, thus enabling us to provide our customers with whole product solutions. In addition, they can be applied to a broad variety of emerging technologies. Our reagents include:

·   ExoSAP-IT® For PCR Product Clean-Up, a reagent for the rapid clean-up of PCR products used in downstream applications, such as DNA sequencing or SNP analysis.

·   HotStart-IT® line of PCR reagents, reagents that utilize a novel primer binding protein to inhibit primer dimer formation, and results in sensitive and consistent amplification for real-time PCR.

Our Services

Our Affymetrix Research Service Laboratory offers high-throughput genotyping services for customers using our genotyping products. Our projects range in size from a few hundred samples to over 10,000 samples. We serve customers requiring quick turnaround times and suitably priced solutions to their large-scale academic and consortia genotyping studies.

Our Collaborative Partners

We collaborate with our partners to expand the applications of our technology and to acquire access to complementary technologies and resources. We collaborate with a number of instrumentation and reagent companies to develop and supply certain components of the user work flow. These companies include Beckman Coulter, Inc., CapitalBio Corporation, Life Technologies, Inc., Genisphere LLC and Qiagen GmbH.

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Through our Powered by Affymetrix™, or PbA Program, we permit commercial entities to license our technologies to develop custom product solutions based upon our arrays, instrumentation and software. Our PbA partners include F. Hoffman-La Roche Ltd., bioMerieux, Inc. and Veridex, LLC, a Johnson & Johnson company. We provide our PbA partners custom arrays. Our partners subsequently package these arrays into kits, seek regulatory approval for their diagnostic use, and sell them into the diagnostic markets using their sales channels. An example is the PathChip, a gene expression array used by our PbA partner Pathwork Diagnostics, Inc., in its Pathwork Tissue of Origin test. In July 2008, the U.S. Food and Drug Administration (“FDA”) cleared the Pathwork Tissue of Origin test for marketing. PathChip is the first custom Affymetrix gene expression array to be cleared for diagnostic use.

We also collaborate with certain academic, government, and commercial research groups to develop and validate new applications of our technologies. These include the Broad Institute of Harvard, the Massachusetts Institute of Technology and the National Genome Research Institute.

Sales and Distribution

We market and distribute our products directly to customers in North America, Japan and major European markets. In these markets, we have our own sales, service and application support personnel responsible for expanding and managing their respective customer bases. In other markets, such as Mexico, India, the Middle East and Asia Pacific, including the People’s Republic of China, we sell our products principally through third party distributors that specialize in life science supply. For molecular diagnostic and industrial applications market opportunities, we supply our partners with arrays and instruments, which they incorporate into diagnostic products and assume the primary commercialization responsibilities.

Manufacturing and Raw Materials

We manufacture our consumables, including our arrays and reagents, and contract with third parties to manufacture our instruments. In 2009, we closed our West Sacramento facility and consolidated all of our array manufacturing to our Singapore facility. We manufacture our reagents in our Cleveland, Ohio and Fremont, California facilities, but will be closing our Fremont facility in 2010 and incorporating those functions into our Santa Clara facilities. We maintain a pilot manufacturing and process engineering/development facility in Santa Clara, California.

Our array manufacturing process involves wafer preparation, probe synthesis, dicing of synthesized wafers into chips, assembly of chips and quality control. We have developed software programs that extensively automate the design of photolithographic masks used in array manufacturing and that control the array manufacturing lines. Glass wafers are prepared for synthesis through the application of chemical coatings. Arrays are synthesized on the wafers using our proprietary, combinatorial photolithographic process. The completed wafers can then be diced into chips. The chips can be packaged individually, in our cartridge format, in our strip format or in our peg format.

We offer a variety of reagents to our customers, including those that are manufactured in-house, those that are supplied by qualified third-party suppliers and a combination of the two.

Our Singapore facility is fully operational and has been certified to ISO 13485 standards. The Singapore facility operates under the strict standards of our corporate quality plan. In 2009, we certified a portion of our Cleveland, Ohio operations to these standards. We intend to certify the remaining portions of the Cleveland, Ohio operations to these standards in 2010. Third parties who manufacture our instruments will have to meet our quality standards as part of the qualification process.

Key parts of our product lines, such as our GeneTitan® instrument and hybridization ovens, are available from single sources. Likewise, certain raw materials or components used in the synthesis of arrays or the assembly of instrumentation are currently available only from a single source or limited sources. Alternative sources of supply may be time consuming and expensive to qualify. In addition, we are dependent on our vendors to provide components of appropriate quality and reliability, and to meet applicable regulatory requirements. We take what we believe are appropriate measures to prevent the delay or interruption of supplies from these vendors and to ensure the appropriate quality for our customers, since any delay or interruption could delay our ability to deliver our products to our customers.

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Research and Development

We believe that a substantial investment in research and development is essential to a long-term sustainable competitive advantage and critical to expansion into the validation and routine testing markets. Our research and development effort is divided into the major areas of basic research, product research and development, and manufacturing technology development. Research efforts are carried out through our Affymetrix Research Laboratories to further advance our platform and develop new concepts and applications that can be commercialized to grow our business. Our product development efforts are focused primarily on the development of new array, assay and reagent products, improving the overall performance of our assays, increasing the information capacity per probe array and simplifying highly complex assays. We are also actively engaged in research aimed at enhancing the manufacturing process currently employed in the production of our arrays.

Our research and development expenses for the years ended December 31, 2009, 2008 and 2007 were $77.4 million, $84.5 million and $72.7 million, respectively.

Intellectual Property

We rely on a combination of patent, copyright, and trade secret laws, know-how and licensing opportunities to establish and protect our proprietary technologies and products. Our success depends in part on our ability to obtain patent protection for our products and processes, to preserve our copyrights and trade secrets, to operate without infringing the proprietary rights of third parties and to acquire licenses related to enabling technology or products used with our technology.

We are pursuing a patent strategy designed to facilitate our research and development program and the commercialization of our current and future products. While no one patent is considered essential to our success, we aggressively seek to protect our patent rights as our patent portfolio as a whole is material to the success of the business.

There are a significant number of United States and foreign patents and patent applications in our areas of interest, and we believe that there will continue to be significant litigation in the industry regarding patent and other intellectual property rights. Others have filed, and in the future are likely to file, patent applications that are similar or identical to ours or those of our licensors. It may be necessary for us to enter into litigation to defend against or assert claims of infringement, to enforce patents issued to us, to protect trade secrets or know-how owned by us or to determine the scope and validity of the proprietary rights of others. To determine the priority of inventions, it may be necessary for us to participate in interference proceedings declared by the United States Patent and Trademark Office. Litigation or interference proceedings could result in substantial costs to and distraction from our core business and our efforts in respect to such proceedings may not be successful. For further information regarding intellectual property litigation involving us, see “Item 8. Financial Statements and Supplementary Data—Note 13. Commitments and Contingencies” in this Annual Report on Form 10-K.

We also rely upon copyright and trade secrets to protect our confidential and proprietary information. We seek to protect our proprietary technology and processes by confidentiality agreements with our employees and certain consultants and contractors. These agreements may be breached, we may not have adequate remedies for any breach and our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees or our consultants or contractors use intellectual property owned by others in their work for us, disputes may also arise as to the rights in related or resulting know-how and inventions.

We are party to various option, supply and license agreements with third parties which grant us rights to use certain aspects of our technologies. We take such measures as we believe are appropriate to maintain rights to such technology under these agreements. In addition, our academic collaborators have certain rights to publish data and information in which we have rights. There is considerable pressure on academic institutions to publish discoveries in the genetics and genomics fields. We take such steps as we believe are appropriate to ensure that such publication will not adversely affect our ability to obtain patent protection for information in which we may have a commercial interest.

Competition

The markets for our products are characterized by rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition, new product introductions and strong price competition. We face significant competition as existing companies develop new or improved products and as new companies enter the market with new technologies.

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In the highly multiplexed genotyping and gene expression markets, existing competitive technologies include gel-based sequencing using instruments provided by companies such as Beckman Coulter, Inc. and Life Technologies. Other companies developing or marketing competitive DNA array technology include Illumina, Agilent Technologies, BD Biosciences, CombiMatrix, MDS Analytic Technologies and Sequenom, some of which offer products directly competitive with our microarrays . In the low to midplex genotyping and gene expression markets, much of the existing low-plex competition comes from the supplier of realtime PCR products, including Life Technologies, who has a dominant position, Roche, Agilent Technologies and BioRad. In addition, there are new midplex technologies being offered by Fluidigm, Sequenom, HTG, Beckman Coulter, NanoString and Life Technologies (BioTrove). In order to compete against existing and emerging technologies, we will need to demonstrate that our products have superior throughput, cost and accuracy advantages over competing products.

In the molecular diagnostic field, competition may likely come from established diagnostic companies, companies developing and marketing DNA probe tests for genetic and other diseases, and other companies conducting research on new technologies to ascertain and analyze genetic information. The market for molecular diagnostic products derived from gene discovery is highly competitive and has high barriers of entry, with several large corporations already having significant market share. Established diagnostic companies such as Beckman Coulter, Becton Dickinson, bioMérieux, Johnson & Johnson and Roche have the strategic commitment to diagnostics, the financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities and the distribution channels to deliver products to customers. Established diagnostic companies also have an installed base of instruments in several markets, including clinical and reference laboratories, which are not compatible with our system and could slow acceptance of our products. In addition, these companies have formed alliances with genomics companies which provide them access to genetic information that may be incorporated into their diagnostic tests.

Future competition in existing and potential markets will likely come from existing competitors as well as other companies seeking to develop new technologies for sequencing and analyzing genetic information. We expect new competitors and technologies to emerge. In addition, pharmaceutical and biotechnology companies have significant needs for genomic information and may choose to develop or acquire competing technologies to meet these needs themselves. We have significantly expanded our network of approved service providers in America, Japan, Europe, and China. While these companies expand the reach of Affymetrix technology and make its analytical power available to a wider base of users they may act as a substitute for outright purchase of instruments and arrays by those end users. In addition, we have several other third-party licensees that could offer products that compete with our product offerings.

Government Regulation

Many of our products are labeled for research use only.  Even where a product is exempted from clearance or approval by the FDA, the FDA may impose restrictions as to the manner in which we can market and sell our products and/or the types of customers to which we can market and sell our products.

Our GeneChip® Scanner 3000Dx is approved by the FDA to be used in conjunction with approved medical devices such as the Roche Diagnostics AmpliChip CYP450 Test. We will continue to develop diagnostic products ourselves or with our collaborative partners that may require regulatory approval by governmental agencies. Commercially available diagnostic tests are regulated as medical devices and are generally subject to rigorous testing and other approval procedures by the FDA in the U.S. and by other regulatory agencies in other countries. The FDA's Quality System Regulations also apply in connection with our manufacture of arrays and systems as components for use in diagnostic products distributed outside of the research environment. Obtaining these clearances or approvals and the compliance with these regulations require the expenditure of substantial resources over a significant period of time, and we cannot assure you that any clearances or approvals will be granted on a timely basis, if at all. Once granted, a clearance or approval may place substantial restrictions on how the device is marketed or labeled or to whom it may be sold. In addition, various federal and state statutes and regulations govern or influence the manufacturing, safety, and storage of our products and components of our products as well as our record keeping.

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The FDA, the U.S. Department of Health and Human Services, the States of California and New York, and foreign government regulators are increasingly focused on genetic analysis tools, including the use of microarrays that are labeled for research use only by clinical labs, including labs certified under the Clinical Laboratory Improvement Amendments, or CLIA, or California or New York State laboratory regulations.  We cannot predict the nature of future regulatory or policy initiatives with respect to the sale and use of arrays for the development of assays by CLIA laboratories, or the extent to which such initiatives will impact our business. If new regulations restrict our customers’ development of laboratory-developed tests using our products labeled for research use only, or if we otherwise are required to obtain FDA premarket clearance or approval prior to commercializing these products, our ability to generate revenue from the sale of our products may be delayed or otherwise adversely affected. Moreover, our failure to comply with governmental rules and regulations related to our products could cause us to incur significant adverse publicity, or subject us to investigations and notices of non-compliance or lead to fines or restrictions upon our ability to sell our products.

Medical device laws and regulations are also in effect in many countries, including countries in the European Union, ranging from comprehensive device approval requirements to requests for product data or certifications. The number and scope of these requirements are increasing. We may not be able to obtain regulatory approvals in such countries or may incur significant costs in obtaining or maintaining our foreign regulatory approvals. In addition, the export by us of certain of our products which have not yet been cleared for domestic commercial distribution may be subject to FDA or other export restrictions.

We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. A failure to comply with these regulations might result in suspension of these contracts or administrative penalties, and could have a material adverse effect on our ability to compete for future government grants, contracts and programs.

Reimbursement

The design of our products and the potential market for their use may be directly or indirectly affected by U.S. and other government regulations governing reimbursement for clinical testing services. The availability of third-party reimbursement for our products and services may be limited or uncertain, particularly with respect to genetic tests and other clinical applications products.

Third-party payers may deny reimbursement if they determine that a prescribed health care product or service has not received appropriate FDA or other governmental regulatory clearances, is not used in accordance with cost-effective treatment methods as determined by the payer, or is deemed by the third-party payer to be experimental, unnecessary or inappropriate. Furthermore, third-party payers are increasingly challenging the prices charged for health care products and services.

We are currently developing diagnostic and therapeutic products, including those with our collaborative partners which may be subject to reimbursement issues. The commercialization of such products may depend, in part, on the extent to which reimbursement for the cost of these products will be available under U.S. and foreign regulations governing reimbursement for clinical testing services by government authorities, private health insurers and other organizations.

In the United States, third-party payer price resistance, the trend towards managed health care and legislative proposals to reform health care or reduce government insurance programs could reduce prices for health care products and services, adversely affect the profits of our customers and collaborative partners and thus reduce our future royalties and product sales.

Environmental Matters

We are dedicated to compliance and protection of the environment and individuals. Our operations require the use of hazardous materials (including biological materials) which subject us to a variety of federal, state and local environmental and safety laws and regulations. Some of the regulations under the current regulatory structure allow for "strict liability," holding a party potentially liable without regard to fault or negligence. We could be held liable for damages and fines as a result of our, or others', business operations should contamination of the environment or individual exposure to hazardous substances occur. We cannot predict how changes in these laws or development of new regulations will affect our business operations or the cost of compliance.

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Employees

As of February 22, 2010, we had 989 full-time employees. The employee group includes chemists, engineers, computer scientists, mathematicians and molecular biologists with experience in the diagnostic products, medical products, semiconductor, computer software and electronics industries. None of our employees are represented by a collective bargaining agreement, nor have we experienced work stoppages. Our success depends in large part on our ability to attract and retain skilled and experienced employees.

Seasonality

Customer demand for probe arrays and instrumentation systems is typically highest in the fourth quarter of the calendar year as customers spend unused budget allocations before the end of the year.

Backlog

Because most customer orders are shipped in the quarter in which they are received, we believe that backlog at quarter end is typically not a material indicator of future sales. In addition, backlog may not result in sales because of cancellation of orders or other factors. On a few occasions we have experienced, and made public announcements about, short-term increases in backlog as a result of factors such as new product introductions or supply constraints.

Financial Information About Industry Segments

We operate in one business segment, for the development, manufacture, and commercialization of systems for genetic analysis in the life sciences and diagnostic industry. Our operations are treated as one segment as we only report operating information on a total enterprise level to our chief operating decision-maker. Further, resource allocations are also made at the enterprise level by our chief operating decision-maker.

Financial Information About Geographic Areas

Our total revenue from customers outside of the United States for fiscal years 2009, 2008 and 2007 was $136.8 million, $141.1 million and $173.6 million, or approximately 42%, 34% and 47%, respectively, of our total revenue. A summary of revenues from external customers attributed to each of our geographic areas for the fiscal years ended December 31, 2009, 2008 and 2007, is included in “Item 8. Financial Statements and Supplementary Data—Note 17. Segment and Geographic Information”.

Available Information

Our internet address is www.affymetrix.com. Information included on our website is not part of this Form 10-K. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. In addition, copies of our annual reports are available free of charge upon written request. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

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ITEM 1A. RISK FACTORS

In evaluating our business, you should carefully consider the following risks, as well as the other information contained in this annual report on Form 10-K. If any of the following risks actually occurs, our business could be harmed.

Risks Related to the Growth of Our Business

If we do not continually develop and commercialize new or enhanced products and services, our business may not grow.

Our success depends in large part on our continual, timely development and commercialization of new or enhanced products and services that address evolving market requirements and are attractive to customers. The genetic analysis tools market, including the RNA/DNA probe array field, is characterized by rapid and significant technological changes, frequent new product introductions and enhancements, evolving industry standards and changing customer needs. Standardization of tools and systems for genetic research is still ongoing and we cannot assure you that our products will emerge as the standard for genetic research. Other companies may introduce new technologies, techniques, products or services that render our products or services obsolete or uneconomical. If we do not appropriately innovate and invest in new technologies, then our technologies will become dated and our customers could move to new technologies offered by our competitors.

As a result, we are continually looking to develop, license or acquire new or enhanced technologies, products and services to further broaden and deepen our offerings. Some of the factors affecting market acceptance of our products and services include:

· availability, quality and price as compared to competitive products and services;

· the functionality of new and existing products and services;

· the timing of introduction of our products and services as compared to competitive products and services;

· the existence of product defects;

· scientists’ and customers’ opinions of the utility of our products and services and our ability to incorporate their feedback into future products and services;

· citation of our products in published research; and

· general trends in life science research and life science informatics software development.

Our new or enhanced technologies, products or services may not be accepted by customers in our target markets.  For example, once we have developed or obtained a new technology, we may fail to successfully commercialize new products and services based on that technology, particularly to the extent that our new products and services compete with established technologies or the products and services of more established competitors. Risks relating to product adoptions include the inability to accurately forecast demand and difficulties in managing different sales and support requirements due to the type or complexity of the new products.

Our growth depends in part on our ability to acquire new technologies, products and services through additional acquisitions, which may absorb significant resources and may not be successful.

As part of our strategy to develop and identify new technologies, products and services, we have made and may continue to make acquisitions. Our integration of the operations of acquired businesses requires significant efforts, including the coordination of information technologies, research and development, sales and marketing, operations, manufacturing and finance. These efforts result in additional expenses and divert significant amounts of management’s time from other projects. Our failure to manage successfully and coordinate the growth of the combined company could also have an adverse impact on our business. In addition, there is no guarantee that some of the businesses we acquire will become profitable or remain so. If our acquisitions do not meet our initial expectations, we may record impairment charges, such as those recorded in 2008.

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Factors that will affect the success of our acquisitions include:

· our ability to retain key employees of the acquired company;

· the performance of the acquired business, technology, product or service;

· our ability to integrate operations, financial and other systems;

· the ability of the combined company to achieve synergies among its constituent companies, such as increasing sales of the combined company’s products and services, achieving expected cost savings and effectively combining technologies to develop new products and services;

· any disruption in order fulfillment due to integration processes and therefore loss of sales;

· the presence or absence of adequate internal controls and/or significant fraud in the financial systems of acquired companies;

· any decrease in customer and distributor loyalty and product orders caused by dissatisfaction with the combined companies’ product lines and sales and marketing practices, including price increases; and

· our assumption of known contingent liabilities that are realized, known liabilities that prove greater than anticipated, or unknown liabilities that come to light, to the extent that the realization of any of these liabilities increases our expenses or adversely affects our business or financial position.

Emerging market opportunities in molecular diagnostics may not develop as quickly as we expect and we depend on the efforts of our partners to be successful.

The clinical applications of our technologies for diagnosing and enabling informed disease management options in the treatment of disease is an emerging market opportunity in molecular diagnostics. At this time, we cannot be certain that molecular diagnostic markets will develop as quickly as we expect. Although we believe that there will be clinical applications of our technologies that will be utilized for diagnosing and enabling informed disease management options in the treatment of disease, there can be no certainty of the technical or commercial success our technologies will achieve in such markets.

Our success in the molecular diagnostics market depends to a large extent on our collaborative relationships and the ability of our collaborative partners to achieve regulatory approval for such products in the United States and in overseas markets, and successfully market and sell products using our technologies.

Risks Related to Our Sales

We face significant competition, and our failure to compete effectively could adversely affect our sales and results of operations.

We compete with companies that develop, manufacture and market genetic analysis tools for the life science and clinical healthcare markets. We face significant competition as our competitors develop new, improved or more economical products and services and as new companies enter the market with new and innovative technologies.

The market for molecular diagnostics products and services is highly competitive, has high barriers of entry, and has several other large companies with significant market share. For example, companies such as Illumina, Agilent Technologies and Life Technologies have products for genetic analysis that are directly competitive with certain of our products. We also face competition from established diagnostic companies such as Beckman Coulter, Becton Dickinson, bioMérieux, Celera Diagnostics, Johnson & Johnson and Roche Diagnostics, which have made strategic commitments to diagnostics, have financial and other resources to invest in new technologies, and have substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise,

Many of our current and potential competitors have significantly greater financial, technical, marketing and other resources than we do. In addition, many current and potential competitors have greater name recognition, more extensive customer bases and access to proprietary genetic content.

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Consolidation trends in both our market and that of our customers have increased competition.

There has been a trend toward industry consolidation in our markets for the past several years. We expect this trend toward industry consolidation to continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in operating results and could harm our business.

Additionally, there has been a trend toward consolidation in many of the customer markets we sell to, in particular the pharmaceutical industry. Consolidation in our customer markets results in increased competition for important market segments and fewer available accounts, and larger consolidated customers may be able to exert increased pricing pressure on companies in our market.

Reduction or delay in research and development budgets and government funding may adversely impact our sales.

We expect that our revenues in the foreseeable future will be derived primarily from products and services provided to a relatively small number of academic, governmental and other research institutions, as well as pharmaceutical and biotechnology companies. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers.

Factors that could affect the spending levels of our customers include:

· weakness in the global economy and changing market conditions that affect our customers;

· changes in the extent to which the pharmaceutical industry may use genetic information and genetic testing as a methodology for drug discovery and development;

· changes in government programs that provide funding to companies and research institutions;

· changes in the regulatory environment affecting life science companies and life science research;

· impact of consolidation within the pharmaceutical industry; and

· cost reduction initiatives of customers.

Government funding of research and development is subject to the political process, which is inherently unpredictable. In 2009, U.S. government funding for life science research increased, due in part to the enactment of the American Recovery and Reinvestment Act of 2009, which provided over $10 billion in research funding to the National Institutes of Health (“NIH”) through September 2010. In October 2009, we announced that we entered into an agreement with the Kaiser Permanente Research Program on Genes, Environment and Health and the University of California at San Francisco to support genome-wide analyses of DNA samples from over 100,000 Kaiser Permanente members, a program funded by a grant from the NIH. Any shift away from the funding of life science research and development or delays surrounding the approval of government budget proposals may cause our customers to delay or forgo purchases of our products and services. Moreover, in the short term, our customers may delay or reduce their purchases of our products as they wait to learn whether, and to what extent, they will receive stimulus funding. Additionally, if our customers are unable to obtain stimulus funding they may reduce their research and development budgets, resulting in a decrease in demand for our products. A reduction or delay in demand will reduce our revenues and adversely affect our profitability.

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If we are unable to maintain our relationships with collaborative partners, we may have difficulty developing and selling our products and services.

We believe that our success in penetrating our target markets depends in part on our ability to develop and maintain collaborative relationships with key companies as well as with key academic researchers. Relying on our collaborative relationships is risky to our future success because:

· our partners may develop technologies or components competitive with our products and services;

· our existing collaborations may preclude us from entering into additional future arrangements;

· our partners may not obtain regulatory approvals necessary to continue the collaborations in a timely manner;

· some of our agreements may terminate prematurely due to disagreements between us and our partners;

· our partners may not devote sufficient resources to the development and sale of our products and services;

· our partners may be unable to provide the resources required for us to progress in the collaboration on a timely basis;

· our collaborations may be unsuccessful; or

· some of our agreements have expired and we may not be able to negotiate future collaborative arrangements on acceptable terms.

The size and structure of our current sales, marketing and technical support organizations may limit our ability to sell our products and services.

Although we have invested significant resources to expand our direct sales force and our technical and support staff, we may not be able to establish a global sales, marketing or technical support organization that is sufficient to sell, market or support our products globally. To assist our sales and support activities, we have entered into distribution agreements through certain distributors, principally in markets outside of North America and Europe. These and other third parties on whom we rely for sales, marketing and technical support may decide to develop and sell competitive products or otherwise become our competitors, which could harm our business.

Risks Related to the Manufacturing of Our Products

We depend on a limited number of suppliers and we will be unable to manufacture our products if shipments from these suppliers are delayed or interrupted.

We depend on our suppliers to provide components of our products in required volumes, at appropriate quality and reliability levels, and in compliance with regulatory requirements. Key parts of our product lines, including components of our manufacturing equipment and certain raw materials used in the manufacture of our products are currently available only from a single source or limited sources. If supplies from these vendors were delayed or interrupted for any reason, we would not be able to get manufacturing equipment, produce probe arrays, or sell scanners or other components for our products in a timely fashion or in sufficient quantities.

Furthermore, our business is dependent on our ability to forecast the needs for components and products in the product lines and our suppliers’ ability to deliver such components and products in time to meet critical manufacturing and product release schedules. Our business could be adversely affected, for example, if suppliers fail to meet product release schedules, if we experience supply constraints, if we fail to negotiate favorable pricing or if we experience any other interruption or delay in the supply chain which interferes with our ability to manufacture our products or manage our inventory levels.

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We may need to adjust our manufacturing capacity based on business requirements or improvements made to our technological capabilities and there are risks associated with such adjustment.

If demand for our products is reduced or if we implement technologies that increase the density or yields of our wafers, our manufacturing capacity could be under-utilized and some of our long-lived assets, including facilities and equipment, may be impaired, which would increase our expenses. In addition, factory planning decisions may shorten the useful lives of long-lived assets including facilities and equipment, and cause us to accelerate depreciation. These changes in demand for our products, and changes in our customers’ product needs, could have a variety of negative effects on our competitive position and our financial results, and, in certain cases, may reduce our revenue, increase our costs, lower our gross margin percentage or require us to recognize impairments of our assets. In addition, if demand for our products is reduced or we fail to accurately forecast demand, we could be required to write down inventory since certain of our products have a limited shelf life, which would have a negative impact on our gross margin.

We have in the past, and may in the future, adjust our manufacturing capacity based on business requirements, which may include the rationalization of our facilities, including the abandonment of long-lived manufacturing assets and additional charges related to a reduction in capacity. In 2008, we implemented a restructuring plan that included the closure of our West Sacramento, California facility and the consolidation of our manufacturing in three locations. This restructuring was completed in the second quarter of 2009. Manufacturing and product quality issues may arise as we launch new products in our Singapore and Ohio facilities. We may lose customers if we are unable to manufacture products or if we experience delays in the manufacture of our products as a result of this transition.

We may lose customers or sales if we are unable to meet customer demand for our products on a timely and cost-effective basis, or if we are unable to ensure the proper performance and quality of our products.

We produce our products in an innovative and complicated manufacturing process which has the potential for significant variability in manufacturing yields. We have encountered and may in the future encounter difficulties in manufacturing our products and, due to the complexity of our products and our manufacturing process, we may experience delays in the manufacture of our products or fail to ensure their proper performance or quality. As we develop new and enhanced products, we must be able to resolve in a timely, cost-effective manner manufacturing issues that may arise from time to time.

We base our manufacturing capabilities on our forecasted product mix for the quarter. If the actual product mix varies significantly from our forecast, we may not be able to fill some orders during that quarter, which could adversely impact our financial results. Difficulties in meeting customer, collaborator and internal demand could also cause us to lose customers or require us to delay new product introductions, which could in turn result in reduced demand for our products.

We rely on internal quality control procedures to verify our manufacturing processes. Due to the complexity of our products and manufacturing process, however, it is possible that products that do not meet all of our performance specifications may not be identified before they are shipped. If our products do not consistently meet our customers’ performance expectations, demand for our products will decline. In addition, we do not maintain any backup manufacturing capabilities for the production of our products. Any interruption in our ability to continue operations at our existing manufacturing facilities could delay our ability to develop or sell our products, which could result in lost revenue and seriously harm our business, financial condition and results of operations.

We may not be able to deliver acceptable products to our customers due to the rapidly evolving nature of genetic sequence information upon which our products are based.

The genetic sequence information upon which we rely to develop and manufacture our products is contained in a variety of public databases throughout the world. These databases are rapidly expanding and evolving. In addition, the accuracy of these databases and resulting genetic research is dependent on various scientific interpretations and it is not expected that global genetic research efforts will result in standardized genetic sequence databases for particular genomes in the near future.

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Although we have implemented ongoing internal quality control efforts to help ensure the quality and accuracy of our products, the fundamental nature of our products requires us to rely on genetic sequence databases and scientific interpretations which are continuously evolving. As a result, these variables may cause us to develop and manufacture products that incorporate sequence errors or ambiguities. The magnitude and importance of these errors will depend upon multiple and complex factors that would be considered in determining the appropriate actions required to remedy any inaccuracies. Our inability to timely deliver acceptable products as a result of these factors would likely adversely affect our relationship with customers, and could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Operations

We may not achieve sustained profitability.

Prior to 2002, we incurred losses each year since our inception, and we reported losses in 2006, 2008 and 2009. As a result, we had an accumulated deficit of approximately $440.3 million as of December 31, 2009. Our ability to achieve profitability will depend, in part, on the rate of growth, if any, of our revenue and on the level of our expenses. We expect to continue incurring significant expenses related to research and development, sales and marketing efforts to commercialize our products, litigation and non-cash stock based compensation, and we expect to continue to experience fluctuations in our operating results. If our revenues grow more slowly than we anticipate, or if our operating expenses increase more than we expect or cannot be reduced in the event of lower revenues, we may not become profitable on a sustained basis, or at all.

If we do not attract and retain key employees, our business could be impaired.

To be successful, we must attract and retain qualified scientific, engineering, manufacturing, sales, marketing and management personnel. To expand our research, product development and sales efforts we need additional people skilled in areas such as bioinformatics, organic chemistry, information services, regulatory affairs, manufacturing, sales, marketing and technical support. Competition for these people is intense, and our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating our existing employees.  For example, our stock price has been volatile in the past three years, resulting in a significant number of stock options granted to our employees having a strike price that is higher than the current trading price of our common stock. If we are unable to hire, train and retain a sufficient number of qualified employees, we will not be able to expand our business or our business could be adversely affected.

We also rely on our scientific advisors and consultants to assist us in formulating our research, development and commercialization strategy. All of these individuals are engaged by other employers and have commitments to other entities that may limit their availability to us.

We may not realize the expected benefits of our initiatives to reduce costs across our operations.

We are pursuing and may continue to pursue a number of initiatives to reduce costs across our operations. These initiatives have included workforce reductions in certain areas, as well as the rationalization of our facilities.

We may not realize the expected benefits of our current and future initiatives to reduce costs. As a result of these initiatives, we expect to incur restructuring or other charges and we may experience disruptions in our operations, a loss of key personnel and difficulties in delivering products in a timely manner.

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Recent economic conditions and the financial crisis could negatively affect our business, results of operations, and financial condition.

Recent economic conditions and the crisis affecting the banking system and financial markets resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and heightened volatility in fixed income, credit and equity markets. Continued market turbulence may adversely affect our liquidity and financial condition and that of our customers. If these market conditions persist, they may limit our ability, and the ability of our customers, to obtain short-term financing or to access the capital markets to meet liquidity needs and invest in new technologies. In addition, there could be a number of follow-on effects from the credit crisis on our business, including:

· insolvency of key suppliers resulting in product delays;

· reduction in research and development spending of customers;

· inability of customers to finance purchases of our products and/or customer insolvencies (for example, some of our customers are academic institutions who have experienced significant decreases in income derived from endowment funds);

· counterparty failures negatively impacting our treasury operations; and

· increased impairments on our investments in companies that cannot obtain financing.

Due to the international nature of our business, political or economic changes or other factors could harm our business.

A significant amount of our revenue is currently generated from sales outside the United States. Although such transactions are primarily denominated in both U.S. dollars and foreign currencies, our future revenue, gross margin, expenses and financial condition are still affected by such factors as changes in foreign currency exchange rates; unexpected changes in, or impositions of, legislative or regulatory requirements, including export and trade barriers and taxes; longer payment cycles and greater difficulty in accounts receivable collection.

We also are subject to general geopolitical risks in connection with international operations, such as political, social and economic instability, potential hostilities, epidemics and changes in diplomatic and trade relationships. We cannot assure investors that one or more of the foregoing factors will not have a material adverse effect on our business, financial condition and operating results or require us to modify our current business practices.

Our effective tax rate may vary significantly.

Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions. Estimates and judgments are required in determining our worldwide provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result.

Changes in overall levels and the geographic mix of pretax earnings may adversely impact our effective tax rate. Certain jurisdictions have lower tax rates, and the amount of earnings in these jurisdictions may fluctuate. If we do not have profitable operations in these jurisdictions, our effective tax rate could be adversely impacted. Changes in tax laws and regulatory requirements in the countries in which we operate could have a material impact on our tax provision. To the extent that we are unable to continue to reinvest a substantial portion of our profits in our foreign operations, we may be subject to effective income tax rate increases in the future. Tax authorities may challenge the allocation of profits between our subsidiaries and we may not prevail in any such challenge. If we were not to prevail, we could be subject to higher tax rates or double tax.

Estimates are required in determining any valuation allowance to be recorded against our net deferred tax assets. Changes in the amount of valuation allowance required may significantly impact our financial results of operations.

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Risks Related to Our Investments

Our strategic equity investments may result in losses.

We periodically make strategic equity investments in various public and private companies with businesses or technologies that may complement our business. The market values of these strategic equity investments may fluctuate due to market conditions and other conditions over which we have no control. Other-than-temporary declines in the market price and valuations of the securities that we hold in other companies would require us to record losses relative to our ownership interest. This could result in future charges to our earnings. It is uncertain whether or not we will realize any long-term benefits associated with these strategic investments.

Global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents or short-term investments and our ability to meet our financing objectives.

Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our short-term investments consist primarily of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. While as of the date of this filing, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents or short-term investments since December 31, 2009, we cannot assure you that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or short-term investments or our ability to meet our financing objectives. Other-than-temporary declines in the market price and valuation of any of our short-term investments would require us to adjust the carrying value of the investment through an impairment charge.

Risks Related to Government Regulation and Litigation

We and our customers are subject to various government regulations, and we may incur significant expenses to comply with, and experience delays in our product commercialization as a result of, these regulations.

The FDA must approve certain in-vitro diagnostic products before they can be marketed in the United States. Certain in-vitro diagnostic products must also be approved by the regulatory agencies of foreign governments or jurisdictions before the product can be sold outside the United States. Commercialization of our and our collaborative partners’ in-vitro diagnostic products outside of the research environment may depend upon successful completion of clinical trials. Clinical development is a long, expensive and uncertain process and we do not know whether we, or any of our collaborative partners, will be permitted to undertake clinical trials of any potential in-vitro diagnostic products. It may take us or our collaborative partners many years to complete any such testing, and failure can occur at any stage. Delays or rejections of potential products may be encountered based on changes in regulatory policy for product approval during the period of product development and regulatory agency review. Moreover, if and when our projects reach clinical trials, we, or our collaborative partners, may decide to discontinue development of any or all of these projects at any time for commercial, scientific or other reasons. Any of the foregoing matters could have a material adverse effect on our business, financial condition and results of operations.

Many of our products are labeled for research only. Even when a product is exempted from FDA clearance or approval, the FDA may impose restrictions as to the types of customers to which we can market and sell our products. Such restrictions may materially and adversely affect our business, financial condition and results of operations.

The FDA, the U.S. Department of Health and Human Services and foreign government regulators are increasingly focused on genetic analysis tools, including the use of arrays that are labeled for research use only by cytogenetics labs, including labs certified under the Clinical Laboratory Improvement Amendments (“CLIA”). We cannot predict the extent of the FDA’s future efforts in regulation and policies with respect to the sale and use of arrays for the development of assays by CLIA laboratories, which are referred to as laboratory developed tests (“LDTs”). If new regulations restrict our customers’ development of LDTs using our products labeled for research use only, or if we otherwise are required to obtain FDA premarket clearance or approval prior to commercializing these products, our ability to generate revenue from the sale of our products may be delayed or otherwise adversely affected. Moreover, our failure to comply with governmental rules and regulations related to our products could cause us to incur significant adverse publicity, subject us to investigations and notices of non-compliance or lead to fines or restrictions upon our ability to sell our products.

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Medical device laws and regulations are also in effect in many countries, ranging from comprehensive device approval requirements to requests for product data or certifications. The number and scope of these requirements are increasing. We may not be able to obtain regulatory approvals in such countries or may incur significant costs in obtaining or maintaining our foreign regulatory approvals. In addition, the export by us of certain of our products which have not yet been cleared for domestic commercial distribution may be subject to FDA or other export restrictions.

We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. A failure to comply with these regulations might result in suspension of these contracts or administrative penalties, and could have a material adverse effect on our ability to compete for future government grants, contracts and programs.

Healthcare reform and restrictions on reimbursements may limit our returns on molecular diagnostic products that we may develop with our collaborators.

We are currently collaborating with our partners to develop diagnostic and therapeutic products. The ability of our collaborators to commercialize such products may depend, in part, on the extent to which reimbursement for the cost of these products will be available under U.S. and foreign regulations that govern reimbursement for clinical testing services by government authorities, private health insurers and other organizations. In the United States, third-party payer price resistance, the trend towards managed health care and legislative proposals to reform health care or government insurance programs could reduce prices for health care products and services, adversely affect the profits of our customers and collaborative partners and reduce our future royalties.

Risks related to handling of hazardous materials and other regulations governing environmental safety.

Our operations are subject to complex and stringent environmental, health, safety and other governmental laws and regulations that both public officials and private individuals may seek to enforce. Our activities that are subject to these regulations include, among other things, our use of hazardous and radioactive materials and the generation, transportation and storage of waste. We could discover that we or an acquired business is not in material compliance. Existing laws and regulations may also be revised or reinterpreted, or new laws and regulations may become applicable to us, whether retroactively or prospectively, that may have a negative effect on our business and results of operations. It is also impossible to eliminate completely the risk of accidental environmental contamination or injury to individuals. In such an event, we could be liable for any damages that result, which could adversely affect our business.

We may be exposed to liability due to product defects.

The risk of product liability claims is inherent in the testing, manufacturing, marketing and sale of human diagnostic and therapeutic products and we may be subjected to such claims. We may seek to acquire additional insurance for clinical or product liability risks. We may not be able to obtain such insurance or general product liability insurance on acceptable terms or in sufficient amounts. A product liability claim or recall could have a serious adverse effect on our business, financial condition and results of operations.

Ethical, legal and social concerns surrounding the use of genetic information could reduce demand for our products.

Genetic testing has raised ethical issues regarding privacy and the appropriate uses of the resulting information. For these reasons, governmental authorities may call for limits on or regulation of the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, such concerns may lead individuals to refuse to use genetics tests even if permissible. Any of these scenarios could reduce the potential markets for our molecular diagnostic products, which could have a material adverse effect on our business, financial condition and results of operations.

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Risks Related to Our Intellectual Property

We may be unable to effectively protect or enforce our intellectual property, which could harm our competitive position.

Maintaining a strong patent position is critical to our business. Patent law relating to the scope of claims in the technology fields in which we operate is uncertain, so we cannot be assured the patent rights we have or may obtain will be valuable. Others have filed, and in the future are likely to file, patent applications that are similar or identical to ours or those of our licensors. To determine the priority of inventions, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office that could result in substantial costs in legal fees and could substantially affect the scope of our patent protection. We cannot be assured our patent applications will have priority over those filed by others. Also, our intellectual property may be subject to significant administrative and litigation proceedings such as opposition proceedings against our patents in Europe, Japan and other jurisdictions.

Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could also result in the invalidation of our patents or a finding that they are unenforceable. We may or may not choose to pursue litigation or interferences against those that have infringed on our patents, or used them without authorization, due to the associated expense and time commitment of monitoring these activities.  If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our results of operations.

In addition to patent protection, we also rely upon copyright and trade secret protection, as well as non-disclosure agreements with our employees, consultants and third-parties, to protect our confidential and proprietary information. Such measures may not provide adequate protection for our proprietary information.

Litigation or other proceedings or third party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products or services or impact our stock price.

Third parties have asserted and may in the future assert that we are employing their proprietary technology without authorization. We are currently engaged in litigation with third parties who allege that we have infringed their intellectual property rights. See “Item 8. Financial Statements and Supplementary Data—Note 13. Commitments and Contingencies” for further information.  In addition, we are aware of third-party patents that may relate to our technology. We routinely receive notices claiming infringement from third parties as well as invitations to take licenses under third party patents.

As we enter new markets, we expect that competitors will claim that our products infringe their intellectual property rights as part of business strategies designed to impede our successful entry into those markets. In addition, third parties may have obtained, and may in the future obtain, patents allowing them to claim that the use of our technologies infringes these patents. We could incur substantial costs and divert the attention of our management and technical personnel in defending ourselves against any of these claims. Any adverse ruling or perception of an adverse ruling in defending ourselves against these claims could have a material adverse impact on our stock price, which may be disproportionate to the actual import of the ruling itself. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize and sell products, and could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties, or be prohibited from selling certain products. In addition, we may be unable to obtain these licenses at a reasonable cost, if at all. We could therefore incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins. In addition, we could encounter delays in product introductions while we attempt to develop alternative methods or products. Defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing products, and the prohibition of sale of any of our products could materially affect our ability to grow and maintain profitability.

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Risks Related to Our Common Stock

The market price of our common stock has been volatile.

The market price of our common stock is volatile. During the twelve-month period ending December 31, 2009, the daily volume of our common stock fluctuated from 278,900 to 7,846,800 shares. Moreover, during that period, our common stock traded as low as $1.78 per share and as high as $10.06 per share. Our stock price may be affected by a number of factors, including those listed in these “Risk Factors” and other, unknown factors. Our stock price also may be affected by: comments by securities analysts regarding our business or prospects; our inability to meet analysts’ expectations; general fluctuations in the stock market, or in the stock prices of our industry peers or our customers; and, general conditions and publicity regarding the genomics, biotechnology, pharmaceutical or life science industries.

Volatility in the stock price of other companies often has led to securities class action litigation against those companies. Any future securities litigation against us could result in substantial costs and divert management’s attention and resources, which could seriously harm our business, financial condition and results of operations.

Our quarterly results have historically fluctuated significantly and may continue to do so. Failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in our stock price.

Our revenues and operating results may fluctuate significantly due in part to factors that are beyond our control and which we cannot predict. The timing of our customers’ orders may fluctuate from quarter to quarter. Historically, we have experienced customer ordering patterns for instrumentation and consumables where the majority of the shipments occur in the last month of the quarter. These ordering patterns may limit management’s ability to accurately forecast our future revenues or product mix. Additionally, license revenue may also be unpredictable and may fluctuate due to the timing of payments of non-recurring licensing fees. Because our expenses are largely fixed in the short to medium term, any material shortfall in revenues may cause us to experience material losses.

Because of this difficulty in predicting future performance, our operating results may fall below our own expectations and the expectations of securities analysts or investors in some future quarter or quarters. Our failure in the past to meet these expectations has adversely affected the market price of our common stock and may continue to do so.

In addition to factors that affect the spending levels of our customers described above, additional factors could cause our operating results to fluctuate, including:

· competition;

· our inability to produce products in sufficient quantities and with appropriate quality;

· the frequency of experiments conducted by our customers;

· our customers’ inventory of products;

· the receipt of relatively large orders with short lead times; and

· our customers’ expectations as to how long it takes us to fill future orders.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.  PROPERTIES

Our corporate headquarters is located in Santa Clara, California, where we lease approximately 200,000 square feet. Our manufacturing facilities are located in Singapore and Cleveland, Ohio, where we lease approximately 150,000 square feet and 53,000 square feet, respectively. We also lease approximately 275,000 square feet of administrative and research and development space in California (Emeryville, Fremont and Sunnyvale), Ohio (Cleveland), Massachusetts (Bedford), China (Shanghai), Germany (Staufen), Japan (Osaka and Tokyo) and the United Kingdom (Wooburn Green). Additionally, as discussed in detail in “Item 8. Financial Statements and Supplementary Data—Note 3. Restructuring”, we own a 170,000 square foot facility in the West Sacramento but have vacated the space and moved all of our manufacturing activities to Singapore and Ohio. The West Sacramento facility is currently vacant. We believe that our existing properties are in good condition and are suitable for the conduct of our business.

ITEM 3.  LEGAL PROCEEDINGS

Information pertaining to legal proceedings can be found in “Item 8. Financial Statements and Supplementary Data—Note 13. Commitments and Contingencies” of this Annual Report on Form 10-K, and is incorporated by reference herein.

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

No matters were submitted during the fourth quarter of the year ended December 31, 2009.

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

Our common stock is traded on the Nasdaq Global Select Market under the symbol of AFFX. The following table sets forth on a per share basis, for the periods indicated, the low and high closing prices of our common stock as reported by the Nasdaq Global Select Market.

	Low		High
2009
First Quarter	$	1.78	$	4.06
Second Quarter	$	3.23	$	6.82
Third Quarter	$	5.04	$	9.50
Fourth Quarter	$	4.69	$	9.83
2008
First Quarter	$	15.75	$	23.76
Second Quarter	$	10.06	$	17.89
Third Quarter	$	7.38	$	10.72
Fourth Quarter	$	2.16	$	7.81

As of February 22, 2010, there were approximately 356 holders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust Company (“DTC”). All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and therefore are considered to be held of record by Cede & Co. as one shareholder.

No cash dividends have been paid on our common stock. We currently intend to retain all future earnings, if any, for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.

No equity securities were sold during 2009 that were not registered under the Securities Act of 1933, as amended (the “Securities Act”). We did not repurchase any shares of our common stock during the fourth quarter of 2009.

For information regarding compensation plans under which equity securities were authorized for issuance, see the section of the Proxy Statement to be filed in connection with our 2010 Annual Meeting of Shareholders entitled “Stock Ownership of Principal Stockholders and Management,” incorporated by reference into Item 11 of this Annual Report on Form 10-K.

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Performance Graph

The graph below compares the cumulative total return* on our common stock for the period commencing on December 31, 2004 and ending December 31, 2009 compared to the CRSP Total Return Index for the Nasdaq National Market (U.S. companies) and the CRSP Total Return Index for the Nasdaq Pharmaceutical Stocks (SIC 283). The stock price performance shown on the graph below is not necessarily indicative of future price performance.

* Assumes $100 invested on December 31, 2004 in our common stock and in each index listed above. The total return for our common stock and the indices used assumes the reinvestment of dividends, even though dividends have never been declared on our common stock.

The information under the caption “Performance Graph” is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any filing of Affymetrix under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether made before or after the date of this Annual Report on Form 10-K and irrespective of any general incorporation language in such filings.

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ITEM 6.  SELECTED FINANCIAL DATA

The following selected historical consolidated financial information has been derived from our audited consolidated financial statements. The information below is not necessarily indicative of our future results of operations and should be read in conjunction with Item 1A, “Risk Factors,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K in order to fully understand the factors that may affect the comparability of the information presented below:

	Year Ended December 31,
	2009			2008			2007		2006			2005
Consolidated Statement of Operations Data:	(in thousands, except per share amounts)
Total revenue	$	327,094		$	410,249		$	371,320	$	355,317		$	367,602
(Loss) income from operations		(33,158	)		(242,539	)		6,080		(18,545	)		57,413
Net (loss) income (1)	$	(23,909	)	$	(307,919	)	$	12,593	$	(13,704	)	$	65,787
Basic net (loss) income per common share	$	(0.35	)	$	(4.49	)	$	0.18	$	(0.20	)	$	1.03
Diluted net (loss) income per common share	$	(0.35	)	$	(4.49	)	$	0.17	$	(0.20	)	$	0.96
Consolidated Balance Sheet Data:
Cash, cash equivalents, and available-for-sale securities	$	346,574		$	397,739		$	584,274	$	247,752		$	284,932
Working capital		345,486			420,768			583,067		290,302			349,679
Total assets (2)		630,950			713,310			1,133,591		781,215			775,094
Long-term obligations (3), (4)		261,394			330,896			451,143		134,662			139,790

(1) In the second quarter of 2009, we recognized a gain of $17.4 million as a result of the $69.1 million repurchase of our 3.50% senior convertible notes which is presented in a single line item labeled “Gain from repurchase of convertible notes” in our Consolidated Statements of Operations. See (4) for further details.  

