Joint Development Agreement

EXHIBIT 10.5


JOINT DEVELOPMENT AGREEMENT


This Joint Development Agreement ("Agreement") dated as of the _____day of November, 1999 ("Effective Date") is by and between ILLUMINA, INC., a California corporation, located at 9390 Towne Centre Drive, Suite 200, San Diego, CA 92121- 3015 ("Illumina"), and PE CORPORATION, a Delaware corporation, through its PE Biosystems Group, located at 850 Lincoln Centre Drive, Foster City, CA 94404 ("PEB").


Background


Illumina has certain skills, proprietary technology and know-how related to the manufacture, design and use of Assembled Arrays.


PEB has certain skills, proprietary technology and know-how related to the development of bioanalytical instrumentation systems and associated reagents, and the marketing, sales and support of products incorporating such systems.


Illumina and PEB desire to enter into a Joint Development Program with the objective of developing and commercializing products based on bioanalytical instrumentation systems incorporating Assembled Arrays.


Illumina and PEB will enter into a Series C Stock Purchase Agreement as of the Effective Date, whereby PEB will purchase 1,250,000 shares of Illumina's stock at a share price of $4.00 per share (the "Equity Agreement").


Agreement


1. Definitions


1.1. "Affiliate" means


(A) an organization of which 50% or more of the voting stock is
controlled or owned directly or indirectly by either Party;


(B) an organization that directly or indirectly owns or controls 50%
or more of the voting stock of a Party;


(C) an organization, the majority ownership of which is directly or
indirectly common to the majority ownership of either Party; or


(D) an organization under (A), (B), or (C) immediately above in which
the amount of the ownership is less than 50% and that amount is
the maximum amount permitted by law.


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1.2. "Intellectual Property Rights" means all intellectual property rights
worldwide arising under statutory or common law, and whether or not
perfected, including, without limitation, the following:


(A) all patents, patent applications and patent rights, including
divisions, continuations, renewals, reissues, continuing prosecution,
and extensions of the foregoing (as and to the extent applicable) now
existing, hereafter filed, issued or acquired;


(B) all rights associated with works of authorship including copyrights,
copyright applications, copyright registrations, mask works, mask
work applications, and mask work registrations;


(C) all rights relating to the protection of trade secrets and
confidential information; and


(D) all know-how.


1.3. "Pre-Collaboration Illumina Intellectual Property" means all Intellectual
Property Rights that are owned by, either partially or wholly, or licensed
to, or otherwise controlled by, Illumina as of the Effective Date.


1.4. "Collaboration Illumina Intellectual Property" means all Intellectual
Property Rights arising out of work performed under this Agreement that
are conceived solely by one or more employees or agents of Illumina or its
Affiliates.


1.5. "Collaboration Joint Intellectual Property" means all Intellectual
Property Rights arising out of work performed under this Agreement, that
are jointly conceived by one or more employees or agents of Illumina, and
by one or more employees or agents of PEB or its Affiliates.


1.6. "Pre-Collaboration PEB Intellectual Property" means all Intellectual
Property Rights that are owned by, either partially or wholly, or licensed
to, or otherwise controlled by, PEB or its Affiliates as of the Effective
Date, and that are necessarily infringed by the manufacture or use of
Instruments.


1.7. "Collaboration PEB Intellectual Property" means all Intellectual Property
Rights arising out of work performed under this Agreement that are
conceived solely by one or more employees or agents of PEB or its
Affiliates.


1.8. "Subject Patent" means any patent or patent application claiming or
disclosing Pre-Collaboration Illumina Intellectual Property, Collaboration
Illumina Intellectual Property, Collaboration Joint Intellectual Property,


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Pre-Collaboration PE Intellectual Property or Collaboration PEB
Intellectual Property, including any Related Patents.


