<SUBMISSION>
<ACCESSION-NUMBER>0001072993-00-000523
<TYPE>S-1/A
<PUBLIC-DOCUMENT-COUNT>6
<FILING-DATE>20000719
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>ILLUMINA INC
<CIK>0001110803
<ASSIGNED-SIC>3826
<IRS-NUMBER>330804655
<STATE-OF-INCORPORATION>CA
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>S-1/A
<ACT>33
<FILE-NUMBER>333-33922
<FILM-NUMBER>675010
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>9390 TOWNE CENTRE DRIVE
<STREET2>SUITE 200
<CITY>SAN DIEGO
<STATE>CA
<ZIP>92121
<PHONE>8585874290
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>9390 TOWN CENTRE DRIVE
<STREET2>SUITE 200
<CITY>SAN DIEGO
<STATE>CA
<ZIP>92121
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>S-1/A
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>AMENDMENT NO. 3 TO THE FORM S-1
<TEXT>

<PAGE>


   As filed with the Securities and Exchange Commission on July 19, 2000
                                                      Registration No. 333-33922
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                              AMENDMENT NO. 3
                                    FORM S-1
                             REGISTRATION STATEMENT
                        Under The Securities Act of 1933

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

                                 ILLUMINA, INC.
             (Exact name of Registrant as specified in its charter)

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

<TABLE>
<S>                                <C>                                <C>
           California                             3826                            33-0804655
     (before reincorporation)         (Primary Standard Industrial             (I.R.S. Employer
                                      Classification Code Number)           Identification Number)
            Delaware
     (after reincorporation)
 (State or other jurisdiction of
 incorporation or organization)
</TABLE>

                       9390 Towne Centre Drive, Suite 200
                              San Diego, CA 92121
                                 (858) 587-4290
  (Address, including zip code, and telephone number, including area code, of
                   Registrant's principal executive offices)

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

                                 Jay T. Flatley
                     President and Chief Executive Officer
                       9390 Towne Centre Drive, Suite 200
                              San Diego, CA 92121
                                 (858) 587-4290
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

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

                  Please send copies of all communications to:

<TABLE>
<S>                                                <C>
            Michael J. O'Donnell, Esq.                         Edwin D. Williamson, Esq.
            Martin J. Waters III, Esq.                            Sullivan & Cromwell
         Wilson Sonsini Goodrich & Rosati                    1701 Pennsylvania Avenue, N.W.
             Professional Corporation                            Washington, D.C. 20006
                650 Page Mill Road                                   (202) 956-7500
               Palo Alto, CA 94304
                  (650) 493-9300
</TABLE>

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

        Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

  If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), please check the following box. [_]

  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

  If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

  If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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

                        CALCULATION OF REGISTRATION FEE

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                           Proposed       Proposed
                                           Maximum        Maximum
  Title of Each Class      Number of       Offering      Aggregate      Amount of
  of Securities to be        Shares       Price Per       Offering     Registration
       Registered        Registered(1)     Unit(2)        Price(2)         Fee
-----------------------------------------------------------------------------------
<S>                      <C>            <C>            <C>            <C>
Common Stock, $0.01 par
 value.................    5,750,000        $11.00      $63,250,000     $16,698(3)
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1) Includes 750,000 shares subject to the underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the amount of the
    registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
(3) A registration fee of $26,400 was paid with the initial filing.

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

  The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be     +
+changed. These securities may not be sold until the registration statement    +
+filed with the Securities and Exchange Commission is effective. This          +
+preliminary prospectus is not an offer to sell nor does it seek an offer to   +
+buy these securities in any jurisdiction where the offer or sale is not       +
+permitted.                                                                    +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

                Subject to Completion. Dated July 19, 2000.

                                5,000,000 Shares

                               [LOGO OF ILLUMINA]

                                  Common Stock

                                  -----------

  This is an initial public offering of shares of common stock of Illumina,
Inc. All of the 5,000,000 shares of common stock are being sold by Illumina.

  Prior to this offering, there has been no market for the common stock. It is
currently estimated that the initial public offering price per share will be
between $9.00 and $11.00 . Application has been made for quotation of the
common stock on the Nasdaq National Market under the symbol "ILMN".

  See "Risk Factors" beginning on page 8 to read about certain factors you
should consider before buying shares of the common stock.

                                  -----------

  Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

                                  -----------

<TABLE>
<CAPTION>
                                                                 Per Share Total
                                                                 --------- -----
<S>                                                              <C>       <C>
Initial public offering price...................................   $       $
Underwriting discount...........................................   $       $
Proceeds, before expenses, to Illumina..........................   $       $
</TABLE>

  To the extent that the underwriters sell more than 5,000,000 shares of common
stock, the underwriters have the option to purchase up to an additional 750,000
shares from Illumina at the initial public offering price less the underwriting
discount.

                                  -----------

  The underwriters expect to deliver the shares against payment in New York,
New York on           , 2000.

Goldman, Sachs & Co.

                                   Chase H&Q

                                                                        SG Cowen

                                  -----------

                          Prospectus dated     , 2000.

<PAGE>


                                   [ARTWORK]
<PAGE>

                               PROSPECTUS SUMMARY

   You should read the following summary together with the more detailed
information regarding our company and our financial statements and notes to
those statements appearing elsewhere in this prospectus.

                                  Our Business

Overview

   We are a leading developer of next-generation tools for the large-scale
analysis of genetic variation and function. Understanding genetic variation and
function is critical to the development of personalized medicine, a key goal of
genomics. Our tools will provide information that could be used to improve
drugs and therapies, customize diagnoses and treatment, and cure disease.

   Completion of the sequencing of the human genome will drive demand for tools
that can assist researchers in processing the billions of tests necessary to
convert raw genetic data into medically valuable information. This requires
functional analysis of highly complex biological systems, involving a scale of
experimentation not practical using currently available tools and technologies.
Using our technologies, we are developing a comprehensive line of products that
can address the scale of experimentation and the breadth of functional analysis
required to achieve the goals of molecular medicine.

   Our patented BeadArray technology uses fiber optics to achieve a level of
array miniaturization that allows for a new scale of experimentation. An array
is a collection of miniaturized test sites arranged on a surface that permits
many tests, or assays, to be performed in parallel. By arranging our arrays in
a pattern that matches the wells of industry standard containers called
microtiter plates, we can simultaneously process up to 3 million assays, a
throughput significantly beyond the capability of any technology known to us.
We assemble our arrays using relatively inexpensive raw materials. Our
proprietary manufacturing process allows us to easily adapt the arrays to a
broad range of applications. These advances allow us to create next-generation
arrays with a unique combination of high throughput, cost effectiveness and
flexibility. In addition, our complementary Oligator technology permits
parallel synthesis of the millions of different pieces of DNA necessary to
perform large-scale genetic analysis on arrays.

   We intend to provide both products and services that utilize our proprietary
technologies. Our first products, developed in partnership with PE Biosystems,
will include disposable BeadArray cassettes, reagent kits for analyzing
variation in genetic sequences, and instruments that automatically read data
from the BeadArray cassettes. An array cassette is a collection of individual
arrays arranged in a pattern, and a reagent kit is a set of chemicals used for
performing specific analyses. We also plan to commercialize services for the
analysis of genetic variation.

                                       3
<PAGE>


Our Market Opportunity

   We believe that advances in genomics will underpin the future of medicine.
To date, billions of dollars have been spent on the sequencing of the human
genome. We anticipate that during the next decade, a substantially greater
amount will be spent on efforts to understand the function of the genome and to
apply this information to medicine and related industries. A significant
portion of these funds will likely be used to purchase tools for the analysis
of genetic variation and function. We are initially focusing on the key
techniques for performing these analyses:

  . SNP genotyping - a method for analyzing genetic variation by determining
    which of the most common form of variation, called Single Nucleotide
    Polymorphisms, or SNPs, are present in genetic sequences;

  . gene expression profiling - the analysis of which genes are active in a
    particular cell or group of cells; and

  . proteomics - the process of determining which proteins are present in
    cells and how they interact.

   The complexity of biology, with combinations of over one hundred thousand
genes and potentially millions of genetic variations, will require an
unprecedented level of experimentation using these techniques. Unlocking the
full potential of the markets for these techniques requires a new generation of
high-throughput, cost-effective technologies.

   We believe our technologies will have broad applicability in a variety of
other high-growth markets, such as high-throughput screening of pharmaceutical
candidates and chemical detection. One of our initial collaborations outside of
healthcare is with The Dow Chemical Company to design a system for identifying
chemicals to determine their purity prior to their introduction into a
manufacturing process.

Our Technologies

   Our proprietary BeadArray technology combines fiber optic bundles and
specially prepared beads that self-assemble into an array. Each fiber optic
bundle contains thousands to millions of individual fibers depending on the
diameter of the bundle. In a separate process, we create sensors by affixing a
specific type of molecule to each of the billions of microscopic beads in a
given batch. The particular molecules on a bead define that bead's function as
a sensor. We combine batches of beads coated with specific molecules to form a
pool specific to the type of array we intend to create.

   To form an array, we typically dip each fiber optic bundle into a pool of
coated beads. The coated beads are drawn into the wells, one bead per well, on
the end of each fiber in the bundle. The tens of thousands of beads at the end
of the fiber optic bundle comprise our BeadArray. One may perform an experiment
by then dipping the BeadArray into a prepared sample. The molecules in the
sample bind to their matching molecules on the coated bead. Since each bead
performs its own assay, we are able to make tens of thousands of quantitative
measurements simultaneously on each sample.

   Using our BeadArray technology, we have addressed the limitations of the
tools for genetic analysis. We achieve high throughput with a high density of
test sites per array and our ability to format arrays in a pattern arranged to
match the wells of standard microtiter plates. We maximize

                                       4
<PAGE>

cost effectiveness by reducing consumption of expensive reagents and valuable
samples, and through the low manufacturing cost associated with our BeadArray
technology. Our ability to vary the size, shape and format of the fiber optic
bundles and to create specific beads for various applications gives us the
flexibility to address multiple markets and market segments.

   Our proprietary Oligator technology complements our BeadArray technology.
The Oligator synthesizes in parallel many different short segments of DNA to
meet the requirements of large-scale genomics applications. We believe that our
Oligator technology is substantially more cost effective and provides higher
throughput than available commercial alternatives.

Our Strategy

   Our goal is to make our BeadArray platform the industry standard for
products and services utilizing array technologies. We plan to achieve this by:

  . focusing on emerging high-growth markets;

  . rapidly commercializing our BeadArray technology for SNP genotyping;

  . partnering with multiple companies to expand our market opportunity;

  . expanding our technologies into multiple product lines; and

  . strengthening our technological leadership.

Company Information

   We had no revenue during the period from our inception on April 28, 1998
through December 31, 1998. We recorded $0.5 million in revenue during the year
ended December 31, 1999 and $83,205 during the three-month period ended March
31, 2000. Our net losses were approximately $1.1 million, $5.5 million and $3.9
million, respectively, during the same periods. As of March 31, 2000, our total
accumulated deficit was $10.6 million. Substantially all our revenue has been
from government grants. We do not expect to ship any products before 2001.

   We were incorporated in California in April 1998. We intend to reincorporate
in Delaware prior to the completion of this offering. Our principal executive
offices are located at 9390 Towne Centre Drive, Suite 200, San Diego,
California 92121. Our telephone number is (858) 587-4290.

   Illumina, BeadArray, Array of Arrays and Oligator are trademarks of our
company. This prospectus also contains brand names, trademarks or service marks
of companies other than Illumina, and these brand names, trademarks and service
marks are the property of their respective holders.

                                       5
<PAGE>

                                  The Offering

<TABLE>
<S>                              <C>
Shares offered by Illumina.....   5,000,000 shares
Shares to be outstanding after
 the offering..................  30,541,095 shares
Proposed Nasdaq National Market
 symbol........................  ILMN
Use of proceeds................  For general corporate purposes, including
                                 commercialization of our BeadArray and Oligator
                                 technologies, research and development, working
                                 capital, funding our operating losses, capital
                                 expenditures and potential acquisitions.
</TABLE>

   The above information is based on 25,541,095 shares outstanding as of March
31, 2000 and excludes:

  . 932,485 shares issuable upon exercise of options then outstanding at a
    weighted average exercise price of $0.34 per share;

  . 43,183 shares issuable upon exercise of warrants then outstanding at a
    weighted average exercise price of $0.926 per share; and

  . a total of 522,384 shares available for future issuance under our 1998
    Incentive Stock Plan.

  . a total of 500,000 shares available for future issuance under our 2000
    Employee Stock Purchase Plan.

   In June 2000, we authorized an additional 1,250,000 shares under our 1998
Incentive Stock Plan and 4,000,000 shares under our 2000 Stock Plan.

   Unless otherwise noted, this prospectus assumes:

  . our reincorporation in Delaware prior to this offering;

  . the automatic conversion of our outstanding convertible preferred stock
    into common stock upon the closing of this offering;

  . the filing of our amended and restated certificate of incorporation
    authorizing a class of 10,000,000 shares of undesignated preferred stock
    prior to the closing of this offering; and

  . no exercise by the underwriters of their option to purchase additional
    shares of our common stock in the offering.

                                       6
<PAGE>

                         Summary Financial Information
                     (in thousands, except per share data)

   The following tables summarize our financial data for the periods presented.
The pro forma share data in the statement of operations data assumes the
conversion of all of our outstanding preferred stock into 18,836,297 shares of
common stock upon the closing of this offering. The as adjusted balance sheet
data reflects the sale of 5,000,000 shares of our common stock in the offering
at an estimated price of $10.00 per share, less estimated expenses payable by
us and the underwriting discount. You should read the following financial
information together with the "Selected Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                     Period from
                                    April 28, 1998               Three months
                                      (inception)                ended March
                                       through      Year ended       31,
                                     December 31,  December 31, ---------------
                                         1998          1999      1999    2000
                                    -------------- ------------ ------  -------
                                                                 (Unaudited)
<S>                                 <C>            <C>          <C>     <C>
Statement of Operations Data:
Total revenue.....................     $   --        $   474    $   42  $    83
Total operating expenses..........       1,194         6,392       984    4,481
                                       -------       -------    ------  -------
Operating loss....................      (1,194)       (5,918)     (942)  (4,398)
                                       -------       -------    ------  -------
Net loss..........................      (1,146)       (5,518)     (843)  (3,901)
                                       =======       =======    ======  =======
Historical net loss per share,
 basic and diluted................     $ (1.71)      $ (3.91)   $(1.21) $ (2.31)
                                       =======       =======    ======  =======
Historical weighted average shares
 outstanding......................         669         1,410       696    1,686
Pro forma net loss per share......                   $ (0.40)           $ (0.25)
                                                     =======            =======
Pro forma weighted average shares
 outstanding......................                    13,697             15,701
</TABLE>

<TABLE>
<CAPTION>
                                As of
                           March 31, 2000
                         -------------------
                         Actual  As Adjusted
                         ------- -----------
                             (Unaudited)
<S>                      <C>     <C>         <C> <C>
Balance Sheet Data:
Cash, cash equivalents
 and short-term
 investments............ $32,717   $77,917
Working capital.........  32,392    77,592
Total assets............  34,430    79,630
Deferred revenue........   2,500     2,500
Stockholders' equity....  30,834    76,034
</TABLE>

                                       7
<PAGE>

                                  RISK FACTORS

   Any investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and all of the information
contained in this prospectus before deciding whether to purchase our common
stock. If any of the following risks actually occur, our business, financial
condition and results of operations would suffer. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment in our common stock.

We Have Generated No Revenue from Product Sales to Date. We Expect to Continue
to Incur Net Losses and We May Not Achieve or Maintain Profitability.

   Since inception, we have recognized no revenue from product sales. We have
incurred net losses since our inception. At March 31, 2000, our accumulated
deficit was approximately $10.6 million. We expect to continue to have
increasing net losses and negative cash flow. The magnitude of our net losses
will depend, in part, on the rate of growth, if any, of our revenues and on the
level of our expenses. To date, we have derived all of our revenues from grants
and partnerships. We expect to incur significant expenses for research and
development, for developing our manufacturing capabilities and for efforts to
commercialize our products. As a result, we expect that our operating expenses
will increase significantly in the near term and, consequently, we will need to
generate significant additional revenues to achieve profitability. Even if we
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis.

Our Success Depends Upon The Increasing Availability of Genetic Information and
The Continued Emergence and Growth of Markets For Analysis of Genetic Variation
and Function.

   We design our products primarily for applications in the life sciences and
pharmaceutical industries. The usefulness of our technology depends in part
upon the availability of genetic data. We are initially focusing on markets for
analysis of genetic variation and function, namely SNP genotyping, gene
expression profiling and proteomics. These markets are new and emerging, and
they may not develop as we anticipate, or reach their full potential. Other
methods of analysis of genetic variation and function may emerge and displace
the methods we are developing. Also, researchers may not seek or be able to
convert raw genetic data into medically valuable information through the
analysis of genetic variation and function. If genetic data is not available or
if our target markets do not emerge in a timely manner, or at all, demand for
our products will not develop as we expect, and we may never become profitable.

Our Success Depends on Market Acceptance of Our New and Unproven Technology.

   Historically, life sciences and pharmaceutical companies have analyzed
genetic variation and function using a variety of technologies. Compared to the
existing technologies, our technologies are new and unproven. In order to be
successful, our products must meet the commercial requirements of the life
sciences and pharmaceutical industries as tools for the large-scale analysis of
genetic variation and function. Market acceptance will depend on many factors,
including:

  . our ability and the ability of our collaborative partners to demonstrate
    to potential customers the benefits and cost effectiveness of our
    products and services relative to others available in the market;

  . the extent of our partners' efforts to market, sell and distribute our
    products;


                                       8
<PAGE>

  . our or our partners' ability to manufacture products in sufficient
    quantities with acceptable quality and reliability and at an acceptable
    cost; and

  . the willingness and ability of customers to adopt new technologies
    requiring capital investments.

   Our products may not gain market acceptance. If our BeadArray technology
does not become widely used in the life sciences and pharmaceutical industries,
demand for our products will not develop as expected and it is unlikely that we
ever will become profitable.

We Are an Early Stage Company Deploying Unproven Technologies. If We Do Not
Develop Commercially Successful Products, We May Be Forced to Cease Operations.

   We currently have no commercially available products. Our technologies are
in the early stages of development. You should evaluate us in light of the
uncertainties and complexities affecting an early stage company developing
tools for the life sciences and pharmaceutical industries.

   We may not be successful in the commercial development of products. Prior to
their commercialization, products will require significant research and
development and investment, including testing, to demonstrate their technical
benefits and cost effectiveness. We have not proven our ability to develop and
commercialize products. We must conduct a substantial amount of additional
research and development before any of our products will be ready for sale.
Problems frequently encountered in connection with the development of
commercial products using new and unproven technologies might limit our ability
to develop and commercialize our products.

Commercialization of Our Technologies Depends On Partnerships and
Collaborations with Other Companies. If Our Current Partnership and
Collaborations Are Not Successful, or If We Are Not Able to Enter Into
Additional Partnerships and Collaborations in the Future, We May Not Be Able to
Develop Our Technologies or Products.

   Since we currently do not possess all of the resources necessary to develop
and commercialize products that may result from our technologies, we will need
either to develop a sales, marketing and support group with relevant experience
or make appropriate arrangements with strategic partners to market and sell our
products. We have chosen to enter into arrangements to develop and
commercialize our initial products. We have entered into an agreement with PE
Biosystems to gain access to their proprietary chemistry format for use with
the initial products of the partnership. PE Biosystems also will fund, in part,
the development of these products. Our partnership agreement provides that
PE Biosystems will develop the detection instrument and reagent kits required
for use with these products, and will provide sales and marketing support for
the products. If our partnership with PE Biosystems is not successful, or if PE
Biosystems elects to terminate our partnership, we may not be able to develop
or successfully commercialize our initial products on a timely basis, or at
all. We intend to rely on other corporate partners and collaborators to develop
other chemistry formats and to gain access to genetic data for use with our
technologies. If we do not enter into additional partnership agreements, or if
these agreements are not successful, our ability to develop and commercialize
products will be impacted negatively and our revenues will decline.

   We have limited or no control over the resources that any partner or
collaborator may devote to our products. Any of our present or future partners
or collaborators may not perform their obligations as expected. These partners
or collaborators may breach or terminate their agreements with us or otherwise
fail to meet their obligations or perform their collaborative activities
successfully and in a timely manner. Further, any of our partners or
collaborators may elect not to develop products arising

                                       9
<PAGE>

out of our partnerships or collaborations or devote sufficient resources to the
development, manufacture or commercialization of these products. If any of
these events occur, we may not be able to develop our technologies or
commercialize our products and our ability to generate revenues will decrease.

We Have Limited Manufacturing Experience. If We Are Unable to Find Third-Party
Manufacturers to Manufacture Our Products or Unless We Develop Our Product
Capability, We May Not Be Able to Launch Our Products in a Timely Manner, or at
All.

   We have no experience manufacturing our products in the volumes that will be
necessary for us to achieve significant commercial sales. To date, we have
limited our manufacturing activities to the manufacturing of prototype systems
for testing purposes and for internal use by our collaborative partners.

   The nature of our products requires customized components that currently are
available from a limited number of sources. For example, we currently obtain
the fiber optic bundles included in our products from a single source. If we
are unable to secure a sufficient supply of fiber optic bundles or other
product components, we will be unable to meet future demand for our products.
We will need to enter into contractual relationships with manufacturers for
commercial scale production of our products, or develop these capabilities
internally, and we cannot assure you that we will be able to do so on a timely
basis, for sufficient quantities or on commercially reasonable terms.
Accordingly, we may not be able to establish or maintain reliable, high-volume
manufacturing at commercially reasonable costs.

We May Encounter Difficulties in Managing Our Growth That Could Increase Our
Losses.

   We have experienced a period of rapid and substantial growth that has
strained our human and capital resources. If our growth continues and we are
unable to manage it effectively, our business will suffer and our stock price
could decline. The number of our employees increased from nine at December 31,
1998 to 60 at March 31, 2000. The need to effectively manage our operations and
growth requires us to continue to expend funds to improve our operational,
financial and management controls, reporting systems and procedures, and to
attract and retain sufficient numbers of talented employees. If we are unable
to successfully implement improvements to our management information and
control systems in an efficient or timely manner, or if we encounter
deficiencies in existing systems and controls, management may receive
inadequate information to manage our day-to-day operations.

We Expect Intense Competition in Our Target Markets, Which Could Render Our
Products Obsolete or Substantially Limit the Volume of Products That We Sell.
This Would Limit Our Ability to Compete and Achieve Profitability.

   We compete with life sciences companies that design, manufacture and market
instruments for analysis of genetic variation and function and other
applications using technologies such as two-dimensional electrophoresis,
capillary electrophoresis, mass spectrometry, flow cytometry, microfluidics,
and mechanically deposited, inkjet and photolithographic arrays. For an
explanation of these technologies, see "Business--Current Technologies and
Their Limitations." We anticipate that we will face increased competition in
the future as new companies enter the market with new technologies. The markets
for our products are characterized by rapidly changing technology, evolving
industry standards, changes in customer needs, emerging competition and new
product introductions. One or more of our competitors may render our technology
obsolete or uneconomical. Many of our competitors have greater financial and
personnel resources and more experience in research and development than we
have. Furthermore, the life sciences and pharmaceutical companies, which are
our potential customers and strategic partners, could develop competing
products.

                                       10
<PAGE>

Our Technologies Can Be Applied to Many Different Industries, and We May Fail
to Focus on the Most Profitable Areas.

   Our technologies may be applicable to numerous, diverse industries. However,
we have limited financial and managerial resources. Therefore, we will be
required to focus on product candidates in selected industries and to forego
efforts with regard to other products and industries. Our decisions may not
produce viable commercial products and may divert our resources from more
profitable market opportunities.

Any Inability to Adequately Protect Our Proprietary Technologies Could Harm Our
Competitive Position.

   Our success will depend in part on our ability to obtain patents and
maintain adequate protection of our intellectual property in the United States
and other countries. If we do not protect our intellectual property adequately,
competitors may be able to use our technologies and thereby erode our
competitive advantage. The laws of some foreign countries do not protect
proprietary rights to the same extent as the laws of the United States, and
many companies have encountered significant problems in protecting their
proprietary rights abroad. These problems can be caused by the absence of rules
and methods for defending intellectual property rights.

   The patent positions of companies developing tools for the life sciences and
pharmaceutical industries, including our patent position, generally are
uncertain and involve complex legal and factual questions. We will be able to
protect our proprietary rights from unauthorized use by third parties only to
the extent that our proprietary technologies are covered by valid and
enforceable patents or are effectively maintained as trade secrets. We will
apply for patents covering our technologies and products, as we deem
appropriate. However, our applications may be challenged and may not result in
issued patents. Our existing patents and any future patents we obtain may not
be sufficiently broad to prevent others from practicing our technologies or
from developing competing products. There also is risk that others may
independently develop similar or alternative technologies or design around our
patented technologies. In addition, others may challenge or invalidate our
patents, or our patents may fail to provide us with any competitive advantage.

   We also rely upon trade secret protection for our confidential and
proprietary information. We have taken security measures to protect our
proprietary information. These measures, however, may not provide adequate
protection for our trade secrets or other proprietary information. We seek to
protect our proprietary information by entering into confidentiality agreements
with employees, collaborators and consultants. Nevertheless, employees,
collaborators or consultants may still disclose our proprietary information,
and we may not be able to meaningfully protect our trade secrets. In addition,
others may independently develop substantially equivalent proprietary
information or techniques or otherwise gain access to our trade secrets.

Litigation or Other Proceedings or Third Party Claims of Intellectual Property
Infringement Could Require Us to Spend Time and Money and Could Shut Down Some
of Our Operations.

   Our commercial success depends in part on our non-infringement of the
patents or proprietary rights of third parties. Third parties may assert that
we are employing their proprietary technology without authorization. In
addition, third parties may obtain patents in the future and claim that 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. We may incur the same liabilities in
enforcing our patents against others. Furthermore, parties making claims
against us may be able to obtain injunctive or other equitable relief, which
effectively could block our ability to further 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

                                       11
<PAGE>

may be required to pay damages and obtain one or more licenses from third
parties. We may not be able to obtain these licenses at a reasonable cost, or
at all. In that event, 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 could prevent us from
commercializing available products.

If We Lose Our Key Personnel or Are Unable to Attract and Retain Additional
Personnel, We May Be Unable to Achieve Our Goals.

   We are highly dependent on our management and scientific personnel. The loss
of their services could adversely impact our ability to achieve our business
objectives. We will need to hire additional qualified personnel with expertise
in molecular biology, chemistry and biological information processing. We
compete for qualified management and scientific personnel with other
biotechnology companies, universities and research institutions, particularly
those focusing on genomics. Competition for these individuals, particularly in
the San Diego area, is intense, and the turnover rate can be high. Failure to
attract and retain management and scientific personnel would prevent us from
pursuing collaborations or developing our products or technologies.

   Our planned activities will require additional expertise in specific
industries and areas applicable to the products developed through our
technologies, including the life sciences and healthcare industries and
molecular biology, chemistry and biological information processing. Thus, we
will need to add new personnel, including management, and develop the expertise
of existing management. The failure to do so could impair the growth of our
business.

Our Collaborations With Outside Scientists May Be Subject to Change, Which
Could Limit Our Access to Their Expertise.

   We work extensively with scientific advisors and collaborators at academic
and other institutions to develop applications of our technologies. These
scientists are not our employees and may have other commitments that could
limit their availability. Although our scientific advisors generally agree not
to do competing work, if a conflict of interest between their work for us and
their work for another entity arises, we may lose their services. Although our
scientific advisors and collaborators sign agreements not to disclose our
confidential information, it is possible that some of our valuable proprietary
information could become publicly known through them.

We May Need Additional Capital in the Future. If Additional Capital is Not
Available On Acceptable Terms, We May Have to Curtail or Cease Operations.

   Our future capital requirements will be substantial and will depend on many
factors including payments received under collaborative agreements and
government grants, the progress and scope of our collaborative and independent
research and development projects, and the filing, prosecution and enforcement
of patent claims. Changes also may occur that would require our available
capital resources to be consumed significantly sooner than we expect.

   We expect that the proceeds from this offering, combined with our current
cash and cash equivalents, investments and funding from existing strategic
alliances and grants, will be sufficient to fund our anticipated operating
needs for at least the next 24 months. If our capital resources are
insufficient to meet future capital requirements, we may have to raise
additional funds to continue the development of our technologies and complete
the commercialization of products, if any, resulting from our technologies. We
may be unable to raise sufficient additional capital. If we fail to do so, we
may have to curtail or cease operations.

                                       12
<PAGE>

Management May Invest or Spend the Proceeds of This Offering in Ways With Which
You May Not Agree and in Ways That May Not Yield a Return.

   Management will have broad discretion over the use of proceeds from this
offering. Stockholders may not agree with management's decisions, and our use
of the proceeds may not yield a significant return, or any return at all. We
intend to use a majority of the proceeds from this offering for research and
development, working capital and other general corporate purposes and to
finance potential acquisitions. Because of the number and variability of
factors that determine our use of the net proceeds from this offering, we
cannot assure you that our actual use will not vary substantially from our
currently planned uses. Initially, we intend to invest the net proceeds from
this offering in income producing, investment grade securities.

We Expect that Our Quarterly Results of Operations Will Fluctuate. This
Fluctuation Could Cause Our Stock Price to Decline.

   Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. These fluctuations could cause our stock price to
fluctuate significantly or decline. A large portion of our expenses are
relatively fixed, including expenses for facilities, equipment and personnel.
In addition, we expect operating expenses to increase significantly in 2000.
Accordingly, if revenues do not grow as anticipated, we may not be able to
correspondingly reduce our operating expenses. Failure to achieve anticipated
levels of revenues, therefore, could significantly harm our operating results
for a particular fiscal period.

   Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price probably would decline.

If We Engage in Any Acquisition, We Will Incur a Variety of Costs, and May
Never Realize the Anticipated Benefits of the Acquisition.

   If appropriate opportunities become available, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions. If we do undertake any acquisition, the
process of integrating an acquired business, technology, service or product may
result in unforeseen operating difficulties and expenditures and may absorb
significant management attention that would otherwise be available for ongoing
development of our business. Moreover, we may fail to realize the anticipated
benefits of any acquisition. Future acquisitions could reduce your ownership in
Illumina and could cause us to incur debt, expose us to future liabilities and
result in amortization expenses related to goodwill and other intangible
assets.

   In addition, recent proposed changes in the Financial Accounting Standards
Board rules for merger accounting may affect the cost of making acquisitions or
of being acquired. For example, if these proposed changes become effective, we
likely would have to record goodwill or other intangible assets that we would
amortize to earnings if we merge with another company. This amortization would
adversely impact our future operating results. In addition, a prospective
acquiror of Illumina might be less inclined to acquire us if they are required
to amortize goodwill or other intangible assets. Further, accounting rules
changes that reduce the availability of immediate write-offs of the value of
in-process research and development in connection with an acquisition could
result in the capitalization and amortization of these amounts, which would
negatively impact our results of operations in future periods.


                                       13
<PAGE>

Our Stock Price Could Be Extremely Volatile. You May Not Be Able to Resell Your
Shares at or Above the Initial Public Offering Price.

   Prior to this offering, there has been no public market for shares of our
common stock. An active trading market may not develop or be sustained
following completion of this offering. The initial public offering price for
the shares will be determined by negotiations between us and representatives of
the underwriters. This price may bear no relationship to the price at which our
common stock will trade upon completion of this offering. The stock market has
experienced significant price and volume fluctuations, and the market prices of
technology companies, particularly life sciences companies, have been highly
volatile. You may not be able to resell your shares at or above the initial
public offering price.

   In the past, companies that have experienced volatility in the market price
of their stock have been the objects of securities class action litigation. If
we were the object of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.

Future Sales of Our Common Stock May Depress Our Stock Price.

   The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or the perception that these sales could occur. In addition,
these factors could make it more difficult for us to raise funds through future
offerings of common stock. There will be approximately 30,541,095 shares of
common stock outstanding immediately after this offering, or approximately
31,291,095 shares if the representatives of the underwriters exercise their
over-allotment option in full. These shares, other than the shares sold in the
offering, will become available for sale in the public market as follows:

  .  264,768 shares that become eligible for sale at various times between
     the date of this offering and the date 90 days after the effective date
     of this offering;

  .  an additional 15,862,985 shares that become eligible for sale beginning
     180 days after the effective date of this offering;

  .  an additional 82,372 shares that become eligible for sale upon exercise
     of vested options 90 days after the date of this prospectus and an
     additional 41,755 shares that become eligible for sale upon the exercise
     of vested options 180 days after the date of this prospectus; and

  .  an additional 9,413,342 shares that become eligible for sale at various
     times thereafter upon the expiration of applicable holding periods.

Some of Our Existing Stockholders Can Exert Control Over Us, and May Not Make
Decisions That Are in the Best Interests of All Stockholders.

   After this offering, our officers, directors and principal stockholders
(greater than 5% stockholders) together will control approximately 47.4% of our
outstanding common stock. As a result, these stockholders, acting together,
would be able to exert significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, this concentration of
ownership may delay or prevent a change of control of our company, even when a
change may be in the best interests of our stockholders. The interests of these
stockholders may not always coincide with our interests as a company or the
interests of other stockholders. Accordingly, these stockholders could cause us
to enter into transactions or agreements that we would not otherwise consider.

                                       14
<PAGE>

Our Operations Must Comply With Environmental Statutes and Regulations, and Any
Failure to Comply Could Result in Extensive Costs Which Would Harm Our
Business.

   The manufacture of our products involves the use, transportation, storage
and disposal of hazardous substances and is subject to related environmental
and health and safety statutes and regulations. Although we currently use
fairly small quantities of hazardous substances, as we expand our operations,
the increased use of hazardous substances will lead to additional and more
stringent requirements. This may cause us to incur substantial costs to
maintain compliance with applicable statutes and regulations. In addition, our
failure to comply with laws and regulations and any costs associated with
unexpected and unintended releases of hazardous substances by us into the
environment, or at disposal sites used by us, could expose us to substantial
liability in the form of fines, penalties, remediation costs or other damages,
or could lead to a shut down of our operations. We are not aware of any current
claims associated with our use of hazardous substances. It is our intent to
remain at all times in full compliance with all applicable environmental and
health and safety laws and regulations.

                                       15
<PAGE>

                           FORWARD-LOOKING STATEMENTS

   You should not rely on forward-looking statements in this prospectus. This
prospectus, including the sections entitled "Prospectus Summary", "Risk
Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business", contains forward-looking statements
within the meaning of the federal securities laws. These statements relate to
future events or our future financial performance and involve known and unknown
risks, uncertainties and other factors that may cause our or our industry's
actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance
or achievements expressed or implied by the forward-looking statements. These
risks and other factors include those listed under "Risk Factors" and elsewhere
in this prospectus. In some cases, you can identify forward-looking statements
by terminology such as "may", "will", "should", "expect", "intend", "plan",
"anticipate", "believe", "estimate", "predict", "potential", "continue" or the
negative of these terms or other comparable terminology. Examples of these
forward-looking statements include, but are not limited to, statements
regarding the following:

  . the introduction and development of new products, product improvements
    and new services;

  . the applicability and usefulness of our technologies in various markets
    and industries;

  . the success of our technologies;

  . emerging markets in functional genetic analysis, namely SNP genotyping,
    gene expression profiling and proteomics, and the future growth of these
    markets;

  . demand for increased throughput in genetic analysis;

  . continued advances in genomics;

  . the potential to derive medically valuable information from raw genetic
    data and the further potential to use this information to improve drugs
    and therapies, to customize diagnosis and treatment, and cure disease;

  . potential future partnerships, collaborations and acquisitions;

  . growth in our research and development, general and administrative
    expenses;

  . the proceeds of this offering, combined with our cash, cash equivalents,
    investments, and funding through grants and collaborations being
    sufficient to fund our anticipated operating needs for the next 24
    months; and

  . the lack of a material impact of the adoption of SFAS No. 133.

These statements are only predictions. In evaluating these statements, you
should consider various factors, including the risks outlined under "Risk
Factors." These factors may cause actual events or our results to differ
materially from those expressed or implied by any forward-looking statement.

   Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
forward-looking statements. We are under no duty and do not intend to update
any of the forward-looking statements after the date of this prospectus or to
conform our prior statements to actual results.

                                       16
<PAGE>

                                USE OF PROCEEDS

   We estimate that the net proceeds from the sale of the 5,000,000 shares of
common stock that we are selling in this offering will be approximately $45.2
million ($52.2 million if the underwriters exercise their over-allotment option
in full) based on an assumed public offering price of $10.00 per share and
after deducting the estimated underwriting discount and estimated offering
expenses payable by us.

   We intend to use the net proceeds of this offering for general corporate
purposes including:

  . commercialization of our BeadArray and Oligator technologies;

  . research and development;

  . working capital;

  . funding our operating losses;

  . capital expenditures; and

  . possible acquisitions.

   The amounts that we actually expend for working capital purposes will vary
significantly depending on a number of factors, including future revenue
growth, if any, and the amount of cash we generate from operations. As a
result, we will retain broad discretion in the allocation of the net proceeds
of this offering. In addition, we may use a portion of the net proceeds for
further development of our products through acquisitions of complementary
businesses, products and technologies. However, we have no present commitments
or agreements with respect to any acquisitions. We intend to invest the net
proceeds primarily in income producing, investment-grade U.S. government
securities.

                                DIVIDEND POLICY

   We have never declared or paid any dividends on our capital stock. We
currently expect to retain any future earnings for use in the operation and
expansion of our business and do not anticipate paying any cash dividends.

                                       17
<PAGE>

                                 CAPITALIZATION

   The following table sets forth our actual capitalization as of March 31,
2000 and as adjusted to reflect the automatic conversion of our outstanding
preferred stock into 18,836,297 shares of common stock upon the closing of this
offering and the sale of 5,000,000 shares of our common stock at an estimated
price of $10.00 per share, less estimated expenses payable by us and the
underwriting discount. You should read this table in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the notes to those statements
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                                           Actual   As Adjusted
                                                           -------  -----------
                                                             (in thousands,
                                                           except share data)
<S>                                                        <C>      <C>
Stockholders' equity:
  Convertible preferred stock: authorized--50,000,000
   shares actual (no par value) and 10,000,000 shares as
   adjusted ($0.01 par value); issued and outstanding--
   18,836,297 shares actual and none as adjusted.......... $37,398    $   --
  Common stock, $0.01 par value: authorized--60,000,000
   shares actual and 120,000,000 shares as adjusted;
   issued and outstanding--6,704,798 shares actual and
   30,541,095 shares as adjusted..........................      67        305
  Additional paid-in capital..............................  22,741    105,101
  Deferred compensation................................... (18,768)   (18,768)
  Unrealized loss on investments..........................     (40)       (40)
  Accumulated deficit..................................... (10,564)   (10,564)
                                                           -------    -------
Total stockholders' equity................................ $30,834    $76,034
                                                           =======    =======
</TABLE>

   The outstanding share information excludes the shares issuable upon exercise
of the options and warrants referred to in the paragraph following the table
under "Prospectus Summary--The Offering."