In the fourth quarter of 2008, we recognized a goodwill impairment charge of $239.1 million that was presented in a single line item labeled “Goodwill impairment charges” in our Consolidated Statements of Operations as well as an income tax provision of $65.9 million primarily resulting from a full valuation allowance recorded against all U.S. deferred tax assets.

Additionally, we recognized approximately $2.2 million, $43.7 million and $15.3 million in 2009, 2008 and 2007, respectively, of expense related to our restructuring plans that was presented in a single line item labeled “Restructuring charges” in our Consolidated Statements of Operations.

(2) On October 21, 2005, we completed the $122.4 million acquisition of ParAllele BioScience, Inc. (“ParAllele”), a provider of comprehensive genetic discovery solutions to the life science research, pharmaceutical and diagnostic sectors.   In 2008, we completed the acquisitions of USB Corporation (“USB”), True Materials, Inc. (“TMI”), and Panomics, Inc. for an aggregate of approximately $163.0 million.  

(3) In November 2007, we issued $316.3 million principal amount of 3.50% senior convertible notes.  

(4) In June 2009, we repurchased approximately $69.1 million aggregate principal amount of our 3.50% convertible notes for cash consideration of $50.6 million, including accrued interest and transactions costs.  

In December 2008, a total of $119.9 million aggregate principal amount of our 0.75% senior convertible notes was redeemed for cash as investors exercised their put right. We repurchased an additional $0.1 million in 2009.

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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document.

The purpose of the following discussion and analysis is to provide an overview of the business to help facilitate an understanding of significant factors influencing our historical operating results, financial condition and cash flows and also to convey our expectations of the potential impact of known trends, events, or uncertainties that may impact our future results. The discussion and analysis in this Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, strategies, objectives, expectations, intentions and adequacy of resources. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward looking statements. Words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” or similar words or phrases, or the negatives of these words, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward looking. Examples of forward-looking statements include, among others, statements regarding the integration of our acquired technologies with our existing technology, the commercial launch of new products and the duration which our existing cash and other resources is expected to fund our operating activities. This discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Item 1: Business”; “Item 1A: Risk Factors”; “Item 6: Selected Financial Data”; and “Item 8: Financial Statements and Supplementary Data.”

Overview

We develop, manufacture and sell products and services for genetic analysis to the life science research and clinical healthcare markets. Researchers around the world use our technology to better understand the role that genes play in disease, the effectiveness and safety of therapies and many other biological factors that affect human well-being. We sell our products to some of the world’s largest pharmaceutical, diagnostic and biotechnology companies, as well as leading academic, government and not-for profit research institutions. More than 21,000 peer-reviewed papers have been published based on work using our products. We have approximately 1,000 employees worldwide and maintain sales and distribution operations across the United States, Europe and Asia.

We offer a comprehensive line of products for two principal applications: genotyping and gene expression. The majority of our product sales consist of sales of instruments and related consumables. Our GeneChip® and GeneTitan® families of products are whole systems that include instruments, consumables and software. We recently re-engineered our platform and launched our GeneTitan® family of products. Our GeneChip® instruments run arrays packaged in cartridges and our GeneTitan® instrument runs arrays packaged in a peg format for automated high throughput processing.

Through our acquisition of USB, we now offer a range of reagent kits that are compatible with our platforms as well as the products of other vendors. Through our acquisition of Panomics, we offer a variety of low-to mid-plex assays for gene expression.

Our objective is to be the leading provider of genotyping and gene expression products for the analysis of genetic variation. The key elements of our strategy are:

Expanding into new markets. Our goal is to generate top-line revenue growth by successfully commercializing our technologies and expanding our customer base, including by leveraging our established and newly acquired technologies to enter new markets. We believe that we can expand our position in the genotyping market with our new AxiomTM Genotyping Solution. We believe that this market will continue to be one of the most attractive growth opportunities in life sciences and new content packaged in versatile formats will drive growth. Other opportunities include emerging cytogenetic and copy number diagnostics and our Drug Metabolizing Enzymes and Transporters product, which we believe addresses a significant unmet need of our pharmaceutical partners. We see opportunities in applications that are downstream from genome-wide analysis, particularly in validation and routine testing where our QuantiGene line of products is used for biomarker validation.

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Re-engineering our technology platform. We intend to combine automated instrumentation, powerful new biological assays, and new array designs and content to significantly expand our product line. The new GeneTitan® System, our next generation mid-to-high end instrumentation platform enables significantly increased efficiency and throughput for researchers conducting array-based experiments. This fully automated solution enables higher data quality by removing or minimizing many of the sources of variation in the laboratory. We expect to commercially release GeneAtlasTM in 2010, targeted at new and novice users of microarray technology. With these instruments we also introduced an alternative format, the peg array plate, to our cartridge-based consumables. We intend to provide an expanded menu of gene expression and genotyping applications for our peg array plates.

Improve operating leverage. We expect to see positive operating income in fiscal 2010 as we continue to control costs and work to generate increased revenues. In 2009, we completed a restructuring plan designed to optimize our production capacity and cost structure to enable us to decrease our cost of manufacturing and operating expenses by moving our probe array manufacturing to our Singapore facility, consolidating our reagent manufacturing to our Cleveland facility and outsourcing our instrument manufacturing operations. Additionally, our new peg array plate formats have lower manufacturing costs than the cartridge-based formats. We also expect to incur lower operating expenses as we fully integrate our acquisitions of USB and Panomics and complete the re-engineering of our technology platform.

CRITICAL ACCOUNTING POLICIES & ESTIMATES

General

The following section of Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“US GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are fully described in “Item 8. Financial Statements and Supplementary Data—Note 2. Summary of Significant Accounting Policies”. However, certain accounting policies are particularly important to the reporting of our financial position and results of operations and require the application of significant judgment by our management. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the consolidated financial statements.

REVENUE RECOGNITION

We enter into contracts to sell our products and, while the majority of our sales agreements contain standard terms and conditions, there are agreements that contain multiple elements or non-standard terms and conditions. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for revenue recognition purposes, and if so, how the value of the arrangement should be allocated among the deliverable elements, when and how to recognize revenue for each element, and the period over which revenue should be recognized. We recognize revenue for delivered elements only when the fair values of undelivered elements are known and customer acceptance, if required, has occurred. Changes in the allocation of the sales price between delivered to undelivered elements might impact the timing of revenue recognition, but would not change the total revenue recognized on any arrangement.

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ACCOUNTS RECEIVABLE

We evaluate the collectability of our trade receivables based on a combination of factors. We regularly analyze our significant customer accounts, and, when we become aware of a specific customer’s inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position, we record specific bad debt allowances to reduce the related receivable to the amount we reasonably believe is collectible. We also record allowances for bad debt on a small portion of all other customer balances based on a variety of factors, including the length of time the receivables are past due, the financial health of the customer, both current and forward-looking, macroeconomic considerations and historical experience. If circumstances related to specific customers change, our estimates of the recoverability of receivables could be further adjusted.

INVENTORIES

We enter into inventory purchases and commitments so that we can meet future shipment schedules based on forecasted demand for our products. The business environment in which we operate is subject to rapid changes in technology and customer demand. We perform a detailed assessment of inventory each period, which includes a review of, among other factors, demand requirements, product life cycle and development plans, component cost trends, product pricing, product expiration and quality issues. Based on this analysis, we record adjustments to inventory for potentially excess, obsolete or impaired goods, when appropriate, in order to report inventory at net realizable value. Revisions to our inventory adjustments may be required if actual demand, component costs, supplier arrangements, or product life cycles differ from our estimates. Any such adjustments or revised adjustments could result in a change to our results of operations.

NON-MARKETABLE EQUITY SECURITIES

As part of our strategic efforts to gain access to potential new products and technologies, we invest in equity securities of certain private biotechnology companies. These investments are included in other assets in our Consolidated Balance Sheets and are carried at cost. We also invest in a limited partnership investment fund that is accounted for under the equity method. We periodically review our investments for impairment; however, the impairment analysis requires significant judgment in identifying events or circumstances that would likely have significant adverse effect on the fair value of the investment. The analysis may include assessment of the investee’s (i) revenue and earnings trend, (ii) business outlook for its products and technologies, (iii) liquidity position and the rate at which it is using its cash, and (iv) likelihood of obtaining subsequent rounds of financing. If an investee obtains additional funding at a valuation lower than our carrying value, we presume that the investment is other than temporarily impaired. We have experienced impairments in our portfolio due to the decline in the value of certain of our non-marketable investments over the past few years.

GOODWILL AND ACQUIRED TECHNOLOGY RIGHTS

Goodwill represents the difference between the purchase price and the estimated fair value of the identifiable net assets acquired arising from business combinations. Goodwill is assessed for impairment at least annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable from estimated future cash flows. Factors that may be considered a change in circumstance indicating the carrying value of our intangible assets, including goodwill, may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future operating results, a significant decline in our stock price and market capitalization, and negative industry or economic trends. Any excess of the carrying value of the goodwill over the implied fair value of the goodwill will be recorded as an impairment loss.

In 2008, as a result of our annual impairment test, we determined that all remaining goodwill derived from our acquisitions was impaired. We recorded a goodwill impairment charge of $239.1 million in the line labeled “Goodwill impairment charges” in the Consolidated Statements of Operations during the year ended December 31, 2008. Refer to “Item 8. Financial Statements and Supplementary Data—Note 10. Goodwill and Acquired Technology Rights” for further information.

Acquired technology rights are carried at cost less accumulated amortization and are comprised of licenses to technology covered by patents held by third parties or acquired by the Company. Amortization is computed over the estimated useful life of the underlying patents, which historically has ranged from one to thirteen years. Purchased intangible assets other than goodwill are amortized over their useful lives. We performed an impairment analysis on our identified intangible assets and determined that there were no indicators of impairment as of December 31, 2009. In 2008, we recognized an impairment loss on acquisition-related intangible assets of $5.5 million of which $1.9 million was included as a component of “Cost of product sales”, $3.2 million was included as a component of “Research and development”, and $0.4 million was included as a component of “Selling, general and administration” expenses in the Consolidated Statements of Operations for the year ended December 31, 2008. Refer to “Item 8. Financial Statements and Supplementary Data—Note 10. Goodwill and Acquired Technology Rights” for further information.

The determination as to whether a write-down of goodwill and other intangible assets, including acquired technology rights, is necessary, involves significant judgment based on short-term and long-term projections of our operations. The assumptions supporting the estimated future cash flows of the reporting unit, including profit margins, long-term forecasts of the amounts and timing of overall market growth and our percentage of that market, discount rates and terminal growth rates, reflect our best estimates.

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IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets and certain identifiable intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. For the years ended December 31, 2009 and 2008, the Company determined that the carrying value of its capitalized software exceeded its net realizable value by $1.0 million and $2.3 million, respectively, and recorded the impairment charges as a component of “Cost of product sales” in the Consolidated Statements of Operations. Refer to “Item 8. Financial Statements and Supplementary Data—Note 2, Summary of Significant Accounting Policies – Software Development Costs” for further information. In connection with the Company’s restructuring activities in 2008, the Company wrote-down the value of certain of its property and equipment by approximately $36.9 million which was included as a component of “Restructuring charges” in the Consolidated Statement of Operations for the year ended December 31, 2008. Refer to “Item 8. Financial Statements and Supplementary Data—Note 3. Restructuring” for further information.

INCOME TAXES

Income tax expense is based on pretax financial accounting income. Under the asset and liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We must assess the likelihood that the resulting deferred tax assets will be realized. To the extent we believe that realization is not more likely than not, we establish a valuation allowance. Significant estimates are required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance to be recorded against our deferred tax assets. Some of these estimates are based on interpretations of existing tax laws or regulations. We believe that our estimates are reasonable and that our reserves for income tax related uncertainties are adequate. Various internal and external factors may have favorable or unfavorable effects on our future effective tax rate. These factors include, but are not limited to, changes in overall levels, character, or geographical mix of pretax earnings, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in the valuation of our deferred tax assets or liabilities, future levels of research and development spending, nondeductible expenses, and ultimate outcomes of income tax audits.

The total amount of unrecognized tax benefits as of December 31, 2009 was approximately $19.9 million. If recognized, the amount of unrecognized tax benefits that would impact income tax expense is $2.1 million. As of December 31, 2009, we do not anticipate any material changes to the amount of unrecognized tax benefit during the next twelve months.

We classify interest and penalties related to tax positions as components of income tax expense. For the year ended December 31, 2009, the amount of accrued interest and penalties related to tax uncertainties was approximately $0.1 million for a total cumulative amount of $0.4 million of non-current income taxes payable as of December 31, 2009.

We file U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 1992 through 2009 tax years generally remain subject to examination by federal and state tax authorities. In significant foreign jurisdictions, the 2006 through 2009 tax years generally remain subject to examination by their respective tax authorities.

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CONTINGENCIES

We are subject to legal proceedings principally related to intellectual property matters. Based on the information available at the balance sheet dates, we assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. If losses are probable and reasonably estimable, we will record a reserve which may change in the future due to new developments in each matter.

ACCOUNTING FOR STOCK-BASED COMPENSATION

We account for employee stock-based compensation by estimating the fair value of our employee stock awards at the date of grant using the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates of the expected term, volatility and forfeiture rates of the awards. The expected stock price volatility assumption was determined using a combination of historical and implied volatility of our common stock. We determined that blended volatility is more reflective of market conditions and a better indicator of expected volatility than historical volatility. The estimate of these key assumptions is based on historical information and judgment regarding market factors and trends. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, we are likely to change our valuation assumptions used to value employee stock-based awards granted in future periods.

US GAAP requires that employee stock-based compensation costs be recognized over the requisite service period, or the vesting period, in a manner similar to all other forms of compensation paid to employees. Accordingly, in 2009, we recognized employee stock-based compensation of $11.1 million, which consisted of $1.7 million in cost of product sales, $2.2 million in research and development expense and $7.2 million in selling, general and administrative expenses. As of December 31, 2009, $23.0 million of total unrecognized compensation cost related to non-vested employee stock awards not yet recognized is expected to be allocated to cost of products sales and operating expenses over a weighted-average period of 2.8 years.

RESTRUCTURING

In recent years we engaged in restructuring actions, which require management to utilize significant estimates related to expenses for severance and other employee separation costs, lease cancellation, realizable values of assets that may become duplicative or obsolete, and other exit costs. If the actual amounts differ from our estimates, the amount of the restructuring charges could be materially impacted. Refer to “Item 8. Financial Statements and Supplementary Data—Note 3. Restructuring” for further information.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (“FASB”) established the FASB Accounting Standards Codification ("FASB ASC") as the source of authoritative accounting principles recognized by the FASB.  The FASB will issue new standards in the form of Accounting Standards Updates ("FASB ASUs"). FASB ASC is effective for financial statements issued for interim and annual periods ending after September 15, 2009 and therefore is effective for us in the third quarter of fiscal 2009. The issuance of FASB ASC does not change US GAAP and therefore the adoption of FASB ASC only affects the specific references to US GAAP literature in the notes to our consolidated financial statements.

In February 2010, the FASB issued FASB ASU 2010-09, Subsequent Events, Amendments to Certain Recognition and Disclosure Requirements, which clarifies certain existing evaluation and disclosure requirements in ASC 855 related to subsequent events. FASB ASU 2010-09 requires SEC filers to evaluate subsequent events through the date in which the financial statements are issued and is effectively immediately. The new guidance does not have an effect on our consolidated results of operations and financial condition.

In January 2010, the FASB issued FASB ASU 2010-06, Improving Disclosures about Fair Value Measurements which clarifies certain existing disclosure requirements in ASC 820 as well as requires disclosures related to significant transfers between each level and additional information about Level 3 activity. FASB ASU 2010-06 begins phasing in the first fiscal period after December 15, 2009. The Company is currently assessing the impact on our consolidated results of operations and financial condition.

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In October 2009, the FASB issued FASB ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task Force.” This standard provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will adopt this guidance from January 1, 2010. The Company has assessed the impact of adoption and it is not expected to have a material effect on our consolidated results of operations and financial condition.

In August 2009, the FASB issued FASB ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value. This standard provides authoritative guidance related to measuring liabilities at fair value when quoted prices in an active market for identical liabilities are not available. FASB ASU 2009-05 clarifies the concept that a fair value measurement should be based on hypothetical transfer at the measurement date, even for liabilities that are generally never transferred, but are settled directly with the creditor. Quoted prices of similar liability or of the liability when it is traded as an asset should also be considered when determining the liability’s fair value. The provisions of FASB ASU 2009-05 were effective for the year ended December 31, 2009 and did not have an effect on our consolidated results of operations and financial condition.

In June 2009, the FASB issued guidance which amends certain FASB ASC concepts related to consolidation of variable interest entities (“VIE”). Among other accounting and disclosure requirements, this guidance replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. The primary beneficiary assessment must be performed on a continuous basis.  It also requires additional disclosures about an entity’s involvement with a VIE, restrictions on the VIE’s assets and liabilities that are included in the reporting entity’s consolidated balance sheet, significant risk exposures due to the entity’s involvement with the VIE, and how its involvement with a VIE impacts the reporting entity’s consolidated financial statements. The Company will adopt this guidance from January 1, 2010 and does not expect it to have a significant effect on our consolidated results of operations and financial condition.

RESULTS OF OPERATIONS

The following discussion compares the historical results of operations for the years ended December 31, 2009, 2008 and 2007.

PRODUCT SALES (in thousands, except percentage amounts)

The components of product sales are as follows (in thousands, except percentage amounts):

							Dollar					Percentage
	Year ended December 31,						change from					change from
	2009		2008		2007		2008		2007			2008			2007
Consumables	$	255,660	$	248,903	$	253,150	$	6,757	$	(4,247	)		3	%		(2	)%
Instruments		23,526		21,489		38,678		2,037		(17,189	)		9			(44	)
Total product sales	$	279,186	$	270,392	$	291,828	$	8,794	$	(21,436	)		3			(7	)

Total product sales increased $8.8 million or 3% in 2009 as compared to 2008. Consumables sales increased as a result of a higher volume of sales of our RNA analysis chips and additional revenues from our acquisition of Panomics in December 2008. This was partially offset by a decline in volume of our DNA analysis chips and lower overall average selling prices, partially due to a shift in product mix to lower-priced products. Additionally, instruments revenue increased due to the introduction of the GeneTitan® family of products in 2009. In constant currency terms, 2009 was positively impacted by $2.1 million as compared to 2008.

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Total product sales decreased $21.4 million or 7% in 2008 as compared to 2007. Consumables sales decreased primarily due to a decline in volumes across most of the consumables product line, partially offset by higher consumables average selling prices due to mix shift to higher average selling priced products as well as higher reagents volumes associated with the acquisition of USB. In addition, instrument sales declined primarily due to a decrease in unit sales of our Probe Array systems and GeneChip® Scanners.

Consumables sales for the years ended December 31, 2008 and 2007 include $0.8 million and $12.0 million, respectively, of revenue from Perlegen Sciences, Inc. (“Perlegen”), a related party. There was no revenue from Perlegen in 2009.

SERVICES (in thousands, except percentage amounts)

							Dollar					Percentage
	Year ended December 31,						change from					change from
	2009		2008		2007		2008		2007			2008			2007
Services	$	39,563	$	32,096	$	38,074	$	7,467	$	(5,978	)		23	%		(16	)%

Total services revenue increased in 2009 as compared to 2008 primarily due to the growth in our scientific services business associated with several genotyping projects, including Wellcome Trust Case Consortium and the National Institutes of Health. These projects began in the fourth quarter of 2008 and were substantially completed in the fourth quarter of 2009. We currently have not entered into any other significant contracts for other projects. In constant currency terms, 2009 was positively impacted by $2.3 million as compared to 2008.

Total services revenue decreased in 2008 as compared to 2007 primarily due to a decrease of $7.9 million in our genotyping services business because of the variable timing of projects, partially offset by an increase of $1.9 million in instrument service revenue.

ROYALTY AND OTHER REVENUE (in thousands, except percentage amounts)

							Dollar					Percentage
	Year ended December 31,						change from					change from
	2009		2008		2007		2008			2007		2008			2007
Royalties and other revenue	$	8,345	$	107,761	$	41,418	$	(99,416	)	$	66,343		(92	)%		160	%

Royalties and other revenue decreased in 2009 as compared to 2008 primarily due to a non-recurring $90 million intellectual property payment received in January 2008. Additionally, research revenue decreased by $4.1 million in 2009 as compared to 2008 as National Institutes of Health grants expired in 2009. In constant currency terms, 2009 was positively impacted by less than $0.1 million as compared to 2008.

Royalties and other revenue increased in 2008 as compared to 2007 primarily due to a non-recurring $90 million intellectual property payment received in January 2008, partially offset by higher license and grant revenue recognized in 2007. In January 2003, under the terms of an expanded collaboration agreement, Roche paid us an access fee of $70 million, which we recognized as a component of product related revenue in license fees on a straight-line basis over the research and development period of approximately five years. The amortization of this access fee was completed in 2007.

PRODUCT AND SERVICES GROSS MARGINS (in thousands, except percentage amounts)

										Dollar/Point
	Year ended December 31,									change from
	2009			2008			2007			2008		2007
Total gross margin on product sales	$	152,809		$	143,483		$	182,944		$	9,326	$	(39,461	)
Total gross margin on services		15,683			6,975			8,472			8,708		(1,497	)
Product gross margin as a percentage of products sales		55	%		53	%		63	%		2		(10	)
Service gross margin as a percentage of services		40	%		22	%		22	%		18		-

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The increase in product gross margin in 2009 as compared to 2008 is primarily due to favorable factory utilization from higher production volumes in arrays as a result of the plant consolidation to Singapore in 2009. These increases were partially offset by an unfavorable shift from higher margin array products to lower margin reagent products.

The decrease in product gross margin in 2008 as compared to 2007 is primarily due to asset impairments and restructuring related to the closing of our West Sacramento manufacturing facility, unfavorable factory utilization due to lower production volumes and a mix shift to lower margin instruments products. These decreases were partially offset by favorable consumable average selling prices due to a mix shift to higher margin products.

Gross margin on product sales for the years ended December 31, 2008 and 2007 includes $0.4 million and $7.3 million, respectively, of gross margin from Perlegen. There was no gross margin impact from Perlegen in 2009.

Service gross margin increased in 2009 as compared to 2008 by 18 percentage points primarily due to the higher revenues in scientific services from the Wellcome Trust Case Consortium project.

RESEARCH AND DEVELOPMENT EXPENSES (in thousands, except percentage amounts)

							Dollar					Percentage
	Year ended December 31,						change from					change from
	2009		2008		2007		2008			2007		2008			2007
Research and development	$	77,358	$	84,482	$	72,740	$	(7,124	)	$	11,742		(8	)%		16	%

The decrease in research and development expenses in 2009 of $7.1 million as compared to 2008 was primarily due to decreased spending for consulting and purchased services as grant research projects were completed during the year. Masks, chips and supplies also decreased as certain products were commercialized in 2009. Additionally, we recognized an intangible asset impairment charge of $3.2 million in 2008. The decrease during 2009 was partially offset by an increase in headcount-related expenses and variable compensation.

The increase in research and development expenses in 2008 as compared to 2007 was primarily due to higher headcount related expenses and increased spending for supplies and outside services. Also included in 2008 is an asset impairment charge of $3.2 million.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (in thousands, except percentage amounts)

							Dollar					Percentage
	Year ended December 31,						change from					change from
	2009		2008		2007		2008		2007			2008			2007
Selling, general and administrative	$	130,838	$	127,161	$	138,488	$	3,677	$	(11,327	)		3	%		(8	)%

The increase in selling, general and administrative expenses in 2009 of $3.7 million as compared to 2008 was primarily due to increases of $1.6 million in compensation and benefits expense, including commissions and variable compensation expenses, $3.4 million in legal expenses primarily resulting from increased litigation during the year, and $1.5 million in depreciation and amortization expense from intangible assets related to the Panomics acquisition. These increases were partially offset by decreases of $1.3 million from consulting and purchased services, due to lower advertising and travel expenses, and $1.4 million from headcount-related expenses in 2009 compared to 2008.

The decrease in selling, general and administrative expenses in 2008 as compared to 2007 was primarily due to a decrease in bonus and sales incentive based payments plus lower stock- based compensation expense.

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ACQUIRED IN-PROCESS TECHNOLOGY (in thousands, except percentage amounts)

							Dollar					Percentage
	Year ended December 31,						change from					change from
	2009		2008		2007		2008			2007		2008			2007
Acquired in-process technology	$	-	$	6,200	$	-	$	(6,200	)	$	6,200		(100	)%		100	%

In 2008, for each of the three acquisitions we made, USB, TMI and Panomics, we recognized the estimated fair value of certain research and development programs in-process that had not yet reached technological feasibility and had no alternative future use, totaling $0.8 million, $5.1 million and $0.3 million, respectively. The fair values of these projects were determined using the income approach whereby we estimated each project’s related future net cash flows. We used a discount rate based on our estimated weighted average cost of capital, adjusted upward for the risks associated with the projects acquired. The projected cash flows from the acquired projects were based on estimates of revenues and operating profits related to the projects of each acquired company considering the stage of development of each potential product acquired, the time and resources needed to complete the development and approval of each product, the life of each potential commercialized product and the inherent difficulties and uncertainties in developing products and services based on complex genetic technologies and biochemical processes.

The largest research and development program in-process at the acquisition date primarily was the microRNA profiling project undertaken by TMI. The fair value of this project was determined using the income approach whereby we estimated the project’s related future net cash flows between 2009 and 2015 and discounted them to their present value using a risk adjusted discount rate of approximately 30%. We used a discount rate based on our estimated weighted average cost of capital, adjusted upward for the risks associated with the project acquired. We completed this project in fiscal 2009.

RESTRUCTURING (in thousands, except percentage amounts)

							Dollar					Percentage
	Year ended December 31,						change from					change from
	2009		2008		2007		2008			2007		2008			2007
Restructuring	$	2,180	$	43,707	$	15,296	$	(41,527	)	$	28,411		(95	)%		186	%

In 2006, 2007 and 2008, we initiated restructuring plans designed to improve our operating leverage and completed them in 2009. The effects of these restructuring plans on our results of operations are discussed below.

Fiscal 2008 Restructuring Plan

In February 2008, we committed to a restructuring plan (the “2008 Plan”) to close our West Sacramento manufacturing facility after which all of our products will be manufactured at our Singapore and Ohio facilities, as well as by third parties. We completed the closure of the West Sacramento facility during the second quarter of 2009.

The cash outlays incurred in connection with the 2008 Plan were approximately $8.2 million which consisted primarily of employee severance. During the years ended December 31, 2009 and 2008, we recognized approximately $2.4 million and $5.8 million, respectively, of expense for employee termination benefits associated with the 2008 Plan and $(0.2) million and $37.1 million, respectively, of non-cash credits and charges related to the abandonment and impairment of certain manufacturing assets such as a building, leasehold improvements and mask aligners and synthesizer equipment utilized in the manufacturing of probe arrays. These expenses are presented as a component of “Restructuring charges” in our Consolidated Statements of Operations.

In addition to the $45.1 million of restructuring costs noted above, we expect to incur a total of approximately $18.1 million of restructuring related costs that are included as a component of “Cost of product sales” in our Consolidated Statements of Operations. Of this total, $13.9 million related to accelerated depreciation charges associated with the continued use of certain long-lived manufacturing assets and $4.2 million related to manufacturing transition and other costs. As of December 31, 2009, we have incurred $17.4 million of these costs which was recorded to “Cost of product sales.”

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Fiscal 2007 Restructuring Plan

In July 2007, we announced that we were consolidating an administrative facility located in Sunnyvale, California into our main campus in Santa Clara, California (the “2007 Plan”). Additionally, in August and December 2007, we terminated certain employees in the research and development and selling, general and administrative functions. The Sunnyvale, California facility was vacated during the fourth quarter of 2007. The cash outlays incurred in connection with these restructuring activities were approximately $4.6 million. During the years ended December 31, 2009 and 2008, the expenses recognized that were associated with the 2007 Plan were not material. During the year ended December 31, 2007, we recognized approximately $4.2 million of expense primarily related to employee termination benefits and contract termination costs associated with the 2007 Plan. These expenses are presented as a component of “Restructuring charges” in our Consolidated Statements of Operations. As of December 31, 2009, we have incurred the majority of the costs related to the 2007 Plan except for the remaining contract termination costs of less than $0.1 million.

Fiscal 2006 Restructuring Plan

In 2006, we initiated a restructuring plan (the “2006 Plan”) to better align certain of our expenses with our current business outlook. Our primary focus of the 2006 Plan was in the general and administrative functions and included rationalizing our facilities. Cash outlays incurred in connection with these restructuring activities were approximately $16.8 million. During the years ended December 31, 2009 and 2008, the amount of expense recognized associated with the 2006 Plan was not material. During the year ended December 31, 2007, we recognized approximately $11.1 million of expense primarily related to employee termination benefits and contract termination costs associated with the 2006 Plan. These expenses are presented as a component of “Restructuring charges” in our Consolidated Statements of Operations. As of December 31, 2009, we have incurred the majority of the costs related to the 2006 Plan except for the remaining contract termination costs of approximately $0.3 million.

GOODWILL IMPAIRMENT CHARGES (in thousands, except percentage amounts)

								Dollar					Percentage
	Year ended December 31,							change from					change from
	2009			2008		2007		2008			2007		2008			2007
Goodwill impairment charges	$	(450	)	$	239,098	$	-	$	(239,548	)	$	239,098		(100	)%		100	%

In the fourth quarter of 2008, we determined that goodwill was permanently impaired and its carrying amount was not recoverable from estimated future cash flows based on the continued decline in our stock price throughout 2008 and other conditions in our business, including decreases in our actual revenues as compared to our forecasted revenues and additional restructuring activities. We recognized an impairment charge of $239.1 million to write off our entire goodwill balance as of December 31, 2008. In 2009, we received payment on a claim to recover approximately $0.5 million from the USB acquisition indemnity escrow for certain tax liabilities that were not recognized, and recorded it as a partial recovery of the goodwill impairment charges.

INTEREST INCOME AND OTHER, NET (in thousands, except percentage amounts)

The components of interest income and other, net, are as follows:

									Dollar						Percentage
	Year ended December 31,								change from						change from
	2009			2008			2007		2008			2007			2008			2007
Interest income	$	4,455		$	14,579		$	13,812	$	(10,124	)	$	767			(69	)%		6	%
Realized (loss) gain on equity investments, net		(916	)		1,201			1,273		(2,117	)		(72	)		(176	)		(6	)
Currency (loss) gain, net		(2,800	)		(2,188	)		276		(612	)		(2,464	)		28			(893	)
Other		1,850			1,037			59		813			978			78			1,658
Total interest income and other, net	$	2,589		$	14,629		$	15,420	$	(12,040	)	$	(791	)		(82	)		(5	)

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Interest income and other, net decreased in 2009 as compared to 2008 primarily due to the $10.1 million decrease in interest income resulting from lower average cash and investment balances combined with lower effective interest rates in 2009 compared to 2008. Realized (losses) gain on equity investments decreased by $2.1 million, net, primarily due to a $1.1 million other-than-temporary impairment we recognized in our nonmarketable securities portfolio in 2009 compared to none recognized in 2008. Additionally, we realized gains of $0.4 million on our equity investments in fiscal year 2009 compared to $1.4 million in fiscal year 2008.

Interest income and other, net decreased in 2008 as compared to 2007 primarily due to the recognition of $2.2 million in foreign currency losses and the recognition of a $6.0 million net gain on an equity investment in 2007. This decrease was partially offset by an increase in other income and interest earned on our higher average total cash balances.

INTEREST EXPENSE (in thousands, except percentage amounts)

							Dollar					Percentage
	Year ended December 31,						change from					change from
	2009		2008		2007		2008			2007		2008			2007
Interest expense	$	10,945	$	14,091	$	3,218	$	(3,146	)	$	10,873		(22	)%		338	%

Interest expense decreased in 2009 as compared to 2008 primarily due to lower aggregate principal balance of the senior convertible notes resulting from our repurchases of $69.1 million in aggregate principal amount of our 3.50% senior convertible notes in the second quarter of 2009 and $119.9 million in aggregate principal amount of our 0.75% senior convertible notes in the fourth quarter of 2008.

Interest expense increased in 2008 as compared to 2007 as we began recognizing interest expense on our 3.50% senior convertible notes issued in November 2007.

INCOME TAX (BENEFIT) PROVISION (in thousands, except percentage amounts)

								Dollar					Percentage
	Year ended December 31,							change from					change from
	2009			2008		2007		2008			2007		2008			2007
Income tax (benefit) provision	$	(158	)	$	65,918	$	5,689	$	(66,076	)	$	60,229		(100	)%		1,059	%

The income tax benefit in 2009 was approximately $0.2 million, which consisted of foreign taxes and state taxes offset by a federal refundable alternative minimum tax credit and research tax credit. The provision for income taxes in 2008 was approximately $65.9 million, which consisted of foreign taxes, state taxes and the establishment of a full valuation allowance against our U.S. deferred tax assets, net of reserves for uncertain tax positions. The provision for income taxes in 2007 was approximately $5.7 million, which consisted of federal, state and foreign taxes offset by federal and state research tax credits.

Deferred tax assets are recognized if realization of such assets is more likely than not. As of December 31, 2009, we provided for a valuation allowance of $139.3 million against our net deferred tax assets. As a result of negative evidence based on our cumulative net loss position, we have placed a full valuation allowance on U.S. deferred tax assets, net of reserves for uncertain tax positions. We intend to maintain the valuation allowance until sufficient positive evidence exists to assure realization of these tax benefits through future taxable income.

As of December 31, 2009, the Company had total net operating loss carryforwards of $242.2 million, comprised of $134.9 million for U.S. federal purposes, which expire in the years 2020 through 2029 if not utilized, and $107.3 million for state purposes, the majority of which expire in the years 2011 through 2029 if not utilized. Utilization of net operating loss carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation may result in the expiration of the net operating loss before utilization.

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LIQUIDITY AND CAPITAL RESOURCES

Cashflow (in thousands)

	Year ended December 31,
	2009			2008			2007
Net cash provided by operating activities	$	9,327		$	83,511		$	32,336
Net cash used in investing activities		(7,190	)		(151,062	)		(194,096	)
Net cash (used in) provided by financing activities		(50,073	)		(108,185	)		330,930
Effect of foreign currency translation on cash and cash equivalents		286			384			411
Net (decrease) increase in cash and cash equivalents	$	(47,650	)	$	(175,352	)	$	169,581

Net Cash Provided by Operating Activities

Cash provided by operating activities is net (loss) income adjusted for certain non-cash items and changes in operating assets and liabilities. For the year ended December 31, 2009, cash provided by operating activities was comprised of a net loss of $23.9 million and non-cash charges that included depreciation and amortization of $45.1 million, stock-based compensation expense of $11.1 million and a gain on sale from the repurchase of convertible notes of $17.4 million. Changes in operating assets and liabilities resulting in a decrease of cash of approximately $8.7 million for the year ended December 31, 2009 is primarily driven by:

·   a net decrease in prepaid expenses and other assets and restricted cash balances of $4.1 million primarily related to the receipt of a non-trade receivable and the release of restricted cash balances due to the settlement of obligations;

·   a net increase in accounts payable due to the timing of payments for operating costs;

·   a net increase in compensation and benefits of $5.0 million as a result of the release of accrued severance related to the 2008 restructuring activities and timing of payments;

·   a net decrease in semi-annual interest balances on our convertible debt of $1.1 million;

·   a payment related to the shareholders’ lawsuit settlement in 2009 of $3.5 million; and

·   an increase in annual variable compensation of $5.5 million.

Net Cash Used in Investing Activities

Our investing activities, other than purchases, sales and maturities of available-for-sale securities, primarily consist of capital expenditures, strategic investments and purchased technology rights.

Cash used for capital expenditures was $10.2 million, $13.8 million and $27.4 million for the years ended December 31, 2009, 2008 and 2007, respectively. Our capital expenditures in 2009 were primarily due to the transition of manufacturing operations to Singapore and Ohio, as well as investments in the re-engineering of our technology platform. Our capital expenditures in 2008 primarily related to our manufacturing facility in Singapore and network upgrades, including the capitalization of cost related to our new enterprise resource planning system. Our capital expenditures in 2007 primarily related to the completion of our manufacturing expansion and the capitalization of our new enterprise resource planning system.

In 2008, we paid approximately $156.2 million, net of cash acquired, for acquisitions of businesses.

Net Cash (Used in) Provided by Financing Activities

Our financing activities for fiscal 2009 primarily consist of the repurchase of approximately $69.1 million of aggregate principal amount of our 3.50% convertible notes for total considerations of $50.7 million, including accrued interest and transaction fees. Our financing activities for fiscal 2008 primarily consist of the repurchase of $119.9 million of aggregate principal amount of our 0.75% senior convertible notes at par, offset by excess tax benefits for stock-based compensation. Our financing activities for fiscal 2007 primarily consist of the issuance of $316.3 million principal amount of 3.50% senior convertible note due 2038.

40

Cash provided by (used in) the issuance of stock, net of treasury shares withheld for taxes, under our employee stock plan was $(0.8) million, less than $(0.1) million and $13.7 million in 2009, 2008 and 2007, respectively.

Liquidity

Historically, we have financed our operations primarily through product sales; sales of equity and debt securities such as our 0.75% and 3.50% convertible notes in 2003 and 2007, respectively, and the exercise of stock options and participation in our stock plans; collaborative agreements; interest income; and licensing of our technology.

Our cash outflows have generally been as follows cash used in operating activities such as research and development programs, sales and marketing activity, procurement and growth of inventory, compensation and benefits of our employees and other working capital needs; cash paid for acquisitions; cash paid for litigation activity and settlements; cash used for our stock repurchases; and interest payments on our convertible notes obligations.

As of December 31, 2009, we had cash, cash equivalents, and available-for-sale securities of approximately $346.6 million. We anticipate that our existing capital resources along with the cash to be generated from operations will enable us to maintain currently planned operations, acquisitions and capital expenditures, for the foreseeable future. Capital expenditures are estimated to be approximately $11.0 million for the year ending December 31, 2010.

However, this expectation is based on our current operating and financing plans, which are subject to change, and therefore we could require additional funding. Factors that may cause us to require additional funding may include, but are not limited to, future acquisitions; our ability to maintain existing collaborative and customer arrangements and establish and maintain new collaboration and customer arrangements; the progress of our research and development programs; initiation or expansion of research programs and collaborations; the costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property rights; the effectiveness of product commercialization activities and arrangements; the purchase of patent licenses; and other factors.

As of December 31, 2009, we have no credit facility or other committed sources of capital. To the extent capital resources are insufficient to meet future capital requirements; we will have to raise additional funds to continue the development of our technologies. There can be no assurance that such funds will be available on favorable terms, or at all. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in dilution to our stockholders. If adequate funds are not available, we may be required to curtail operations significantly or to obtain funds by entering into collaboration agreements on unattractive terms. Our inability to raise capital would have a material adverse effect on our business, financial condition and results of operations.

From time to time, we may seek to retire, repurchase, or exchange our convertible securities or common stock in open market purchases, privately negotiated transactions dependent on market conditions, liquidity, and contractual obligations and other factors.

41

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

As of December 31, 2009, we have no off-balance sheet arrangements. The impact that our contractual obligations as of December 31, 2009 are expected to have on our liquidity and cash flow in future periods is as follows (in thousands):

	Total		2010			2011-2012		2013-2014	After 2014
Senior convertible notes (1)	$	247,201	$	-	$	-	$	247,201	$	-
Interest on senior convertible notes (1)(2)		43,260		8,652		17,304		17,304		-
Operating leases		28,678		8,907		13,922		5,322		527
Purchase commitments (3)		4,324		4,324		-		-		-
Total contractual obligations	$	323,463	$	21,883	$	31,226	$	269,827	$	527

(1) Our 3.50% senior convertible notes are due in 2038. However, holders may require us to repurchase all or a portion of their notes on January 15, 2013, 2018 and 2028. In June 2009, we repurchased approximately $69.1 million of aggregate principal amount of our 3.50% senior convertible notes for $50.1 million in total cash consideration.  

(2) Our 0.75% senior convertible notes are due in 2033. However, holders may require us to repurchase all or a portion of their notes on December 31, 2013, 2018, 2023, and 2028. In December 2008, a total of $119.9 million of aggregate principal amount of our 0.75% senior convertible notes was redeemed for cash at par as investors exercised their put right. An additional $0.1 million was repurchased in 2009.  

(3) Purchase commitments include agreements to purchase goods or services that are enforceable and legally binding on Affymetrix and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty.

The above table does not reflect unrecognized tax benefits of approximately $19.9 million, the timing of which is uncertain. Refer to “Item 8. Financial Statements and Supplementary Data—Note 16. Income Taxes” for additional discussion on unrecognized tax benefits.

42

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.

The primary objective of our investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, we invest our excess cash in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of less than three years.

															Value at
	Periods of Maturity														December 31,
	2010			2011			2012			Thereafter(1)			Total		2009
ASSETS:
Available-for-sale securities	$	237,060		$	59,639		$	4,643		$	1,220		$	302,562	$	303,917
Average interest rate		1.5	%		0.6	%		0.1	%		1	%
LIABILITIES:
0.75% senior convertible notes due 2014	$	-		$	-		$	-		$	0		$	0	$	-
Average interest rate											0.75	%
3.50% senior convertible notes due 2038	$	-		$	-		$	-		$	247,198		$	247,198	$	217,537
Average interest rate											3.5	%

(1)           Remaining balance at December 31, 2009 on 0.75% senior convertible notes is less than $0.01 million.

														Value at
	Periods of Maturity													December 31,
	2009			2010			2011		Thereafter			Total		2008
ASSETS:
Available-for-sale securities	$	267,927		$	26,892		$	-	$	-		$	294,819	$	297,404
Average interest rate		1.7	%		3.6	%		-		-
LIABILITIES:
0.75% senior convertible notes due 2014	$	-		$	-		$	-	$	91		$	91	$	90
Average interest rate										0.75	%
3.50% senior convertible notes due 2038	$	-		$	-		$	-	$	316,250		$	316,250	$	101,200
Average interest rate										3.5	%

Foreign Currency Exchange Rate Risk

We derive a portion of our revenues in foreign currencies, predominantly in Europe and Japan. In addition, a portion of our assets are held in nonfunctional currencies of our subsidiaries. We may conduct hedging activities by using foreign currency forward and option contracts with financial institutions to manage a portion of the currency exposures created by our foreign activities. Our net currency loss recognized on business transactions was $2.8 million for the year ended December 31, 2009 and is included in interest income and other, net. Management will continue to reevaluate foreign currency exchange rate risk on an ongoing basis. As of December 31, 2009, we had no open hedging contracts.

43

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AFFYMETRIX, INC.

	Page No.
Report of Independent Registered Public Accounting Firm		45
Consolidated Balance Sheets		46
Consolidated Statements of Operations		47
Consolidated Statements of Comprehensive Income (Loss)		48
Consolidated Statements of Stockholders’ Equity		49
Consolidated Statements of Cash Flows		50
Notes to Consolidated Financial Statements		51

44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Affymetrix, Inc.