1.9. "Subject Intellectual Property" means Pre-Collaboration Illumina
Intellectual Property, Collaboration Illumina Intellectual Property,
Collaboration Joint Intellectual Property, Pre-Collaboration PEB
Intellectual Property, or Collaboration PEB Intellectual Property,
including Subject Patents.


1.10. "Net Sales" means:


(A) with respect to sales by a Party, or an Affiliate of a Party, to non-
affiliated third party purchasers, the actual amount of gross sales
of Collaboration Product to a third party, less: trade, cash and
quantity discounts, if any, actually allowed, amounts refunded for
faulty or defective product, returns, rejections, freight, insurance
and other transportation costs, tariffs, duties and similar
governmental charges paid (except income taxes);


(B) with respect to sales by a Party made to any Affiliate, the Net Sales
will be determined as if such Collaboration Product had been sold to
a non-affiliated third party purchaser at an average Net Sales for
such Collaboration Product during the immediately preceding 120 days;
and


(C) with respect to Collaboration Product that is used by a Party, or an
Affiliate of a Party, to supply services or information to a third
party for commercial purposes, or are otherwise disposed of,
excluding demonstration or other marketing activities performed for
no or de minimis compensation, the Net Sales will be determined as if
such Collaboration Product had been sold to a non-affiliated third
party purchaser at the average Net Sales for such Collaboration
Product during the immediately preceding 120 days.


1.11. "Manufacturing Cost" means the fully-burdened manufacturing cost of a
product as determined using a Party's customary practices and procedures
in accordance with United States generally accepted accounting principles
("GAAP") including the following: direct material cost, material overhead
cost, direct labor cost, fixed manufacturing overhead cost, variable
manufacturing overhead cost, manufacturing variance cost, and third-party
royalties (excluding up-front payments).


1.12. "Gross Margin" means Net Sales less Manufacturing Cost.


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1.13. "Sales and Marketing Cost" means the fully-burdened cost associated with
marketing, selling, distributing and supporting a product as determined
using a Party's customary practices and procedures in accordance with
GAAP including the following: installation cost, warranty cost,
distribution cost, direct marketing cost, marketing overhead cost, direct
selling cost, and selling overhead cost, and subject to Sections 4.1.3
and 5.1(C).


1.14. "Ongoing R&D Cost" means the fully-burdened cost associated with ongoing
research and development to improve or develop new Collaboration Product
after the New Product Release of a Collaboration Product, and subject to
Sections 4.1.4 and 5.1 (D).


1.15. "Residual Gross Margin" means Gross Margin less (A) Sales and Marketing
Cost and (B) Ongoing R&D Cost.


1.16. "Party" means Illumina or PEB and, when used in the plural, means
Illumina and PEB.


1.17. "Related Patent" means any patent or patent application that:


(A) claims substantially the same subject matter as a Subject Patent;


(B) claims improvements to inventions disclosed or claimed in a Subject
Patent and requires rights under the Subject Patent to exploit such
improvements;


(C) claims priority to a Subject Patent, including but not limited to
continuation applications and patents, continuation-in-part
applications and patents, divisional applications and patents,
reexamination applications and patents, reissue applications and
patents, and continuing prosecution applications and patents;


(D) is a parent of a Subject Patent; or


(E) any foreign equivalents of a Subject Patent or any patent or patent
application set forth in (A), (B), (C) or (D) immediately above.


1.18. "PEB DNA Synthesis and Purification Patents" means U.S. Patent Nos.
4,997,927 (GBF), 4,458,066, 5,132,418, 5,153,319, 4,973,679 (Caruthers
Process), and 4,415,732, 4,668,777, 4,500,707 (Caruthers Reagents),
including any Related Patent.


1.19. "Start Development Checkpoint" means that point in a project at which,
under PEB's ISO 9001 procedures, a report is produced which documents


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that the following parameters have been established with respect to a
Collaboration Product:


(A) technical feasibility;


(B) determination of funding and staffing levels required to effect New
Product Release;


(C) product definition and specifications, including a target minimum
sales price; and


(D) a schedule for New Product Release.