                                       18
<PAGE>

                                    DILUTION

   Our pro forma net tangible book value as of March 31, 2000 was $30.8
million, or $1.20 per share. Pro forma net tangible book value per share
represents the amount of our total tangible assets reduced by the amount of our
total liabilities and divided by the total number of shares of common stock
outstanding after giving effect to the automatic conversion of our convertible
preferred stock. Dilution in pro forma net tangible book value per share
represents the difference between the amount per share paid by purchasers of
shares of common stock in this offering and the pro forma net tangible book
value per share of common stock immediately after the completion of this
offering. After giving effect to the sale of the shares of common stock offered
by us at an assumed initial public offering price of $10.00 per share, and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book
value as of March 31, 2000 would have been approximately $76.0 million or
$2.49 per share of common stock. This represents an immediate increase in
pro forma net tangible book value of $1.29 per share to existing stockholders
and an immediate dilution of $7.51 per share to new investors of common stock.
The following table illustrates this dilution on a per share basis:

<TABLE>
   <S>                                                             <C>   <C>
   Assumed initial public offering price per share................       $10.00
     Pro forma net tangible book value per share as of March 31,
      2000........................................................ $1.20
     Increase per share attributable to new investors.............  1.29
                                                                   -----
   Pro forma net tangible book value per share after this
    offering......................................................         2.49
                                                                         ------
   Dilution per share to new investors............................       $ 7.51
                                                                         ======
</TABLE>

   The following table summarizes, on a pro forma basis after giving effect to
the offering (based on an assumed initial public offering price of $10.00 per
share), as of March 31, 2000, the differences between the existing stockholders
and new investors with respect to the number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share paid:

<TABLE>
<CAPTION>
                            Shares Purchased  Total Consideration
                           ------------------ ------------------- Average Price
                             Number   Percent   Amount    Percent   Per Share
                           ---------- ------- ----------- ------- -------------
   <S>                     <C>        <C>     <C>         <C>     <C>
   Existing stockholders.. 25,541,095    84%  $39,940,480    44%     $ 1.56
   New investors..........  5,000,000    16%   50,000,000    56%     $10.00
                           ----------   ---   -----------   ---
     Total................ 30,541,095   100%  $89,940,480   100%
                           ==========   ===   ===========   ===
</TABLE>

   The foregoing discussion and tables are based upon the number of shares
actually issued and outstanding on March 31, 2000 and assume no exercise of the
options and warrants then outstanding, which are referred to in the first
paragraph following the table under "Prospectus Summary--The Offering".
Assuming the exercise of all of these options and warrants, the number of
shares purchased by existing shareholders would be 26,516,763, or 84%, the
total consideration paid by existing shareholders would be $40,297,512, or 45%,
for an average price per share of $1.52 and the dilution per share to new
investors would be $7.58.

                                       19
<PAGE>

                         SELECTED FINANCIAL INFORMATION
                     (in thousands, expect per share data)

   The statement of operations data set forth below for the period from April
28, 1998 (inception) to December 31, 1998 and for the year ended December 31,
1999 and the balance sheet data at December 31, 1998 and 1999 are derived from
our financial statements that have been audited by Ernst & Young LLP, which are
included elsewhere in this prospectus, and are qualified by reference to those
financial statements. The data for the three months ended March 31, 1999 and
2000 and at March 31, 2000 are derived from unaudited financial statements
included elsewhere in this prospectus. We have prepared this unaudited
information on the same basis as the audited financial statements and have
included all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of our financial position at such
date and our operating results for these periods. You should read the selected
financial information set forth below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and related notes appearing elsewhere in this
prospectus.

<TABLE>
<CAPTION>
                                      Period from
                                       April 28,
                                          1998                   Three months
                                      (inception)                   ended
                                        through     Year ended    March 31,
                                      December 31, December 31, ---------------
                                          1998         1999      1999    2000
                                      ------------ ------------ ------  -------
                                                                 (Unaudited)
<S>                                   <C>          <C>          <C>     <C>
Statement of Operations Data:
Grant and collaborative revenue.....    $   --       $   474    $   42  $    83
                                        -------      -------    ------  -------
  Total revenue.....................        --           474        42       83
Operating expenses:
 Selling, general and administrative
  (exclusive of stock based
  compensation).....................        345        1,349       164      615
 Research and development (exclusive
  of stock based compensation)......        771        4,085       720    2,680
 Amortization of deferred
  compensation, and other non-cash
  compensation charges..............         78          958       100    1,186
                                        -------      -------    ------  -------
  Total operating expenses..........      1,194        6,392       984    4,481
                                        -------      -------    ------  -------
Operating loss......................     (1,194)      (5,918)     (942)  (4,398)
Interest income, net................         48          400        99      497
                                        -------      -------    ------  -------
Net loss............................    $(1,146)     $(5,518)   $ (843) $(3,901)
                                        =======      =======    ======  =======
Historical net loss per share, basic
 and diluted........................    $ (1.71)     $ (3.91)   $(1.21) $ (2.31)
                                        =======      =======    ======  =======
Historical weighted average shares
 outstanding........................        669        1,410       696    1,686
Pro forma net loss per share........                 $ (0.40)           $ (0.25)
                                                     =======            =======
Pro forma weighted average shares
 outstanding........................                  13,697             15,701
</TABLE>

<TABLE>
<CAPTION>
                                                      As of
                                                   December 31,  March 31,
                                                   1998   1999     2000
                                                  ------ ------- ---------
                                                                  (Unaudited)
<S>                                               <C>    <C>     <C>       <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
 investments..................................... $8,234 $33,088  $32,717
Working capital..................................  8,231  32,881   32,392
Total assets.....................................  8,557  33,895   34,430
Deferred revenue.................................    --    1,250    2,500
Convertible preferred stock......................  9,398  37,398   37,398
Stockholders' equity.............................  8,380  32,032   30,834
</TABLE>

   See our financial statements for a description of the computation of
historical and pro forma net loss per share and the number of shares used in
the historical and pro forma per share calculations in "Statement of Operations
Data" above.

                                       20
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with "Selected Financial Data" and
our financial statements and related notes included elsewhere in this
prospectus. In addition to historical information, the discussion and analysis
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated by these forward-
looking statements due to factors including, but not limited to, those factors
set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

   We were founded and began operations in April 1998. We are developing next-
generation tools that will permit the large-scale analysis of genetic variation
and function. To date, we have generated revenues primarily from government
grants from the National Institutes of Health. We have entered into a strategic
partnership with PE Biosystems and research collaborations with Dow Chemical,
Third Wave Technologies and PyroSequencing. We expect to commercialize our
first products in 2001 in partnership with PE Biosystems. We have not entered
into any commercial agreements with our research collaborators, but we may do
so in the future.

   We have dedicated substantial resources to the development of our
proprietary technologies. We have designed our technologies to provide the
throughput, cost effectiveness and flexibility necessary to investigate and
understand genetic variation and function on the large scale necessary to
extract medically valuable information from raw genetic data.

   Our revenues are primarily attributable to research funding. We recognize
revenues related to research funding as we incur related research and
development expenses. Our strategic partners often pay us before we recognize
the related revenues, and we defer these payments until we earn them. As of
March 31, 2000, we had deferred revenue of $2.5 million.

   We have incurred substantial operating losses since our inception. As of
March 31, 2000, our accumulated deficit was $10.6 million, and total
stockholders' equity was $30.8 million. We expect to incur additional operating
losses over the next several years as we continue to fund internal research and
development, develop our technologies and commercialize products based on those
technologies.

Results of Operations

Comparison of Three Months Ended March 31, 1999 and 2000

 Revenue

   Revenue for the three months ended March 31, 1999 and 2000 were $42,233 and
$83,205, respectively. Government grants accounted for 100% and 89% of our
total revenue for the three months ended March 31, 1999 and 2000, respectively.

 Research and Development Expenses

   Our research and development expenses consist primarily of salaries and
other personnel-related expenses, facility costs and supplies. Research and
development expenses increased $2.0 million to $2.7 million for the three
months ended March 31, 2000, from $0.7 million for the three months ended March
31, 1999. Stock based compensation related to research and development
employees and consultants increased $0.7 million to $0.8 million for the three
months ended March 31, 2000 from approximately $85,000 for the three months
ended March 31, 1999. These increases were primarily due to increased staffing
and other personnel-related costs to support our

                                       21
<PAGE>

BeadArray technology. We expect that our research and development expenses will
increase substantially to support our collaborative research programs, internal
product research and development and technology development.

 General and Administrative Expenses

   Our general and administrative expenses consist primarily of personnel costs
for finance, human resources, business development and general management, as
well as professional fees, such as expenses for legal and accounting services.
General and administrative expenses increased $0.4 million to $0.6 million for
the three months ended March 31, 2000 from $0.2 million for the three months
ended March 31, 1999. Stock based compensation related to general and
administrative employees, directors and consultants increased $0.4 million to
$0.4 million for the three months ended March 31, 2000 from approximately
$16,000 for the three months ended March 31,1999. These increases were
primarily attributable to an increase in staffing necessary to manage and
support our growth. We expect that our general and administrative expenses will
increase as we expand our legal and accounting staff, add infrastructure and
incur additional costs to support our growth and requirements as a public
company.

 Amortization of Deferred Compensation and Other Non-Cash Compensation Charges

   In connection with the grant of stock options and sale of restricted common
stock to employees, founders and directors, we recorded deferred compensation
of approximately $0.3 million and $12.6 million for the three months ended
March 31, 1999 and 2000, respectively. We recorded this amount as a component
of stockholders' equity and will amortize the amount as a charge to operations
over the vesting period of the stock and options. We recorded amortization of
this deferred compensation of approximately $48,000 and $0.8 million for the
three months ended March 31, 1999 and 2000, respectively. We recorded an
additional $52,000 and $0.3 million of expense related to restricted common
stock sold to consultants for the three months ended March 31, 1999 and 2000,
respectively, which was expensed as our rights to repurchase the common stock
lapsed.

   For employees, founders and directors, deferred compensation represents the
difference between the exercise price of the option or purchase price of the
stock and the deemed fair value of our common stock on the date of grant in
accordance with Accounting Principles Board Opinion No. 25 and its related
interpretations. For consultants, deferred compensation is recorded at the fair
value for the options granted or stock sold in accordance with Statement of
Financial Accounting Standards No. 123 and Emerging Issues Task Force No. 96-
18.

   We recognize compensation expense over the vesting period for employees,
founders and directors, using an accelerated amortization methodology in
accordance with Financial Accounting Standards Board interpretation No. 28. In
February 2000, we modified all our consultant agreements to include assurances
that the contracts would be fulfilled. In accordance with these modifications,
we recorded additional deferred compensation of $3.0 million as a component of
stockholders' equity and will amortize this amount as a charge to operations
over the vesting period of the stock and options. We recorded amortization of
this deferred compensation of approximately $80,000 for the three months ended
March 31, 2000.

 Other Income

   Other income, net of expenses, primarily consists of interest income, net of
interest expense. Interest income, which represents income earned on our cash
and cash equivalents and investments, was $0.5 million for the three months
ended March 31, 2000 as compared to $0.1 million for the three months ended
March 31, 1999. Changes in interest income were due primarily to changes in our
average cash and investment balances during these periods. There was no
interest expense in either period.

                                       22
<PAGE>

Comparison of Years Ended December 31, 1998 and 1999

 Revenue

   Revenue for the year ended December 31, 1999 was $0.5 million, 92% of which
was from government grants. We had no revenue for the period from our inception
on April 28, 1998 through December 31, 1998.

 Research and Development

   Research and development expenses increased $3.2 million to $4.0 million for
the year ended December 31, 1999, from $0.8 million for the period from our
inception on April 28, 1998 through December 31, 1998. Stock based compensation
related to research and development employees and consultants increased $0.5
million to $0.6 million for the year ended December 31, 1999 from approximately
$62,000 for the period from our inception on April 28, 1998 through December
31, 1998. These increases were primarily due to increased staffing and other
personnel costs to support the development of our technologies.

 General and Administrative Expenses

   General and administrative expenses increased $1.0 million to $1.3 million
for the year ended December 31, 1999 from $0.3 million for the period from our
inception on April 28, 1998 through December 31, 1998. Stock based compensation
related to general and administrative employees, directors and consultants
increased $0.3 million to $0.3 million for the year ended December 31, 1999
from approximately $16,000 for the period from our inception on April 28, 1998
through December 31, 1998. These increases were primarily attributable to an
increase in staffing necessary to manage and support our growth.

 Amortization of Deferred Compensation and Other Non-Cash Compensation Charges

   In connection with the grant of stock options and sale of restricted common
stock to employees, founders and directors, we recorded deferred compensation
of approximately $0.3 million and $4.3 million for the period from our
inception on April 28, 1998 through December 31, 1998 and the year ended
December 31, 1999, respectively. We recorded this amount as a component of
stockholders' equity and will amortize the amount as a charge to operations
over the vesting period of the stock and options. We recorded amortization of
this deferred compensation of approximately $33,000 and $0.6 million for the
period from our inception on April 28, 1998 through December 31, 1998 and the
year ended December 31, 1999, respectively. We recorded an additional $45,000
and $0.4 million of expense related to restricted common stock sold to
consultants for the period from our inception on April 28, 1998 through
December 31, 1998 and the year ended December 31, 1999, respectively, which is
expensed as our rights to repurchase the common stock lapse.

 Other Income

   Interest income was $0.4 million for the year ended December 31, 1999 as
compared to $48,000 for the period from our inception on April 28, 1998 through
December 31, 1998. Interest expense was $48,000 for the year ended December 31,
1999. There was no interest expense for the period from our inception on
April 28, 1998 through December 31, 1998.

 Provision for Income Taxes

   We incurred net operating losses for the period from our inception on April
28, 1998 through December 31, 1998 and the year ended December 31, 1999, and
accordingly, we did not pay any federal or state income taxes. As of December
31, 1999, we had net operating loss carryforwards for federal tax purposes of
approximately $5.1 million, which begin to expire in 2018.

                                       23
<PAGE>

   As of December 31, 1999, we had net operating loss carryforwards for state
tax purposes of approximately $5.3 million, which begin to expire in 2006. We
also had federal and state research and development tax credit carryforwards of
approximately $0.3 million and $0.2 million, respectively, which begin to
expire in 2018, unless previously utilized.

   Our utilization of the net operating losses and credits may be subject to
substantial annual limitations pursuant to Section 382 and 383 of the Internal
Revenue Code, and similar state provisions, as a result of changes in our
ownership structure. These annual limitations may result in the expiration of
net operating losses and credits prior to utilization.

Liquidity and Capital Resources

   Since inception, we have financed our business primarily through private
placements of preferred stock with net proceeds of $37.4 million, and funding
from strategic partners and government grants. As of March 31, 2000, we had
cash, cash equivalents and investments of approximately $32.7 million. We
currently invest our funds in U.S. investment-grade corporate debt securities
with maturities not exceeding 18 months.

   Our operating activities used cash of $1.1 million and $2.9 million in the
period from our inception on April 28, 1998 through December 31, 1998 and the
year ended December 31, 1999 respectively, and $0.8 million and $0.7 million in
the three months ended March 31, 1999 and 2000, respectively. Our use of cash
for these periods primarily resulted from our losses from operations offset by
receipt of funding from collaborators.

   Our investing activities used cash of $12.3 million in the year ended
December 31, 1999, and $5.3 million and $6.3 million in the three months ended
March 31, 1999 and 2000, respectively, substantially all of which consisted of
purchases of investment securities. We had minimal investing activities in the
period from our inception on April 28, 1998 through December 31, 1998.

   Our financing activities provided $9.3 million, $28.1 million and $0.9
million in the period from our inception on April 28, 1998 through December 31,
1998, the year ended December 31, 1999 and the three months ended March 31,
2000, respectively. We had minimal financing activities in the three months
ended March 31, 1999. Our financing activities have consisted primarily of the
sale of stock to both private investors and strategic partners.

   We lease our primary office facility under an operating lease with options
to renew under varying terms. In addition, we entered into a $1 million lease
financing arrangement with a lease financing corporation in October 1998. As of
December 31, 1999, we had utilized all funds available under this lease
agreement. At March 31, 2000, the total of annual future minimum lease payments
under these lease arrangements was $1.1 million. In April 2000, we entered into
a $3 million loan arrangement to be used at our discretion to finance purchases
of capital equipment, $1.7 million of which remains available.

   Our existing facility lease will expire in August 2001. We are currently in
negotiations to lease an additional 20,000 square feet in the same facility,
through August 2002. We have signed a lease to rent a total of 97,000 square
feet in two buildings that will be constructed over the next year. The lease
contains an option to purchase the buildings together with additional land on
the same site. The lease will not become effective until the developer obtains
a firm written commitment for financing, at which time we would be obligated to
provide funding of approximately $6 million, in the form of an interest
bearing, secured loan with a term of approximately one year. In addition, we
would be obligated to provide a secured letter of credit of approximately $3
million.

   We expect that the proceeds from this offering, combined with our current
cash and cash equivalents, investments and funding from existing strategic
alliances and grants will be sufficient to fund our anticipated operating needs
for at least the next 24 months. However, our future capital requirements and
the adequacy of our available funds will depend on many factors, including
scientific progress in our research and development programs, the magnitude of
those programs,

                                       24
<PAGE>

competing technological and market developments and our ability to successfully
commercialize our first products in partnership with PE Biosystems and to
establish additional strategic relationships. Therefore, we may require
additional funding within this time frame and the additional funding, if
needed, may not be available on terms that are acceptable to us, or at all.
Further, any additional equity financing may be dilutive to our then existing
stockholders and may adversely affect their rights.

Recently Issued Accounting Standards

   SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
will be effective January 1, 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
derivative instruments imbedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. We believe the
adoption of SFAS No. 133 will not have an effect on our financial statements
because we do not engage in derivative or hedging activities.

Quantitative and Qualitative Disclosure about Market Risk

   Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay with respect to our various outstanding debt instruments.
Our risk associated with fluctuating interest expense is limited, however, to
our capital lease obligations, the interest rates under which are closely tied
to market rates, and our investments in interest rate sensitive financial
instruments. Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes. We ensure the safety
and preservation of our invested principal funds by limiting default risk,
market risk and reinvestment risk. We mitigate default risk by investing in
investment grade securities. A hypothetical 100 basis point adverse move in
interest rates along the entire interest rate yield curve would not materially
affect the fair value of our interest sensitive financial instruments. Declines
in interest rates over time will, however, reduce our interest income while
increases in interest rates over time will increase our interest expense.

                                       25
<PAGE>

                                    BUSINESS

Overview

   We are developing next-generation tools that will permit the large-scale
analysis of genetic variation and function. The information provided by these
analyses will enable the development of personalized medicine, a key goal of
genomics. Our proprietary BeadArray technology will provide the throughput,
cost effectiveness and flexibility necessary to enable researchers in the life
sciences and pharmaceutical industries to perform the billions of tests
necessary to extract medically valuable information from advances in genomics.
This information will correlate genetic variation and gene function with
particular disease states, enhancing drug discovery, allowing diseases to be
detected earlier and more specifically, and permitting better choices of drugs
for individual patients. Our technology will have applicability across a wide
variety of industries beyond life sciences and pharmaceuticals, including
agriculture, food, chemicals and petrochemicals.

The Importance of SNPs, Gene Expression and Proteomics in Modern Medical
Research

 Background on Genes and Proteins

   The human body is composed of billions of cells each containing
deoxyribonucleic acid, or DNA, which encodes the basic instructions for
cellular function. The complete set of an individual's DNA is called the
genome, and is organized into 23 pairs of chromosomes, which are further
divided into over 100,000 smaller regions called genes. Each cell uses or
expresses only those genes required for its specific functions. Each gene is
comprised of a string of four types of nucleotide bases, known as A, C, G and
T. Human DNA has approximately 3 billion nucleotides and their precise order is
known as the DNA sequence. When a gene is expressed, a copy of its DNA
sequence, called messenger RNA, or mRNA, is used as a template to direct the
synthesis of a protein. Proteins direct cell function and ultimately the
development of individual traits. Any variation in any part of a gene, called a
polymorphism, may result in a change in cell function leading to disease.

 Genetic Variation and Function

   Every person inherits two copies of each gene, one from each parent. The two
copies of each gene may be identical, or they may be different. These
differences are referred to as genetic variation. Examples of the physical
consequences of genetic variation include differences in eye and hair color.

   Genetic variation can also have important medical consequences, including
predisposition to disease and differential response to drugs. Genetic variation
affects diseases, including cancer, diabetes, cardiovascular disease and
Alzheimer's disease. In addition, genetic variation may cause people to respond
differently to the same drug. Some people may respond well, others may not
respond at all, and still others may experience adverse side effects.

   The most common form of genetic variation is a Single Nucleotide
Polymorphism, or SNP. A SNP is a variation in a single position in a DNA
sequence. It is estimated that the human genome contains between three and six
million SNPs. The importance of SNPs is illustrated by the recent formation of
the SNP Consortium, which includes nine major pharmaceutical companies,
chartered to discover an initial set of approximately 300,000 SNPs.

   While in some cases a single SNP will be responsible for medically important
effects, it is now believed that the genetic component of most major diseases
is the result of the interaction of many SNPs. Therefore, it will be important
to investigate many SNPs together in order to discover medically valuable
information.

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<PAGE>

   In addition to the knowledge gained from the analysis of SNPs, the study of
gene function will significantly contribute to clinical diagnosis and
treatment. This study focuses on the physiological functions that are affected
by medically relevant SNPs.

   Current efforts to understand genetic variation and function have centered
around three principal techniques: SNP genotyping, gene expression profiling
and proteomics.

 SNP Genotyping

   SNP genotyping is the process of determining which SNPs are present in each
of the two copies of a gene, or other portion of DNA sequence, within an
individual or other organism. The use of SNP genotyping to obtain meaningful
statistics on the effect of an individual SNP or a collection of SNPs, and to
apply that information to clinical trials and diagnostic testing, will require
the analysis of millions of SNP genotypes and the testing of large populations
for each disease. For example, a single large clinical trial could involve
genotyping 300,000 SNPs per patient in 1,000 patients, thus requiring
300 million assays. Using available technologies, this scale of SNP genotyping
is both impractical and prohibitively expensive.

   Large-scale SNP genotyping, when commercially feasible, will be used for a
variety of applications, including genomics-based drug development, clinical
trial analysis, disease predisposition testing, and disease diagnosis. SNP
genotyping can also be used outside of healthcare, for example in the
development of plants and animals with desirable commercial characteristics.
These markets will require billions of SNP genotyping assays annually.

 Gene Expression Profiling

   Gene expression profiling is the process of determining which genes are
active in a specific cell or group of cells and is accomplished by measuring
mRNA, the intermediary between genes and proteins. Variation in gene expression
can cause disease, or act as an important indicator of disease or
predisposition to disease. By comparing gene expression patterns between cells
from different environments, such as normal tissue compared to diseased tissue
or in the presence or absence of a drug, specific genes or groups of genes that
play a role in these processes can be identified. Studies of this type, used in
drug discovery, require monitoring thousands, and preferably tens of thousands,
of mRNAs in large numbers of samples. The high cost of large-scale gene
expression profiling has limited the development of the gene expression
profiling market.

   Once gene expression patterns have been correlated to specific diseases,
gene expression profiling is expected to become an important diagnostic tool.
Diagnostic use of expression profiling tools is anticipated to grow rapidly
with the combination of the sequencing of various genomes and the availability
of more cost-effective technologies.

 Proteomics

   Proteomics is the process of determining which proteins are present in cells
and how they interact with one another. Proteomics is another method of
correlating the molecular state of a cell with disease or reaction to a
stimulus such as a drug. This market remains undeveloped, as low cost, accurate
technologies for analysis have not been available. We expect that proteomics
will become valuable in drug discovery research as the technologies improve and
that array technology will be critical in facilitating the growth of this
market.

                                       27
<PAGE>

Current Technologies and Their Limitations

   There are currently a variety of technologies available for analyzing
genetic variation and function. These technologies lack the combination of high
throughput, cost effectiveness and flexibility necessary to adequately address
the rapidly evolving markets of SNP genotyping, gene expression profiling and
proteomics. These technologies can be classified into three distinct groups:

   Traditional Technologies. Traditional technologies perform assays
individually, or serially. Serial processing is an inherent limitation to assay
throughput. These technologies often require relatively large sample volumes,
adding significantly to the costs of the assays. Most of them have limited
flexibility to perform different applications. Examples of traditional
technologies include 2D electrophoresis, capillary electrophoresis, mass
spectrometry and flow cytometry.

  .  2D Electrophoresis. Two-dimensional electrophoresis, or 2D
     electrophoresis, separates proteins on the basis of molecular
     characteristics and is the traditional method for detecting the presence
     of proteins. This process separates large numbers of proteins within a
     sample, but has poor reproducibility and requires an additional process
     to identify particular proteins.

  .  Capillary Electrophoresis. Capillary electrophoresis is a process for
     separating DNA in glass tubes and can be applied to SNP genotyping.
     While recent advances that include multiple capillaries have improved
     throughput, this technology is still fundamentally serial in nature, and
     thus has low throughput for genotyping applications. It also uses large
     sample sizes, contributing to assay cost.

  .  Mass Spectrometry. Mass spectrometry, a process that uses a
     sophisticated instrument to measure molecular weight, has recently been
     applied to SNP genotyping and proteomics. Provided sample preparation
     and purification are successful, the sample read out is accurate.
     However, as another serial detection process, mass spectrometry has
     limited throughput compared to array technologies and requires expensive
     instrumentation.

  .  Flow Cytometry. Flow cytometry, a technique for counting cells, has been
     modified for use in SNP genotyping and proteomics. For these
     applications, beads flow past a detector one bead at a time. While flow
     cytometry is a somewhat flexible and inexpensive technology, it has low
     throughput compared to array technologies because it analyzes SNPs and
     proteins serially. Moreover, flow cytometry can only perform a limited
     number of tests per bead pool.

   Microfluidics. Microfluidics, a process for miniaturizing the scale of
experimentation, offers some improvement over traditional techniques, although
it remains a largely serial process with only moderate throughput compared to
array technologies. Although multiple applications are possible using
microfluidic systems, the practical implementation of applications using these
systems is challenging.

   Arrays. Arrays, which perform assays in parallel, were developed to achieve
the high throughput required for large-scale genetic analysis. The spacing
between test sites in an array defines the array's density. Higher density
increases parallel processing. In addition to increasing the throughput, higher
density reduces the required sample volume, and thereby lowers costs. Arrays
offer parallel processing by performing multiple assays per sample
simultaneously. However, they currently lack the ability to test multiple
samples simultaneously, one more level of parallel processing necessary for
large-scale genetic analysis. These array technologies also have limited
applications outside of SNP genotyping and gene expression profiling.
Manufacturing limitations have further prevented arrays from reaching their
full potential. There are a number of current methodologies for manufacturing
arrays, including mechanical deposition, inkjet printing and photolithography,
each with its own set of limitations.

                                       28
<PAGE>

  .  Mechanical Deposition. This method of manufacturing arrays has centered
     around creating test sites by mechanically depositing material on a flat
     surface. These arrays can be easily modified and are relatively
     inexpensive. However, it is difficult to put the test sites close
     together, resulting in relatively low-density arrays that have limited
     throughput. In addition, the arrays cannot be mass produced and because
     they are made individually, they may vary in quality.

  .  Inkjet Printing. Inkjet printing is a new method for manufacturing
     arrays that deposits DNA on a surface in a manner similar to the way an
     inkjet printer deposits ink on paper. Although these arrays are
     flexible, they are unlikely to be used for large-scale genetic analysis
     because they are difficult to mass produce.

  .  Photolithography. Photolithography uses a process similar to
     semiconductor manufacturing to synthesize DNA on a surface. Test sites
     can be placed closer together using this process, creating high-density
     arrays, thereby increasing assay throughput. However, the
     photolithographic process requires very expensive capital equipment and
     has expensive tooling that greatly limits the ability to modify arrays.

   Traditional technologies, microfluidics and arrays all use various
chemistries to perform assays in SNP genotyping, gene expression profiling and
proteomics. The specific chemistries and techniques used to perform an assay,
known as an assay format, can be deployed using one or more of the above
technologies. Often, assay formats are designed to perfom only one test per
well of a microtiter plate, resulting in low throughput and adding
significantly to expense.

   Thus, while numerous technologies and assay formats are being applied to SNP
genotyping, gene expression and proteomics, growth of these markets is
currently limited by the absence of a cost-effective technology that enables
billions of assays to be carried out annually.

Illumina's Solution

   Illumina has developed a proprietary array technology that enables the
large-scale analysis of genetic variation and function. Our BeadArray
technology combines fiber optic bundles and microscopic beads in a simple
proprietary manufacturing process to produce array cassettes that can perform
up to 3 million assays simultaneously. Our BeadArray technology provides a
unique combination of high throughput, cost effectiveness, and flexibility. We
achieve high throughput with a high density of test sites per array and our
ability to format arrays in a pattern arranged to match the wells of standard
microtiter plates. We maximize cost effectiveness by reducing consumption of
expensive reagents and valuable samples, and from the low manufacturing costs
associated with our complementary technologies. Our ability to vary the size,
shape and format of the fiber optic bundles and to create specific beads for
different applications provides the flexibility to address multiple markets and
market segments. We believe that these features will enable our BeadArray
technology to become a leading platform for the emerging high-growth markets of
SNP genotyping, gene expression profiling and proteomics.

Illumina's Strategy

   Our goal is to make our BeadArray platform the industry standard for
products and services using array technologies. We plan to achieve this by:

 Focusing on Emerging High-Growth Markets

   We are initially focusing on the SNP genotyping, gene expression profiling
and proteomics markets. We believe these markets have the potential for high
growth due to increasing demand for therapeutics and diagnostics based on newly
available genomic information. To date, the lack of high-throughput, cost-
effective technologies has limited the growth of these markets.

                                       29
<PAGE>

 Rapidly Commercializing Our BeadArray Technology for SNP Genotyping

   We intend to rapidly commercialize our BeadArray technology for SNP
genotyping through partnerships. Our first partner, PE Biosystems, contributes
extensive expertise in instrument and reagent development, as well as a large
and experienced worldwide sales and marketing team. We believe that the
combination of our BeadArray technology with PE Biosystems' leadership position
in the genetic analysis market will enable us to capture a significant portion
of the SNP genotyping market.

 Partnering With Multiple Companies To Expand Our Market Opportunity

   We plan to pursue multiple partnerships to facilitate the expansion of our
BeadArray and Oligator technologies and to exploit large and diverse markets.
We expect to enter into partnerships and collaborations to gain access to
complementary technologies, distribution channels and information content. We
intend to structure partnerships that maximize our long-term commercial benefit
by maintaining control of our technologies.

 Expanding Our Technologies into Multiple Product Lines

   We intend to utilize the flexibility of our BeadArray and Oligator
technologies to develop multiple product lines. In addition to providing new
sources of revenue, we believe these product lines will further our goal of
establishing our BeadArray technology as the industry standard for array-based
analysis. We expect these product lines to include a lower-throughput array
system, handheld instruments, and a high capacity BeadArray system that will
allow more simultaneous assays per sample. We intend to expand our Oligator
technology by continuing to increase the capacity and cost effectiveness of our
instrumentation.

 Strengthening Our Technological Leadership

   We plan to continue advancing our proprietary technologies through our
internal research efforts, collaborations with industry leaders and strategic
licensing. We may also pursue opportunistic acquisitions of complementary
technologies and leverage our technologies into other value-added businesses.

Illumina's Technology


 BeadArray Technology

   Our proprietary BeadArray technology combines fiber optic bundles and
specially prepared beads that self-assemble into an array.

   Fiber Optic Bundles. We have the fiber optic bundles manufactured to our
specifications, which we cut into lengths of less than one inch. Each bundle
contains thousands to millions of individual fibers depending on the size of
the bundle. For example, a fiber optic bundle with a diameter of approximately
one millimeter could contain up to 50,000 individual fibers. Dipping the fiber
optic bundles into a chemical solution etches a microscopic well at the end of
each individual fiber within a bundle. In the preceding example, this process
would create 50,000 microscopic wells per bundle.

   Microscopic Beads. In a separate process, we create sensors by affixing a
specific type of molecule to each of the billions of microscopic beads in a
batch. We make different batches of beads, with the beads in a given batch
coated with one particular type of molecule. The particular molecules on a bead
define that bead's function as a sensor. For example, we create a batch of SNP
sensors by attaching a particular DNA sequence to each bead in the batch. We
combine batches of coated beads to form a pool specific to the type of array we
intend to create. A bead pool one milliliter in volume contains sufficient
beads to produce thousands of arrays.

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<PAGE>

BeadArray Sensors: Coating, Pooling and Self-Assembly

             [GRAPHIC DESCRIPTION OF BEADARRAY SENORS APPEARS HERE]

   Array Self-Assembly and Decoding. To form an array we typically dip each
fiber optic bundle into a pool of coated beads. The coated beads are drawn into
the wells, one bead per well, on the end of each fiber in the bundle. We call
this process self-assembly. The tens of thousands of beads at the end of the
fiber optic bundle comprise our BeadArray. Because the beads assemble randomly
into the wells, we perform a final procedure called decoding in order to
determine which bead type occupies which well in the array. We employ several
proprietary methods for decoding, a process that requires only a few steps to
identify all the beads in the array. One beneficial by-product of the decoding
process is a validation of each bead in the array. This quality control test
characterizes the performance of each bead and can identify and eliminate use
of any empty wells. We ensure that each bead type on the array is sufficiently
represented by having multiple copies of each bead type. This improves the
reliability and accuracy of the resulting data by allowing statistical
processing of the results of identical beads.

   Array Use in Experiments. One performs an experiment on the BeadArray by
preparing a sample, such as DNA from a patient, and introducing it to the
array. The design features of our BeadArray allow it to be simply dipped into a
solution containing the sample. The molecules in the sample bind to their
matching molecules on the coated bead. An analytical instrument detects the
matched molecules by shining a laser through the fiber optic bundle. Since the
molecules in the sample have a structure that causes them to emit light in
response to a laser, detection of a binding event is possible. This allows the
measurement of the number of molecules bound to each coated bead, resulting in
a quantitative analysis of the sample.

 Oligator Technology

   Genomic applications require many different short pieces of DNA that can be
made synthetically, called oligonucleotides. For example, SNP genotyping
typically requires three to four different oligonucleotides per assay. A SNP
genotyping experiment analyzing 10,000 SNPs may therefore require 30,000 to
40,000 different oligonucleotides, contributing significantly to the expense of
the experiment.

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<PAGE>

   We have designed our proprietary Oligator technology for the parallel
synthesis of many different oligonucleotides to meet the requirements of large-
scale genomics applications. We believe that our Oligator technology is
substantially more cost effective and provides higher throughput than available
commercial alternatives. Our technology utilizes centrifugation for the
automated parallel synthesis of 768 different oligonucleotides per machine per
day. Using a similar approach, we expect to develop instruments in the future
with substantially greater capacity.

 Key Advantages of Our BeadArray and Oligator Technologies

   We believe that our BeadArray and Oligator technologies provide distinct
advantages, in a variety of applications, over competing technologies, by
creating cost-effective, highly miniaturized arrays with the following
advantages:

   High Throughput. The miniaturization of our BeadArray provides a
significantly greater information content per unit area than any other array
known to us. To further increase throughput, we have formatted our arrays in a
pattern arranged to match the wells of standard microtiter plates, allowing
throughput levels of up to 3 million unique assays per microtiter plate. The
Oligator's parallel synthesis capability allows us to manufacture the diversity
of oligonucleotides necessary to support large-scale genomic applications.

   Cost Effectiveness. Our BeadArray substantially reduces the cost of
experiments as a result of our proprietary manufacturing process and our
ability to capitalize on cost reductions generated by advances in fiber optics,
digital imaging and bead chemistry. In addition, our miniaturized BeadArray
requires smaller volumes than other array technologies, and therefore reduces
reagent costs. Our Oligator technology further reduces reagent costs, as well
as the cost of coating beads.

   Flexibility. A wide variety of conventional chemistries are available for
attaching different molecules, such as DNA, RNA, proteins, and other chemicals
to beads. By using beads, we are able to take advantage of these chemistries to
create a wide variety of sensors, which we assemble into arrays using the same
proprietary manufacturing process. In addition, we can have fiber optic bundles
manufactured in multiple shapes and sizes and organized in various arrangements
to optimize them for different markets and market segments. In combination, the
use of beads and fiber optic bundles provides the flexibility and scalability
for our BeadArray technology to be tailored to perform many applications in
many different market segments, from drug discovery to diagnostics. Our
Oligator technology allows us to manufacture a wide diversity of lengths and
quantities of oligonucleotides.

   Accuracy. The high density of beads in each array enables us to have
multiple copies of each individual bead type. We measure the copies
simultaneously and combine them into one data point. This allows us to make a
comparison of each bead against its own population of identical beads, which
permits the statistical calculation of a more reliable and accurate value for
each data point. Finally, the manufacture of the array includes a proprietary
decoding step that also functions as a quality control test of every bead on
every array, improving the overall accuracy of the data.

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<PAGE>

Potential Fields of Application

   We believe that the demand for increased throughput will continue in genetic
analysis and will develop in new areas, including proteomics, high-throughput
screening and chemical detection. The parallel processing capabilities of our
BeadArray technology are applicable to the complex problems of many different
industries, including the following:

   Pharmaceutical Discovery and Development

   . Cost-effective, rapid methods for gene discovery and function
     characterization

   . Specific targeting of drug discovery efforts

   . Customized drugs for patients

   . Toxicological evaluation of potential drugs

   . High-throughput screening for pharmaceutical candidates

   Medicine

   . Diagnostic methods for identifying, classifying and staging diseases

   . Predictors of successful drug therapy for a particular patient

   . Early recognition of potential adverse response to drug therapy

   . Identification of predisposition to disease in order to prescribe
     preventative therapies

   Agriculture and Food Production

   . Development of plants and animals with desirable commercial
     characteristics

   . Evaluation of foods to ensure safety

   Chemical and Petrochemical

   . Process monitoring

   .  Leak detection and environmental monitoring

   Food, Beverage and Fragrance

   . Quality control monitoring

   . Identification of new products with appealing compositions

Products and Services

   The first implementation of our BeadArray technology, the Array of Arrays,
will be a disposable cassette with 96 fiber optic bundles arranged in a pattern
that matches the standard 96-well microtiter plate. Each fiber optic bundle
will perform approximately 2,000 unique assays. Therefore, one Array of Arrays
can perform approximately 192,000 individual assays simultaneously, more than
any other array system known to us.

   By simply increasing the number of fiber optic bundles in the cassette, we
will expand the Array of Arrays to match standard 384-well and 1,536-well
microtiter plates. In these configurations, the Array of Arrays will be able to
simultaneously perform approximately 768,000 and 3,072,000 unique assays,
respectively.

                                       33
<PAGE>

   We intend to provide both products and services using our proprietary
BeadArray platform. In partnership with PE Biosystems, we are developing our
first products based on our Array of Arrays. These products will include
disposable Array of Arrays, reagent kits for SNP genotyping and instruments
that automatically read data from our Array of Arrays. Our services may involve
partnerships for early access to our technology prior to its general commercial
release. In addition to early access, we may commercialize assay development
and genotyping services.

 SNP Genotyping

   We are designing our first product based on the Array of Arrays for SNP
genotyping. The first SNP genotyping assay format that we intend to
commercialize will be PE Biosystems' proprietary OLA ZipCode assay format. This
assay format enables the creation of a universal Array of Arrays that can be
used to analyze any set of SNPs. We expect to commercialize our first product
using this assay format in 2001. We plan to extend our BeadArray technology to
create products using other assay formats. We expect one or more of these
additional assay formats to be available on the Array of Arrays in 2002.

 Gene Expression Profiling

   We will design our first product for gene expression profiling to test
selected sets of approximately 100 to 2,000 genes on large numbers of samples.
We believe that there is currently a need for a cost-effective and high-
throughput gene expression profiling technology to analyze the activity of
selected sets of genes from many samples simultaneously. We expect our initial
products in gene expression profiling, based on the Array of Arrays combined
with specific assay formats, to be commercially available in 2001.