We have audited the accompanying consolidated balance sheets of Affymetrix, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Affymetrix, Inc. at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Affymetrix, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

San Jose, California

March 1, 2010

45

AFFYMETRIX, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	December 31,			December 31,
	2009			2008
ASSETS:
Current assets:
Cash and cash equivalents	$	65,642		$	113,292
Restricted cash—short-term portion		1,686			4,402
Available-for-sale securities—short-term portion		213,377			250,970
Accounts receivable, net		64,933			62,726
Inventories		54,490			51,333
Deferred tax assets—current portion		1,172			1,077
Prepaid expenses and other current assets		15,903			15,725
Total current assets		417,203			499,525
Available-for-sale securities—long-term portion		64,760			26,900
Property and equipment, net		68,182			89,345
Acquired technology rights, net		49,855			62,569
Deferred tax assets—long-term portion		4,720			4,764
Restricted cash—long-term portion		1,109			2,175
Other assets		25,121			28,032
Total assets	$	630,950		$	713,310
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable and accrued liabilities	$	57,183		$	62,559
Deferred revenue—current portion		14,534			16,198
Total current liabilities		71,717			78,757
Deferred revenue—long-term portion		3,898			3,583
Other long-term liabilities		10,295			10,972
Convertible notes		247,201			316,341
Stockholders’ equity:
Convertible redeemable preferred stock, $0.01 par value; 5,000 shares authorized; no shares issued and outstanding at December 31, 2009 and 2008		-			-
Common stock, $0.01 par value; 200,000 shares authorized; 71,000 and 70,267 shares issued and outstanding at December 31, 2009 and 2008, respectively		710			703
Additional paid-in capital		733,378			721,641
Accumulated other comprehensive income (loss)		4,051			(2,296	)
Accumulated deficit		(440,300	)		(416,391	)
Total stockholders’ equity		297,839			303,657
Total liabilities and stockholders’ equity	$	630,950		$	713,310

See Accompanying Notes

46

AFFYMETRIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Year Ended December 31,
	2009			2008			2007
REVENUE:
Product sales ($0 in 2009, $843 in 2008 and $12,046 in 2007 from Perlegen Sciences)	$	279,186		$	270,392		$	291,828
Services		39,563			32,096			38,074
Royalties and other revenue		8,345			107,761			41,418
Total revenue		327,094			410,249			371,320
COSTS AND EXPENSES:
Cost of product sales ($0 in 2009, $446 in 2008 and $4,768 in 2007 from Perlegen Sciences)		126,377			126,909			108,884
Cost of services and other		23,949			25,231			29,832
Research and development		77,358			84,482			72,740
Selling, general and administrative		130,838			127,161			138,488
Acquired in-process technology		-			6,200			-
Restructuring charges		2,180			43,707			15,296
Goodwill impairment (credit) charges		(450	)		239,098			-
Total costs and expenses		360,252			652,788			365,240
(Loss) income from operations		(33,158	)		(242,539	)		6,080
Interest income and other, net		2,589			14,629			15,420
Interest expense		10,945			14,091			3,218
Gain from repurchase of convertible notes		17,447			-			-
(Loss) income before income taxes		(24,067	)		(242,001	)		18,282
Income tax (benefit) provision		(158	)		65,918			5,689
Net (loss) income	$	(23,909	)	$	(307,919	)	$	12,593
Basic net (loss) income per common share	$	(0.35	)	$	(4.49	)	$	0.18
Diluted net (loss) income per common share	$	(0.35	)	$	(4.49	)	$	0.17
Shares used in computing basic net (loss) income per common share		68,722			68,556			68,242
Shares used in computing diluted net (loss) income per common share		68,722			68,556			83,064

See Accompanying Notes

47

AFFYMETRIX, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

	Year Ended December 31,
	2009			2008			2007
Net (loss) income	$	(23,909	)	$	(307,919	)	$	12,593
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax		284			384			410
Unrealized gains (losses) on available-for-sale and non-marketable
securities, net of tax		6,979			(3,492	)		4,578
Reclassification adjustment for losses in net (loss) income		(916	)		(1,201	)		(1,273	)
Unrealized gains (losses) on cash flow hedges, net of tax		-			15			(18	)
Reclassification adjustment for gains (losses) in net (loss) income		-			-			18
Net change in other comprehensive income (loss)		6,347			(4,294	)		3,715
Comprehensive (loss) income	$	(17,562	)	$	(312,213	)	$	16,308

 See Accompanying Notes

48

AFFYMETRIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

	Year Ended December 31,
	2009			2008			2007
Convertible redeemable preferred stock:
Balance, beginning of year	$	-		$	-		$	-
Balance, end of year		-			-			-
Common stock:
Balance, beginning of year		703			692			679
Common stock issued		7			11			13
Balance, end of year		710			703			692
Additional paid-in capital:
Balance, beginning of year		721,641			704,189			674,428
Issuance of common stock upon exercise of stock options and warrants
and issuances of restricted stock, net		(820	)		(80	)		13,714
Stock-based compensation expense from stock options and restricted stock		11,148			7,611			10,727
Income tax benefit from stock-based compensation		1,409			9,921			5,320
Balance, end of year		733,378			721,641			704,189
Accumulated other comprehensive gain (loss):
Balance, beginning of year		(2,296	)		1,998			(1,717	)
Unrealized gain (loss) on investments, net of tax		6,063			(4,693	)		3,305
Unrealized gain on hedging contracts, net of tax		-			15			-
Foreign currency translation adjustment, net of tax		284			384			410
Balance, end of year		4,051			(2,296	)		1,998
Accumulated deficit:
Balance, beginning of year		(416,391	)		(108,472	)		(120,427	)
Net (loss) income		(23,909	)		(307,919	)		12,593
Net effect of tax adjustment for uncertain tax positions		-			-			(638	)
Balance, end of year		(440,300	)		(416,391	)		(108,472	)
Total stockholders' equity	$	297,839		$	303,657		$	598,407
Number of shares of common stock
Balance, beginning of year		70,267			69,217			67,922
Issuance of common stock for cash or services		733			1,050			1,295
Balance, end of year		71,000			70,267			69,217

See Accompanying Notes

49

AFFYMETRIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2009			2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(23,909	)	$	(307,919	)	$	12,593
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		29,888			37,058			23,779
Goodwill impairment		-			239,098			-
Amortization of intangible assets		15,237			13,453			8,328
Charge for acquired in-process technology		-			6,200			-
Amortization of investment premiums, net		1,219			389			(648	)
Excess tax benefits for stock-based compensation		(1,409	)		(11,794	)		(952	)
Stock-based compensation		11,148			7,611			10,726
Write-down of equity investments		-			-			3,861
Realized loss (gain) on equity investments		1,111			(12	)		-
Realized (gain) loss on the sales of investments		(194	)		433			(599	)
Deferred tax assets		1,358			60,140			3,515
Amortization of debt offering costs		1,207			2,080			931
Gain from repurchase of convertible notes		(17,447	)		-			-
Impairment and (gain) loss on disposal of property and equipment		(231	)		36,989			1,257
Changes in operating assets and liabilities:
Accounts receivable, net		(2,207	)		23,803			(4,098	)
Inventories		(3,157	)		495			3,594
Prepaid expenses and other assets		4,115			2,009			(15,889	)
Accounts payable and accrued liabilities		(5,376	)		(18,042	)		(1,412	)
Deferred revenue		(1,349	)		(6,639	)		(13,839	)
Other long-term liabilities		(677	)		(1,841	)		1,189
Net cash provided by operating activities		9,327			83,511			32,336
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(10,249	)		(13,846	)		(27,419	)
Purchases of available-for-sale securities		(381,560	)		(449,398	)		(280,133	)
Proceeds from sales and maturities of available-for-sale securities		385,119			468,671			112,588
Acquisition of businesses, net of cash acquired		-			(156,178	)		-
Purchase of non-marketable equity investments		-			(311	)		(800	)
Capital distribution of non-marketable equity investments		-			-			1,668
Purchase of technology rights		(500	)		-			-
Net cash used in investing activities		(7,190	)		(151,062	)		(194,096	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net		(813	)		(70	)		13,728
Issuance of convertible notes		-			-			316,250
Redemption of convertible debt		(50,669	)		(119,909	)		-
Excess tax benefits for stock-based compensation		1,409			11,794			952
Net cash (used in) provided by financing activities		(50,073	)		(108,185	)		330,930
Effect of exchange rate changes on cash and cash equivalents		286			384			411
Net (decrease) increase in cash and cash equivalents		(47,650	)		(175,352	)		169,581
Cash and cash equivalents at beginning of year		113,292			288,644			119,063
Cash and cash equivalents at end of year	$	65,642		$	113,292		$	288,644
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Recognition of deferred tax assets relating to tax benefits from employee stock plans	$	-		$	-		$	5,320
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	9,963		$	8,358		$	904
Cash paid for income taxes	$	144		$	6,804		$	2,369

See Accompanying Notes

50

AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE 1—NATURE OF OPERATIONS

Affymetrix, Inc. (“Affymetrix” or the “Company”) is engaged in the development, manufacture, sale and service of consumables and systems for genetic analysis in the life sciences and clinical healthcare markets. Affymetrix has developed its GeneChip® system and related microarray technology as the platform of choice for acquiring, analyzing and managing complex genetic information. The Company’s integrated GeneChip®microarray platform includes: disposable DNA probe arrays (chips) consisting of nucleic acid sequences set out in an ordered, high density pattern, certain reagents for use with the probe arrays, a scanner and other instruments used to process the probe arrays, and software to analyze and manage genomic or genetic information obtained from the probe arrays. Related microarray technology also offered by Affymetrix includes licenses for fabricating, scanning, collecting and analyzing results from complementary technologies. The Company currently sells its products directly to pharmaceutical, biotechnology, agrichemical, diagnostics and consumer products companies as well as academic research centers, government research laboratories, private foundation laboratories and clinical reference laboratories in North America and Europe. The Company also sells some of its products through life science supply specialists acting as authorized distributors in Latin America, India, the Middle East and Asia Pacific regions, including China. The Company has evaluated subsequent events through March 1, 2010, the date on which the financial statements being presented were filed with the Securities and Exchange Commission.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Affymetrix and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Certain prior year revenue and cost of sales amounts in the Company’s consolidated statements of operations have been reclassified to conform to the current period presentation. Product sales include consumables and instruments while services includes scientific services and associated consumables, field service, and professional service. Royalties and other includes software, subscription fees, licensing and royalties and research revenue.

USE OF ESTIMATES

The preparation of the consolidated financial statements is in conformity with U.S. generally accepted accounting principles (“US GAAP”) which require management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

FOREIGN CURRENCY

Assets and liabilities of non-U.S. subsidiaries that use the local currency as their functional currency are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income (loss) within stockholders’ equity. Income and expense accounts are translated at average exchange rates during the year. Foreign currency transaction gains and losses are recognized, net of hedging activity, in interest income and other, net and were comprised of net losses of $2.8 million and $2.2 million for the years ended December 31, 2009 and 2008, respectively, and a net gain of $0.3 million for the year ended December 31, 2007.

51

CASH EQUIVALENTS, AVAILABLE-FOR-SALE SECURITIES AND INVESTMENTS

Marketable Securities

The Company’s investments consist of U.S. government notes and bonds; corporate notes, bonds and asset-backed securities; mortgaged-backed securities, municipal notes and bonds; and publicly traded equity securities. The Company reports all debt securities with maturities at the date of purchase of three months or less that are readily convertible into cash and have insignificant interest rate risk as cash equivalents. Cash equivalents and available-for-sale securities consist of marketable equity and debt securities. Management determines the appropriate classification of debt securities at the time of purchase. As of December 31, 2009 and 2008, the Company’s investments in debt securities are classified as available-for-sale and are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders’ equity. The cost of debt securities is adjusted for amortization of premiums and discounts to maturity. This amortization is included in interest income and other, net. Realized gains and losses, as well as interest income, on available-for-sale securities are also included in interest income and other, net. The cost of securities sold is based on the specific identification method. The fair values of securities are based on quoted market prices. The Company includes its available-for-sale securities that have an effective maturity of less than twelve months as of the balance sheet date in current assets and those with an effective maturity greater than twelve months as of the balance sheet date in non-current assets.

The Company conducts a review of investment securities on a quarterly basis for the presence of impairment that is deemed to be other-than-temporary (“OTTI”). As part of its review, the Company is required to take into consideration current market conditions, fair value in relationship to cost, extent and nature of change in fair value, issuer rating changes and trends, volatility of earnings, current analysts’ evaluations, all available information relevant to the collectability of debt securities, its ability to hold until, and whether it will more likely than not be required to sell prior to, a recovery of fair value, which may be maturity, and other factors when evaluating for the existence of OTTI in its securities portfolio. Under these circumstances, OTTI is considered to have occurred if (1) the Company intends to sell the security; (2) it is “more likely than not” that the Company will be required to sell the security before recovery of its amortized cost basis or (3) the present value of expected cash flows is not expected to recover the entire amortized cost basis. Any credit-related OTTI is to be recognized in earnings while noncredit-related OTTI on securities not expected to be sold is to be recognized in other comprehensive income (“OCI”). Noncredit-related OTTI is based on other factors, including illiquidity. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI.

Non-marketable Securities

As part of the Company’s strategic efforts to gain access to potential new products and technologies, it invests in equity securities of certain private biotechnology companies. These investments are included in other assets in the Consolidated Balance Sheets and are carried at cost. The Company also invests in a limited partnership investment fund that is accounted for under the equity method. The Company periodically monitors the liquidity and financing activities of the respective investments to determine if any impairment exists and accordingly writes down to the extent necessary, the carrying value of the non-marketable equity securities to their estimated fair values. In order to determine whether a decline in value is other-than-temporary, the Company evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook of the issuer for the company, including key operational and cash flow metrics, current market conditions; and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in estimated fair value.

ACCOUNTS RECEIVABLE

Trade accounts receivable are recorded at net invoice value. The Company considers amounts past due based on the related terms of the invoice. The Company reviews its exposure to amounts receivable and provides an allowance for specific amounts if collectability is no longer reasonably assured. The Company also provides an allowance for a percentage of the gross trade receivable balance (excluding any specifically reserved amounts) based on its collection history.

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DERIVATIVE INSTRUMENTS

The Company has international operations and during the normal course of business is exposed to foreign currency exchange risks as a result of transactions that are denominated in currencies other than the United States dollar. The Company enters into foreign currency forward contracts to manage a portion of the volatility related to transactions that are denominated in foreign currencies. The Company’s foreign currency forward contracts are entered into for periods consistent with the related underlying exposures and do not constitute positions that are independent of those exposures. In addition, the Company does not enter into foreign currency forward contracts for trading or speculative purposes, is not party to any leveraged derivative instrument, and may only enter into derivative agreements with highly rated counterparties.

The foreign currency forward contracts used by the Company are generally short-term in nature, maturing within one quarter. The Company has elected not to designate its derivatives for balance sheet purposes as fair value hedges and have appropriately recorded any changes in fair value to interest income and other, net.

INVENTORIES

Inventory cost is computed on an adjusted standard basis (which approximates actual cost on a first-in, first-out basis). Provisions for slow moving, potentially excess and obsolete inventories are provided based on estimated demand requirements, product life cycle and development plans, component cost trends, product pricing, product expiration and quality issues.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets or the lease term, whichever is shorter. Equipment and furniture is depreciated over useful lives generally ranging from 3 to 7 years and leasehold improvements are depreciated over the shorter of the expected life of the asset or lease terms generally ranging from 3 to 15 years. Maintenance and repair costs are expensed as incurred. The Company reassesses the useful life on its property and equipment on a periodic basis and may adjust the lives accordingly. For example, the Company extended the useful life of its enterprise resource system as a result of the extended support period committed to by the service provider.

GOODWILL AND ACQUIRED TECHNOLOGY RIGHTS

Goodwill represents the difference between the purchase price and the estimated fair value of the net assets acquired arising from business combinations.

Goodwill is assessed for impairment at least annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable from estimated future cash flows. Factors that may be considered a change in circumstance indicating the carrying value of our intangible assets, including goodwill, may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future operating results, a significant decline in our stock price and market capitalization, and negative industry or economic trends. Any excess of the carrying value of the goodwill over the implied fair value of the goodwill will be recorded as an impairment loss. In 2008, due to the continued decline of the Company’s stock price in the fourth quarter of 2008 along with other conditions in its business such as decreases in our actual revenues as compared to our forecasted revenues and additional restructuring activities, the Company recorded an impairment charge of $239.1 million which was presented as “Goodwill impairment charges” in the Company’s Consolidated Statements of Operations. In 2009, the Company recorded $0.5 as a credit to goodwill impairment charges related to a recovery of unrecorded tax liabilities that were not recognized during the purchase method of accounting for the USB acquisition. Refer to Note 10, “Goodwill and Acquired Technology Rights”, for further information.

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Acquired technology rights are carried at cost less accumulated amortization and are comprised of licenses to technology covered by patents held by third parties or acquired by the Company. Purchased intangible assets other than goodwill are required to be amortized over their useful lives unless these lives are determined to be indefinite. Amortization is computed over the estimated useful life of the underlying patents, which has historically ranged from one to thirteen years. In 2009, we did not identify any indicators during our annual impairment test on the acquired technology rights and did not recognize any impairment losses. In 2008, the Company performed an impairment analysis over identified intangible assets and, as a result of that analysis, recognized an impairment loss on acquisition-related intangible assets of $5.5 million of which $1.9 million was included as a component of “Cost of product sales”, $3.2 million was included as a component of “Research and development”, and $0.4 million was included as a component of “Selling, general and administration” expenses in the Consolidated Statement of Operations for the year ended December 31, 2008. Refer to Note 10, “Goodwill and Acquired Technology Rights”, for further information.

The determination as to whether a write-down of goodwill is necessary involves significant judgment based on short-term and long-term projections of the Company’s operations. The assumptions supporting the estimated future cash flows of the reporting unit, including profit margins, long-term forecasts of the amounts and timing of overall market growth and the Company’s percentage of that market, discount rates and terminal growth rates, reflect the Company’s best estimates.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets and certain identifiable intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. For the years ended December 31, 2009 and 2008, the Company determined that the carrying value of its capitalized software exceeded its net realizable value by $1.0 million and $2.3 million, respectively, and recorded the impairment charges as a component of “Cost of product sales” in the Consolidated Statements of Operations. Refer to Note 2, “Summary of Significant Accounting Policies – Software Development Costs” for further information. In connection with the Company’s restructuring activities in 2008, the Company wrote-down the value of certain of its property and equipment by approximately $36.9 million which was included as a component of “Restructuring charges” in the Consolidated Statement of Operations for the year ended December 31, 2008. Refer to Note 3, “Restructuring”, for further information.

INCOME TAXES

Income tax expense is based on pre-tax financial accounting income. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. To the extent the Company believes that realization is not more likely than not, the Company establishes a valuation allowance. Significant estimates are required in determining the Company’s provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance to be recorded against our net deferred tax asset. Some of these estimates are based on interpretations of existing tax laws or regulations. The Company believes that its estimates are reasonable and that its reserves for income tax related uncertainties are adequate. Various internal and external factors may have favorable or unfavorable effects on the Company’s future effective tax rate. These factors include, but are not limited to, changes in overall levels of characterization and geographical mix of pretax earnings (losses), changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in the valuation of our deferred tax assets or liabilities, future levels of research and development spending, nondeductible expenses, and ultimate outcomes of income tax audits. Relative to uncertain tax positions, the Company only recognizes the tax benefit if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

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CONTINGENCIES

The Company is subject to various legal proceedings principally related to intellectual property matters. Based on the information available at the most recent balance sheet date, the Company assesses the likelihood of any material adverse judgments or outcomes that may result from these matters, as well as the range of possible or probable loss, if any. If losses are probable and reasonably estimable, the Company will record a reserve. Any reserves recorded may change in the future due to new developments in each matter.

REVENUE RECOGNITION

Overview

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product or system is required, revenue is deferred until all the acceptance criteria have been met.

The Company derives the majority of its revenue from product sales of GeneChip® probe arrays, reagents, and related instrumentation that may be sold individually or combined with any of the products, services or other sources of revenue listed below. When a sale combines multiple elements upon delivery or performance of multiple products, services and/or rights to use assets, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value. In the absence of fair value of a delivered element, the Company allocates revenue first to the fair value of the undelivered elements and the residual revenue to the delivered elements. The Company recognizes revenue for delivered elements when the delivered elements have standalone value and the Company has objective and reliable evidence of fair value for each undelivered element. If the fair value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements.

Product Sales

Product sales include sales of GeneChip® probe arrays, reagents and related instrumentation. Probe array, reagent and instrumentation revenues are recognized when earned, which is generally upon shipment and transfer of title to the customer and fulfillment of any significant post-delivery obligations. Accruals are provided for anticipated warranty expenses at the time the associated revenue is recognized.

Services

Services revenue includes equipment service revenue; scientific services revenue, which includes associated consumables; and revenue from custom probe array design fees.

Revenue related to extended warranty arrangements is deferred and recognized ratably over the applicable periods. Revenue from custom probe array design fees associated with the Company’s GeneChip® CustomExpress™ and CustomSeq™ products are recognized when the associated products are shipped.

Revenue from scientific and DNA analysis services are recognized upon shipment of the required data to the customer.

Royalties and Other Revenue

Royalties and other revenue include license revenue; royalties earned from third party license agreements; milestones and royalties earned from collaborative product development and supply agreements; subscription fees earned under GeneChip® array access programs; and research revenue which mainly consists of amounts earned under government grants; and non-recurring intellectual property payments.

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License revenues are generally recognized upon execution of the agreement unless the Company has continuing performance obligations, in which case the license revenue is recognized ratably over the period of expected performance. Included in the Consolidated Statement of Operations for the year ended December 31, 2008 is a one-time nonrefundable perpetual license to specified patents for $90 million. The one-time perpetual license to specified patents was due to the settlement of an intellectual property dispute and includes no continuing or future obligations by the Company.

Royalty revenues are earned from the sale of products by third parties who have been licensed under the Company’s intellectual property portfolio. Revenue from minimum royalties is amortized over the term of the creditable royalty period. Any royalties received in excess of minimum royalty payments are recognized under the terms of the related agreement, generally upon notification of manufacture or shipment of a product by a licensee.

The Company enters into collaborative arrangements which generally include a research and product development phase and a manufacturing and product supply phase. These arrangements may include up-front nonrefundable license fees, milestones, the rights to royalties based on the sale of final product by the partner, product supply agreements and distribution arrangements.

Any up-front, nonrefundable payments from collaborative product development agreements are recognized ratably over the research and product development period, and at-risk substantive based milestones are recognized when earned. Any payments received which are not yet earned are included in deferred revenue.

Revenue from subscription fees earned under GeneChip® array access programs is recorded ratably over the related supply term.

Research revenues result primarily from research grants received from U.S. Government entities or from subcontracts with other life science research-based companies which receive their research grant funding from the U.S. Government. Revenues from research contracts are generated from the efforts of the Company’s technical staff and include the costs for material and subcontract efforts. The Company’s research grant contracts generally provide for the payment of negotiated fixed hourly rates for labor hours incurred plus reimbursement of other allowable costs. Research revenue is recorded in the period in which the associated costs are incurred, up to the limit of the prior approval funding amounts contained in each agreement. The costs associated with these grants are reported as research and development expense.

Transactions with Distributors

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price is fixed or determinable, and collectability is reasonably assured. The Company’s agreements with distributors do not include rights of return.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses consist of costs incurred for internal, collaborative and grant-sponsored research and development. Research and development expenses include salaries, contractor fees, building costs, utilities and allocations of shared corporate services. In addition, the Company funds research and development at other companies and research institutions under agreements which are generally cancelable. All such costs are charged to research and development expense as incurred.

SOFTWARE DEVELOPMENT COSTS

Costs of Software to Be Sold, Leased or Marketed

Certain software development costs subsequent to the establishment of technological feasibility are capitalized. The Company’s software is deemed to have achieved technological feasibility at the point a working model of the software product is developed. Nothing was capitalized in 2009 while approximately $0.3 million was capitalized on costs incurred subsequent to the establishment of technological feasibility for the year ended December 31, 2008, respectively. These costs began to be amortized to cost of product sales in the fourth quarter of 2007. Amortization costs for the years ended December 31, 2009 and 2008 were $1.1 million and $1.4 million, respectively. The costs of developing routine software enhancements are expensed as research and development as incurred because of the short time between the determination of technological feasibility and the date of general release of the related products.

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Long-lived assets and certain identifiable intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. During the years ended December 31, 2009 and 2008, the Company performed an analysis of the expected future cash flows as it related to the Company’s capitalized software and determined that the carrying value exceeded the net realizable value by $1.0 million and $2.3 million, respectively, which were included as a component of “Cost of product sales” in the Consolidated Statements of Operations.

Internal-Use Software

In 2008, the Company capitalized costs related to the implementation of an enterprise resources planning system, totaling approximately $1.9 million, while nothing was capitalized in 2009. Additionally, the Company capitalized approximately $0.7 million related to other costs associated with internal-use software in 2009. All costs associated with software developed for internal use will be amortized at the time in which the software is ready for its intended use.

ADVERTISING COSTS

The Company expenses advertising costs as incurred. Advertising costs were for the years ended December 31, 2009, 2008 and 2007 were $0.9 million, $1.6 million and $0.5 million, respectively.

STOCK-BASED COMPENSATION

The Company recognizes the fair value of its stock option awards as compensation expense on a straight-line basis over the requisite service period of each award, generally four years. The fair value of options are estimated at the date of grant using a Black-Scholes option pricing model. The Company evaluates the assumptions used to value stock options awards on a quarterly basis.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is comprised of net (loss) income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on the Company’s available-for-sale securities that are excluded from net (loss) income, changes in fair value of derivatives designated as, and effective as, cash flow hedges and foreign currency translation adjustments. Total comprehensive income (loss) has been disclosed in the consolidated statement of comprehensive income (loss).

The components of accumulated other comprehensive income (loss) is as follows (in thousands):

	Year Ended December 31,
	2009		2008
Foreign currency translation adjustment, net of tax	$	327	$	42
Unrealized gains (losses) on available-for-sale and non-marketable
securities, net of tax		3,724		(2,338	)
Accumulated other comprehensive income (loss)	$	4,051	$	(2,296	)

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NET (LOSS) INCOME PER COMMON SHARE

Basic net (loss) income per common share is calculated using the weighted-average number of common shares outstanding during the period less the weighted-average shares subject to repurchase. Diluted (loss) income per common share gives effect to dilutive common stock subject to repurchase, stock options and warrants (calculated based on the treasury stock method), and convertible debt (calculated using an as-if-converted method).

The following table sets forth a reconciliation of basic and diluted net (loss) income per common share (in thousands, except per share amounts):

	Year Ended December 31,
	2009			2008			2007
Numerator:
Net (loss) income - basic	$	(23,909	)	$	(307,919	)	$	12,593
Add effect of dilutive securities:
Interest on convertible notes (inclusive of amortization of debt
issuance costs)		-			-			1,937
Net (loss) income - diluted	$	(23,909	)	$	(307,919	)	$	14,530
Denominator:
Weighted-average shares outstanding		70,758			69,818			68,727
Less: weighted-average shares of common stock subject to repurchase		(2,036	)		(1,262	)		(485	)
Shares used in computing basic net (loss) income per common share		68,722			68,556			68,242
Add effect of dilutive securities:
Employee stock options		-			-			388
Common stock subject to repurchase		-			-			65
Convertible notes		-			-			14,369
Shares used in computing diluted net (loss) income per common share		68,722			68,556			83,064
Basic and diluted net (loss) income per common share	$	(0.35	)	$	(4.49	)	$	0.18
Diluted net (loss) income per common share	$	(0.35	)	$	(4.49	)	$	0.17

Diluted earnings per share include certain common share equivalents from outstanding stock options (on the treasury stock method), common stock subject to repurchase, outstanding warrants to purchase common stock and convertible notes (on the as-if-converted basis).

The securities excluded from diluted earnings per common share, on an actual outstanding basis, were as follows (in thousands):

	Year Ended December 31,
	2009		2008		2007
Employee stock options		6,216		6,071		3,368
Restricted stock subject to repurchase		2,154		1,671		-
Convertible notes		8,207		10,502		-
Total		16,577		18,244		3,368

RESTRUCTURING

The Company has in recent years engaged in restructuring actions, which require management to utilize significant estimates related to expenses for severance and other employee separation costs, lease cancellation, realizable values of assets that may become duplicative or obsolete, and other exit costs. If the actual amounts differ from the Company’s estimates, the amount of the restructuring charges could be materially impacted. Refer to Note 3, “Restructuring”, for further information.

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RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (“FASB”) established the FASB Accounting Standards Codification ("FASB ASC") as the source of authoritative accounting principles recognized by the FASB.   The FASB will issue new standards in the form of Accounting Standards Updates ("FASB ASUs"). FASB ASC is effective for financial statements issued for interim and annual periods ending after September 15, 2009 and therefore is effective for the Company in the third quarter of fiscal 2009. The issuance of FASB ASC does not change US GAAP and therefore the adoption of FASB ASC only affects the specific references to US GAAP literature in the notes to its consolidated financial statements.

In February 2010, the FASB issued FASB ASU 2010-09, Subsequent Events, Amendments to Certain Recognition and Disclosure Requirements, which clarifies certain existing evaluation and disclosure requirements in ASC 855 related to subsequent events. FASB ASU 2010-09 requires SEC filers to evaluate subsequent events through the date in which the financial statements are issued and is effectively immediately. The new guidance does not have an effect on its consolidated results of operations and financial condition.

In January 2010, the FASB issued FASB ASU 2010-06, Improving Disclosures about Fair Value Measurements which clarifies certain existing disclosure requirements in ASC 820 as well as requires disclosures related to significant transfers between each level and additional information about Level 3 activity. FASB ASU 2010-06 begins phasing in the first fiscal period after December 15, 2009. The Company is currently assessing the impact on its consolidated results of operations and financial condition.

In October 2009, the FASB issued FASB ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task Force.” This standard provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will adopt this guidance from January 1, 2010. The Company has assessed the impact of adoption and it is not expected to have a material effect on its consolidated results of operations and financial condition.

In August 2009, the FASB issued FASB ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value. This standard provides authoritative guidance related to measuring liabilities at fair value when quoted prices in an active market for identical liabilities are not available. FASB ASU 2009-05 clarifies the concept that a fair value measurement should be based on hypothetical transfer at the measurement date, even for liabilities that are generally never transferred, but are settled directly with the creditor. Quoted prices of similar liability or of the liability when it is traded as an asset should also be considered when determining the liability’s fair value. The provisions of FASB ASU 2009-05 were effective for the first reporting period beginning after the issuance of the FASB ASU and are not expected to have an effect on the consolidated results of operations and financial condition.

In June 2009, the FASB issued guidance which amends certain FASB ASC concepts related to consolidation of variable interest entities (“VIE”). Among other accounting and disclosure requirements, this guidance replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. The primary beneficiary assessment must be performed on a continuous basis.  It also requires additional disclosures about an entity’s involvement with a VIE, restrictions on the VIE’s assets and liabilities that are included in the reporting entity’s consolidated balance sheet, significant risk exposures due to the entity’s involvement with the VIE, and how its involvement with a VIE impacts the reporting entity’s consolidated financial statements. The Company will adopt this guidance from January 1, 2010 and does not expect it to have an effect on its consolidated results of operations and financial condition.

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NOTE 3—RESTRUCTURING

Fiscal 2008 Restructuring Plan

In February 2008, the Company committed to a restructuring plan (the “2008 Plan”) to close its West Sacramento manufacturing facility after which all of the Company’s products will be manufactured at its Singapore and Ohio facilities, as well as by third parties. The Company completed the closure of the West Sacramento facility during the second quarter of 2009.

The cash outlays incurred in connection with the 2008 Plan were approximately $8.2 million which consisted of employee severance. During the years ended December 31, 2009 and 2008, the Company recognized approximately $2.4 million and $5.8 million, respectively, of expense for employee termination benefits associated with the 2008 Plan and $(0.2) million and $37.1 million, respectively, of non-cash credits and charges related to the abandonment and impairment of certain manufacturing assets such as a building, leasehold improvements and mask aligners and synthesizer equipment utilized in the manufacturing of probe arrays. These expenses are presented as a component of “Restructuring charges” in the Company’s Consolidated Statements of Operations.

In addition to the $45.1 million of restructuring costs noted above, the Company expects to incur a total of approximately $18.1 million of restructuring related costs that are included as a component of “Cost of product sales” in the Company’s Consolidated Statements of Operations. Of this total, $13.9 million related to accelerated depreciation charges associated with the continued use of certain long-lived manufacturing assets and $4.2 million related to manufacturing transition and other costs. As of December 31, 2009, the Company has incurred $17.4 million of costs that was recorded to “Cost of product sales.”

Fiscal 2007 Restructuring Plan

In July 2007, the Company announced that it was consolidating an administrative facility located in Sunnyvale, California into its main campus in Santa Clara, California (the “2007 Plan”). Additionally, in August and December 2007, the Company terminated certain employees in the research and development and selling, general and administrative functions. The Sunnyvale, California facility was vacated during the fourth quarter of 2007. The cash outlays incurred in connection with these restructuring activities were approximately $4.6 million. During the years ended December 31, 2009, 2008 and 2007, the Company recognized approximately $0.1 million, $0.5 million and $4.2 million, respectively, related to contract termination costs and employee termination benefits associated with the 2007 Plan.

Fiscal 2006 Restructuring Plan

In 2006, the Company initiated a restructuring plan (the “2006 Plan”) to better align certain of its expenses with the Company’s current business outlook. The Company’s primary focus of the 2006 Plan was in the general and administrative functions and included rationalizing its facilities. Cash outlays incurred in connection with these restructuring activities were estimated to be approximately $16.8 million. During the years ended December 31, 2009 and 2008, the amount of expense recognized associated with the 2006 Plan was not material. During the year ended December 31, 2007, the Company recognized approximately $11.1 million of expense primarily related to employee termination benefits and contract termination costs associated with the 2006 Plan.

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The activity for the restructuring plans above for the year ended December 31, 2009 and estimated costs for the amounts expected to be recognized as “Restructuring charges” in the Company’s Consolidated Statements of Operations is as follows (in thousands):

														As of
														December 31, 2009
	Balance as of		2009									Balance as of		Total		Total
	December 31,		Charges			Cash			Non-Cash			December 31,		costs		expected
	2008		(Credits)			Payments			Settlements			2009		to date		costs
Fiscal 2008 Restructuring Plan:
Employee severance and relocation benefits	$	3,178	$	2,367		$	(5,069	)	$	(457	)	$	19	$	8,160	$	8,160
Abandonment and impairment of certain long-lived manufacturing assets		-		(147	)		565			(418	)		-		36,942		36,942
Fiscal 2007 Restructuring Plan:
Employee severance and relocation benefits		-		-			-			-			-		2,888		2,888
Contract termination costs		487		115			(478	)		42			166		1,619		1,659
Other restructuring costs		-		-			-			-			-		113		113
Fiscal 2006 Restructuring Plan:
Employee severance and relocation benefits		-		-			-			-			-		20,197		20,197
Contract termination costs		1,239		(155	)		(354	)		283			1,013		2,612		2,890
Other restructuring costs		-		-			-			-			-		2,194		2,194
Total	$	4,904	$	2,180		$	(5,336	)	$	(550	)	$	1,198	$	74,725	$	75,043

NOTE 4—COLLABORATIVE AGREEMENTS

The Company has agreements with several entities to develop and test probe arrays for the detection of certain gene sequences, mutations or organisms. Under such agreements, the Company may receive development fees and may receive payments upon achievement of certain technical goals. The Company also has research agreements with many universities and research organizations. The Company’s material agreement is described below.

F. Hoffmann-La Roche Ltd. (“Roche”)

In February 1998, the Company entered into a non-exclusive collaborative development agreement with F. Hoffmann-La Roche Ltd. (“Roche”) to initially develop human probe array-based diagnostic products. Under the terms of the agreement the parties are collaborating to develop mutually agreed upon arrays, as well as associated instrumentation, software, and reagents. In January 2003, the Company expanded its collaboration with Roche by granting Roche access to our GeneChip® technologies to develop and commercialize GeneChip® diagnostic laboratory tests for DNA analysis, genotyping and resequencing applications, as well as for RNA expression analysis, in a broad range of human disease areas. Under the terms of the collaborative agreement, Roche paid the Company an access fee of $70 million and the agreement also includes a broad range of other compensation payable by Roche to Affymetrix throughout the life of the agreement based on royalties on sales of diagnostic kits and milestone payments for technical and commercial achievements. As part of the agreement, Affymetrix will manufacture and supply Roche with microarrays and related instrumentation based on Affymetrix’ GeneChip® platform.

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The parties amended the collaborative development agreement in December 2006. Under the terms of the amendment, Roche is relieved of certain future license installment payments that would have been payable by Roche to Affymetrix under the agreement beginning in 2008, Affymetrix is relieved of certain “most favorable terms and conditions” obligations to Roche, and Roche has agreed to pay to Affymetrix additional milestone payments related to future commercial achievements. The license agreement is subject to Roche’s option to terminate on December 31, 2010 or any time on or after December 31, 2015, with one year’s prior notice.

The Company assessed the revenue recognition of the December 2006 collaborative agreement amendment to account for the multiple deliverables in the arrangement and to evaluate the revenue allocated to each of the units of accounting (the research and development period and the manufacturing and supply period). In addition, the Company re-assessed the estimated remaining research and development period and determined that Roche’s one-time, upfront payment of $70 million under the license agreement should continue to be recognized as a component of royalties and other revenue over the remaining estimated research and development through fiscal 2007. Research revenue under this contract was approximately $14.2 million for the year ended December 31, 2007. The associated research costs were not significant.

NOTE 5—CONCENTRATIONS OF RISK

Cash equivalents and investments are financial instruments that potentially subject Affymetrix to concentrations of risk to the extent of amounts recorded in the consolidated balance sheets. Company policy restricts the amount of credit exposure to any one issuer and to any one type of investment, other than securities issued by the United States Government.

The Company has not experienced significant credit losses from its accounts receivable. Affymetrix performs a regular review of its customer activity and associated credit risks and does not require collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectability of accounts receivable.

Certain raw materials or components used in the synthesis of probe arrays or the assembly of instrumentation are currently available only from a single source or limited sources. No assurance can be given that these raw materials or other components of the GeneChip® system will be available in commercial quantities at acceptable costs from other vendors should the need arise. If the Company is required to seek alternative sources of supply, it could be time consuming and expensive.

In addition, the Company is dependent on its vendors to provide components of appropriate quality and reliability and to meet applicable regulatory requirements. Consequently, in the event that supplies from these vendors are delayed or interrupted for any reason, the Company’s ability to develop and supply its products could be impaired, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

For the fiscal years 2009, 2008 and 2007, approximately 42%, 34% and 47%, respectively, of the Company’s total revenue was generated from sales outside the United States. The Company’s results of operations are affected by such factors as changes in foreign currency exchange rates, trade protection measures, longer accounts receivable collection patterns and changes in regional or worldwide economic or political conditions. The risks of the Company’s international operations are mitigated in part by the extent to which its sales are geographically distributed.

NOTE 6—FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

A fair value hierarchy was established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows:

·   Level 1: quoted prices in active markets for identical assets or liabilities;

·   Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

·   Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 and 2008 (in thousands):

			Significant
	Quoted Prices		Other
	In Active		Observable
	Markets		Inputs
	(Level 1)		(Level 2)		Total
December 31, 2009:
Assets:
U.S. government obligations and agencies	$	-	$	164,370	$	164,370
U.S. corporate debt		-		102,761		102,761
Non-U.S. debt and equity securities		1,512		35,274		36,786
Total financial assets	$	1,512	$	302,405	$	303,917
Liabilities:
Convertible notes	$	217,537	$	-	$	217,537
December 31, 2008:
Assets:
U.S. government obligations and agencies	$	-	$	203,488	$	203,488
U.S. corporate debt		-		93,916		93,916
Non-U.S. debt and equity securities		842		-		842
Total financial assets	$	842	$	297,404	$	298,246
Liabilities:
Convertible notes	$	101,290	$	-	$	101,290

As of December 31, 2009 and 2008, the Company had no financial assets or liabilities requiring Level 3 classification, including those that have unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets and liabilities.

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Investments in Debt and Equity Securities

The fair values of all available-for-sale securities are based on quoted market prices and are included in cash and cash equivalents, available-for-sale securities—short-term and available-for-sale securities—long-term on the Company’s Consolidated Balance Sheets based on the securities maturity. The following is a summary of available-for-sale securities as of December 31, 2009 (in thousands):

			Gross		Gross
	Adjusted		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. Government obligations and agency
securities	$	163,821	$	577	$	(28	)	$	164,370
U.S. corporate debt securities		102,692		459		(390	)		102,761
Non-U.S. debt and equity securities		36,049		766		(29	)		36,786
Total securities	$	302,562	$	1,802	$	(447	)	$	303,917
Amounts included in:
Cash equivalents	$	25,791	$	6	$	(17	)	$	25,780
Available-for-sale securites		276,771		1,796		(430	)		278,137
Total securities	$	302,562	$	1,802	$	(447	)	$	303,917
Amounts mature in:
Less than one year	$	237,061	$	1,315	$	(438	)	$	237,938
One to two years		59,638		442		(9	)		60,071
More than two years		5,863		45		-			5,908
Total securities	$	302,562	$	1,802	$	(447	)	$	303,917

The following is a summary of available-for-sale securities as of December 31, 2008 (in thousands):

			Gross		Gross
	Adjusted		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. Government obligations and agency
securities	$	205,076	$	372	$	(134	)	$	205,314
U.S. corporate debt securities		95,755		32		(3,697	)		92,090
Non-U.S. equity securities		890		-		(48	)		842
Total securities	$	301,721	$	404	$	(3,879	)	$	298,246
Amounts included in:
Cash equivalents	$	21,979	$	20	$	-		$	21,999
Available-for-sale securites		279,742		384		(3,879	)		276,247
Total securities	$	301,721	$	404	$	(3,879	)	$	298,246
Amounts mature in:
Less than one year	$	271,402	$	11	$	(68	)	$	271,345
One to two years		30,319		393		(3,811	)		26,901
Total securities	$	301,721	$	404	$	(3,879	)	$	298,246

Realized gains and (losses) for the year ended December 31, 2009 were $0.3 million and $(0.1) million, respectively. For December 31, 2008, realized gains and (losses) were $2.1 million and $(2.5) million, respectively. Realized gains and (losses) are included in interest income and other, net in the accompanying Consolidated Statements of Operations. The gross unrealized losses as of December 31, 2009 were primarily related to the mortgage-backed securities that were impacted by the weakening of the global economy caused by a lack of liquidity in the credit markets. The gross unrealized losses as of December 31, 2008 were primarily caused by the degradation in the value of the assets held by financial institutions in which we owned certain U.S. corporate debt securities.

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No significant facts or circumstances have arisen to indicate that there has been any deterioration in the creditworthiness of the issuers of the Company’s securities. Based on its review of these securities, including the assessment of the severity of the related unrealized losses, the Company has not recorded any other-than-temporary impairments on these securities for the year ended December 31, 2009. For the years ended December 31, 2008 and 2007, the Company recognized OTTI losses of less than $0.1 million and $0.9 million, respectively.

Additionally, the Company did not have any noncredit-related OTTI that was recognized in OCI during the year ended December 31, 2009 on securities not expected to be sold and is not more likely than not required to sell before recovery of their amortized cost basis. The Company did not record any cumulative effect adjustments for noncredit-related portion of OTTI losses previously recognized in earnings.

Derivative Financial Instruments

The Company derives a portion of its revenues in foreign currencies, predominantly in Europe and Japan. In addition, a portion of its assets are held in nonfunctional currencies of its subsidiaries. As of December 31, 2009 and 2008, the Company had no open hedging contracts.

Non-Marketable Securities

As of December 31, 2009 and 2008, the carrying amounts of the Company’s non-marketable securities, totaling $13.1 million and $13.0 million, respectively, equaled the estimated fair values. The estimated fair values were based on current market rates, liquidation and net realizable values. During the year ended December 31, 2009, the Company determined that the declines in estimated fair values of certain investments in the non-marketable equity securities portfolio were other-than-temporary. Accordingly, the Company recorded net impairment losses on the investments of approximately $1.1 million. No impairment was recognized for the year ended December 31, 2008. Net investment losses are included in interest income and other, net in the Consolidated Statements of Operations. Depending on market conditions, the Company may incur additional charges on this investment portfolio in the future.

NOTE 7—INVENTORIES

Inventories consist of the following at December 31, 2009 and 2008 (in thousands):

	2009		2008
Raw materials	$	20,012	$	22,799
Work-in-process		9,456		12,192
Finished goods		25,022		16,342
Total	$	54,490	$	51,333

NOTE 8—PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31, 2009 and 2008 (in thousands):

	2009			2008
Property and equipment:
Construction-in-progress	$	3,561		$	5,183
Equipment and furniture		146,449			161,340
Building and leasehold improvements		95,535			84,865
Land		1,310			1,310
		246,855			252,698
Less: accumulated depreciation and amortization		(178,673	)		(163,353	)
Net property and equipment	$	68,182		$	89,345

For the years ended December 31, 2009, 2008 and 2007, the Company recorded depreciation expense of $29.6 million, $33.1 million and $23.6 million, respectively. Additionally, the Company wrote down property and equipment in the amount of approximately $37.0 million in connection with its 2008 Plan. Refer to Note 3, “Restructuring”, for further information.

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NOTE 9—ACQUISITIONS

Business acquisitions are accounted for by the Company under the purchase method of accounting whereby the Company records the assets acquired and liabilities assumed at their estimated fair value, with the excess purchase price reflected as goodwill. Additionally, certain costs directly related to the acquisitions are reflected as additional purchase price in excess of net assets acquired.

In 2008, the Company completed three acquisitions. A summary of the purchase acquisitions are as follows (in thousands):

					Total		Assets/			In-Process		Purchased
	Cash		Transaction		Purchase		(Liabilities)			R&D		Intangible
	Consideration		Costs		Consideration		Assumed, Net			Expense		Assets		Goodwill
USB Corporation	$	68,511	$	2,052	$	70,563	$	38		$	800	$	16,300	$	53,425
True Materials, Inc.		19,330		323		19,653		(713	)		5,100		-		15,266
Panomics, Inc.		71,758		924		72,682		3,492			300		16,400		52,490
Total	$	159,599	$	3,299	$	162,898	$	2,817		$	6,200	$	32,700	$	121,181

On January 30, 2008, the Company acquired 100% of the outstanding shares of USB Corporation (“USB”), a privately-held Cleveland, Ohio-based company that develops, manufactures and markets an extensive line of molecular biology and biochemical reagent products. The acquisition will enable the Company to accelerate the development and commercialization of new genetic analysis solutions and increase the value of its current product portfolio. The results of operations of USB have been included in Affymetrix’ consolidated financial statements since January 30, 2008.

On July 17, 2008, the Company acquired 100% of the outstanding shares of True Materials, Inc. (“TMI”), a privately-held San Francisco, California-based company that develops digitally encoded microparticle technology. This technology is applicable to the research, applied and diagnostic markets and will enable the Company to enter low to mid-multiplex markets. The results of operations of TMI have been included in Affymetrix’ consolidated financial statements since July 17, 2008.

On December 5, 2008, the Company acquired 100% of the outstanding shares of Panomics, Inc. (“Panomics”), a privately-held Fremont, California-based company that offers a suite of assay products for a wide variety of low to mid-plex genetic, protein and cellular analysis applications. The acquisition of Panomics opens up large and growing market opportunities that are downstream of whole genome analysis. The results of operations of Panomics have been included in Affymetrix’ consolidated financial statements since December 5, 2008.

No acquisitions were made in 2007 and 2009.

Intangible Assets and Goodwill—USB

A valuation of the purchased USB intangible assets was undertaken by Affymetrix’ management in its determination of the estimated fair value of such assets. The following is a summary of the intangible assets recognized:

·   The $6.1 million value assigned to developed technology and patents and core technology is included in acquired technology rights on the Company’s Consolidated Balance Sheets and will be amortized to cost of product sales over the estimated useful lives of these assets, generally four to five years. Affymetrix recorded amortization expense of approximately $1.3 million and $1.2 million for the years ended December 31, 2009 and 2008, respectively, related to these acquired patents and technology.

·   The $10.2 million value assigned to customer contracts and trade names and trademarks is included in acquired technology rights on the Company’s Consolidated Balance Sheets and will be amortized to selling, general and administrative expenses over the estimated useful lives of these assets, generally four to eight years. Affymetrix recorded amortization expense of approximately $1.8 million and $1.6 million for the years ended December 31, 2009 and 2008, respectively, related to customer contracts and trade names and trademarks.

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·   Goodwill of $53.4 million was recorded as the excess of the purchase price over the fair value of net assets acquired and subsequently written off in the fourth quarter of 2008. Refer to “Note 10. Goodwill and Acquired Technology Rights”, for further information.

Intangible Assets and Goodwill—Panomics

A valuation of the purchased Panomics intangible assets was undertaken by Affymetrix’ management in its determination of the estimated fair value of such assets. The following is a summary of the intangible assets recognized:

·   The $6.1 million value assigned to existing technology is included in acquired technology rights on the Company’s Consolidated Balance Sheets and will be amortized to cost of product sales over the estimated useful lives of these assets, generally four to seven years. Affymetrix recorded amortization expense of approximately $1.3 million and $0.1 million for the years ended December 31, 2009 and 2008, respectively, related to the acquired technology.

·   The $7.9 million value assigned to customer contracts and related relationships, services and related relationships and order backlog is included in acquired technology rights on the Company’s Consolidated Balance Sheets and will be amortized to selling, general and administrative expenses over the estimated useful lives of these assets, generally five to seven years. Affymetrix recorded amortization expense of approximately $1.5 million and $0.2 million for the years ended December 31, 2009 and 2008, respectively, related to these intangible assets.

·   The $2.4 million value assigned to patents and core technology is included in acquired technology rights on the Company’s Consolidated Balance Sheets and will be amortized to research and development expense over their estimated useful lives of four to six years. Affymetrix recorded amortization expense of $0.5 million and less than $0.1 million for the years ended December 31, 2009 and 2008, respectively, related to these patents and core technology assets.

·   Goodwill of $52.5 million was recorded as the excess of the purchase price over the net assets acquired and subsequently written off in the fourth quarter of 2008. Refer to “Note 10. Goodwill and Acquired Technology Rights”, for further information.

In-process Technology

For each business acquisition, management determined the estimated fair value of certain research and development programs in-process at the acquisition date that had not yet reached technological feasibility and had no alternative future use and recorded approximately $0.8 million, $5.1 million and $0.3 million related to the acquisition of USB, TMI and Panomics, respectively, in the line item “Acquired in-process technology” in the Company’s Consolidated Statements of Operations. The fair values of these projects were determined using the Income Approach whereby management estimated each project’s related future net cash flows. This discount rate is based on the Company’s estimated weighted average cost of capital adjusted upward for the risks associated with the projects acquired. The projected cash flows from the acquired projects were based on estimates of revenues and operating profits related to the projects of each acquired company considering the stage of development of each potential product acquired, the time and resources needed to complete the development and approval of each product, the life of each potential commercialized product and the inherent difficulties and uncertainties in developing products and services based on complex genetic technologies and biochemical processes.

The largest research and development program in-process at the acquisition date primarily was the microRNA profiling project undertaken by TMI. The fair value of this project was determined using the Income Approach whereby the Company estimated the project’s related future net cash flows between 2009 and 2015 and discounted them to their present value using a risk adjusted discount rate of approximately 30%. This discount rate is based on the Company’s estimated weighted average cost of capital adjusted upward for the risks associated with the project acquired. The Company completed this project in 2009.

The estimates used by the Company in valuing the licensed technologies and acquired in process technologies were based upon assumptions the Company believes to be reasonable but which are inherently uncertain and unpredictable. The Company’s assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may vary from the projected results.

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Escrow Agreements

As part of the terms of the USB merger agreement, the Company had withheld from the merger consideration $4.0 million, which was held in an escrow account and released to USB shareholders as certain revenue targets were achieved in fiscal 2008. As of December 31, 2008, a total of $3.5 million was earned by the USB shareholders and the remaining $0.5 million was returned to the Company.

Pursuant to the terms of the TMI merger agreement, the Company withheld from the merger consideration $5.1 million and delivered those funds to an escrow account, which shall be released to the founder and certain key employees of TMI upon achievement of certain employment milestones. As the continuous employment milestones are achieved, a portion of the escrow funds shall be disbursed to the founder and certain key employees consistent with the terms of the merger agreement. The Company records these disbursements as compensation in research and development expense as earned. As of December 31, 2009, $3.0 million in total had been disbursed from the escrow account.