1.20. "New Product Release" means that stage in the development of a
Collaboration Product at which, under PEB's ISO 9001 procedures,
unrestricted sale of the Collaboration Product to unaffiliated third-
party customers is authorized.


1.21. "Quarter" means a three month period beginning on or about the first day
of January, April, July or October next following the Effective Date, and
each three month period thereafter, except that the first Quarter will
include the period from the Effective Date to the first day of the
nearest such three month period after the Effective Date. Precise dates
for the beginning and ending of Quarters may vary in accordance with
PEB's customary accounting practices and procedures in accordance with
GAAP. Upon Illumina's request, PEB will provide Illumina with a schedule
of PEB's fiscal Quarters.


1.22. "Assembled Array" means an array of microspheres having chemical
functionality attached thereto distributed on a patterned substrate, as
generally described in U.S Patent Application No.08/818,199.


1.23. "Zip Code Chemistry" means a nucleic acid sequence detection method
employing a sequence-specific hybridization pull-out step subsequent to a
chemical or enzymatic polynucleotide ligation reaction, as generally
described in International Patent Application No. WO 97/31256.


1.24. "Instrument" means a device, including software required to operate the
device and image assembly software, designed to perform assays in
combination with an Assembled Array, and that is developed under the
Joint Development Program.


1.25. "Reagent" means a composition comprising enzymes, probes, PCR primers, or
buffers necessary to effect Zip Code Chemistry used in combination with
an Assembled Array, and that is developed under the Joint Development
Program.


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1.26. "Early Access Program" means a program in which one or more third parties
or Affiliates are given access to Beta Prototype Collaboration Product
prior to New Product Release in return for a fee, including the providing
of service or information to a third party by Illumina.


1.27. "Beta Prototype" means a prototype Instrument that is assembled during
the development of a Collaboration Product under the Joint Development
Program for the purpose of design verification. Beta Prototype units are
built by hand by the manufacturing department in consultation with the
research department in limited numbers using few or no tooled parts. With
respect to PEB's ISO 9001 procedures, the terms "Beta Prototype" and VTS
Instrument" may be used interchangeably.


1.28. "Collaboration Product" means Instrument, Reagent, or Assembled Array.


1.29. "Collaboration Field" means the field of Zip Code Chemistry used in
combination with Assembled Arrays.


1.30. "Nucleic Acid Analysis Field" means the field of characterization of a
nucleic acid sample including but not limited to the determination of the
relative abundance of the nucleic acid, all or part of a sequence of the
nucleic acid, or variations in the sequence of the nucleic acid. The
Nucleic Acid Analysis Field excludes the Collaboration Field.


1.31. "Joint Development Program" means the collaborative development and
commercialization program to be conducted by Illumina and PEB as defined
herein.


1.32. "Confidential Information" means confidential knowledge, know-how,
practices, processes, equipment, or other information that:


(A) is disclosed by a Party in a tangible form and is clearly labeled as
confidential or proprietary at the time of disclosure; or,


(B) is disclosed by a Party in nontangible form, and is summarized in a
writing that is delivered to the other Party within 30 days after
disclosure; or,


(C) is disclosed by a Party under circumstances in which a reasonable
person would understand that such information is confidential and
proprietary to the disclosing Party.


Notwithstanding (A), (B), and (C) immediately above, Confidential
Information will not include, and nothing in Section 7 will in any way
restrict the rights of either Illumina or PEB to use, disclose or
otherwise


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deal with, any information that:


(A) was in the public domain as of the Effective Date or comes into the
public domain during the term of this Agreement through no act of
the receiving Party; or,


(B) was independently known to the receiving Party prior to the receipt
thereof, or made available to the receiving Party as a matter of
lawful right by a third party; or,


(C) is independently conceived, invented or acquired by the receiving
Party by persons who were not exposed to the information.