 High-Throughput Synthesis

   We plan to use our Oligator technology to build internal capacity to produce
millions of oligonucleotides per year. In addition to their use to coat beads,
these oligonucleotides may be components of the reagent kits for our BeadArray
products and used for assay development.

Areas of Exploration

   The increasing need for high-throughput experimentation will drive the use
of array technology into other potentially large emerging markets, including:

   Proteomics. We are currently investigating the use of our BeadArray
technology for the analysis of proteins. This application has the potential to
provide information that is complementary to gene expression profiling, because
many important cellular processes are regulated at the level of proteins rather
than at the level of genes. We have demonstrated the feasibility of carrying
out assays for the detection and analysis of proteins on the BeadArray.

   High-Throughput Screening. The synthesis of large libraries of chemicals and
their high-throughput screening for potential as drugs are core technologies in
drug development. These libraries contain more compounds than can be
effectively screened using available technologies. We have developed a strategy
for high-throughput screening using our BeadArray technology. We believe that
we may be able to miniaturize high-throughput screening significantly, increase
the throughput of screens, and increase the amount of information obtained for
each compound.

   Chemical Detection. We have demonstrated the use of our BeadArray technology
for the detection of chemicals. For this application, the BeadArray generates a
unique pattern for each chemical that it detects. Currently, we are working
with Dow Chemical to design a system to qualify

                                       34
<PAGE>

chemical solvents for use in manufacturing. We are exploring with Chevron the
possibility of using this system for the detection of leaks at gasoline
refineries. There are many other potential applications for this type of
detector such as quality control monitoring in the food, beverage and fragrance
industries.

Partnerships and Collaborations

   We have entered into the following strategic agreements with commercial
entities to expand the functionality of our BeadArray technology and to provide
distribution channels for the commercialization of our products and services:

   PE Biosystems, a Division of PE Corporation. In November 1999, we entered
into a partnership with PE Biosystems, a leading supplier of instruments and
reagents to the life sciences and pharmaceutical industries. Illumina and PE
Biosystems will jointly implement PE Biosystems' proprietary OLA ZipCode assay
format on Illumina's proprietary Array of Arrays initially for SNP genotyping.
We will develop and manufacture the Array of Arrays and PE Biosystems will
develop and manufacture the detection instrument and the reagent kits. PE
Biosystems and Illumina will co-brand products and PE Biosystems will
distribute them through their worldwide sales channels. Under the agreement,
Illumina has rights to use and sell the instruments developed in the
partnership for other applications.

   In connection with this partnership, PE Corporation invested $5 million to
purchase shares of our preferred stock and agreed to provide Illumina with
substantial research and development support over two years. Illumina and PE
Biosystems will divide the profits from all partnership products, including
instruments, array cassettes and reagent kits, after both parties have received
repayment for cost-of-goods, sales and marketing expenses, and ongoing research
and development expenses.

   The Dow Chemical Company. In June 1999, we entered into a research
collaboration with Dow Chemical to develop a BeadArray designed for the
identification of chemical solvents prior to entry into Dow Chemical's
manufacturing facilities. If successful, Dow Chemical could use our technology
as a rapid and reliable method for performing a quality control check on their
incoming raw materials. We retain all rights to commercialize any resulting
products.

   Third Wave Technologies, Inc. In December 1999, we entered into a research
collaboration with Third Wave Technologies to adapt their proprietary assay
format, called Invader, to our BeadArray platform. If the research
collaboration is successful, Illumina and Third Wave Technologies may negotiate
a commercialization agreement.

   PyroSequencing, Inc. In November 1999, we entered into a research
collaboration with PyroSequencing to adapt their proprietary assay format,
called PyroSequencing, to our BeadArray platform. Pyrosequencing provides
instrumentation and chemistry to perform DNA sequencing and SNP genotyping. If
the research collaboration is successful, Illumina and PyroSequencing may
negotiate a commercialization agreement.

   We also have entered into collaborations with Tufts University, The
Australian National University, Stanford University and The University of
California, San Diego to develop new applications for our BeadArray technology.

Intellectual Property

   We have an extensive patent portfolio, including ownership of, or exclusive
licenses to, 12 issued U.S. patents and 44 pending U.S. patent applications,
including two allowed applications, some of which derive from a common parent
application. Our issued patents, which cover fiber optic

                                       35
<PAGE>

arrays, bead array technology and chemical detection, expire between 2010 and
2017. We are seeking to extend this patent protection on our BeadArray,
Oligator and related technologies. We have received or filed counterparts for
many of these patents and applications in one or more foreign countries.

   We also rely upon copyright protection, trade secrets, know-how, continuing
technological innovation and licensing opportunities to develop and maintain
our competitive position. Our success will depend 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 BeadArray and Oligator technologies.

   We are party to various exclusive and non-exclusive license agreements with
third parties which grant us rights to use key aspects of our BeadArray and
Oligator technologies. For example, we have an exclusive license from Tufts
University to patents filed by Dr. David Walt, a Director, the Chairman of our
Scientific Advisory Board and one of our founders. Our exclusive licenses
expire with the termination of the underlying patents, which will occur between
2010 and 2017. These exclusive licenses are critical to our business.

U.S. Government Grants

   Government grants allow us to fund internal scientific programs and
exploratory research. We retain ownership of all intellectual property and
commercial rights generated during these projects, subject to a non-exclusive,
non-transferable, paid-up license to practice, for or on behalf of the
United States, inventions made with federal funds. This license is retained by
the U.S. government as provided by applicable statutes and regulations. We do
not believe that the retained license will have any impact on our ability to
market our products. We do not need government approval to enter into
collaborations or other relationships with third parties. We have grants from
the National Institutes of Health as outlined below.

<TABLE>
<CAPTION>
                            Grant Title                             Grant Date
  ------------------------------------------------------------------------------
   <S>                                                            <C>
   Decoding randomly ordered arrays.............................. February 1999
   Gene expression analysis on randomly ordered DNA arrays....... March 1999
   Parallel array processor...................................... August 1999
   Randomly ordered arrays for SNP genotyping.................... September 1999
   Compact device for solvent identification..................... September 1999
   Pyrosequencing arrays......................................... March 2000
   Optical binary encoding of assembled arrays................... June 2000
   Automated DNA synthesizer using tilted plate technology....... July 2000
</TABLE>


Manufacturing

   We manufacture our BeadArrays and Array of Arrays in-house and intend to
rely upon PE Biosystems to manufacture the imaging system and reagent kits for
our first product. We currently depend upon outside suppliers for materials
used in the manufacture of our BeadArrays and Array of Arrays. We intend to
continue, and may extend, the outsourcing of portions of our manufacturing
process to subcontractors where we determine it is in our best commercial
interests.

   We have designed our manufacturing facility to optimize material flow and
personnel movement. We adhere to access and safety standards required by
federal, state and local health ordinances, such as standards for the use,
handling and disposal of hazardous substances. This year, we will implement a
company-wide enterprise resource planning system to manage and control our
manufacturing resources.

                                       36
<PAGE>

Competition

   We are aware of other life sciences companies or companies with life
sciences divisions, such as Affymetrix, Agilent, Aclara Biosciences, Caliper
Technologies, Ciphergen, Genometrix, Luminex, Orchid Biosciences and Sequenom,
that have, or are developing, assay technologies for the SNP genotyping, gene
expression profiling and proteomics markets. Each of these markets is very
competitive. Many of our potential competitors in these markets have greater
commercial experience and substantially greater financial, technical and
personnel resources than we do. We expect new competitors to emerge and the
intensity of competition to increase in the future.

Employees

   As of March 31, 2000, we had a total of 60 employees, 20 of whom hold Ph.D.
or M.D. degrees and 44 of whom are engaged in full-time research and
development activities. We plan to expand our research and development programs
as well as corporate collaborations and will hire additional staff as these
initiatives are implemented. None of our employees is represented by a labor
union. We consider our employee relations to be good.

Facilities

   We lease an aggregate of approximately 15,000 square feet of office and
laboratory facilities at 9390 Towne Centre Drive in San Diego, California. Our
lease expires in August 2001. We are currently in negotiations to lease an
additional 20,000 square feet in the same facility, through August 2002. We
have signed a lease to rent a total of 97,000 square feet in two buildings that
will be constructed over the next year. The lease contains an option to
purchase the buildings together with additional land on the same site. The
lease will not become effective until the developer obtains a firm written
commitment for financing, at which time we would be obligated to provide
funding of approximately $6 million, in the form of an interest bearing,
secured loan with a term of approximately one year. In addition, we would be
obligated to provide a secured letter of credit of approximately $3 million.

Legal Proceedings

   We are not currently a party to any material legal proceedings.

                                       37
<PAGE>

                                   MANAGEMENT

Directors and Executive Officers

   Our directors and executive officers as of March 31, 2000 are as follows:

<TABLE>
<CAPTION>
                Name                 Age                Position
                ----                 ---                --------
 <C>                                 <C> <S>
 Jay T. Flatley.....................  47 President, Chief Executive Officer and
                                         Director

 Timothy M. Kish....................  48 Vice President, Chief Financial
                                         Officer

 David L. Barker, Ph.D..............  59 Vice President, Chief Scientific
                                         Officer

 John R. Stuelpnagel, DVM...........  42 Founder, Vice President of Business
                                          Development and Director

 Mark S. Chee, Ph.D. ...............  38 Founder, Vice President of Genomics

 Robert C. Kain.....................  39 Vice President of Engineering

 Noemi C. Espinosa..................  41 Vice President of Intellectual
                                         Property

 Anthony W. Czarnik, Ph.D. .........  42 Founder, Research Fellow, Former Chief
                                         Scientific Officer

 Lawrence A. Bock...................  40 Founder

 Charles M. Hartman(1)..............  58 Director

 Robert T. Nelsen(1)(2).............  36 Director

 George Poste, DVM, Ph.D. ..........  55 Director

 William H. Rastetter, Ph.D.(1)(2)..  51 Director

 David R. Walt, Ph.D. ..............  47 Founder, Director, Chairman of the
                                          Scientific Advisory Board
</TABLE>
--------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

   Jay T. Flatley has served as our President, Chief Executive Officer and a
Director since October 1999. Prior to joining Illumina, Mr. Flatley was co-
founder, President, Chief Executive Officer and a Director of Molecular
Dynamics, a life sciences company, from May 1994 to September 1999. He served
in various other positions with that company from 1987 to 1994. From 1985 to
1987, Mr. Flatley was Vice President of Engineering and Vice President of
Strategic Planning at Plexus Computers, a UNIX computer company. Mr. Flatley
holds a B.A. in Economics from Claremont McKenna College and a B.S. and M.S. in
Industrial Engineering from Stanford University.

   Timothy M. Kish has served as our Vice President and Chief Financial Officer
since May 2000. Prior to joining us, Mr. Kish was Vice President, Finance and
Chief Financial Officer at Biogen, Inc., a biopharmaceutical company, from
September 1993 to April 2000. He served as Corporate Controller of that company
from 1986 to 1993. From 1983 to 1986, Mr. Kish was Director of Finance at
Allied Health & Scientific Products Company, a subsidiary of Allied-Signal
Corporation. Mr. Kish holds a B.B.A. from Michigan State University and an
M.B.A. from the University of Minnesota.

   David L. Barker, Ph.D. has served as our Vice President and Chief Scientific
Officer since March 2000. Prior to joining us, Dr. Barker was Vice President
and Chief Science Advisor at Amersham Pharmacia Biotech, a life sciences
company, from September 1998 to March 2000. From May 1997 to September 1998,
Dr. Barker was Vice President of Research and Business Development of Molecular
Dynamics. From 1992 to 1997, he was Vice President of Scientific Development.
From 1988 to 1995, he held various other positions with that company. Dr.
Barker holds a B.S. in Chemistry from California Institute of Technology and
received his Ph.D. in Biochemistry from Brandeis University.

   John R. Stuelpnagel, D.V.M., one of our founders, is our Vice President of
Business Development, acting Chief Financial Officer and a Director since April
1998. From April 1998 to

                                       38
<PAGE>

October 1999, he served as Illumina's acting President and Chief Executive
Officer. While founding Illumina, Dr. Stuelpnagel was an associate with CW
Group, a venture capital firm, from June 1997 to September 1998 and with
Catalyst Partners, a venture capital firm, from August 1996 to June 1997. Dr.
Stuelpnagel received his B.S. in Biochemistry and his Doctorate in Veterinary
Medicine from the University of California, Davis and his M.B.A. from the
University of California, Los Angeles.

   Mark S. Chee, Ph.D., one of our founders, has served as our Vice President
of Genomics since June 1998. Prior to founding Illumina, Dr. Chee served as
Director of Genetics Research at Affymetrix, a life sciences company, from
April 1997 to July 1997 and in other positions from 1993 to April 1997. Dr.
Chee received his B.Sc. in Biochemistry from the University of New South Wales
and his Ph.D. from the University of Cambridge.

   Robert C. Kain has served as our Vice President of Engineering since
December 1999. Prior to joining us, Mr. Kain was Senior Director of Engineering
at Molecular Devices from July 1999 to December 1999. Previously, Mr. Kain
served as Director of Microarray Engineering at Molecular Dynamics from August
1998 to July 1999 and in other positions from August 1996 to August 1998. From
1983 to 1988, Mr. Kain was employed at DatagraphiX, an information technology
equipment company. Mr. Kain received his B.S. in Physics from San Diego State
University and his M.B.A. from St. Mary's College.

   Noemi C. Espinosa has served as our Vice President of Intellectual Property
since May 2000. Prior to joining us, Ms. Espinosa was a partner with the firm
of Brobeck, Phleger & Harrison LLP from January 1992 to April 2000, having
joined the firm in 1990. From 1983 to 1990, Ms. Espinosa was associated with
the intellectual property firm of Townsend & Townsend. Ms. Espinosa holds a
B.S. in Chemical Engineering and a J.D. from the University of California,
Hastings College of Law. She is registered to practice before the United States
Patent and Trademark Office.

   Anthony W. Czarnik, Ph.D., one of our founders, has been a Research Fellow
at Illumina since March 2000. From June 1998 to March 2000, he served as
Illumina's Chief Scientific Officer. Prior to joining Illumina, Dr. Czarnik was
Vice President of Chemistry at IRORI Quantum Microchemistry from 1996 to 1998
and Director of Bioorganic Chemistry at Parke-Davis from 1993 to 1996.
Previously, he was a professor at The Ohio State University. Dr. Czarnik
received his B.S. in Biochemistry from the University of Wisconsin-Madison and
his Ph.D. from the University of Illinois at Urbana/Champaign.

   Lawrence A. Bock, one of our founders, served as a Director from June 1998
to March 2000. He has been a General Partner of CW Group, a medical venture
capital fund, since June 1998. From 1988 to 1998, Mr. Bock was General Partner
of Avalon Ventures, a venture capital firm. He is also founder and Director of
FastTrack Systems, Inc. Mr. Bock holds a B.S. in Biochemistry from Bowdoin
College and an M.B.A. from the University of California, Los Angeles.

   Charles M. Hartman has been a Director since March 2000. He has been a
General Partner of CW Group since April 1983. Mr. Hartman is a Director of
Caliper Technologies Corp. (Nasdaq: CALP). From 1966 to 1983, Mr. Hartman
served in various positions at Johnson & Johnson, a healthcare company, where
he was responsible for identification, evaluation and negotiation of situations
ranging from single product opportunities to company acquisitions, both
domestically and internationally. Mr. Hartman is a Director of The Hastings
Center, a non-profit organization devoted to the study of bioethical issues in
medicine and the life sciences. Mr. Hartman holds a B.S. in Chemistry from the
University of Notre Dame and an M.B.A. from the University of Chicago.

   Robert T. Nelsen has been a Director since June 1998. Since July 1994, Mr.
Nelsen has served as a senior principal of venture capital funds associated
with ARCH Venture Partners, a venture capital firm, including ARCH Venture Fund
III, L.P., a stockholder of the Company. From April 1987 to July 1994, Mr.
Nelsen was Senior Manager at ARCH Development Corporation, a company affiliated
with the University of Chicago, where he was responsible for new company
formation.

                                       39
<PAGE>

Mr. Nelsen is a Director of Caliper Technologies Corp. (Nasdaq: CALP).
Mr. Nelsen holds a B.S. in Biology and Economics from the University of Puget
Sound and an M.B.A. from the University of Chicago.

   George Poste, D.V.M., Ph.D. has been a Director since February 2000. Dr.
Poste was Chief Science and Technology Officer at SmithKline Beecham, a
biopharmaceutical company, from October 1981 to December 1999. Dr. Poste is a
Director of SmithKline Beecham (Nasdaq: SBH) and Maxygen (Nasdaq: MAXY). Prior
to being appointed Chief Science and Technology Officer, Dr. Poste was
President of Research and Development at SmithKline Beecham. Dr. Poste is also
a Research Professor at the University of Pennsylvania and holds the William
Pitt Fellowship at Pembroke College, Cambridge University. He was awarded a
D.Sc. for meritorious research contributions by the University of Bristol in
1987. Dr. Poste received his Doctorate in Veterinary Medicine and his Ph.D. in
Virology from the University of Bristol.

   William H. Rastetter, Ph.D. has been a Director since November 1998. Since
December 1986, Dr. Rastetter has served as President and Chief Executive
Officer of IDEC Pharmaceuticals, a biopharmaceutical company. Dr. Rastetter is
a Director of Spiros Development (Nasdaq: SDCO). Additionally, he has served as
Chairman of the Board of Directors of IDEC Pharmaceuticals since May 1996. From
1982 to 1986, Dr. Rastetter served in various positions at Genentech and
previously he was a professor at the Massachusetts Institute of Technology.
Dr. Rastetter holds a S.B. in Chemistry from the Massachusetts Institute of
Technology and received his M.A. and Ph.D. in Chemistry from Harvard
University.

   David R. Walt, Ph.D. has been a Director and Chairman of the Scientific
Advisory Board since June 1998. Dr. Walt has been the Robinson Professor of
Chemistry at Tufts University since September 1995. Dr. Walt has published over
100 papers and holds over 20 patents. Dr. Walt holds a B.S. in Chemistry from
the University of Michigan and received his Ph.D. in Organic Chemistry and
Pharmacology from the State University of New York at Stony Brook.

Scientific Advisory Board

   The following individuals are members of our Scientific Advisory Board:

   Christopher C. Goodnow, Ph.D. is Professor at the John Curtin School of
Medical Research at The Australian National University where he is the Founder
and Director of the Medical Genome Centre. Previously, he was an Assistant
Investigator of the Howard Hughes Medical Institute and Assistant Professor of
Microbiology and Immunology at Stanford University Medical School. Dr. Goodnow
has been a recipient of numerous awards and honors, including the Searle
Scholar and the University Medal from the University of Sydney. Dr. Goodnow
received his B.V.Sc. and B.Sc. (Vet) in Veterinary Science from the University
of Sydney and his Ph.D. in Immunology from Stanford University.

   Leroy Hood, M.D., Ph.D. is the William Gates III Professor of Biomedical
Sciences, Director of a National Science Foundation Science and Technology
Center and Chairman of the Department of Molecular Biotechnology at the
University of Washington School of Medicine. Dr. Hood is a member of the
National Academy of Sciences and the American Association of Arts and Sciences.
Among his numerous honors and awards are the Louis Pasteur Award for Medical
Innovation, the Albert Lasker Basic Medical Research Award, the Cetus Award for
Biotechnology, the American College of Physician Award, Ciba-Geigy/Drew Award,
Lynen Medal and the University Distinguished Alumnus Award from the Johns
Hopkins University School of Medicine. Dr. Hood has a M.D. from the Johns
Hopkins Medical School and a Ph.D. in Biochemistry from the California
Institute of Technology.

   Terrence J. Sejnowski, Ph.D. is an Investigator with the Howard Hughes
Medical Institute and a Professor at The Salk Institute for Biological Studies
where he directs the Computational

                                       40
<PAGE>

Neurobiology Laboratory. He is also Professor of Biology and Adjunct Professor
in the Departments of Physics, Neurosciences, Psychology, Cognitive Science,
and Computer Science and Engineering at the University of California, San
Diego. Dr. Sejnowski has been the recipient of numerous honors and awards
including the Presidential Young Investigator Award, the Wright Prize from the
Harvey Mudd College and the Sherman Fairchild Distinguished Scholar Award at
the California Institute of Technology. Dr. Sejnowski received a B.S. in
Physics from the Case-Western Reserve University, a M.A. in Physics from
Princeton University, and a Ph.D. in Physics from Princeton University.

   Paul R. Schimmel, Ph.D. is Professor and Member at The Skaggs Institute for
Chemical Biology at The Scripps Research Institute. He formerly was the John D.
and Catherine T. MacArthur Professor of Biochemistry and Biophysics in the
Department of Biology at The Massachusetts Institute of Technology. He received
the Pfizer Award in enzyme chemistry from the American Chemical Society and was
named co-recipient of the Biophysical Society Emily M. Gray Award. Dr. Schimmel
is a member of the National Academy of Sciences and the American Academy of
Arts and Sciences. Dr. Schimmel received his A.B. degree in pre-medicine from
Ohio Weslyan University and his Ph.D. in Biophysical Chemistry from The
Massachusetts Institute of Technology.

   W. Clark Still, Ph.D. is Mitchell Professor of Chemistry at Columbia
University. He is a recipient of numerous awards and honors including Science
Digest's 100 Brightest Scientists Under 40, the National Science Foundation's
Alan T. Waterman Award, the American Chemical Society's Cope Scholar and
Computers in Chemistry Awards, California Institute of Technology's Buchman
Award, Frankfurt University's Rolf Sammet Award, and Nagoya University's Nagoya
Medal of Organic Chemistry. He is a Fellow of the American Academy of Arts and
Sciences, the Japan Society for the Promotion of Science and the Alfred P.
Sloan Society. He received his B.S. in Chemistry and his Ph.D. in Organic
Chemistry from Emory University.

Board Composition and Committees

   Our board of directors currently consists of seven members. Prior to the
closing of this offering, our board of directors will be divided into three
classes, with each director serving a three-year term and one class being
elected at each year's annual meeting of stockholders. Directors Hartman and
Walt will be in the class of directors whose initial term expires at the 2001
annual meeting of stockholders. Directors Stuelpnagel and Nelsen will be in the
class of directors whose initial term expires at the 2002 annual meeting of the
stockholders. Directors Flatley, Poste and Rastetter will be in the class of
directors whose initial term expires at the 2003 annual meeting of
stockholders.

   Our board of directors currently has an audit committee and a compensation
committee. Directors Hartman, Nelsen and Rastetter are currently members of the
audit committee. The audit committee reviews our internal accounting procedures
and consults with and reviews the services provided by our independent
accountants. Directors Nelsen and Rastetter currently are members of the
compensation committee. The compensation committee reviews and recommends to
the board of directors the compensation and benefits for all of our officers
and establishes and reviews general policies relating to compensation and
benefits for our other employees.

Director Compensation

   We reimburse our non-employee directors for their expenses incurred in
connection with attending board and committee meetings but do not compensate
them for their services as board or committee members. We have in the past
granted non-employee directors options to purchase our common stock pursuant to
the terms of our stock plan, and our board continues to have the discretion to
grant options to new and continuing non-employee directors. In addition,
several directors have purchased shares of our common stock pursuant to
restricted stock purchase agreements, subject to a repurchase right in our
favor. For a discussion of each director's restricted stock purchase agreement,
see "Related Party Transactions."

                                       41
<PAGE>

   In July 2000, our stockholders approved guidelines for the grant of stock
options under our 2000 Stock Option Plan, as amended, to directors who are not
our officers or employees. These guidelines provide that such directors will
receive:

  . one-time option grants of 20,000 shares vesting annually over four years
    upon joining the board which are to be granted on the date of the first
    board meeting attended at the fair market value of one share of our
    common stock on the date of grant; and

  . annual option grants of 10,000 shares vesting annually over four years
    which are to be granted on the date of each annual stockholder meeting
    following the closing of this offering at the fair market value of one
    share of our common stock on the date of grant.

Executive Compensation

   The following table sets forth the compensation earned for services rendered
to us in all capacities by our chief executive officer and our four most highly
compensated executive officers whose total cash compensation exceeded
$100,000--collectively, the "Named Executive Officers"--for the year ended
December 31, 1999.

                        Summary 1999 Compensation Table

<TABLE>
<CAPTION>
                               Annual Compensation      Long-Term
                                       ($)             Compensation
                              ---------------------    ------------
                                                        Securities
                                                        Underlying   All Other
Name and Principal Positions  Salary  Bonus  Other     Options (#)  Compensation
----------------------------  ------- ------ ------    ------------ ------------
<S>                           <C>     <C>    <C>       <C>          <C>
Jay T. Flatley, President
 and Chief Executive
 Officer(1).................   55,859    --  11,179(2)      --           --

John R. Stuelpnagel, Vice
 President of Business
 Development................  141,500 12,000    --          --           --

Mark S. Chee, Vice President
 of Genomics................  145,000  7,000    --          --           --

Anthony W. Czarnik, former
 Chief Scientific
 Officer(3).................  185,000    --     --          --           --

Richard J. Pytelewski,
 former Vice President of
 Operations.................  158,000    --  55,025(4)      --           --
</TABLE>
--------
(1) Mr. Flatley joined Illumina in October 1999.
(2) This amount represents an allowance for housing.
(3) Dr. Czarnik is currently a Research Fellow.
(4) This amount represents reimbursement for relocation costs.

Purchases of Restricted Common Stock

   We have not granted any options to the named executive officers. However,
each named executive officer has purchased shares of our common stock subject
to a repurchase right in our favor. The repurchase right entitles us to
repurchase unvested shares at their original exercise price on termination of
the executive officer's services with us. Our repurchase rights lapse over time
on employment anniversary dates and upon achievement of business milestones.
For a discussion of each executive officer's restricted stock purchase
agreement, see "Related Party Transactions."

Stock Plans

 1998 Incentive Stock Plan

   Our 1998 Incentive Stock Plan was adopted by our board of directors in April
1998 and approved by our stockholders in April 1999. The stock plan was amended
in October 1999 and

                                       42
<PAGE>

February 2000. A total of 5,750,000 shares of common stock have been reserved
for issuance under our stock plan.


   The 1998 Incentive Stock Plan provides for grants of incentive stock options
to our employees including officers and employee directors and nonstatutory
stock options to our consultants including nonemployee directors. The purpose
of our stock plan is to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to our
employees and consultants and to promote the success of our business. At the
request of the board of directors, the compensation committee administers our
stock plan and determines the optionees and the terms of options granted,
including the exercise price, number of shares subject to the option and the
exercisability thereof.

   The term of options granted under the 1998 Incentive Stock Plan is stated in
the option agreement. However, the term of an incentive stock option may not
exceed ten years and, in the case of an option granted to an optionee who owns
more than 10 percent of our outstanding stock at the time of grant, the term of
an option may not exceed five years. Options granted under the 1998 Incentive
Stock Plan vest and become exercisable as set forth in each option agreement.

   With respect to any optionee who owns more than 10% of our outstanding
stock, the exercise price of any stock option granted must be at least 110% of
the fair market value on the grant date.

   No incentive stock options may be granted to an optionee, which, when
combined with all other incentive stock options becoming exercisable in any
calendar year that are held by that person, would have an aggregate fair market
value in excess of $100,000.

   The 1998 Incentive Stock Plan will terminate in April 2008, unless our board
of directors terminates it sooner.

   As of March 31, 2000, we had issued 392,381 shares of common stock upon the
exercise of options granted under our stock option plan, we had outstanding
options to purchase 932,485 shares of common stock at a weighted average
exercise price of $0.34 per share. On the effective date of the Company's
registration statement, the 1998 Plan shall terminate and all reserved but
unissued shares shall be reserved for issuance under our 2000 Stock Plan.

 2000 Stock Plan

   Our board of directors adopted the 2000 Stock Plan in June 2000, and our
stockholders subsequently approved it. This plan provides for the grant of
incentive stock options to our employees and nonstatutory stock options and
stock purchase rights to our employees, directors and consultants. As of June
2000, a total of 4,000,000 shares of our common stock were reserved for
issuance pursuant to our 2000 Stock Plan.

   No options have yet been issued pursuant to the 2000 Stock Plan. The number
of shares reserved for issuance under our 2000 Stock Plan will increase
annually on the first day of the Company's fiscal year beginning in 2001 by an
amount equal to the lesser of 5% of the outstanding shares of our common stock
on the last day of the immediately preceding fiscal year, 1,500,000 shares or
such lesser amount as our board of directors may determine.

   Our board of directors or a committee of our board administers the 2000
Stock Plan. The committee may consist of two or more "outside directors" to
satisfy certain tax and securities requirements. The administrator has the
power to determine the terms of the options or stock purchase rights granted,
including the exercise price, the number of shares subject to each option or

                                       43
<PAGE>

stock purchase right, the exercisability of the options and the form of
consideration payable upon exercise. The administrator determines the exercise
price of options granted under our stock option plan, but with respect to
incentive stock options, the exercise price must at least be equal to the fair
market value of our common stock on the date of grant. Additionally, the term
of an incentive stock option may not exceed ten years. The administrator
determines the term of all other options. No optionee may be granted an option
to purchase more than 500,000 shares in any fiscal year. In connection with his
or her initial service, an optionee may be granted an additional option to
purchase not more than 1,000,000 shares of our common stock. After termination
of one of our employees, directors or consultants, he or she may exercise his
or her option for the period of time stated in the option agreement. If
termination is due to death or disability, the option will generally remain
exercisable for 12 months following such termination. In all other cases, the
option will generally remain exercisable for 3 months. However, an option may
never be exercised later than the expiration of its term.

   The administrator determines the exercise price of stock purchase rights
granted under our 2000 Stock Plan. Unless the administrator determines
otherwise, the restricted stock purchase agreement will grant us a repurchase
option that we may exercise upon the voluntary or involuntary termination of
the purchaser's service with us for any reason (including death or disability).
The purchase price for shares we repurchase will generally be at the original
price paid by the purchaser. The administrator determines the rate at which our
repurchase option will lapse. Our stock option plan generally does not allow
for the transfer of options or stock purchase rights and only the optionee may
exercise an option and stock purchase right during his or her lifetime.

   Our stock option plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, the successor
corporation will assume or substitute for each option or stock purchase right.
If the outstanding options or stock purchase rights are not assumed or
substituted for, all outstanding options and stock purchase rights become fully
vest and exercisable. Our stock option plan will automatically terminate in
2010, unless we terminate it sooner. In addition, our board of directors has
the authority to amend, suspend or terminate the stock option plan provided it
does not adversely affect any option previously granted under our stock option
plan.

 2000 Employee Stock Purchase Plan

   Our 2000 employee stock purchase plan was adopted by our board of directors
in February 2000. It was subsequently approved by our shareholders and will
become effective upon the closing of this offering. We have reserved a total
of 500,000 shares of common stock for issuance under the 2000 employee stock
purchase plan, together with an annual increase in the number of shares
reserved thereunder beginning on the first day of our fiscal year commencing
January 1, 2001 in an amount equal to the lesser of:

  . 1.5 million shares;

  . 3% of our outstanding common stock on the last day of the prior fiscal
    year; or

  . an amount determined by our board of directors.

   Our employee stock purchase plan is administered by the board of directors
and is intended to qualify under Section 423 of the Internal Revenue Code. Our
employees, including our officers and employee directors but excluding our five
percent or greater stockholders, are eligible to participate if they are
customarily employed for at least 20 hours per week and for more than five
months in any calendar year. Our employee stock purchase plan permits eligible
employees to purchase common stock through payroll deductions, which may not
exceed the lesser of 15% of an employee's compensation, where compensation is
defined on Form W-2, or $25,000.


                                       44
<PAGE>

   Our employee stock purchase plan will be implemented in a series of
overlapping 24 month offering periods, and each offering period consists of
four six month purchase periods. The initial offering period under our employee
stock purchase plan will begin on the effective date of this offering, and the
subsequent offering periods will begin on the first trading day on or after
February 1 and August 1 of each year. Each participant will be granted an
option on the first day of the offering period and the option will be
automatically exercised on the date six months later, the end of a purchase
period, throughout the offering period. If the fair market value of our common
stock on any purchase date is lower than the fair market value on the start
date of that offering period, then all participants in that offering period
will be automatically withdrawn from that offering period and re-enrolled in
the immediately following offering period. The purchase price of our common
stock under our employee stock purchase plan will be 85 percent of the lesser
of the fair market value per share on the start date of the offering period or
at the end of the purchase period. Employees may end their participation in an
offering period at any time, and their participation ends automatically on
termination of employment with our company.

   Our employee stock purchase plan will terminate in 2010, unless our board of
directors terminates it sooner.

 401(k) Plan

   In 1998, we adopted a Retirement Savings and Investment Plan, the 401(k)
Plan, covering our full-time employees located in the United States. The 401(k)
Plan is intended to qualify under Section 401(k) of the Internal Revenues Code,
so that contributions to the 401(k) Plan by employees or by us and the
investment earnings thereon are not taxable to the employees until withdrawn.
If our 401(k) Plan qualifies under Section 401(k) of the Internal Revenues
Code, our contributions will be deductible by us when made. Our employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit of $10,500 in 2000 and to have those funds contributed to the
401(k) Plan. The 401(k) Plan permits us, but does not require us, to make
additional matching contributions on behalf of all participants. To date, we
have not made any contributions to the 401(k) Plan.

Employment Agreements and Change in Control Arrangements

   We have not entered into employment or severance agreements with any of our
officers or employees other than Dr. Czarnik. We have agreed to provide Dr.
Czarnik with severance compensation for up to twelve months in an amount equal
to his then annual base salary in the event of his termination without cause.
We entered into an agreement with Richard Pytelewski, our former Vice President
of Operations, to serve as a consultant to Illumina. Pursuant to that
agreement, we paid Mr. Pytelewski his salary through the end of his consultancy
in June 2000, and issued him 30,000 shares of common stock at that time.

                                       45
<PAGE>

                           RELATED PARTY TRANSACTIONS

Stock Issuances to our Directors, Officers and Principal Stockholders

   In June 1998, we sold 2,499,998 shares of our Series A preferred stock at a
price per share of $0.30. In November 1998, we sold 9,336,299 shares of our
Series B preferred stock at $0.926 per share. In November and December 1999, we
sold 7,000,000 shares of our Series C preferred stock at $4.00 per share. All
of our preferred stock is convertible into shares of our common stock on a one-
for-one basis.

   Since our inception, we have from time to time sold shares of our common
stock, at per share prices ranging from $0.01 per share to $1.00, to our
directors, officers, founders and consultants, subject to repurchase rights in
our favor that lapse over specified periods, usually five years, subject to
earlier lapse in some cases upon the achievement of specified milestones by
Illumina. The repurchase right entitles us to repurchase shares at their
original purchase price on termination of a purchaser's services with us. Upon
the closing of an acquisition of Illumina for cash or publicly traded
securities, the lapsing of our repurchase right accelerates as to 50% of each
officer's shares of common stock then subject to our repurchase right and, with
respect to the remaining 50%, on the first anniversary of the closing date of
the acquisition. If the acquirer terminates the officer without cause within
one year of the closing date, our repurchase right lapses with respect to all
shares.

   Listed below are those persons who participated in the transactions
described above who are our executive officers or directors or who beneficially
own five percent or more of our securities.

<TABLE>
<CAPTION>
                               Common Stock               Convertible Preferred Stock
                          ----------------------- -------------------------------------------
                                      Aggregate                                   Aggregate
                           Shares   Consideration Series A  Series B  Series C  Consideration
                             (#)         ($)         (#)       (#)       (#)         ($)
                          --------- ------------- --------- --------- --------- -------------
<S>                       <C>       <C>           <C>       <C>       <C>       <C>
Executive Officers &
 Directors
Jay T. Flatley(1).......  1,000,000     90,000          --        --     12,500      50,000
Timothy M. Kish(2)......    375,000    375,000          --        --        --          --
David L. Barker,
 Ph.D.(3)...............    250,000    100,000          --        --        --          --
John R. Stuelpnagel,
 DVM(4).................    550,000     49,750       72,399   107,959     6,250     146,720
Mark S. Chee, Ph.D.(5)..    550,000     44,750        5,733   367,060     7,500     371,719
Anthony W. Czarnik,
 Ph.D.(6)...............    425,000      6,250        6,551       --        --        1,965
Robert C. Kain(7).......    150,000     37,500          --        --        --          --
Noemi C. Espinosa(8)....    215,000    215,000          --        --        --          --
Richard J.
 Pytelewski(9)..........    109,167      3,275          --        --      5,000      20,000
Lawrence A. Bock(10)....     68,750        688          --        --        --          --
Charles M. Hartman(10)..     68,750        688          --        --        --          --
George Poste, DVM,
 Ph.D(11)...............    100,000     40,000          --        --        --          --
William H. Rastetter,
 Ph.D(12)...............     75,000     14,500          --        --        --          --
David R. Walt,
 Ph.D.(13)..............  1,000,000     10,000      266,378   107,960       --      179,914

5% Stockholders
Entities affiliated with
 CW Group(14)...........        --         --     1,770,302 2,375,099   575,000   5,031,090
ARCH Venture Fund III,
 L.P. (15)..............        --         --       345,302 2,644,997   625,000   5,053,590
Entities affiliated with
 Venrock Associates.....        --         --           --  2,644,997   625,000   4,950,000
TGI Fund II, L.C. ......        --         --           --    998,621   750,000   3,925,000
PE Corporation..........        --         --           --        --  1,250,000   5,000,000
</TABLE>
--------
 (1) Mr. Flatley purchased his shares of common stock in October 1999, at a per
     share price of $0.09. Our right to repurchase 750,000 of these shares
     lapses over a five-year period, and our right to repurchase 250,000 of
     these shares lapses over an eight-year period, subject to earlier lapse
     upon the achievement of specified milestones by Illumina. The right to
     repurchase had lapsed as to 20,000 shares as of March 31, 2000.

 (2) Mr. Kish purchased his shares of common stock in March 2000, at a per
     share price of $1.00. Our right to repurchase these shares lapses over a
     five year period. The right to repurchase had lapsed as to no shares as of
     March 31, 2000.

                                       46
<PAGE>

 (3) Dr. Barker purchased his shares of common stock in March 2000, at a per
     share price of $0.40. Our right to repurchase these shares lapses over a
     five-year period. The right to repurchase had lapsed as to no shares as of
     March 31, 2000.

 (4) Dr. Stuelpnagel purchased his shares of common stock in June and August
     1998, October 1999 and March 2000, at a per share price of $0.01 to $0.40.
     We have no repurchase right with respect to 100,000 shares, our right to
     repurchase 375,000 shares lapses over four- and five-year periods, and our
     right to repurchase 75,000 of these shares lapses over an eight-year
     period, subject to earlier lapse upon the achievement of specified
     milestones by Illumina. The right to repurchase had lapsed as to 92,706
     shares as of March 31, 2000.

 (5) Dr. Chee purchased his shares of common stock in June 1998, October 1999
     and March 2000 at a per share price of $0.01 to $0.40. Our right to
     repurchase 450,000 of these shares lapses over four- and five-year
     periods, and our right to repurchase 100,000 of these shares lapses over
     an eight-year period, subject to earlier lapse upon the achievement of
     specified milestones by Illumina. The right to repurchase had lapsed as to
     132,916 shares as of March 31, 2000.