NOTE 10—GOODWILL AND ACQUIRED TECHNOLOGY RIGHTS

Goodwill

In 2008, the Company recorded goodwill impairment charges of $239.1 million which represented the entire goodwill amount the Company had previously recognized in connection with its acquisitions of ParAllele in 2005 and USB, TMI and Panomics in 2008. The write-off was presented as “Goodwill impairment charges” in the Company’s Consolidated Statements of Operations. In 2009, the Company received payment on a claim to recover $0.5 million from the USB acquisition indemnity escrow for certain tax liabilities that were not recognized during the purchase method of accounting for the USB acquisition. The reimbursement was recorded as a credit to goodwill impairment charges in 2009.

Acquired Technology Rights

Acquired technology rights are comprised of licenses to technology covered by patents owned by third parties or patents acquired by the Company and are amortized over the expected useful lives of these assets, which range from one to fifteen years. Accumulated amortization of these rights amounted to $59.2 million and $52.4 million December 31, 2009 and 2008, respectively.

In 2008, based on a combination of factors, including a sustained decline in the Company’s stock price, the Company concluded that there were sufficient indicators to require it to perform an impairment analysis of its acquired technology rights. The impairment analysis for acquired technology rights indicated that some of the acquired technology rights were not recoverable as the sum of its estimated future undiscounted cash flows were below the asset’s carrying value and accordingly, the Company estimated the fair value of these identified intangible assets using a discounted cash flow analysis to measure the impairment loss. As a result of this analysis, the Company wrote-off the difference between the acquired technology rights’ estimated fair value and the carrying values which resulted in a non-cash impairment charge totaling $5.5 million, of which $1.9 million was included as a component of “Cost of product sales”, $3.2 million was included as a component of “Research and development”, and $0.4 million was included as a component of “Selling, general and administration” expenses in the Consolidated Statement of Operations for the year ended December 31, 2008. No further impairment charges were recorded in the year ended December 31, 2009 and the $49.9 million balance at December 31, 2009 is expected to be recoverable.

The expected future annual amortization expense of the Company’s acquired technology rights is as follows (in thousands):

	Amortization
For the Year Ending December 31,	Expense
2010	$	12,302
2011		12,122
2012		10,348
2013		7,840
2014		6,124
Thereafter		1,119
Total	$	49,855

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NOTE 11—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of December 31, 2009 and 2008 consist of the following (in thousands):

	December 31,		December 31,
	2009		2008
Accounts payable	$	15,243	$	19,005
Accrued compensation and related liabilities		22,266		20,953
Accrued interest		3,965		5,073
Accrued taxes		7,814		5,399
Accrued legal		1,022		4,500
Accrued warranties		1,685		1,603
Other		5,188		6,026
Total	$	57,183	$	62,559

NOTE 12—RELATED PARTY TRANSACTIONS

Related Party Transactions

Prior to December 31, 2009, the Company, and certain of its affiliates, including certain members of the Board of Directors, held approximately 22% ownership interest in Perlegen Sciences, Inc. (“Perlegen”), a privately-held biotechnology company. Two members of Perlegen’s Board of Directors also served as members of the Company’s Board of Directors.

The Company determined that Perlegen was a variable interest entity in which the Company held a variable interest, but was not considered the primary beneficiary. The Company accounted for its ownership interest in Perlegen using the equity method as the Company and its affiliates did not control the strategic, operating, investing and financing activities of Perlegen; however, the Company had significant influence over Perlegen’s operating activities. Further, the Company had no obligations to provide funding to Perlegen nor did it guarantee or otherwise have any obligations related to the liabilities or results of operations of Perlegen or its investors. As of June 30, 2005, the Company had reduced the carrying value of its investment to zero through the recording of its proportionate share of Perlegen’s operating losses.

In the fourth quarter of 2009, Perlegen ceased operations permanently, effective immediately, and the Company has no continuing or future obligation to or financial interest in Perlegen.

NOTE 13—COMMITMENTS AND CONTINGENCIES

Operating Leases

Affymetrix leases laboratory, office and manufacturing facilities under non-cancelable operating leases that expire at various times through 2016. Some of these leases contain renewal options ranging from two to five years and escalation clauses. Rent expense related to operating leases for the years ended December 31, 2009, 2008 and 2007 was approximately $10.2 million, $11.0 million and $14.6 million, respectively. In connection with some of these facility leases, the Company has made security deposits totaling $3.0 million, which are included in long-term other assets in the Consolidated Balance Sheets.

Future minimum lease obligations, net of sublease income, at December 31, 2009 under all non-cancelable operating leases are as follows (in thousands):

For the Year Ending December 31,	Amount
2010	$	8,907
2011		7,224
2012		6,698
2013		4,861
2014		461
Thereafter		527
Total	$	28,678

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Sublease income is expected to be approximately $0.8 million for fiscal years 2010 and 2011, $0.9 million for fiscal year 2012, $0.5 million for fiscal 2013 and $0 thereafter.

Product Warranty Commitment

The Company provides for anticipated warranty costs at the time the associated revenue is recognized. Product warranty costs are estimated based upon the Company’s historical experience and the warranty period. The Company periodically reviews the adequacy of its warranty reserve and adjusts, if necessary, the warranty percentage and accrual based on actual experience and estimated costs to be incurred. In 2009, we experienced more warranty claims for instruments than expected. Information regarding the changes in the Company’s product warranty liability for the years ended December 31, 2007 and 2008 is as follows (in thousands):

	Amount
Balance at December 31, 2007	$	3,007
New warranties issued		2,542
Repairs and replacements		(3,278	)
Adjustments		(667	)
Balance at December 31, 2008	$	1,604
New warranties issued		3,016
Repairs and replacements		(3,526	)
Adjustments		591
Balance at December 31, 2009	$	1,685

Non-Cancelable Supply Agreements

As of December 31, 2009, the Company had approximately $1.0 million of non-cancelable inventory supply agreements that are in effect through 2010.

Indemnifications

From time to time the Company has entered into indemnification provisions under certain of its agreements with other companies in the ordinary course of business, typically with business partners, customers, and suppliers. Pursuant to these agreements, the Company generally indemnifies, holds harmless, and agrees to reimburse the indemnified parties on a case by case basis for losses suffered or incurred by the indemnified parties in connection with any U.S. patent or other intellectual property infringement claim by any third party with respect to its products. The term of these indemnification provisions is generally perpetual from the time of the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. In addition, the Company has entered into indemnification agreements with its officers and directors. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As of December 31, 2009, the Company had not accrued a liability for this guarantee, because the likelihood of incurring a payment obligation in connection with this guarantee is remote.

Legal Proceedings

The Company has been in the past, and continues to be, a party to litigation which has consumed, and may continue to consume, substantial financial and managerial resources. The following are material legal proceedings to which the Company or one or more of its subsidiaries is a party:

Illumina Lawsuit

On May 4, 2009 and November 3, 2009, the Company was named as a defendant in two separate complaints filed by plaintiff, Illumina, Inc., in the U.S. District Court for the Western District of Wisconsin. In the complaints, plaintiff alleges that the Company is infringing Patent No. 7,510,841 and Patent No. 7,612,020 by making and selling certain of the GeneChip® products. Plaintiff seeks a permanent injunction enjoining the Company from further infringement and unspecified monetary damages. The two separate complaints have been consolidated into a single case.  The case has been set for trial in Wisconsin on March 14, 2011. The Company will vigorously defend against all of plaintiff’s claims.

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E8 Pharmaceuticals LLC

On July 1, 2008, the Company was named as a defendant in a complaint filed by plaintiffs E8 Pharmaceuticals LLC and Massachusetts Institute of Technology ("MIT") in the United States District Court of Massachusetts. In the complaint, the plaintiffs allege that the Company is infringing one patent owned by MIT and licensed to E8 Pharmaceuticals by making and selling the Company’s GeneChip® products to customers and teaching its customers how to use the products. The plaintiffs seek a permanent injunction enjoining the Company from further infringement, unspecified monetary damages, enhanced damages pursuant to 35 U.S.C. § 284, costs, attorneys’ fees and other relief as the court deems just and proper. The Company will vigorously defend against all of the plaintiffs’ claims.

Enzo Litigation

On October 28, 2003, Enzo Life Sciences, Inc., a wholly-owned subsidiary of Enzo Biochem, Inc. (collectively “Enzo”), filed a complaint against the Company that is now pending in the United States District Court for the Southern District of New York for breach of contract, injunctive relief and declaratory judgment. The Enzo complaint relates to a 1998 distributorship agreement with Enzo under which the Company served as a non-exclusive distributor of certain reagent labeling kits supplied by Enzo. In its complaint, Enzo seeks monetary damages and an injunction against the Company from using, manufacturing or selling Enzo products and from inducing collaborators and customers to use Enzo products in violation of the 1998 agreement. Enzo also seeks the transfer of certain Affymetrix patents to Enzo. In connection with its complaint, Enzo provided the Company with a notice of termination of the 1998 agreement effective on November 12, 2003.

On November 10, 2003, the Company filed a complaint against Enzo in the United States District Court for the Southern District of New York for declaratory judgment, breach of contract and injunctive relief relating to the 1998 agreement. In its complaint, the Company alleges that Enzo has engaged in a pattern of wrongful conduct against it and other Enzo labeling reagent customers by, among other things, asserting improperly broad rights in its patent portfolio, improperly using the 1998 agreement and distributorship agreements with others in order to corner the market for non-radioactive labeling reagents, and improperly using the 1998 agreement to claim ownership rights to the Company’s proprietary technology. The Company seeks declarations that it has not breached the 1998 agreement and that nine Enzo patents that are identified in the 1998 agreement are invalid and/or not infringed by it. The Company also seeks damages and injunctive relief to redress Enzo’s alleged breaches of the 1998 agreement, its alleged tortuous interference with the Company’s business relationships and prospective economic advantage, and Enzo’s alleged unfair competition. The Company filed a notice of related case stating that its complaint against Enzo is related to the complaints already pending in the Southern District of New York against eight other former Enzo distributors. The U.S. District Court for the Southern District of New York has related the Company’s case. There is no trial date in the actions between Enzo and the Company.

Administrative Proceedings

The Company’s intellectual property is subject to a number of significant administrative actions. These proceedings could result in the Company’s patent protection being significantly modified or reduced, and the incurrence of significant costs and the consumption of substantial managerial resources.

NOTE 14—SENIOR CONVERTIBLE NOTES

3.50% Senior Convertible Notes

On November 13, 2007, the Company issued $316.3 million principal amount of 3.50% Senior Convertible Notes (the “3.50% Notes”) due January 15, 2038. The net proceeds after issuance costs from the 3.50% Notes offering were approximately $309.4 million. The 3.50% Notes bear interest of 3.50% per year on the principal amount payable semi-annually in arrears on January 15 and July 15 of each year. The Company incurred underwriter discount and issuance costs of approximately $6.9 million, which are being amortized over the effective life of the 3.50% Notes which is five years, the period up to the first date that the holders of the 3.50% Notes (the “Holders”) can require the Company to repurchase the notes.

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The 3.50% Notes are convertible into 33.1991 shares of Affymetrix common stock per $1,000 principal amount of notes which equates to 10,499,215 shares of common stock, or a conversion price equivalent of $30.12 per share of common stock. The conversion rate is subject to adjustment upon the occurrence of the following specified events:

• issuing shares of the Company’s common stock as a dividend or distribution of the Company’s common stock;

• effecting a stock split or stock combination;

• issuing to all or substantially all Holders of the Company’s common stock any rights or warrants under certain circumstances and with certain entitlements;

• distributing shares of the Company’s common stock, evidences of indebtedness or other assets or property, to all or substantially all Holders of the Company’s common stock, with certain exceptions;

• making cash distributions to all or substantially all Holders of the Company’s common stock; or

• should the Company or any of its subsidiaries purchase shares of its common stock pursuant to a tender offer at a premium to market.

Holders may convert their 3.50% Notes into shares of Affymetrix stock at any time at their option at the initial conversion rate, subject to adjustment, prior to the close of business on the business day prior to the maturity date.

On January 15, 2013, 2018 and 2028, the security holders have the option to require the Company to repurchase the 3.50% Notes at a price equal to 100% of the principal amount of the 3.50% Notes plus accrued interest. Additionally, on or after January 15, 2013, Affymetrix has the option of redeeming for cash at 100% of the principal amount all or part of the then outstanding 3.50% Notes plus accrued interest.

The 3.50% Notes are unsecured and rank equally with the Company’s other existing and future senior indebtedness. The 3.50% Notes are structurally subordinated to any current or future indebtedness and other liabilities of the Company’s subsidiaries.

In the second quarter of 2009, the Company repurchased approximately $69.1 million of aggregate principal amount of the 3.50% Notes. The Company paid out total cash considerations of $50.6 million, including accrued interest of $0.9 million, and recognized a gain of $17.4 million, net of transaction costs of $0.9 million and accelerated amortization of deferred financing costs of $1.0 million. As of December 31, 2009, the balance remaining on the 3.50% Notes was $247.2 million.

0.75% Senior Convertible Notes

On December 10, 2003, the Company issued $120.0 million of 0.75% Senior Convertible Notes (the “0.75% Notes”) due December 15, 2033. The net proceeds after issuance costs from the 0.75% Notes offering were approximately $116.0 million, net of broker discounts and issuance costs of $3.8 million and bore interest of 0.75% per year on the principal amount payable semi-annually in arrears on June 15 and December 15 of each year, beginning June 15, 2004. The 0.75% Notes had an effective life of five years, the period up to the first date that the holders of the 0.75% Notes could require the Company to repurchase the notes.

The 0.75% Notes were convertible into 32.2431 shares of Affymetrix common stock per $1,000 principal amount of notes which equated to 3,869,172 shares of common stock, or a conversion price equivalent of $31.01 per share of common stock. The conversion rate was subject to adjustment upon the occurrence of certain specified events.

On December 15, 2008, the Company repurchased $119.9 million of the $120.0 million of 0.75% Notes as the holders of the 0.75% notes exercised their option to require the Company to repurchase the 0.75% Notes at a price equal to 100% of the principal amount of the 0.75% Notes plus accrued and unpaid interest. The balance of the 0.75% Notes at December 31, 2009 was less than $0.1 million.

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NOTE 15—STOCKHOLDERS’ EQUITY

Stockholder Rights Plan

In February 2010, the Company’s existing stockholder rights plan expired and no further plan has been adopted.

Stock-Based Compensation Plans

The Company has a stock-based compensation program that provides the Board of Directors broad discretion in creating equity incentives for employees, officers, directors and consultants. This program includes incentive and non-qualified stock options and non-vested stock awards (also known as restricted stock) granted under various stock plans. Stock options are generally time-based, vesting 25% on each annual anniversary of the grant date over four years and expire 7 to 10 years from the grant date. Non-vested restricted stock awards are generally time-based, vesting 25% per year beginning on the date of hire and on each of the second, third and fourth anniversaries of the grant date. As of December 31, 2009, the Company had approximately 2.0 million shares of common stock reserved for future issuance under its stock-based compensation plans. New shares are issued as a result of stock option exercises and non-vested restricted stock awards. A more detailed description of the Company’s current stock option plans follows below.

In 1998, the Board of Directors adopted the Affymetrix 1998 Stock Incentive Plan (the “1998 Stock Plan”) under which nonqualified stock options and restricted stock may be granted to employees and outside consultants, except that members of the Board of Directors and individuals who are considered officers of the Company under the rules of the National Association of Securities Dealers shall not be eligible. Options granted under the 1998 Stock Plan expire no later than ten years from the date of grant. The option price shall be at least 100% of the fair value of the Company’s common stock on the date of grant (110% in certain circumstances), as determined by the Board of Directors. Options may be granted with different vesting terms from time to time as determined by the Board of Directors. A total of 3,600,000 shares of common stock are authorized for issuance under the 1998 Stock Plan.

In 2000, the Board of Directors adopted the 2000 Equity Incentive Plan (the “2000 Stock Plan”), which was amended and restated in 2001, under which restricted shares, stock units, stock options and stock appreciation rights may be granted to employees, outside directors and consultants. Options granted under the 2000 Stock Plan expire no later than ten years from the date of grant. The option price shall be at least 100% of the fair value of the Company’s common stock on the date of grant (110% in certain circumstances), as determined by the Board of Directors. Options may be granted with different vesting terms from time to time as determined by the Board of Directors. In 2008, the 2000 Stock Plan was amended and restated to increase share availability by 4,200,000 shares bringing the total shares of common stock authorized for issuance under the 2000 Stock Plan to 11,700,000. No additional shares were authorized in 2009.

The following table sets forth the total stock-based compensation expense resulting from stock options and non-vested stock awards included in the Company’s Condensed Consolidated Statements of (Loss) Income (in thousands):

	Years Ended December 31,
	2009		2008		2007
Costs of product sales	$	1,677	$	1,305	$	1,107
Research and development		2,207		1,665		2,064
Selling, general and administrative		7,264		4,641		7,215
Restructuring		-		-		340
Total stock-based compensation expense	$	11,148	$	7,611	$	10,726

As of December 31, 2009, $23.0 million of total unrecognized stock-based compensation expense related to non-vested awards is expected to be recognized over the respective vesting terms of each award through 2013. The weighted-average term of the unrecognized stock-based compensation expense is 2.8 years.

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Stock Options

The fair value of options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

	Years Ended December 31,
	2009			2008			2007
Risk free interest rate		1.7	%		3.0	%		4.4	%
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		70	%		44	%		42	%
Expected option term (in years)		4.1			4.5			4.5

The risk free interest rate for periods within the contractual life of the Company’s stock options is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term is derived from an analysis of the Company’s historical exercise trends over ten years. The expected volatility for the years ended December 31, 2009 and 2008 is based on a blend of historical and market-based implied volatility. Using the assumptions above, the weighted-average grant date fair value of options granted during the years ended December 31, 2009, 2008 and 2007 was $3.03, $4.32 and $10.18, respectively.

Activity under the Company’s stock plans for the year ended December 31, 2009 is as follows (in thousands, except per share amounts):

				Weighted-Average		Weighted-Average		Aggregate
				Exercise Price		Remaining		Intrinsic
	Shares			Per Share		Contractual Terms		Value
						(in years)
Outstanding at December 31, 2008		6,257		$	23.09
Grants		2,217			5.60
Exercises		(4	)		3.55
Forfeitures or expirations		(2,254	)		26.27
Outstanding at December 31, 2009		6,216		$	15.72		4.92	$	3,022
Exercisable at December 31, 2009		2,344		$	26.44		3.32	$	95
Vested and expected to vest at December 31, 2009		5,574		$	16.56		4.78	$	2,523

The following table summarizes information concerning currently outstanding and exercisable options at December 31, 2009:

		Options Outstanding						Options Exercisable
				Weighted-Average		Weighted-Average				Weighted-Average
				Remaining		Exercise Price				Exercise Price
Range of Exercise Prices		Number		Contractual Life		Per Share		Number		Per Share
		(in thousands)		(in years)				(in thousands)
$	1.06 - $2.97		754		6.03	$	2.93		25	$	2.67
$	3.07 - $5.74		613		6.31	$	4.49		12	$	4.61
$	5.78 - $8.29		913		6.57	$	8.26		11	$	7.38
$	8.71 - $10.29		1,418		5.47	$	10.17		358	$	10.18
$	10.52 - $20.48		530		4.72	$	16.90		258	$	16.18
$	20.50 - $25.71		679		3.74	$	23.38		477	$	23.25
$	25.75 - $35.50		857		2.62	$	29.72		764	$	29.95
$	35.68 - $90.91		452		2.34	$	45.35		439	$	45.50
Total			6,216		4.92	$	15.72		2,344	$	26.44

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The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of its fourth quarter of 2009 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2009. The amount changes based on the fair market value of the Company’s common stock. Total intrinsic value of options exercised is less than $0.1 million, $0.3 million and $6.2 million for the years ended December 31, 2009, 2008 and 2007, respectively.

Reserved Shares

At December 31, 2009, the Company has shares reserved for future issuance as follows (in thousands):

Options outstanding	6,216
Options available for future grants	2,033
Convertible subordinated notes	8,207
	16,456

Restricted Stock

The following table summarizes the Company’s non-vested restricted stock activity for the year ended December 31, 2009 (in thousands, except per share amounts):

	Number			Weighted-Average
	of Shares			Grant Date Fair Value
Non-vested stock outstanding at December 31, 2008		1,638		$	13.86
Granted		1,208		$	5.46
Vested		(412	)	$	15.07
Forfeited		(333	)	$	11.31
Non-vested stock outstanding at December 31, 2009		2,101		$	9.19

Total fair value of shares vested is $19.3 million and $22.7 million for the years ended December 31, 2009 and 2008, respectively.

NOTE 16—INCOME TAXES

The following table presents the U.S. and foreign components of consolidated (loss) income before income taxes and the (benefit) provision for income taxes (in thousands):

	Year Ended December 31,
	2009			2008			2007
(LOSS) INCOME BEFORE INCOME TAXES:
U.S.	$	(25,150	)	$	(244,479	)	$	11,372
Foreign		1,083			2,478			6,910
(Loss) income before income taxes	$	(24,067	)	$	(242,001	)	$	18,282
(BENEFIT) PROVISION FOR INCOME TAXES:
Current:
Federal	$	(2,248	)	$	12,042		$	153
State		25			2,780			14
Foreign		2,123			2,598			2,002
Subtotal		(100	)		17,420			2,169
Deferred:
Federal		-			43,012			5,251
State		-			5,317			(1,207	)
Foreign		(58	)		169			(524	)
Subtotal		(58	)		48,498			3,520
(Benefit) provision for income taxes	$	(158	)	$	65,918		$	5,689

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The difference between the (benefit) provision for income taxes and the amount computed by applying the federal statutory income tax rate (35%) to (loss) income before taxes is explained as follows (in thousands):

	Year Ended December 31,
	2009			2008			2007
Tax at federal statutory rate	$	(8,423	)	$	(84,700	)	$	6,398
State taxes, net		(2,315	)		(3,344	)		(1,213	)
Non-deductible stock compensation		659			294			559
Foreign rate differential		1,686			1,543			164
Research credits		(1,772	)		(1,142	)		(849	)
Goodwill impairment		-			64,986			-
Change in valuation allowance		8,968			85,603			-
Other		1,039			2,678			630
	$	(158	)	$	65,918		$	5,689

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s assets are as follows (in thousands):

	December 31,
	2009			2008
Deferred tax assets:
Net operating loss carryforwards	$	48,209		$	38,501
Tax credit carryforwards		38,710			39,426
Deferred revenue		1,802			1,768
Capitalized research and development costs		799			1,012
Intangibles		22,536			23,776
Stock-based compensation		5,629			9,085
Accrued compensation		2,432			2,701
Accrued warranty		676			639
Inventory reserve		3,101			4,976
Reserves and other		12,323			11,657
Depreciation and amortization		21,184			18,176
Other, net		2,626			3,404
Total deferred tax assets		160,027			155,121
Valuation allowance for deferred tax assets		(139,343	)		(139,712	)
Net deferred tax assets		20,684			15,409
Net deferred tax liabilities:
Acquired intangibles		(4,900	)		(6,728	)
Cancellation of debt		(6,767	)		-
Other, net		(3,125	)		(2,840	)
Total deferred tax liabilities		(14,792	)		(9,568	)
Net deferred tax assets	$	5,892		$	5,841

As of December 31, 2009, the Company had total net operating loss carryforwards of $242.2 million, comprised of $134.9 million for U.S. federal purposes, which expire in the years 2020 through 2029 if not utilized, and $107.3 million for state purposes, the majority of which expire in the years 2011 through 2029 if not utilized. Additionally, the Company has federal research and development tax credit carryforwards of approximately $21.5 million, which expire in the years 2012 through 2029 if not utilized. The Company also has state research and development tax credit carryforwards and other various tax credit carryforwards of approximately $35.7 million. Substantially all of the state tax credits can be carried forward indefinitely. Utilization of net operating loss and tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation may result in the expiration of the net operating loss before utilization.

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As of December 31, 2009, the Company has recorded a full valuation allowance against the US deferred tax assets, net of reserves for uncertain tax positions. The valuation allowance decreased by $0.4 million and increased by $75.1 million for the years ended December 31, 2009 and 2008, respectively. The decrease during fiscal year 2009 is attributable to the utilization of tax credits.  Approximately $34.9 million of the valuation allowance as of December 31, 2009 is attributable to the income tax benefits of stock-based compensation, the benefit of which will be credited to stockholders’ equity when, and if, realized.

Not included in the deferred tax assets as of December 31, 2009 is approximately $4.2 million of tax benefits related to stock-based compensation. When realized, the tax benefit of these assets will be accounted for as a credit to stockholders’ equity, rather than a reduction of the income tax provision.

As of December 31, 2009, cumulative un-remitted foreign earnings that are considered to be permanently invested outside the United States and on which no U.S. taxes have been provided were approximately $24.0 million. The residual U.S. tax liability, if such amounts were remitted, would be nominal.

Of the total tax benefits realized from the stock-based compensation the amounts recorded to stockholders’ equity were approximately $1.4 million and $11.7 million for the years ended December 31, 2009 and 2008 respectively.

A portion of the Company’s operations in Singapore operate under various tax holidays and tax incentive programs, which expire in whole or in part at various dates through 2017. There was a minimal net impact of these tax holidays and tax incentive programs for the year ended December 31, 2009.

The following table presents the total amount of gross unrecognized tax benefits (in thousands):

	2009			2008
Unrecognized tax benefits, beginning of year	$	18,545		$	17,350
Gross increases - tax positions in prior period		1,004			328
Gross decreases - tax positions in prior period		(731	)		(263	)
Gross increases - current period tax positions		1,048			1,130
Settlements		-			-
Unrecognized tax benefits, end of year	$	19,866		$	18,545

If recognized, the amount of unrecognized tax benefits that would impact income tax expense is $2.1 million. As of December 31, 2009, the Company does not anticipate any material changes to the amount of unrecognized tax benefits during the next 12 months. The Company classifies interest and penalties related to tax positions as components of income tax expense. For the year ended December 31, 2009, the amount of accrued interest and penalties related to tax uncertainties was approximately $0.1 million for a total cumulative amount included in non-current income taxes payable of $0.4 million as of December 31, 2009.

The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. Our major tax jurisdictions are the U.S., California, Singapore, and the U.K. The federal and California statute of limitations on assessment remain open for the tax years 1992 through 2009. The major foreign jurisdictions remain open for examination in general for tax years 2006 through 2009.

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NOTE 17—SEGMENT AND GEOGRAPHIC INFORMATION

The Company has determined that it operates in one segment as it only reports operating results on an aggregate basis to the chief operating decision maker of the Company.

The Company reported total revenue by region as follows (in thousands):

	Year Ended December 31,
	2009		2008		2007
Customer location:
United States	$	190,257	$	269,159	$	197,677
Europe		87,061		92,487		114,188
Japan		22,588		23,861		31,572
Other		27,188		24,742		27,883
Total	$	327,094	$	410,249	$	371,320

Excluding a $90 million one-time, non-refundable intellectual property payment received in January 2008, there were no customers representing 10% or more of total revenue in 2009, 2008 and 2007.

The Company’s long-lived assets other than purchased intangible assets, which the Company does not allocate to specific geographic locations as it is impracticable to do so, are composed principally of net property, plant and equipment.

Net property, plant and equipment, classified by major geographic areas in which the Company operates was as follows (in thousands):

	Year Ended December 31,
	2009		2008		2007
Net property, plant and equipment:
United States	$	51,262	$	67,680	$	107,028
Singapore		15,510		20,164		35,275
Other countries		1,410		1,501		1,581
Total	$	68,182	$	89,345	$	143,884

NOTE 18—DEFINED-CONTRIBUTION SAVINGS PLANS

401(k) Plan

The Company maintains a defined-contribution savings plan which is qualified under Section 401(k) of the Internal Revenue Code. The plan covers substantially all full-time U.S. employees. Participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. The Company’s expense associated with matching employee contributions for the years ended December 31, 2009, 2008 and 2007 totaled $3.2 million, $3.3 million and $3.7 million, respectively. Company contributions to employees vest ratably over four years.

Director and Executive Deferred Compensation Plan

In December 2004, the Board of Directors approved the creation of the Affymetrix, Inc. Deferred Compensation Plan (the “Plan”). The Plan provides directors, executive officers and other eligible employees with the opportunity to enter into agreements to defer specified percentages of their cash compensation derived from base salary, bonus awards and other specified compensation (including director fees). Distributions occur upon termination of service (or the 6-month anniversary after termination), death, or upon such other dates that may be elected by the participant in accordance with the terms of the Plan. Generally, participants may elect for distributions of deferred amounts upon termination or death to be paid in the form of either a lump sum or in annual installments. Distributions would be made in the event of a change of control of Affymetrix. Deferrals are adjusted for gain or loss based on the performance of one or more investment options selected by the participant from among investment funds chosen by the Compensation Committee of the Board. The Company in its sole discretion may suspend or terminate the Plan or revise or amend it in any respect, except that no such action may reduce vested amounts credited to deferral accounts, and such accounts will continue to be owed to the participants or beneficiaries and will continue to be a liability of the Company until paid. For the years ended December 31, 2009 and 2008, the Company incurred no significant expenses in connection with the Plan.

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NOTE 19—UNAUDITED QUARTERLY FINANCIAL INFORMATION

	2009										2008
	Fourth		Third			Second		First			Fourth			Third			Second			First
	Quarter		Quarter			Quarter		Quarter			Quarter			Quarter			Quarter			Quarter
	(in thousands, except per share amounts)
Total revenue	$	88,788	$	78,191		$	81,554	$	78,561		$	78,574		$	75,189		$	86,911		$	169,575
Total cost of goods sold	$	34,980	$	35,870		$	37,452	$	42,024		$	43,318		$	38,167		$	39,000		$	31,655
Net income (loss)	$	2,795	$	(8,819	)	$	7,320	$	(25,205	)	$	(318,716	)	$	(31,820	)	$	(3,635	)	$	46,252
Basic net income (loss) per common share	$	0.04	$	(0.13	)	$	0.11	$	(0.37	)	$	(4.65	)	$	(0.46	)	$	(0.05	)	$	0.68
Diluted net income (loss) per common share	$	0.04	$	(0.13	)	$	0.11	$	(0.37	)	$	(4.65	)	$	(0.46	)	$	0.05		$	0.58

In the second quarter of 2009, the Company recognized a gain of $17.4 million as part of the repurchase of its 3.50% Notes. In 2008, the Company recognized a one-time, nonrefundable $90 million intellectual property payment in total revenue and a goodwill impairment charge of $239.1 million.

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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, Affymetrix’ management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of Affymetrix’ disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that Affymetrix’ disclosure controls and procedures were effective as of the end of the period covered by this report.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

The effectiveness of our internal control over financial reporting as of December 31, 2009, has been audited by Ernst &Young LLP, our independent registered public accounting firm, as stated in their report which is included as follows.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Affymetrix, Inc.

We have audited Affymetrix, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Affymetrix, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Affymetrix, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Affymetrix, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three fiscal years in the period ended December 31, 2009 of Affymetrix, Inc. and our report dated March 1, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

San Jose, California

March 1, 2010

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Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION

The 2010 Annual Meeting of Stockholders of Affymetrix will take place on Friday, May 14, 2010. The Board of Directors set March 22, 2010 as the record date for the meeting.

As previously disclosed in our proxy statement dated May 11, 2009, proposals of stockholders intended to be included in our proxy statement for our 2010 annual meeting must have been received by us no later than January 15, 2010 in order to be included in our proxy statement and form of proxy relating to the meeting. Stockholders intending to present a proposal at the 2010 annual meeting, but not to include the proposal in our proxy statement, must submit a written notice of intent to present such a proposal to the Secretary at our principal executive offices no later than March 11, 2010.

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding our directors and executive officers is incorporated by reference to the sections of the Company’s proxy statement for the 2010 Annual Meeting of Stockholders (the “Proxy Statement”) entitled “Election of Directors” and “Management.”

The information concerning our corporate governance, including our audit committee, required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Governance of the Company” and “Report of the Audit Committee.”

The information concerning compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference to the section of the Proxy Statement entitled “Section 16(a) Beneficial Ownership Reporting Compliance” under the heading “Stock Ownership of Principal Stockholders and Management.”

CODE OF ETHICS

Affymetrix has adopted a code of business conduct and ethics for directors, officers (including Affymetrix’ Chief Executive Officer, Chief Financial Officer and Corporate Controller) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on Affymetrix’ website at www.affymetrix.com in the Corporate Governance section under the “Investors” link. Stockholders may request a free copy of the Code of Business Conduct and Ethics by sending an email request to investor@affymetrix.com.

ITEM 11.  EXECUTIVE COMPENSATION

Incorporated by reference to the sections of the Proxy Statement entitled “Executive Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Certain Transactions” and “Compensation of Directors.”

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Incorporated by reference to the section of the Proxy Statement entitled “Stock Ownership of Principal Stockholders and Management.”

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference to the sections of the Proxy Statement entitled “Certain Transactions” and “Governance of the Company.”

82

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

Information about principal accountant fees and services as well as related pre-approval policies appears under “Fees Paid to Ernst & Young LLP” and “Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm” in the Proxy Statement. Those portions of the Proxy Statement are incorporated by reference into this report.

PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)           Financial Statements. The financial statements as set forth under Item 8 of this Annual Report on Form 10-K are incorporated herein by reference.

(a)(2)           Financial Statement Schedule—Schedule II—Valuation and Qualifying Accounts. All other schedules have been omitted as they are not required, not applicable or the information is otherwise included.

(a)(3)           Exhibits:

EXHIBIT NUMBER	DESCRIPTION OF DOCUMENT
2.1(1)	Agreement and Plan of Merger by and among Panomics, Inc., the Company, Panda Acquisition Corporation and the Equityholders’ Representative dated as of November 11, 2008.
3.1(2)	Restated Certificate of Incorporation.
3.2(3)	Amended and Restated Bylaws.
4.1(4)	Indenture dated as of December 15, 2003, between the Company and The Bank of New York, as Trustee.
4.2(5)	Indenture dated as of November 16, 2007, between the Company and the Bank of New York Trust Company, N.A. as Trustee.
10.1(6)‡	1993 Stock Plan, as amended.
10.2(6)‡	1996 Nonemployee Directors Stock Option Plan.
10.3(7)	Lease between Sobrato Interests and the Company dated June 12, 1996 (3380 Central Expressway, Santa Clara, CA).
10.4(7)	Lease between Sobrato Interests and the Company dated May 31, 1996 (3450 Central Expressway, Santa Clara, CA).
10.5(8)‡	1998 Stock Incentive Plan.
10.6(8)‡	Form of Officer and Director Indemnification Agreement.
10.7(9)‡	Amendment No. 1 to the 1996 Nonemployee Directors Stock Option Plan of the Company
10.8(10)‡	Amended and Restated 1996 Non-Employee Directors Stock Plan.
10.9(11)*	Common Terms Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.10(11)*	License Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.11(11)*	Affymetrix Instrument and Chip Supply Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.12(11)*	Research & Development Collaboration Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.13(11)*	Diagnostic Product and Instrument Agency Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.14(11)*	Affymetrix Instrument Agency Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.15(12)	Lease between Sobrato Interests and the Company dated July 3, 2002 (3420 Central Expressway, Santa Clara, CA).
10.16(12)	First Amendment to Lease between Sobrato Interests and the Company dated September 30, 2003 (3420 Central Expressway, Santa Clara, CA).
10.17(13)‡	Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan, as adopted effective March 9, 2000 and amended through June 23, 2008.
10.18(14)‡	Form of Non-Qualified Stock Option Agreement under the Affymetrix, Inc. Amended and Restated 1996 Non-Employee Directors Stock Plan.
10.19(1)‡	Form of Stock Option Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.

83

10.20(A)(15)‡	Nonqualified Supplemental Deferred Compensation Plan of the Company
10.20(B)(15)‡	Nonqualified Supplemental Deferred Compensation Plan Adoption Agreement.
10.21(16)	Fifth Amendment to Lease between Sobrato Interests and the Company dated July 3, 2002 (3380 Central Expressway, Santa Clara, CA).
10.22(16)	First Amendment to Lease between Sobrato Interests and the Company dated July 3, 2002 (3450 Central Expressway, Santa Clara, CA).
10.23(17)	Lease between Keppel Logistics Pte Ltd. and Affymetrix Pte Ltd. dated as of January 1, 2006 (7 Gul Circle, Singapore 629363).
10.24(1)‡	Form of Restricted Stock Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.
10.25(18)‡	Offer Letter from the Company to Kevin M. King dated December 18, 2006.
10.26(19)**	Amendment Agreement dated December 22, 2006 by and among F. Hoffmann-La Roche Ltd., Roche Molecular Systems, Inc. and the Company
10.27(20)‡	Offer Letter from the Company to John C. Batty dated May 16, 2007.
10.28(1)	Settlement and Release Agreement dated January 9, 2008 between the Company and Illumina, Inc.
10.29(22)	Affymetrix, Inc. Change of Control Plan, as amended through November 5, 2008.
10.30(2)‡	Offer Letter from the Company to John F. (Rick) Runkel dated October 6, 2008.
10.31(1)	Offer Letter from the Company to Frank Witney dated November 7, 2008.
10.32(23)	First Amendment to Affymetrix, Inc. 1998 Stock Incentive Plan.
10.33(24)	Stipulation of Settlement regarding the Affymetrix Derivative Litigation in the United States District Court, Northern District of California.
10.34	Offer Letter from the Company to Andrew J. Last, Ph.D. dated November 2, 2009.
10.35	Lease Agreement between SBP Limited Partnership and the Company dated August 10, 2008 (26309 Miles Road, Warrensville Heights, OH).
10.36	First Amendment and Lease Expansion Agreement between SBP Limited Partnership and the Company dated May 20, 2009 (26309 Miles Road, Warrensville Heights, OH).
10.37	Lease Agreement between OTR, acting as the duly authorized nominee of The State Teacher Retirement System of Ohio and Anatrace, Inc. dated February 14, 2001 (434 Dussel Drive, Maumee, OH).
10.38	Assignment and Assumption of Lease between Anatrace, Inc. and USB Acquisition dated April 30, 2005 (434 Dussel Drive, Maumee, OH).
21	List of Subsidiaries.
23	Consent of Independent Registered Public Accounting Firm.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to Registrant’s Form 10-K as filed on March 2, 2009 (File No. 000-28218).

(2) Incorporated by reference to Registrant’s Form 8-K as filed on June 13, 2000 (File No. 000-28218).

(3) Incorporated by reference to Registrant’s Form 10-Q as filed on August 7, 2009 (File No. 000-28218).

(4) Incorporated by reference to Registrant’s Form S-3 as filed on January 29, 2004 (File No. 333-112311).

(5) Incorporated by reference to Registrant’s Form 8-K as filed on November 19, 2007 (File No. 000-28218).

(6) Incorporated by reference to Registrant’s Registration Statement on Form S-1 (File No. 333-3648), as amended.

(7) Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q as filed on August 14, 1996 (File No. 000-28218).

(8) Incorporated by reference to Registrant’s Report on Form 10-K as filed on March 31, 1999 (File No. 000-28218).

84

(9) Incorporated by reference to Registrant’s Registration Statement on Form S-3 as filed on July 12, 1999 (File No. 333-82685), as amended.

(10) Incorporated by reference to Registrant’s Form 10-Q as filed on May 15, 2001 (File No. 000-28218).

(11) Incorporated by reference to Registrant’s Form 10-Q as filed on May 15, 2003 (File No. 000-28218).

(12) Incorporated by reference to Registrant’s Form 10-K as filed on March 15, 2004 (File No. 000-28218).

(13) Incorporated by reference to Registrant’s Form 10-Q as filed on August 8, 2008 (File No. 000-28218).

(14) Incorporated by reference to Registrant’s Form 10-Q as filed on November 9, 2004 (File No. 000-28218).

(15) Incorporated by reference to Registrant’s Form 8-K as filed on November 7, 2008 (File No. 000-28218).

(16) Incorporated by reference to Registrant’s Form 10-K as filed on March 16, 2005 (File No. 000-28218).

(17) Incorporated by reference to Registrant’s Form 10-K as filed on March 9, 2006 (File No. 000-28218).

 (18) Incorporated by reference to Registrant’s Form 8-K as filed on December 19, 2006 (File No. 000-28218).

(19) Incorporated by reference to Registrant’s Form 8-K as filed on December 22, 2006 (File No. 000-28218).

(20) Incorporated by reference to Registrant’s Form 8-K as filed on June 6, 2007 (File No. 000-28218).

 (21) Incorporated by reference to Registrant’s Form 10-K as filed on February 29, 2008 (File No. 000-28218).

(22) Incorporated by reference to Registrant’s Form 10-Q as filed on November 7, 2008 (File No. 000-28218).

(23) Incorporated by reference to Registrant’s Form S-8 as filed on April 18, 2001 (File No. 333-59158).

(24) Incorporated by reference to Registrant’s Form 8-K as filed on May 20, 2009 (File No. 000-28218).

‡ Management contract, compensatory plan, contract or arrangement

* Confidential treatment granted

** Confidential treatment requested 

85

AFFYMETRIX, INC.

Schedule II—Valuation and Qualifying Accounts

(in thousands)

			Additions
	Balance at		Charged to
	Beginning of		Operations or			Write-offs, net			Balance at
	Period		Other Accounts (1)			of recoveries			End of Period
Allowance for Doubtful Accounts:
Year Ended December 31, 2009	$	2,213	$	(87	)	$	(273	)	$	1,853
Year Ended December 31, 2008	$	2,372	$	683		$	(842	)	$	2,213
Year Ended December 31, 2007	$	1,534	$	934		$	(96	)	$	2,372

(1) 2008 includes $0.1 million for USB Opening Balance Sheet

86

SIGNATURES

Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Affymetrix, Inc. (Registrant)
March 1, 2010	By:	/s/ Kevin M. King
		Kevin M. King. DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Each individual whose signature appears below constitutes and appoints John F. Runkel, Jr. and John C. Batty, and each of them singly, his or her true and lawful attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, hereby ratifies and confirms all that said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.

		Name		Title		Date
By:	/s/ Kevin M. King		Director, President and Chief Executive Officer		March 1, 2010
	Kevin M. King		(Principal Executive Officer)
By:	/s/ John C. Batty		Executive Vice President and Chief Financial Officer		March 1, 2010
	John C. Batty		(Principal Financial and Accounting Officer)
By:	/s/ Stephen P.A. Fodor, Ph.D.		Founder and Executive Chairman of the Board		March 1, 2010
	Stephen P.A. Fodor, Ph.D.
By:	/s/ Paul Berg, Ph.D.		Director		March 1, 2010
	Paul Berg, Ph.D.
By:	/s/ John D. Diekman, Ph.D.		Director		March 1, 2010
	John D. Diekman, Ph.D.
By:	/s/ Gary S. Guthart, Ph.D.		Director		March 1, 2010
	Gary S. Guthart, Ph.D.
By:	/s/ Robert H. Trice, Ph.D.		Director		March 1, 2010
	Robert H. Trice, Ph.D.
By:	/s/ Robert P. Wayman		Director		March 1, 2010
	Robert P. Wayman
By:	/s/ John A. Young		Director		March 1, 2010
	John A. Young

87

INDEX TO EXHIBITS

EXHIBIT NUMBER	DESCRIPTION OF DOCUMENT
2.1(1)	Agreement and Plan of Merger by and among Panomics, Inc., the Company, Panda Acquisition Corporation and the Equityholders’ Representative dated as of November 11, 2008.
3.1(2)	Restated Certificate of Incorporation.
3.2(3)	Amended and Restated Bylaws.
4.1(4)	Indenture dated as of December 15, 2003, between the Company and The Bank of New York, as Trustee.
4.2(5)	Indenture dated as of November 16, 2007, between the Company and the Bank of New York Trust Company, N.A. as Trustee.
10.1(6)‡	1993 Stock Plan, as amended.
10.2(6)‡	1996 Nonemployee Directors Stock Option Plan.
10.3(7)	Lease between Sobrato Interests and the Company dated June 12, 1996 (3380 Central Expressway, Santa Clara, CA).
10.4(7)	Lease between Sobrato Interests and the Company dated May 31, 1996 (3450 Central Expressway, Santa Clara, CA).
10.5(8)‡	1998 Stock Incentive Plan.
10.6(8)‡	Form of Officer and Director Indemnification Agreement.
10.7(9)‡	Amendment No. 1 to the 1996 Nonemployee Directors Stock Option Plan of the Company
10.8(10)‡	Amended and Restated 1996 Non-Employee Directors Stock Plan.
10.9(11)*	Common Terms Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.10(11)*	License Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.11(11)*	Affymetrix Instrument and Chip Supply Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.12(11)*	Research & Development Collaboration Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.13(11)*	Diagnostic Product and Instrument Agency Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.14(11)*	Affymetrix Instrument Agency Agreement between F. Hoffmann-La Roche Ltd. and the Company dated January 29, 2003.
10.15(12)	Lease between Sobrato Interests and the Company dated July 3, 2002 (3420 Central Expressway, Santa Clara, CA).
10.16(12)	First Amendment to Lease between Sobrato Interests and the Company dated September 30, 2003 (3420 Central Expressway, Santa Clara, CA).
10.17(13)‡	Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan, as adopted effective March 9, 2000 and amended through June 23, 2008.
10.18(14)‡	Form of Non-Qualified Stock Option Agreement under the Affymetrix, Inc. Amended and Restated 1996 Non-Employee Directors Stock Plan.
10.19(1)‡	Form of Stock Option Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.
10.20(A)(15)‡	Nonqualified Supplemental Deferred Compensation Plan of the Company
10.20(B)(15)‡	Nonqualified Supplemental Deferred Compensation Plan Adoption Agreement.
10.21(16)	Fifth Amendment to Lease between Sobrato Interests and the Company dated July 3, 2002 (3380 Central Expressway, Santa Clara, CA).
10.22(16)	First Amendment to Lease between Sobrato Interests and the Company dated July 3, 2002 (3450 Central Expressway, Santa Clara, CA).
10.23(17)	Lease between Keppel Logistics Pte Ltd. and Affymetrix Pte Ltd. dated as of January 1, 2006 (7 Gul Circle, Singapore 629363).
10.24(1)‡	Form of Restricted Stock Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.
10.25(18)‡	Offer Letter from the Company to Kevin M. King dated December 18, 2006.
10.26(19)**	Amendment Agreement dated December 22, 2006 by and among F. Hoffmann-La Roche Ltd., Roche Molecular Systems, Inc. and the Company
10.27(20)‡	Offer Letter from the Company to John C. Batty dated May 16, 2007.
10.28(21)	Settlement and Release Agreement dated January 9, 2008 between the Company and Illumina, Inc.
10.29(22)	Affymetrix, Inc. Change of Control Plan, as amended through November 5, 2008.
10.30(22)‡	Offer Letter from the Company to John F. (Rick) Runkel dated October 6, 2008.

88

10.31(1)	Offer Letter from the Company to Frank Witney dated November 7, 2008.
10.32(23)	First Amendment to Affymetrix, Inc. 1998 Stock Incentive Plan.
10.33(24)	Stipulation of Settlement regarding the Affymetrix Derivative Litigation in the United States District Court, Northern District of California.
10.34	Offer Letter from the Company to Andrew J. Last, Ph.D. dated November 2, 2009.
10.35	Lease Agreement between SBP Limited Partnership and the Company dated August 10, 2008 (26309 Miles Road, Warrensville Heights, OH).
10.36	First Amendment and Lease Expansion Agreement between SBP Limited Partnership and the Company dated May 20, 2009 (26309 Miles Road, Warrensville Heights, OH).
10.37	Lease Agreement between OTR, acting as the duly authorized nominee of The State Teacher Retirement System of Ohio and Anatrace, Inc. dated February 14, 2001 (434 Dussel Drive, Maumee, OH).
10.38	Assignment and Assumption of Lease between Anatrace, Inc. and USB Acquisition dated April 30, 2005 (434 Dussel Drive, Maumee, OH).
21	List of Subsidiaries.
23	Consent of Independent Registered Public Accounting Firm.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to Registrant’s Form 10-K as filed on March 2, 2009 (File No. 000-28218).

(2) Incorporated by reference to Registrant’s Form 8-K as filed on June 13, 2000 (File No. 000-28218).

(3) Incorporated by reference to Registrant’s Form 10-Q as filed on August 7, 2009 (File No. 000-28218).

(4) Incorporated by reference to Registrant’s Form S-3 as filed on January 29, 2004 (File No. 333-112311).