2. Exclusivity; Costs; Diligence


2.1. Exclusivity. Except as may be expressly permitted herein, during the
-----------
term of this Agreement neither Party nor its Affiliates will design,
develop, manufacture, market, sell, distribute or service any
Collaboration Product within the Collaboration Field except in
accordance with the terms and conditions of this Agreement.


2.2. Responsibility for Costs. Except as provided in Section 3.7, each
------------------------
Party will be responsible for its own costs and expenses in connection
with its activities in furtherance of the Joint Development Program.


2.3. Diligence. The Parties will use commercially reasonable efforts to
---------
conduct the Joint Development Program in accordance with the terms and
conditions of this Agreement.


3. Development of Collaboration Product


3.1. Responsibilities. In consultation with Illumina, PEB will have primary
----------------
responsibility for definition of Collaboration Product, and
development of Instruments and Reagents. In consultation with PEB,
Illumina will have primary responsibility for development of Assembled
Arrays. Illumina and PEB will share responsibility for development of
particular assays to be used in conjunction with Collaboration
Product. Primary responsibilities may be reallocated by the Joint
Steering Committee.


3.2. Information Exchange. The Parties will keep each other informed with
--------------------
respect to all activities directly related to the Joint Development
Program, including without limitation access to design plans and
drawings, specifications, engineering change orders, software,
supplier information, nucleic acid sequences, processes, materials,
and chemistries directly related to Collaboration Product. Both
Parties will participate in engineering milestone reviews for
Collaboration Product.


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3.3. Work Plan. Development of Collaboration Product may be conducted by
---------
the Parties in accordance with a Work Plan The Work Plan may be
modified as required from time to time by the Joint Steering
Committee.


3.4. Development Teams. Each Party will assign personnel to its
-----------------
development team with the appropriate skills and experience to
accomplish the work established in the Work Plan. It is expected that
such teams will work together to accomplish the objectives of the
Joint Development Program including, if appropriate, conducting
efforts at the same facility.


3.5. Exchange of Instruments, Reagents and Assembled Arrays for Internal
-------------------------------------------------------------------
Use Within the Collaboration Field.
----------------------------------


3.5.1. Provision of Instruments and Reagents to Illumina. PEB will
-------------------------------------------------
provide Instruments and Reagents to Illumina, as such
Instruments and Reagents become available to PEB, for
Illumina's internal use in furtherance of the Joint Development
Program and not for resale, services, or other use except as
provided in Section 3.6. The number of Instruments and the
quantity of Reagents so provided will be determined by the
Joint Steering Committee.


3.5.2. Provision of Assembled Arrays to PEB. Illumina will provide
------------------------------------
Assembled Arrays to PEB, as such Assembled Arrays become
available to Illumina, for PEB's internal use in furtherance of
the Joint Development Program and not for resale, services, or
other use except as provided in Section 3.6. The number of
Assembled Arrays so provided will be determined by the Joint
Steering Committee.


3.6. Early Access Program. Illumina and PEB may manage the release of Beta
--------------------
Prototype Instrument through an Early Access Program. Illumina will,
in consultation with PEB, have the primary responsibility for
identifying participants in the Early Access Program. Illumina will
receive any income derived from the Early Access Program. Illumina
will reimburse PEB for PEB's direct manufacturing and support costs
relating to the provision of Beta Prototype Instrument and any
associated Reagents used in the Early Access Program to the extent
that PEB's expenses do not exceed Illumina's income. No more than [*]
Beta Prototype Instruments will be provided for use in the Early
Access Program. At the conclusion of the Early Access Program, all
Beta Prototype Instruments will be returned to PEB. Unless otherwise
agreed to by the Parties in writing, the term of the Early Access
Program will end upon the New Product Release of the relevant
Instrument. Except, in no event will the term of the Early Access
Program be less than 6 months from the time at which each Beta
Prototype Instrument first become available.