 (6) Dr. Czarnik purchased his shares of common stock in June 1998 and October
     1999, at a per share price of $0.01 to $0.09. Our right to repurchase
     400,000 of these shares lapses over a five-year period, and our right to
     repurchase 25,000 of these shares lapses over an eight-year period,
     subject to earlier lapse upon the achievement of specified milestones by
     Illumina. The right to repurchase had lapsed as to 140,000 shares as of
     March 31, 2000.

 (7) Mr. Kain purchased his shares of common stock in January 2000, at a per
     share price of $0.25. Our right to repurchase these shares lapses over a
     five-year period. The right to repurchase had lapsed as to no shares as of
     March 31, 2000.

 (8) Ms. Espinosa purchased her shares of common stock in March 2000, at a per
     share purchase price of $1.00. Our right to repurchase these shares lapses
     over a five-year period. The right to repurchase had lapsed as to no
     shares as of March 31, 2000.

 (9) Mr. Pytelewski purchased his shares of common stock in November 1998 and
     October 1999, at a per share price of $0.03 to $0.09. Our right to
     repurchase 250,000 of these shares lapses over a five-year period, and our
     right to repurchase 25,000 of these shares lapses over an eight-year
     period, subject to earlier lapse upon the achievement of specified
     milestones by Illumina. The right to repurchase had lapsed as to 66,666
     shares as of March 31, 2000. In June 2000, we issued Mr. Pytelewski 30,000
     shares of common stock in connection with the completion of his
     consultancy and we repurchased 195,833 shares of his common stock.

(10) Mr. Bock, a founder, and Mr. Hartman, a director, purchased their shares
     of common stock in May 1999 at a per price share of $0.01 upon the
     exercise of options. Mr. Bock and Mr. Hartman are general partners of CW
     Group.

(11) Dr. Poste purchased his shares of common stock in February 2000, at a per
     share price of $0.40. Our right to repurchase these shares lapses over a
     four-year period. The right to repurchase had lapsed as to 2,083 shares as
     of March 31, 2000.

(12) Dr. Rastetter purchased his shares of common stock in February 1999 and
     March 2000, at a per share price of $0.09 to $0.40. Our right to
     repurchase these shares lapses over four- and five-year periods. The right
     to repurchase had lapsed as to 12,500 shares as of March 31, 2000.

(13) Dr. Walt purchased his shares of common stock in April 1998, at a per
     share price of $0.01. Our right to repurchase these shares lapses over a
     five-year period. The right to repurchase had lapsed as to 533,333 shares
     as of March 31, 2000.

(14) Lawrence A. Bock and Charles M. Hartman are general partners of CW Group.
     Mr. Hartman is a Director of Illumina and Mr. Bock is a founder of
     Illumina.

(15) Robert T. Nelsen, a Director of Illumina, is a managing director of the
     general partner of ARCH Venture Fund III, L.P.

   Upon closing of this offering, all shares of outstanding preferred stock
will be automatically converted into shares of common stock. We have entered
into an agreement pursuant to which these and other preferred stockholders will
have registration rights with respect to their shares of common stock following
this offering. For a description of these registration rights, see "Description
of Capital Stock."

Other Transactions

   We pay license fees to Tufts University in connection with our license of
patents filed by Dr. David Walt, one of our directors. Dr. Walt is the Robinson
Professor of Chemistry at Tufts. It is our understanding that Tufts University
pays a portion of the license fees received from us to Dr. Walt. We have also
provided Tufts University with $100,000 in funding for research relating to the
development of our BeadArray technology. In addition, we and Tufts University
are co-investigators under a research grant for DNA sequencing sponsored by the
Department of Energy.

                                       47
<PAGE>

                             PRINCIPAL STOCKHOLDERS

   The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 31, 2000 and as adjusted
to reflect the sale of common stock offered hereby by:

  . each stockholder known by us to own beneficially more than five percent
    of our common stock;

  . each of the named executive officers listed in the Summary Compensation
    Table on page 40;

  . each of our directors; and

   .all of our directors and the named executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to stock
options and warrants currently exercisable or exercisable within 60 days are
deemed to be outstanding for computing the percentage ownership of the person
holding these options and the percentage ownership of any group of which the
holder is a member, but are not deemed outstanding for computing the percentage
of any other person. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them. Some of the shares of common stock held by our
directors, officers and consultants are subject to repurchase rights in our
favor. For a discussion of these repurchase rights, see "Related Party
Transactions."
<TABLE>
<CAPTION>
                                 Number of
                                   Shares             Percent of Shares
                                Beneficially         Beneficially Owned
                               Owned Prior to ---------------------------------
Name and Address                the Offering  Before Offering(1) After Offering
----------------               -------------- ------------------ --------------
<S>                            <C>            <C>                <C>
CW Group(2)...................   4,991,464           19.5%            16.3%
 1041 Third Avenue
 New York, NY 10021
ARCH Venture Fund III,
 L.P.(3)......................   3,615,299           14.2             11.8
 8725 West Higgins Road, Suite
  290
 Chicago, IL 60631
Venrock Associates(4).........   3,269,997           12.8             10.7
 30 Rockefeller Plaza, Room
  5508
 New York, NY 10112
TGI Fund II, L.C.(7) .........   1,748,621            6.8              5.7
 6501 Columbia Center
 701 Fifth Avenue
 Seattle, WA 98104
David R. Walt(5)..............   1,374,338            5.4              4.5
 62 Talbot Avenue
 Medford, MA 02155
PE Corporation................   1,250,000            4.9              4.1
 50 Danbury Road
 Wilton, CT 06897
Jay T. Flatley(6).............     992,000            3.9              3.2
Mark S. Chee..................     921,793            3.6              3.0
John R. Stuelpnagel...........     716,608            2.8              2.3
Anthony W. Czarnik............     421,551            1.7              1.4
Timothy M. Kish...............     375,000            1.5              1.2
Richard J. Pytelewski.........     280,000            1.1               *
David L. Barker...............     250,000            1.0               *
Noemi C. Espinosa.............     215,000             *                *
</TABLE>

                                       48
<PAGE>

<TABLE>
<CAPTION>
                                  Number of
                                    Shares             Percent of Shares
                                 Beneficially         Beneficially Owned
                                Owned Prior to ---------------------------------
Name and Address                 the Offering  Before Offering(1) After Offering
----------------                -------------- ------------------ --------------
<S>                             <C>            <C>                <C>
Robert C. Kain................       150,000            *                *
George Poste..................       100,000            *                *
 709 Swedeland
 King of Prussia, PA 19406
William H. Rastetter..........        75,000            *                *
 1101 Torreyana Road
 San Diego, CA 92121
Charles M. Hartman(2).........     4,991,464          19.5             16.3
 1041 Third Avenue
 New York, NY 10021
Lawrence A. Bock (2)..........     4,991,464          19.5             16.3
 2187 New Castle Avenue, Suite
  101
 Cardiff By the Sea, CA 92007
Robert T. Nelsen(3)...........     3,615,299          14.2             11.8
 8725 West Higgins Road, Suite
  290
 Chicago, IL 60631
All directors and named
 executive officers as a group
 (14 persons).................    14,478,053          56.7             47.4
</TABLE>
--------
 *  Represents beneficial ownership of less than one percent (1%) of the
    outstanding shares of our common stock.

(1) Percentage ownership before the offering is based on the 25,541,095 shares
    of common stock outstanding on March 31, 2000, after giving effect to the
    conversion of all of our preferred stock into shares of our common stock.

(2) Shares shown as owned by CW Group, Charles M. Hartman, a Director of
    Illumina and a general partner of CW Group and Lawrence A. Bock, a founder
    of Illumina and a general partner of CW Group are owned by CW Ventures III,
    L.P. CW Partners IV, L.L.C. is the general partner of CW Ventures III, L.P.
    Messrs. Bock and Hartman and Barry Weinberg and Walter Channing are the
    managing members of CW Partners IV, L.L.C. Messrs. Hartman, Bock, Weinberg
    and Channing disclaim beneficial ownership of the shares shown except
    shares owned directly or attributable to their respective partnership
    interests.

(3) Shares shown as owned by ARCH Venture Fund III, L.P. Robert T. Nelsen is a
    Director of Illumina and a managing director of the general partner of ARCH
    Venture Fund III, L.P. Mr. Nelsen disclaims beneficial ownership of the
    shares shown except to the extent of his pecuniary interest therein.

(4) Consists of 1,380,786 shares held by Venrock Associates, 1,857,961 shares
    held by Venrock Associates II, L.P. and 31,250 shares by Venrock
    Entrepreneurs Fund, L.P. These Venrock entities are located at
    30 Rockefeller Plaza, Suite 5508, New York, NY 10112. Michael C. Brooks,
    Joseph E. Casey, Eric S. Copeland, Anthony B. Evnin, Thomas R. Frederick,
    David R. Hathaway, Patrick F. Latterell, Ray A. Rothrock, Kimberley A.
    Rummelsburg, Anthony Sun and Michael F. Tyrrell are general partners of
    these entities or are members of a limited liability company that serves as
    a general partner. They disclaim beneficial ownership of these shares
    except to the extent of their proportionate partnership or membership
    interest in these shares.

(5) Includes 303,980 shares owned by Dr. Walt's wife.

(6) Includes 12,000 shares owned by Mr. Flatley's children.

(7) TGI Fund II, L.C. is controlled by Steven Johnson.

   Except as otherwise noted above, the address of each person listed on the
table is 9390 Towne Centre Drive, San Diego, California 92121.

                                       49
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

General

   We are authorized to issue 120,000,000 shares of common stock, $0.01 par
value, and 10,000,000 shares of undesignated preferred stock, $0.01 par value.

Common Stock

   Assuming the conversion of all of our preferred stock into 18,836,297 shares
of common stock, as of March 31, 2000 we had 25,541,095 shares of common stock
outstanding that were held of record by approximately 101 stockholders.

   The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably any dividends that may be declared from time to
time by the board of directors out of funds legally available for that purpose.
In the event of our liquidation, dissolution or winding up, the holders of
common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock to be issued upon
the closing of this offering will be fully paid and nonassessable.

Preferred Stock

   Upon the closing of this offering, our board of directors will have the
authority, without action by our stockholders, to designate and issue up to
10,000,000 shares of preferred stock in one or more series. The board of
directors may also designate the rights, preferences and privileges of each
series of preferred stock; any or all of which may be greater than the rights
of the common stock. It is not possible to state the actual effect of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock until the board of directors determines the specific rights of the
holders of the preferred stock. However, these effects might include:

  . restricting dividends on the common stock;

  . diluting the voting power of the common stock;

  . impairing the liquidation rights of the common stock; and

  . delaying or preventing a change in control of our company without further
    action by the stockholders.

   We have no present plans to issue any shares of preferred stock.

Warrants

   As of March 31, 2000 we had outstanding warrants to purchase 43,183 shares
of Series B preferred stock at an exercise price of $0.926 per share. The
warrants will expire in November 2005.

 Holders of Registration Rights Can Require Us to Register Shares of Our Stock
                                   for Resale

   The holders of 18,836,297 shares of common stock and 43,183 shares of common
stock issuable upon the exercise of warrants or their permitted transferees are
entitled to rights with respect to registration of these shares under the
Securities Act of 1933, as amended. These rights are provided under the terms
of our agreement with the holders of registrable securities. Under these

                                       50
<PAGE>

registration rights, holders of at least a majority of the then outstanding
registrable securities may require on two occasions that we register their
shares for public resale. We are obligated to register, on two separate
occasions, these shares if the holders of a majority of the eligible shares
request registration and only if the shares to be registered have an
anticipated public offering price of at least $5,000,000. In addition, holders
of registrable securities may require that we register their shares for public
resale on Form S-3 or similar short-form registration, if we are eligible to
use Form S-3 or similar short-form registration, and the value of the
securities to be registered is at least $1,000,000. If we elect to register any
of our shares of common stock for any public offering, the holders of
registrable securities are entitled to include shares of common stock in the
registration. However we may reduce the number of shares proposed to be
registered in view of market conditions. We will pay all expenses in connection
with any registration, other than underwriting discounts and commissions.

Anti-Takeover Effects of Some Provisions of Delaware Law

   Provisions of Delaware law and our amended and restated certificate of
incorporation and amended bylaws to be in effect upon the closing of this
offering could make the acquisition of our company through a tender offer, a
proxy contest or other means more difficult and could make the removal of
incumbent officers and directors more difficult. We expect these provisions to
discourage coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of our company to first negotiate
with our board of directors. We believe that the benefits provided by our
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal outweigh the disadvantages of discouraging these proposals. We believe
the negotiation of an unfriendly or unsolicited proposal could result in an
improvement of its terms.

   We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
an interested stockholder, unless:

  . prior to the date of the transaction, the board of directors of the
    corporation approved either the business combination or the transaction
    which resulted in the stockholder becoming an interested stockholder;

  . the stockholder owned at least 85% of the voting stock of the corporation
    outstanding at the time the transaction commenced, excluding for purposes
    of determining the number of shares outstanding (a) shares owned by
    persons who are directors and also officers, and (b) shares owned by
    employee stock plans in which employee participants do not have the right
    to determine confidentially whether shares held subject to the plan will
    be tendered in a tender or exchange offer; or

  . on or subsequent to the date of the transaction, the business combination
    is approved by the board and authorized at an annual or special meeting
    of stockholders, and not by written consent, by the affirmative vote of
    at least 66% of the outstanding voting stock which is not owned by the
    interested stockholder.

   Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, did own 15% or more of a
corporation's outstanding voting securities. We expect the existence of this
provision to have an anti-takeover effect with respect to transactions our
board of directors does not approve in advance. We also anticipate that Section
203 may also discourage attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.

                                       51
<PAGE>

Anti-Takeover Effects of Provisions of Our Charter Documents

   Our amended and restated certificate of incorporation to be in effect upon
the closing of this offering provides for our board of directors to be divided
into three classes serving staggered terms. Approximately one-third of the
board of directors will be elected each year. The provision for a classified
board could prevent a party who acquires control of a majority of the
outstanding voting stock from obtaining control of the board of directors until
the second annual stockholders meeting following the date the acquirer obtains
the controlling stock interest. The classified board provision could discourage
a potential acquirer from making a tender offer or otherwise attempting to
obtain control of our company and could increase the likelihood that incumbent
directors will retain their positions. Our amended and restated certificate of
incorporation to be in effect upon the closing of this offering provides that
directors may be removed:

  . with cause by the affirmative vote of the holders of at least a majority
    of the outstanding shares of voting stock; or

  . without cause by the affirmative vote of the holders of at least 66 2/3%
    of the then-outstanding shares of the voting stock.

   Our amended bylaws to be in effect upon the closing of this offering
establish an advance notice procedure for stockholder proposals to be brought
before an annual meeting of our stockholders, including proposed nominations of
persons for election to the board of directors. At an annual meeting,
stockholders may only consider proposals or nominations specified in the notice
of meeting or brought before the meeting by or at the direction of the board of
directors. Stockholders may also consider a proposal or nomination by a person
who was a stockholder of record on the record date for the meeting, who is
entitled to vote at the meeting and who has given to our Secretary timely
written notice, in proper form, of his or her intention to bring that business
before the meeting. The amended bylaws do not give the board of directors the
power to approve or disapprove stockholder nominations of candidates or
proposals regarding other business to be conducted at a special or annual
meeting of the stockholders. However, our bylaws may have the effect of
precluding the conduct of business at a meeting if the proper procedures are
not followed. These provisions may also discourage or deter a potential
acquirer from conducting a solicitation of proxies to elect the acquirer's own
slate of directors or otherwise attempting to obtain control of our company.

   Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the amended
and restated certificate of incorporation or the amended bylaws. Our amended
bylaws authorize a majority of our board of directors, the chairman of the
board or the chief executive officer to call a special meeting of stockholders.
Because our stockholders do not have the right to call a special meeting, a
stockholder could not force stockholder consideration of a proposal over the
opposition of the board of directors by calling a special meeting of
stockholders prior to such time as a majority of the board of directors
believed or the chief executive officer believed the matter should be
considered or until the next annual meeting provided that the requestor met the
notice requirements. The restriction on the ability of stockholders to call a
special meeting means that a proposal to replace the board also could be
delayed until the next annual meeting.

   Delaware law provides that stockholders may execute an action by written
consent in lieu of a stockholder meeting. However, Delaware law also allows us
to eliminate stockholder actions by written consent. Elimination of written
consents of stockholders may lengthen the amount of time required to take
stockholder actions since actions by written consent are not subject to the
minimum notice requirement of a stockholder's meeting. However, we believe that
the elimination of stockholders' written consents may deter hostile takeover
attempts. Without the availability of stockholder's actions by written consent,
a holder controlling a majority of our capital stock would not be able to amend
our bylaws or remove directors without holding a stockholders meeting. The
holder

                                       52
<PAGE>

would have to obtain the consent of a majority of the board of directors, the
chairman of the board or the chief executive officer to call a stockholders'
meeting and satisfy the notice periods determined by the board of directors.
Our amended and restated certificate of incorporation to be in effect upon the
closing of this offering provides for the elimination of actions by written
consent of stockholders upon the closing of this offering.

Transfer Agent and Registrar

   The transfer agent and registrar for our common stock is EquiServe.

Nasdaq Stock Market Listing

   We have applied to have our common stock listed on the Nasdaq National
Market for quotation under the symbol "ILMN".

                                       53
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

   Prior to this offering, there has been no public market for our stock.
Future sales of substantial amounts of our common stock in the public market
following this offering or the possibility of these sales occurring could
adversely affect prevailing market prices for our common stock or could impair
our ability to raise capital through an offering of equity securities.

   After this offering, we will have outstanding 30,541,095 shares of common
stock, based upon shares outstanding as of March 31, 2000. All of the shares
sold in this offering will be freely tradable without restriction under the
Securities Act except for any shares purchased by our "affiliates" as that term
is defined in Rule 144 under the Securities Act. The remaining 25,541,095
shares of common stock held by existing stockholders are "restricted" shares as
that term is defined in Rule 144 under the Securities Act. We issued and sold
the restricted shares in private transactions in reliance upon exemptions from
registration under the Securities Act. Restricted shares may be sold in the
public market only if they are registered under the Securities Act or if they
qualify for an exemption from registration, such as Rule 144 or 701 under the
Securities Act, which are summarized below.

   Our officers, directors and some of our stockholders, including business
partners, who collectively hold an aggregate of 25,088,827 shares, and the
underwriters have entered into lock-up agreements in connection with this
offering. These lock-up agreements provide that, with limited exceptions, our
officers, directors and other stockholders have agreed not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any of
our shares for a period of 180 days after the effective date of this offering.
Goldman, Sachs & Co. may, in its sole discretion and at any time without prior
notice, release all or any portion of the shares subject to these lock-up
agreements. We have also entered into an agreement with Goldman, Sachs & Co.
that we will not offer, sell or otherwise dispose of our common stock until 180
days after the effective date of this offering.

   Taking into account the lock-up agreements, the number of shares, other than
shares sold in the offering, that will be available for sale in the public
market under the provisions of Rules 144 and 701, will be as follows:

  .  264,768 shares that become eligible for sale at various times between
     the date of this offering and the date 90 days after the effective date
     of this offering;

  .  an additional 15,862,985 shares that become eligible for sale beginning
     180 days after the effective date of this offering;

  .  an additional 82,372 shares that become eligible for sale upon exercise
     of vested options 90 days after the date of this prospectus and an
     additional 41,755 shares that become eligible for sale upon the exercise
     of vested options 180 days after the date of this prospectus; and

  .  an additional 9,413,342 shares that become eligible for sale at various
     times thereafter upon the expiration of applicable holding periods.

   Following the expiration of the lock-up period, shares issued upon exercise
of options granted by us prior to the completion of this offering will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act unless those shares are held by one of our affiliates, directors
or officers.

   Rule 701 permits resale of shares in reliance upon Rule 144 but without
compliance with restrictions of Rule 144, including the holding period
requirement. In general, under Rule 144 as currently in effect, a person, or
persons whose shares are aggregated, who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an

                                       54
<PAGE>

affiliate, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

  . one percent of the number of shares of common stock then outstanding,
    which will equal approximately 305,411 shares immediately after the
    offering, or

  . the average weekly trading volume of the common stock during the four
    calendar weeks preceding the filing of a Form 144 with respect to such
    sale.

   Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been an affiliate of
our company at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
including the holding period of any prior owner except an affiliate, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

   Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares under a written compensatory plan or
contract to resell these shares in reliance upon Rule 144 but without
compliance with specific restrictions. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell these shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.

   We intend to file, shortly after the effectiveness of this offering, a
registration statement on Form S-8 under the Securities Act covering all shares
of common stock reserved for issuance under the stock plans and subject to
outstanding options under our 1998 Incentive Stock Plan. See "Management--Stock
Plans". Shares of common stock issued upon exercise of options under the Form
S-8 will be available for sale in the public market, subject to Rule 144 volume
limitations applicable to affiliates and subject to the contractual
restrictions described above. As of March 31, 2000, options to purchase 932,485
shares of common stock were outstanding. Beginning 90 and 180 days after the
effective date of this offering, approximately 82,372 shares and 41,755 shares,
respectively, issuable upon the exercise of vested stock options will become
eligible for sale in the public market, if the options are exercised.

   Following this offering, the holders of an aggregate of 18,836,297 shares of
outstanding common stock and 43,183 shares of common stock issuable upon the
exercise of warrants have the right to require us to register their shares for
sale upon meeting specific requirements. See "Description of Capital Stock--
Registration Rights" for additional information regarding registration rights.

                                       55
<PAGE>

                                  UNDERWRITING

   Illumina and the underwriters for the offering named below have entered into
an underwriting agreement with respect to the shares being offered. Subject to
specified conditions, each underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co., Chase
Securities Inc. and SG Cowen Securities Corporation are the representatives of
the underwriters.

<TABLE>
<CAPTION>
                                                                       Number of
                              Underwriters                              Shares
                              ------------                             ---------
   <S>                                                                 <C>
   Goldman, Sachs & Co. ..............................................
   Chase Securities Inc. .............................................
   SG Cowen Securities Corporation ...................................
                                                                       ---------
     Total............................................................ 5,000,000
                                                                       =========
</TABLE>

   Under the terms and conditions of the underwriting agreement, the
underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken. If the underwriters sell more shares than the total
number set forth in the table above, the underwrites have an option to buy up
to an additional 750,000 shares from Illumina to cover such sales. They may
exercise that option for 30 days. If any shares are purchased pursuant to this
option, the underwriters will severally purchase shares in approximately the
same proportion as set forth in the table above.

   The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Illumina. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.

<TABLE>
<CAPTION>
                                                           Paid by Illumina
                                                           ----------------
                                                       No Exercise Full Exercise
                                                       ----------- -------------
   <S>                                                 <C>         <C>
   Per Share..........................................     $            $
   Total..............................................     $            $
</TABLE>

   Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $   per share from the initial public offering price. The
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $   per share from the initial
public offering price. If all the shares are not sold at the initial public
offering price, the representatives may change the offering price and the other
selling terms.

   Illumina and its directors, officers, and principal shareholders have agreed
with the underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180
days after the date of this prospectus, except with the prior written consent
of the representatives. This restriction does not apply to any issuances under
existing employee benefit plans. See "Shares Eligible For Future Sale" for a
discussion of transfer restrictions.

   Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Illumina and the
representatives. Among the factors considered in determining the initial public
offering price of the shares, in addition to prevailing market conditions, are
Illumina's historical performance, estimates of Illumina's business potential
and earnings prospects, an assessment of Illumina's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.

   Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "ILMN".


                                       56
<PAGE>

   In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from the issuer in the offering. The
underwriters may close out any covered short position either by exercising
their option to purchase additional shares or by purchasing shares in the open
market. "Naked" short sales are any sales in excess of such option. The
underwriters must close out any naked short position by purchasing shares in
the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the common stock in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
various bids for or purchases of common stock made by the underwriters in the
open market prior to the completion of the offering

   The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.

   Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of the
issuer's stock, and together with the imposition of the penalty bid, may
stabilize, maintain or otherwise affect the market price of the common stock.
As a result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. If these activities are commenced,
they may be discontinued at any time. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.

   The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.

   At Illumina's request, the underwriters have reserved up to 250,000 shares
of the common stock offered hereby for sale, at the initial public offering
price, to customers and other friends of Illumina through a directed share
program. The number of shares available for sale to the general public will be
reduced to the extent these persons purchase the reserved shares. There can be
no assurance that any of the reserved shares will be so purchased. Any reserved
shares not so purchased will be offered by the underwriters to the general
public on the same basis as other shares offered hereby.

   A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters. The underwriters may agree to
allocate a number of shares to underwriters for sale to their online brokerage
account holders. Internet distributions will be allocated by the
representatives to underwriters that may make Internet distributions on the
same basis as other allocations.

   Illumina estimates that its share of the total expenses of the offering,
excluding the underwriting discount, will be approximately $1,300,000.

   Illumina has agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act of 1933.

                                       57
<PAGE>

                           VALIDITY OF THE SECURITIES

   The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, and for the underwriters by Sullivan & Cromwell, Washington, D.C.

                                    EXPERTS

   Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999, and for the period from April 28,
1998 (inception) through December 31, 1998 and the year ended December 31,
1999, as set forth in their report, which is included in this Prospectus and in
the registration statement. Our financial statements are included in reliance
on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.

                   WHERE YOU CAN FIND ADDITIONAL INFORMATION

   We have filed with the Securities and Exchange Commission, Washington, D.C.,
a registration statement on Form S-1 under the Securities Act with respect to
the shares of common stock offered hereby. This prospectus does not contain all
the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and our common
stock, you should refer to the registration statement and to the exhibits and
schedules filed therewith. A copy of the registration statement may be
inspected by anyone without charge at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of all or any portion of the registration statement may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, upon payment of prescribed fees. The public may
obtain information on the operation of the public reference room by calling the
SEC at 1-800-SEC-0330. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

                                       58
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                         <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2

Balance Sheets as of December 31, 1998 and 1999 and March 31, 2000
 (unaudited)............................................................... F-3

Statements of Operations for the period from April 28, 1998 (inception) to
 December 31, 1998, the year ended December 31, 1999 and the three months
 ended March 31, 1999 and 2000 (unaudited)................................. F-4

Statements of Stockholders' Equity for the period from April 28, 1998
 (inception) to March 31, 2000............................................. F-5

Statements of Cash Flows for the period from April 28, 1998 (inception) to
 December 31, 1998, the year ended December 31, 1999 and the three months
 ended March 31, 1999 and 2000 (unaudited)................................. F-7

Notes to Financial Statements.............................................. F-8
</TABLE>

                                      F-1
<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
Illumina, Inc.

   We have audited the accompanying balance sheets of Illumina, Inc. as of
December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for the period from April 28, 1998
(inception) to December 31, 1998 and the year ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial position of Illumina, Inc. at December
31, 1998 and 1999, and the results of its operations and its cash flows for the
period from April 28, 1998 (inception) to December 31, 1998 and the year ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.

                                          /s/ Ernst & Young LLP

San Diego, California
February 29, 2000,

                                      F-2
<PAGE>

                                 ILLUMINA, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    Pro forma
                                                                  stockholders'
                                December 31,                      equity as of
                           ------------------------   March 31,     March 31,
                              1998         1999         2000          2000
                           -----------  -----------  -----------  -------------
                                                     (Unaudited)   (Unaudited)
<S>                        <C>          <C>          <C>          <C>
ASSETS
Current assets:
  Cash and cash
   equivalents............ $ 8,233,729  $21,164,114  $15,067,452
  Investments, available
   for sale...............         --    11,924,163   17,649,664
  Accounts receivable.....         --        49,818       22,701
  Other receivable........     102,988      259,117      349,285
  Prepaid expenses and
   other current assets...      71,532       95,833      398,433
                           -----------  -----------  -----------
    Total current assets..   8,408,249   33,493,045   33,487,535
Property and equipment,
 net......................       1,000      291,314      802,031
Intangible assets, net....     113,600       75,733       66,266
Other assets..............      34,566       34,566       74,376
                           -----------  -----------  -----------
    Total assets.......... $ 8,557,415  $33,894,658  $34,430,208
                           ===========  ===========  ===========
LIABILITIES AND
 STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable........ $   129,985  $   318,219  $   349,877
  Accrued liabilities.....      45,685      292,689      745,974
  Note payable............       1,500        1,500          --
                           -----------  -----------  -----------
    Total current
     liabilities..........     177,170      612,408    1,095,851
Deferred revenue..........         --     1,250,000    2,500,000
Commitments
Stockholders' equity:
  Convertible preferred
   stock, no par value,
   50,000,000 shares
   authorized, 11,836,297
   and 18,836,297 shares
   issued and outstanding
   at December 31, 1998
   and 1999, respectively;
   18,836,297 shares
   issued and outstanding
   at March 31, 2000
   (unaudited); 10,000,000
   shares, $.01 par value,
   authorized; no shares
   issued and outstanding
   pro forma (unaudited)..   9,397,998   37,397,998   37,397,998   $       --
  Common stock, $.01 par
   value, 60,000,000
   shares authorized,
   3,456,000 and 5,139,083
   shares issued and
   outstanding at December
   31, 1998 and 1999,
   respectively; 6,704,798
   shares issued and
   outstanding at March
   31, 2000 (unaudited);
   120,000,000 shares
   authorized, 25,541,095
   shares issued and
   outstanding pro forma
   (unaudited)............      34,560       51,391       67,048       255,411
  Additional paid-in
   capital................     380,202    5,288,231   22,741,071    59,950,706
  Deferred compensation...    (286,895)  (4,026,916) (18,767,522)  (18,767,522)
  Unrealized loss on
   investments............         --       (10,689)     (40,120)      (40,120)
  Note receivable.........         --        (4,500)         --            --
  Accumulated deficit.....  (1,145,620)  (6,663,265) (10,564,118)  (10,564,118)
                           -----------  -----------  -----------   -----------
    Total stockholders'
     equity...............   8,380,245   32,032,250   30,834,357   $30,834,357
                           -----------  -----------  -----------   ===========
    Total liabilities and
     stockholders' equity. $ 8,557,415  $33,894,658  $34,430,208
                           ===========  ===========  ===========
</TABLE>

                            See accompanying notes.

                                      F-3
<PAGE>

                                 ILLUMINA, INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                          Period from
                           April 28,
                             1998                    Three months ended
                          (inception)  Year ended         March 31,
                          to December   December    ----------------------
                           31, 1998     31, 1999      1999        2000
                          -----------  -----------  ---------  -----------
                                                         (Unaudited)
<S>                       <C>          <C>          <C>        <C>          <C>
Revenue.................. $       --   $   474,026  $  42,233  $    83,205
Costs and expenses:
  General and
   administrative
   (exclusive of stock
   based compensation of
   $16,095 and $345,970
   in 1998 and 1999,
   respectively, and
   $15,596 and $380,496
   for the three months
   ended March 31, 1999
   and 2000,
   respectively).........     345,080    1,348,870    164,529      615,341
  Research and
   development (exclusive
   of stock based
   compensation of
   $62,092 and $611,852
   in 1998 and 1999,
   respectively, and
   $84,707 and $805,329
   for the three months
   ended March 31, 1999
   and 2000,
   respectively).........     770,901    4,085,743    720,061    2,680,041
  Amortization of
   deferred compensation
   and other non-cash
   compensation charges..      78,187      957,822    100,303    1,185,825
                          -----------  -----------  ---------  -----------
    Total costs and
     expenses............   1,194,168    6,392,435    984,893    4,481,207
                          -----------  -----------  ---------  -----------
Loss from operations.....  (1,194,168)  (5,918,409)  (942,660)  (4,398,002)
Interest income, net ....      48,548      400,764     99,221      497,149
                          -----------  -----------  ---------  -----------
Net loss................. $(1,145,620) $(5,517,645) $(843,439) $(3,900,853)
                          ===========  ===========  =========  ===========
Historical net loss per
 share, basic and
 diluted................. $     (1.71) $     (3.91) $   (1.21) $     (2.31)
                          ===========  ===========  =========  ===========
Shares used in
 calculating historical
 net loss per share,
 basic and diluted.......     668,748    1,410,225    696,352    1,685,796
Pro forma net loss per
 share, basic and
 diluted.................              $     (0.40)            $     (0.25)
                                       ===========             ===========
Shares used in
 calculating pro forma
 net loss per share,
 basic and diluted.......               13,696,522              15,701,190
</TABLE>


                            See accompanying notes.

                                      F-4
<PAGE>

                                ILLUMINA, INC.

                      STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                   Convertible preferred stock   Common stock     Additional                Unrealized
                   --------------------------- -----------------   paid-in      Deferred      loss on      Note    Accumulated
                      Shares        Amount      Shares    Amount   capital    compensation  investments receivable   deficit
                   ------------- ------------- ---------  ------  ----------  ------------  ----------- ---------- -----------
<S>                <C>           <C>           <C>        <C>     <C>         <C>           <C>         <C>        <C>
Balance at April
28, 1998.........            --  $         --        --   $  --   $     --    $       --      $   --      $  --    $      --
 Issuance of
 common stock at
 $.01 per share
 for cash........            --            --    600,000   6,000        --            --          --         --           --
 Issuance of
 restricted
 common stock at
 $.01 to $.03 per
 share for cash..            --            --  2,856,000  28,560     15,120           --          --         --           --
 Issuance of
 Series A
 preferred stock
 at $.30 per
 share for cash..      2,499,998       749,999       --      --         --            --          --         --           --
 Issuance of
 Series B
 preferred stock
 at $.926 per
 share for cash..      9,212,147     8,533,000       --      --         --            --          --         --           --
 Issuance of
 Series B
 preferred stock
 at $.926 per
 share for
 nGenetics
 acquisition.....        124,152       114,999       --      --         --            --          --         --           --
 Deferred
 compensation
 related to stock
 options and
 restricted
 stock...........            --            --        --      --     319,818      (319,818)        --         --           --
 Amortization of
 deferred
 compensation....            --            --        --      --         --         32,923         --         --           --
 Deferred
 compensation
 related to
 restricted stock
 purchased by
 consultants.....            --            --        --      --      45,264           --          --         --           --
 Net loss and
 comprehensive
 loss............            --            --        --      --         --            --          --         --    (1,145,620)
                   ------------- ------------- ---------  ------  ---------   -----------     -------     ------   ----------
Balance at
December 31,
1998.............     11,836,297     9,397,998 3,456,000  34,560    380,202      (286,895)        --         --    (1,145,620)
 Issuance of
 common stock
 including
 exercise of
 stock options
 for cash and
 note receivable.            --            --    297,416   2,974        167           --          --         --           --
 Issuance of
 restricted
 common stock for
 cash............            --            --  1,367,000  13,670    109,360           --          --      (4,500)         --
 Issuance of
 common stock for
 technology......            --            --     35,000     350    100,986           --          --         --           --
 Repurchase of
 restricted
 common stock....            --            --    (16,333)   (163)      (327)          --          --         --           --
 Issuance of
 Series C
 preferred stock
 at $4.00 per
 share for cash..      7,000,000    28,000,000       --      --         --            --          --         --           --
 Deferred
 compensation
 related to stock
 options and
 restricted
 stock...........            --            --        --      --   4,334,469    (4,334,469)        --         --           --
<CAPTION>
                       Total
                   stockholders'
                      equity
                   -------------
<S>                <C>
Balance at April
28, 1998.........   $      --
 Issuance of
 common stock at
 $.01 per share
 for cash........        6,000
 Issuance of
 restricted
 common stock at
 $.01 to $.03 per
 share for cash..       43,680
 Issuance of
 Series A
 preferred stock
 at $.30 per
 share for cash..      749,999
 Issuance of
 Series B
 preferred stock
 at $.926 per
 share for cash..    8,533,000
 Issuance of
 Series B
 preferred stock
 at $.926 per
 share for
 nGenetics
 acquisition.....      114,999
 Deferred
 compensation
 related to stock
 options and
 restricted
 stock...........          --
 Amortization of
 deferred
 compensation....       32,923
 Deferred
 compensation
 related to
 restricted stock
 purchased by
 consultants.....       45,264
 Net loss and
 comprehensive
 loss............   (1,145,620)
                   -------------
Balance at
December 31,
1998.............   8,380, 245
 Issuance of
 common stock
 including
 exercise of
 stock options
 for cash and
 note receivable.        3,141
 Issuance of
 restricted
 common stock for
 cash............      118,530
 Issuance of
 common stock for
 technology......      101,336
 Repurchase of
 restricted
 common stock....         (490)
 Issuance of
 Series C
 preferred stock
 at $4.00 per
 share for cash..   28,000,000
 Deferred
 compensation
 related to stock
 options and
 restricted
 stock...........          --
</TABLE>
                                                  (continued on following page)

                                      F-5
<PAGE>

                                ILLUMINA, INC.

                STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)

<TABLE>
<CAPTION>
                        Convertible
                      preferred stock       Common stock      Additional                 Unrealized
                   ---------------------- ------------------    paid-in      Deferred      loss on      Note    Accumulated
                     Shares     Amount     Shares    Amount     capital    compensation  investments receivable   deficit
                   ---------- ----------- ---------  -------  -----------  ------------  ----------- ---------- ------------
<S>                <C>        <C>         <C>        <C>      <C>          <C>           <C>         <C>        <C>
 Amortization of
 deferred
 compensation....         --          --        --       --           --        594,448        --         --             --
 Deferred
 compensation
 related to
 restricted stock
 purchased by
 consultants.....         --          --        --       --       363,374           --         --         --             --
 Comprehensive
 loss:
 Unrealized loss
 on investments..         --          --        --       --           --            --     (10,689)       --             --
 Net loss........         --          --        --       --           --            --         --         --      (5,517,645)
 Comprehensive
 loss............         --          --        --       --           --            --         --         --             --
                   ---------- ----------- ---------  -------  -----------  ------------   --------     ------   ------------
Balance at
December 31,
1999.............  18,836,297  37,397,998 5,139,083   51,391    5,288,231    (4,026,916)   (10,689)    (4,500)    (6,663,265)
 Issuance of
 common stock
 including
 exercise of
 stock options
 for cash
 (unaudited).....         --          --     94,965      950        4,839           --         --         --             --
 Issuance of
 restricted
 common stock for
 cash
 (unaudited).....         --          --  1,290,000   12,900      832,350           --         --         --             --
 Issuance of
 common stock for
 technology and
 services
 (unaudited).....         --          --    186,000    1,860      689,640           --         --         --             --
 Repurchase of
 restricted
 common stock
 (unaudited).....         --          --     (5,250)     (53)        (420)          --         --         --             --
 Repayment of
 note receivable
 (unaudited).....         --          --        --       --           --            --         --       4,500            --
 Deferred
 compensation
 related to stock
 options and
 restricted stock
 (unaudited).....         --          --        --       --    12,653,050   (12,653,050)       --         --             --
 Amortization of
 deferred
 compensation
 (unaudited).....         --          --        --       --           --        870,744        --         --             --
 Deferred
 compensation
 related to
 restricted stock
 purchased by
 consultants
 (unaudited).....         --          --        --       --     3,273,381    (2,958,300)       --         --             --
 Comprehensive
 loss:
 Unrealized loss
 on investments
 (unaudited).....         --          --        --       --           --            --     (29,431)       --             --
 Net loss
 (unaudited).....         --          --        --       --           --            --         --         --      (3,900,853)
 Comprehensive
 loss
 (unaudited).....         --          --        --       --           --            --         --         --             --
                   ---------- ----------- ---------  -------  -----------  ------------   --------     ------   ------------
Balance at March
31, 2000
(unaudited)......  18,836,297 $37,397,998 6,704,798  $67,048  $22,741,071  $(18,767,522)  $(40,120)    $  --    $(10,564,118)
                   ========== =========== =========  =======  ===========  ============   ========     ======   ============
<CAPTION>
                       Total
                   stockholders'
                      equity
                   -------------
<S>                <C>
 Amortization of
 deferred
 compensation....       594,448
 Deferred
 compensation
 related to
 restricted stock
 purchased by
 consultants.....       363,374
 Comprehensive
 loss:
 Unrealized loss
 on investments..       (10,689)
 Net loss........    (5,517,645)
                   -------------
 Comprehensive
 loss............    (5,528,334)
                   -------------
Balance at
December 31,
1999.............    32,032,250
 Issuance of
 common stock
 including
 exercise of
 stock options
 for cash
 (unaudited).....         5,789
 Issuance of
 restricted
 common stock for
 cash
 (unaudited).....       845,250
 Issuance of
 common stock for
 technology and
 services
 (unaudited).....       691,500
 Repurchase of
 restricted
 common stock
 (unaudited).....          (473)
 Repayment of
 note receivable
 (unaudited).....         4,500
 Deferred
 compensation
 related to stock
 options and
 restricted stock
 (unaudited).....           --
 Amortization of
 deferred
 compensation
 (unaudited).....       870,744
 Deferred
 compensation
 related to
 restricted stock
 purchased by
 consultants
 (unaudited).....       315,081
 Comprehensive
 loss:
 Unrealized loss
 on investments
 (unaudited).....       (29,431)
 Net loss
 (unaudited).....    (3,900,853)
                   -------------
 Comprehensive
 loss
 (unaudited).....    (3,930,284)
                   -------------
Balance at March
31, 2000
(unaudited)......   $30,834,357
                   =============
</TABLE>

                            See accompanying notes.