(5) Incorporated by reference to Registrant’s Form 8-K as filed on November 19, 2007 (File No. 000-28218).

(6) Incorporated by reference to Registrant’s Registration Statement on Form S-1 (File No. 333-3648), as amended.

(7) Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q as filed on August 14, 1996 (File No. 000-28218).

(8) Incorporated by reference to Registrant’s Report on Form 10-K as filed on March 31, 1999 (File No. 000-28218).

(9) Incorporated by reference to Registrant’s Registration Statement on Form S-3 as filed on July 12, 1999 (File No. 333-82685), as amended.

(10) Incorporated by reference to Registrant’s Form 10-Q as filed on May 15, 2001 (File No. 000-28218).

(11) Incorporated by reference to Registrant’s Form 10-Q as filed on May 15, 2003 (File No. 000-28218).

(12) Incorporated by reference to Registrant’s Form 10-K as filed on March 15, 2004 (File No. 000-28218).

(13) Incorporated by reference to Registrant’s Form 10-Q as filed on August 8, 2008 (File No. 000-28218).

(14) Incorporated by reference to Registrant’s Form 10-Q as filed on November 9, 2004 (File No. 000-28218).

(15) Incorporated by reference to Registrant’s Form 8-K as filed on November 7, 2008 (File No. 000-28218).

(16) Incorporated by reference to Registrant’s Form 10-K as filed on March 16, 2005 (File No. 000-28218).

(17) Incorporated by reference to Registrant’s Form 10-K as filed on March 9, 2006 (File No. 000-28218).

89

(18) Incorporated by reference to Registrant’s Form 8-K as filed on December 19, 2006 (File No. 000-28218).

(19) Incorporated by reference to Registrant’s Form 8-K as filed on December 22, 2006 (File No. 000-28218).

(20) Incorporated by reference to Registrant’s Form 8-K as filed on June 6, 2007 (File No. 000-28218).

(21) Incorporated by reference to Registrant’s Form 10-K as filed on February 29, 2008 (File No. 000-28218).

(22) Incorporated by reference to Registrant’s Form 10-Q as filed on November 7, 2008 (File No. 000-28218).

(23) Incorporated by reference to Registrant’s Form S-8 as filed on April 18, 2001 (File No. 333-59158).

(24) Incorporated by reference to Registrant’s Form 8-K as filed on May 20, 2009 (File No. 000-28218).

‡ Management contract, compensatory plan, contract or arrangement

* Confidential treatment granted

 ** Confidential treatment requested

90

EX-10.34

EXHIBIT 10.34

November 2, 2009

Andrew Last

3 Shadewell Court

Danville, CA 94506

Dear Andrew:

It is our  pleasure to offer you the position of Chief Commercial Officer and Executive Vice President with Affymetrix at an annual salary of $365,000 (bi-weekly $14,038.46), reporting to Kevin King, Chief Executive Officer.  Your nomination as a Section 16(b) officer for Affymetrix will be subject to review and approval by our Board of Directors at their next meeting in January 2010.

In addition to your annual salary, we are pleased to offer a sign-on bonus in the amount of $145,000 which will be paid to you in Q1 2010 at the time our Annual Corporate Bonus payments are made.  Bonus awards are subject to applicable withholding of taxes and 401(k) contributions (if enrolled).

Additionally, we will recommend to the Compensation Committee of the Board of Directors of Affymetrix that you be granted two equity awards.  The first is a Stock Option Grant of 90,000 shares of common stock of Affymetrix.  These options will vest 25% per year over a four (4) year period beginning on the grant date, and will be granted (and, therefore priced) when approved by the Compensation Committee.  The second is a grant of 20,000 shares of restricted shares of common stock of Affymetrix.  These shares are not stock options, but rather fully paid for shares of restricted stock. These shares will vest 25% per year over a four (4) year period beginning on the grant date, provided that you continue to be an employee of Affymetrix on such anniversary dates.  These restricted shares will be granted when approved by the Compensation Committee.  The terms of these equity awards will be governed in all respects by the terms of the applicable Affymetrix equity incentive plans and the equity award agreements that will be provided to you after commencement of your employment.

Commencing January 1, 2010, you will also be eligible to participate in the Affymetrix Annual Bonus Program with an award level targeted at 50% of annual base salary.  The actual bonus amount is determined each year by the Board of Directors based on corporate achievement -- financial performance & corporate goals -- and your individual goal achievement.

As an additional condition of employment, we will require that you sign a copy of the company's Confidentiality and Nondisclosure Agreement.

Federal Immigration Law requires that all employers verify each individual’s eligibility to work in the United States, including U.S. citizens.  Your employment offer is contingent upon your providing satisfactory proof of identity and authorization to work in the United States.  Please bring the appropriate original documentation on your first day of work.  A list of acceptable I-9 documentation is attached for your review.

Your employment is at will and may be terminated by you or by Affymetrix for any or no reason, with or without cause or notice.

This offer is contingent upon satisfactory completion of reference checks and background checks.

Please note that the sign-on bonus is deemed earned upon the completion of one year’s employment.  If you are terminated for cause within one year from your start date or in the event you voluntarily terminate your employment with Affymetrix within one year from your start date, your signature at the bottom of this letter signifies your agreement to reimburse Affymetrix in full before or on your termination date.  You may also elect to allow Affymetrix to deduct your sign-on bonus amount from your final paycheck.  (As set forth in Labor Code Section 2924, in order to establish a termination for cause, there must be a willful breach of duty, a habitual neglect of duty or a continued incapacity to perform assigned duties)

In the event of a termination without cause prior to the bonus payment, you will remain entitled to the bonus and will receive it on the date referenced above.  In the event of a termination without cause subsequent to the bonus payout, no reimbursement of the bonus payment will be required.

If you have any questions, please feel free to contact me at (408) 731-5622.  To indicate acceptance of this offer please return a signed copy of this letter to me by the 3rd business day from the date of this offer, close of business.  You may fax the letter back to me at (408) 731-5855.

Sincerely,

/s/ Lori Ciano

Lori Ciano

Senior Vice President, Human Resources

Offer Acceptance:

/s/ Andrew Last	November 4, 2009
Andrew Last
December 7, 2009
Start Date

EX-10.35

EXHIBIT 10.35

LEASE AGREEMENT

(MULTI TENANT FOR

INDUSTRIAL/WAREHOUSE)

BY AND BETWEEN

SBP LIMITED PARTNERSHIP ("Landlord")

and

AFFYMETRIX, INC. ("Tenant")

DATED AS OF THE 10th DAY OF August, 2008

LEASE AGREEMENT

(MULTI- TENANT FOR INDUSTRIAL WAREHOUSE)

TABLE OF CONTENTS

ARTICLE

I           PREMISES

Section 1.1                     Leased Premises

Section 1.2                     The Building

Section 1.3                     Common Areas

Section 1.4                     Parking

Section 1.5                     Construction and Condition of Premises

II           TERM

Section 2.1                     Term of Lease

Section 2.2                     Delayed Occupancy

Section 2.3                     Early Occupancy

Section 2.4                     Quiet Enjoyment

Section 2.5                     Surrender of Possession.

Section 2.6                     Holding Over

III           RENT

Section 3.1                     Base Rent and Additional Rent

Section 3.2                     Additional Rent Based Upon Operating Expenses

Section 3.3                     Additional Rent Based Upon Late Charges (Graduated)

Section 3.4                     Additional Rent Based Upon Taxes and Assessments

Section 3.5                     Additional Rent Based Upon Insurance Costs

Section 3.6                     Additional Rent Based Upon Taxes on Rent

Section 3.7                     Security Deposit

Section 3.8                    Survival

IV           UTILITIES

Section 4.1                    Utilities

Section 4.2                    Interruption of Services

V           USE OF PREMISES/COMPLIANCE

Section 5.1                    Permitted Use

Section 5.2                    Covenants Regarding Use

Section 5.3                    Access to and Inspection of the Premises

Section 5.4                    Compliance with Laws

Section 5.5                    Compliance with Building Rules and Regulations

Section 5.6                    Environmental Matters

VI           MAINTENANCE, REPAIRS AND ALTERATIONS

Section 6.1                    Landlord's Obligations

Section 6.2                    Tenant's Obligations

Section 6.3                    Landlord's Right of Entry

Section 6.4                    Alterations, Additions or Improvements

Section 6.5                    Trade Fixtures

Section 6.6                    Liens

II           LIABILITY, INSURANCE AND INDEMNITY

Section 7.1                    Liability and Insurance

Section 7.2                    Waiver of Subrogation

Section 7.3                    Loss or Damage to Property

Section 7.4                    Indemnity

VIII           DESTRUCTION

Section 8.1                    Casualty Damage and Restoration

IX           DEFAULTS; REMEDIES

Section 9.1                    Defaults

Section 9.2                    Remedies

Section 9.3                    Repeated Default

Section 9.4                    Remedies Cumulative

Section 9.5                    Rent Demand/Accord and Satisfaction

Section 9.6                    Mitigation of Damages

X           ASSIGNMENT AND SUBLETTING

Section 10.1 Assignment and Subletting

XI           NOTICE AND PLACE OF PAYMENT

Section 11.1 Notices

Section 11.2 Place of Payment

XII           SUBORDINATION, ATTORNMENT AND ESTOPPEL

Section 12.1 Subordination

Section 12.2 Attornment

Section 12.3 Estoppel Certificate

XIII           SIGNAGE

Section 13.1 Signage

XIV FINANCING

Section 14.1 Landlord Financing

Section 14.2 Annual Financial Statements

XV RELOCATION

Section 15.1 Relocation

XVI WAIVERS

Section 16.1 No Waiver By Landlord Section 16.2 Waiver of Jury

XVII EMINENT DOMAIN/CONDEMNATION

Section 17.1 Eminent Domain/Condemnation

XVIII MISCELLANEOUS

Section 18.1 Entire Agreement/Exhibits

Section 18.2 Memorandum of Lease

Section 18.3 Successors and Assigns

Section 18.4 Severability of Invalid Provisions

Section 18.5 Choice of Law

Section 18.6 Duplicates

Section 18.7 Brokers/Leasing Fees

Section 18.8 Guarantee

Section 18.9 Authority of Tenant

Section 18.10 Certain Words, Gender and Headings

Section 18.11 Landlord Liability

Section 18.12 Attorneys' Fees

Section 18.13 Force Majeure

Section 18.14 Exhibiting the Premises

Section 18.15 Examination of Lease

Section 18.16 Net Lease

Section 18.17 Survival of Obligations

Section 18.18 No Presumption Against Drafter

EXHIBITS

A           LEASE/TENANT DATA

B           LAYOUT OF PREMISES

C           IMPROVEMENTS TO BE COMPLETED

D           RIDER

E           RULES AND REGULATIONS

ARTICLE I PREMISES

SECTION 1.1 LEASED PREMISES

For and in consideration of the rents and covenants herein contained, Landlord does hereby demise and lease to Tenant, and Tenant does hereby lease and hire from Landlord, upon the terms and conditions hereinafter set forth, a certain portion of the Building (as hereinafter defined), situated at the property commonly known and designated as 26309 Miles Road, Warrensville Heights, OH 44128 (the "Property"), which portion of the Building is more particularly described in Section 2 of Exhibit A attached hereto and the description attached as Exhibit B hereto (which portion of the Building is hereinafter referred to as the "Premises").

SECTION 1.2 THE BUILDING

The building(s) and any improvements affixed to the building on the Property shall hereinafter be referred to as the "Building" and the Premises shall be considered for purposes of this Lease to be a portion of the Building.

SECTION 1.3 THE COMMON AREAS

The term "Common Areas", as used in this Lease refers to the portions of the Building and the Property (or the areas designated as such on Exhibit "A" or Exhibit "B"), which are designated for use in common by all tenants of the Building and the Property and their respective agents, employees, guests, customers, licensees, invitees and others, and which includes, without limitation, sidewalks, driveways, parking areas and landscaped areas.

During the Term (as hereinafter defined), Tenant and Tenant's agents, employees guests, customers, licensees, invitees and others shall have the non-exclusive right, to the extent applicable, to use the Common Areas in common with others in the Building or at the Property, as the case may be, subject to applicable Rules and Regulations (as hereinafter defined).

Landlord shall have the right, in Landlord's sole and absolute discretion, to modify, add to, diminish or reconfigure the Common Areas; provided the foregoing does not impair ingress or egress to or from the Building or the Premises in a material respect.

SECTION 1.4 PARKING

Tenant and Tenant's Representatives (as hereinafter defined) shall have the non-exclusive right to use, in common with others, existing vehicle parking areas serving the Property. The same privilege has been or will be given to other tenants in the Building and to their respective employees, agents, customers and invitees, and neither Tenant hereunder or any other tenant is entitled to any particular assigned spaces in said parking areas. Landlord shall have no responsibility or liability for the parking areas including, without limitation, for the security or patrolling of such parking areas, or for the unauthorized use of such parking spaces by other persons, nor for any damage to or loss of any vehicle while parked on the Property.

SECTION 1.5 CONSTRUCTION AND CONDITION OF PREMISES

Landlord shall make no improvements to the Premises except as expressly set forth in Exhibit C, attached hereto. Tenant acknowledges that neither Landlord nor any broker, agent, employee, officer, director or representative of Landlord has made any representation, warranty or promise with respect to the Premises or the Building or the Property except as herein expressly set forth, and no right, privilege, easement or license is acquired by Tenant except as herein expressly set forth. Tenant, by taking possession of the Premises, hereby accepts the Premises as defined and described in Section 2 of Exhibit A and further accepts the Premises and the Building in their "as is, where is condition" and such taking of possession shall be conclusive evidence that the Premises and the Building: (i) are as described in Section 2 of Exhibit A; and (ii) are in good and satisfactory condition at the time of such taking of possession. Landlord shall deliver the Premises complete and ready for construction of Tenant's Improvements. Landlord shall construct, equip and furnish the Tenant Improvements set forth in Exhibit C ("Tenant Improvements"). All Tenant Improvements shall be and remain the property of Landlord. In the event Tenant employs someone other than Landlord to complete any construction work, Tenant shall first obtain Landlord's prior written consent to the contractor selected by Tenant, which response to Tenant's request for consent shall not unreasonably delayed, and Tenant shall pay to Landlord, Landlord's cost to review all construction plans and work performed by Tenant or its agents, contractor or subcontractors. Landlord shall not manage the construction undertaken by the Tenant. All such fees and costs shall be payable to Landlord as Additional Rent (as hereinafter defined), with the Base Rent (as hereinafter defined) payment.

ARTICLE II TERM

SECTION 2.1 TERM OF LEASE

Except as hereinafter provided, the "Term", "Commencement Date" and "Expiration Date" of this Lease shall be as set forth in Section 4 of Exhibit A.

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SECTION 2.2 DELAYED OCCUPANCY

If Landlord is unable to deliver possession of the Premises on the Commencement Date by reason of the holding over of any tenant or occupant, or for any other reason beyond the reasonable control of Landlord, and further provided such delay is not the fault of Tenant, then the Rents reserved and any other charges payable hereunder by Tenant shall abate until the Premises is available for occupancy by Tenant. No such failure to deliver possession on the Commencement Date shall affect the validity of this Lease or Tenant's obligations hereunder, nor shall Landlord be liable to Tenant for any resulting damage or loss. Tenant hereby agrees to accept such abatement as liquidated damages, in full satisfaction of and to the exclusion of any other claim, right or remedy Tenant may have by reason of such delay.

SECTION 2.3 EARLY OCCUPANCY

If, at Tenant's request, Landlord shall make the Premises available to Tenant prior to the Commencement Date for the purpose of installing fixtures and equipment or moving inventory into the Premises, then all of the terms and conditions of this Lease, except for the obligation to pay Base Rent, shall be in full force and effect from and after the date that Tenant shall first occupy said Premises or any part thereof.

SECTION 2.4 QUIET ENJOYMENT

If and so long as Tenant pays all Rent (as hereinafter defined) required pursuant to this Lease and performs or observes all of the terms, conditions, covenants and obligations of this Lease required to be performed or observed by Tenant hereunder, Tenant shall, at all times during the Term hereof, have the peaceable quiet enjoyment and possession of the Premises without any interference from Landlord or any person or persons claiming the Premises by, through or under Landlord.

SECTION 2.5 SURRENDER OF POSSESSION

Upon the expiration of the Term or earlier termination of this Lease, Tenant shall surrender and deliver possession of the Premises to Landlord together with all additions, alterations, improvements and replacements thereto (whether made by Tenant or Landlord and without any compensation or credit to Tenant) in broom clean condition and in good condition and repair, excepting only ordinary wear and tear and loss by insured casualty. If any of Tenant's fixtures, equipment or other personal property kept in or about the Premises shall not have been removed therefrom prior to the surrender of the Premises hereunder, such fixtures, equipment and other personal property, at the option of Landlord, shall be deemed abandoned by Tenant and title thereto shall pass to Landlord without payment, notice or credit by Landlord to Tenant, and Landlord may store and/or dispose of same as it deems fit without any liability to Tenant or any other person.

SECTION 2.6 HOLDING OVER

If Tenant shall remain in possession of all or any part of the Premises after the expiration of the Term, Tenant shall be deemed a tenant of the Premises from month to month, at a monthly rental equal to twice the monthly rental then being paid by Tenant and subject to all the other terms and conditions of the within Lease which are not inconsistent with such month to month tenancy. Nothing herein contained shall be deemed a consent to or approval of, or to excuse, any holding over by Tenant without Landlord's prior written consent or without a new written agreement between the parties. Negotiations between the parties shall not be construed as an agreement by Landlord to renew this Lease or enter into a new lease agreement. In addition to the foregoing, Tenant's occupancy shall be extended under this Section 2.6 for the period, if any, during which environmental remediation pursuant to Section 5.6 hereof is taking place.

ARTICLE III RENT

SECTION 3.1 BASE RENT AND ADDITIONAL RENT

Tenant shall pay, as base rent for the Premises, the sum specified in Section 5(a) of Exhibit A (the "Base Rent"). Tenant shall pay, as additional rent, the sums designated as "Additional Rent" under this Lease and all other sums, charges and fees as provided for in this Lease or in any other agreement or writings between the parties (collectively, the "Additional Rent"). Tenant shall pay Base Rent and Additional Rent in equal consecutive monthly installments, unless Landlord bills the sums otherwise. Base Rent and Additional Rent are sometimes collectively referred to hereinafter as "Rent" or "Rents". Landlord shall not be required to accept any Rent paid if Tenant is in default hereunder. The monthly installments of Base Rent and Additional Rent are payable in advance, without demand, deduction, abatement, counterclaim, recoupment or offset of any kind or amount for any reason whatsoever, on or before the first day of each and every calendar month during the Term. Any Rent payable with respect to a period of time beginning prior to the Commencement Date or ending after the expiration of the Term shall be prorated.

SECTION 3.2 ADDITIONAL RENT BASED ON OPERATING EXPENSES

(a)           For purposes of this Lease, the term "Operating Expenses" shall include, without limitation, all costs and expenses incurred by Landlord in operating, maintaining, managing, equipping, repairing and replacing the Property and/or keeping the Property in compliance with all Laws (as hereinafter defined), and further including, without limitation, exterior building maintenance, snow removal, landscaping, water and any other utilities attributable to the Common Areas; insurance costs not otherwise provided for in the Lease; supplies, sundries, management fees, sales or use tax on supplies or services; costs of wages and salaries of all persons engaged in performing any of the

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foregoing (including so-called fringe benefits, social security taxes, unemployment insurance taxes, costs for providing coverage for disability benefits, costs of any pensions, hospitalization, welfare or retirement plans or any other similar or like expenses incurred under the provisions of any collective bargaining agreement, or any other reasonable cost which Landlord pays or incurs to provide benefits for employees directly engaged in performing any of the foregoing activities); and legal and accounting expenses. There shall not be included in Operating Expenses, depreciation, interest on amortization of any mortgage affecting the Property, leasehold improvements made for any tenant at the Property, brokerage commissions and financing costs. Operating Expenses shall include all capital improvements required, as a result of Tenant's use andoccupancy to keep the Property in compliance with Laws, but shall not include any other capital improvements. For purposes of this Lease, "capital improvements" shall be determined using Generally Accepted Accounting Principles ("GAAP"). The cap on any increase in expenses is set forth on Exhibit A, which is incorporated herein by reference.

(b)           For purposes of this Lease, the term "Tenant's Proportionate Share" shall mean that percentage specified in Section 2(c) of Exhibit "A".

(c)           Tenant shall pay Landlord, as Additional Rent, in the manner stated below, Tenant's Proportionate Share of the Operating Expenses, incurred during the Term.

(d)           Tenant shall pay to Landlord, on the first day of each month in advance, the sum equal to 1/12`s of the annual estimated Operating Expenses. After each calendar year, Landlord shall deliver a statement to Tenant setting forth that sum equal to Tenant's Proportionate Share of the actual Operating Expenses for the Property and that sum equal to the total monthly installments paid by Tenant pursuant to this Section for that calendar year. If the amount actually due from Tenant shall be more than the payments made by Tenant, Tenant shall pay Landlord, as Additional Rent, that sum equal to the difference, within thirty (30) days of Tenant's receipt of Landlord's statement. If the amount actually due from Tenant shall be less than the payments made by Tenant, Landlord shall have the right, in Landlord's sole and absolute discretion, to either refund the overpayment to Tenant or credit the overpayment against Tenant's next due monthly installments pursuant to this Section.

(e)           Within forty-five (45) days after receipt of the statement for the period for which these items are billed, Tenant or its authorized agent shall have the right, at Tenant's sole cost and expense, to inspect and audit Landlord's records with respect to Tenant's pro rata share of Operating Expenses, Real Estate Taxes and Insurance Costs, which audit shall be at the office of Landlord's Property Manager, upon ten (10) days prior written notice, during said Property Manager's normal business hours. There shall be one (1) statement per year. Except as aforesaid, Landlord shall not be obligated to provide Tenant with detailed summaries or receipts for any expenses incurred by the Property; but Landlord shall provide Tenant with a statement setting forth such expenses, categorized by class and amount. Upon written request, Landlord will provide Tenant with reasonable documentation in support of any particular expense. Unless Tenant asserts specific errors within sixty (60) days after receipt of each statement, said statement shall be deemed to be correct. If Tenant identifies errors during the inspection and audit process, Tenant shall advise Landlord of the same within the sixty (60) day period, and Landlord shall negotiate in good faith with the Tenant to resolve any such errors.

SECTION 3.3 ADDITIONAL RENT BASED UPON LATE CHARGES (GRADUATED)

All Rent and other charges payable under this Lease, which are not paid when due, shall be subject to a five percent (5%) late payment fee per month, commencing the second day of the month and continuing through the fifth day, ten percent (10%) commencing on the sixth day of the month and continuing through the tenth day and fifteen percent (15%) commencing on the eleventh day of the month and thereinafter, until paid in full, computed upon the amount which is in default (all of which shall be deemed to be Additional Rent); not, however, to the exclusion of any other remedy for breach or default available to Landlord under this Lease, at law, in equity or otherwise. In the event Landlord is required to process a check from Tenant which has been returned by the bank due to any act or omission of Tenant, Landlord shall be entitled to immediate payment of a handling charge of One Hundred and no/ 100 Dollars ($100.00), in addition to any such late payment charges and arrearages. Tenant acknowledges and agrees that the late charges are provided to ensure Tenant's prompt payment of all Rent when due so as to enable the timely payment by Landlord of the expenses of the Premises, to avoid the possibility of forfeiture, interest charges or penalties, lender charges or penalties, additional management expenses and avoid the impairment of Landlord's creditworthiness. Tenant further acknowledges and agrees that such late charges are not a penalty.

SECTION 3.4 ADDITIONAL RENT BASED UPON TAXES AND ASSESSMENTS

Tenant shall pay to Landlord, as Additional Rent, during each calendar year of the Term, Tenant's Proportionate Share of the cost of any and all real estate taxes, charges and assessments (general and special), levied or assessed against the Property (the "Real Estate Taxes"). Tenant shall pay such Proportionate Share of the Real Estate Taxes to Landlord monthly, in advance, without interest accruing thereon, in an amount representing one twelfth (1/12`s) of Tenant's Proportionate Share of the annual Real Estate Taxes as estimated from time to time by Landlord. Annually, Landlord shall deliver a statement to Tenant setting forth that sum equal to Tenant's Proportionate Share of the actual amount of Real Estate Taxes paid by Landlord. If the amount actually due from Tenant for Real Estate Taxes shall be more than the payments made by Tenant for Real Estate Taxes, Tenant shall pay Landlord, as Additional Rent, that sum equal to the difference, within five (5) days of Tenant's receipt of Landlord's statement. Conversely, if the amount actually due from Tenant for Real Estate Taxes shall be less than the payments made by Tenant for Real Estate Taxes, Landlord shall refund the overpayment to Tenant unless Tenant's account is in arrears, in which case Landlord shall apply the overpayment to the arrearage.. Landlord shall equitably apportion Real Estate Taxes applicable to periods prior or subsequent to the first and final year of the Term. If Landlord successfully appeals a Real Estate Tax assessment, Tenant shall pay to Landlord its proportionate share of the legal costs incurred.

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SECTION 3.5 ADDITIONAL RENT BASED UPON INSURANCE COSTS

Tenant shall pay to Landlord, as Additional Rent, during each calendar year of the Term, Tenant's Proportionate Share of the cost of any and all insurance maintained by Landlord with respect to the Premises (including, without limitation, commercial general liability insurance and commercial property insurance) all in amounts and with coverages and deductibles as determined in Landlord's reasonable discretion (the "Insurance Costs"). Tenant shall pay

Tenant's Proportionate Share of such Insurance Costs to Landlord monthly, in advance, without interest accruing thereon, in an amount representing one twelfth (1/ 12`s) of Tenant's Proportionate Share of the annual Insurance Costs as estimated from time to time by Landlord. Annually, Landlord shall deliver a statement to Tenant setting forth that sum equal to Tenant's Proportionate Share of Insurance Costs actually paid by Landlord. If the amount actually due from Tenant for Insurance Costs shall be more than the payments made by Tenant for Insurance Costs, Tenant shall pay Landlord, as Additional Rent, that sum equal to the difference, within five (5) days of tenant's receipt of Landlord's statement. Conversely, if the amount actually due from Tenant for Insurance Costs shall be less than the payments made by Tenant for Insurance Costs, Landlord shall have the right, in Landlord's sole and absolute discretion, to either refund the overpayment to Tenant or credit said overpayment against Tenant's next due monthly installments pursuant to this Section. Insurance Costs applicable to periods prior or subsequent to the first and final year of the Term shall be equitably apportioned by Landlord.

SECTION 3.6 ADDITIONAL RENT BASED UPON TAXES ON RENT

If at any time during the Term, a tax or charge shall be imposed by any governmental authority having jurisdiction over the Premises or the Property, which tax or charge shall be based on any Rent due or paid by Tenant to Landlord, then Tenant shall pay Landlord, as Additional Rent, such tax or charge. The foregoing shall not require payment by Tenant of any income taxes assessed against Landlord or any capital levy, franchise, estate, succession, inheritance or transfer tax due from Landlord.

SECTION 3.7 SECURITY DEPOSIT

Concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum set forth in Section 6 of Exhibit A, which sum shall be held by Landlord as a "Security Deposit" for the performance by Tenant of Tenant's covenants and obligations under this Lease, it being expressly understood that the deposit shall not be considered an advance payment of Rent or a measure of Landlord's damage in case of default by Tenant. If Tenant fully and faithfully performs its obligations under this Lease, and delivers possession of the Premises to Landlord, in accordance with this Lease, the Security Deposit, or balance thereof then held by Landlord, shall be returned to Tenant at the expiration of the Term and after Tenant has delivered and surrendered to Landlord possession of the entire Premises and further provided that no default by Tenant under the Lease shall have occurred and be continuing without cure at such time. Landlord may, but shall not be obligated to, use or apply all or any part of the Security Deposit, as necessary, to cure any default of Tenant under this Lease. In the event all or any portion of the Security Deposit is applied by Landlord to cure any default or pay for any cost, expense, damage or loss pursuant to this Lease, Tenant shall, within five (5) days of Landlord's demand, deposit with Landlord such sums as may be necessary to restore the Security Deposit to its original amount. The failure of Tenant to restore the Security Deposit to its full amount shall entitle Landlord to all of the same rights and remedies Landlord has for non-payment of Rent by Tenant. Landlord shall be free to commingle the Security Deposit with Landlord's own funds. In the event of a transfer by Landlord of Landlord's interest in the Premises, Landlord may deliver the Security Deposit to the transferee of Landlord and Landlord shall thereupon be discharged from any further liability to Tenant with respect to such Security Deposit, provided such transferee assumes Landlord's obligations with respect to such Security Deposit. In the event of an assignment of this Lease by Tenant, the Security Deposit shall be deemed to be held by Landlord as a deposit made by the assignee, and Landlord shall have no further responsibility for the return of such Security Deposit to the assignor. Tenant shall not assign or otherwise encumber or pledge the Security Deposit.

SECTION 3.8 SURVIVAL

The provisions of this Article III shall survive the expiration or earlier termination of this Lease.

ARTICLE IV UTILITIES

SECTION 4.1 UTILITIES

Tenant shall promptly pay for all of the costs for all utilities and any taxes thereon (whether separately metered or submetered) furnished to the Premises from the Commencement Date and continuing throughout the Term and any extension or holdover thereof, including, without limitation, electric, gas, water and sewer charges. In the event a submeter fails for any period, Tenant shall pay the cost of the utility services proposed by Landlord, which shall be an estimate based on Tenant's usage prior to the time of such failure. In addition to Landlord's other rights pursuant to this Lease or at law, in equity or otherwise, Landlord shall have the right to discontinue any utility service furnished to Tenant by Landlord, on 10 days prior written notice to Tenant, whenever and during such period of time that any utility charges remain unpaid beyond any applicable cure period.

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SECTION 4.2 INTERRUPTION OF SERVICES

Tenant understands and acknowledges that any one or more utilities or other Building or Property services may be interrupted by reason of accident, failure of equipment, emergency or other causes, or may be interrupted, discontinued or diminished temporarily by Landlord or other persons until certain repairs, alterations or improvements can be made; that Landlord does not represent or warrant the uninterrupted availability of such utilities or Building or Property services and that any such interruption shall not be deemed an eviction or a disturbance of Tenant's right to possession, occupancy and use of the Premises or any part thereof, or render Landlord liable to Tenant for damages by abatement of Rent or otherwise, or relieve Tenant from its obligation to perform under this Lease, or constitute a termination of this Lease or an eviction of Tenant, constructive or otherwise.

ARTICLE V USE OF PREMISES/COMPLIANCE WITH LAWS

SECTION 5.1 PERMITTED USE

Tenant represents, warrants and covenants that the Premises shall be used solely for the purposes specified in Section 3 of Exhibit A in the normal course of business in Tenant's trade or industry and in accordance with the terms, conditions, covenants and obligations set forth in this Lease and the reasonable recommendations of Landlord's insurance underwriters, and for no other purpose or use whatsoever, without the prior written consent of Landlord, which consent may be withheld, in Landlord's sole and absolute discretion. Tenant shall not use or occupy, or permit the use or occupancy of the Premises, in any manner that may constitute a nuisance; or violate the terms, conditions, covenants and obligations of this Lease or any one or more applicable Laws or any certificate of occupancy applicable to the Premises; or for any purpose or in any manner liable to cause damage to the Premises.

SECTION 5.2 COVENANTS REGARDING USE

In connection with its use of the Premises, Tenant agrees to the following:

(a)            Tenant shall not use the Premises, the Building or the Property or allow the Premises, the Building or the Property to be used in any manner deemed hazardous because of fire risk or otherwise. No Hazardous Material (as hereinafter defined), or equipment which does not bear the Underwriter's Laboratory approval, shall be brought or kept on the Premises, the Building or the Property, or adjacent areas, or stored or used therein, without the prior written consent of Landlord which consent may be withheld in Landlord's sole and absolute discretion. If any of Tenant's operations produce gases, vapors, odors, smoke, residuary material or noise disturbing to Landlord or the neighbors to the Premises, the Building or the Property or creates a private or public nuisance, Tenant will, on Landlord's written request, immediately cease such operation or immediately install ventilating or other apparatus necessary to eliminate such disturbances or nuisance, at Tenant's sole cost and expense. If Tenant installs equipment which unbalances or overloads electrical equipment or wiring in or about the Premises, the Building or the Property it shall immediately correct such unbalanced or overloaded condition and replace any equipment or wiring thereby damaged, at its sole cost and expense. Further, Tenant shall not deposit oil, grease, solvents or other substances in sewers or drains serving the Premises, the Building or the Property. In the event of a spill, discharge or release of the foregoing, Tenant shall have such sewers and drains cleaned at its sole cost and expense.

(b)            Tenant shall not use the Premises, the Building or the Property or allow the Premises, the Building or the Property to be used, for any purpose or in any manner which would void any policy of insurance now or hereinafter carried on the Premises, the Building or the Property; render the Premises, the Building or the Property uninsurable; or increase the rate of premiums payable on any such insurance policy. Tenant, at its sole cost and expense, shall comply with any and all requirements of any insurance organization or company necessary for the maintenance of "all risks" insurance, including, without limitation, fire and other casualty and general public liability insurance covering the Premises, the Building and the Property. Should Tenant fail to comply with this covenant, Landlord may, at its option, require Tenant to stop engaging in such activity or to reimburse Landlord, as Additional Rent, for any increase in premiums charged during the Term on the insurance carried by Landlord on the Premises, the Building or the Property and attributable to the use being made of the Premises, the Building or the Property by Tenant. If Tenant stores pallets or other materials outside the Premises in a manner that fails to comply with local governmental regulations and, as a result thereof, Landlord incurs a casualty loss, Tenant agrees to pay the amount of Landlord's deductible.

(c)            Tenant acknowledges that nothing set forth in this Section 5.2 shall be deemed to give Tenant any right to use the Premises, the Building or the Property, other than as expressly set forth in this Lease.

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SECTION 5.3 ACCESS TO AND INSPECTION OF THE PREMISES

Landlord reserves the right (but not the obligation), for itself, its agents, employees, contractors and subcontractors, to enter the Premises or any part thereof, at any time in the event of an emergency, and otherwise at reasonable times after reasonable notice, to take any and all measures, including, without limitation, inspections, repairs, alterations, additions and improvements to the Premises, as may be necessary or desirable for the safety, protection or preservation of the Premises or Landlord's interests, or as may be necessary in order to comply with all Laws, or for the purpose of exhibiting same to prospective tenants, purchasers, lenders, or existing mortgagees. In the event of any spill, release, discharge, or placement of Hazardous Material in, on about or beneath the Premises or migrating or threatening to migrate to or from the Premises, Landlord shall have the right (but not the obligation), and without limiting Landlord's other rights and remedies under this Lease, at law, in equity or otherwise, to take immediate responsive action, including, without limitation, entering the Premises for testing purposes and implementing such remediation as it deems necessary or advisable, without interference from Tenant. All reasonable costs and expenses incurred by Landlord in the exercise of any such rights shall be payable by Tenant within five (5) days of Landlord's demand, as Additional Rent. Nothing in this Section creates any obligation on Landlord to make any repairs, replacements, alterations, additions and improvements to the Premises nor does it excuse or relieve any obligation on Tenant hereunder.

SECTION 5.4 COMPLIANCE WITH LAWS

Tenant shall, at its sole cost and expense, comply with all laws, ordinances, policies, rules, regulations, statutes, binding determinations, directives, requirements, decrees, injunctions, orders, writs, licenses and permits, of all federal, state, regional, county, local, municipal and all other agencies, authorities or bodies, now in effect or as hereinafter may be enacted or amended, applicable to the Premises, the Building, the Property, Tenant or Tenant's use, occupancy or operations at the Premises (the "Laws"); provided, however, Tenant shall have no obligation to make any alteration or improvement to the Premises which would constitute a capital improvement, to the extent that said capital improvements are necessitated by something other than Tenant's actions or conduct or Tenant's use, occupancy and/or operations at the Premises. Notwithstanding the foregoing, if the cost of any capital improvement(s) exceeds, or shall be reasonably expected to exceed, Twenty-Five Thousand and no/100 Dollars ($25,000), Landlord shall have the right to terminate this Lease upon sixty (60) days notice to Tenant. Tenant shall, at its sole cost and expense, secure all necessary governmental certificates and permits for its use and occupancy of the Premises as are required from time to time (including, without limitation, a certificate of occupancy); provide copies of the same to Landlord upon request or whenever a new certificate or permit is required to be obtained; and make such repairs, replacements, alterations, additions and improvements to the Premises as may be required to obtain such certificates or permits.

SECTION 5.5 COMPLIANCE WITH BUILDING RULES AND REGULATIONS

"Rules and Regulations" governing the use and occupancy of the Building and the Property have been adopted by Landlord for the mutual benefit of all tenants in the Building and at the Property. Tenant shall comply with and conform to the Rules and Regulations currently in effect, which are set forth in Exhibit E attached hereto. Landlord shall have the right to amend such Rules and Regulations or to adopt new Rules and Regulations, from time to time, in any manner that it deems necessary or desirable in order to insure the safety, care, proper maintenance and cleanliness of the Premises and the preservation of order therein.

SECTION 5.6 ENVIRONMENTAL MATTERS.

Landlord represents that, to the best of its knowledge, without further inquiry or investigation, there currently are no hazardous materials stored on the Premises and that is has received no notice from any governmental agency that the Premises is in violation or any Environmental Laws.

5.6.1 Definitions.

5.6.1.1 Hazardous Material. "Hazardous Material" shall mean: (1) any substance, chemical, material, organism or waste (whether solid, liquid, gaseous or otherwise) that is corrosive, dangerous, explosive, f l ammable, hazardous, pathogenic, radioactive, reactive or toxic, or that is listed, defined or regulated as such under any one or more of the Environmental Laws (as hereinafter defined); (2) petroleum, petroleum derivatives, petroleum products, crude oil, distillates or fractions; (3) polychlorinated biphenyls (PCB's), asbestos, asbestos containing materials, urea formaldehyde, lead, radioactive materials, radon, "fill" or any material containing the previously mentioned substances; (4) any substance, chemical, material, organism or waste (whether solid, liquid, gaseous or otherwise) defined as a "contaminant", "pollutant", "hazardous materials", "hazardous substance", "hazardous waste", "toxic substance", "solid waste" or "medical waste" under any one or more of the Environmental Laws; and (5) any mixture of the above.

5.6.1.2 Environmental Laws. "Environmental Laws" shall mean any and all laws, ordinances, policies, rules, regulations, statutes, binding determinations, directives, requirements, decrees, injunctions, orders, writs, licenses and permits, of federal, state, regional, county, local, municipal and all other agencies, authorities or bodies which regulate or pertain to the environment or environmental matters or the protection or preservation of human health or safety, now in effect or as hereinafter may be enacted or amended, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.§9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq.; the Clean Air Act, 42 U.S.C. §7401 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Safe Drinking Water Act, 42 U.S.C.§300f and §300j et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 136 et seq.; the Toxic Substances Control Act, 15 U.S.C. §2601 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. §5101 et seq.; the Emergency Planning and Community Right to Know Act of 1986, 42 U.S.C. § 11001, et seq.; and the Occupational Safety and Health Act, 29 U.S.C. §651 et seq., all as may be amended from time to time, and all regulations, rules and guidelines now or hereinafter promulgated thereunder.

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5.6.1.3 Environmental Damages. "Environmental Damages" shall mean all claims, suits, administrative hearings, judgments, damages, losses, penalties, fines, liabilities (including, without limitation, strict liability), encumbrances, liens, costs and expenses of investigation and defense of any suit or claim, costs to satisfy any settlement or judgment, and costs of environmental investigation, remediation, removal, response or monitoring, of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable or unforeseeable, including, without limitation, reasonable attorneys, consultants and witness fees and disbursements, any or all of which are incurred at any time as a result of the existence of Hazardous Material in, on, about, or beneath the Premises or migrating or threatening to migrate to or from the Premises, or the existence of a violation of any one or more of the Environmental Laws pertaining to the Premises, including without limitation, diminution of the value of the Property and damages for the loss of business and restriction on the use of or adverse impact on the marketing of rent-able or usable space at the Property or any amenity to the Property.

5.6.2

a) Tenant's Obligation to Indemnify Concerning Environmental Matters. Tenant and its respectivesuccessors and assigns shall indemnify, defend and hold Landlord and Landlord's shareholders, partners, members, owners, affiliates, officers, director, employees, agents and representatives (collectively "Landlord's Environmental Indemnitees") and the successors and assigns of Landlord and Landlord's Environmental Indemnitees harmless from and against any and all claims, demands, causes of action, actions, administrative proceedings (formal or informal), losses, costs, damages, expenses (including, without limitation, sums paid in settlement and reasonable fees for attorneys, consultants, experts and accountants [including, without limitation, any fees and expenses incurred in enforcing this indemnity]), injuries, judgments, liabilities, obligations, penalties, fines or claims of any other kind or nature (including, without limitation, all governmental claims and all third party claims), foreseen or unforeseen (including, without limitation, injury to or death of any person or damage to person or property in or about the Premises, the Building, the Property and/or their environs) which may be imposed upon, incurred by or asserted against Landlord or any one or more of Landlord's Environmental Indemnitees for Environmental Damages, to the extent the foregoing was directly or indirectly caused by, arose or resulted from, or was connected with: (a) any act or omission of Tenant or any Tenant Representative; (b) Tenant's use and occupancy of the Premises, the Building, the Property and/or their environs; (c) the conduct of Tenant's business; or (d) any default by Tenant in the performance of Tenant's obligations under this Section 5.6.

b) Landlord's Obligation to Indemnify Concerning Environmental Matters. Landlord and its respective successors and assigns shall indemnify, defend and hold Tenant and Tenant's shareholders, partners, members, owners, affiliates, officers, directors, employees, agents and representatives (collectively "Tenant's Environmental Indemnitees") and the successors and assigns of Tenant and Tenant's Environmental Indemnitees harmless from and against any and all claims, demands, causes of action, actions, administrative proceedings (formal or informal), losses, costs, damages, expenses (including, without limitation, sums paid in settlement and reasonable fees for attorneys, consultants, experts and accountants [including, without limitation, any fees and expenses incurred in enforcing this indemnity]), injuries, judgments, liabilities, obligations, penalties, fines or claims of any other kind or  nature (including, without limitation, all governmental claims and all third party claims), foreseen or unforeseen (including, without limitation, injury to or death of any person or damage to person or property in or about the Premises, the Building, the Property and/or their environs) which may be imposed upon, incurred by or asserted against Tenant or any one or more of Tenant's Environmental Indemnitees for Environmental Damages, to the extent the foregoing was directly or indirectly caused by, arose or resulted from, or was connected with: (a) any act or omission of Landlord or any Landlord Representative; (b) Landlord's use of the Property and/or their environs; or (c) any default by Landlord in the performance of Landlord's obligations under this Section 5.6.

5.6.3            Tenant's Obligation to Investigate and Remediate. Notwithstanding the obligation of Tenant to indemnify Landlord pursuant to this Lease, and in addition to Tenant being in default under this Lease, with Landlord having all rights and remedies available to it under this Lease and at law, in equity or otherwise as a result of such default, Tenant shall, immediately, upon Landlord's demand, and at Tenant's sole cost and expense, take all actions to investigate and remediate the Premises, the Building, the Property and/or their environs, which investigation and remediation is necessitated by the: (1) use, spill, discharge, release or placement of Hazardous Material in, on, about, or beneath the Premises, the Building, the Property and/or their environs impacted by such Hazardous Materials or migrating or threatening to migrate to or from the Premises, the Building, the Property and/or its environs impacted by such Hazardous Materials or (2) a violation of any one or more of the Environmental Laws, either of which is caused by the actions or omissions of Tenant, or any one or more of Tenant's Representatives. Such actions shall include, without limitation, the investigation of the environmental condition of the Premises, the Building, the Property and/or the environs impacted by such Hazardous Materials, the preparation of any feasibility studies, reports, or remedial plans, and the performance of any cleanup, remediation, containment, operation, maintenance, monitoring, or restoration work, whether on or off the Premises. Tenant shall take all actions, continuously and diligently, necessary to restore the Premises, the Building, the Property and/or the environs impacted by such Hazardous Materials to the condition existing prior to the use, spill, discharge, release or placement of Hazardous Material in, on, about, or beneath the Premises, the Building, the Property and/or the environs impacted by such Hazardous Materials, notwithstanding any lesser standard of remediation permissible under Environmental Laws. All such work shall be performed by one or more contractors, selected by Tenant and approved in advance and in writing by Landlord. Any such actions shall be performed in compliance with all Laws and all Environmental Laws and in a good, safe, and workmanlike manner and shall minimize any impact on the business conducted at the Premises, the Building, the Property and/or the environs impacted by such Hazardous Materials. Tenant shall promptly provide to Landlord copies of all environmental documents, including without limitation, testing results, plans and reports that are generated in connection with the above activities, and copies of any correspondence with and submissions to any governmental entity related to such activities.

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5.6.4            Landlord's Right to Remediate. In addition to Landlord's rights under Section 5.3, should Tenant fail to promptly and diligently perform any of its obligations described in Paragraph 5.6.3 hereof, then Landlord shall have the right (but not the obligation) without limiting Landlord's rights and remedies under this Lease, or at law, in equity or otherwise, to enter the Premises personally or through its agents, consultants, contractors and subcontractors and perform the same at Tenant's sole cost and expense, and all sums incurred by Landlord shall be paid by Tenant, as Additional Rent, within five (5) days of Landlord's demand.

5.6.5Notification. If Tenant shall become aware of or receive notice or other communication concerning any actual, alleged, suspected, or threatened: (1) violation of any one or more Environmental Laws; (2) liability of Tenant for Environmental Damages; (3) activity of any other person that may result in Environmental Damages; or (4) violation of any term, condition, covenant, obligation, representation or warranty set forth in this Section, then Tenant shall deliver to Landlord, within three (3) days of becoming aware of such instance or receiving such notice or communication by Tenant, a written description of said condition, violation, liability, activity or correct information, together with copies of any such notice or communication. Receipt of such notice shall not be deemed to create any obligation on the part of Landlord to defend or otherwise respond to any such notice or communication.

5.6.6            Negative Covenants.

5.6.6.1 No Hazardous Material on Premises. Except in strict compliance with all Environmental Laws, Tenant shall not cause or permit any Hazardous Material to be brought upon, treated, kept, stored, disposed of, discharged, released, produced, manufactured, generated, refined, or used in, on, about, or beneath the Premises by Tenant or a "Tenant Representative". For purposes of this Lease, the term "Tenant Representative" shall mean any one or more of its agents, employees, officers, directors, shareholders, partners, members, owners, affiliates, contractors, subcontractors, customers, guests, licensees, invitees, assignees, successors or any other third person, other than Landlord or another tenant of the Building (sometimes individually and collectively referred to in this Lease as the "Tenant's Representatives").

5.6.6.2 No Violations of Environmental Laws. Tenant shall not cause or permit the existence or the commission by Tenant, or any one or more of Tenant's Representatives, of a violation of any one or more of the Environmental Laws in, on, about or beneath the Premises, the Building, the Property and/or the environs impacted by such violation or any portion thereof.

5.6.6.3 No Environmental or Other Liens. Notwithstanding any other term or condition contained in this Lease, Tenant shall not create or suffer or permit to exist with respect to the Premises, the Building, the Property and/or the environs impacted by such lien, any lien, security interest, or other charge or encumbrance of any kind, to the extent that such lien arises out of the actions or omissions of Tenant or any one or more of Tenant's Representatives.

5.6.7            Landlord's Right to Inspect and to Audit Tenants Records. Landlord shall have the right, in its sole and absolute discretion, but not the obligation, to enter upon and conduct an inspection or compliance audit of the Premises and to inspect and audit Tenant's records concerning Hazardous Materials, at any reasonable time, except in the event of an emergency, to determine whether Tenant is complying with the terms of the Lease, including, without limitation, the compliance of the Premises and the activities thereon with Environmental Laws and the existence of, or potential existence of, Environmental Damages. If Landlord believes Tenant is in default with respect to any of the terms and conditions of this Lease related to Hazardous Materials, Environmental Laws or Environmental Damages, Landlord shall have the right, but not the obligation, to retain at the sole cost and expense of Tenant which shall be paid by Tenant to Landlord as Additional Rent, within five (5) days of Landlord's demand, independent professional consultants to enter the Premises to conduct such an inspection and audit and to inspect and audit any records or reports prepared by or for Tenant concerning such compliance. Tenant hereby grants to Landlord, its agents, employees, consultants, contractors and subcontractors, the right to enter the Premises and to perform such tests on the Premises as are necessary, in the opinion of Landlord, to assist in such inspections and audits. Landlord shall use reasonable efforts to minimize interference with the business of Tenant by such tests, inspections, and audits, but Landlord shall not be liable for any interference caused thereby.