____________________ [*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.


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3.7. Development Funding to Illumina. PEB [*] to Illumina [*] in
-------------------------------
development funding to be used by Illumina to partially finance
Illumina's activities in furtherance of the Joint Development Program.
The [*] will be paid out to Illumina according to the schedule and
conditions set forth in Exhibit 1. If the conditions are not achieved
by Illumina on schedule as set forth in Exhibit 1, development funding
will accrue according to the schedule. At such time as Illumina
achieves the conditions set forth in Exhibit 1 and provided that the
Agreement has not been terminated, PEB will pay Illumina all accrued
development funding and continue paying future development funding
according to the schedule set forth in Exhibit 1. PEB [*] for such
development funding [*] for a given Quarter as set forth in Section
4.3.


4. Commercialization of Collaboration Product


4.1. Responsibilities.
----------------


4.1.1. Manufacture of Assembled Arrays. Assembled Arrays will be
-------------------------------
exclusively manufactured by Illumina or its designate in
consultation with PEB and transferred to PEB as provided under
Section 4.2.


4.1.2. Manufacture of Instruments and Reagents. Instruments and
---------------------------------------
Reagents will be exclusively manufactured by PEB or its
designate in consultation with Illumina. Subject to any
required licenses, Illumina may manufacture oligonucleotides
for its internal use within the Collaboration Field. For the
avoidance of doubt, it is understood by Illumina that no
rights under PEB DNA Synthesis and Purification Patents are
granted by this Agreement, either expressly, impliedly, or by
estoppel.


4.1.3. Marketing, Sales and Support. Collaboration Product will be
----------------------------
exclusively marketed, sold and supported (including service,
customer training and application support) through the
marketing, sales and service organizations of PEB, its
Affiliates and distributors, in accordance with a marketing
plan to be developed by PEB in consultation with Illumina.
Budgets for marketing, sales, and support activities relating
to Collaboration Product will be subject to the approval of
the Joint Steering Committee. Unless decided otherwise by the
Joint Steering Committee, Sales and Marketing Cost will be at
least 15% of annual Net Sales but no more than 30% of annual
Net Sales. Marketing literature dedicated to Collaboration
Product will be marked so as to indicate that the


____________________ [*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.


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Collaboration Product is a product of both PEB and Illumina,
and PEB and Illumina will be referenced in the dedicated
marketing literature with equal prominence.


4.1.4. Ongoing Research and Development. After the New Product
--------------------------------
Release of a Collaboration Product, the Joint Steering
Committee may elect to support ongoing research and
development to improve the Collaboration Product. The
allocation of such research and development between Parties
will be decided by the Joint Steering Committee and reimbursed
to each Party pro rata to each Party's share of the research
and development expenses for such year.


4.2 Transfer of Assembled Arrays to PEB for Resale by PEB.
-----------------------------------------------------


4.2.1. Supply Agreement. Illumina will transfer to PEB Assembled
----------------
Arrays for use in Collaboration Product used to generate Net
Sales. Prior to 90 days before a New Product Release of a
Collaboration Product, the Parties will enter into a supply
agreement to be negotiated in good faith between the Parties
which, consistent with this Agreement, will govern the
transfer of Assembled Arrays from Illumina to PEB. The supply
agreement will contain provisions which, in addition to
customary warranty, representations and indemnification
provisions, will set forth a commercially reasonable plan for
Illumina to supply Assembled Arrays to PEB in satisfaction of
PEB's reasonable requirements as to volume, cost, physical
specifications, regulatory requirements and schedule, and
obligate Illumina to provide technical support to PEB (but not
directly to PEB's customers).


4.2.2. Forecasts. Within 90 days prior to the date of a New Product
---------
Release, and prior to the end of each calendar month
thereafter, PEB will submit to Illumina a 6 month rolling
forecast of PEB's estimated requirements for Assembled Arrays. ...