                                      F-6
<PAGE>

                                 ILLUMINA, INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                            Period from
                           April 28, 1998                Three Months Ended
                           (inception) to Year ended         March 31,
                            December 31,   December    -----------------------
                                1998       31, 1999       1999        2000
                           -------------- -----------  ----------  -----------
                                                            (Unaudited)
<S>                        <C>            <C>          <C>         <C>
Operating activities
Net loss.................   $(1,145,620)  $(5,517,645) $ (843,439) $(3,900,853)
 Adjustments to
  reconcile net loss to
  net cash used in
  operating activities:
 Write-off of assets
  purchased in exchange
  for Series B preferred
  stock..................           399           --          --           --
 Write-off of note
  payable................           --            --          --        (1,500)
 Issuance of stock for
  technology and
  services...............           --        101,336      11,336      691,500
 Depreciation and
  amortization...........           --         42,841       9,467       39,243
 Amortization of premium
  on investments.........           --         53,526      23,436      (44,166)
 Amortization of
  deferred compensation
  and other non-cash
  compensation charges...        78,187       957,822     100,303    1,185,825
 Changes in operating
  assets and
  liabilities:
   Prepaid expenses and
    other current assets.       (71,532)      (24,301)     23,668     (302,600)
   Accounts receivable...           --        (49,818)    (42,233)      27,117
   Other receivable......      (102,988)     (156,129)    (67,975)     (90,168)
   Deferred revenue......           --      1,250,000         --     1,250,000
   Other assets..........       (34,566)          --          --       (39,810)
   Accounts payable......       129,985       188,234      (8,465)      31,658
   Accrued liabilities...        45,685       247,004     (25,685)     453,285
                            -----------   -----------  ----------  -----------
     Net cash used in
      operating
      activities.........    (1,100,450)   (2,907,130)   (819,587)    (700,469)
Investing activities
Purchase of investment
 securities..............           --    (16,244,380) (5,324,791)  (8,710,766)
Maturity of investment
 securities..............           --      4,256,000         --     3,000,000
Purchase of property and
 equipment...............           --       (295,286)        --      (540,493)
                            -----------   -----------  ----------  -----------
Net cash used in
 investing activities....           --    (12,283,666) (5,324,791)  (6,251,259)

Financing activities
Proceeds from note
 payable.................         1,500           --          --           --
Proceeds from stock
 subscription receivable.           --            --          --         4,500
Proceeds from issuance of
 common stock, net of
 repurchased shares......        49,680       121,181         --       850,566
Net proceeds from
 issuance of Series A
 preferred stock.........       749,999           --          --           --
Net proceeds from
 issuance of Series B
 preferred stock.........     8,533,000           --          --           --
Net proceeds from
 issuance of Series C
 preferred stock.........           --     28,000,000         --           --
                            -----------   -----------  ----------  -----------
Net cash provided by
 financing activities....     9,334,179    28,121,181         --       855,066
                            -----------   -----------  ----------  -----------
Net increase (decrease)
 in cash and cash
 equivalents.............     8,233,729    12,930,385  (6,144,378)  (6,096,662)
Cash and cash equivalents
 at beginning of the
 period..................           --      8,233,729   8,233,729   21,164,114
                            -----------   -----------  ----------  -----------
Cash and cash equivalents
 at end of the period....   $ 8,233,729   $21,164,114  $2,089,351  $15,067,452
                            ===========   ===========  ==========  ===========
Non-cash investing and
 financing transactions:
Purchase of property and
 equipment and intangible
 assets in exchange for
 Series B preferred
 stock...................   $   114,999   $       --   $      --   $       --
                            ===========   ===========  ==========  ===========
Issuance of stock for
 stock subscription
 receivable..............   $       --    $     4,500  $      --   $       --
                            ===========   ===========  ==========  ===========
Issuance of stock for
 technology and services.   $       --    $   101,336  $   11,336  $   691,500
                            ===========   ===========  ==========  ===========
</TABLE>



                            See accompanying notes.

                                      F-7
<PAGE>

                                 ILLUMINA, INC.

                         NOTES TO FINANCIAL STATEMENTS

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)

1. Summary of Significant Accounting Policies

 Organization and Business

   Illumina, Inc. (the "Company") was incorporated on April 28, 1998. The
Company is developing next-generation tools that will permit the large-scale
analysis of genetic variation and function. The Company's proprietary BeadArray
technology will provide the throughput, cost effectiveness and flexibility
necessary to enable researchers in the life sciences and pharmaceutical
industries to perform the billions of tests necessary to extract medically
valuable information from advances in genomics. This information will correlate
genetic variation and gene function with particular disease states, enhancing
drug discovery, allowing diseases to be detected earlier and more specifically
and permitting better choices of drugs for individual patients. In addition to
the life sciences and pharmaceutical industries, the Company's technology will
have applicability across a wide variety of industries, including agriculture,
petrochemicals and food, flavor and beverages.

 Use of Estimates

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

 Interim Financial Information

   The financial information as of March 31, 2000 and for the three months
ended March 31, 1999 and 2000 is unaudited and includes all adjustments,
consisting only of normal recurring adjustments, that the Company's management
considers necessary for a fair presentation of the Company's operating results
and cash flows for such periods. Results for the three month period ended March
31, 2000 are not necessary indicative of results to be expected for the full
fiscal year 2000 or any future period.

 Cash and Cash Equivalents

   Cash and cash equivalents are comprised of highly liquid investments with an
original maturity of less than three months when purchased.

 Investments

   The Company applies Statement of Financial Accounting Standards ("SFAS") No.
115, Accounting for Certain Investments in Debt and Equity Securities, to its
investments. Under SFAS No. 115, the Company classifies its investments as
"Available-for-Sale" and records such assets at estimated fair value in the
balance sheet, with unrealized gains and losses, if any, reported in
stockholders' equity.

   At December 31, 1999, investments consist of the following:

<TABLE>
<CAPTION>
                                                                     Unrealized
                                              Amortized    Market       gain
                                                Cost        Value      (loss)
                                             ----------- ----------- ----------
   <S>                                       <C>         <C>         <C>
   Corporate debt securities................ $11,935,562 $11,924,163  $(11,399)
                                             ----------- -----------  --------
                                             $11,935,562 $11,924,163  $(11,399)
                                             =========== ===========  ========
</TABLE>

                                      F-8
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)


   The Company has an unrealized gain of $710 related to cash equivalents,
resulting in total unrealized losses of $10,689 at December 31, 1999.

   At March 31, 2000, investments consist of the following:

<TABLE>
<CAPTION>
                                                                     Unrealized
                                              Amortized    Market       gain
                                                cost        value      (loss)
                                             ----------- ----------- ----------
   <S>                                       <C>         <C>         <C>
   Corporate debt securities................ $17,691,229 $17,649,664  $(41,565)
                                             ----------- -----------  --------
                                             $17,691,229 $17,649,664  $(41,565)
                                             =========== ===========  ========
</TABLE>

   The Company has an unrealized gain of $1,445 related to cash equivalents,
resulting in total unrealized losses of $40,120 at March 31, 2000.

   There were no material realized gains or losses for the year ended December
31, 1999 or for the three months ended March 31, 2000.

   The amortized cost and estimated fair value of corporate debt securities at
March 31, 2000, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because the issuers of the securities
may have the right to prepay obligations without prepayment penalties.

<TABLE>
<CAPTION>
                                                                     Estimated
                                                           Cost     Fair Value
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   Due in one year or less............................. $ 7,107,984 $ 7,101,327
   Due after one year through three years..............  10,583,245  10,548,337
                                                        ----------- -----------
                                                        $17,691,229 $17,649,664
                                                        =========== ===========
</TABLE>

 Concentration of Credit Risk

   Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
short-term investments. The Company limits its exposure to credit loss by
placing its cash and investments with high credit quality financial
institutions.

 Fair Value of Financial Instruments

   Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, are carried at cost,
which management believes approximates fair value.

 Property and Equipment

   Property and equipment are stated at cost and depreciated over the estimated
useful lives of the assets (generally three to five years) using the straight-
line method. Amortization of leasehold improvements is computed over the
shorter of the lease term or the estimated useful life of the related assets.

                                      F-9
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)


 Acquired Technology Rights

   The intangible assets consist of acquired technology rights related to the
acquisition of nGenetics in 1998. The purchase price was $114,999, consisting
of 124,152 shares of Series B preferred stock, valued at $0.926 per shares, the
selling price paid in cash by outside investors in a contemporaneous selling of
stock.

   In accordance with APB 17, Accounting for Intangible Assets, the acquired
technology rights are recorded at cost. The rights related to the acquired
technology are being amortized over its estimated useful life (four years) and
the Company has amortized approximately $47,000 through March 31, 2000.

 Long-Lived Assets

   In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, if indicators of impairment
exist, the Company assesses the recoverability of the affected long-lived
assets by determining whether the carrying value of such assets can be
recovered through undiscounted future operating cash flows. If impairment is
indicated, the Company measures the future cash flows associated with the use
of the asset. While the Company's current and historical operating and cash
flow losses are indicators of impairment, the Company believes the future cash
flows to be received from the long-lived assets will exceed the assets'
carrying value, and accordingly the Company has not recognized any impairment
losses through March 31, 2000.

 Revenue Recognition

   Revenue from grants is recognized on a percentage of completion basis as
related costs are incurred, provided that amounts earned are not subject to
refund if the research is unsuccessful. Payments received in advance of the
performance or product sale requirements are deferred until the related
performance or product sale requirements have been completed.

 Research and Development

   Expenditures relating to research and development are expensed in the period
incurred.

 Income Taxes

   Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred income tax asset or liability is
computed for the expected future impact of differences between the financial
reporting and tax bases of assets and liabilities, as well as the expected
future tax benefit to be derived from tax loss and credit carryforwards.
Deferred income tax expense is generally the net change during the year in the
deferred income tax asset or liability. Valuation allowances are established
when realizability of deferred tax assets is uncertain. The effect of tax rate
changes is reflected in tax expense during the period in which such changes are
enacted.

                                      F-10
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)


 Stock-Based Compensation

   As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company accounts for common stock options granted, and restricted stock sold,
to employees, founders and directors using the intrinsic value method and,
thus, recognizes no compensation expense for options granted, or restricted
stock sold, with exercise prices equal to or greater than the fair value of the
Company's common stock on the date of the grant. The Company has recorded
deferred stock compensation related to certain stock options, and restricted
stock, which were granted with exercise prices below estimated fair value (see
Note 3), which is being amortized on an accelerated amortization methodology in
accordance with FIN 28.

   Deferred compensation for options granted, and restricted stock sold, to
consultants has been determined in accordance with SFAS No. 123 and EITF 96-18
as the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measured. Deferred charges for
options granted, and restricted stock sold, to consultants are periodically
remeasured as the underlying options vest.

 Comprehensive Loss

   In accordance with SFAS No. 130, Reporting Comprehensive Income, the Company
has disclosed comprehensive loss as a component of stockholders' equity.

 Net Loss Per Share

   Basic and diluted net loss per common share are presented in conformity with
SFAS No. 128, Earnings per Share, and SAB 98, for all periods presented. Under
the provisions of SAB 98, common stock and convertible preferred stock that has
been issued or granted for nominal consideration prior to the anticipated
effective date of the initial public offering must be included in the
calculation of basic and diluted net loss per common share as if these shares
had been outstanding for all periods presented. To date, the Company has not
issued or granted shares for nominal consideration.

   In accordance with SFAS No. 128, basic and diluted net loss per share has
been computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Pro forma
basic and diluted net loss per common share, as presented in the statements of
operations, has been computed for the year ended December 31, 1999 as described
above, and also gives effect to the assumed conversion of preferred stock which
will automatically convert to common stock immediately prior to the completion
of the Company's initial public offering (using the "as if converted" method)
from the original date of issuance.

                                      F-11
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)


   The following table presents the calculation net loss per share:

<TABLE>
<CAPTION>
                              Period from
                               April 28,
                                 1998                    Three Months Ended
                              (inception)  Year ended         March 31,
                              to December   December    ----------------------
                               31, 1998     31, 1999      1999        2000
                              -----------  -----------  ---------  -----------
<S>                           <C>          <C>          <C>        <C>
Net loss....................  $(1,145,620) $(5,517,645) $(843,439) $(3,900,853)
                              ===========  ===========  =========  ===========
Basic and diluted net loss
 per share..................  $     (1.71) $     (3.91) $   (1.21) $     (2.31)
                              ===========  ===========  =========  ===========
Weighted-average shares used
 in computing historical net
 loss per share, basic and
 diluted....................      668,748    1,410,225    696,352    1,685,796
Pro forma net loss per
 share, basic and diluted...  $     (0.26) $     (0.40) $   (0.14) $     (0.25)
                              ===========  ===========  =========  ===========
Shares used above...........      668,748    1,410,225    696,352    1,685,796
  Pro forma adjustment to
   reflect weighted-average
   effect of assumed
   conversion of convertible
   preferred stock..........    3,784,570   12,286,297  5,482,121   14,015,394
                              -----------  -----------  ---------  -----------
  Shares used in computing
   pro forma net loss per
   share, basic and diluted.    4,453,318   13,696,522  6,178,473   15,701,190
</TABLE>

   The Company has excluded all convertible preferred stock, outstanding stock
options and warrants, and shares subject to repurchase from the calculation of
diluted loss per common share because all such securities are antidilutive for
all periods presented. The total number of shares excluded from the calculation
of diluted net loss per share, prior to application of the treasury stock
method for options and warrants, was 14,919,900, 22,649,271, 15,073,736 and
24,056,726 for the period from April 28, 1998 (inception) through December 31,
1998, the year ended December 31, 1999 and for the three months ended March 31,
1999 and 2000, respectively. Such securities, had they been dilutive, would
have been included in the computation of diluted net loss per share.

 Pro Forma Stockholders' Equity

   Unaudited pro forma stockholders' equity at March 31, 2000 includes the
conversion of all outstanding shares of preferred stock into common stock.

 Segment Reporting

   The Company has determined that it operates in only one segment.

 Effect of New Accounting Standards

   SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
will be effective January 1, 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement

                                      F-12
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)

also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. The Company
believes the adoption of SFAS No. 133 will not have an effect on the financial
statements because the Company does not engage in derivative or hedging
activities.

2. Balance Sheet Account Details

   Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                      December 31,
                                                     ---------------  March 31,
                                                      1998    1999      2000
                                                     ------ --------  ---------
   <S>                                               <C>    <C>       <C>
   Laboratory equipment............................. $  --  $271,250  $658,518
   Computer equipment...............................  1,000   24,487   161,264
   Furniture and fixtures...........................    --       549    16,998
                                                     ------ --------  --------
                                                      1,000  296,286   836,780
   Accumulated depreciation and amortization........    --    (4,972)  (34,749)
                                                     ------ --------  --------
     Total.......................................... $1,000 $291,314  $802,031
                                                     ====== ========  ========
</TABLE>

   Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                        December 31,
                                                      ---------------- March 31,
                                                       1998     1999     2000
                                                      ------- -------- ---------
   <S>                                                <C>     <C>      <C>
   Compensation...................................... $19,196 $ 94,236 $297,488
   Professional fees.................................  26,489  103,771  340,187
   Sponsored research................................     --    74,667   90,917
   Other.............................................     --    20,015   17,382
                                                      ------- -------- --------
     Total........................................... $45,685 $292,689 $745,974
                                                      ======= ======== ========
</TABLE>

3. Stockholders' Equity

 Common stock

   As of March 31, 2000, the Company has sold, net of repurchased shares,
2,989,083 shares of common stock at $0.01 per share, 797,749 shares at $0.03
per share, 1,441,234 shares at $0.09 per share, 175,000 shares at $0.25 per
share, 711,732 shares at $0.40 per share and 590,000 shares at $1.00 per share,
of which 5,491,417 shares were sold to employees and consultants subject to
restricted stock agreements. The common shares vest in accordance with the
provisions of the agreements, generally over five years. All unvested shares
are subject to repurchase by the Company at the original purchase price. As of
March 31, 2000, 4,244,761 shares of common stock were subject to repurchase.

                                      F-13
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)


 Convertible Preferred Stock

   A summary of convertible preferred stock issued and outstanding as of March
31, 2000 is as follows:

<TABLE>
<CAPTION>
                                                                     Liquidation
                                                            Shares   Preference
                                                          ---------- -----------
   <S>                                                    <C>        <C>
   Series A..............................................  2,499,998 $   749,999
   Series B..............................................  9,336,299   8,647,999
   Series C..............................................  7,000,000  28,000,000
                                                          ---------- -----------
                                                          18,836,297 $37,397,998
                                                          ========== ===========
</TABLE>

   At March 31, 2000, the Company had 2,500,000 shares of Convertible Series A
preferred stock and 2,500,000 shares of Convertible Series A-1 preferred stock
authorized, of which 2,499,998 shares of the Series A preferred stock were
issued and outstanding. The Series A preferred stock was issued at $0.30 per
share for cash.

   In addition, the Company had 12,000,000 shares of Convertible Series B
preferred stock and 12,000,000 shares of Convertible Series B-1 preferred stock
authorized, of which 9,336,299 shares of Series B preferred stock were issued
and outstanding. The Company issued 9,212,147 shares of Series B preferred
stock at $0.926 per share for cash and 124,152 shares of Series B preferred
stock at $0.926 per share in conjunction with the purchase of the net assets of
nGenetics in 1998.

   The Company also has 7,000,000 shares of Convertible Series C preferred
stock and 7,000,000 shares of Convertible Series C-1 preferred stock
authorized. During November and December 1999, the Company sold 7,000,000
shares of Series C convertible preferred stock at $4.00 per share for cash. As
more fully discussed in Note 4, the Company sold 1,250,000 of these shares as
part of a collaborative agreement with PE Corporation. The remaining 5,750,000
Series C shares were sold to institutional investors after the completion of
the PE collaboration.

   The Series A, A-1, B, B-1, C, and C-1 preferred stock are convertible, at
the option of the holder, at any time after the date of issuance, into shares
of common stock. The preferred stock will automatically be converted into
shares of common stock at the then effective conversion price (currently a one-
for-one conversion ratio) (i) upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933 with a sale price per share of common stock of
at least $4.50 and with aggregate proceeds of at least $15,000,000, or (ii)
upon the approval of the holders of more than 66 2/3% of the outstanding shares
of each series of preferred stock. Each holder of Series A, B and C convertible
preferred stock is entitled to one vote for each share of common stock into
which such convertible preferred share would convert.

   In the event of any liquidation, dissolution or winding up of the Company,
the holders of preferred stock are entitled to receive their liquidation value
prior and in preference to any distribution of the assets or surplus funds of
the Company to the holders of common stock. If, upon the occurrence of such
event, the assets and funds distributed among the holders of preferred stock
are insufficient to permit full payment, the entire assets and funds of the
Company would be distributed

                                      F-14
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)

among the preferred stockholders in proportion to the product of the
liquidation preference of each such share and the number of such shares owned
by each such holder. The holders of Series A, B and C convertible preferred
stock are entitled to receive liquidation preferences over the common
stockholders at the rate of $0.30, $0.926, and $4.00 per share, respectively.

 Warrants

   In connection with a lease financing facility (Note 5), in 1998 the Company
issued to Comdisco warrants to purchase 43,183 shares of common stock at $.926
per share. Comdisco may exercise the warrants, in whole or in part, until
November 17, 2005, or 3 years after the closing date of the Company's initial
public offering, whichever is later.

 Stock Options

   In 1998, the Company adopted the 1998 Incentive Stock Plan (the "Plan") and
has reserved 4,500,000 shares of common stock for grants under the Plan. The
Plan provides for the grant of incentive and nonstatutory stock options, stock
bonuses and rights to purchase stock to employees, directors or consultants of
the Company. The Plan provides that incentive stock options will be granted
only to employees at no less than the fair value of the Company's common stock
(no less than 110% of the fair value for nonstatutory stock options), as
determined by the board of directors at the date of the grant. Options
generally vest 20% one year from the date of grant and ratably each month
thereafter for a period of 48 months and expire up to ten years from date of
grant.

   A summary of the Company's stock option activity from April 28, 1998
(inception) through March 31, 2000 follows:

<TABLE>
<CAPTION>
                                                                    Weighted-
                                                                     Average
                                                        Options   Exercise Price
                                                        --------  --------------
   <S>                                                  <C>       <C>
   Outstanding at April 28, 1998 (inception)...........      --       $ --
   Granted.............................................  525,000      $0.02
                                                        --------
   Outstanding at December 31, 1998....................  525,000      $0.02
   Granted.............................................  495,200      $0.10
   Exercised........................................... (297,416)     $0.01
   Cancelled...........................................  (77,584)     $0.03
                                                        --------
   Outstanding at December 31, 1999....................  645,200      $0.08
   Granted (unaudited).................................  382,500      $0.70
   Exercised (unaudited)...............................  (94,965)     $0.06
   Cancelled (unaudited)...............................     (250)     $0.09
                                                        --------
   Outstanding at March 31, 2000 (unaudited)...........  932,485      $0.34
                                                        ========
</TABLE>

                                      F-15
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)


   At March 31, 2000, options to purchase approximately 7,525 shares were
exercisable and 522,384 shares remain available for future grant.

   Following is a further breakdown of the options outstanding as of March 31,
2000:

<TABLE>
<CAPTION>
                                                                              Weighted
                                    Weighted                                  average
                                    average        Weighted                exercise price
      Range of         Options   remaining life    average       Options     of options
   exercise prices   outstanding    in years    exercise price exercisable  exercisable
   ---------------   ----------- -------------- -------------- ----------- --------------
   <S>               <C>         <C>            <C>            <C>         <C>
        $0.03          115,251        3.5           $0.03         7,460        $0.03
        $0.09          397,466        4.1           $0.09            65        $0.09
        $0.25           38,000        4.7           $0.25           --         $0.25
        $0.40          192,268        4.9           $0.40           --         $0.40
        $1.00          189,500        5.0           $1.00           --         $1.00
                       -------                                    -----
                       932,485                                    7,525
                       =======                                    =====
</TABLE>

   Pro forma information regarding net loss is required by SFAS No. 123 and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that statement. The fair value for these options
was estimated at the dates of grant using the fair value option pricing model
(Black Scholes) with the following weighted-average assumptions for 1999 and
1998: (a) weighted average risk-free interest rate of 6.5%, (b) expected
dividend yield of 0%, (c) anticipated volatility of 70% and (d) five year
estimated life of the options.

   For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the vesting period. The Company's
adjusted pro forma information is as follows:

<TABLE>
<CAPTION>
                                        Period from                   Three
                                       April 28, 1998                Months
                                       (inception) to Year ended      Ended
                                        December 31,   December     March 31,
                                            1998       31, 1999       2000
                                       -------------- -----------  -----------
   <S>                                 <C>            <C>          <C>
   Adjusted pro forma net loss........  $(1,091,846)  $(4,868,928) $(3,080,092)
   Adjusted pro forma basic net loss
    per share.........................  $     (1.63)  $     (3.45) $     (1.83)
</TABLE>

   The pro forma effect on net loss presented is not likely to be
representative of the pro forma effects on reported net income or loss in
future years because these amounts reflect less than five years of vesting.

 2000 Employee Stock Purchase Plan

   In February 2000, the board of directors adopted the 2000 Employee Stock
Purchase Plan (the "Purchase Plan"). A total of 500,000 shares of the Company's
common stock have been reserved for issuance under the Purchase Plan. The
Purchase Plan permits eligible employees to purchase common stock at a
discount, but only through payroll deductions, during defined offering periods.
The price at which stock is purchased under the Purchase Plan is equal to 85%
of the fair market value of the common stock on the first or last day of the
offering period, whichever is lower. The initial offering period will commence
on the effective date of the offering. In addition, the Purchase Plan provides
for annual increases of shares available for issuance under the Purchase Plan
beginning with fiscal 2001.

                                      F-16
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)


 Deferred Stock Compensation

   Since the inception of the Company, in connection with the grant of certain
stock options and sales of restricted stock to employees, founders and
directors through March 31, 2000, the Company has recorded deferred stock
compensation totaling approximately $17.3 million, representing the difference
between the exercise or purchase price and the fair value of the Company's
common stock as estimated by the Company's management for financial reporting
purposes on the date such stock options were granted or restricted common stock
was sold. Deferred compensation is included as a reduction of stockholders'
equity and is being amortized to expense over the vesting period of the options
and restricted stock. During the three months ended March 31, 2000, the Company
recorded amortization of deferred stock compensation expense of approximately
$0.8 million.

   In February 2000, the Company modified the consulting agreements with all of
its outside consultants. Under the modified consulting agreements, the
consultants agreed to pay a substantial financial penalty if they did not
fulfill their performance obligations under the agreements. The amount of the
penalty was determined for each consultant based on the intrinsic value of the
unvested restricted common stock based on the original purchase price and the
fair value of the common stock as estimated by the Company's management for
financial reporting purposes on the date of modification. Each consultant had
already vested in a portion of the original restricted common stock in
accordance with the services already provided, and the amounts related to the
vested common stock was expensed. The deferred consultant compensation related
to the unvested stock of $3.0 million was recorded in February 2000 and will be
amortized ratably over the contracted service periods. The Company amortized
approximately $80,000 of this deferred compensation in the three months ended
March 31, 2000.

   The following is a breakdown of the amortization of deferred compensation
and other non-cash charges:

<TABLE>
<CAPTION>
                                  Period from
                                 April 28, 1998              Three Months Ended
                                 (inception) to  Year Ended       March 31,
                                  December 31,  December 31, -------------------
                                      1998          1999       1999      2000
                                 -------------- ------------ -------- ----------
                                                                 (Unaudited)
<S>                              <C>            <C>          <C>      <C>
General and administrative......    $16,095       $345,970   $ 15,596 $  380,496
Research and development........     62,092        611,852     84,707    805,329
                                    -------       --------   -------- ----------
                                    $78,187       $957,822   $100,303 $1,185,825
                                    =======       ========   ======== ==========
</TABLE>

 Shares Reserved for Future Issuance

   At March 31, 2000, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
   <S>                                                                <C>
   Conversion of convertible preferred stock......................... 18,836,297
   1998 Incentive Stock Plan.........................................  1,454,869
   2000 Employee Stock Purchase Plan.................................    500,000
   Warrants..........................................................     43,183
                                                                      ----------
                                                                      20,834,349
                                                                      ==========
</TABLE>


                                      F-17
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)

4. Collaborative Agreements

 PE Corporation

   In November 1999, the Company signed a collaborative agreement with PE
Corporation ("PE") under which both companies will perform certain research
activities with an objective of developing and commercializing products
utilizing the Company's technology. In conjunction with the agreement,
PE purchased 1,250,000 shares of Series C convertible preferred stock, at $4.00
per share. Under the agreement, PE will provide the Company with non-refundable
research and development support, a portion of which is dependent on the
achievement of certain scientific milestones. Upon commercialization of the
products developed under the collaboration, the Company will share in the
operating profits resulting from the sale of such products, which will be
partially offset by the research funding amounts provided by PE to the Company.
The Company has deferred recognition of income from the research funding
provided by PE, and will recognize such amounts as revenue in conjunction with
the sale of any commercial products resulting from the development efforts.

 Other Agreements

   The Company has various research agreements with governmental and academic
organizations for which the Company performs research activities. These
organizations fund the research efforts, the revenue for which is recognized as
the procedures are performed.

5. Asset and Technology Purchase

   In December 1999, the Company reached a preliminary agreement to acquire
certain tangible assets and rights to certain in-process technologies in
exchange for $100,000 and 175,000 shares of common stock valued at $630,000
($3.60 per share, or 90% of the price at which the Series C Preferred Stock was
sold in December 1999). In March 2000, a final asset purchase agreement was
signed and the transaction closed, at which time the Company recorded the
tangible assets at their fair value of approximately $50,000. As of the date
these technologies were acquired, they had not achieved technological or
commercial feasibility and there is no significant alternative future use
should the Company's development efforts prove unsuccessful. Accordingly, the
Company recorded an acquired in-process technology charge of $680,000 in March
2000 related to the purchase of these technologies.

   There are four projects in process related to the development of
oligonucleotide and peptide synthesis. These projects ranged from 10% to 50%
complete at the date of acquisition. Three of the projects are expected to be
completed in a twelve to 24 month time frame at an estimated aggregate cost of
$3.5 million and the fourth project is on hold with no projected completion
date at this time. Revenue from the first completed project is expected in
approximately twelve months.

6. Commitments

 Leases

   The Company leases its primary office facility under an operating lease with
options to renew under varying terms. In addition, the Company entered into a
$1,000,000 lease financing arrangement with a lease financing corporation. As
of December 31, 1999, the Company had utilized all funds available under the
lease arrangement.

                                      F-18
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)


   At March 31, 2000, annual future minimum rental payments under the Company's
operating leases for the years ending December 31 are as follows:

<TABLE>
   <S>                                                               <C>
   2000 (nine months)............................................... $  549,669
   2001.............................................................    379,718
   2002.............................................................    177,655
                                                                     ----------
     Total minimum lease payments................................... $1,107,042
                                                                     ==========
</TABLE>

   Rent expense for the period from April 28, 1998 to December 31, 1998, the
year ended December 31, 1999 and the three months ended March 31, 2000 was
$138,264, $620,387, and $207,832, respectively.

7. Income Taxes

   At December 31, 1999, the Company has federal and state tax net operating
loss carryforwards of approximately $5,119,000 and $5,262,000, respectively.
The federal and state tax loss carryforwards will begin expiring in 2018 and
2006, respectively, unless previously utilized. The Company also has federal
and state research and development tax credit carryforwards of approximately
$318,000 and $175,000, respectively, which will begin to expire in 2018, unless
previously utilized.

   Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of
the Company's net operating loss and credit carryforwards may be limited in the
event of a cumulative change in ownership of more than 50% within a three year
period.

   Significant components of the Company's deferred tax assets as of December
31, 1999 are shown below. A valuation allowance has been recognized as of
December 31, 1999 to offset the deferred tax assets as realization of such
assets is uncertain.

<TABLE>
   <S>                                                               <C>
   Deferred tax assets:
     Net operating loss carryforwards............................... $2,094,000
     Research and development credit carryforwards..................    431,000
     Other..........................................................    224,000
                                                                     ----------
       Total deferred tax assets....................................  2,749,000
   Valuation allowance for deferred tax assets...................... (2,749,000)
                                                                     ----------
   Net deferred taxes............................................... $      --
                                                                     ==========
</TABLE>

8. Retirement Plan

   The Company has a 401(k) savings plan covering substantially all of its
employees. Company contributions to the plan are discretionary and no such
contributions were made in 1999.

9. Subsequent Events (unaudited)

 Loan and Security Agreement

   In April 2000, the Company entered into a $3,000,000 loan arrangement to be
used at its discretion to finance purchases of capital equipment. The loan is
secured by the capital equipment financed.

                                      F-19
<PAGE>

                                 ILLUMINA, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 2000 and for the three months ended March 31, 1999
                             and 2000 is unaudited)

   In June 2000, the Company adopted the 2000 Stock Plan. The plan provides for
the grant of incentive stock options to employees and nonstatutory stock
options and stock purchase rights to employees, directors and consultants. A
total of 4,000,000 shares of common stock were reserved for issuance pursuant
to the 2000 Stock Plan.

   In June 2000, the Company increased the number of shares reserved under the
1998 Incentive Stock Plan to 5,750,000. In the three month period ended June
30, 2000, the Company issued options to purchase 224,000 shares of common stock
to employees and consultants under the 1998 Incentive Stock Plan. The Company
recorded deferred compensation of $795,000 in connection with these issuances.

                                      F-20
<PAGE>

                               [LOGO OF ILLUMINA]
<PAGE>

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

   No dealer, salesperson or other person is authorized to give any informa-
tion or to represent anything not contained in this prospectus. You must not
rely on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.

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

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Prospectus Summary........................................................    3
Risk Factors..............................................................    8
Forward-Looking Statements................................................   16
Use of Proceeds...........................................................   17
Dividend Policy...........................................................   17
Capitalization............................................................   18
Dilution..................................................................   19
Selected Financial Information............................................   20
Management's Discussion and Analysis of Financial Condition and Results of
 Operations...............................................................   21
Business..................................................................   26
Management................................................................   38
Related Party Transactions................................................   46
Principal Stockholders....................................................   48
Description of Capital Stock..............................................   50
Shares Eligible for Future Sale...........................................   54
Underwriting..............................................................   56
Validity of the Securities................................................   58
Experts...................................................................   58
Where You Can Find Additional Information.................................   58
Index to Financial Statements.............................................  F-1
</TABLE>

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

   Through and including       , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospec-
tus. This is in addition to a dealer's obligation to deliver a prospectus when
acting as underwriter and with respect to an unsold allotment or subscription.

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

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

                               5,000,000 Shares

                                Illumina, Inc.

                                 Common Stock

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

                              [LOGO OF ILLUMINA]

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

                             Goldman, Sachs & Co.
                                   Chase H&Q
                                   SG Cowen

                      Representatives of the Underwriters

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

   The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale
of the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq/NMS listing fee.

<TABLE>
   <S>                                                               <C>
   SEC Registration Fee............................................. $   26,400
   NASD Filing Fee..................................................     10,500
   Nasdaq National Market Listing Fee...............................     95,000
   Printing Costs...................................................    225,000
   Legal Fees and Expenses..........................................    425,000
   Accounting Fees and Expenses.....................................    325,000
   Blue Sky Fees and Expenses.......................................      1,500
   Transfer Agent and Registrar Fees................................     10,500
   Miscellaneous....................................................    181,100
                                                                     ----------
     Total.......................................................... $1,300,000
                                                                     ==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

   As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Amended and Restated Articles of Incorporation eliminate a
director's personal liability for monetary damages to the Registrant and its
shareholders arising from a breach or alleged breach of the director's
fiduciary duty, except for liability arising under Sections 310 and 316 of the
California General Corporation Law or liability for (i) acts or omissions that
involve intentional misconduct or knowing and culpable violation of law, (ii)
acts or omissions that a director believes to be contrary to the best interests
of the Registrant or its shareholders or that involve the absence of good faith
on the part of the director, (iii) any transaction from which a director
derived an improper personal benefit, (iv) acts or omissions that show a
reckless disregard for the director's duty to the Registrant or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the Registrant or its shareholders, (v) acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Registrant or its shareholders, (vi)
interested transactions between the corporation and a director in which a
director has a material financial interest, and (vii) liability for improper
distributions, loans or guarantees. This provision does not eliminate the
directors' duty of care, and in appropriate circumstances equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under California law.

   Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Articles of Incorporation and Bylaws contain provisions
covering indemnification to the maximum extent permitted by the California
General Corporation Law of corporate directors, officers and other agents
against certain liabilities and expenses incurred as a result of proceedings
involving such persons in their capacities as directors, officers employees or
agents, including proceedings under the Securities Act or the Securities
Exchange Act of 1934, as amended. Prior to the effective date of this Offering,
the Registrant will enter into indemnification agreements with its directors
and executive officers.

                                      II-1
<PAGE>

   In connection with its reincorporation in Delaware, the Registrant will be
subject to Section 145 of the Delaware General Corporation Law ("Section 145").
Section 145 permits indemnification of officers and directors of the Company
under certain conditions and subject to certain limitations. Section 145 also
provides that a corporation has the power to maintain insurance on behalf of
its officers and directors against any liability asserted against such person
and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of Section
145. Upon shareholder approval of such reincorporation, Article VI, Section
6.1, of the Registrant's Bylaws will provide for mandatory indemnification of
its directors and officers and permissible indemnification of employees and
other agents to the maximum extent not prohibited by the Delaware General
Corporation Law. The rights to indemnity thereunder continue as to a person who
has ceased to be a director, officer, employee or agent and inure to the
benefit of the heirs, executors and administrators of the person. In addition,
expenses incurred by a director or executive officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding by reason
of the fact that he or she is or was a director or officer of the Registrant
(or was serving at the Registrant's request as a director or officer of another
corporation) shall be paid by the Registrant in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by
the Registrant as authorized by the relevant section of the Delaware General
Corporation Law.

   As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
the Registrant's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors shall not be personally liable for monetary damages
for breach of the directors' fiduciary duty as directors to the Registrant and
its stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Registrant for acts or omission not in good faith or involving
international misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of Stock repurchases or redemptions that are unlawful under Section
174 of the Delaware General Corporation Law. The provision also does not affect
a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into indemnification agreements with each of its directors and
executive officers. Generally, the indemnification agreements attempt to
provide the maximum protection permitted by Delaware law as it may be amended
from time to time. Moreover, the indemnification agreements provide for certain
additional indemnification. Under such additional indemnification provisions,
however, an individual will not receive indemnification for judgments,
settlements or expenses if he or she is found liable to the Registrant (except
to the extent the court determines he or she is fairly and reasonably entitled
to indemnity for expenses), for settlements not approved by the Registrant or
for settlements and expenses if the settlement is not approved by the court.
The indemnification agreements provide for the Registrant to advance to the
individual any and all reasonable expenses (including legal fees and expenses)
incurred in investigating or defending any such action, suit or proceeding. In
order to receive an advance of expenses, the individual must submit to the
Registrant copies of invoices presented to him or her for such expenses. Also,
the individual must repay such advances upon a final judicial decision that he
or she is not entitled to indemnification.

   The Registrant intends to enter into additional indemnification agreements
with each of its directors and executive officers to effectuate these indemnity
provisions and to purchase directors' and officers' liability insurance.

                                      II-2
<PAGE>

   In addition to the foregoing, the Underwriting Agreement contains certain
provisions by which the Underwriters have agreed to indemnify the Registrant,
each person, if any, who controls the Registrant within the meaning of Section
15 of the Securities Act, each director of the Registrant, each officer of the
Registrant who signs the Registration Statement, with respect to information
furnished in writing by or on behalf of the Underwriters for use in the
Registration Statement.

   At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

   Since our incorporation in April 1998, we have sold and issued the following
securities:

Common Stock

   (1) In May 1998, we sold 1,075,000 shares of our Common Stock at a price
       of $0.01 per share to Dr. Walt, a founder, and Dr. Still, a
       consultant, for $10,750.