5.6.8            Landlord's Obligation. Landlord shall be responsible for Environmental Damages to the extent arising from activities of Landlord, activities of other tenants or activities which occurred prior to the Commencement Date (and were not caused or exacerbated by Tenant or any one or more of Tenant's Representatives) which: (1) result in the presence of Hazardous Material in, on, about, or beneath the Premises or migrating to or from the Premises in violation of Environmental Laws, or (2) result in the violation of any one or more Environmental Laws pertaining to the Premises.

5.6.9            No Storage Tanks Without Written Approval. Tenant shall not install any aboveground storage tanks, underground storage tanks or waste water treatment facilities or other similar facilities in, on, about or beneath the Premises without prior written consent of Landlord, which consent may be withheld in Landlord's sole and absolute discretion.                                                           -

5.6.10            Interpretation. The obligations imposed upon Tenant under this Section 5.6 are in addition to and are not intended to limit, but to expand upon, the obligations imposed upon Tenant under Section 5.4 and Section 5.5.

5.6.11            Survival of Environmental Obligations. The obligations of Tenant as set forth in Section 5.6 and all of its subparagraphs shall survive termination of this Lease and the expiration of the Term. Tenant's failure to abide by the terms and conditions of this Section shall be restrainable or enforceable, as the case may be, by injunction.

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ARTICLE VI MAINTENANCE, REPAIRS AND ALTERATIONS

SECTION 6.1 LANDLORD'S OBLIGATIONS.

(a)           Except as otherwise expressly provided in this Lease, Landlord shall maintain and make all necessary repairs and replacements to the exterior structure of the Building (including, the exterior walls and foundations, the roof, gutters and downspouts), to the interior structural supports of the Building, and to the parking lot, so as to keep same in good order, condition and repair.

(b)           Except as otherwise expressly provided in this Lease, Landlord shall maintain and make all necessary repairs and replacements to the Common Areas, including, without limitation, snow and ice removal of the parking lot and lawn mowing and weed control.

(c)           Any and all loss, injury, breakage or damage to the Premises or the Building or the Property caused, directly or indirectly, by Tenant or any one or more of Tenant's Representatives including, without limitation, individuals and persons making deliveries to or from the Premises, except to the extent that the foregoing is inconsistent with the provisions of the "Waiver of Subrogation" set forth in Section 7.2 of this Lease, shall be repaired or replaced by Landlord at the sole cost and expense of Tenant. Tenant shall pay Landlord, as Additional Rent, all costs and expenses incurred by Landlord pursuant to this Section, within five (5) days of Landlord's demand. This provision shall not be in limitation of any other rights and remedies which Landlord has or may have in such circumstances.

SECTION 6.2 TENANT'S OBLIGATIONS.

(a)           Except as otherwise expressly provided in this Lease, Tenant at Tenant's sole cost and expense, shall keep the Premises in good order, condition and repair and in a clean, safe and sanitary condition free of waste and shall maintain and make all necessary repairs and replacements to the interior of the Premises (including, without limitation, all doors (including, without limitation, overhead and sliding), windows, window frames and glass, lights, lighting fixtures, bulbs and/or tubes and ballasts; all fixtures, equipment and improvements therein, including, without limitation, all plumbing, HVAC equipment and ducts attached thereto (including, without limitation, any such equipment which may be mounted outside the Building and which serves the Premises); mechanical equipment (including, without limitation, dock bumpers, lifts and seals); electrical, gas, water, sprinkler and sewer pipes, lines and connections; fire extinguishers; interior wall, ceiling and floor surfaces and coverings; and all signs of Tenant erected on the Premises. All repairs and replacements shall be in quality equal to or better than the original equipment, materials or work. Tenant shall at all times maintain sufficient heat in the Premises to prevent freezing of sprinkler and water lines. If Tenant installs or moves partitions or walls within the Premises, Tenant shall make, at its sole cost and expense, but subject to Landlord's prior written approval, all additions to or changes in location of heating, plumbing, sprinkler or electrical lines and equipment made necessary by those installations. Tenant shall, at Tenant's sole cost and expense, be responsible for the maintenance, repair and replacement of, and snow and ice removal with respect to any driveways, sidewalks, stairways, ramps and dock areas contiguous to the Premises and over which Tenant has exclusive use and control. Tenant shall, at Tenant's sole cost and expense, have the HVAC system inspected by a licensed and qualified HVAC contractor on a semi-annual basis and shall provide a copy of such contractor's semi-annual report to Landlord and Tenant shall, at Tenant's sole cost and expense, make any repairs or replacements to the HVAC system recommended by the HVAC contractor.

(b)           If Tenant installs a "sprinkler system" or the removal of the demising walls or Tenant's use requires the installation of a sprinkler system in the Premises, and if any governmental authority or Landlord's fire insurance carrier require or recommend that any changes, modifications, alterations or additional sprinkler heads or other equipment be made or supplied to the sprinkler system by reason of Tenant's use, occupancy, business or operations or the location of partitions, trade fixtures, or other contents of the Premises or for any other reason, or if any such changes, modifications, alterations or additional equipment become necessary to prevent the imposition of a penalty or charge against the full credit for a sprinkler system in Landlord's fire insurance premium or rate, Tenant shall, at Tenant's sole cost and expense, promptly make and supply such changes, modifications, alterations and additional sprinkler heads or other equipment.

SECTION 6.3 LANDLORD'S RIGHT OF ENTRY

In addition to Landlord's other rights of entry set forth in this Lease, if Tenant fails to perform Tenant's obligations under this Lease, Landlord may (but shall not be required to) enter upon the Premises, after three (3) days prior written notice to Tenant (except for cases of emergency or imminent threat of damage or injury to person or property where such notice will not be required) and put the Premises in good order, condition and repair, which shall include without limitation, the right to cause the Premises to comply with all requirements set forth in any Laws. All costs and expenses incurred by Landlord, plus the sum of ten percent (10%) of said costs and expenses representing overhead and supervision by Landlord, shall be payable by Tenant as Additional Rent within five (5) days of Landlord's demand; provided, however, if Tenant commences to perform such obligations within such three (3) day period and diligently pursues such performance to completion within a reasonable time and to Landlord's reasonable satisfaction, Landlord shall not have the right to perform such obligations.

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SECTION 6.4 ALTERATIONS, ADDITIONS OR IMPROVEMENTS

Tenant hereby agrees not to make any alterations, additions or improvements, nor attach or affix any equipment or fixtures to the Premises or the Building without, in each instance, having obtained the prior written consent of Landlord to Tenant's plans and specifications (which response to Tenant's request for consent shall not be unreasonably delayed) and also having obtained, prior to the commencement of any work, any building permit(s) and approvals which may be required by any Governmental Authority. Tenant shall make said alterations, additions or improvements in accordance with all applicable Laws and insurance regulations, in a good and workmanlike manner and in quality equal to or better than the original construction of the Premises and shall comply with such requirements as Landlord considers reasonably necessary or desirable, including, without limitation, requirements as to the manner in which and the times at which such work shall be done and the contractor or subcontractors to be selected to perform such work. No material modifications, additions or deletions to any previously approved plans and specifications shall be made without Landlord's prior written consent, which response to Tenant's request for consent shall not be unreasonably delayed. Tenant further agrees to promptly deliver to Landlord "as built" plans and specifications subsequent to the completion of any such alterations, additions or improvements. Nothing in this Section obligates Landlord to consent to any alteration, addition or improvement requested by Tenant. Tenant shall promptly pay all costs and expenses attributable to any alterations, additions and improvements. All alterations, additions, decorations, fixtures and equipment (except Tenant's trade fixtures) and improvements in or upon the Premises, shall, unless Landlord elects to require their removal, become the property of Landlord and shall remain upon the Premises at the expiration or earlier termination of this Lease, without compensation, allowance or credit to Tenant. However, if Landlord requests their removal, Tenant shall, at its sole cost and expense, promptly do so and restore the Premises to its original condition. If, upon Landlord's demand, Tenant does not so remove all such items from the Premises, then Landlord may remove or otherwise dispose of same at Tenant's sole cost and expense, including, without limitation, the cost of restoring the Premises to its original condition.

SECTION 6.5 TRADE FIXTURES

All trade fixtures and equipment, signs, movable partitions, shelving and like property installed on the Premises by Tenant and all inventory and other personal property of Tenant, shall be removed by Tenant on the expiration or earlier termination of this Lease and Tenant shall repair, at its sole cost and expense, any and all damage to the Premises resulting from such removal. If Tenant fails to remove all such items from the Premises, then Landlord may remove or otherwise dispose of same at Tenant's sole cost and expense, including, without limitation, the cost of restoring the Premises to its original condition.

SECTION 6.6 LIENS

Tenant shall not suffer or permit to remain upon all or any part of the Premises, the Building or the Property or Tenant's interest in this Lease, any lien for work performed or materials supplied to or for Tenant or to or for the Premises, the Building or the Property, or any other lien or encumbrance thereon arising by reason of Tenant's use and occupancy thereof. In addition to being in default under the Lease, Tenant, at its sole cost and expense, shall cause any such lien or encumbrance to be removed and satisfied of record within thirty (30) days after notice of the filing thereof. In the event such lien cannot be released and removed through appropriate proceedings within such thirty (30) day period, Tenant shall cause such lien to be bonded or insured over by a reputable title insurer or surety reasonably satisfactory to Landlord, or provide Landlord with a letter of credit, certificate of deposit or other comparable security in the amount of one hundred percent (100%) of the amount of such lien. Tenant thereinafter shall be entitled to contest such lien or encumbrance as long as Tenant shall contest such lien or encumbrance diligently by appropriate proceedings (provided such contest shall not cause any sale, foreclosure or forfeiture of the Premises, the Building or the Property by reason of such nonpayment) and cause the same to be removed or discharged prior to entry of any order foreclosing the same. In the event that any such lien or encumbrance is not so released and removed, bonded over or secured or insured against, or in the event Tenant shall fail to contest such lien or encumbrance as herein required, Landlord may, upon at least five (5) days' notice to Tenant, take all action necessary to release and remove such lien or encumbrance and avail itself of any security provided by Tenant (without any duty to investigate the validity thereof), and Tenant shall within five (5) days of Landlord's demand, pay to Landlord, as Additional Rent, all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred by Landlord in connection with the release and removal of such lien or encumbrance.

ARTICLE VII LIABILITY, INSURANCE AND INDEMNITY

SECTION 7.1 LIABILITY AND INSURANCE

To the fullest extent permitted by law, the Tenant shall indemnify and hold harmless the Landlord, its agents and employees from and against all claims, damages, losses and expenses including, but not limited to, attorneys' fees arising out of or resulting from Tenant's use and occupancy of the Premises; provided that any such claim, damage, loss or expense is (i) attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property including the loss of use resulting therefrom and (ii) caused in whole or in part by any negligent act or omission of the Tenant, anyone directly or indirectly employed by Tenant or anyone for whose acts the Tenant may be liable, regardless of whether or not it is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge or otherwise reduce any other right or obligation of indemnity that would otherwise exist as to any party or person described in this Section. Tenant further covenants and agrees that at all times during the Term, or any renewals or extensions of the Term, it shall, at its sole cost and expense, maintain in full force and effect insurance for the Premises of the types and in the amounts described below:

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(a)           Commercial General Liability Insurance (CGL), Business Auto Insurance and, if necessary, Commercial Umbrella Liability Insurance, with a limit of not less than $2,000,000 general aggregate and with a limit of not less than $1,000,000 each occurrence. If such CGL insurance contains a general aggregate limit, it shall apply separately to this location. Alternatively, if the General Aggregate does not apply separately to this location, a general aggregate limit of not less than $5,000,000 shall be acceptable. The CGL insurance shall be written on ISO occurrence form CG 00 0112 04 (or a substitute form providing equivalent coverage) and shall cover liability arising from premises, operations, independent contractors, products-completed operations, personal injury and advertising injury, liability assumed under an insured contract, if such coverage is commercially reasonably available. Landlord, Landlord's managing agent, Landlord's mortgagee(s) shall be included as an insured under the CGL, as their interests may appear, using ISO additional insured endorsement CG 20 11 or a substitute providing equivalent coverage, and under the Commercial Umbrella, if any. This coverage shall apply as primary insurance with respect to any other insurance or self-insurance programs afforded to Tenant. There shall be no endorsement or modification of the CGL to make it excess over other available insurance; alternatively, if the CGL states that it is excess or pro rata, the policy shall be endorsed to be primary with respect to the additional insured. There shall be no endorsement or modification of the CGL limiting the scope of coverage for liability arising from pollution.

(b)           Commercial Property Insurance on Tenant's trade fixtures, merchandise, equipment, improvements and all other personal property located in or comprising a part of the Premises and either belonging to Tenant or in the care, custody and control of Tenant. The Commercial Property Insurance shall, at a minimum, cover the perils insured under the ISO special causes of loss form (CP 10 30), and shall cover the replacement cost of the property insured.

(c)           Tenant's Contractor's Insurance. Tenant shall require any contractor or subcontractor of Tenant performing work on the Premises to carry and maintain, at no cost or expense to Landlord:

(i)           Commercial General Liability Insurance, including contractor's liability coverage, completed operations coverage, and contractor's protective liability coverage with a limit of not less than $1,000,000 each occurrence, and

(ii)           Workers Compensation Insurance or similar insurance in form and amounts required by law. Tenant shall also obtain Employers Liability Insurance with limits not less than $1,000,000 each accident for bodily injury by accident or $1,000,000 each employee for bodily injury by disease. Landlord, Landlord's managing agent, Landlord's mortgagee(s) and such other person or entity as shall be required by Landlord shall be included as an additional insured under the insurance set forth in subparagraph (c) (i).

(d)           Pollution Legal Liability Insurance (PLL) with a limit of not less than $1,000,000 per loss, with an annual aggregate of not less than $1,000,000. The PLL insurance shall be applicable to bodily injury; property damage, including, without limitation, loss of use of damaged property or of property that has not been physically injured or destroyed; cleanup costs; and defense, including, without limitation, costs and expenses incurred in the investigation, defense or settlement of claims; all in connection with any loss arising from the insured facility. Coverage shall apply to sudden and non-sudden pollution conditions resulting from the escape or release of smoke, vapors, fumes, or Hazardous Materials. If coverage is written on a claims-made basis, Tenant warrants that any retroactive date applicable to coverage under the policy precedes the effective date of this Lease; and that continuous coverage will be maintained or an extended discovery period will be exercised for a period of five (5) years beginning from the time that the Lease expires or earlier terminates. Landlord, Landlord's managing agent, Landlord's mortgagee(s) and such other person or entity as shall be required by Landlord shall be included as an additional insured under the PLL.

(e)           Tenant's insurance will be written by companies having an A.M. Best rating of A - VII or better and having authority to do business in the State of Ohio.

(f)           Prior to taking occupancy, Tenant shall furnish Landlord with a certificate(s) of insurance, executed by a duly authorized representative of each insurer, showing compliance with the insurance requirements set forth above. All certificates shall provide thirty (30) days written notice to Landlord prior to cancellation or material change of any insurance referred to therein. Failure of Landlord to demand such certificate or other evidence of full compliance with these insurance requirements or failure of Landlord to identify a deficiency from evidence that is provided shall not be construed as a waiver of Tenant's obligation to maintain such insurance. Failure to maintain the required insurance may result in termination of this Lease at Landlord's option.

(g)           Tenant shall provide certified copies of all insurance policies required above within thirty (30) days of Landlord's written request for said copies. By requiring insurance herein, Landlord does not represent that coverage and limits will necessarily be adequate to protect Tenant and such coverage and limits shall not be deemed as a limitation on Tenant's liability under the indemnities granted to Landlord in this Lease.

SECTION 7.2 WAIVER OF SUBROGATION

Landlord and Tenant hereby waive all causes of action and rights of recovery which either has or may have or which may hereinafter arise, and on behalf of any person or entity claiming through or under them by way of subrogation or otherwise, for any loss or damage to the Building, or any portion thereof, property or operations therein, by reason of any peril insured against by their respective Commercial Property Insurance policies, regardless of cause or origin, including, without limitation, any act of negligence by either party, but only to the extent of any recovery under such policy then in effect, and only if such waiver shall not invalidate or impair the coverage on any such policy of insurance. Each party to this Lease shall give to its respective Commercial Property Insurance company notice of the terms of the mutual releases contained in this Section 7.2 and have such policies endorsed, if necessary, to prevent the invalidation of such insurance by reason of the provisions of this Section 7.2. Landlord and Tenant hereby agree to indemnify the other against any loss or expense, including reasonable attorneys' fees, resulting from the failure to obtain such waiver.

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SECTION 7.3 LOSS OR DAMAGE TO PROPERTY

Tenant hereby agrees that all personal property of every kind or description which may at any time be kept in or about the Premises including, without limitation trade fixtures, merchandise, equipment, improvements and motor vehicles, shall be there at the sole risk of Tenant, or at the risk of those claiming under Tenant, and Landlord shall not be liable for the care, safety or theft of said property, nor for any damage or injury thereto. In addition, Landlord shall have no liability for any damage to said property or loss suffered by Tenant arising directly or indirectly from the bursting, overflowing or leaking of water, sewer or steam drains or pipes, heating and plumbing fixtures, and roof leaks; electrical wiring and equipment; heat or cold; gas or odors; any act of any other tenant or occupant of the Building; and any other manner whatsoever, but only to the extent not waived by the Waiver of Subrogation contained in Section 7.2 hereof.

SECTION 7.4 INDEMNITY

Tenant and its respective successors and assigns shall indemnify, defend and hold Landlord and Landlord's shareholders, partners, members, owners, affiliates, officers, directors, employees, agents and representatives (collectively "Landlord's Indemnitees") and the successors and assigns of Landlord and Landlord's Indemnitees harmless from and against any and all claims, demands, causes of action, actions, administrative proceedings (formal or informal), losses, costs, damages, expenses (including, without limitation, sums paid in settlement and reasonable fees for attorneys, consultants, experts and accountants [including, without limitation, any fees and expenses incurred in enforcing this indemnity]), injuries, judgments, liabilities, obligations, penalties, fines or claims of any other kind or nature (including, without limitation, all governmental claims and all third party claims), foreseen or unforeseen (including, without limitation, injury to or death of any person or damage to person or property in or about the Premises, the Building and/or their environs) which may be imposed upon, incurred by or asserted against Landlord or any one or more of Landlord's Indemnitees, to the extent the foregoing was directly or indirectly caused by, arose or resulted from, or was connected with: (a) any act or omission of Tenant or any Tenant Representative; (b) Tenant's use and occupancy of the Premises, the Building or the Property; (c) the conduct of Tenant's business; or (d) any default by Tenant in the performance of Tenant's obligations under this Lease.

ARTICLE VIII DAMAGE OR DESTRUCTION

SECTION 8.1 CASUALTY DAMAGE AND RESTORATION

If the Premises or the Building shall be destroyed or substantially damaged by any cause, so as to be unfit in whole or in part for occupancy by Tenant, then the following terms and conditions shall apply:

(a)            If, in Landlord's reasonable judgment, such destruction or damage could reasonably be repaired within one hundred twenty (120) days from the date of said destruction or damage, then Tenant shall not be entitled to surrender possession of the Premises, nor shall Tenant's liability to pay rent under this Lease cease, and Landlord shall repair the same with all reasonable speed and shall use all reasonable efforts to complete such repairs within one hundred-twenty (120) days from the date of said destruction or damage. If, during such period, Tenant shall be unable to use all or any portion of the Premises, a proportionate allowance, as reasonably determined by Landlord, shall be credited to Tenant against the Rent due from Tenant based upon the time during which and the portion of the Premises that is not usable.

(b)            If, in Landlord's reasonable judgment, such destruction or damage cannot reasonably be repaired within one hundred twenty (120) days from the date of said destruction or damage, Landlord shall notify Tenant within thirty (30) days after the date of such destruction or damage whether or not Landlord will repair or rebuild. If Landlord elects not to repair or rebuild, this Lease shall be terminated as of the date of such damage or destruction. If Landlord shall elect to repair or rebuild, Landlord shall specify the time within which such repairs or reconstruction will be completed, and Tenant shall have the option, within thirty (30) days after the receipt of such notice, to elect either to terminate this Lease or to extend the Term by a period of time equal to the time period from the date of such destruction or damage until the date the Premises or the Building, as the case may be, are substantially restored to their former condition. In the event Tenant elects to extend the Term, Landlord shall restore the Premises or the Building, as the case may be, to their former condition within the time specified in the notice, subject to Force Majeure (as hereinafter defined). If, during such period, Tenant shall be unable to use all or any portion of the Premises, a proportionate allowance as reasonably determined by Landlord, shall be credited to Tenant against the Rent due from Tenant, based upon the time during which and the portion of the Premises that is not usable.

(c)            In addition to all rights to terminate this Lease set forth in the two (2) preceding paragraphs, if the Premises or the Building are destroyed or damaged during the last eighteen (18) months of the Term or any extension thereof and the cost to repair or replace the damage or destruction shall exceed fifty percent (50%) of the value of the Premises or the Building, as the case may be, immediately prior to the damage or destruction, then Landlord shall have the right to terminate this Lease as of the date of such damage or destruction by giving notice thereof to Tenant within thirty (30) days after the date of said damage or destruction, in which event the Lease shall terminate as of the date of the damage or destruction.

(d)            Notwithstanding anything contained to the contrary in this Section, Landlord may terminate this Lease in the event that following any such damage or destruction, Landlord's mortgagee requires Landlord to make advance payments upon or full payment of the outstanding mortgage balance.

(e)            No damages, compensation or claim shall be payable to Tenant for any inconvenience or loss of business or profit or annoyance of Tenant arising from any repair, rebuilding or restoration of the Premises or the Building, except for the Rent abatement specifically set forth in subparagraph (a) and (b) above.

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(f)            Notwithstanding anything to the contrary, if the damage is due to the fault or neglect of Tenant or any one or more of Tenant's Representatives, then there shall be no apportionment or abatement of the Rent pursuant to subparagraphs (a) and (b) above, and to the extent that Landlord is not reimbursed by insurance proceeds with respect to the repairs or replacements, within five (5) days of demand by Landlord, Tenant shall pay Landlord, as Additional Rent, the difference.

ARTICLE IX DEFAULTS: REMEDIES

SECTION 9.1 DEFAULTS

The occurrence of any one or more of the following events shall constitute a default hereunder by Tenant:

(a)            Failure by Tenant to pay any Base Rent or Additional Rent payable by Tenant hereunder, as and when due, and such failure shall continue for a period of five (5) business days after written notice thereof by Landlord to Tenant or the storage by Tenant of pallets or other materials outside the Premises in violation of local governmental regulations and the failure to remove said pallets or other materials within five (5) business days of receipt of written notice from Landlord; or

(b)            Failure by Tenant to observe or perform any of the terms or conditions of this Lease to be observed or performed by Tenant, other than the payment of Base Rent or Additional Rent (which is governed by subparagraph (a) above) or any violation of Environmental Law (which shall be governed by subparagraph (c) below) and such failure shall continue for a period of forty-five (45) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's default is such that more than forty-five (45) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant has commenced such cure within said forty-five (45) day period and thereinafter diligently pursues such cure to completion within a period of not more than forty-five (45) additional days; or

(c)            (i) The making by Tenant of any general assignment for the benefit of creditors; (ii) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization under any bankruptcy, insolvency, receivership or other Laws relating to the readjustment of indebtedness generally; (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease; or (iv) the attachment, execution or other judicial seizure of all or a portion of Tenant's assets at the Premises or of Tenant's interest in this Lease; or (v) Tenant shall violate or fail to comply with any one or more of the Environmental Laws. For purposes of this subparagraph (c), "Tenant" shall include any parent company of Tenant; or

(d)            Tenant shall vacate or abandon the Premises. Tenant's failure to occupy the Premises for a period of thirty (30) consecutive days shall be deemed conclusive evidence of abandonment unless Tenant continues to pay rent; or

(e)            An assignment of this Lease or a subletting of all or any portion of the Premises without Landlord's prior written consent.

SECTION 9.2 REMEDIES

In the event of Tenant's default hereunder, Landlord, at Landlord's option, may terminate this Lease, or without terminating this Lease, may re-enter and re-take possession of the Premises by any means permitted under this Lease, at law, in equity or otherwise and in either event may dispossess Tenant therefrom and neither Tenant nor any person claiming under or through Tenant shall thereinafter be entitled to possession of the Premises. If Tenant fails to remove pallets or other materials stored outside the Premises within five (5) business days of receipt of written notice to remove the same, Landlord may remove said pallets or other materials from the Premises at Tenant's expense. If Landlord elects to terminate this Lease, or if this Lease is otherwise terminated pursuant to law by reason of any default on the part of Tenant, then Tenant shall pay to Landlord, as damages, and Landlord shall be entitled to recover, the then present value of the Rents reserved (including, without limitation, Base Rent and Additional Rent) hereunder for the entire remainder of the Term as if this Lease had not been terminated. No re-entry or re-taking of possession of the Premises by Landlord shall be deemed to be an election by Landlord to terminate this Lease, which election may be made only by written notice thereof given to Tenant. If Landlord elects to re-enter and re-take possession of the Premises without terminating this Lease, Tenant shall not be deemed released from its obligations to pay the Rents reserved (including, without limitation, Base Rent and Additional Rent), and other charges payable by Tenant hereunder and otherwise to perform the provisions of this Lease on Tenant's part to be performed hereunder, and all Rents reserved (including, without limitation, Base Rent and Additional Rent) for the entire remainder of the Term hereof shall, at Landlord's option, become immediately due and payable. In no event shall Landlord be required to postpone or delay any suit for such damages until the date when the Term would have expired, or until such Rents would have become payable, had not the within Lease been so terminated. If Landlord shall dispossess Tenant from the Premises as aforesaid, or if Tenant shall abandon or vacate the Premises, Landlord shall use commercially reasonable efforts, as set forth in Section 9.6 herein, to re-let all or any part of the Premises for such rents (including, without limitation, any reasonable rent concessions) and upon such other terms and conditions as Landlord, in Landlord's sole and absolute discretion, deems suitable and acceptable and for any use and purpose which Landlord deems appropriate. In the event of any such re-letting without the termination of this Lease, any rents received by Landlord for the Premises shall be applied first to the costs and expenses incurred by Landlord by reason of said repossession, re-taking and re-letting, including, without limitation, brokerage costs and reasonable attorneys' fees and the costs and expenses of any repairs or restoration or alterations of said Premises, and then to the amount of Rents and other charges payable by Tenant hereunder. The failure of Landlord to re-let or, if re-let, to collect the rent under such re-letting, shall not release or affect Tenant's liability hereunder for all such Rents, charges, costs and expenses.

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SECTION 9.3 REPEATED DEFAULT

Notwithstanding anything to the contrary set forth in this Lease, if Tenant shall be in default in the timely payment of any Rent due Landlord pursuant to this Lease, and if any such default, after written notice as set forth above in Section 9.1 (a) shall occur two (2) times in any period of twelve (12) consecutive months, then, notwithstanding that such default shall have been cured within the period after such notice, any further default within said twelve (12) month period shall be deemed to be a Repeated Default. In the event of a Repeated Default, Tenant shall not have the right to cure same and Landlord, without giving Tenant any further notice and without affording Tenant any opportunity to cure such default, may exercise any rights or remedies available to Landlord pursuant to Section 9.2 hereof, including, without limitation, the right to terminate this Lease or to require Tenant to increase its security deposit to an amount satisfactory to Landlord, in Landlord's sole and absolute discretion.

SECTION 9.4 REMEDIES CUMULATIVE

No right or remedy conferred upon Landlord is considered exclusive of any other right or remedy, but shall be in addition to every other right or remedy available to Landlord under this Lease, at law, in equity or otherwise. Any right or remedy of Landlord may be exercised from time to time, as often as the occasion may arise. The exercise of any of the rights or remedies of Landlord shall not prevent the concurrent or subsequent exercise of any other right or remedy. The granting of any right, remedy, option or election to Landlord under this Lease shall not impose any obligation on Landlord to exercise the right, remedy, option or election.

SECTION 9.5 RENT DEMAND/ACCORD AND SATISFACTION

(a)            No payment by Tenant or receipt by Landlord of a lesser amount than the Rent herein stipulated shall be deemed to be other than on account of the stipulated Rent nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction. Landlord may accept such check or payment, including without limitation any partial payment or payments, without prejudice to Landlord's right to recover the balance of such Rent, or pursue any other right or remedy provided for in this Lease or available at law, in equity or otherwise, to collect the balance of such Rent.

(b)            After the service of any notice or commencement of any suit or final judgment therein, Landlord may receive and collect any Rent due and such collection or receipt shall not operate as a waiver of nor affect such notice, suit or judgment.

SECTION 9.6 MITIGATION OF DAMAGES

In the event of Tenant's default, the parties hereby agree and stipulate that once Tenant has completely vacated the Premises and relinquished possession and control thereof to Landlord, Landlord's efforts to mitigate its damages pursuant to Section 9.2, need not exceed the following: (a) include availability of space in regular broker informational mailings; (b) contact adjoining tenants, if any; and (c) place appropriate signage on the Property advertising availability of space.

ARTICLE X ASSIGNMENT AND SUBLETTING

SECTION 10.1 ASSIGNMENT AND SUBLETTING

Tenant hereby agrees not to voluntarily or by operation of law (i) assign this Lease, or any interest therein; (ii) sublet the Premises, or any part thereof; (iii) permit the use or occupancy of the Premises or any part thereof by any person or entity other than Tenant; or (iv) permit any change to be made to the controlling interest in the entity which is Tenant; without first obtaining the written consent of Landlord, which consent may not be unreasonably withheld. Any such assignment, subletting, use, occupancy or change by Tenant without Landlord's prior written consent shall be void and shall constitute a default under this Lease. If Landlord consents to an assignment or subletting, Tenant shall nevertheless remain fully and primarily responsible and liable for the payment of Rent and the performance of all of Tenant's obligations under this Lease; provided, however, that in the event of a default under this Lease, Landlord may, at its option, collect Rent directly from the assignee or subtenant and such action shall not be construed as a novation or release of Tenant, nor shall the acceptance of Rent by Landlord or performance of any other obligation under this Lease from or by any person other than Tenant be deemed to be a waiver by Landlord of any provision of this Lease nor shall it be deemed to be a consent to an assignment of this Lease or the subletting of all or a portion of the Premises. In the event of consent by Landlord to an assignment or subletting, Tenant shall deliver to Landlord a duplicate original of the assignment by Tenant and assumption by Tenant's assignee of Tenant's obligations under this Lease, or a duplicate original of the sublease, as the case may be. In the event Landlord consents to any assignment or subletting by Tenant, any option to renew this Lease or right to extend the Term or any right of first refusal to which Tenant may be entitled shall automatically terminate unless otherwise agreed to in writing by Landlord. If any sublease or assignment involves base rent or additional rent which exceeds the Base Rent or Additional Rent payable hereunder, such excess rent shall be paid to Landlord when received by Tenant as Additional Rent hereunder. It shall be a condition to any consent byLandlord that Tenant shall reimburse Landlord within five (5) days of Landlord's demand for any and all costs and expenses, including, without limitation, reasonable attorney fees for the review and preparation of documents, which may be incurred by Landlord in connection with any request for consent to an assignment, subletting or change to the controlling interest in the business entity which is Tenant, whether or not such consent is granted. Tenant further agrees that a minimum fee of Two Hundred Fifty and 00/100 Dollars ($250.00) shall be payable to Landlord for each and every request for such consent, which fee shall be paid simultaneously with such request.

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ARTICLE XI NOTICE AND PLACE OF PAYMENT

SECTION 11.1 NOTICES

Any notice or demand which is or may be required by this Lease or by any applicable Laws shall be given in writing addressed to the party to whom it is directed and shall be deemed to have been given if delivered in person or mailed by Registered or Certified Mail, postage prepaid, return receipt requested, or sent via facsimile transmission to the party who is entitled to receive such notice at the address specified in Section 7 of Exhibit A, or at such other address as either party may hereinafter designate by written notice to the other. Notice given by facsimile will be deemed to be received only upon the sender's receipt of a transmission report, generated by the sender's facsimile machine, which confirms that the facsimile was successfully transmitted in its entirety. If Landlord's or Tenant's telephone number where facsimile transmissions may be received shall change from the telephone number listed in Section 7 of Exhibit A, it shall notify the other party of the new telephone number within three (3) days of the change.

SECTION 11.2 PLACE OF PAYMENT

All Rent and other payments required to be made by Tenant to Landlord shall be delivered or mailed to Landlord's property manager at the address specified in Section 7 (e) of Exhibit A or any other address Landlord may specify from time to time by written notice given to Tenant.

ARTICLE XII SUBORDINATION. ATTORNMENT AND ESTOPPEL

SECTION 12.1 SUBORDINATION

Landlord shall have the right, at any time, and from time to time, to mortgage the Premises, the Building or the Property and this Lease and Tenant's interest hereunder shall be subject and subordinate, in all respects, to any and all such mortgage(s) which may now or hereinafter affect the Premises, the Building or the Property. The foregoing shall be self-operative and no further instruments shall be necessary. Tenant shall, and hereby agrees to, at no charge to Landlord, execute and deliver, within ten (10) days after written request from Landlord, or any such mortgagee, any instrument or release so requested by Landlord, or any such mortgagee, subordinating the within Lease in favor of any such mortgage(s) or any renewals, extensions, modifications or replacements thereof. If Tenant shall fail or neglect to execute, acknowledge and deliver any such instrument or release, Landlord may, as attorney-in-fact of Tenant, execute, acknowledge and deliver the same and Tenant hereby irrevocably nominates and appoints Landlord as Tenant's proper and legal attorney-in-fact for such purpose. Tenant's failure to execute, acknowledge and deliver such instrument or release within the ten (10) day period shall be considered a monetary default under Section 9.1 (a) of this Lease. In addition, Landlord may assign this Lease, or the Rents reserved hereunder, or both, in Landlord's sole and absolute discretion, as additional security for any such mortgage or otherwise.

SECTION 12.2 ATTORNMENT

Should any party acquire title to the Premises, the Building or the Property pursuant to the exercise of any rights conferred by any mortgage(s) or security interest(s), this Lease shall not be terminated or affected due to a foreclosure or sale, or similar proceedings, rather any such party shall be vested with the rights and obligations conferred upon Landlord pursuant to this Lease. Tenant hereby agrees to attorn to any such mortgagee, owner or other person or entity as its new landlord, and this Lease shall continue in full force and effect as a direct lease between Tenant and any new landlord, or such other person or entity, upon all terms, conditions, covenants and obligations in this Lease.

SECTION 12.3 ESTOPPEL CERTIFICATE

At any time, and from time to time, upon request of Landlord, Tenant agrees to execute and deliver to Landlord within ten (10) days after request, a statement in writing certifying to any party specified by Landlord (including, without limitation, any holder or prospective holder of any mortgage on the Premises, the Building or the Property or any purchaser or prospective purchaser of the Premises, the Building or the Property or any interest therein): (i) that this Lease is unmodified and in full force and effect (or if there have been modifications, a description thereof), (ii) the date to which Rent has been paid, (iii) that Landlord is not in default under any provision of this Lease (or if in default, the nature thereof in detail), and (iv) such other matters that Landlord may reasonably request. If Tenant shall fail or neglect to execute and deliver any such certificate, Landlord may, as attorney-in-fact of Tenant, execute, acknowledge and deliver such certificate on behalf of Tenant and Tenant hereby irrevocably nominates and appoints Landlord as Tenant's proper and legal attorney-in-fact for such purpose. Tenant's failure to execute, acknowledge and deliver such certificate within the ten (10) day period shall be considered a monetary default under Section 9.1 (a) of this Lease.

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ARTICLE XIII SIGNAGE

SECTION 13.1 SIGNAGE

Tenant may erect, at its sole cost and expense, an appropriate sign advertising Tenant's business on the portions of the Premises designated by Landlord for the placement of Tenant's signs. The size, number, design and location of all signs shall require Landlord's written approval prior to installation. Tenant shall ensure that all signs shall comply with all Laws and all necessary permits or licenses shall be obtained by Tenant. Tenant shall maintain all signs in good condition and repair at all times. Upon vacating the Premises, Tenant shall, at its sole cost and expense, remove all signs and repair all damages caused by such installation and removal. No signs shall be painted on the exterior of the Building. The use of portable or freestanding signs is strictly prohibited.

ARTICLE XIV FINANCING AND FINANCIAL STATEMENTS

SECTION 14.1 LANDLORD FINANCING

Landlord shall have the right, at any time and from time to time, to obtain financing secured in whole or in part by its interest in the Premises, the Building or the Property or under this Lease, and in connection therewith to mortgageor otherwise collaterally transfer its interest in the Premises, the Building or the Property or collaterally assign its interest under this Lease. With respect to any financing by Landlord, Tenant shall, within ten (10) days of Landlord's request therefor, execute, acknowledge and deliver to Landlord such amendments or modifications of this Lease as may be reasonably requested by the holder of the indebtedness created or to be created, but in no event shall any such amendment or modification materially and adversely affect or alter the rights and obligations of Tenant under this Lease. Tenant's failure to comply with this Section shall be considered a monetary default under Section 9.1 (a) of this Lease.

SECTION 14.2 ANNUAL FINANCIAL STATEMENTS

Tenant shall furnish to Landlord annually, within ninety (90) days after the end of each fiscal year of Tenant, copies of its most recent financial statements, in reasonable detail, and Landlord may deliver any such financial statements to any existing or prospective mortgagee, assignee or purchaser of the Premises and/or the Building. Such f i nancial statements shall be prepared in accordance with generally accepted accounting principles consistently applied and shall be certified to by Tenant. In addition, Tenant hereby agrees to cooperate with Landlord's existing or potential mortgagees and/or assignees and to comply with reasonable requests for financial information. Tenant's failure to comply with this Section shall be considered a monetary default under Section 9.1 (a) of this Lease.

ARTICLE XV RELOCATION

SECTION 15.1 RELOCATION

Intentionally omitted.

ARTICLE XVI WAIVERS

SECTION 16.1 NO WAIVER BY LANDLORD

The rights, remedies, options or elections of Landlord in this Lease are cumulative. No waiver of any of the terms, covenants, provisions, conditions, rules and regulations required by this Lease, and no waiver of any legal or equitable right, relief or remedy shall be implied by the failure of Landlord to assert any rights, or to declare any forfeiture, or for any other reason at the time or in the future. No waiver of any of said terms, covenants, provisions, conditions, rules and regulations shall be valid unless it shall be in writing signed by Landlord. No waiver by Landlord or forgiveness of performance by Landlord with respect to Tenant may be claimed or pleaded by Tenant to excuse a subsequent failure of performance of any of the terms, covenants, provisions, conditions, rules and regulations of this Lease.

SECTION 16.2 WAIVER OF JURY

Landlord and Tenant agree, that to the extent permitted by the Laws and by applicable policies of insurance, each shall and hereby does waive trial by jury in any action, proceeding or counterclaim brought by either against the other or on any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant hereunder, Tenant's use or occupancy of the Premises and/or any claim of injury or damage.

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ARTICLE XVII EMINENT DOMAIN/CONDEMNATION

SECTION 17.1 EMINENT DOMAIN/CONDEMNATION

In the event that the Premises, the Building or the Property or any part thereof shall at any time after the execution of this Lease be taken for public or quasi public use or condemned under eminent domain or conveyed under threat of such a taking or condemnation (the "Condemnation"), Tenant shall not be entitled to claim, or have paid to Tenant, any compensation or damages whatsoever for or on account of any loss, injury, damage, taking or conveyance of any right, interest or estate of Tenant, and Tenant hereby relinquishes and hereby assigns to Landlord any rights to any such compensation or damages. Landlord shall be entitled to claim and have paid to it for the use and benefit of Landlord all compensation and damages for and on account of any right, title, interest or estate of Tenant in or to said Premises, the Building or the Property. Tenant upon request of Landlord will execute any and all releases, transfers or other documents as shall be required by such public or quasi-public authority to effect and give further evidence and assurances of the foregoing. Notwithstanding the above, Tenant shall have the right to make a claim against the condemning authority, but not against Landlord, on account of interruption of Tenant's business, moving and relocation expenses and for depreciation to and removal of Tenant's trade fixtures, provided that such claim shall not reduce the amount of such claim by Landlord. If such Condemnation affects all or substantially all of the Premises, the Building or the Property, this Lease shall be terminated as of the date of such Condemnation. If such Condemnation does not affect all or substantially all of the Premises, the Building or the Property, this Lease shall not be terminated, but the Base Rent shall be reduced by a sum which represents the amount of rentable square feet taken through any condemnation proceeding multiplied by the appropriate rental rate for that square footage. Notwithstanding anything contained to the contrary in this Section, Landlord may terminate this Lease in the event that following any such Condemnation, Landlord's mortgagee requires Landlord to make advance payments upon or full payment of the outstanding mortgage balance.

ARTICLE XVIII MISCELLANEOUS

SECTION 18.1 ENTIRE AGREEMENT/EXHIBITS

This Lease, including all exhibits, riders and addenda which are attached hereto and which are hereby incorporated herein by reference in their entirety, constitute the entire agreement between the parties; it supersedes all

previous understandings and agreements between the parties, if any, and no oral or implied representation or understandings shall vary its terms; and it may not be amended, modified, renewed or extended except by a written instrument executed by both parties hereto.

SECTION 18.2 MEMORANDUM OF LEASE

This Lease shall not be recorded, but, if requested by either party, a Memorandum of Lease, setting forth a description of the Premises, the Term and any renewal rights hereof, and such other provisions hereof as may be required or appropriate for such purposes, excluding any reference to the rent payable hereunder may be recorded. The cost of preparation and recording shall be borne by the party requesting same. In addition, if requested by Landlord, Tenant shall execute a Discharge of the Memorandum of Lease, which will be held in escrow upon terms mutually acceptable to the parties. Notwithstanding the foregoing, Tenant shall provide Landlord with an executed and recorded Discharge of the Memorandum of Lease upon the expiration or earlier termination of this Lease. If Tenant fails to provide Landlord with an executed and recorded Discharge of the Memorandum of Lease upon the expiration or earlier termination of this Lease, Tenant authorizes Landlord to Discharge the Memorandum of Lease at Tenant's cost, which shall include, but not be limited to, any attorneys' fees incurred to prepare and file the Discharge of the Memorandum of Lease.

SECTION 18.3 SUCCESSORS AND ASSIGNS

This Lease and the respective rights and obligations of the parties hereto shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto; provided, however, that an assignment, sublease or transfer of an interest in the Premises or in Tenant by Tenant in violation of the provisions of this Lease shall not vest any right, title or interest in the assigns.

SECTION 18.4 SEVERABILITY OF INVALID PROVISIONS

If any provision of this Lease shall be held to be invalid, void or unenforceable by a court of competent jurisdiction, the remaining provisions hereof shall not be affected or impaired, and such remaining provisions shall remain in full force and effect.

SECTION 18.5 CHOICE OF LAW

This Lease is governed by and shall be construed and enforced in accordance with the laws of the State of Ohio. The parties hereto agree that neither of them shall commence any action whatsoever, at law, in equity or otherwise, for any matter or assert any claims relating to or arising from this Lease or the relationship of the parties, in any court other than those located in the County of Cuyahoga, State of Ohio. The parties hereto hereby consent to the jurisdiction of the state and federal courts located in Cuyahoga County, State of Ohio, for the litigation of any claims that exist or arise between them now or in the future. The parties hereby stipulate that venue, as well as jurisdiction, is proper only in Cuyahoga County, State of Ohio. Notwithstanding the foregoing, any action in forcible entry and detainer shall be filed in the Court having jurisdiction where the Premises are located.

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SECTION 18.6 DUPLICATES

This Lease may be executed in several duplicates, all of which shall be deemed to be but one (1) original Lease.

SECTION 18.7 BROKERS/LEASING FEES

Tenant represents and warrants to Landlord that no broker procured, negotiated or was instrumental in procuring, negotiating or consummating this Lease except as set forth in Section 8 of Exhibit A, and Tenant further represents and warrants to Landlord that unless otherwise agreed between Landlord and the broker(s) aforesaid prior to the date hereof, Landlord shall not be liable to any broker or other party for any commission or fee or other compensation in respect of the renewal of this Lease or extension of the Term. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, demands, causes of action, actions, losses, costs, damages, expenses, liabilities and obligations, that may be based upon or alleged to be based upon any broker's or other party's commission or fee or other compensation in respect of this Lease, other than aforesaid, arising out of or alleged to arise out of any act or omission of Tenant or any one or more of Tenant's Representatives.

SECTION 18.8 GUARANTEE

Intentionally omitted.

SECTION 18.9 AUTHORITY OF TENANT

Tenant is a corporation. Each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with the governing documents of said corporation, and that this Lease is binding upon said corporation and that the corporation is authorized to do business in the State of Ohio.

SECTION 18.10 CERTAIN WORDS, GENDER AND HEADINGS

As used in this Lease, the word "person" shall mean and include, where appropriate, an individual, corporation, partnership, limited liability company or other entity; the plural shall be substituted for the singular and the singular for the plural, where appropriate; and words of any gender shall include any other gender. The topical headings of the several articles, sections and paragraphs of this Lease and the Table of Contents of this Lease are inserted only as a matter of convenience and reference, and do not affect, define, limit or describe the scope or intent of this Lease.

SECTION 18.11 LANDLORD LIABILITY

It is expressly understood and agreed by Tenant that nothing contained in this Lease shall be construed as creating any recourse against Landlord or its shareholders, partners, members, owners, affiliates, officers, directors, employees, agents and representatives and their respective heirs, executors, administrators, successors and assigns, personally, for any breach by Landlord of any term, covenant, representation, agreement or condition, either expressed or implied, contained in this Lease, and that so far as Landlord personally is concerned, Tenant and every person now or hereinafter claiming any right under this Lease shall look solely to Landlord's interest in the Building for the payment or other satisfaction thereof in the manner provided in this Lease, but subject to the foregoing, this shall not be construed in any way so as to affect or impair the legal enforceability of this Lease. Landlord shall not be liable for any consequential damages such as business interruption, moving expenses, loss of business or the like.

SECTION 18.12 ATTORNEYS' FEES

If either party defaults in the performance or observance of any of the terms, conditions, covenants or obligations of this Lease, the defaulting party shall reimburse the non-defaulting party for all reasonable attorneys' fees and expenses incurred by the non-defaulting party in securing compliance with the Lease, terminating the Lease and/or recovering damages as additional rent, within five (5) days of the non-defaulting party's demand, regardless of whether a court proceeding is commenced to enforce obligations. The parties agree that reasonable attorneys' fees shall be an amount equal to that actually incurred by the non-defaulting party, or if such attorney fees were on a contingency fee basis, then the amount retained by the non-defaulting party's attorney as the fee plus costs and expenses.

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SECTION 18.13 FORCE MAJEURE

In the event that Landlord shall be delayed or hindered in or prevented from doing or performing any act or thing required hereunder by reason of strike, lockout or labor troubles; casualties, Acts of God, earthquake, explosion or the elements; inability to procure or a general shortage of labor, supplies, materials, transportation, equipment or energy; Laws or Environmental Laws; civil unrest, riots, insurrection, terrorism or war; or other causes beyond the reasonable control of Landlord, then Landlord shall not be liable or responsible for any such delays and the doing or performing of such act or thing shall be excused for the period of delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay.

SECTION 18.14 EXHIBITING THE PREMISES

During the last six (6) months of the Term, or any extension thereof or while Tenant is in default of any of its obligations under this Lease, Landlord may enter the Premises for the purpose of exhibiting said Premises to prospective tenants (or at any time during the Term or any extension thereof, Landlord may enter the Premises for the purpose of exhibiting said Premises to prospective purchasers) and putting up the usual "For Rent" and "For Sale" notices, which shall not be removed, obliterated or hidden by Tenant.