   (2) In June 1998, we sold 1,125,000 shares of our Common Stock at a price
       of $0.01 per share to Dr. Chee and Dr. Stuelpnagel, officers, Dr.
       Czarnik, an employee, and Dr. John Kauer and Dr. Joel White,
       consultants, for $11,250.

   (3) In July 1998, we sold 500,000 shares of our Common Stock at a price of
       $0.01 per share to Tufts University for $5,000 and 220,000 shares of
       our Common Stock at a price of $0.03 per share to five consultants for
       $6,600.

   (4) In August 1998, we sold 20,000 shares of our Common Stock at a price
       of $0.03 per share to Dr. Peter Jurs, a consultant, for $600.

   (5) In September 1998, we sold 250,000 shares of Common Stock at a price
       of $0.03 per share to Dr. Stuelpnagel, an officer, for $7,500.

   (6) In November 1998, we sold 266,000 shares of our Common Stock at a
       price of $0.03 per share to Mr. Pytelewski, a former officer, and Dr.
       Leonid Kruglyak and Dr. Lincoln Stein, consultants, for $7,980.

   (7) In February 1999, we sold 50,000 shares of our Common Stock at a price
       of $0.09 per share to Dr. Rastetter, a director, for $4,500.

   (8) In May 1999, we sold 137,500 shares of our Common Stock at a price of
       $0.01 per share to Mr. Hartman, a director, and Mr. Bock, a
       consultant, for $1,375 and 8,333 shares of our Common Stock at $0.03
       per share to Ms. Fen Liu, a consultant, for $250. In connection with a
       technology purchase we issued 10,000 shares of our Common Stock valued
       at a price of $0.09 per share for a total value of $900.

   (9) In June 1999, we sold 8,000 shares of our Common Stock at a price of
       $0.09 per share to Dr. Michael Sailor, a consultant, for $720.

  (10) In July 1999, we sold 14,083 shares of our Common Stock at a price of
       $0.01 per share to Mr. Steven Auger, a former employee, for $141.

  (11) In August 1999, we sold 68,750 shares of our Common Stock at a price
       of $0.01 per share to Mr. Barry Weinberg, an investor, and 9,000
       shares of our Common Stock at a price of $0.09 per share to Mr. L.
       Scott Minick, a consultant, for $810.

  (12) In September 1999, we sold 68,750 shares of our Common Stock at a
       price of $0.01 per share to Mr. Walter Channing, an investor, for
       $688.

  (13) In October 1999, we sold 1,300,000 shares of our Common Stock at a
       price of $0.09 per share to Dr. Chee, Mr. Flatley and Dr. Stuelpnagel,
       officers, Dr. Czarnik, an employee and Mr. Pytelewski, a former
       officer, for $117,000.

                                      II-3
<PAGE>

  (14) In November 1999, we sold 25,000 shares of our Common Stock at a price
       of $0.09 per share to an investor for $2,250.

  (15) In January 2000, we sold 175,000 shares of our Common Stock at a price
       of $0.25 per share to an investor, Dr. Steve Brown and Dr. Fred
       Milanovich, consultants and Mr. Kain, an officer, for $43,750.

  (16) In February 2000, we sold 45,082 shares of our Common Stock at a price
       of $0.03 per share to three employees for $1,352, 10,275 shares of our
       Common Stock at a price of $0.09 per share to seven employees for
       $925, and 110,299 shares of our Common Stock at a price of $0.40 per
       share to Dr. Poste, a director, Dr. Bryan Roberts, a consultant and
       two employees for $44,120.

  (17) In March 2000, we sold 4,667 shares of our common stock at a price of
       $0.03 per share to three employees for $140, 34,209 shares of our
       Common Stock at a price of $0.09 per share to nine employees for
       $3,079, 426,433 shares of our Common Stock at a price of $0.40 per
       share to Dr. Barker, Dr. Chee and Dr. Stuelpnagel, officers, Dr.
       Rastetter, a director, Mr. John Caplan and Mr. John Taylor,
       consultants and three employees for $170,573 and 590,000 shares of our
       common stock at a price of $1.00 per share to Ms. Espinosa and Mr.
       Kish, officers, for $590,000. In connection with an asset purchase
       transaction, we issued 175,000 shares valued at $0.40 per share for
       $70,000.

   The sales of the above securities were deemed to be exempt from registration
in reliance on Section 4(2) of the Securities Act as transactions by an issuer
not involving any public offering. All recipients were either accredited or
sophisticated investors, as those terms are defined under the Securities Act.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and other instruments issued in such
transactions. All recipients either received adequate information about us or
had access, through employment or other relationships, to such information.

Preferred Stock

  (1) In June 1998, we sold an aggregate of 2,499,998 shares of our Series A
      Convertible Preferred Stock to investors at a price of $0.30 per share
      for an aggregate purchase price of $749,999.

  (2) In November 1998, we sold an aggregate of 9,336,299 shares of our
      Series B Convertible Preferred Stock to investors at a price of $0.926
      per share for an aggregate purchase price of $8,648,214.

  (3) In November 1999, we sold 1,250,000 shares of our Series C Convertible
      Preferred Stock to an investor at a price of $4.00 per share for a
      purchase price of $5,000,000.

  (4) In December 1999, we sold an aggregate of 5,750,000 shares of our
      Series C Convertible Preferred Stock to investors at a price of $4.00
      per share for an aggregate purchase price of $23,000,000.

   The sales of the above securities were deemed to be exempt from registration
in reliance on Regulation D under the Securities Act in the case of (1) and
Section 4(2) of the Securities Act in the case of (2), (3) and (4) promulgated
thereunder as transactions by an issuer not involving any public offering. All
recipients were either accredited or sophisticated investors, as those terms
are defined in the Securities Act. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about us or had access, through employment
or other relationships, to such information.

                                      II-4
<PAGE>

Stock Options and Stock Purchase Rights

  (1) From inception through March 2000, we granted stock options and stock
      purchase rights to acquire an aggregate of 4,060,700 shares of our
      Common Stock at prices ranging from $0.01 to $1.00 per share to
      employees, consultants and directors pursuant to our 1998 Incentive
      Stock Plan.

  (2) From inception through March 2000, we issued an aggregate of 3,050,381
      shares of our Common Stock to employees, consultants and directors
      pursuant to the exercise of stock options and stock purchase rights
      under our 1998 Incentive Stock Plan, for aggregate consideration of
      $977,610.

   The sales of the above securities were deemed to be exempt from registration
in reliance on Rule 701 promulgated under Section 3(b) under the Securities Act
as transactions pursuant to a compensatory benefit plan or a written contract
relating to compensation.

Warrants

  (1) In October 1998 we issued a warrant to acquire 43,183 shares of our
      Series B Convertible Preferred Stock at an exercise price of $0.926 per
      share to an investor.

   The sales of the above securities were deemed to be exempt from registration
in reliance on Section 4(2) of the Securities Act as transactions by an issuer
not involving any public offering. The recipient was an accredited and
sophisticated investor, as those terms are defined in the Securities Act. The
recipient represented its intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the instruments issued in the
transaction. The recipient received adequate information about us and had
access, through their relationship with us, to such information.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

   (a) Exhibits

<TABLE>
 <C>    <S>                                                                 <C>
   1.1* Form of Underwriting Agreement
   2.1* Form of Merger Agreement between Illumina, Inc., a California
        corporation, and Illumina, Inc., a Delaware corporation.
   3.1* Form of Certificate of Incorporation of the Registrant to be
        filed after the closing of the offering made under this
        Registration Statement.
   3.2* Form of Bylaws of the Registrant to be in effect after the
        closing of the offering made under this Registration Statement.
   4.1* Specimen Common Stock Certificate.
   4.2* Amended and Restated Investors Rights Agreement, dated November
        5, 1999, by and among the Registrant and certain stockholders of
        the Registrant.
   5.1  Opinion of Wilson Sonsini Goodrich & Rosati, Professional
        Corporation.
  10.1* Form of Indemnification Agreement between the Registrant and each
        of its directors and officers.
  10.2* 1998 Incentive Stock Plan.
  10.3* 2000 Employee Stock Purchase Plan.
  10.4* Sublease Agreement dated August 1998 between Registrant and
        Gensia Sicor Inc. for Illumina's principal offices.
 +10.5* Joint Development Agreement dated November 1999 between
        Registrant and PE Corporation.
 +10.6* Asset Purchase Agreement dated November 1998 between Registrant
        and nGenetics, Inc.
</TABLE>

                                      II-5
<PAGE>

<TABLE>
 <C>     <S>                                                                <C>
 +10.7*  Asset Purchase Agreement dated March 2000 between Registrant and
         Spyder Instruments, Inc.
 +10.8*  License Agreement dated May 1998 between Tufts and Registrant.
  10.9*  Master Loan and Security Agreement, dated March 6, 2000, by and
         between Registrant and FINOVA Capital Corporation.
  10.10* 2000 Stock Plan
  10.11  Eastgate Pointe Lease, dated July 6, 2000, between Diversified
         Eastgate Venture and Registrant.
  10.12  Option Agreement and Joint Escrow Instructions, dated July 6,
         2000, between Diversified Eastgate Venture and Registrant.
  23.1   Consent of Ernst & Young, LLP, Independent Auditors.
  23.2*  Consent of Counsel (included in Exhibit 5.1).
  24.1*  Power of Attorney (see Page II-7 of the original filing).
  27.1   Financial Data Schedule.
</TABLE>
--------
*  Previously filed.
** To be filed by amendment
+  Confidential treatment requested.

   (b) Financial Statement Schedules

   Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS.

   The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

   Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

   The undersigned registrant hereby undertakes that:

   (1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

   (2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

                                      II-6
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California on July 19, 2000.

                                          Illumina, Inc.

                                                   /s/ Jay T. Flatley
                                          By: _________________________________
                                                      Jay T. Flatley
                                               President and Chief Executive
                                                          Officer

                               POWER OF ATTORNEY

   PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
              Signature                          Title                Date
              ---------                          -----                ----

<S>                                    <C>                        <C>
        /s/ Jay T. Flatley             President, Chief Executive July 19, 2000
______________________________________  Officer and Director
            Jay T. Flatley              (Principal Executive
                                        Officer)

        /s/ Timothy M. Kish            Vice President of Business July 19, 2000
______________________________________  Development (Principal
           Timothy M. Kish              Accounting Officer)

         John R. Stuelpnagel*          Director                   July 19, 2000
______________________________________
         John R. Stuelpnagel

         Charles M. Hartman*           Director                   July 19, 2000
______________________________________
          Charles M. Hartman

          Robert T. Nelsen*            Director                   July 19, 2000
______________________________________
           Robert T. Nelsen

            George Poste*              Director                   July 19, 2000
______________________________________
       George Poste, DVM, Ph.D.

          William Rastetter*           Director                   July 19, 2000
______________________________________
       William Rastetter, Ph.D.

            David R. Walt*             Director                   July 19, 2000
______________________________________
         David R. Walt, Ph.D.
</TABLE>

    /s/ Jay T. Flatley
*By: __________________________
        Jay T. Flatley
       Attorney-in-Fact

                                      II-7
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
 <C>     <S>
   1.1*  Form of Underwriting Agreement.
   2.1*  Form of Merger Agreement between Illumina, Inc., a California
         corporation, and Illumina, Inc., a Delaware corporation.
   3.1*  Form of Certificate of Incorporation of the Registrant to be filed
         after the closing of the offering made under this Registration
         Statement.
   3.2*  Form of Bylaws of the Registrant to be in effect after the closing of
         the offering made under this Registration Statement.
   4.1*  Specimen Common Stock Certificate.
   4.2*  Amended and Restated Investors Rights Agreement, dated November 5,
         1999, by and among the Registrant and certain stockholders of the
         Registrant.
   5.1   Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
  10.1*  Form of Indemnification Agreement between the Registrant and each of
         its directors and officers.
  10.2*  1998 Incentive Stock Plan.
  10.3*  2000 Employee Stock Purchase Plan.
  10.4*  Sublease Agreement dated August 1998 between Registrant and Gensia
         Sicor Inc. for Illumina's principal offices.
 +10.5*  Joint Development Agreement dated November 1999 between Registrant and
         PE Corporation.
 +10.6*  Asset Purchase Agreement dated November 1998 between Registrant and
         nGenetics, Inc.
 +10.7*  Asset Purchase Agreement dated March 2000 between Registrant and
         Spyder Instruments, Inc.
 +10.8*  License Agreement dated May 1998 between Tufts and Registrant.
  10.9*  Master Loan and Security Agreement, dated March 6, 2000, by and
         between Registration and FINOVA Capital Corporation.
  10.10* 2000 Stock Plan
  10.11  Eastgate Pointe Lease, dated July 6, 2000, between Diversified
         Eastgate Venture and Registrant.
  10.12  Option Agreement and Joint Escrow Instructions, dated July 6, 2000,
         between Diversified Eastgate Venture and Registrant.
  23.1   Consent of Ernst & Young, LLP, Independent Auditors.
  23.2*  Consent of Counsel (included in Exhibit 5.1).
  24.1*  Power of Attorney (see Page II-7 of the original filing).
  27.1   Financial Data Schedule.
</TABLE>
--------
*  Previously filed.
** To be filed by amendment.
+  Confidential treatment requested.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>OPINION OF WILSON SONSINI
<TEXT>

<PAGE>

                                                                     EXHIBIT 5.1

                                 July 18, 2000

Illumina, Inc.
9390 Towne Centre Drive, Suite 200
San Diego, CA 92121

     Re: Registration on Form S-1


Ladies and Gentlemen:

     We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission on April 3, 2000 (Registration No. 333-
33922), as amended (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of up to 5,750,000
shares of your Common Stock, $0.01 par value per share (the "Shares"). The
Shares include an over-allotment option granted to the underwriters of the
offering to purchase up to 750,000 shares. We understand that the Shares are to
be sold to the underwriters of the offering for resale to the public as
described in the Registration Statement. As your legal counsel, we have examined
the proceedings taken, and are familiar with the proceedings proposed to be
taken, by you in connection with the sale and issuance of the Shares to be sold
by you. It is our opinion that upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares, when issued and sold in the manner described in the
Registration Statement, will be legally issued, fully paid and non-assessable.
We are members of the Bar of the State of California only and express no opinion
as to any matter relating to the laws of any jurisdiction other than the laws of
the State of California, the Delaware General Corporation Law and the federal
laws of the United States. Without limiting the foregoing, we express no opinion
as to the securities laws of the State of Delaware. We consent to the use of
this opinion as an exhibit to the Registration Statement and further consent to
the use of our name wherever appearing in the Registration Statement, including
the Prospectus constituting a part thereof, and any amendments thereto.


                                 Very truly yours,


                                 /s/ Wilson Sonsini Goodrich & Rosati
                                 ------------------------------------
                                 Wilson Sonsini Goodrich & Rosati
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EASTGATE POINTE LEASE
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.11

                             EASTGATE POINTE LEASE
                    [Single Tenant Buildings - Triple Net]


                                    BETWEEN


                         DIVERSIFIED EASTGATE VENTURE,
                        an Illinois general partnership

                                   LANDLORD

                                      AND

                                ILLUMINA, INC.,

                            a Delaware corporation

                                    TENANT
<PAGE>

                             EASTGATE POINTE LEASE
                             ---------------------

                    [Single Tenant Buildings - Triple Net]
                    --------------------------------------


                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                                      Page
<S>                                                                                   <C>
1.   BASIC LEASE TERMS.............................................................     1

2.   PREMISES AND COMMON AREAS.....................................................     4

3.   TERM..........................................................................     5

4.   CONSTRUCTION AND POSSESSION...................................................     6

5.   RENT.........................................................................     10

6.   OPERATING EXPENSES...........................................................     11

7.   DEPOSIT......................................................................     17

8.   USE..........................................................................     18

9.   NOTICES......................................................................     20

10.  BROKERS......................................................................     21

11.  SURRENDER; HOLDING OVER......................................................     21

12.  TAXES........................................................................     22

13.  ALTERATIONS..................................................................     22

14.  REPAIRS......................................................................     24

15.  LIENS........................................................................     25

16.  ENTRY BY LANDLORD............................................................     25

17.  UTILITIES AND SERVICES.......................................................     25

18.  ASSUMPTION OF RISK AND INDEMNIFICATION.......................................     25

19.  INSURANCE....................................................................     26

20.  DAMAGE OR DESTRUCTION........................................................     29

21.  EMINENT DOMAIN...............................................................     30

22.  DEFAULTS AND REMEDIES........................................................     31
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<S>                                                                                    <C>
23.  LANDLORD'S DEFAULT............................................................    33

24.  ASSIGNMENT AND SUBLETTING.....................................................    34

25.  SUBORDINATION.................................................................    36

26.  ESTOPPEL CERTIFICATE..........................................................    36

27.  EASEMENTS.....................................................................    36

28.  RULES AND REGULATIONS.........................................................    37

29.  MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS.............    37

30.  DEFINITION OF LANDLORD........................................................    37

31.  WAIVER........................................................................    37

32.  PARKING.......................................................................    37

33.  FORCE MAJEURE.................................................................    38

34.  SIGNS.........................................................................    38

35.  LIMITATION ON LIABILITY.......................................................    39

36.  FINANCIAL STATEMENTS..........................................................    39

37.  QUIET ENJOYMENT...............................................................    39

38.  AUCTIONS......................................................................    39

39.  MISCELLANEOUS.................................................................    39

40.  EXECUTION OF LEASE............................................................    41

SIGNATURE PAGE.....................................................................    41
</TABLE>

EXHIBITS:
--------

A-1  Legal Description of Premises
A-2  Site Plan
B    Project Plans
C    Union Guidelines
D    Intentionally Omitted
E    Intentionally Omitted
F    Estoppel Certificate
G    Rules and Regulations

                                     -ii-
<PAGE>

RIDERS
------

Right of First Offer to Lease Building C
Option to Purchase Development

                                     -iii-
<PAGE>

                             EASTGATE POINTE LEASE
                     [Single Tenant Buildings - Triple Net]

          This LEASE ("Lease") is entered into as of the 6th day of July, 2000,
by and between DIVERSIFIED EASTGATE VENTURE, an Illinois general partnership
("Landlord"), and ILLUMINA, INC., a Delaware corporation ("Tenant").

          1.   BASIC LEASE TERMS. For purposes of this Lease, the following
terms have the following definitions and meanings:

               (a)  Landlord's Address (For Notices):

                    DIVERSIFIED EASTGATE VENTURE
                    c/o Diversified Properties
                    1770 Gillespie Way, Suite 101
                    El Cajon, California 92020
                    Attention: Mr. William P. Tschantz

               or such other place as Landlord may from time to time designate
               by notice to Tenant.

               (b)  Tenant's Address prior to the commencement date:

                    ILLUMINA, INC.
                    9390 Towne Center Drive, Suite 200
                    San Diego, California 92121
                    Attention: Chief Financial Officer

               (c)  Development: The parcel(s) of real property commonly known
as Eastgate Pointe and located on Towne Center Drive in the Eastgate Technology
Park in the City of San Diego (the "City"), County of San Diego (the "County"),
State of California ("State"), as shown on Exhibit A-1 attached hereto, together
with any improvements constructed thereon.

               (d)  "Buildings" mean, collectively, "Building A", "Building B",
"Building C" and "Building D" as defined below, or other buildings containing
Rentable Area constructed within the Development from time to time.

               (e)  "Building A" means that certain two story building which is
to be constructed and is to contain approximately 46,250 "Rentable Square Feet,"
as generally depicted on the Site Plan attached hereto as Exhibit A-2 ("Site
Plan"). As more particularly provided below, the "Premises" will include all of
Building A.

               (f)  "Building B" means that certain two story building which is
to be constructed and is to contain approximately 51,250 Rentable Square Feet,
as more particularly depicted on the Site Plan. As more particularly provided
below, the Premises will include all of Building B.

               (g)  "Building C" means that certain building which is to contain
approximately 81,000 Rentable Square Feet, as more particularly depicted on the
Site Plan.  As of the Effective Date of this Lease, the Premises do not include
any of Building C.  Tenant shall have a Right of First Offer to lease Building
C, pursuant to the Right of First Offer Rider attached to this Lease.
<PAGE>

               (h)  "Building D" means that certain building which may, at
Landlord's election, be constructed within the Development, and which may
contain approximately 11,000 square feet of floor area, in the general area more
particularly depicted on the Site Plan, and of which floor area 40% will be
allocated to recreational facilities and 60% will be allocated to Rentable Area.
The Premises are not to include any of Building D. Notwithstanding anything
herein to the contrary, the Rentable Area of any portion of Building D
designated as a recreational facility and included within the Common Areas is
not to be included within any Rentable Area calculation in this Lease for the
Development, specifically including the calculation of Tenant's Percentage share
of Operating Expenses. Also notwithstanding anything herein to the contrary,
Landlord and Tenant acknowledge and agree that the approximate location and
dimensions of Building D depicted on the Site Plan may change slightly, as
required by applicable governmental authorities or laws. Provided that such
modification from that presently depicted on the Site Plan does not materially
and adversely impact Tenant's use of the Premises or the Common Area, then,
notwithstanding anything herein to the contrary, any such deviation from the
location or dimensions presently depicted on the Site Plan shall be
automatically be deemed approved by Tenant.

               (i)  Premises: means (i) Building A to be constructed by Landlord
with the Building Shell Improvements and the Core Improvements completed, as
such terms are defined and described below, and to consist of approximately
46,250 Rentable Square Feet and (ii) Building B to be constructed by Landlord
with the Building Shell Improvements and the Core Improvements completed, and to
consist of approximately 51,250 Rentable Square Feet (for a total Premises
Rentable Square Footage of approximately 97,500 square feet), plus Tenant's non-
exclusive rights to use the Common Areas, as more particularly provided below.

               (j)  "Rentable Area" or "Rentable Square Footage" means the
Rentable Area measured in accordance with the American National Standard of
measuring floor area in single tenant buildings (gross building area) of the
Building Owners and Managers Association International (BOMA). The Premises will
include the entirety of the Rentable Area of Building A and Building B. Upon the
substantial completion of the Project Work, as such term is defined in Paragraph
4(a), Landlord's architect or space planner shall determine and certify in
writing to Landlord the actual Rentable Area of the Premises, which
determinations and certifications shall be made in accordance with the above
BOMA Standard and shall be conclusive upon Landlord and Tenant, and thereupon
the Base Rent, Monthly Installments of Base Rent, Tenant's pro rata share of
Operating Expenses, and Tenant Improvement Allowance shall be adjusted
accordingly.

               (k)  "Common Areas" mean those portions of the Development not
leased or designated for lease to tenants that are provided for use in common by
Landlord, Tenant and other tenants of the Development (or by the sublessees,
agents, employees, customers, invitees, or licensees of any such party), whether
or not those areas are open to the general public. Common Areas include, without
limitation, any Building Common Areas, as such term is defined below, those
portions of Building D designated as the recreational facility described in
Paragraph 1(h) above, any fixtures, systems, decor, facilities and landscaping
contained, maintained or used in connection with those areas, and shall be
deemed to include any parking areas, parking structures, sidewalks within the
Development and city sidewalks adjacent to the Development, any pedestrian
walkway system, roadway or other facilities located on the Development and open
to the general public or otherwise intended for the non-exclusive mutual use of
the occupants or invitees of the Development and its occupants and/or similar
areas and facilities situated within the Development and appurtenant to the
Buildings which are not reserved for the exclusive use of any Development
occupants; provided, however, any recreational facilities in the Development
shall be for the exclusive use of tenants of the Development and Landlord and
their employees.

               (l)  "Building Common Areas" mean the common areas appurtenant to
each of the Buildings including, without limitation, the (i) common entrances,
lobbies, restrooms (whether on multi-tenant or single-tenant floors), elevators,
utility raceways and easement areas, stairways, roofs and accessways,
recreational facilities, loading docks, ramps, drives and platforms and any
passageways or serviceways thereto to the extent not exclusively serving another
tenant or contained within another tenant's premises, and the common pipes,
conduits, wires and appurtenant equipment serving the Premises, and (ii) the
parking areas, loading and unloading

                                      -2-
<PAGE>

areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas appurtenant to each Building. Notwithstanding the foregoing, so
long as Tenant is the sole occupant of the Building A and Building B, neither
the entrances, lobbies, nor the restrooms of Building A and Building B shall be
Common Areas.

               (m)  Tenant's Percentage:  Tenant's prorata share, based upon the
Rentable Square Footage of the Premises as compared to the Rentable Square
Footage of all Buildings in the Development that are constructed as of the date
of such calculation, but excluding therefrom the Rentable Area of any portion of
Building D designated as a recreational facility and included within the Common
Areas.

               (n)  Term:  Ten (10) Lease Years.

               (o)  Estimated Commencement Date:  July 1, 2001.

               (p)  Commencement Date: The date on which the Term of this Lease
will commence as determined in accordance with the provisions of Paragraph 4(g).

               (q)  Expiration Date:  The date which is ten (10) years after the
Commencement Date plus any partial month in which the Commencement Date occurs.

               (r)  Monthly Base Rent: Payable monthly, on the first day of each
month, in the amount depicted in the table below, calculated on a Triple Net
basis ("Base Rent"), subject to adjustment as provided herein, and commencing on
the Commencement Date:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                                  Monthly Installment
                                                     Monthly Base Rent                of Base Rent
                                Annual            at * 97,500 square feet           per square foot
        Months                Base Rent               of Rentable Area              of Rentable Area
        ------                ---------               ----------------              ----------------
---------------------------------------------------------------------------------------------------------
<S>                           <C>                  <C>                            <C>
         01-12                 $3,042,000                  $253,500                       $2.60
---------------------------------------------------------------------------------------------------------
*  Monthly Base Rent to be adjusted based upon Landlord's architect's certification as to the Rentable
   Area of the Premises.
---------------------------------------------------------------------------------------------------------
</TABLE>

               Commencing on the first anniversary of the Commencement Date and
on every one (1) year anniversary thereafter (including the Option Periods
described in Paragraph 3(b) below), the then applicable Monthly Base Rent shall
be increased to an amount equal to one hundred three percent (103%) of the
Monthly Base Rent payable during the immediately preceding period.

               In the event the Commencement Date occurs on a day other than the
first (1st) day of a month, the amount of the first and last monthly payment of
Monthly Base Rent shall be apportioned to account for the fact that the last
month of the Initial Term shall be less than a full calendar month.

               (s)  Base Rent Paid Upon Execution:  $253,500, to be applied to
the Monthly Base Rent for the first month of the Term.

               (t)  Security Deposit: $253,500 payable upon lease execution,
plus a Letter of Credit in the amount of $3,110,000, a portion of which shall be
provided to Landlord within three (3) days of the satisfaction of the Loan
Commitment Condition, as defined below and as further provided in Paragraph 7.

               (u)  Improvements: mean the improvements which have been or will
be constructed by Landlord and Tenant pursuant to this Lease, including, but not
limited to, the "Building Shell Improvements,"

                                      -3-
<PAGE>

"Site Improvements" and "Core Improvements" for each Building and the
Development, which are to be constructed by Landlord, and the "Tenant
Improvements" within the Premises, which are to be constructed by Tenant, all as
such terms are defined below in Paragraph 4.

               (v)  Permitted Use: Any lawful use permitted by applicable
zoning, subject to the Rules and Regulations of the Development and any CC&R's
of record governing the Development. (Also see Paragraph 8)

               (w)  Broker:  CB Richard Ellis, Inc.

               (x)  Interest Rate: shall mean the greater of ten percent (10%)
per annum or two percent (2%) in excess of the prime lending or reference rate
of Wells Fargo Bank N.A. or any successor bank in effect on the twenty-fifth
(25th) day of the calendar month immediately prior to the event giving rise to
the Interest Rate imposition; provided, however, the Interest Rate will in no
event exceed the maximum interest rate permitted to be charged by applicable
law.

               (y)  Exhibits: A-I through G, inclusive, which Exhibits are
attached to this Lease and incorporated herein by this reference.

               (z)  Riders:  The Right of First Option Rider and Option to
Purchase Rider attached hereto.

          This Paragraph 1 represents a summary of the basic terms and
definitions of this Lease.  In the event of any inconsistency between the terms
contained in this Paragraph 1 and any specific provision of this Lease, the
terms of the more specific provision shall prevail.

          2.   PREMISES AND COMMON AREAS.

               (a)  Premises.  Subject to the terms and provisions hereof,
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises as the same are to be constructed by Landlord with the Building Shell
Improvements and Core Improvements.

               (b)  Mutual Covenants.  Landlord and Tenant agree that the
letting and hiring of the Premises is upon and subject to the terms, covenants
and conditions contained in this Lease and each party covenants as a material
part of the consideration for this Lease to keep and perform their respective
obligations under this Lease.

               (c)  Tenant's Use of Common Areas.  During the Term of this
Lease, Tenant shall have the nonexclusive right to use the Common Areas of the
Development, free of any charge except as set forth in this Lease, in common
with Landlord and other tenants of the Development and all persons, firms and
corporations conducting business in the Development and their respective
customers, guests, licensees, invitees, subtenants, employees and agents
(collectively, "Development Occupants"), subject to the terms of this Lease, the
Rules and Regulations referenced in Paragraph 28 below and all covenants,
conditions and restrictions now or hereafter affecting the Development.

               (d)  Landlord's Reservation of Rights.  Provided Tenant's use of
and access to the Premises is not interfered with in an unreasonable manner, and
the parking Tenant is entitled to use pursuant to Paragraph 32 is not materially
diminished, Landlord reserves for itself and for all other owner(s) and
operator(s) of the Common Areas and the balance of the Development, the right
from time to time to: (i) make changes to the design and layout of the
Development, including, without limitation, driveways, entrances, loading and
unloading areas, direction of traffic, landscaped areas and walkways, parking
spaces and parking areas; (ii) add additional buildings and improvements to the
Common Areas and to use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Development, or any portion thereof;
(iii) use or close

                                      -4-
<PAGE>

temporarily the Common Areas, and/or other portions of the Development while
engaged in making improvements, repairs or alterations to the Buildings, the
Development, or any portion thereof and to designate other land outside the
boundaries of the Development to be a part of the Common Areas; and (iv) to do
and perform such other acts and make such other changes in, to or with respect
to the Common Areas and Development as Landlord may, in the exercise of sound
business judgment, deem to be appropriate.

               (e)  Loan Commitment.  As a condition subsequent for each party's
benefit, Landlord shall receive, no later than forty-five (45) days after the
Effective Date, a commitment from a lender, in form and substance acceptable to
Landlord, for purposes of financing the construction of the Development (the
"Loan Commitment" and the "Loan Commitment Condition").  The loan documents
which evidence the agreements and obligations by and between Landlord and its
lender shall substantially conform to the material terms contained in the loan
application by and between Landlord and Washington Capital dated
____________________ (the "Loan Application").  In the event the Loan Commitment
Condition is not timely satisfied, then within ten (10) business days
thereafter, Landlord shall return to Tenant all monies deposited with Landlord
by Tenant hereunder, including, but not limited to, any payment of Security
Deposit and first month's rent.  By execution of this Lease, Tenant has approved
the Loan Application and the terms contained therein.

          3.   TERM.

               (a)  Initial Term.  The term of this Lease ("Term") will be for
the period designated in Subparagraph 1(n), commencing on the Commencement Date,
and ending on the last day of the month in which the expiration of such period
occurs, including any extensions of the Term pursuant to any provision of this
Lease or written agreement of the parties. Notwithstanding the foregoing, if the
Commencement Date falls on any day other than the first day of a calendar month
then the Term of this Lease will be measured from the first day of the month
following the month in which the Commencement Date occurs. Each consecutive
twelve (12) month period of the Term of this Lease, commencing on the
Commencement Date, will be referred to herein as a "Lease Year". Promptly after
the Commencement Date, Landlord will deliver to Tenant the Notice of Lease Term
Dates ("Notice"), which shall confirm the Commencement Date and the date upon
which the Term of this Lease shall end. The Notice will be binding upon Tenant
unless Tenant objects to the Notice in writing within ten (10) days of Tenant's
receipt of the Notice.

               (b)  Option to Extend.  Tenant shall have two (2) successive
options (individually, the "Extension Option" and collectively, the "Extension
Options") to extend the Term, as to not less than the entire Premises, for a
period (the "Option Period") of five (5) years each, commencing upon the date
the Term would otherwise expire, upon the same terms and conditions previously
applicable, except that the Monthly Base Rent as of the commencement of the
Option Period and thereafter during the Option Period will be adjusted as
provided below. Each Extension Option may be validly exercised only by written
notice to Landlord from Tenant given not earlier than fifteen (15) months and
not later than either (i) twelve (12) months prior to the expiration of the
Lease Term, provided Landlord has, not earlier than fifteen (15) months and not
later than thirteen (13) months prior to the expiration of the Lease Term,
provided Tenant with a written reminder of such time frame for Tenant to
exercise its right to extend, or (ii) nine (9) months prior to commencement of
the Option Period if Landlord has not so provided Tenant with any such reminder
notice. The Extension Option may be validly exercised only if Tenant is not then
in default under this Lease (after expiration of any applicable notice and cure
period). If Tenant does not exercise either Extension Option in strict
accordance with the provisions hereof, the Extension Options shall forever
terminate and be of no further force and effect.

               (c)  Monthly Base Rent During Option Period.  The Monthly Base
Rent beginning with the first day of the Option Period shall equal one hundred
percent (100%) of the "fair market rate" ("Fair Market Rate") for comparable
space in comparable buildings in the University Town Center and Torrey Pines
area of San Diego, California, market area ("Comparison Area"). For purposes
hereof, "Fair Market Rate" shall mean the base rent payable to a willing
landlord by a willing tenant having a similar financial responsibility, credit
rating and capitalization as Tenant then has, for like and comparable

                                      -5-
<PAGE>

premises, improved with tenant improvements of like and comparable quality to
those then existing in the Premises, in like and comparable buildings located in
the Comparison Area. In calculating Fair Market Rent appropriate consideration
shall be given to all relevant factors, including, without limitation, (i)
rental market conditions then in existence, (ii) whether Landlord will or will
not be required to pay a real estate brokerage commission in connection with
Tenant's exercise of the Extension Option, (iii) the fact that the Tenant will
be accepting the Premises in an "As-Is" condition, and (iv) the fact that Base
Rent will increase annually during the Option Period as set forth in the
following sentence. Commencing on the first anniversary of each Option Period
and on every one (1) year anniversary thereafter during the balance of such
Option Period, the initial Base Rent for the Option Period established hereunder
shall be increased to an amount equal to 103% of the Base Rent payable during
the immediately preceding period. Following Tenant's valid exercise of the
Extension Option, Landlord and Tenant shall commence negotiations for a period
of forty-five (45) days to determine whether Landlord and Tenant can reach
mutual agreement as to the Fair Market Rate. If the parties are unable to reach
an agreement within such period of time as to the Fair Market Rate, then either
party (the "First Party") may at any time prior to reaching such agreement, give
notice to the other party (the "Second Party") that an appraisal of the Premises
is required for purposes of determining the Fair Market Rate. Such notice shall
designate an appraiser (the "First Appraiser"). In the event that such appraisal
is required, Landlord and Tenant shall each prepare a determination of such
party's estimate of the appropriate Fair Market Rent and each party's
determination shall be submitted to arbitration as provided below. Within ten
(10) business days after the service of the notice referred to above, the Second
Party shall give written notice to the First Party designating a second
appraiser (the "Second Appraiser"). If the Second Appraiser is not so designated
within the time above specified, then the First Appraiser shall select the
Second Appraiser within ten (10) business days after the Second Party's failure
to appoint. The First Appraiser and the Second Appraiser so designated or
appointed shall themselves appoint a third appraiser (the "Third Appraiser"). If
the First Appraiser and the Second Appraiser shall be unable to agree upon such
appointment within five (5) business days after the appointment of the Second
Appraiser, then the Third Appraiser shall be selected by Landlord and Tenant. If
Landlord and Tenant are unable to agree upon the Third Appraiser within ten (10)
business days thereafter, then the Third Appraiser shall be appointed by the
presiding judge of the San Diego Superior Court. Landlord and Tenant shall each
pay the cost of their own appraiser and shall share equally the cost of the
Third Appraiser (and, if necessary, court costs to appoint such appraiser). Any
appraiser designated to serve in accordance with the provisions of this Lease
shall be disinterested and shall be an MAI appraiser and professionally
qualified to appraise the Premises with at least ten (10) years experience in
appraising similar properties in the Comparison Area. The three (3) appraisers
shall within thirty (30) days of the appointment of the Third Appraiser reach a
decision as to whether the parties shall use Landlord's or Tenant's submitted
Fair Market Rate and shall notify Landlord and Tenant thereof. The Fair Market
Rate for the Premises is closest to the actual Fair Market Rate for the Premises
as determined by the arbitrators, taking into account the requirements above.
The decision of the majority of the three arbitrators shall be binding upon
Landlord and Tenant. Any appraisals to be provided pursuant to this Lease shall
be submitted to Landlord and Tenant within ten (10) business days after the last
of the three appraisers has been selected. After reaching a decision, the
appraisers shall give written notice of such decision to the parties and the
same shall thereupon be deemed to be the initial Base Rent for the Option
Period.

          4.   CONSTRUCTION AND POSSESSION.

               (a)  Landlord shall construct at Landlord's sole cost and
expense, (i) the Building Shell for Building A and Building B and Site
Improvements in accordance with the Building Shell and Site Improvement Plans,
and (ii) the Core Improvements for Building A and Building B in accordance with
the Core Improvement Plans (collectively, the "Project Plans" and the "Project
Work"). The Project Plans are described on Exhibit B attached hereto and have
been reviewed and approved by Tenant. Landlord shall notify Tenant of any
material changes to the Project Plans. Landlord agrees to furnish all of the
material, labor and equipment for the construction of the Project Work in a good
and workmanlike manner in conformance with the Project Plans and in compliance
with all then applicable building laws, ordinances, orders, rules, regulations
and requirements of all federal, state and municipal governments with
jurisdictional authority over the construction of the Project Work, including,
but not limited to, the Americans With Disabilities Act and Title 24 (the
"Applicable Laws"). Landlord shall obtain all necessary final inspections and
approvals from the governmental authorities having

                                      -6-
<PAGE>

jurisdiction over the Project Work, as well as a certification of substantial
completion of the Project Work by Landlord's architect, unless prevented from so
doing as a result of the construction of the Tenant Improvements, in which case
Landlord and Tenant shall cooperate to acquire such certificate in conjunction
with the approval of the Tenant Improvements. In connection with the Project
Work, Landlord agrees to maintain all construction warranties and guarantees for
the mutual benefit of Landlord and Tenant, provided that Tenant does not void
any of such construction warranties and guarantees as a result of the
construction of the Tenant Improvements.

               (b)  At such time as Landlord has completed the Project Work to
the extent that construction of the Tenant Improvements can actually commence as
reasonably determined by Landlord's architect, Tenant shall construct the Tenant
Improvements in accordance with the tenant improvement plans and specifications
approved by Landlord as set forth herein ("Tenant Improvement Plans") at
Tenant's expense, including (i) design and architectural fees, (ii) engineering
fees, (iii) costs of processing and obtaining permits from the City of San Diego
and any other governmental entity with jurisdiction over the Premises, (iv)
water and sewer connection charges and other expenses related thereto, and (v)
any other costs and expenses for the design, permitting and construction of the
Tenant Improvements, subject to Landlord providing the Tenant Improvement
Allowance described in Paragraph 4(d) below.  The Tenant Improvements shall be
constructed in accordance with the Union Guidelines attached hereto as Exhibit
C.  The Tenant Improvement Plans may show the location of trash enclosures,
Hazardous Material enclosures, HVAC enclosures, and emergency generators located
outside of the Premises, subject to the reasonable approval of Landlord.  Tenant
shall retain its own architect, engineers and contractors for the design and
construction of the Tenant Improvements.  Landlord and Tenant agrees that the
architect for the Tenant Improvements shall be Pacific Cornerstone Architects,
and the contractor for the Tenant Improvements shall be selected by Tenant,
subject to Landlord's reasonable approval; provided that Tenant shall have the
right to substitute a different architect or contractor (subject to Landlord's
reasonable approval) if, in Tenant's sole and absolute discretion, the
architect's or contractor's performance is unacceptable to Tenant or Tenant and
the architect or contractor are unable to consummate a formal agreement for
their services.  Tenant shall, at Tenant's sole cost and expense, (i) cause to
be prepared by Tenant's architect proposed Tenant Improvement Plans, and, (ii)
submit two sets of the proposed Tenant Improvement Plans to Landlord for
Landlord's approval, which approval shall not be unreasonably withheld or
delayed.  Any revisions and supplements to the Tenant Improvement Plans shall
also be subject to the approval of Landlord, which approval shall not be
unreasonably withheld or delayed.  After Landlord has approved the Tenant
Improvement Plans in writing, Tenant shall proceed with due diligence to perform
the construction and complete the Tenant Improvements as described in the Tenant
Improvement Plans, including obtaining and paying the cost of all permits and
fees required for construction of said Tenant Improvements.  Tenant shall obtain
and provide to Landlord a certificate of occupancy as soon as possible after
completion of the Tenant Improvements.  Upon final completion of the Tenant
Improvements, Tenant shall furnish Landlord copies of all final inspections and
approvals issued by any governmental authority having jurisdiction over the work
of improvement and of Tenant's legal occupancy of the Premises.  The Tenant
Improvements constructed by Tenant shall become part of the real property
comprising the Premises unless otherwise agreed by Landlord in writing.

               (c)  Tenant shall only use contractors and subcontractors which
have procured, paid for and maintain worker's compensation insurance and public
liability insurance in an amount not less than $1,000,000 and which are licensed
in the State of California. Prior to commencement of such work, Tenant shall
provide Landlord with certificates of insurance evidencing such coverage,
endorsed to name Landlord and Tenant as an additional insureds.

               (d)  Landlord shall pay for the cost of Tenant Improvements the
sum of $100.00 per square foot of Rentable Area in the Premises ("Tenant
Improvement Allowance"). If the cost of Tenant Improvements exceeds the Tenant
Improvement Allowance, Tenant shall pay such excess as the costs are incurred.
The Tenant Improvement Allowance shall be disbursed by Landlord to Tenant. The
Tenant Improvement Allowance may be used only for the following items and costs:

                                      -7-
<PAGE>

                    (i)   Payment of the reasonable fees of Tenant's architect,
engineers and other consultants incurred or paid by Tenant in connection with
the Tenant Improvements up to, but not exceeding, an aggregate amount equal to
Four Dollars ($4.00) per Rentable Square Foot of the Premises;

                    (ii)  The payment of plan check, permit and license fees
relating to construction of the Tenant Improvements, including water and sewer
connection charges;

                    (iii) The cost of construction of the Tenant Improvements
but, unless specifically provided to the contrary herein, only to the extent
such Tenant Improvements will be permanently affixed to the Premises and become
a part of the realty under applicable laws;

                    (iv)  The cost of any changes in the Project Plans when such
changes are requested by Tenant or required by the Tenant Improvement Plans for
the construction of the Tenant Improvements, such costs to include all direct
architectural and/or engineering fees and expenses incurred in connection
therewith;

                    (v)   The cost of any changes to the Tenant Improvement
Plans or Tenant Improvements required by any applicable laws, codes,
regulations, ordinances, or building codes;

                    (vi)  Costs associated with Tenant's fixturization of the
Premises (including cabling and telecommunications costs), not to exceed Eight
Dollars ($8.00) per square foot of Rentable Area;

                    (vii) Any costs described in subsections (i) through (vi)
above contained in a change order requested by Tenant and approved by Landlord.

               (e)  Tenant shall prepare a budget for the Tenant Improvements
("Tenant Improvement Budget"), including design fees, costs of processing and
obtaining permits from the City of San Diego and any other governmental agency
with jurisdiction over the Premises, architect fees and other costs incurred in
the design and construction of the Tenant Improvements. The Tenant Improvement
Budget, and all revisions thereto, shall be subject to Landlord's approval,
which shall not be unreasonably withheld or delayed. As work progresses on the
Tenant Improvements, Tenant shall submit an application for payment
("Application for Payment") to Landlord no more often than monthly, and by the
twenty-fifth (25th) day of the month, for disbursement of the Tenant Improvement
Allowance. Applications for Payment may be made only for work actually completed
or services actually provided (including any deposits Tenant is obligated to
submit) and shall include a detailed description of such completed Tenant
Improvement work or services. Applications for Payment shall include copies of
the invoices to Tenant by Tenant's contractor(s) or other vendors for the work
completed. As a condition of payment of any Application for Payment, Landlord
may require the certification by both Tenant and Tenant's architect that the
described Tenant Improvement Work or services have been completed. Landlord
shall disburse the requested funds, less a ten percent (10%) retention, the
aggregate of which shall be referred to herein as the "Retention Amount," from
the Tenant Improvement Allowance to the invoicing party (or, in Landlord's
discretion, directly to Tenant) no later than the tenth (10th) day of each
calendar month for Applications for Payment with required supporting
documentation received on or before the twenty-fifth (25th) day of the previous
calendar month. Tenant agrees to reasonably cooperate with Landlord in compiling
the Applications for Payment in form and content satisfactory to Landlord.

               (f)  Landlord shall pay to Tenant the amount of the Retention
Amount within thirty (30) days after all of the following have occurred: (i)
Landlord has received evidence of payments by Tenant equal to or in excess of
the Tenant Improvement Allowance for items of cost which are reimbursable
hereunder, (ii) lien releases from all contractors, subcontractors, laborers,
materialmen or other parties performing any portion of the Tenant Improvement
Work; together with, if Landlord so elects, mechanics' lien endorsements from
the title company which has issued title insurance to Landlord with regard to
the Development (iii) Landlord has determined that no substandard work exists
which adversely affects the mechanical, electrical, plumbing, heating,
ventilating and air conditioning, life-safety or other systems of the Premises,
the structure or exterior

                                      -8-
<PAGE>

appearance of the Premises, or any other Development Occupant's use of the
Development, (iv) the Tenant's architect delivers to Landlord a certificate, in
a form reasonably acceptable to Landlord, certifying that the construction of
Tenant Improvements has been completed in accordance with the Tenant Improvement
Plans approved by Landlord, (v) submittal to Landlord of the final inspection
cards from of all governmental agencies, along with the certificate of occupancy
and (vi) Tenant is not otherwise in default of any of its obligations hereunder.

               (g)  Landlord shall tender possession of the Premises to Tenant
for construction of the Tenant Improvements at such time as the Project Work has
progressed to the point that construction of the Tenant Improvements can
actually commence, but subject to reasons of Force Majeure and Tenant Delay, no
later than February 1, 2001.  Tenant agrees that, subject to reasons of Force
Majeure and Tenant Delay, in the event possession of the Premises for
construction of the Tenant Improvements is not tendered to Tenant by February 1,
2001, this Lease shall not be void or voidable and Landlord shall not be liable
to Tenant for any loss or damage resulting therefrom; provided, however, but
subject to reasons of Force Majeure and Tenant Delay, if the Premises are
tendered to Tenant after February 1, 2001, the Term Commencement Date shall be
extended one day for each day of delay beyond February 1, 2001.  Without
limiting the generality of the foregoing, Tenant expressly waives any right to
terminate this Lease because of delays in completion of construction of the
Premises; provided however, subject to reasons of Force Majeure and Tenant
Delay, if the Premises are not tendered to Tenant for construction of the Tenant
Improvements on or before April 1, 2001, Tenant at its election by written
notice given to Landlord on or before April 15, 2001, may terminate this Lease,
in which event Landlord shall return to Tenant the Security Deposit and any
other monies deposited with Landlord, and neither Landlord nor Tenant shall have
any further obligation to the other.  The term "Commencement Date" shall mean
the earlier of (i) the date Tenant receives a certificate of occupancy for the
Premises after completion of the Tenant Improvements, or (ii) six (6) months
after Landlord tenders possession of the Premises to Tenant for construction of
the Tenant Improvements.  Notwithstanding reasons of Force Majeure, but subject
to Tenant Delay, in the event Landlord has not tendered possession of the
Premises to Tenant for the construction of the Tenant Improvements on or before
October 1, 2001 (such date, as the same may be extended by matters of Tenant
Delay, being referred to herein as the "Outside Delivery Date"), then in such
event, Tenant shall have the right to terminate this Lease by written notice
delivered to Landlord on or before the date that is ten (10) days after the
Outside Delivery Date.  Also, notwithstanding anything herein to the contrary,
in the event the Loan which is the subject of the Loan Commitment is not funded
within ninety (90) days of the satisfaction of the Loan Commitment Condition,
then either party may, by written notice to the other, tendered within five (5)
business days of such ninetieth (90th) day, terminate this Lease.  In the event
of such termination, any and all monies deposited with Landlord by Tenant
hereunder shall be reimbursed to Tenant within ten (10) days of such
termination, including, but not limited to, any and all Security Deposits and
payments of rent hereunder.

               (h)  For purposes of this Lease, "Tenant Delay" shall mean any
delay in the Project Work which occurs as the result of (i) any request by
Tenant that Landlord perform any work in addition to or as a change or
modification to the Project Work, or any request by Tenant that Landlord delay
in the commencement or completion of the Project Work for any reason, (ii) any
change requested or caused by Tenant to the Project Plans, including any
modifications to the Project Plans caused by the Tenant Improvement Plans
prepared by Tenant, (iii) any failure of Tenant to respond to any request for
approval of Landlord required hereunder within the time periods provided
hereunder after receipt of request therefore, or (iv) any delay in the Project
Work caused by the installation of Tenant's fixtures in the Premises and/or the
performance of any other part of the construction of the Tenant Improvements.

               (i)  Tenant understands that the Project Work may not be complete
at the time possession of the Premises is tendered to Tenant for construction of
the Tenant Improvements, but will be in a condition such that construction of
the Tenant Improvements can reasonably commence. Landlord shall fully complete
construction of the Project Work no later than the date Tenant completes
construction of the Tenant Improvements subject to minor punch-list items and
completion of certain Site Improvement Work, such as landscaping or striping the
parking lot, which does not materially impact Tenant's use of the Premises. In
the event that the Project Work is not fully completed by the date Tenant
completes the Tenant Improvements, and if

                                      -9-
<PAGE>

a certificate of occupancy cannot be issued solely as a result of such failure
of Landlord to complete the Project Work, neither the Term of this Lease nor
Tenant's obligation to pay rent shall commence until a certificate of occupancy
for the Premises has been issued by the City of San Diego.

               (j)  Landlord and Tenant shall diligently and in good faith
cooperate with one another, and shall cause their architects and contractors to
cooperate with one another on the Project Work and the Tenant Improvements, to
insure, among other benefits, timely and cost effective design, permitting and
construction.

               (k)  Any dispute between Landlord and Tenant arising under this
Article 4 that is not resolved by the parties within fifteen (15) days shall be
promptly resolved by binding arbitration conducted by a single neutral
arbitrator in San Diego, California, under the Commercial Rules of the American
Arbitration Association. In order that completion of the Project Work and Tenant
Improvements is not delayed, the party responsible for construction or other
performance shall continue to perform pending completion of the arbitration
proceeding.

               (l)  Prior to the Commencement Date, Landlord and Tenant will
jointly conduct a walk-through inspection of the Premises and will jointly
prepare a punch-list ("Punch-List") of any items required to be completed by
Landlord as part of the Project Work and which require finishing or correction.
The Punch-List will not include any items of damage to the Premises caused by
Tenant's move-in or early entry, if permitted, which damage will be corrected or
repaired by Landlord, at Tenant's expense or, at Landlord's election, by Tenant,
at Tenant's expense. Other than the items specified in the Punch-List, and
subject to Landlord's obligations regarding repair and maintenance contained
herein, and except for latent defects in the construction of Landlord's Work by
taking possession of the Premises, Tenant will be deemed to have accepted the
Premises in its condition on the date of delivery of possession, subject to all
applicable zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use and occupancy of the Premises and to have
acknowledged that the Project Work has been completed as required and that there
are no additional items needing work or repair by Landlord.  Landlord will cause
all items in the Punch-List to be repaired or corrected within thirty (30) days
following the preparation of the Punch-List or as soon as practicable after the
preparation of the Punch-List.  Tenant acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty with respect to
the Premises, the Development or any portions thereof or with respect to the
suitability of same for the conduct of Tenant's business except as set forth in
this Lease.

          5.   RENT.

               (a)  Monthly Base Rent.  Tenant agrees to pay Landlord the
Monthly Base Rent for the Premises (subject to adjustment as hereinafter
provided) in advance on the first day of each calendar month during the Term
without prior notice or demand, except that Tenant agrees to pay the Monthly
Base Rent for the first month of the Term directly to Landlord concurrently with
Tenant's delivery of the executed Lease to Landlord. If the Term of this Lease
commences or ends on a day other than the first day of a calendar month, then
the rent for such period will be prorated in the proportion that the number of
days this Lease is in effect during such period bears to the number of days in
such month. All rent must be paid to Landlord, without any deduction or offset,
in lawful money of the United States of America, at the address designated by
Landlord or to such other person or at such other place as Landlord may from
time to time designate in writing. Monthly Base Rent will be adjusted during the
Term of this Lease as provided in Paragraph 1(r).

               (b)  Additional Rent.  This Lease is what is commonly called a
"Net, Net, Net Lease", it being understood that, except as otherwise expressly
provided herein, the Landlord shall receive all rent free and clear of any and
all other impositions, taxes, liens, charges or expenses of any nature
whatsoever in connection with the ownership and operation of the Premises. In
addition to the Base Rent, Tenant shall pay to the parties respectively entitled
thereto, or satisfy directly, all impositions, insurance premiums, operating
charges, maintenance charges, construction costs, and any other costs,
obligations, liabilities, requirements, and expenses which arise with regard to
the Premises or may be contemplated under any provisions of the Lease

                                      -10-
<PAGE>

during the Term, except as otherwise expressly provided in this Lease. Such
obligations of Tenant shall include, without limiting the generality of the
foregoing, the reimbursement to Landlord of costs incurred in fulfilling its
repair and maintenance obligations hereunder, including specifically those set
forth in Paragraph 14, except as otherwise provided herein. All of such charges,
costs, obligations, liabilities, requirements, and expenses shall constitute
additional rent, and upon the failure of Tenant to pay or satisfy any of such
costs, charges, obligations, liabilities, requirements, or expenses, Landlord
shall have the same rights and remedies as otherwise provided in the Lease for
the failure of Tenant to pay rent. It is the intention of the parties, that,
except as otherwise expressly provided herein, the Lease shall not be terminable
for any reason by the Tenant, and that Tenant shall in no event be entitled to
any abatement, offset, deduction, or reduction of rent payable under the Lease.
Tenant's sole recourse to resolve a dispute under the Lease shall be to a court
of law, except for any arbitration or appraisal rights provided by this Lease,
and except that either Landlord or Tenant shall have the right to submit any
unresolved dispute between Landlord and Tenant regarding any amounts and charges
to be paid by Tenant to binding arbitration under the commercial rules of the
American Arbitration Association in San Diego, California. Except as otherwise
expressly provided herein, Tenant shall have no right to offset any damages of
claims against any payments due Landlord unless and until incorporated into a
judgment of the Superior Court of San Diego County, regardless of whether or not
the judgment is appealed. Any present or of future law to the contrary shall not
alter this agreement of the parties. Consequently, all amounts and charges to be
paid by Tenant hereunder, including, without limitation, payments for Operating
Expenses, the reimbursement to Landlord of costs incurred in fulfilling its
repair and maintenance obligations hereunder, including specifically those set
forth in Paragraph 14, real property taxes, insurance and repairs, will be
considered additional rent for purposes of this Lease, and the word "rent" as
used in this Lease will include all such additional rent unless the context
specifically or clearly implies that only Monthly Base Rent is intended.

               (c)  Late Payments.  Late payments of Monthly Base Rent and/or
any item of additional rent will be subject to interest and a late charge as
provided in Subparagraph 22(f) below.

          6.   OPERATING EXPENSES.

               (a)  Operating Expenses.  In addition to Monthly Base Rent,
throughout the Term of this Lease, Tenant agrees to pay Landlord as additional
rent in accordance with the terms of this Paragraph 6, Tenant's Percentage of
Operating Expenses for the Development as defined below. Any Common Area
Operating Expenses and Real Property Taxes and Assessments that are specifically
attributable to a Building or to any other building in the Development or to the
operation, repair and maintenance thereof, shall be allocated entirely to the
Building or to such other building.  However, any Common Area Operating Expenses
and Real Property Taxes and Assessments that are not specifically attributable
to a Building or to any other building or to the operation, repair and
maintenance thereof, shall be equitably allocated by Landlord to all buildings
in the Development. The inclusion of the improvements, facilities and services
set forth in Subparagraph 6(f) shall not be deemed to impose an obligation upon
Landlord to either have said improvements or facilities or to provide those
services unless the Development already has the same, Landlord already provides
the services, or Landlord has agreed elsewhere in this Lease to provide the same
or some of them.

               (b)  Estimate Statement.  Prior to the Commencement Date and on
or about February 15 of each subsequent calendar year during the Term of this
Lease, Landlord will endeavor to deliver to Tenant a statement ("Estimate
Statement") wherein Landlord will estimate both the Operating Expenses and
Tenant's Percentage of Operating Expenses for the then current calendar year.
Tenant agrees to pay Landlord, as additional rent, one-twelfth (1/l2th) of the
estimated Tenant's Percentage of Operating Expenses each month thereafter,
beginning with the next installment of rent due, until such time as Landlord
issues a revised Estimate Statement or the Estimate Statement for the succeeding
calendar year; except that, concurrently with the regular monthly rent payment
next due following the receipt of each such Estimate Statement, Tenant agrees to
pay Landlord an amount equal to one monthly installment of the estimated
Tenant's Percentage of Operating Expenses (less any applicable Operating
Expenses already paid) multiplied by the number of months from January, in the
current calendar year, to the month of such rent payment next due, all months
inclusive. If at any time during the Term of this Lease, but not more often than
quarterly, Landlord reasonably determines that

                                      -11-
<PAGE>

Tenant's Percentage of Operating Expenses for the current calendar year will be
greater than the amount set forth in the then current Estimate Statement,
Landlord may issue a revised Estimate Statement and Tenant agrees to pay
Landlord, within ten (10) days of receipt of the revised Estimate Statement, the
difference between the amount owed by Tenant under such revised Estimate
Statement and the amount owed by Tenant under the original Estimate Statement
for the portion of the then current calendar year which has expired. Thereafter
Tenant agrees to pay Tenant's Percentage of Operating Expenses based on such
revised Estimate Statement until Tenant receives the next calendar year's
Estimate Statement or a new revised Estimate Statement for the current calendar
year.

               (c)  Actual Statement.  On or about March 1 of each calendar year
during the Term of this Lease, Landlord will also endeavor to deliver to Tenant
a statement ("Actual Statement") which states the actual Operating Expenses for
the preceding calendar year.  If the Actual Statement reveals that Tenant's
Percentage of the actual Operating Expenses is more than the total Operating
Expenses paid by Tenant on account of the preceding calendar year, Tenant agrees
to pay Landlord the difference in a lump sum within ten (10) days of receipt of
the Actual Statement.  If the Actual Statement reveals that Tenant's Percentage
of the actual Operating Expenses is less than the total Operating Expenses paid
by Tenant on account of the preceding calendar year, Landlord will credit any
overpayment toward the next monthly installment(s) of Tenant's Percentage of the
Operating Expenses due under this Lease.

               (d)  Miscellaneous.  Any delay or failure by Landlord in
delivering any Estimate Statement or Actual Statement pursuant to this Paragraph
6 will not constitute a waiver of its right to require an increase in rent nor
will it relieve Tenant of its obligations pursuant to this Paragraph 6, except
that Tenant will not be obligated to make any payments based on such Estimate
Statement or Actual Statement until ten (10) days after receipt of such Estimate
Statement or Actual Statement.  Even though the Term has expired and Tenant has
vacated the Premises, when the final determination is made of Tenant's
Percentage of the actual Operating Expenses for the year in which this Lease
terminates, Tenant agrees to promptly pay any increase due over the estimated
expenses paid and, conversely, any overpayment made in the event said expenses
decrease shall promptly be rebated by Landlord to Tenant.  Such obligation will
be a continuing one which will survive the expiration or termination of this
Lease.  Prior to the expiration or sooner termination of the Lease Term and
Landlord's acceptance of Tenant's surrender of the Premises, Landlord will have
the right to estimate the actual Operating Expenses for the then current Lease
Year and to collect from Tenant prior to Tenant's surrender of the Premises,
Tenant's Percentage of any excess of such actual Operating Expenses over the
estimated Operating Expenses paid by Tenant in such Lease Year through the
expiration or termination date.

               (e)  Tenant's Audit Rights.  Landlord agrees that it shall
maintain complete and accurate records of all costs, expenses and disbursements
paid or incurred by Landlord with respect to the Operating Expenses in
accordance with generally accepted accounting principles, consistently applied.
Such records shall be kept until two (2) years after the termination of this
Lease. At any time within two (2) years of Tenant's receipt of any statement
from Landlord relating to Operating Expenses, Landlord shall furnish Tenant,
following Tenant's written request therefor, for Tenant's audit, invoices and
other source documents relating to Operating Expenses and Landlord shall provide
in reasonable detail the calculation of Tenant's Percentage of the Operating
Expenses; provided, however, that any such examination or audit may not be
conducted by any auditor whose compensation is in any way commission based, must
be conducted by a certified public accountant, and further provided that any
such examination shall be at Tenant's sole cost and expense, except as otherwise
provided herein. If it is determined from Tenant's audit of such Operating
Expenses that Tenant was overcharged by more than five percent (5%), such
overcharge shall entitle Tenant to credit against its next payment of Operating
Expenses the amount of the overcharge and the reasonable costs associated with
the audit, excluding travel and lodging costs (and, if such credit occurs
following the expiration of the Term, Landlord shall promptly pay the amount of
such credit to Tenant). If the audit determines that the Tenant was overcharged
less than five percent (5%), such overcharge shall entitle Tenant to credit
against its next payment of Operating Expenses the amount of the overcharge and
Tenant shall bear its own expenses of the audit. If the audit shall determine
that Tenant was undercharged for the Operating Expenses, Tenant shall promptly
pay the amount of such undercharge to Landlord and Tenant shall bear its own
expenses of the audit. In any case, Landlord shall bear any expenses it

                                      -12-
<PAGE>

incurs related to the audit. Notwithstanding anything to the contrary herein,
any Operating Expenses attributable to a period which falls only partially
within the term of this Lease shall be prorated between Landlord and Tenant so
that Tenant shall pay only that portion thereof which the part of such period
within the Lease term bears to the entire period.

               Any dispute, matter or question arising out of Tenant's audit
shall be resolved by binding arbitration before a panel of three (3) arbitrators
under the commercial rules of the American Arbitration Association in San Diego,
California. All arbitrators shall be impartial and unrelated, directly or
indirectly, so far as employment of services is concerned, to Landlord or Tenant
or to any person directly or indirectly related to Landlord or Tenant, shall be
CPA's and have a minimum of five (5) year's experience in commercial real
estate.

               The decision rendered in such arbitration shall be final and
binding on the parties and judgment thereon may be entered by any court having
jurisdiction thereof. Neither party shall be considered in default hereunder
during the pendency of arbitration proceedings relating to a disputed default.
Each party shall bear one-half (1/2) of the costs of the arbitration and shall
bear the fees and expenses of its own counsel, witnesses and other consultants.
In determining any question, matter or dispute before them, the arbitrators
shall apply the provisions of this Lease without varying therefrom in any
respect. They shall not have the power to add to, modify or change any of the
provisions of this Lease. Pending a determination of the arbitrators, the
parties shall conduct business under this Lease assuming the Landlord's position
prevailed with appropriate and immediate adjustments, if necessary, after the
issuance of the opinion.

               (f)  Items Included in Operating Expenses.  The term "Operating
Expenses" as used in the Lease means:  all costs and expenses of operation and
maintenance of all Buildings and Common Areas of the Development, including but
not limited to any sports courts and recreational facilities of the Development
made available to Tenant and its employees as part of the Common Areas except as
set forth in this Lease, as determined by standard accounting practices,
calculated utilizing the pro rata share of the Rentable Square Footage of the
Premises compared to the Rentable Square Footage of the Buildings in the
Development constructed and available for occupancy as of the date of the
expenditure, including the following costs by way of illustration but not
limitation, but excluding those items specifically set forth in Subparagraph
6(h) below:  (i) Real Property Taxes and Assessments (as defined in Paragraph
4(g) below) and any taxes or assessments imposed in lieu thereof; (ii) any and
all assessments imposed with respect to the Development pursuant to any
covenants, conditions and restrictions affecting the Development, the Common
Areas or the Buildings; (iii) water and sewer charges and the costs of
electricity, heating, ventilating, air conditioning and other utilities; (iv)
utilities surcharges and any other costs, levies or assessments resulting from
statutes or regulations promulgated by any government or quasi-government
authority in connection with the use, occupancy or alteration of the Development
or the Premises or the parking facilities serving the Building or the Premises;
(v) costs of insurance obtained by Landlord pursuant to Paragraph 19 of the
Lease; (vi) waste disposal and janitorial services; (vii) security; (viii) costs
incurred in the management of the Development, including, without limitation:
(1) supplies, and (2) a management/administrative fee equal to two and one-half
percent (2.5%) determined as a percentage of the annual base rents of the
Project; (ix) supplies, materials, equipment and tools including rental of
personal property used for maintenance; (x) maintenance, costs and upkeep of all
parking and other Common Areas; (xi) depreciation on a straight line basis and
rental of personal property used in maintenance; (xii) costs and expenses of
gardening and landscaping; (xiii) maintenance of signs (other than signs of
tenants of the Development); (xiv) personal property taxes levied on or
attributable to personal property used in connection with the Common Areas; (xv)
costs and expenses of repairs, resurfacing, repairing, maintenance, painting,
lighting, cleaning, refuse removal, security and similar items; and (xvi)
amortization on a straight line basis over the useful life (together with
interest at the Interest Rate on the unamortized balance) of all capitalized
expenditures after completion of the Project Work in excess of $10,000 per item
and which are: (1) reasonably intended to produce a reduction in operating
charges or energy consumption; (2) required under any governmental law or
regulation; (3) for replacement of any equipment or other capital items of the
Development deemed necessary by Landlord to operate the Development at the same
quality levels as prior to the replacement; or (4) are otherwise includable in
Common Area Expenses pursuant to application of sound real estate management
principals (including, but not limited to, parking lot repair and resurfacing).

                                      -13-
<PAGE>

          (g) Real Property Taxes and Assessments.  The term "Real Property
Taxes and Assessments" means:  any form of assessment, license fee, license tax,
business license fee, commercial rental tax, levy, charge, improvement bond, tax
or similar imposition imposed by any authority having the direct power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement or special assessment
district thereof, as against any legal or equitable interest of Landlord in the
Premises, Buildings, Common Areas or the Development (as such terms are defined
in the Lease), including the following by way of illustration but not
limitation: (i) any tax on Landlord's "right" to rent or "right" to other income
from the Premises or as against Landlord's business of leasing the Premises;
(ii) any assessment, tax, fee, levy or charge in substitution, partially or
totally, of any assessment, tax, fee, levy or charge previously included within
the definition of real property tax, it being acknowledged by Tenant and
Landlord that Proposition 13 was adopted by the voters of the State of
California in the June, 1978 election and that assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants (it being the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "real property taxes" for the purposes of this Lease); (iii) any
assessment, tax, fee, levy or charge allocable to or measured by the area of the
Premises or other premises in the Development or the rent payable by Tenant
hereunder or other tenants of the Development, including, without limitation,
any gross receipts tax or excise tax levied by state, city or federal
government, or any political subdivision thereof, with respect to the receipt of
such rent, or upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof but not on Landlord's other operations; (iv)
any assessment, tax, fee, levy or charge upon this transaction or any document
to which Tenant is a party, creating or transferring an interest or an estate in
the Premises; and/or (v) any assessment, tax, fee, levy or charge by any
governmental agency related to any transportation plan, fund or system
(including assessment districts) instituted within the geographic area of which
the Building is a part.  Notwithstanding anything in this Subparagraph (g) to
the contrary, unless and until Building C has been constructed, the Real
Property Taxes and Assessments attributable to Parcel (Building C) shall not be
included within the definition of Operating Expenses.

          (h) Items Excluded From Operating Expenses.  Notwithstanding the
provisions of Paragraphs 6(f) and 6(g) above to the contrary, "Operating
Expenses" will  not include:

              (i)   Landlord's federal or state income, franchise,
inheritance or estate taxes;

              (ii)  any ground lease rental;

              (iii) costs incurred by Landlord for the repair of damage to the
extent that Landlord is reimbursed by insurance or condemnation proceeds or by
tenants, warrantors or other third persons;

              (iv)  depreciation, amortization and interest payments, except as
specifically provided herein, and except on materials, tools, supplies and
vendor-type equipment purchased by Landlord to enable Landlord to supply
services Landlord might otherwise contract for with a third party, where such
depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party's services, all as determined in
accordance with standard accounting practices;

              (v)   brokerage commissions, finders' fees, attorneys' fees, space
planning costs and other costs incurred by Landlord in leasing or attempting to
lease space in the Development;

              (vi)  interest, principal, points and fees on debt or amortization
on any mortgage, deed of trust or other debt encumbering the Building or the
Development;

              (vii) costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant improvements for tenants in
the Development, or incurred in renovating or

                                     -14-
<PAGE>

otherwise improving, decorating, painting or redecorating space for tenants or
other occupants of the Development, including space planning and interior design
costs and fees;

               (viii)  attorneys' fees and other costs and expenses incurred in
connection with negotiations or disputes with present or prospective tenants or
other occupants of the Development; provided, however, that Operating Expenses
will include those attorneys' fees and other costs and expenses incurred in
connection with negotiations or disputes with third parties (who are not tenants
of the Development) or claims relating to items of Operating Expenses,
enforcement of rules and regulations of the Development, and such other matters
relating to the maintenance of standards required of Landlord under the Lease
and where such claims or costs are incurred because of acts or omissions of
third parties who are not tenants of the Development;

               (ix)    except for the administrative/management fees described
in Subparagraph 6(f) above, any fees or salaries of principals or employees of
Landlord and any other costs of Landlord's overhead;

               (x)     all items and services for which Tenant or any other
tenant in the Development reimburses Landlord (other than through operating
expense pass-through provisions);

               (xi)    electric power costs for which any tenant directly
contracts with the local public service company;

               (xii)   costs arising from Landlord's charitable or political
contributions;

               (xiii)  costs incurred for the Project Work;

               (xiv)   costs incurred for the repair, maintenance or replacement
of the structural components of the footings, foundation, ground floor slab, and
load bearing walls of the Premises caused by defects in the construction thereon
(but excluding painting and ordinary maintenance and repair of exterior
surfaces);

               (xv)    costs incurred on account of any soils contamination
existing prior to the Commencement Date, on account of any soils subsidence or
slippage, or to maintain, repair or replace any retaining walls in the
Development caused by such soils subsidence or slippage;

               (xvi)   costs incurred to correct any defects in design,
materials or construction of the Project Work, or to comply with Landlord's
agreement in Subparagraph 4(a) to furnish all of the material, labor and
equipment for the construction of the Project Work in a good and workmanlike
manner in conformance with the Project Plans and in compliance with all
Applicable Laws;

               (xvii)  costs, expenses and penalties (including without
limitation attorneys fees) incurred as a result of the use, storage, removal or
remediation of any toxic or hazardous substances or other environmental
contamination;

               (xviii) costs incurred in connection with the financing, sale or
acquisition of the Premises or any portion thereof;

               (xix)   costs, expenses, and penalties (including without
limitation attorneys' fees) incurred due to the violation by Landlord of any
underlying deed of trust or mortgage affecting the Premises or any portion
thereof;

               (xx)    costs incurred as a result of Landlord's violation of any
statute, ordinance or other source of applicable law, or breach of contract or
tort liability to any other party, including without limitation, any unrelated
third party, or Landlord's employees, contractors, agents or representatives;

                                     -15-
<PAGE>

               (xxi)    advertising, marketing, media and promotional
expenditures regarding the Development and costs of the initial construction of
any signs in or on the Development identifying the owner, lender or any
contractor thereof;

               (xxii)   to the extent the useful life of repairs or replacements
(other than repairs or replacements to Tenant Improvements) which, under
generally accepted accounting principles consistently applied, would be
considered a capital cost in excess of $12,000 per item, exceeds the remainder
of the term of the Lease (as such useful life is determined under generally
accepted accounting principals), the pro rata portion of the cost thereof
attributable to the period following the expiration of the Term; provided,
however, if Tenant thereafter extends the Term of the Lease, Landlord may
recover the portion of the cost not previously recovered to the extent it falls
within the period of the extended Term;

               (xxiii)  the amounts of any payments to Landlord or to
subsidiaries or affiliates of Landlord for goods or services in the Building in
excess of the cost of such goods or services if they were provided by
unaffiliated third parties on a competitive basis;

               (xxiv)   costs of insured losses to the extent of insurance
proceeds provided to Landlord, except payable by Tenant pursuant to Paragraph 20
of this Lease;

               (xxv)    any bad debt loss, rent loss, or reserves for bad
debts or rent loss;

               (xxvi)   costs associated solely with the operating of the
business of the entity which constitutes the Landlord, as the same are
distinguished from the costs of operation of the Development by the Landlord
(which shall specifically include, but not be limited to, accounting costs
associated with the operation of the Development, costs of entity accounting and
legal matters, costs of defending any lawsuits with any mortgagee, costs of
selling, syndicating, financing, mortgaging or hypothecating any of the
Landlord's interest in the Premises, and costs incurred in connection with any
disputes between Landlord and its employees, or between Landlord and other
tenants or occupants), and Landlord's general corporate overhead and general and
administrative expenses;

               (xxvii)  costs arising from Landlord's charitable and
political contributions;

               (xxviii) any gifts provided to any entity whatsoever, including
but not limited to, Tenant, other tenants, employees, vendors, contractors,
prospective tenants and agents;

               (xxix)   any costs covered by any warranty, rebate, guarantee or
service contract which are actually collected by Landlord (which shall not
prohibit Landlord for passing through the costs of any such service contract if
otherwise included in Operating Expenses);

               (xxx)    all items and services that Tenant reimburses
Landlord for;

               (xxxi)   any expense resulting from the active or gross
negligence or willful misconduct of Landlord, its agents, contractors or
employees, to the extent Landlord is actually reimbursed for such costs, to
remedy damage caused by or resulting from the negligence or willful misconduct
of any licensees in the Project, including their agents, contractors and
employees;

               (xxxii)  reserves for anticipated future expenses; and

               (xxxiii) insurance deductibles for damage caused by earthquake,
and underinsured portions of losses on account of damage to the Building Shell,
Site Improvements and Core Improvements.

                                     -16-
<PAGE>

          7.   DEPOSIT.

               (a)  Security Deposit. Concurrently with Tenant's execution of
this Lease, Tenant will deposit with Landlord the Security Deposit designated in
Subparagraph 1(t). The Security Deposit will be held by Landlord as security for
the full and faithful performance by Tenant of all of the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the Term
hereof. If Tenant fully and faithfully performs its obligations under this
Lease, including, without limitation, surrendering the Premises upon the
expiration or sooner termination of this Lease in compliance with Subparagraph
11(a) below, the Security Deposit or any balance thereof will be returned to
Tenant (or, at Landlord's option, to the last assignee of Tenant's interest
hereunder) within thirty (30) days following the expiration of the Lease Term or
as required under applicable law, provided that Landlord may retain the Security
Deposit until such time as any outstanding rent or additional rent amount has
been determined and paid in full. The Security Deposit is not, and may not be
construed by Tenant to constitute, rent for the last month or any portion
thereof. If Tenant defaults with respect to any provisions of this Lease
including, but not limited to, the provisions relating to the payment of rent or
additional rent, Landlord may (but will not be required to) use, apply or retain
all or any part of the Security Deposit for the payment of any rent or any other
sum in default, or for the payment of any other amount which Landlord may spend
or become obligated to spend by reason of Tenant's default or to compensate
Landlord for any loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of the Security Deposit is so used or applied, Tenant
agrees, within ten (10) days after Landlord's written demand therefor, to
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount and Tenant's failure to do so shall constitute a
default under this Lease. Landlord is not required to keep Tenant's Security
Deposit separate from its general funds, and Tenant is not entitled to interest
on such Security Deposit. Should Landlord sell its interest in the Premises
during the Term hereof and deposit with the purchaser thereof the then
unappropriated Security Deposit funds, Landlord will be discharged from any
further liability with respect to such Security Deposit.

               (b)  Letter of Credit.

                    (i) Form of Letter of Credit. In addition to its primary
                        ------------------------
obligations under this Lease and as part of the Security Deposit required above,
Tenant shall, within three (3) days after the satisfaction of the Loan
Commitment Condition, and continuing throughout the Lease Term, provide security
against a default by Tenant under this Lease by delivering to Landlord an
unconditional, irrevocable, standby letter of credit ("LC"), naming Landlord as
the payee thereunder, with terms as described in more detail below. The LC shall
be initially be in an amount equal to One Million Five Hundred Thousand Dollars
($1,500,000.00), which amount shall be increased to Three Million One Hundred
Ten Thousand Dollars ($3,110,000.00) no later than three (3) days after the
Commencement Date. The LC shall be issued by a money center bank (a bank which
accepts deposits, maintains accounts, has a local San Diego, Orange County, or
Los Angeles office which will negotiate a letter of credit, and whose deposits
are insured by the FDIC) reasonably acceptable to Landlord, and shall be in a
form and content reasonably acceptable to Landlord and in the form required
hereunder. The LC shall be drawable by Landlord upon presentation of a sight
draft or demand to the LC issuer. Landlord may present such a sight draft or
demand if (1) the LC has not been renewed and replaced by Tenant by thirty (30)
days prior to the expiration date of the then effective LC, or (2) Tenant
commits a default under the Lease and has not either (A) timely cured the same,
as provided herein, or (B) prior to thirty (30) days prior to the expiration of
the LC, whichever occurs first, cured the same; provided, however, proceeds of
the drawn LC shall be applied to damages or charges to which Landlord is
entitled under the Lease as a result of Tenant's default. The LC is not intended
to represent liquidated damages for Tenant's default, but only a mechanism for
paying the damages or charges to which Landlord may be entitled. If allowed by
the issuing bank, Landlord shall be entitled, at Landlord's sole cost and
expense, to grant a security interest in, or make a collateral assignment of,
Landlord's rights under the LC in connection with mortgage indebtedness incurred
by Landlord to a bona fide third-party institutional lender in an arm's-length
transaction; provided, however, that any grantee of a security interest or
assignee of a collateral assignment acknowledges in writing that the LC is bound
by the terms of this Lease. Tenant shall otherwise pay all expenses, points,
and/or fees incurred in obtaining the LC.