SECTION 18.15 EXAMINATION OF LEASE

The submission of this Lease for examination does not constitute a reservation of or option for the Premises, and shall vest no right in either party. This Lease becomes effective as a Lease only upon execution and delivery thereof by both parties hereto.

SECTION 18.16 NET LEASE

It is the intention of the parties that this Lease is a "net" Lease and that Landlord shall receive the Base Rent, Additional Rent and other sums required of Tenant under the Lease.

SECTION 18.17 SURVIVAL OF OBLIGATIONS

Any obligation (including, without limitation, those in Section 7.4 of this Lease) which shall have arisen from the conduct of the parties pursuant to the Agreement prior to any expiration or earlier termination of the Agreement shall survive the expiration or earlier termination of the Agreement and shall remain in full force and effect indefinitely until discharged, satisfied or waived.

SECTION 18.18 NO PRESUMPTION AGAINST DRAFTER

Landlord and Tenant understand, agree and acknowledge that this Lease has been freely negotiated by both parties and that, in any controversy, dispute, or contest over the meaning, interpretation, validity or enforceability of this Lease or any of its terms or conditions, there shall be no inference, presumption or conclusion drawn whatsoever against either party by virtue of that party having drafted this Lease or any portion thereof. In addition, unless otherwise specified in this Lease, the words "include" and "including" and words of similar import shall be deemed to be followed by the words "without limitation" and the word "or" shall be deemed to be "and/or".

[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

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LANDLORD AND TENANT HAVE EXECUTED THIS LEASE AS OF August 11, 2008.

SBP LIMITED PARTNERSHIP

An Ohio limited Partnership

By:  Weston Inc., Agent

By:  /s/ Fred J. Capretta

Fred J. Capretta, Senior V.P.

"Landlord'

AFFYMETRIX INC.

a Delaware corporation

By  /s/ John Batty

John Batty, CFO

"Tenant"

STATE OF OHIO

                                                         SS

COUNTY OF CUYAHOGA

BEFORE ME, a Notary Public, in and for said county and state, personally appeared the above named Weston Inc., Agent for SBP LIMITED PARTNERSHIP, by Fred J. Capretta, its Sr. V.P., who acknowledged that he did sign the foregoing instrument and that the same is the free act and deed of said corporation and his free act and deed as such officer.

IN WITNESS WHEREOF, I have hereunder set my hand and official seat at Cleveland, Ohio, this 12th day of August, .2008.

/s/Deborah Betx Basil

NOTARY PUBLIC

[Notary Seal]

STATE OF CALIFORNIA

COUNTY OF SANTA CLARA

On August 11, 2008, before me, Amy T. Monbourquette, Notary Public, personally appeared John Batty who proved to me on the basis of satisfactory evidenceto be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature  /s/ Amy T. Monbourquette

Signature of Notary Public

[Notary Seal]

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EXHIBIT A

LEASE/TENANT DATA

1.             PARTIES:

(a)           Landlord:                  SBP Limited Partnership

                                                   an Ohio limited partnership

(b)           Tenant:                     Affymetrix, Inc.

Delaware corporation

                                                   Federal ID# 77-0319159

(c)           Guarantor(s):            N/A

(d)           Property Manager: Weston Inc.

                                                  29300 Aurora Road, 2°d Fl

                                                  Solon, OH 44139

2.             PREMISES:

(a)           Building::                 Weston Commerce Center

                Address:                  26309 Miles Road, Warrensville Heights, OH 44128

                                                  Suite/Unit No.(s): 1, 2 and 3

                Floor(s):                   First

                                                                                                                                            
60;         YES           NO

(b)           Leaseable Area of Premises                                                                Office           (x)              ( )

                                                                                                                                 Industrial     ( )              (x)

                14,982 square feet                                                                                Warehouse  (x)              (  )

                                                                                                                                Commercial   ( )              (x)

                                                                                                                                Outdoor        ( )              (x)

(c)           Tenant's Proportionate Share: 53%

3.             PERMITTED USE:           General office, lab and warehousing of lab supplies.

4.             TERM:                                Five (5) years, six (6) months.

COMMENCEMENT DATE: The later of September 1, 2008 or the date on which Affymetrix obtains final approval from all appropriate boards, authorities, and commissions of committed state incentives, as set forth in the state's commitment of assistance to Affymetrix including, but not limited to, the Ohio Job Creation Tax Credit and the Rapid Outreach Grant.

EXPIRATION DATE:                                            Five (5) years, six (6) months after the Commencement Date

5.             BASE RENT:

(a)           Base Rent/Initial Term

PERIOD                                                                                          ANNUAL RENT                                          MONTHLY INSTALLMENT

Commencement Date through Month 6                                    $              -0-/Year                                         $            -0-/Month*

Month 7 through Month 18 1                                                     $ 52,437.00/Year                                           $ 4,369.75/Month

Month 19 through Month 30                                                      $ 53,935.20/Year                                           $ 4,494.60/Month

Month 31 through Month 42                                                      $ 54,684.00/Year                                           $ 4,557.00/Month

Month 43 through Month 66                                                      $ 55,432.08/Year                                           $ 4,619.34/Month

*Tenant understands that it will be responsible for all Utility Costs during the free rent period.

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(b)           Utilities                                           Billing Method                                                                 Comments

               (x) Gas                                             (x) metered  ( ) sub metered  ( ) pro rata

               (x) Electric                                       (x) metered  ( ) sub metered  ( ) pro rata                       

               (x) Water & Sewer                         ( ) metered   ( ) sub metered (x) pro rata

(c)           Operating Costs: *

( ) Common Gas                          ( ) pro rata                (x) No

( ) Common Electric                    ( ) pro rata                (x) No

( ) Common Water                      ( ) pro rata                (x) No

( ) Common Janitorial                 ( ) pro rata                (x) No

( ) Security Service                     ( ) pro rata                (x) No

( ) Fire Alarm Service                 ( ) pro rata                (x) No

( ) Janitorial Service                    ( ) pro rata               (x) No

( ) Meter Reading Serv.             ( ) pro rata                  (x)  No

(x)  Grounds Maint.                    (x) pro rata                 ( ) No

(x) Parking Lot Maint.                (x) pro rata                 ( ) No

(x) Ext. Building Maint.              (x) pro rata                 ( ) No

(x) Real Estate Taxes                  (x) pro rata                 ( ) No

(x) Insurance                               (x) pro rata                 ( ) No

(x) Management Fees                (x) pro rata                 ( ) No

( ) Other                                        ( ) pro rata                 (x) No

*Operating Costs are estimated at $1.65 per square foot for the calendar year 2007 ($2,060.00/month). Increases in Operating Costs, excluding taxes and insurance, shall be capped at five percent (5%) per year on a roll forward basis.

(d) Snow Removal and Ground Maintenance to be performed by:

(x) Landlord

( ) Tenant

6.      SECURITY DEPOSIT:                                                 $ 4,369.75

7.      ADDRESS FOR NOTICES:

(a)           Landlord:

SBP Limited Partnership

29300 Aurora Road, 2nd Fl Solon, OH 44139

Attn: General Counsel

(b)           Copy to Management Office:

Weston Inc.

29300 Aurora Road, 2nd Fl

Solon, OH 44139

Attn: Property Manager

Fax No.: (440) 349 9001

-25-

(c)           Tenant:

Affymetrix, Inc.

26309 Miles Road, Unit 1

Warrensville Heights, OH 44128

Attn.: General Manager

Fax No.:

With a copy to:

General Counsel

Affymetrix, Inc.

3420 Central Expy

Santa Clara, CA 95051

And

Director Facilities and Real Estate Affymetrix, Inc.

3420 Central Expressway

Santa Clara, CA 95051

(d)           Billing Address:

Same as (c)

(e)           Remittance Address:

Weston Inc.

29300 Aurora Road, 2nd Fl Solon, OH 44139

Attn.: Accounts Receivable

8.      BROKER:

N/A

9.      TENANT'S INSURANCE:Please note that, pursuant to Section 7.1 (a) of this Lease, Tenantis required to maintain Commercial General Liability Insurance in an amount not less than Two Million Dollars ($2,000,000.00) and Property Damage Insurance in an amount not less than One Million Dollars (($1,000,000.00) per occurrence. Weston Inc., as agent for the Landlord, also must be named on the insurance certificate as an Additional Insured for the Premises at the address listed in Section 2 (a) of this Exhibit.

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EXHIBIT B

LAYOUT OF PREMISES

[Building Diagram]

-27-

EXHIBIT C

IMPROVEMENTS TO BE COMPLETED

BY LANDLORD:

Remove:

a) Demising walls between Units 1-2 and 2-3

b) Existing offices and restrooms in Units 1, 2 and 3

BY TENANT:

Tenant shall be responsible for the build out of the interior space at its own cost and expense. Landlord and Tenant agree to negotiate in good faith a work letter for the improvements to be made by the Tenant.

-28-

EXHIBIT D

RIDER

1.           If Landlord determines that Tenant is using more than it's pro rata share of water in the Building, Landlord reserves the right to sub meter the water service to the space and Tenant agrees to pay to Landlord the amount shown on the monthly bill for sub metered water.

2.           Provided it is not in default of the Lease beyond any applicable grace period from the time of notice through and including the effective date of said notice, Tenant shall have two (2) options to renew this Lease for additional three (3) year Terms, at the fair market rental rate for comparable properties in the area, upon six (6) months advance written notice to Landlord; provided, however, the fair market rental rate shall be no less than the rate Tenant was paying at the end of the Original Term or the First Renewal Term and shall be the fair market rental rate in effect at the time of notice. The "Notice Date" shall be the date the Landlord actually receives the notice.

3.           Tenant understands that, upon vacating the Premises, it must restore the space to the condition in which it existed prior to demolition including, but not limited to, the reconstruction of three (3) suites with demising walls, demised utilities and separate HVAC systems in each suite, re-installation of a ladies' and a men's restroom in each suite and restoration of office area with an office to warehouse ratio of 25/75 for each suite or otherwise to the reasonable satisfaction of Landlord.

4.           The parties acknowledge that the terms and conditions of this Lease are subject to and, therefore, remain un-enforceable until Affymetrix obtains final approval from all appropriate boards, authorities, and commissions of committed state incentives, as set forth in the state's commitment of assistance to Affymetrix including, but not limited to, the Ohio Job Creation Tax Credit and the Rapid Outreach Grant. If Affymetrix does not obtain said approvals on or before October 31, 2008, Landlord may elect to rescind this Lease upon two (2) business days advance written notice unless Affymetrix notifies Landlord that it will proceed without said approvals.

-29-

EXHIBIT E

RULES AND REGULATIONS

(1)               OBSTRUCTIONS: The sidewalks, driveways, parking areas, entrances, vestibules, hallways, stairways, loading docks, and passages shall not be obstructed by Tenant or used for storage of materials or equipment (temporary or otherwise), display of merchandise, or any purpose other than unimpeded access to and from the Premises.

(2)               WINDOWS AND PROJECTIONS: Nothing shall be affixed to or projected beyond the outside of the Building by Tenant without the prior written consent of Landlord, including, without limitation, awnings and air conditioning units, and no curtains, blinds, shades or screens shall be used in connection with any window of the Premises without the prior written consent of Landlord.

(3)               ADVERTISING: Tenant shall not in any manner use the name of the Premises or the Building for any purpose other than that of the business address of Tenant, or use any picture or likeness of the Premises or the Building in any letterheads, envelopes, circulars, notices, advertisements, containers or similar items without Landlord's prior written consent. No advertisements, signs, banners, etc. shall be painted, exhibited or affixed on the outside of the Building without the prior written consent of Landlord. In the event of the violation of the foregoing, Landlord may remove same, without notice or liability to Tenant and at the sole cost and expense of Tenant.

(4)               BICYCLES AND ANIMALS: Unless expressly permitted by Landlord, no bicycle or other vehicle and no animals or birds shall be brought or permitted to be in the Premises or Building or any part thereof.

(5)               LOCKS: Unless expressly permitted by Landlord, no additional locks or similar devices shall be attached to any door or window and no keys other than those provided by Landlord shall be made for any door. If more than two keys for one lock are desired by Tenant, Landlord may provide the same upon payment by Tenant. Upon termination of this Lease or of Tenant's possession, Tenant shall surrender all keys of the Premises to Landlord and shall provide Landlord with the then current combination for any combination locks on safes, cabinets and vaults situated on the Premises.

(6)               NOISES AND OTHER NUISANCES: Tenant shall not make or permit any unnecessary or disturbing noises or allow loud music or odors that are objectionable to Landlord or to other tenants of the Building or the Property to emanate from the Building or the Premises, and shall not create or maintain a nuisance therein, and shall not disturb, solicit or canvass any occupant of the Building and shall not do any act tending to injure the reputation of the Property.

(7)               LEDGES AND WINDOWS: Tenant shall not place or permit to be placed any article of any kind on the window ledges or elsewhere on the exterior walls, and shall not throw or drop or permit to be thrown or dropped any article from any window of the Building.

(8)               COMMUNICATION EOUIPMENT: No electric wires, telephone lines, antennae, satellite dish, aerial wires or other electrical equipment or apparatus shall be installed inside or outside the Building without the prior written consent of Landlord, which consent Landlord shall have the right to withhold, in its sole and absolute discretion.

(9)               ENTRY TO BUILDING AND/OR PREMISES: Landlord shall retain the right to control and prevent access to or eject from the Building or the Premises all persons whose presence in the reasonable judgment of Landlord shall be prejudicial to the safety, character, reputation and interests of the Building and its tenants or the Premises including, without limitation, any and all solicitors, canvassers or peddlers and persons conducting themselves in such manner as to constitute an annoyance to any of the tenants of the Building or the Property, provided, however, that nothing contained herein shall be construed to prevent access to persons with whom Tenant deals within the normal course of Tenant's business unless such persons are engaged in activities which are illegal, constitute a nuisance or otherwise violate this Lease.

(10)               LODGING: The Premises shall not be used for lodging or sleeping purposes.

(11)               ELECTRICAL EOUIPMENT: If Tenant desires signal, communication, alarm or other utility or similar service connections installed or changed, Tenant shall not install or change the same without the prior written consent of Landlord, and then only under Landlord's direction, at Tenant's sole cost and expense and otherwise in accordance with the terms of this Lease. Tenant shall not install in the Premises any equipment which requires more electric current than Landlord is required to provide under this Lease, without Landlord's prior consent, and Tenant shall ascertain from Landlord the maximum amount of load or demand for or use of electrical current which can safely be permitted in the Premises, taking into account the capacity of electric wiring in the Building and the Premises and the needs of other tenants of the Building or the Property, and shall not in any event connect a greater load than such safe capacity.

(12)               REST ROOM USE: The toilet rooms, urinals, wash bowls and other such apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant who, or whose Tenant Representatives, shall have caused it.

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(13)               USE OF CLOSETS: The janitorial closets, utility closets, telephone closets, broom closets, electrical closets, storage closets, and other such closets, rooms and areas shall be used only for the purposes and in the manner designated by Landlord, and may not be used by Tenant or Tenant's Representatives or other parties without Landlord's prior written consent.

(14)               SAFETY PROGRAMS: Tenant shall cooperate and comply with any reasonable safety or security programs, including, without limitation, fire drills and the appointment of "fire wardens" developed by Landlord for the Building.

(15)               DEFACEMENT: Tenant shall not drive nails or screws into the woodwork or walls, or paint, mark or in any way deface the Building or any part thereof. Any damage or injury resulting from a violation of this rule shall be remedied at the sole cost and expense of Tenant.

(16)               STORAGE OF MATERIALS: Tenant shall not stack or store materials, inventory, equipment, pallets and similar items inside the Premises or the Building in a manner which obstructs access to fire exit signs, fire exits, utility meters, unit heaters, gas and water lines and air conditioning equipment nor shall Tenant store such pallets or other materials outside the Premises or the Building except in compliance with local governmental regulations. If Landlord incurs any casualty loss as a result of Tenant's violation of this Paragraph, Tenant shall be liable to Landlord for the payment of Landlord's deductible.

(17)               PARKING: Except for short term loading and unloading, all vehicles are to be parked in areas designed for vehicle parking. Tenant shall not use the designated parking areas in any manner for storage of materials, parts, supplies, trailers, equipment, or machinery, without the prior written consent of Landlord in each instance, which Landlord shall have the right to grant or withhold in Landlord's sole and absolute discretion, nor shall Tenant use the parking areas in any manner which could obstruct or interfere with the rights and safety of other tenants of the Building or the Property or any other persons. Landlord reserves the right to designate or assign all parking, including, without limitation, the right to designate or assign parking spaces for the exclusive use by other tenants of the Building or the Property. Tenant shall not permit its employees to park in areas designated as "Visitor Parking".

(18)               SALES ON PREMISES: The Tenant shall not exhibit, sell or offer for sale on the Premises or in the Building any article or thing except those articles and things essentially connected with the stated use of the Premises by Tenant, without the prior written consent of Landlord which consent Landlord shall have the right to withhold, in its sole and absolute discretion.

(19)               WASTE MANAGEMENT: All rubbish, trash or debris generated by Tenant shall be contained within the Premises, in containers reasonably approved by Landlord, until removed from the Premises. No such waste material or refuse shall at any time be stored or kept outside the Premises without the prior consent of Landlord which consent Landlord shall have the right to withhold, in its sole and absolute discretion, and further provided (a) such storage complies with all applicable Laws, (b) all containers are kept covered at all times, and (c) such storage does not interfere with the access or use of the Premises by Landlord or other tenants of the Building or the Property. Tenant shall dispose of its own rubbish and not permit the accumulation thereof in and around the Premises, and, in the event Tenant fails to remove any accumulation of rubbish within three (3) days after notice to remove the same, Landlord shall have the right to remove same, in which event the cost and expense thereof shall be paid by Tenant to Landlord as Additional Rent within five (5) days of Landlord's demand.

(20)               HAND TRUCKS: Hand trucks may not be used in the Building or the Premises unless they are equipped with rubber tires and bumper guards.

(21)               VIOLATION OF RULES BY OTHER TENANTS. Landlord shall not be responsible to Tenant for the non-observance or violation of any of these Rules and Regulations by any other tenants of the Building or the Property, their agents, employees or invitees and nothing contained herein shall be construed to impose upon Landlord any duty or obligation to enforce the rules and regulations in any other Lease or upon any other tenant of the Building or the Property, or its agents, employees or invitees.

(22)               WAIVER. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants of the Building or the Property, but such waiver by Landlord shall not be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants of the Building or the Property, nor prevent Landlord from thereinafter enforcing any such Rules and Regulations against any or all of the tenants of the Building or the Property.

(23)               CONSTRUCTION OF RULES AND REGULATIONS: These rules and regulations are in addition to, and shall not be construed to in any way modify, alter or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease by and between the parties hereto.

 -31-

EX-10.36

EXHIBIT 10.36

FIRST AMENDMENT AND LEASE EXPANSION AGREEMENT

THIS FIRSTAMENDMENT AND LEASE EXPANSION AGREEMENT is made this 20th day of May; 2009; -by and between SBP LIMITED PARTNERSHIP, an Ohio limited partnership ("Landlord") and AFFYMETRIX, INC., a Delaware corporation ("Tenant").

WITNESSETH

WHEREAS, the parties entered into a Lease Agreement dated August 10, 2008 (the "Lease") for a portion of Landlord's property located at 26309 Miles Road, Warrensville Heights, OH 44128, known as Units 1, 2 and 3, deemed to contain 14,982 square feet (the "Premises"); and

WHEREAS, the parties desire to amend the Lease to (i) add additional space at another property owned by Landlord and (ii) establish the Base Rent and Term of the Lease of Additional Space.

NOW THEREFORE, in consideration of the mutual benefits to be derived, the Lease is hereby amended as follows:

1.           Tenant agrees to lease 3,630 square feet of space, known as Unit 7 (the "Additional Space") of Landlord's property located at 4920 Commerce Parkway, Warrensville Heights, OH.

2.           The Term of the Lease of Additional Space shall be month to month commencing May 1, 2009. Landlord shall have the right to terminate the Lease upon thirty (30) days advance written notice to Tenant. The "Notice Date" shall be the date the Tenant actually receives the notice.

3.           Tenant shall take occupancy of the Additional Space on May 20, 2009. The Base Rent will be pro rated on a per diem basis for the month of May.

4.           The Base Rent shall be Thirteen Hundred Seventy-Five Dollars ($1,375.00) per month, due and payable, without demand deduction of set off, on or before the first day of each month.

5.           Tenant's security deposit shall be increased by Thirteen Hundred Seventy-Five Dollars ($1,375.00) due and payable on May 20, 2009.

6.           Tenant shall pay the bills for the separately metered utilities furnished to the Premises directly to the provider. Tenant agrees to maintain the Premises at a temperature of at least 50° Fahrenheit to prevent the water pipes from freezing. Tenant shall pay to Landlord its pro rata share of the water and sewer charges for the Premises. Tenant's pro rata share is 8.8%.

-1-

7.           Tenant agrees to Lease the Additional Space "as is".

8.           Tenant will use the Additional Space for the storage of lab supplies. Tenant shall not use the Premises, the Building or the Property or allow the Premises, the Building or the Property to be used, for any purpose or in any manner which would void any policy of insurance now or hereinafter carried on the Premises, the Building or the Property; render the Premises, the Building or the Property uninsurable; or increase the rate of premiums payable on any such insurance policy. Tenant, at its sole cost and expense, shall comply with any and all. requirements of any insurance organization or company necessary for the maintenance of "all risks" insurance, including, without limitation, fire and other casualty and general public liability insurance covering the Premises, the Building and the Property.

9.           All of the terms, conditions, provisions and covenants of the Lease, except as specifically modified or amended herein, shall remain in full force and effect and apply hereto, and Landlord and Tenant agree that the terms of said Lease, as amended herein, shall continue to govern their respective rights and duties.

IN WITNESS WHEREOF, the Landlord and Tenant have executed this First Amendment and Lease Expansion Agreement as of the day and year first above written.

SBP LIMITED PARTNERSHIP

an Ohio limited partnership

By:           Weston Inc., Agent

By:                            /s/  James A. Asher

                                   James A. Asher, President

                                  "Landlord"

Affymetrix, Inc.

A Delaware corporation

By: /s/ Don Turner

                                  Don Turner, Facility Manger

                                  "Tenant"

 -2-

EX-10.37

EXHIBIT 10.37

LEASE

between

OTR

and

ANATRACE, INC.

WAREHOUSE

LEASE

THIS LEASE ("Lease"), made and entered into this 14th day of February, 2001, between OTR, an Ohio general partnership, whose address is 275 East Broad Street, Columbus, Ohio 43215, acting as the duly authorized nominee of The State Teachers Retirement System of Ohio ("STRBO"), whose address is 275 East Broad Street, Columbus, Ohio 43215 ("Landlord"), and ANATRACE, INC., an Ohio corporation, whose address is 434 Dussel Drive, Maumee, Ohio 43 53 7-1685 ("Tenant").

W I T N E S S E T H:

In consideration of the rent and other sums to be paid and of the covenants andagreements to be kept and performed by Tenant and subject to all covenants, conditions, easements, restrictions and agreements of record, Landlord hereby leases to Tenant, and Tenant hereby rents from Landlord, the interior of those certain premises containing approximately twelve thousand one hundred seventy-six (12,176) square feet of floor area, which premises are depicted as Units 6 and 6A and outlined in red on the plot plan attached hereto as Exhibit A and incorporated herein by reference (the "Premises"), and which Premises are located in the building (the "Building") situated on land (collectively, the "Property") more particularly described on Exhibit B attached hereto and incorporated herein. During the term of this Lease, Landlord grants to Tenant and Tenant's customers and invitees a nonexclusive license to use, in common with all others to whom Landlord has or may hereafter grant a license to use, the common areas located on the Property. The term of 'this Lease shall be for ten (10) years, beginning on the Commencement Date (hereinafter defined), and ending on the last day of the tenth (10th) Lease Year (hereinafter defined) unless sooner terminated as provided for in this Lease.. The Premises do not include the use of the roof (except for the repair or replacement of any heating or air conditioning equipment thereon serving the Premises) or extend beyond the exterior faces of the exterior walls of the Building.

The term "Commencement Date" shall mean the date Landlord substantially completes Landlord's Work as set forth on Exhibit C attached hereto and made a part hereof Upon the request of either party, the other shall confirm in writing the Commencement Date once it has been determined. The term "Lease Year" shall mean the twelve (12) month period commencing on the Commencement Date, and each successive period of twelve (12) months thereafter; provided, however, that if the Commencement Date shall not be the first (1st) day of a calendar month, the first (1st) Lease Year shall include the period of time from the Commencement Date until the first (l st) day of the next following month.

1.           Rent. Tenant shall pay rent without deduction, set-off, notice or demand to Landlord at 275 East Broad Street, Columbus, Ohio 43215, or at such other place as Landlord may, in writing, from time to time require, during the term hereof as follows:

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(a)           Base Rent.

(i)           During the first (1st) through the fifth (5th) Lease Years, Tenant shall pay to Landlord as base rent (the "Base Rent") an annual sum of One Hundred Thirty-Nine Thousand One Hundred Seventy One and 68/100 Dollars ($139,171.68) payable in equal monthly installments of Eleven Thousand Five Hundred Ninety-Seven and 641100 ($11,597.64), payable on or before the first day of each and every month commencing with the Commencement Date; and

(ii)           During the sixth (6th) through the tenth (10th) Lease Years, Tenant shall pay to Landlord as Base Rent an annual sum of One Hundred Fifty-Six Thousand Three Hundred Thirty-Nine and 89/100 Dollars ($156,339.89), payable in equal monthly installments of Thirteen Thousand Twenty-Eight and 32/100 Dollars ($13,028.32) payable on or before the first day of each and every month.

(iii)           If the cost of Landlord's Contribution, as defined in Exhibit C hereto, is less than Two Hundred Fifteen Thousand Dollars ($215,000.00), Tenant shall receive a credit equal to the difference between Two Hundred Fifteen Thousand Dollars ($215,000.00) and Landlord's Contribution which credit shall be used by Tenant to satisfy the first installment(s) of Base Rent due Landlord.

(b)           Additional Rent.

(i)           In addition to Base Rent, Tenant agrees to pay Landlord, at the times hereinafter set forth, without deduction, set-off, notice, demand or abatement, the following additional charges ("Additional Rent"), the nonpayment of which shall be subject to all provisions of this Lease and of law as to default in the payment of money:

(A)           Common Area Charge. Tenant's Prorata Share (hereinafter defined) of Landlord's total annual costs of operating, maintaining and supervising the Common Areas (hereinafter defined) of the Property which includes, but is not limited to, removing snow, ice, trash, refuse, rubbish and garbage; cleaning, gardening and landscaping the Common Areas; providing for sanitary control of and for the Common Areas; carrying insurance for the Common Areas (including, without limitation, public liability, property damage, automobile, workmen's compensation covering personnel, sign and other insurance in limits selected by Landlord); installing, acquiring or repairing security measures, including security personnel; paying all management fees; repairing and replacing the paving, curbs, walkways, electric power lines, light poles, bulbs, drainage and equipment used in the Common Areas; providing for line painting; attending the parking areas; paying all governmental charges, surcharges, fees, or taxes on the parking areas, parking spaces or on cars parking therein; paying for the cost of all utilities used or consumed in the Common Areas; repairing and/or replacing of the water lines, sanitary sewer lines and storm sewer lines serving the Property; renting or purchasing of machinery, equipment and tools used in such maintenance, inspection and repair of facilities; paying the cost of signs, sign maintenance and sound systems; paying the personal property and similar taxes on Common Area equipment, machinery, tools, supplies and other personal property and facilities; paying the cost of personnel to implement such services and similar functions.

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(B)           Other Mechanical System's Maintenance, Repair. and Replacement. Tenant's Prorata Share of Landlord's total annual cost of maintaining, repairing and replacing the mechanical systems, including, but not limited to, electrical, plumbing and sewer systems, which serve the Property and not otherwise the responsibility of Tenant as set forth in Paragraph 4(a).

(C)           Water and Sewer Charges. Tenant's Prorata Share of all water and sewer charges (if not separately metered) for water used or consumed on the Property and the sewerage generated by the Property.

(D)          Taxes. Tenant's Prorata Share of the annual real property taxes and assessments, both general and special, levied against the Property.

(E)           Taxes on Rent. The amount of any tax or excise on rent or on any service or services provided by Landlord under this Lease (except income, estate or similar taxes) which is assessed or imposed by any governmental authority upon Landlord or upon Tenant but paid by Landlord and which is so assessed, imposed or paid as a result of Landlord's ownership of the Property or of this Lease or the rentals accruing under this Lease, any tax which may be in lieu of, as a substitute for or in addition to real property taxes and assessments or any tax or surcharge of any kind or nature imposed upon the Property or any portion thereof, it being the intention of the parties hereto that the rentals to be paid hereunder shall be paid to Landlord absolutely without deduction or set-off of any nature whatsoever.

(F)           Insurance. Tenant's Prorata Share of Landlord's annual premiums for casualty insurance covering the buildings on the Property (including, without limitation, fire and extended coverage insurance and loss of rents coverage insurance) and Landlord's general liability insurance covering the Property, exclusive of Common Areas which is included within the Common Area charges set forth in Item (A) of this Paragraph.

(ii)           Payment. The foregoing amounts may be estimated by Landlord, in which event Landlord shall notify Tenant of Landlord's estimate. Tenant shall pay said estimate in advance, on the first day of each calendar month, with Tenant's Base Rent. When Landlord has calculated the exact amount actually payable by Tenant for the foregoing amounts, Landlord shall notify Tenant of said exact amount actually payable by Tenant for the foregoing amounts. Any deficiency in payment by Tenant for any item shall be paid by Tenant to Landlord within fifteen (15) days after receipt of the notice in respect of the item for which a deficiency exists. Any surplus in respect to any item paid by Tenant during the preceding calendar year shall be credited against the next ensuing installments of Landlord's estimate of Tenant's share of that item for the next year. The amounts payable by Tenant for the first Lease Year and last Lease Year of this Lease shall be prorated for the parts of such first Lease Year and last Lease Year that Tenant is obligated to pay annual Base Rent under this Lease.

(iii)           Interest, Late Payment Charges. Any payment due from Tenant to Landlord not paid upon the date herein specified to be paid shall bear interest at the lesser of eighteen percent (18%) per annum or the maximum rate of interest permitted by law (the "Default Rate") from the date of such payment is due to the date of actual payment. In addition,

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Tenant shall pay to Landlord a late payment charge equal to five percent (5%) of any amount due if not paid within two (2) days from the date required to be paid hereunder. Notwithstanding the interest charge and/or late payment charge, nonpayment of any Base Rent, Additional Rent, interest or late payment charge or other monies due under this Lease hereunder shall constitute a default of this Lease if not paid within five (5) days of written notice of such nonpayment.

(iv)           Definitions. The term "Common Areas" means the parking areas, driveways, aisles, sidewalks and other common and service areas on the Property with the improvements therein, whether or not shown on Exhibit A. Landlord reserves the right to change the Common Areas from time to time in its sole discretion. The term "Prorata Share" shall mean the ratio or percentage which the number of leasable square feet in the Premises bears to the total number of leasable square feet on the Property-

(v)           Additional Sums. Tenant shall pay to Landlord all additional sums, charges or amounts of whatever nature to be paid by Tenant to Landlord in accordance with the provisions of this Lease, whether or not such sums, charges or amounts are otherwise referred to as additional rent or rental.

(c)           Obligations Not Affected. Except as otherwise expressly provided herein, this Lease shall not terminate, nor shall Tenant have any right to terminate this Lease or be entitled to the abatement of any rent or any reduction thereof nor shall the obligations hereunder of Tenant be otherwise affected, by reason of any damage to or destruction of all or any part of the Premises or of the Property from whatever cause, the taking of the Premises or of the Property or any portion thereof by condemnation or otherwise, the prohibition, limitation or restriction of Tenant's use of the Premises, or interference with such use by any private person or corporation, or by reason of any eviction by paramount title or otherwise, or Tenant's acquisition of ownership of the Premises, or for any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding, it being the intention of the parties hereto that the Base Rent, Additional Rent and all other rents and charges payable hereunder to or on behalf of Landlord, shall continue to be payable in all events and the obligations of Tenant hereunder shall continue unaffected, unless the requirement to pay or perform the same shall be suspended or terminated pursuant to an express provision of this Lease.

(d)           Partial Month. Monthly installments of Base Rent and Additional Rent shall be prorated based on a thirty (30) day month for any partial month occurring during the term hereof

2.           Utility Payments.

(a)           Tenant shall promptly pay for utilities rendered or furnished to the Premises from the date Landlord delivers possession of the Premises to Tenant and continuing throughout the term of this Lease, including water and sewerage charges (if separately metered), electricity, telephone and gas ("Utility Expenses"). Landlord shall not be liable for any

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permanent or temporary interruption of utility services nor shall any of Tenant's obligations under this Lease be affected by any such interruption of utility services.

(b)           Tenant shall indemnify and hold Landlord harmless from and against any and all costs, liabilities, suits, penalties, claims and demands, including attorneys' fees, as a result of a lien being imposed upon the Premises by virtue of Tenant's failure to pay all or any part of Utility Expenses.

3.         Use of Premises and Conditions on Use.

(a)           Tenant shall use the Premises for chemical research, laboratories and office use, and related production, and for no other uses or purposes whatsoever. Tenant shall procure, at its sole cost and expense, any permits and/or licenses required for the transaction of Tenant's business in the Premises.

(b)           Tenant will not conduct any auction, fire, bankruptcy or going out of business sale in the Premises without Landlord's prior written consent.

4.           Repairs and Maintenance of Premises.

(a)           Tenant, at Tenant's expense, shall make all repairs and replacements to keep and maintain the interior of the Premises in good condition and repair, including but not limited to, the electrical and other mechanical installations serving the Premises, the heating, ventilating and air conditioning systems serving the Premises, the plumbing and sewer systems located in and serving the Premises, the exterior and interior portions of all doors including door checks and hardware, any security gates and ceiling tiles. Tenant shall promptly replace all broken and cracked glass. All items that Tenant shall replace during the term of this Lease shall be of equal or better quality, type and style than the item being replaced. Tenant shall not permit any waste, damage or injury to the Premises. Tenant shall further keep the Premises clean, attractive and free of rubbish, rubble and debris.

(b)           Except as otherwise provided in this Lease, Landlord will, within a reasonable time after receipt from Tenant of written notice of the necessity of such repair, keep the roof, structural portions and exterior of the Premises in good and tenantable condition and repair during the term of this Lease. Notwithstanding the above, Landlord shall make all repairs and replacements to any portion of the Premises or of the building in which Premises are located

necessary by reason of (a) the acts, neglect, fault or default of Tenant, or Tenant's agents, employees, contractors or customers, (b) the operations of Tenant or the storage of Tenant's merchandise within the Premises, (c) acts of trespassers, thieves or other unauthorized persons who enter or attempt to enter the Premises, or the building in which the Premises are located, or (d) structural and exterior work done or installed by Tenant; and Tenant shall reimburse Landlord for such sums expended for such repairs and replacements, such sums being additional rental hereunder.

Further, and notwithstanding anything in this Lease to the contrary, Tenant, not Landlord, shall make all repairs, alterations and replacements to the property that Landlord is

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required to maintain which may be required as the result of repairs, alterations, other improvements or installations made by Tenant or any assignee, subtenant or concessionaire of Tenant or the agents of any of them.

(c)            On default of Tenant in making any repairs or replacements required to be made by Tenant hereunder or in maintaining the Premises, Landlord may, but shall not be required to, make such repairs or replacements or maintain the Premises for Tenant's account, and the expense thereof shall constitute and be collectible as additional rent, payable by Tenant on demand, or, at Landlord's election, together with the next installment of rent due hereunder, and all sums not paid when due shall bear interest at the Default Rate from the date of payment by Landlord until paid by Tenant.

5.           Requirements of Public Authority.

(a)           During the term of this Lease, Tenant shall, at its own cost and expense, promptly observe and comply with all present and future laws, ordinances, requirements, orders, directives, rules and regulations of federal, state, county, town, village and city governments and of all other governmental authorities affecting the Premises or any part thereof whether the same are in force at the commencement of the term of this Lease or may in the future be passed, enacted or directed, and Tenant shall pay all costs, expenses, liabilities, losses, damages, fines, penalties, claims and demands that may in any manner arise out of or be imposed because of the failure of Tenant to comply with the covenants of this Paragraph S.

(b)           Tenant shall have the right to contest by appropriate legal proceedings diligently conducted in good faith, in the name of Tenant, or Landlord (if legally required), or both (if legally required), without cost or expense to Landlord, the validity or application of any law, ordinance, rule, regulation or requirement of the nature referred to in subparagraph (a) above and, if by the terms of any such law, ordinance, order, rule, regulation or requirement, compliance therewith may legally be delayed pending the prosecution of any such proceeding, Tenant may delay compliance therewith until the final determination of such proceeding.

(c)           Landlord agrees to execute and deliver any appropriate papers or other instruments which may be necessary or proper to permit Tenant so to contest the validity or application of any such law, ordinance, order, rule, regulation or requirement and to fully cooperate with Tenant in such contest.

6.           Nuisance and Care. Tenant shall use and occupy the Premises so that no other occupant of any adjoining property will be unreasonably disturbed and shall create no nuisance in, upon or about the Premises. Tenant shall take good care of the Premises and of the fixtures and appurtenances thereto, and all alterations, additions and improvements thereto. Tenant will not make or permit to be made any use of the Premises or any part thereof which would violate any of the covenants, agreements, terms, provisions and conditions of this Lease or which directly or indirectly is forbidden by public law, ordinance or regulation of any governmental or public authority (including zoning ordinances) or which may be dangerous to life, limb or property, or which will suffer or permit the Premises or any part thereof to be used in any manner which, in the judgment of Landlord, shall in any way impair or tend to impair the

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character, reputation or appearance of the Premises or the Property, or which will impair or interfere with any of the services performed by Landlord for the Premises.

7.           Signs. Tenant may erect (or permit or cause to be erected) upon the exterior of the Premises or upon the Property only such signs as shall be (a) in accordance with any restriction of record or applicable regulations of any governmental agency having jurisdiction and (b) approved by Landlord, which approval shall not be unreasonably withheld or delayed. Tenant shall erect such signs in such manner as to cause no permanent damage to the Premises or the Property and shall maintain such signs in a good, safe and sightly condition at all times. At the end of the term, Tenant shall remove such signs and repair all damage caused by the installation, maintenance and/or removal of such signs to the reasonable satisfaction of Landlord,

8.           Alterations. Additions and Improvements. Tenant shall make no alterations, additions, or improvements in or to the Premises without the express prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. If a building permit is required in connection with any alterations, additions, or improvements proposed by Tenant, Tenant shall furnish Landlord for its approval (which approval shall not be unreasonably withheld or delayed) detailed plans and specifications therefor. All additions, alterations and improvements made by Tenant hereunder shall be installed in a good and workmanlike manner, using only materials of the same or higher quality as those originally installed in the Premises. Whether Tenant furnishes Landlord with the foregoing or not, Tenant hereby agrees to indemnify, defend and hold harmless Landlord from and against any and all liabilities, costs and expenses of every kind and description, including attorneys' fees, which may arise out of or be in any manner connected with said alterations, additions, or improvements. Tenant shall pay the cost of all such alterations, additions or improvements. Upon completion of any such alterations, additions, or improvements, Tenant shall furnish Landlord with contractors' affidavits and full and final waivers of lien, together with receipted bills covering all labor and materials expended and used, in full compliance with the applicable mechanics' lien law. \

Notice is hereby given that Landlord shall not be liable for any labor or materials furnished or to be furnished to Tenant upon credit, and that no mechanic's or other lien for any such labor or material shall attach to or affect the reversion or other estate or interest of Landlord in and to the Premises. All alterations, additions or improvements shall comply with all requirements of all insurance carriers providing insurance coverage on the Premises and with all laws, rules, ordinances and regulations of any lawful authority. Tenant shall permit Landlord to observe construction operations and to inspect any alterations, additions, or improvements if Landlord requests the right to do so (but Landlord shall have no obligation to make such request). All alterations, additions, or improvements, whether temporary or permanent, including hardware, non-trade fixtures and wall and floor coverings, but excluding removable trade fixtures, in or upon the Premises, whether placed there by Landlord or Tenant, shall become Landlord's property and shall remain with the Premises at the termination of this Lease, whether by lapse of time or otherwise, without compensation, allowance of credit to Tenant; provided, however, that notwithstanding the foregoing, Landlord may request that any or all of said alterations, additions or improvements in or upon the Premises made by Tenant shall be removed by Tenant at the termination of this Lease. If Landlord requests such removal, Tenant shall remove the same prior to the end of the term and shall repair all damage to the Premises

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caused by such removal; provided, however, that in removing any such alterations, additions, or improvements, Tenant shall not be required to expend more than the Cost Cap (hereinafter defined), Landlord hereby agreeing to be responsible for removal costs in excess of the Cost Cap. If Tenant does not remove any alterations, additions or improvements when requested by Landlord to do so, Landlord may remove the same and repair all damage caused thereby, and Tenant shall pay to Landlord the cost of such removal and repair, together with interest at the Default Rate, immediately upon demand therefor by Landlord. Tenant's obligation to observe or perform this covenant shall survive the expiration or termination of this Lease.

The Cost Cap shall be the sum determined by multiplying Twenty-Five Thousand Dollars ($25,000) by a fraction, the numerator of which is the Current Index and the denominator is the Base Index. The "Base Index" shall be the level of the Index for the month of December 2000, and the "Current Index" shall be the level of the Index for the month immediately preceding the month during which Tenant's alterations, additions, or improvements are required to be removed. The term "Index" shall mean the Consumer Price Index for Urban Consumers, U. S. All Cities Average, published by the United States Department of Labor (Base Year 1982-1984 = 100), or any successor index thereto as hereinafter provided. If publication of the Index is discontinued, or if the basis of calculating the Index is materially changed, then the parties shall accept comparable statistics on the cost of living for all cities, as they shall be computed and published by an agency of the United States or by a responsible financial periodical or recognized authority to be selected by the parties. In the event of (i) use of comparable statistics in place of the Index or (ii) publication of the Index at other than monthly intervals, there shall be made in the method of calculation such revisions as the circumstances may require to carry out the intent of this Paragraph 8.

9.           Liability for Personal Injury or Property Damage.

(a)           Landlord shall not be liable for, and Tenant hereby waives all claims for, any and all damage or loss to fixtures, equipment, merchandise or other property of Tenant and of Tenant's servants, agents, employees, contractors, suppliers, invitees, patrons and guests, in, upon or about the Premises, and/or injury or death to any person, occurring in, upon or about the Premises resulting from any cause whatsoever (except for any intentional act of Landlord), including, but not limited to, water, snow, frost, ice, explosion, falling plaster, fire or gas, smoke or other fumes, or by reason of the leaking, breaking, backing up or other malfunction of any lines, wires, pipes, tanks, boilers, lifts or any other appurtenances, regardless by whom installed or maintained (Tenant hereby expressly assuming all responsibility for the safety and security of the person and property of Tenant, and of Tenant's servants, agents, employees, contractors, suppliers, invitees, patrons and guests, while in, upon or about the Premises).

(b)           Tenant covenants and agrees that it will protect, indemnify and save and keep Landlord, its agents, servants, employees, officers, directors, and partners forever harmless against and from any penalty, damages, charges or costs imposed or resulting from any violation of any law, order of governmental agency or ordinance, whether occasioned by the neglect of Tenant or those holding under Tenant, and that Tenant will at all times protect, indemnify and save and keep harmless Landlord, its agents, servants, employees, officers and directors against and from all claims, losses, costs, damages or expenses, including attorneys' fees, arising out of

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or from any accident or other occurrence on or about the Premises causing injury to any person or property whomsoever or whatsoever, and that Tenant will protect, indemnify, save and keep harmless Landlord, its agents, servants, employees, officers, directors and partners against and from any and all claims, losses, costs, damages or expenses, including attorneys' fees, arising out of any failure of Tenant in any respect to comply with or perform all the requirements and provisions of this Lease or arising out of any use of the Premises or the Property by Tenant or any one claiming by, through or under Tenant.

10.           Liability and Casualty Insurance.

(a)           Tenant agrees that, at its own cost and expense, it will procure and continue in force, in the names of Landlord, Landlord's mortgagee(s) and Tenant, as their interests may appear, commercial general liability insurance coverage against injuries to persons occurring in, upon or about the Premises, including all damage from signs, glass, awnings, fixtures or other appurtenances now or hereafter erected on the Premises or the Property during the term of this Lease, such insurance at all times to be in an amount of not less than Two Million Dollars ($2,000,000.00) per occurrence, and not less than Two Million Dollars ($2,000,000.00) aggregate coverage per one (1) accident or disaster, and Two Million Dollars ($2,000,000.00) for injury to property. Such insurance shall be written with a 'company or companies authorized to engage in the business of general liability insurance in the state in which the Premises are located, and there shall be delivered to Landlord customary insurance certification evidencing such paid-up insurance and copies of the policies. Such insurance shall further provide that the same may not be canceled, terminated or modified unless the insurer gives Landlord and Landlord's mortgagee(s) at least thirty (30) days prior written notice thereof.

(b)           Tenant shall carry and pay for, for the account of Landlord during the entire term of this Lease, and any renewals and extensions thereof, the following types of insurance:

(i)           Fire, extended coverage, vandalism and malicious mischief, and sprinkler damage and all-risk insurance coverage on all personal property, furnishings, furniture, trade fixtures, contents and merchandise for their full insurable value on a replacement cost basis.

(ii)           Workers' compensation or similar insurance, if and to the extent required by law and in form and amounts required by law.

(iii)           Tenant agrees to pay to Landlord any increase in each of Landlord's insurance policies resulting from Tenant's particular use or occupancy of the Premises.

(c)           Landlord shall maintain in force, at all times during the term of this Lease, a policy or policies of fire insurance to the extent of at least eighty percent (80%) of the insurable value of the Building.

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11.          Condition of Premises. Except as otherwise agreed to in writing, Tenant's taking possession of the Premises shall be conclusive evidence as against Tenant that the Premises were in good order and satisfactory condition when Tenant took possession. No promise of Landlord to alter, remodel or improve the Premises and no representation respecting the condition of the Premises has been made by Landlord to Tenant, except as expressly set forth in Exhibit C.

12.          Entrance and Inspection. Upon reasonable notice from Landlord (except in the event of emergency, in which case no notice shall be required), Tenant shall permit Landlord and Landlord's authorized servants, agents, employees and contractors to enter the Premises and any buildings or other improvements now or hereafter located on and forming a part of the Premises, at all reasonable times for the purpose of examining the Premises to verify Tenant's compliance with all of the terms, covenants, obligations and conditions of this Lease, and for the purpose of exercising any rights with respect to the Premises which Landlord may exercise in the event of default by Tenant.

13.          Prohibition on Assignment.

(a)           Tenant shall not transfer, encumber, pledge, mortgage or assign this Lease or sublet the Premises, in whole or in part, or permit the same to be occupied or used by any other person or entity without receiving Landlord's prior written consent, which consent shall not be unreasonably withheld. Landlord acknowledges that any proposed assignment of this Lease or sublease of the Premises may entail a change in the permitted use of the Premises, and Landlord shall not unreasonably withhold its consent to any such change in use. A transfer by operation of law, merger, or consolidation, or a change of more than forty-nine percent (49%) in ownership of the voting stock of Tenant or any direct or indirect parent of Tenant, shall be deemed an assignment for purposes of this Paragraph 13. Any purported transfer, encumbrance, pledge, mortgage, assignment or subletting not in compliance herewith shall be void and of no force or effect. Any transfer, encumbrance, pledge, mortgage, assignment, subletting or other transfer, even with the consent of Landlord, shall not relieve Tenant from its primary liability for the payment of rent and other charges or from its primary obligation to keep and be bound by the terms, conditions and covenants of this Lease. No consent of Landlord to a particular assignment or subletting shall be deemed a consent to further assignments or subletting.

(b)           Upon the occurrence of an event of "default" as set forth in Paragraph 18 hereof, if all or any part of the Premises are then assigned, sublet, transferred or occupied by someone other than Tenant, Landlord, in addition to any other remedies provided by this Lease or provided by law, may, at Landlord's option, collect directly from the assignee, subtenant, transferee or occupant, all rents becoming due to Tenant by reason of the assignment, sublease, transfer or occupancy. Any collection directly by Landlord from the assignee or subtenant shall not be construed to constitute a novation or release of Tenant from the performance of its obligations under this Lease.

(c)           In the event Tenant sublets all or a portion of the Premises for an amount in excess of the Base Rent set forth in Paragraph I of this Lease, Tenant shall pay to Landlord, as additional rent, fifty percent (50%) of such excess received by Tenant. Any sublease shall contain a provision whereby the subtenant agrees to comply with and be bound by all of the

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terms, covenants, conditions, provisions and agreements of this Lease to the extent of the space sublet, and Tenant shall deliver to Landlord promptly after execution, an executed copy of each sublease and an agreement of compliance by each such subtenant. Any sublease shall also contain a provision that, in the event of default by Tenant hereunder and a termination of this Lease by Landlord, such subtenant shall, at Landlord's option, attorn to Landlord as if Landlord were the lessor under the sublease.

14.                     Mechanic's Liens.

(a)           If, because of any act or omission of Tenant, any mechanic's lien or other lien, charge or order for the payment of money shall be filed against any portion of the Premises, Tenant shall, at its own cost and expense, cause the same to be discharged of record or bonded within thirty (30) days of the filing thereof unless Tenant shall contest the validity of such lien by appropriate legal proceedings diligently conducted in good faith and without expense to Landlord; and Tenant shall indemnify, defend and save harmless Landlord against and from all costs, liabilities, suits, penalties, claims and demands on account thereof.

(b)           If Tenant shall fail to cause such liens to be discharged of record or bonded within the aforesaid thirty (30) day period, then Landlord shall have the right to cause the same to be discharged. All amounts paid by Landlord to cause such liens to be discharged, together with interest thereon at the Default Rate, shall constitute additional rent payable by Tenant to Landlord.

15.           Estoppel Certificates. Tenant shall, within ten (10) days after written request of Landlord, execute, acknowledge and deliver to Landlord or to Landlord's mortgagee, proposed mortgagee, land lessor or proposed purchaser of the Premises, the Property, or any part thereof any estoppel certificates requested by Landlord from time to time, it being intended that any such statement delivered pursuant to this Paragraph 15 may be relied upon by any prospective purchaser, mortgagee or assignee of the fee of the Property. Such estoppel certificates shall state that this Lease is in full force and effect and whether any changes may have been made thereto; that the term of the Lease has commenced and that full rental is accruing; that there are no defaults by Landlord, and if there are, the nature of such defaults; that possession has been assumed and that all improvements to be provided by Landlord have been completed; the actual commencement date and expiration date of this Lease; that rent has not been paid more than thirty (30) days in advance; that there are no liens, charges or offsets against rental due or to become due and that the address shown on such estoppel certificate is accurate; and shall set forth such other matters as to which Landlord reasonably may request; provided, however, that Tenant may make such modifications to such estoppel certificates as may be necessary to make such certificates true and accurate-

16.           Holding Over. Except as set forth in Paragraph 41 hereof, Tenant shall have no privilege of renewal at the expiration of the original term of this Lease, and any holding over after the expiration of the original term or option term shall, at Landlord's option, be from month to month at the monthly rental rate in effect immediately prior to the termination of this Lease multiplied by one and one-half (1-1/2) for each month or portion thereof that Tenant remains in possession, and no acceptance of rent by, or other act or statement whatsoever on the part of

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Landlord, or of any agent or employee of Landlord, in the absence of a writing signed by Landlord, shall be construed as an extension or as a consent for further occupancy. Tenant shall indemnify, defend, and hold harmless Landlord for all damages, consequential as well as direct, sustained by reason of Tenant's retention of possession.

17.           Condemnation.

(a)           If all or substantially all of the Premises or of the Property shall be taken for any public or quasi-public use under any statute or by rights of eminent domain or by private purchase in lieu thereof, this Lease shall terminate and all awards from such taking shall belong to Landlord and Tenant hereby assigns to Landlord all its right, title and interest to any such awards, provided, however, that Tenant reserves unto itself the right to prosecute, in a separate proceeding, any claim for any injury caused to trade fixtures and equipment or for moving expenses, but only if such award shall be in addition to the award for the land and the building (or portion thereof) containing the Premises.

(b)           If less than all or substantially all of the Premises or of the Property shall be taken, the term of this Lease shall cease only on the portion so taken as of the day possession shall be so taken, and the rent shall be paid up to that day with a proportionate refund by Landlord of such rent as may have been paid in advance, and thereafter the rent shall be equitably abated, and Landlord shall at its own cost and expense make all necessary repairs or alterations as to constitute the remaining leased premises a complete architectural unit, provided that in no event shall Landlord be required to expend an amount in excess of the net proceeds received by Landlord as a result of the taking.

(c)           In the event of the temporary requisition of the use or occupancy of the Premises or any part thereof, by any governmental authority, civil or military, Tenant shall retain any award or payment therefor, whether the same shall be paid or payable in respect of Tenant's leasehold interest hereunder or otherwise; provided, however, that Tenant shall continue to pay Base Rent during the period of such temporary requisition.

(d)           Landlord shall notify Tenant of any taking of the Premises contemplated by a public authority. No taking or temporary requisition shall constitute a breach of Landlord's covenant of quiet enjoyment.

18.           Default.

(a)           If (i) Tenant shall fail to pay when due any rent, or any other sums required to be paid hereunder by Tenant, and said amount shall remain unpaid for five (5) days after receipt of written notice thereof by Landlord or (ii) Tenant shall default in the performance or observance of any other agreement or condition on its part to be performed or observed, and Tenant shall fail to cure said default within thirty (30) days after receipt of written notice thereof by Landlord; or (iii) Tenant shall file a voluntary petition in bankruptcy or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking any arrangement, composition, liquidation or dissolution under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors or shall seek or consent to

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or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties, or of the Premises, or shall make any general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due; or (iv) a court shall enter an order, judgment or decree approving a petition filed against Tenant seeking any arrangement, composition, liquidation, dissolution or similar relief under the present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors, and such order, judgment or decree shall remain unvacated or unstayed for an aggregate of sixty (60) days (whether or not consecutive); or (v) Tenant fails to operate or closes its business upon the Premises for reasons other than fire or other casualty or condemnation for a period of thirty (30) consecutive days; or (vi) Tenant abandons or vacates the Premises, then, and in any such event, Landlord, at any time thereafter, may, without further notice to Tenant, and, in addition to and not in lieu of any other rights or remedies available to Landlord at law or in equity, exercise any one or more of the following rights:

Notwithstanding the provisions of clause (i) of this subparagraph (a), Landlord shall not be required to give Tenant more than two (2) notices of payment default in any period of twelve (12) consecutive months, it being understood that Landlord shall have the right to avail itself of any and all rights and remedies set forth herein without notice to Tenant in the event of a third (3rd) or any subsequent default during such twelve (12) month period.

(x)           Landlord may (A) terminate this Lease and the tenancy created hereby by giving notice of such election to Tenant, and (B) reenter the Premises, by summary proceedings or otherwise, and remove Tenant and all other persons and property from the Premises and store such property in a public warehouse or elsewhere at the sole cost and expense of and for the account of Tenant without Landlord being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby.

(y)           Landlord may reenter and take possession of the Premises, without terminating this Lease and without relieving Tenant of its obligations under this Lease, and divide or subdivide the Premises in any manner Landlord may desire and lease or let the Premises or portions thereof; alone or together with other Premises, for such term or terms (which may be greater or less than the balance of the remaining portion of the term of this Lease) and on such terms and conditions (which may include concessions or free rent and alterations of the Premises) as Landlord, in its discretion, may determine.

(b)           If this Lease is terminated by Landlord pursuant to this Paragraph 18, Tenant nevertheless shall remain liable for any rent, other sums required to be paid hereunder and damages which may be due or sustained prior to such termination, and for all reasonable costs, fees and expenses incurred by Landlord in pursuit of its remedies hereunder, including attorneys', brokers' and other professional fees (all such rents, damages, costs, fees and expenses being referred to herein collectively as "Termination Damages") plus additional damages (the "Liquidated Damages") which are hereby stipulated to be equal to the difference between the (i) the Base Rent and other sums required to be paid hereunder which, but for termination of this Lease, would have become due during the remainder of the term multiplied by the number of Lease Years or fraction thereof remaining in the term of this Lease, and (ii) the fair rental value of the Premises for such period ("Liquidated Damages"). Termination Damages and Liquidated

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Damages shall be due and payable immediately upon demand by Landlord following any termination of this Lease pursuant to this Paragraph 18.

(c)           If Landlord reenters and takes possession of the Premises pursuant to this Paragraph IS without terminating this Lease, and relets the Premises or any part thereof, the net rentals from such letting shall be applied first to the costs, fees and expenses incurred by Landlord in pursuit of its remedies hereunder, including attorneys', brokers' and other professional fees, in renting the Premises or part thereof to others from time to time (including the reasonable costs and expenses of making such improvements to the Premises as may be necessary, in Landlord's sole discretion, to enable Landlord to relet same). The balance, if any, shall be applied by Landlord from time to time on account of the rent and other payments due from Tenant hereunder, with the right reserved to Landlord to bring such actions or proceedings for the recovery of any deficits remaining unpaid as Landlord may deem favorable from time to time without being obligated to await the end of the term hereof for the final determination of Tenant's account. Any balance remaining, however, after full payment and liquidation of Tenant's account as aforesaid shall be paid to Tenant with the right reserved to Landlord at any time to give notice in writing to Tenant of Landlord's election to cancel and terminate this Lease and the giving of such notice and the simultaneous payment by Landlord to Tenant of any credit balance in Tenant's favor that may at the time be owing to Tenant shall constitute a final and effective cancellation and termination of this Lease and the obligations hereunder on the part of either party to the other. Landlord shall not be liable for, nor shall Tenant's obligations be diminished by reason of, any failure by Landlord to relet the Premises or any failure of Landlord to collect any rent due upon such reletting.

(d)           Upon the termination of this Lease or Tenant's right to possession of the Premises by lapse of time or earlier termination as herein provided, Tenant shall remove its property from the Premises. Any such property of Tenant not removed from the Premises by Tenant within thirty (30) days after the end of the term or of Tenant's right to possession of the Premises, however terminated, shall be conclusively deemed to have been forever abandoned by Tenant and either may be retained by Landlord as its property or may be disposed of in such manner as Landlord may see fit.

(e)           Notwithstanding anything contained herein, if Landlord shall have given written notice of three (3) defaults in any calendar year, no further prior notice by Landlord shall be required in that same calendar year for Landlord to declare this Lease to be in default.

(f)           Tenant agrees that if it shall at any time fail to make any payment or perform any other act on its part to be made or performed under this Lease, Landlord may, but shall not be obligated to, and after reasonable notice or demand and without waiving or releasing Tenant from any obligation under this Lease, make such payment or perform such other act to the extent Landlord may deem desirable, and in connection therewith to pay expenses and employ counsel. Tenant shall pay upon demand all of Landlord's costs, charges and expenses, including the fees of counsel, agents and others retained by Landlord, incurred in enforcing Tenant's obligations hereunder or incurred by Landlord in any litigation, negotiations or transactions in which Tenant causes Landlord, without Landlord's fault, to become involved or concerned, plus interest at the Default Rate from the date of payment, which amount shall be

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deemed to be additional rental due and payable by Tenant, upon demand by Landlord, and Landlord shall have the same rights and remedies for the nonpayment thereof, as in the case of default in the payment of rent.

(g)           All rights and remedies of Landlord herein enumerated shall be cumulative, and none shall exclude any other right or remedy allowed by law. In addition to the other remedies in this Lease provided, Landlord shall be entitled to the restraint by injunction of the violation or attempted violation of any of the covenants, agreements or conditions of this Lease.

19.          Fire or Other Casualty.

If the Premises are damaged by fire or other casualty, upon notice thereof given to Landlord by Tenant, the damages shall be repaired by and at the expense of Landlord, except as otherwise provided herein, and rent until such repairs shall be made shall be reduced in the proportion which the part of the Premises which is not usable by Tenant bears to the rentable space in the Premises. Landlord shall not be obligated to repair damage to or replace alterations, installations, or additions made by Tenant or any fixtures, furniture, furnishing, equipment or other property of Tenant. Such repairs and replacements shall be made by and at the expense of Tenant. If the Premises shall be so damaged that, in Landlord's opinion, substantial alterations, demolition or reconstruction shall be required, then Landlord may, not later than ninety (90) days following the damage, give Tenant notice in writing terminating this Lease. If Landlord elects to restore the Premises, then Landlord shall commence such restoration within ninety (90) days following the damage and shall complete such restoration within a reasonable time. If Landlord does not commence such repairs within ninety (90) days, Tenant shall have the right to terminate this Lease by giving written notice to Landlord anytime after said ninety (90)-days and prior to the date Landlord commences repairs. If Tenant so terminates this Lease, rent hereunder shall be due from Tenant to Landlord up to the date Tenant vacated the Premises-

If (i) the Premises or the Building shall be damaged as a result of a risk which is not covered by Landlord's insurance, or (ii) the Building shall be damaged to the extent of fifty percent (50%) or more of the cost of replacement thereof, whether or not the Premises shall be damaged; then in either such event Landlord may terminate this Lease by notice given within ninety (90) days after such event and upon the date specified in such notice, which shall be not less than thirty (30) days nor more than sixty (60) days after the giving of said notice, this Lease shall terminate and come to an end, and Tenant shall vacate and surrender the Premises to Landlord.

20.           For Sale Signs. Landlord and Landlord's agents, employees or representatives may enter upon the Premises to place the usual "For Rent" or "For Sale" signs and to conduct interested parties through said Premises at reasonable hours during the six (6) month period preceding the expiration of the term of this Lease.

21.           Notices. All notices, demands, requests, consents or approvals which may or are required to be given by either party to the other shall be in writing and shall be deemed given when sent by United States mail, registered or certified, return receipt requested, postage fully

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prepaid (a) if for Tenant, addressed to Tenant at 434 W. Dussel, Maumee, Ohio 43537 with a copy to LaValley, LaValley, Todak & Schaefer Co., L.P.A., 5800 Monroe St., Bldg. F, Sylvania, Ohio 43560 Attention: Michael J. Todak, or at such other place as Tenant may from time to time designate by notice to Landlord, or (b) if for Landlord, addressed to OTR, 275 East Broad Street, Columbus, Ohio 43215, Attention: Investment Department, or at such other place as Landlord may from time to time designate by notice to Tenant. All consents and approvals provided for must be in writing to be valid. Notices shall be deemed to have been given if addressed and mailed as above provided on the date same were deposited in the United States mail.

22.           Waiver of Subrogation. Neither Landlord nor Tenant shall be liable to the other for any business interruption or any loss or damage to property occurring on the Premises or the Property, or in any manner growing out of or connected with Tenant's use and occupation of the Premises or the Property, or the condition thereof, or of the adjoining property, whether or not caused by the negligence or other fault of Landlord or Tenant or of their respective agents, employees, subtenants, licensees or assignees; provided, however, that this release shall apply only to the extent that such business interruption, loss or damage to property, is covered by insurance or required to be covered hereunder by insurance, regardless of whether such insurance is payable to or protects Landlord or Tenant or both. Nothing in this Paragraph shall be construed to impose any other or greater liability upon either Landlord or Tenant than would have existed in the absence hereof Because this Paragraph 22 will preclude the assignment of any claim mentioned in it by way of subrogation (or otherwise) to an insurance company (or any other person), each party to this Lease agrees immediately to give to each insurance company which has issued to it policies of fire and extended coverage insurance, written notice of the terms of the mutual waivers contained herein, and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverages by reason of the mutual waivers contained herein.

23.           Subordination of Lease.

(a)           Landlord reserves the right and privilege to subject and subordinate this Lease to any and all mortgages, deeds of trust or land leases now existing upon or that may hereafter be placed upon the Premises and the Property and to all advances made or to be made thereon and all renewals, modifications, consolidations, replacements or extensions thereof and if such right is exercised, the lien of any such mortgages, deeds of trust and land leases shall be superior to all rights hereby or hereunder vested in Tenant, to the full extent of all sums secured thereby. In confirmation of such subordination, Tenant shall, on request of Landlord or the holder of any such mortgage, deed of trust or land lease execute and deliver to Landlord within ten (10) days of such request, any instrument that Landlord or such holder may reasonably request and Tenant hereby constitutes and appoint Landlord as Tenant's attorney-in-fact to execute any such certificate for and on behalf of Tenant.

(b)           If the interest of Landlord under this Lease shall be transferred by reason of foreclosure or other proceedings for enforcement of any mortgage or deed of trust on the Premises or the Property, Tenant shall be bound to the transferee (the "Purchaser") under the terms, covenants and conditions of this Lease for the balance of the term remaining, and any extensions or renewals, with the same force and effect as if the Purchaser were the landlord

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under this Lease, and, at the option of the Purchaser, Tenant shall attorn to the Purchaser, including the mortgagee under any such mortgage, if it be the Purchaser, as its landlord, the attorrunent to be effective and self-operative without the execution of any further instruments upon the Purchaser succeeding to the interest of Landlord under this Lease. The respective rights and obligations of Tenant and the Purchaser upon the attornment, to the extent of the then remaining balance of the term of this Lease, and any extensions and renewals, shall be and are the same as those set forth in this Lease.

24.           Quiet Enjoyment. If Tenant shall pay the rents and other sums due to be paid by Tenant hereunder, as and when same become due and payable, and if Tenant shall keep, observe and perform all of the other terms, covenants, obligations and conditions of this Lease on Tenant's part to be kept, observed and performed, Tenant (or anyone claiming under Tenant to the extent permitted in this Lease), shall be entitled to lawfully, peaceably and quietly hold and occupy the Premises during the term of this Lease, except by reason of regulations imposed by any governmental or quasi-governmental agency on the occupancy of Tenant or the conduct of Tenant's business operations.

25.           Waiver. No waiver of any covenant or condition or of the breach of any covenant or condition of this Lease shall be taken to constitute a waiver of any subsequent breach of such covenant or condition nor to justify or authorize the nonobservance on any other occasion of the same or of any other covenant or condition hereof, nor shall the acceptance of rent by Landlord at any time when Tenant is in default under any covenant or condition hereof be construed as a waiver of such default or of Landlord's right to terminate this Lease on account of such default, nor shall any waiver or indulgence granted by Landlord to Tenant be taken as an estoppel against Landlord, it being expressly understood that if at any time Tenant shall be in default in any of its covenants or conditions hereunder an acceptance by Landlord of rental during the continuance of such default or the failure on the part of Landlord promptly to avail itself of such rights or remedies as Landlord may have, shall not be construed as a waiver of such default, but Landlord may at any time thereafter, if such default continues, terminate this Lease or assert any other rights or remedies available to it on account of such default in the manner hereinbefore provided.

26.           Recording Memorandum of Lease. The parties agree that this Lease shall not be recorded, but a Short Form Lease or Memorandum of Lease, complying in form with applicable state law, shall be executed, setting forth the description of the Premises, the term of this Lease and other pertinent provisions, which Short Form Lease or Memorandum of Lease may be recorded by either party in lieu of recordation of this Lease.

27.           Exculpation.

(a)           This Lease is executed by certain employees of STRBO, not individually, but solely on behalf of Landlord, the authorized nominee and agent for STRBO. In consideration for entering into this Lease, Tenant hereby waives any rights to bring a cause of action against the individuals executing this Lease on behalf of Landlord (except for any cause of action based upon lack of authority .or fraud), and all persons dealing with Landlord must look solely to Landlord's assets for the enforcement of any claim against Landlord, and the

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obligations hereunder are not binding upon, nor shall resort be had to the private property of any of, the trustees, officers, directors, employees or agents of STRBO.

(b)           Anything contained in this Lease to the contrary notwithstanding, Tenant agrees that Tenant shall look solely to the estate and property of Landlord in the real estate of which the Premises is a part and the rentals therefrom for the collection of any judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default or breach by Landlord with respect to any condition, covenant, or agreement of this Lease to be observed and/or performed by Landlord, subject, however, to the prior rights of any mortgagee of the real estate of which the Premises is a part, or part thereof; and no other assets of Landlord or any partner, member, shareholder, board member, officer, agent or employee thereof shall be subject to levy, execution or other judicial process for the satisfaction of Tenant's claims. In the event Landlord conveys or transfers its interest in the Building or in this Lease, except as collateral security for a loan, upon such conveyance or transfer Landlord (and in the case of any subsequent conveyances or transfers, the then grantor or transferor) shall be entirely released and relieved from all liability with respect to the performance of any covenants and obligations on the part of the landlord to be performed hereunder from and after the date of such conveyance or transfer; it being intended hereby that the covenants and obligations on the part of the landlord to be performed hereunder shall, subject as aforesaid, be binding on Landlord, its successors and assigns only during and in respect of their respective periods of ownership of any interest in the Building or in this Lease. This provision shall not be deemed, construed or interpreted to be or constitute any agreement, express or implied, between Landlord and Tenant that the Landlord's interest hereunder and in the Building shall be subject to imposition of an equitable lien or otherwise."

28.           Time of Essence. It is expressly stipulated that time shall be of the essence of this Lease.

29.           Governing Law; Invalidity of Particular Provisions.

(a)           This Lease and the rights and obligations of the parties hereunder shall be construed in accordance with the laws of the state in which the Premises are located.

(b)           If any term or provision of this Lease or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the other terms of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.

30.           Brokerage Commission. Except for Michael Realty Company, whose commission and fees are to be paid by Landlord, Landlord and Tenant represent and warrant each to the other that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction. Landlord and Tenant each agree to indemnify and hold harmless the other from and against any claims by any broker, agent or other person claiming a commission or other form of compensation by virtue of

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having dealt with the indemnifying party with regard to this leasing transaction. The provisions of this Paragraph 32 shall survive the termination of this Lease.

31.           Hazardous Devices and Contaminants.

(a)           Prohibition. Tenant shall not install or operate any steam or internal combustion engine, boiler, machinery, refrigerating or heating device or air-conditioning apparatus in or about the Premises, or carry on any mechanical business therein, except for those necessary for use in Tenant's ordinary course of business or with the prior written consent of Landlord. Except for Contaminants (as hereinafter defined) used in the ordinary course of business and in compliance with Requirements of Law (as hereinafter defined), Tenant and its agents, employees, contractors and invitees shall not use, store, release, generate or dispose of or permit to be used, stored, released, generated or disposed of any Contaminants on or in the Premises.

(b)           Indemnification by Tenant. Tenant shall indemnify, defend and hold harmless Landlord, its agents, servants, employees, officers and directors forever from and against any and all liability, claims, demands and causes of action, including, but not limited to, any and all liability, claims, demands and causes of action by any governmental authority, property owner or any other third person and any and all expenses, including attorneys' fees (including, but not limited to, attorneys' fees to enforce Tenant's obligation of indemnification under this Paragraph 33(b), relating to any environmental liability resulting from (i) any Release (as hereinafter defined) of any Contaminant at the Premises or emanating from the Premises to adjacent properties or the surrounding environment during the Term of this Lease; (ii) during the Term of this Lease, any generation, transport, storage, disposal, treatment or other handling of any Contaminant at the Premises, including but not limited to, any and all off site transport, storage, disposal, treatment or other handling of any Contaminant generated, produced, used and/or originating in whole or in part from the Premises; and (iii) any activity at the Premises during the Term of this Lease that in any way might be alleged to fail to comply with any Requirements of Law.

(c)           Definitions.

(i)           "Contaminant" shall mean any substance or waste containing hazardous substances, pollutants and contaminants as those terms are defined in the federal Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. and any substance similarly defined or identified in any other federal, provincial or state law, rule or regulation governing the manufacture, import, use, handling, storage, processing, release or disposal of substances or wastes deemed hazardous, toxic, dangerous or injurious to public health or to the environment. This definition includes friable asbestos and petroleum or petroleum-based products.

(ii)           "Requirements of Law" shall mean any federal, state or local law, rule, regulation, permit, agreement, order or other binding determination of any governmental authority relating to the environment, health or safety.

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(iii)           "Release" shall have the same meaning as in the federal Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601, et seq.

32.           No Partnership/ Any intention to create a joint venture or partnership relation between the parties hereto is hereby expressly disclaimed.

33.           Corporate Tenants. If Tenant is a corporation, then those persons executing this Lease on behalf of Tenant hereby individually covenant and warrant that: (a) Tenant is a duly constituted corporation qualified to do business in the state in which the Premises are located; (b) all of Tenant's franchise and corporate taxes have been paid to date; (c) all future forms, reports, fees and other documents necessary for Tenant to comply with applicable laws will be filed by Tenant when due; and (d) the actions of the persons executing and delivering this Lease on behalf of Tenant have been duly authorized by the board of directors of Tenant.

34.           Force Majeure. In the event that Landlord or Tenant shall be delayed, hindered in or prevented from the performance of any act required hereunder (other than the payment of rent and other charges payable by Tenant) by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, riots, insurrection, the act, failure to act or default of the other party, war or any other reason beyond the reasonable control of the party who is seeking additional time for the performance of such act, then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a reasonable period, in no event to exceed a period equivalent to the period of such delay.

35.           Words Genders and Numbers. Whenever words are used herein in any gender, they shall be construed as though they were used in the gender appropriate to the context and the circumstances, and whenever words are used herein in the singular or plural form, they both shall be construed as though they were used in the form appropriate to the context and the circumstances.

36.           Topic Headings. Headings and captions in this Lease are inserted for convenience and reference only and in no way define, limit or describe the scope or intent of this Lease or constitute any part of this Lease and are not to be considered in the construction of this Lease.

37.           Binding Effect. This Lease shall be binding upon and shall inure to the benefit of the parties hereto, and their respective successors and assigns, provided that this provision shall in no manner enlarge Tenant's right of assignment, which right of assignment has been restricted under the foregoing provisions of this Lease.

38.           Entire Agreement. This Lease contains the entire understanding between the parties and supersedes any prior understandings or agreements between them respecting the subject matter. No representations, arrangements, or understandings, except those fully expressed herein, are or shall be binding upon the parties. No changes, alterations, modifications, additions or qualifications to the terms of this Lease shall be made or be binding unless made in writing and signed by each of the parties.

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39.           Related Parties. Tenant represents to Landlord that Tenant is not (a) an individual who is, or (b) a partnership, association, or corporation that is owned or controlled by, a person who during the preceding three (3) years was employed by, an officer of, or a board member of State Teachers Retirement System of Ohio, and no employee of Tenant who holds a fiduciary, administrative, supervisory, or trust position, or any other position in which such person would be involved on behalf of Tenant in decisions or recommendations pertaining to the Building, is a person who during the preceding three (3) years was employed by, an officer of, or a board member of State Teachers Retirement System of Ohio.

40.           Existing Lease. The parties acknowledge that Tenant presently occupies a portion of the Premises (i.e., Unit 6 as depicted on Exhibit A), and that such portion of the Premises (the "Existing Premises") is occupied on a month-to-month basis pursuant to the terms and conditions of that certain Lease dated April 18, 1985, between Landlord's predecessor in interest (Krasl) and Tenant, as amended by that certain First Amendment to Lease dated as of February 1994 between Landlord and Tenant (the Lease, as so amended, hereinafter is referred to as the "Existing Lease"). The terms and provisions of the Existing Lease shall continue to govern the rights and obligations of Landlord and Tenant in respect of the Existing Premises until the Commencement Date. Upon the Commencement Date, the terms and provisions of this Lease shall amend and restate in their entirety the terms and provisions of the Existing Lease, it being understood that from and after the Commencement Date this Lease shall govern and control all of the rights and obligations of the parties in respect of the Premises (including the Existing Premises) which arise or accrue from and after the Commencement Date. Nothing herein shall be deemed to release Tenant from any liabilities or obligations under the Existing Lease which accrue under the Existing Lease prior to the Commencement Date.

41.           Option.

(a)           Tenant is hereby granted the option, exercisable by written notice to Lessor at least 180 days prior to the end of the term hereof, to extend the term hereof by a period of five (5) years subject to each and every, of the terms and conditions hereof except that commencing on the first day of the first month following the tenth (10th) Lease Year the Base Rent stated in Paragraph 1(a) shall be increased in accordance with the provisions of Paragraph 41 (b) hereof

(b)           In the event Tenant exercises its option under Paragraph 41(a) to extend the term of this Lease, the Base Rent specified in Paragraph 1(a) for such extension shall be the Fair Market Rent (hereinafter defined) for the Premises-

(c)           The Fair Market Rent for the option term shall be determined assuming the Premises are free and clear of all leases and tenancies (including this Lease), that the Premises were available in the then rental market for comparable buildings of similar quality, age and character as the Building located in Maumee, Ohio, assuming that Landlord has had a reasonable time to locate a tenant who rents with the knowledge of the uses to which the Premises can be adapted, and that neither Landlord nor the prospective tenant is under any compulsion to rent. Fair Market Rent shall exclude all concessions, inducements to rent,

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commissions, tenant improvements, free rent, bonuses or similar concessions or allowances. In addition, the determination of Fair Market Rent shall not take into account (i) Landlord's Work, or (ii) any alteration, addition, or improvement of the Premises performed by Tenant.

(i) For purposes of determining the Fair Market Rent, the followingprocedure shall apply.

(x) During the thirty (30) day period which begins one hundred eighty (180) days prior to the commencement of the option term, Landlord and Tenant shall attempt, in good faith, to reach agreement as to the Fair Market Rent for the option term.

(y) If Landlord and Tenant are unable to agree before the expiration of such thirty (30) day period (the "Impasse Date"), the amount of Fair Market Rent for the option term shall be determined by appraisal as follows. Within ten (10) days of the Impasse Date, Landlord and Tenant shall each retain a single appraiser (each of whom shall be independent of each of Landlord and Tenant and shall be a Member of the American Institute of ' Real Estate Appraisers or shall have a corresponding professional designation acceptable to each of Landlord and Tenant; an appraiser who satisfies such criteria is referred to herein as an "Appraiser") to determine the Fair Market Rent. Landlord and Tenant shall jointly instruct each such Appraiser to determine the Fair Market Rent of the Premises for the option term and to issue its written report to each of Landlord, Tenant and the other Appraiser within thirty (30) days after its retention. If either Landlord or Tenant shall fail to appoint an Appraiser as aforesaid, the determination of the sole Appraiser so appointed shall govern.

(z) If the conclusions of the two Appraisers as to Fair Market Rent shall be identical, the Fair Market Rent for the option term shall be the Fair Market Rent as so established. If the conclusions of the two Appraisers shall differ, but if the Fair Market Rent as indicated on the higher of the two shall be less than one hundred ten percent (110%) of the Fair Market Rent as indicated on the lower, the Fair Market Rent for the option term shall be the simple average of the two. In the event of any greater deviation between the two original Appraisers' conclusions regarding Fair Market Rent, the two original Appraisers shall jointly appoint a third Appraiser (who shall be unrelated to each of the original Appraisers and shall otherwise satisfy the criteria set forth above for an "Appraiser") not later than fifteen (15) days after the issuance of the later of the two original Appraisers' reports. The third Appraiser shall be provided with true and complete copies of each of the written reports issued by the original Appraisers, and shall be instructed to

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evaluate such reports (and such other evidence as the third Appraiser shall deem to be necessary or reasonably appropriate in connection therewith). Within thirty (30) days after its appointment, the third Appraiser shall issue its written report to each of Landlord and Tenant, indicating which of the original Appraisers' conclusions regarding Fair Market Rent it believes to be the more accurate. In such event, Fair Market Rent for the option term shall be the Fair Market Rent as so designated by the third Appraiser. The Fair Market Rent as established as aforesaid shall be final and binding upon Landlord and Tenant. Landlord and Tenant shall each pay the costs and expenses of the Appraiser retained by it as provided above. All costs and fees of the third Appraiser shall be paid in equal shares by Landlord and Tenant.

(ii)           After a determination has been made of the Fair Market Rent for the option term, the parties shall execute and deliver to each other an agreement setting forth the Fair Market Rent as hereinabove determined.

(d)           Notwithstanding the provisions of subparagraph (b) of this Paragraph 41, in no event shall the Base Rent for the option term be less than the Base Rent payable by Tenant for the sixth (6th) through tenth (lath) Lease Years.

IN WITNESS WHEREOF, each of the parties has caused this Lease to be executed on the day and year first above written.

Signed and Acknowledged in the Presence of

/s/ Connie J. Guyer

/s/ Roxanne Puckett

LANDLORD: OTR, an Ohio general partnership acting as the duly authorized nominee of The State Teachers' Retirement System of Ohio

By:./s/ Alan E. Muench                                           

Its: Director, Midwestern Region

/s/ Lois R. Staunton

/s/ Illegible

TENANT: ANATRACE, INC.

By:  /s/ Don N. Gray

Its:             President

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STATE OF OHIO                                          )

                                                                         ) SS:

COUNTY OF FRANKLIN                            )

BE IT REMEMBERED, that on this 14thday of February, 2001, before me, the subscriber, a Notary Public, personally appeared the above-named OTR' a partnership organized under the laws of the State of Ohio, byAlan E. Muench, Director Midwesta general partner, known to me and known to me to be the person who signed the- Tforegoing instrument as such partner, who acknowledged to me that he signed said instrument as such partner, duly authorized by the partnership so to do, and that the signing of the same was his free act and deed, as such partner, for and on behalf of said partnership, for the uses and purposes therein set forth.

IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the official seal of my office atColumbus, Ohio above written.

/s/ Connie J. Guyer

Notary Public

[Notary Seal]

STATE OF OHIO

                                              ) SS::

COUNTY OF LUCAS

BE IT REMEMBERED, that on this 8th day of February, 2001, before me, the subscriber, a Notary Public in and for said County and State personally a geared the above-n ed Anatrace, Inc_, an Ohio corporation, by Don N. Gray its President known to me and known to me to be the person who signed the foregoing instrument as such officer, who acknowledged to me that ______________ signed said instrument as such officer, duly authorized by the Board of Directors of said corporation so to do, and that the signing of the same was _________________ free act and deed, as such officer, for and on behalf of said corporation, for the uses and purposes therein set forth.

IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the official seal of my office at ______________, ____________,on the day and year last above written.

/s/ Lois R. Staunton

Notary Public

[Notary Seal]

-25-

Exhibit A

[Building Diagram]

-26-

Exhibit B

Legal Description

A parcel of land being part of Lot 33 in Arrowhead Plat Three, a subdivision in the City of Maumee, Lucas County, Ohio, recorded in Volume 81. pages 14, 15 & 16 Lucas County Plat Records, which is bounded and described as follows:

BEGINNING at the Southeasterly corner of said Lot 33; thence South 55° 32'37" West along the Southerly line of said Lot 33, a distance of 220.00 feet to the Southwesterly corner of said Lot 33; thence North 34° 27'23" West along the Westerly line of said Lot 33, a distance of 200.00 feet to a point; thence North 55° 32' 37" East along a line that is parallel with the Southerly line of said Lot 33, a distance of 220.00 feet to a point on the Easterly line of said Lot 33; thence South 34° 2723" East along the Easterly line of said Lot 33, a distance of 200.00 feet to the point of BEGINNING.

Containing 1.01 acres of land, more or less, but subject to legal highways, and subject to all legal easements, restrictions, leases of record and of records in respective utility offices and other conveyances, if any.

The bearing referred to hereon are based on the bearings that appear on the record plat of Arrowhead Plat Three an assumed meridian and are used only for the purpose of describing angular measurement.

Lot number 29 in ARROWHEAD FLAT THREE, a SUBDIVISION in the CITY of MAUMEE, LUCAS COUNTY, OHIO, recorded in Volume 81, pages 14, 15, 16, Lucas County Plat Records.

AND ALSO That part of lot number 34 in ARROWHEAD PLAT THREE, a SUBDIVISION in the CITY OF MAUMEE, LUCAS COUNTY, OHIO, recorded in Volume 81, pages 14, 15, 16, Lucas County Plat Records, which is bounded and described as follows:

Beginning at the southeast corner of said lot number 29; thence northwesterly along the easterly line of said lot number 29, a distance of 4 10.00 feet to the northeast corner of said lot number 29; thence northeasterly along the northerly line of said lot number 34 and the southerly line of lots numbers 31, 32, 33 and said lines extended in said Arrowhead Plat Three, a distance of 641.40 feet to a point: thence southeasterly perpendicular to the last described line a distance of 410.00 feet to a point on the southerly line of said lot number 34; thence southwesterly along the southerly line of said lot number 34 a distance of 641.40 feet to the point of beginning.

And also that part of said lot number 34 which is bounded and described as follows:

Commencing at the Northeast corner of Lot 29 in said ARROWHEAD PLAT 3, thence North 55 degrees 32 minutes 37 seconds East along the Northerly line of said Lot 34 and the Southerly lines of Lots 31, 32, 33 and said lines extended in said Arrowhead Plat 3, a distance of 641.40 feet to the point of beginning; thence South 34 degrees 27 minutes 23 seconds East perpendicular to the last described line, a distance of 4 10.00 feet to a point on the Southerly line of said Lot 34; thence North 55 degrees 32 minutes 37 seconds East along the Southerly line of said Lot 34, a distance of 129.85 feet to a point; thence North 34 degrees 27 minutes 23 seconds West perpendicular to the last described line, a distance of 410.00 feet to a point; thence South 55 degrees 32 minutes 37 seconds West., a distance of 129.85 feet to the point of beginning.

That part of Lots 34 and 35 in ARROWHEAD PLAT THREE, a SUBDIVISION in the CITY of MAUMEE, LUCAS COUNTY, OHIO, recorded in Volume 81, pages 14, 15, and 16, Lucas County Plat Records, which is bounded and described as follows:

Beginning at a point on the Northerly line of said Lot 34 that is 488.37 fee Easterly of the Northwesterly corner of said Lot 34, as measured along the Northerly line of said Lot 34; thence North 55 degrees 32 minutes 37 seconds East along the Northerly line of said Lot 34, a distance of 6.11 feet to a point; thence South 79 degrees 27

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EXHIBIT B cont.

minutes 23 seconds East continuing along the Northerly line of said Lot 34, a distance of 62.07 feet to a point; thence South 34 degrees 27 minutes 23 seconds East perpendicular to the Northerly line of said Lot 34, a distance of 396.11 feet to a point; then North 55 degrees 32 minutes 37 seconds East parallel to the Northerly line of said Lot 34, a distance of 200.00 feet to a point; thence South 34 degrees 27 minutes 23 seconds East, a distance of 70.00 feet to a point; thence North 55 degrees 32 minutes 37 seconds East parallel to the Northerly line of said Lot 35, a distance of 182.19 feet to a point; thence South 47 degrees 54 minutes 09 seconds East parallel to the Easterly line of said Lot 35, a distance of 253.54 feet to a point; thence South 34 degrees 27 minutes 23 seconds East along a line that is perpendicular to the Southerly line of said Lot 35, a distance of 209.79 feet to a point on the Southerly line of said Lot 35, said point also being a point of curve; thence South 55 degrees 32 minutes 37 seconds West along the Southerly line of said Lots 34 and 35, a distance of 648.28 feet to a point, said point being 771.25 feet Northeasterly of the Southeasterly point, said point being 771.25 feet Northeasterly of the Southeasterly corner of Lot 29 in said Arrowhead Plat Three, as measured along the Southerly line of said Lot 34; thence North 34 degrees 27 minutes 23 seconds West, a distance of 410.00 feet to a point on the Easterly extension of the Southerly line of Lot 33 in said Arrowhead Plat Three; thence North 55 degrees 32 minutes 37 seconds East along the Easterly extension of the Southerly line of said Lot 33, a distance of 157.12 feet to a point; thence North 34 degrees 27 minutes 23 seconds West along a line that is perpendicular to the Northerly line of said Lot 34, a distance of 556,36 feet to the point of beginning.

Containing 7.342 acres of land, more or less, but subject to legal highways, all legal easements and restrictions and leases of record and of records in respective utility offices.

The bearing referred to hereon are based upon an assumed meridian and are used only for the purpose of describing angular measurement.

That part of Lot 34 in ARROWHEAD PLAT THREE, a SUBDIVISION in the CITY of MAUMEE LUCAS COUNTY, OHIO, recorded in Volume 81, pages 14, 15 and 16, Lucas County Plat Records, which is bounded and described as follows:

Beginning at the Northwesterly corner of said Lot 34; thence North 55 degrees 32 minutes 37 seconds East along the Northerly lines of said Lot 34, a distance of 488.37 feet to a point; thence South 34 degrees 27 minutes 23 seconds East, a distance of 556.36 feet to a point on the Easterly extension of the Southerly line of Lot 33 in said Arrowhead Plat Three; thence South 55 degrees 32 minutes 37 seconds West along the Easterly extension of the Southerly line of said Lot 33, a distance of 488.37 feet to the Southeasterly corner of said Lot 33; thence North 34 degrees 27 minutes 23 seconds West along the Easterly line of said Lot 33, a distance of 556.36 feet to the Northeasterly corner of said Lot 3 3 and the point of beginning.

Containing 6,238 acres of land, more or less, but subject to legal highways.

The bearings referred to hereon are based upon an assumed meridian and are used only for the purpose of describing angular measurement.

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EXHIBIT C

Landlord shall perform the following work (collectively, "Landlord's Work") in accordance with all applicable building, fire, and safety codes and regulations:

(i)           The work on the plans and specifications dated February 6, 2001, prepared by Vetter Design Group Architects ("Landlord's Construction"); and

(ii)           The installation of additional carpeting and vinyl, the replacement of floor covering and the cost of levelling the floor between Units 6 and 6A (as depicted on Exhibit A).

Notwithstanding the foregoing, the cost of Landlord's Work shall not exceed Two Hundred Fifteen Thousand Dollars ($215,000) ("Landlord's Contribution"), which contribution shall include all hard and soft costs (including all architectural and engineering fees) required to prepare such plans and specifications and to perform Landlord's Work. In the event the cost of Landlord's Work shall exceed the amount of Landlord's Contribution, Tenant .shall pay to Landlord, as additional rent, the amount of such excess within ten (10) days after demand therefore.

-29-

EX-10.38

EXHIBIT 10.38

ASSIGNMENT AND ASSUMPTION OF LEASE

This Assignment and Assumption of Lease ("Assignment") is made on April 30, 2005 by and between Anatrace, Inc., ("Assignor"), and UBS Acquisition, an Ohio corporation, ("Assignee").

Attached to this Assignment as Exhibit A is a copy of a Lease Agreement by and between OTR, as Landlord, and Anatrace, Inc., as Tenant, dated February 14, 2001 and covering real property consisting of approximately 12,176 square feet of warehouse space located in a part of 434 Dussel Drive, Maumee, Ohio, ("Lease"). On April 24, 2001, the underlying real property and the landlord's interest in the Lease were assigned to Tolson Investments II, an Ohio corporation ("Landlord").

Assignor desires to assign all its right, title and interest as lessee under the Lease to Assignee and Assignee will assume all of Assignor's liabilities and obligations under the Lease, all on the terms set forth below.

In consideration of the premises, and of the mutual consents and agreements provided by law, effective upon execution, the parties agree as follows:

1.      Assignment: Assignor assigns to Assignee all of it's right, title and interest in and to the Lease together with all rights arising under or by virtue of the Lease.

2.      Representations and Warranties: Assignor represents and warrants to Assignee that:

a. The Lease, consisting of Twenty-Four (24) pages and Exhibits "A", "B", and "C", is in full force and effect, has not been modified or amended except for and Amendment dated April 6, 1994, and constitutes the entire agreement between Landlord and Assignor;

b. Neither Assignor nor Landlord is in default under the Lease beyond any applicable period for curing any such default, nor to Assignor's knowledge has any event or condition occurred which, with the giving of notice, the passage of time, or both, would constitute a default by either party;

c. Assignor has made no security deposit to Landlord under the Lease-

d. Assignor's next monthly rental installment is due May 1, 2005;

e. Assignor has not paid any rent under the Lease in advance of its due date;

f. Assignor has not exercised any options or rights of renewal or extension, rights of expansion, right of purchase, or rights of first refusal as may be contained in the Lease; and

g. Assignor has not been given and is not entitled to any free rent, rebates, rental abatements or rent concessions of any kind or nature whatsoever.

3.      Acceptance: Assignee accepts the assignment of Assignor's interest under the Lease and assumes and agrees to perform all of the obligations of Assignor arising or accruing under the Lease on and after the date of this Assignment.

-1-

4.      Assignor's Indemnity: Assignor shall defend, indemnify, and hold Assignee harmless from and against all loss, damage, cost and expense that may be claimed against, imposed upon or suffered by Assignee by reason of Assignor's default, failure to perform or breach of any of its obligations under the Lease prior to the date of this Assignment. Assignor shall remain liable to Landlord for the performance of all terms, covenants and conditions of the Lease to be performed by Assignee, its successors and assigns.

5.      Assignee's Indemnity: Assignee shall defend, indemnify and hold Assignor harmless from and against all loss, damage, cost and expense that may be claimed against, imposed upon, or suffered by Assignor by reason of Assignee's default, failure to perform or breach of any of its obligations under the Lease from and after the date of this Assignment. Assignee acknowledges that nothing in this Assignment shall be deemed to authorize any further assignment or other transfer in whole or in part of the interest of Assignee under the Lease in violation of any provisions of the Lease.

6.      Binding Effect: This Assignment shall be binding upon and shall inure to the benefit to the parties and their respective successors and permitted assigns. The parties acknowledge that Landlord is an intended third-party beneficiary of this Assignment.

IN WITNESS WHEREOF, the parties have executed this Assignment as of the date first written above.

ASSIGNOR:                                                                        ASSIGNEE:

Anatrace, Inc.                                                                     UBS Acquisition, Inc.

By:  /s/ Don N. Gray/s/ Michael Lachman

                                                                                              Michael Lachman, CEO

                                                                                              26111 Miles Road

                                                                                              Cleveland, Ohio 44128

STATE OF OHIO                                    )

                                                                             ss.

COUNTY OF WOOD                                    )

Before me, a Notary Public in and for said County and State, personally appeared the above named Don N. Gray, who acknowledged that he did execute the foregoing document and that the same was his free act and deed.

In Witness Whereof, I have hereunto set my hand and seal this 28th day of April 2005.

s/ Michael J. Todak

Notary Public

[Notary Seal]

-2-

STATE OF OHIO

ss.

COUNTY OF WOOD

Before me, a Notary Public in and for said County and State, personally appeared the above named Michael Lachman, who acknowledged that he did execute the foregoing document and the same is his free act and deed.

In Witness Whereof, I have hereunto set my hand and seal this 28thday of April 2005.

/s/ Michael J. Todak

Notary Public

[Notary Seal]

-3-

LANDLORD'S CONSENT

to

ASSIGNMENT AND ASSUMPTION OF LEASE

Tolson Investments II, the Landlord under the Lease to which this Landlord's consent relates, hereby consents to the assignment of the Lease by Assignor to Assignee upon the following conditions:

Assignor shall remain liable for the full and due performance by the Assignee, its successors and assigns, of all terms, obligations, covenants and agreements under the Lease; and no further assignment of the Lease shall be made without the prior written consent of Landlord.

Date                                                              Harvey A. Tolson

 -4-

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

I, Kevin M. King, certify that:

1. I have reviewed this report on Form 10-K for the year ended December 31, 2009 of Affymetrix, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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(s) 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 reasonably 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 control over financial reporting.

March 1, 2010	/s/ Kevin M. King
	Name:	Kevin M. King
	Title:	Director, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

I, John C. Batty, certify that:

1. I have reviewed this report on Form 10-K for the year ended December 31, 2009 of Affymetrix, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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(s) 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 reasonably 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 control over financial reporting.

March 1, 2010	/s/ John C. Batty
	Name:	John C. Batty
	Title:	Executive Vice President and Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with this Annual Report on Form 10-K for the year ended December 31, 2009 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Each of the undersigned certifies that, to his knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Affymetrix, Inc.

March 1, 2010	/s/ Kevin M. King
	Name:	Kevin M. King
	Title:	Director, President and Chief Executive Officer
	/s/ John C. Batty
	Name:	John C. Batty
	Title:	Executive Vice President and Chief Financial Officer