                                     -17-
<PAGE>

                    (ii) Conditional Reduction of Security. Provided Tenant has
                         ---------------------------------
not been in default (after expiration of any applicable notice and cure period)
of its monetary obligations under this Lease three (3) times or more, and
provided Tenant has accepted the Premises and as provided in Paragraph 4 and is
occupying the Premises, and further provided and for so long as Tenant has at
least Seventy Million Dollars ($70,000,000) cash, cash equivalents and liquid
investments on hand (the "LC Cash Threshold Amount"), then commencing with the
thirteenth (13/th/) month of the Lease Term, the amount of the LC shall be
reduced by fifty percent (50%); provided, however, the amount of the LC shall
only be so reduced for so long as Tenant retains at least the LC Cash Threshold
Amount in cash, cash equivalents and liquid investments in its accounts.
Commencing with the twenty fifth (25/th/) month of the Lease Term, the amount of
the LC Cash Threshold Amount shall be reduced to Fifty Million Dollars
($50,000,000. In any event, and regardless of the amount of cash, cash
equivalents and liquid investments Tenant has in its accounts, the LC shall be
reduced to fifty percent (50%) of the initial amount at the commencement of the
seventh (7th) Lease Year, and shall be reduced by seventy five percent (75%) at
the commencement of the ninth (9th) Lease Year. For the first six (6) years of
the Lease Term, Tenant shall provide to Landlord, on a quarterly basis, Tenant's
financial statements and annual audited financials.

          8.   USE.

               (a)    Tenant's Use of the Premises. The Premises may be used for
the use or uses set forth in Subparagraph 1(v) only, and Tenant will not use or
permit the Premises to be used for any other purpose without the prior written
consent of Landlord, which consent Landlord may withhold in its sole and
absolute discretion.

               (b)    Compliance. At Tenant's sole cost and expense, Tenant
agrees to procure, maintain and hold available for Landlord's inspection, all
governmental licenses and permits required for the proper and lawful conduct of
Tenant's business from the Premises, if any. Tenant agrees not to use, alter or
occupy the Premises or allow the Premises to be used, altered or occupied in
violation of, and Tenant, at its sole cost and expense, agrees to use and occupy
the Premises and cause the Premises to be used and occupied in compliance with:
(i) any and all laws, statutes, zoning restrictions, ordinances, rules,
regulations, orders and rulings now or hereafter in force and any requirements
of any insurer, insurance authority or duly constituted public authority having
jurisdiction over the Premises now or hereafter in force, (ii) the requirements
of the Board of Fire Underwriters and any other similar body, (iii) the
Certificate of Occupancy issued for the Building, and (iv) any recorded
covenants, conditions and restrictions and similar regulatory agreements, if
any, which affect the use, occupation or alteration of the Premises. Tenant
agrees to comply with the Rules and Regulations referenced in Paragraph 28
below. Tenant agrees not to do or permit anything to be done in or about the
Premises which will in any manner obstruct or interfere with the rights of other
tenants or occupants of the Development, or injure or unreasonably annoy them,
or use or allow the Premises to be used for any unlawful or unreasonably
objectionable purpose. Tenant agrees not to cause, maintain or permit any
nuisance or waste in, on, under or about the Premises. Notwithstanding anything
contained in this Lease to the contrary, all transferable development rights
related in any way to the Development are and will remain vested in Landlord,
and Tenant hereby waives any rights thereto.

               (c)    Hazardous Materials. Except as provided below, Tenant
agrees not to cause or permit any Hazardous Materials to be brought upon,
stored, used, handled, generated, released or disposed of on, in, under or about
the Premises, the Development or any portion thereof by Tenant, its agents,
employees, subtenants, assignees, licensees, contractors or invitees
(collectively, "Tenant's Parties"), without the prior written consent of
Landlord, which consent Landlord may withhold in its sole and absolute
discretion. Upon the expiration or earlier termination of this Lease, Tenant
agrees to promptly remove from the Premises, at its sole cost and expense, any
and all Hazardous Materials, including any equipment or systems containing
Hazardous Materials, which are installed, brought upon, stored, used, generated
or released upon, in, under or about the Premises, the Development or any
portion thereof by Tenant or any of Tenant's Parties. Tenant agrees to promptly
notify Landlord of any release of Hazardous Materials at the Premises, which
Tenant becomes aware of during the Term of this Lease, whether caused by Tenant
or any other persons or entities. In the event of any

                                     -18-
<PAGE>

release of Hazardous Materials caused or permitted by Tenant or any of Tenant's
Parties, Landlord shall have the right, but not the obligation, to cause Tenant
to immediately take all steps Landlord deems necessary or appropriate to
remediate such release and prevent any similar future release to the
satisfaction of Landlord and Landlord's mortgagee(s). As used in this Lease, the
term "Hazardous Materials" shall mean and include any hazardous or toxic
materials, substances or wastes as now or hereafter designated under any law,
statute, ordinance, rule, regulation, order or ruling of any agency of the
State, the United States Government or any local governmental authority,
including, without limitation, asbestos, petroleum, petroleum hydrocarbons and
petroleum based products, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBs"), and freon and other chlorofluorocarbons. The provisions of
this Subparagraph 8(c) will survive the expiration or earlier termination of
this Lease. Notwithstanding the foregoing, Tenant may, without Landlord's prior
consent, but in compliance with all Applicable Laws, use any ordinary and
customary materials reasonably required to be used by Tenant in the normal
course of Tenant's use of the Premises as permitted hereunder provided that
Tenant's handling, storage, use and disposal procedures are in compliance with
all Applicable Laws, the Rules and Regulations governing the Development and any
CC&R's. Landlord shall have the right, during the Lease Term, or upon the
expiration or earlier termination of the Term of this Lease, to cause, at
Tenant's cost, a duly qualified and licensed environmental consultant to conduct
an environmental audit of the Premises. The identity of the consultant and the
scope and detail of the audit shall be subject to Landlord's reasonable
discretion. If the audit recommends additional testing, then Tenant shall
conduct such tests at its expense. If the audit and/or tests reveal the presence
of Hazardous Materials at, on or under the Premises attributable to Tenant's
activities at the Premises, then Tenant shall, in addition to its obligation to
reimburse Landlord for the cost of such audit, remediate and mitigate the same,
at its expense, as necessary to obtain a final "no further action" letter (or
equivalent) from all governmental agencies having jurisdiction. In addition, if
at any time during the Term Tenant is required to file reports or manifests
concerning its use of Hazardous Materials at the Premises or concerning
Hazardous Materials contamination or remediation, then Tenant shall concurrently
provide Landlord with a copy of the same. Landlord represents and warrants that,
as of the Commencement Date of this Lease, to Landlord's actual knowledge,
except as disclosed in writing to Tenant, there are no Hazardous Materials
located on the Premises. For purposes of this Lease, "Landlord's actual
knowledge" means the actual knowledge of William P. Tschantz and/or Ned Banning,
without duty of investigation.

               (d) Duty to Inform Landlord. If Tenant knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Buildings, other than in compliance with all
Applicable Laws, Tenant shall immediately give Landlord written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Tenant shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises or the Development (including, without limitation, through the plumbing
or sanitary sewer system).

               (e) Indemnification. Tenant shall indemnify, protect, defend and
hold Landlord, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees, which arise during or after the Term of this Lease and which
result from or arise out of or involve any Hazardous Substance brought onto or
created on the Premises or the Development by or for Tenant or its agents or by
anyone under Tenant's control or with Tenant's constructive knowledge or
consent. Tenant's obligations under this Paragraph 6.2(e) shall include, but not
be limited to, (i) the effects of any contamination or injury to person,
property or the environment created or suffered by Tenant, (ii) the cost of
investigation (including consultants' and attorneys' fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, (iii) diminution in value of the Premises or any portion of
the Development, (iv) damages for the loss or restriction on use of any portion
or amenity of the Premises or Project, (vi) damages arising from any adverse
impact on marketing of space in the Premises or the Development, (v) damages and
the costs of remedial work to other property in the vicinity of the Development
owned by Landlord

                                     -19-
<PAGE>

or an affiliate of Landlord, (vi) any consultant fees, expert fees, and
attorneys' fees incurred in connection therewith and, (vii) shall survive the
expiration or earlier termination of this Lease. No expiration or termination of
this Lease and no termination, cancellation or release agreement entered into by
Landlord and Tenant shall release Tenant from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Landlord
in writing at the time of such agreement.

               (f) Exculpation of Landlord. Other lessees of the Development may
be using, handling or storing certain Hazardous Substances in connection with
such lessees' use of their premises. The failure of another lessee to comply
with applicable laws and procedures could result in a release of Hazardous
Substances and contamination to the Development, or any part thereof or the soil
and ground water thereunder. In the event of such release, the lessee
responsible for the release, and not Landlord, shall be solely responsible for
any claim, damage or expense incurred by Tenant by reason of such contamination.
Except for a breach of Landlord's representation in Paragraph 6(c), Tenant
waives any rights it may have to later assert that the foregoing release does
not cover unknown claims. Tenant and anyone claiming by, through or under Tenant
hereby fully and irrevocably releases Landlord, its partners and their
respective employees, officers, directors, representatives, agents, successors
and assigns from any and all claims that it may now have or hereafter acquire
against such persons and entities for any cost, loss, liability, damage,
expense, demand, action or cause of action arising from or related to any
environmental matters affecting the Property, or any portion thereof. This
release includes claims of which Tenant is presently unaware or which Tenant
does not presently suspect to exist in its favor which, if known by Tenant,
would materially affect Tenant's release of Landlord. Tenant specifically waives
the provision of California Civil Code (S) 1542, which provides as follows:

          "A general release does not extend to claims which the creditor does
          not know or suspect to exist in his favor at the time of executing the
          release, which if known by him must have materially affected his
          settlement with the debtor."

             ________________________             _____________________
               Landlord's Initials                  Tenant's Initials

               (g) Tenant's Compliance with Requirements. Tenant shall, at
Tenant's sole cost and expense, fully, diligently and in a timely manner, comply
with all "Applicable Requirements," which term is used in this Lease to mean all
laws, rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Tenant shall, within ten (10) days after receipt of Landlord's written
request, provide Landlord with copies of all documents and information,
including but not limited to permits, registrations, manifests, applications,
reports and certificates, evidencing Tenant's compliance with any Applicable
Requirements specified by Landlord, and shall immediately upon receipt, notify
Landlord in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Tenant or the Premises to comply with any Applicable
Requirements.

          9.   NOTICES.  Any notice required or permitted to be given hereunder
must be in writing and may be given by personal delivery (including delivery by
overnight courier or an express mailing service) or by mail, if sent by
registered or certified mail.  Notices to Tenant shall be sufficient if
delivered to Tenant at the address designated in Subparagraph 1(b) prior to the
Commencement Date and at the Premises after the Commencement Date, and notices
to Landlord shall be sufficient if delivered to Landlord at the address
designated in Subparagraph 1(a).  Either party may specify a different address
for notice purposes by written notice to the other, except that, after the
Commencement Date, the Landlord may in any event use the Premises as Tenant's
address for notice purposes.

                                     -20-
<PAGE>

          10.  BROKERS.  The parties acknowledge that the broker(s) who
negotiated this Lease are stated in Subparagraph 1(w), the commissions of whom
shall be paid by Landlord.  Each party represents and warrants to the other,
that, to its knowledge, no other broker, agent or finder (a) negotiated or was
instrumental in negotiating or consummating this Lease on its behalf, and (b) is
or might be entitled to a commission or compensation in connection with this
Lease.  Landlord and Tenant each agree to promptly indemnify, protect, defend
and hold harmless the other from and against any and all claims, damages,
judgments, suits, causes of action, losses, liabilities, penalties, fines,
expenses and costs (including attorneys' fees and court costs) resulting from
any breach by the indemnifying party of the foregoing representation, including,
without limitation, any claims that may be asserted by any broker, agent or
finder undisclosed by the indemnifying party.  The foregoing mutual indemnity
shall survive the expiration or earlier termination of this Lease.

          11.  SURRENDER; HOLDING OVER.

               (a) Surrender.  The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not constitute a merger, and
shall, at the option of Landlord, operate as an assignment to Landlord of any or
all subleases or subtenancies.  Upon the expiration or earlier termination of
this Lease, Tenant agrees to peaceably surrender the Premises to Landlord broom
clean and in a state of good order, repair and condition, ordinary wear and tear
and casualty damage (if this Lease is terminated as a result thereof pursuant to
Paragraph 20) excepted, but in any event with the plumbing, heating, ventilation
and air conditioning systems in working order and all carpets and other floor
areas cleaned, together with all of Tenant's personal property and Alterations
(as defined in Paragraph 13) removed from the Premises to the extent required
under Paragraph 13 and all damage caused by such removal repaired as required by
Paragraph 13.  At least ninety (90) days, prior to the date Tenant is to
actually surrender the Premises to Landlord, Tenant agrees to give Landlord
notice of the exact date Tenant will surrender the Premises so that Landlord and
Tenant can schedule a walk-through of the Premises to review the condition of
the Premises and identify the Alterations and personal property which are to
remain upon the Premises and which items Tenant is to remove as well as any
repairs Tenant is to make upon surrender of the Premises as required by this
Lease.  During such ninety (90) day period, Landlord may, at its option and at
its expense, retain the services of one or more inspectors or consultants to
inspect the Premises and all equipment and fixtures located therein to determine
if they are in the condition required for proper surrender by Tenant.  If any
such inspections disclose any deficiencies in the condition of the Premises,
Tenant will promptly cause the same to be corrected in a good and workmanlike
manner at Tenant's sole cost and expense prior to the surrender date.  The
delivery of keys to any employee of Landlord or to Landlord's agent or any
employee thereof alone will not be sufficient to constitute a termination of
this Lease or a surrender of the Premises.

               (b) Holding Over.  Tenant will not be permitted to hold over
possession of the Premises after the expiration or earlier termination of the
Term without the express written consent of Landlord, which consent Landlord may
withhold in its sole and absolute discretion.  If Tenant holds over after the
expiration or earlier termination of the Term, Landlord may, at its option,
treat Tenant as a tenant at sufferance only, and such continued occupancy by
Tenant shall be subject to all of the terms, covenants and conditions of this
Lease, so far as applicable, except that the Monthly Base Rent for any such
holdover period shall be equal to one hundred twenty-five percent (125%) of the
Monthly Base Rent in effect under this Lease immediately prior to such holdover,
prorated on a daily basis.  Acceptance by Landlord of rent after such expiration
or earlier termination will not result in a renewal of this Lease.  The
foregoing provisions of this Paragraph 11 are in addition to and do not affect
Landlord's right of re-entry or any rights of Landlord under this Lease or as
otherwise provided by law.  If Tenant fails to surrender the Premises upon the
expiration of this Lease in accordance with the terms of this Paragraph 11
despite demand to do so by Landlord, Tenant agrees to pay costs and expenses
incurred by Landlord in returning the Premises to the condition in which Tenant
was to surrender it.  The provisions of this Subparagraph 11(b) will survive the
expiration or earlier termination of this Lease.

                                     -21-
<PAGE>

          12.  TAXES.

               (a) Payment of Taxes. Tenant agrees to pay all Real Property
Taxes and Assessments, as defined in Subparagraph 6(g) above, applicable to the
Premises during the term of this Lease. All such payments shall be made at least
ten (10) days prior to the due date of such payment. Tenant agrees to promptly
furnish Landlord with satisfactory evidence that such Real Property Taxes and
Assessments have been paid. If any such Real Property Taxes and Assessments paid
by Tenant shall cover any period of time prior to or after the expiration of the
term thereof, Tenant's share of such Real Property Taxes and Assessments is to
be equitably prorated to cover only the period of time within the tax fiscal
year during which this Lease shall be in effect, and Landlord will promptly
reimburse Tenant to the extent required. If Tenant fails to pay any such Real
Property Taxes and Assessments, Landlord will have the right to pay the same, in
which case Tenant will repay such amount to Landlord with Tenant's next rent
installment together with interest at the Interest Rate. In the event Tenant
occupies a portion of a larger building and real property taxes are billed to
Landlord, Tenant shall pay its pro rata share as determined in Paragraph 12(c)
below of said taxes within ten (10) days after billing by Landlord.

               (b) Joint Assessment. If the Premises are not separately
assessed, Tenant's liability shall be an equitable proportion of the Real
Property Taxes and Assessments for all of the land and improvement included
within the tax parcel assessed, such proportion to be determined by Landlord
from the respective valuations assigned in the assessor's work sheets or such
other information as may be reasonably available. Landlord's reasonable
determination thereof shall be conclusive and binding upon Tenant.

               (c) Personal Property Taxes. Tenant agrees to pay prior to
delinquency all taxes assessed against and levied upon trade fixtures,
furnishings, equipment and all other personal property of Tenant contained in
the Premises or elsewhere. When possible, Tenant will cause said trade fixtures,
furnishings, equipment and all other personal property to be assessed and billed
separately from the real property of Landlord. If any of Tenant's personal
property is assessed with Landlord's real property, Tenant shall pay Landlord
the taxes attributable to Tenant within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Tenant's property.

          13.  ALTERATIONS. After installation of the initial Tenant
Improvements for the Premises, Tenant may, at its sole cost and expense, make
alterations, additions, improvements, "Utility Installations" and decorations to
the Premises (collectively, "Alterations") subject to and only upon the
following terms and conditions:

               (a) Prohibited Alterations. Tenant may not without Landlord's
prior written consent, which may not be unreasonably withheld or delayed, make
any Alterations which: (i) affect any area outside the Premises; (ii) affect the
Building's structure, roof, equipment, services or systems, or the proper
functioning thereof, or Landlord's access thereto; (iii) affect the outside
appearance, character or use of the Building or the Common Areas; (iv) in the
reasonable opinion of Landlord, lessen the value of the Building; or (v) will
violate or require a change in any occupancy certificate applicable to the
Premises. As used in this Paragraph 13, the term "Utility Installations" means
carpeting, window coverings, air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, heating, ventilation and air
conditioning systems, plumbing systems, fencing, landscaping, signage,
telephone, cable or other communication systems of any kind, satellite or other
radio or television reception or transmitting devices, or gas lines.

               (b) Landlord's Approval.  Before proceeding with any Alterations,
Tenant must first obtain Landlord's written approval of the plans,
specifications and working drawings for such Alterations, which approval
Landlord will not unreasonably withhold or delay; provided, however, Landlord's
prior approval will not be required for any such Alterations which are not
listed by Subparagraph 13(a) above and which cost less than Fifty Thousand
Dollars ($50,000) per instance, or One Hundred Thousand Dollars ($100,000) per
year (individually, or collectively, the "Alteration Threshold Amount") as long
as (i) Tenant delivers to Landlord notice and a copy of any final plans,
specifications and working drawings for any such Alterations at least ten (10)

                                     -22-
<PAGE>

days prior to commencement of the work thereof, and (ii) the other conditions of
this Paragraph 13 are satisfied, including, without limitation, conforming to
Landlord's rules, regulations and insurance requirements which govern
contractors.  Landlord's approval of plans, specifications and/or working
drawings for Alterations will not create any responsibility or liability on the
part of Landlord for their completeness, design sufficiency, or compliance with
applicable permits, laws, rules and regulations of governmental agencies or
authorities.

               (c) Contractors. Alterations in excess of the Alteration
Threshold Amount may be made or installed only by contractors and subcontractors
which have been approved by Landlord, which approval Landlord will not
unreasonably withhold or delay. Before proceeding with any Alterations, Tenant
agrees to provide Landlord with ten (10) days' prior written notice and Tenant's
contractors must obtain and maintain, on behalf of Tenant and at Tenant's sole
cost and expense: (i) all necessary governmental permits and approvals for the
commencement and completion of such Alterations; and (ii) if the Alterations in
any one instance cost more than One Hundred Thousand Dollars ($100,000), if
requested by Landlord, a completion and lien indemnity bond, or other surety,
reasonably satisfactory to Landlord for such Alterations. Throughout the
performance of any Alterations, Tenant agrees to obtain, or cause its
contractors to obtain, workers compensation insurance and general liability
insurance in compliance with the provisions of Paragraph 19 of this Lease.

               (d) Manner of Performance. All Alterations must be performed: (i)
in accordance with the approved plans, specifications and working drawings; (ii)
in a lien-free and first-class and workmanlike manner; (iii) in compliance with
all applicable permits, laws, statutes, ordinances, rules, regulations, orders
and rulings now or hereafter in effect and imposed by any governmental agencies
and authorities which assert jurisdiction; (iv) in such a manner so as not to
interfere with the occupancy of any other tenant the Development, nor impose any
additional expense upon Landlord; and (v) at such times, in such manner, and
subject to such rules and regulations as Landlord may from time to time
reasonably designate.

               (e) Ownership. The Tenant Improvements and all Alterations will
become the property of Landlord and will remain upon and be surrendered with the
Premises at the end of the Term of this Lease; provided, however, (i) Landlord
may, by written notice delivered to Tenant concurrently with Landlord's approval
of the final working drawings for any Alterations, identify those Alterations
which Landlord will require Tenant to remove at the expiration or earlier
termination of this Lease, and (ii) Tenant may, by written notice delivered to
Landlord concurrently with the final working drawings for any Alterations, and
with Landlord's written approval, identify those Alterations which Tenant
reserves the right to remove at the expiration or earlier termination of the
Lease. Landlord may also require Tenant to remove Alterations which Landlord did
not have the opportunity to approve as provided in this Paragraph 13. If
Landlord requires Tenant to remove any Alterations, Tenant, at its sole cost and
expense, agrees to remove the identified Alterations on or before the expiration
or earlier termination of this Lease. Tenant, at its sole cost and expense,
shall repair any damage to the Premises caused by the removal of any Alterations
(or, with Landlord's consent, Tenant may pay to Landlord all of Landlord's costs
of such removal and repair).

               (f) Personal Property. All articles of personal property owned by
Tenant or installed by Tenant at its expense in the Premises (including Tenant's
business and trade fixtures, furniture, movable partitions and equipment (such
as telephones, copy machines, computer terminals, refrigerators and facsimile
machines) will be and remain the property of Tenant, and must be removed by
Tenant from the Premises, at Tenant's sole cost and expense, on or before the
expiration or earlier termination of this Lease. Tenant agrees to repair any
damage caused by such removal at its cost on or before the expiration or earlier
termination of this Lease.

               (g) Removal of Alterations. If Tenant fails to remove by the
expiration or earlier termination of this Lease all of its personal property, or
any Alterations identified by Landlord for removal, Landlord may, at its option
(without liability to Tenant for loss thereof), treat such personal property
and/or Alterations as abandoned and, at Tenant's sole cost and expense, and in
addition to Landlord's other rights and remedies under this Lease, at law or in
equity: (a) remove and store such items; and/or (b) upon ten (10) days' prior
notice to Tenant, sell, discard or otherwise dispose of all or any such items at
private or public sale for such

                                     -23-
<PAGE>

price as Landlord may obtain or by other commercially reasonable means. Tenant
shall be liable for all costs of disposition of Tenant's abandoned property and
Landlord shall have no liability to Tenant with respect to any such abandoned
property. Landlord agrees to apply the proceeds of any sale of any such property
to any amounts due to Landlord under this Lease from Tenant (including
Landlord's attorneys' fees and other costs incurred in the removal, storage
and/or sale of such items), with any remainder to be paid to Tenant.

          14.  REPAIRS.

               (a) Tenant's Obligations. Except for Landlord's obligations under
Paragraph 14(c) below, Tenant agrees to keep in good order, condition and repair
the Premises and every part thereof (whether or not such portion of the Premises
requiring repair, or the means of repairing the same are reasonable or readily
accessible to Tenant, and whether or not the need for such repairs occurs as a
result of Tenant's use, any prior use, the elements, the age or the quality of
construction of such portion of the Premises), including, the plumbing, heating,
ventilation, air conditioning systems, electrical, lighting facilities and
equipment within the Premises, fixtures, interior walls, ceilings, roofs
(interior and exterior), floors, windows, doors, plate glass and skylights
located within the Premises, and signs located on the Premises. Landlord, at
Tenant's sole cost and expense, shall arrange for inspection of the roof of the
Premises annually. Tenant shall pay for the costs of such inspections and
cooperate with Landlord for the correction of any defects found, including
implementation of a preventative maintenance program for the roof. Tenant shall
select, procure and maintain, at Tenant's expense, maintenance contracts with
contractors approved by Landlord for the heating, ventilating and air
conditioning systems, of the Premises and Tenant shall pay for the cost of same.
Tenant agrees to cause any mechanics' liens or other liens arising as a result
of work performed by Tenant or at Tenant's direction to be eliminated as
provided in Paragraph 15 below.

               (b) Tenant's Failure to Repair. If Tenant refuses or neglects to
repair and maintain the Premises properly as required hereunder to the
reasonable satisfaction of Landlord, Landlord, at any time following ten (10)
days from the date on which Landlord makes a written demand on Tenant to effect
such repair and maintenance, may enter upon the Premises and make such repairs
and/or maintenance, and upon completion thereof, Tenant agrees to pay to
Landlord as additional rent, Landlord's costs for making such repairs plus an
amount not to exceed ten percent (10%) of such costs for overhead, within ten
(10) days of receipt from Landlord of a written itemized bill therefor. Any
amounts not reimbursed by Tenant within such ten (10) day period will bear
interest at the Interest Rate until paid by Tenant.

               (c) Landlord's Obligations. Subject to Tenant's obligations
hereunder, and the provisions of Paragraphs 6 (Common Area Operating Expenses),
20 (Damage or Destruction) and 21 (Eminent Domain), and subject to the
reimbursement requirements of Tenant under Paragraph 5(b), Landlord, shall keep
in good order, condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, fire sprinkler and/or standpipe and hose
(if located in the Common Areas) or other automatic fire extinguishing system
including fire alarm and/or smoke detection systems and equipment inside the
Premises, fire hydrants, parking lots, walkways, parkways, driveways,
landscaping, sports courts and all recreational facilities included in the
Common Areas, fences, signs and utility systems serving the Common Areas and all
parts thereof, as well as providing the services for which there is an Operating
Expense pursuant to Paragraph 6. Notwithstanding the foregoing, or anything in
this Lease to the contrary, Landlord shall not be responsible to repair or
maintain any roof mounted equipment of Tenant or any repairs required due to the
installation of such equipment by Tenant pursuant to this Lease, but instead,
Tenant shall responsible to repair and maintain any such equipment or make any
such repairs as part of Tenant's obligations hereunder Landlord shall not be
obligated to, but may elect to, paint the exterior or interior surfaces of
exterior walls nor shall Landlord be obligated to maintain, repair or replace
windows, doors or plate glass of the Premises. Tenant expressly waives the
benefit of any statute now or hereafter in effect which would otherwise afford
Tenant the right to make repairs at Landlord's expense (including, without
limitation, the provisions of California Civil Code Sections 1941 and 1942 and
any successor statutes or laws of a similar nature) or to terminate this Lease
because of Landlord's failure to keep the Buildings, Development or Common Areas
in good order, condition and repair.

                                     -24-
<PAGE>

          15.  LIENS. Tenant agrees not to permit any mechanic's, materialmen's
or other liens to be filed against all or any part of the Premises or the
Development, nor against Tenant's leasehold interest in the Premises, by reason
of or in connection with any repairs, alterations, improvements or other work
contracted for or undertaken by Tenant or any other act or omission of Tenant or
Tenant's agents, employees, contractors, licensees or invitees. At Landlord's
request, Tenant agrees to provide Landlord with enforceable, conditional and
final lien releases (or other evidence reasonably requested by Landlord to
demonstrate protection from liens) from all persons furnishing labor and/or
materials at the Premises. Landlord will have the right at all reasonable times
to post on the Premises and record any notices of non-responsibility which it
deems necessary for protection from such liens. If any such liens are filed,
Tenant will, at its sole cost, promptly cause such liens to be released of
record or bonded so that it no longer affects title to the Premises or the
Development. If Tenant fails to cause any such liens to be so released or bonded
within ten (10) days after filing thereof, such failure will be deemed a
material breach by Tenant under this Lease without the benefit of any additional
notice or cure period described in Paragraph 22 below, and Landlord may, without
waiving its rights and remedies based on such breach, and without releasing
Tenant from any of its obligations, cause such liens to be released by any means
it shall deem proper, including payment in satisfaction of the claims giving
rise to such liens. Tenant agrees to pay to Landlord within ten (10) days after
receipt of invoice from Landlord, any sum paid by Landlord to remove such liens,
together with interest at the Interest Rate from the date of such payment by
Landlord.

          16.  ENTRY BY LANDLORD. Landlord and its employees and agents will at
all times have the right to enter the Premises to inspect the same, to show the
Premises to prospective purchasers or tenants, to post notices of
nonresponsibility, and/or to repair the Premises as permitted or required by
this Lease. In exercising such entry rights, Landlord will endeavor to minimize,
as reasonably practicable, the interference with Tenant's business, and will
provide Tenant with reasonable advance notice of any such entry (except in
emergency situations). Landlord may, in order to carry out such purposes, erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed. Landlord will at all times have and
retain a key with which to unlock all doors in the Premises, excluding Tenant's
vaults and safes. Landlord will have the right to use any and all means which
Landlord may reasonably deem proper to open said doors in an emergency in order
to obtain entry to the Premises. Any entry to the Premises obtained by Landlord
by any of said means, or otherwise, will not be construed or deemed to be a
forcible or unlawful entry into the Premises, or an eviction of Tenant from the
Premises. Landlord will not be liable to Tenant for any damages or losses for
any entry by Landlord.

          17.  UTILITIES AND SERVICES. Tenant agrees to contract directly for
and to pay for all water, gas, heat, light, power, telephone, waste removal,
sewer and other utilities and services supplied to the Premises, together with
any taxes thereon. If any such services are not separately metered to Tenant,
Tenant agrees to pay a reasonable proportion to be determined by Landlord of all
charges jointly metered with other premises. Tenant agrees to pay for any
separate meters that Landlord may install from time to time. Landlord will not
be liable to Tenant for any failure to furnish any of the foregoing utilities
and services if such failure is caused by all or any of the following: (i)
accident, breakage or repairs; (ii) strikes, lockouts or other labor disturbance
or labor dispute of any character; (iii) governmental regulation, moratorium or
other governmental action or inaction; (iv) inability despite the exercise of
reasonable diligence to obtain electricity, water or fuel; or (v) any other
cause beyond Landlord's reasonable control. In addition, in the event of any
stoppage or interruption of services or utilities, Tenant shall not be entitled
to any abatement or reduction of rent (except as expressly provided in
Subparagraphs 20(f) or 21(b) if such failure results from a damage or taking
described therein), no eviction of Tenant will result from such failure and
Tenant will not be relieved from the performance of any covenant or agreement in
this Lease because of such failure; provided, however, unless caused by casualty
or condemnation to the Building or Project, if interruption of gas, water,
electricity, telephone, or fiber optic service lasts for more than six (6)
months, Tenant may at its election terminate this Lease by written notice to
Landlord.

          18.  ASSUMPTION OF RISK AND INDEMNIFICATION.

               (a) Assumption of Risk.  Tenant, as a material part of the
consideration to Landlord, hereby agrees that neither Landlord nor any Landlord
Indemnified Parties (as defined in Subparagraph 8(c)

                                     -25-
<PAGE>

above) will be liable to Tenant for, and Tenant expressly assumes the risk of
and waives any and all claims it may have against Landlord or any Landlord
Indemnified Parties with respect to, (i) any and all damage to property or
injury to persons in, upon or about the Premises or the Development (except that
resulting from the active or grossly negligent or intentionally willful act or
omission of Landlord or a Landlord Indemnified Party), (ii) any such damage
caused by other tenants or persons in or about the Premises, or caused by quasi-
public work, (iii) any damage to property entrusted to employees of the
Premises, (iv) any loss of or damage to property by theft or otherwise, or (v)
any injury or damage to persons or property resulting from any casualty,
explosion, falling plaster or other masonry or glass, steam, gas, electricity,
water or rain which may leak from any part of the Buildings or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place, or resulting from dampness. Notwithstanding anything to
the contrary contained in this Lease, neither Landlord nor any Landlord
Indemnified Parties will be liable for consequential damages arising out of any
loss of the use of the Premises or any equipment or facilities therein by Tenant
or any Tenant Parties or for interference with light or other incorporeal
hereditaments. Tenant agrees to give prompt notice to Landlord in case of fire
or accidents in the Premises, or of defects therein or in the fixtures or
equipment.

               (b) Indemnification by Tenant. Tenant will be liable for, and
agrees, to the maximum extent permissible under applicable law, to promptly
indemnify, protect, defend and hold harmless Landlord and Landlord Indemnified
Parties, from and against, any and all claims, damages, judgments, suits, causes
of action, losses, liabilities, penalties, fines, expenses and costs, including
attorneys' fees and court costs (collectively, "Indemnified Claims"), arising or
resulting from (i) any act or omission of Tenant or any Tenant Parties (as
defined in Subparagraph 8(a) above); (ii) the use of the Premises and Common
Areas and conduct of Tenant's business by Tenant or any Tenant Parties, or any
other activity, work or thing done, permitted or suffered by Tenant or any
Tenant Parties, in or about the Premises or elsewhere within the Development;
and/or (iii) any default by Tenant of any obligations on Tenant's part to be
performed under the terms of this Lease. In case any action or proceeding is
brought against Landlord or any Landlord Indemnified Parties by reason of any
such Indemnified Claims, Tenant, upon notice from Landlord, agrees to promptly
defend the same at Tenant's sole cost and expense by counsel approved in writing
by Landlord, which approval by Landlord will not unreasonably withhold.

               (c) Indemnification by Landlord. Landlord will be liable for, and
agrees, to the maximum extent permissible under applicable law, to promptly
indemnify, protect, defend and hold harmless Tenant and any Tenant Parties, from
and against any and all Indemnified Claims arising or resulting from (i) any
active or grossly negligent or intentionally willful act or omission of Landlord
or a Landlord Indemnified Party, but only to the extent of insurance proceeds
available to Landlord; and/or (ii) any material default by Landlord of any
obligations on Landlord's part to be performed under the terms of this Lease. In
case any action or proceeding is brought against Tenant or any Tenant Party by
reason of any such Indemnified Claims, Landlord, upon notice from Tenant, agrees
to promptly defend the same at Landlord's sole cost and expense by counsel
approved in writing by Tenant, which approval by Tenant will not unreasonably
withhold.

               (d) Survival; No Release of Insurers. Tenant's and Landlord's
indemnification obligations under Subparagraph 18(b) and (c) will survive the
expiration or earlier termination of this Lease. Tenant's covenants, agreements
and indemnification obligation in Subparagraphs 18(a) and 18(b) above, and
Landlord's covenants, agreements and indemnification obligations under
Subparagraph 18(c) above, are not intended to and will not relieve any insurance
carrier of its obligations under policies required to be carried by Landlord or
Tenant pursuant to the provisions of this Lease.

          19.  INSURANCE.

               (a) Tenant's Insurance. On or before the date Tenant commences
any work of any type in the Premises pursuant to this Lease (which may be prior
to the Commencement Date), and continuing throughout the entire Term hereof and
any other period of occupancy, Tenant agrees to keep in full force and effect,
at its sole cost and expense, the following insurance:

                                     -26-
<PAGE>

               (i)   "All Risks" property insurance including at least the
following perils: fire and extended coverage, smoke damage, vandalism, malicious
mischief, and sprinkler leakage (including earthquake sprinkler leakage). This
insurance policy must be upon all property owned by Tenant, for which Tenant is
legally liable, or which is installed at Tenant's expense, and which is located
in the Premises including, without limitation, any Tenant Improvements which
satisfy the foregoing qualification and any Alterations, and all furniture,
fittings, installations, fixtures and any other personal property of Tenant, in
an amount not less than the full replacement cost thereof.

               (ii)  Commercial General Liability Insurance or Comprehensive
General Liability Insurance (on an occurrence form) insuring bodily injury,
personal injury and property damage including the following divisions and
extensions of coverage: Premises and Operations; Owners and Contractors
protective; blanket contractual liability (including coverage for Tenant's
indemnity obligations under this Lease); liquor liability (if Tenant serves
alcohol on the Premises); and fire and water damage legal liability. Such
insurance must have the following minimum limits of liability: bodily injury,
personal injury and property damage - $3,000,000 each occurrence and $6,000,000
in the aggregate, provided that if liability coverage is provided by a
Commercial General Liability policy the general aggregate limit shall apply
separately and in total to this location only (per location general aggregate),
and provided further, such minimum limits of liability may be adjusted from year
to year to reflect increases in coverages both as recommended by Landlord's
insurance carrier and as are commercially reasonable for tenants of first class
buildings comparable to the Building, rounded to the nearest five hundred
thousand dollars.

               (iii) Comprehensive Automobile Liability insuring bodily injury
and property damage arising from all owned, non-owned and hired vehicles, if
any, with minimum limits of liability of $1,000,000 per accident.

               (iv)  Worker's Compensation or similar insurance as required by
the laws of the state in which the Premises are located, with at least the
following minimum limits of liability: Coverage A - statutory benefits; Coverage
B -$1,000,000 per accident and disease.

               (v)   Any other form or forms of insurance as Tenant or Landlord
or any mortgagees of Landlord may reasonably require from time to time in form,
in amounts, and for insurance risks against which, a prudent tenant would
protect itself, but only to the extent coverage for such risks and amounts are
available in the insurance market at commercially acceptable rates. Landlord
makes no representation that the limits of liability required to be carried by
Tenant under the terms of this Lease are adequate to protect Tenant's interests
and Tenant should obtain such additional insurance or increased liability limits
as Tenant deems appropriate.

          (b)  Supplemental Tenant Insurance Requirements.  All policies must be
in a form reasonably satisfactory to Landlord and issued by an insurer admitted
to do business in the state in which the Premises are located.  All policies
must be issued by insurers with a policyholder rating of "A" and a financial
rating of "X" in the most recent version of Best's Key Rating Guide.  All
policies must contain a requirement to notify Landlord (and Landlord's property
manager and any mortgagees or ground lessors of Landlord who are named as
additional insureds, if any) in writing not less than thirty (30) days prior to
any material change, reduction in coverage, cancellation or other termination
thereof.  Tenant agrees to deliver to Landlord, as soon as practicable after
placing the required insurance, but in any event within the time frame specified
in Subparagraph 19(a) above, certificate(s) of insurance and/or if required by
Landlord, certified copies of each policy evidencing the existence of such
insurance and Tenant's compliance with the provisions of this Paragraph 19.
Tenant agrees to cause replacement policies or certificates to be delivered to
Landlord not less than thirty (30) days prior to the expiration of any such
policy or policies.  If any such initial or replacement policies or certificates
are not furnished within ten (10) days prior to the expiration or termination or
any material change, Tenant will be deemed to be in material default under this
Lease without the benefit of any additional notice or cure period provided in
Subparagraph 22(a)(iii) below, and Landlord will have the right, but not the
obligation, to procure such insurance as Landlord deems necessary to protect
Landlord's interests at Tenant's expense.  If Landlord

                                     -27-
<PAGE>

obtains any insurance that is the responsibility of Tenant under this Paragraph
19, Landlord agrees to deliver to Tenant a written statement setting forth the
cost of any such insurance and showing in reasonable detail the manner in which
it has been computed and Tenant agrees to promptly reimburse Landlord for such
costs as additional rent. General Liability and Automobile Liability policies
under Subparagraphs 19(a)(ii) and (iii) must name Landlord and Landlord's
property manager (and at Landlord's request, Landlord's mortgagees and ground
lessors of which Tenant has been informed in writing) as additional insureds and
must also contain a provision that the insurance afforded by such policy is
primary insurance and any insurance carried by Landlord and Landlord's property
manager or Landlord's mortgagees or ground lessors, if any, will be excess over
and non-contributing with Tenant's insurance.

               (c)   Building Insurance. Landlord shall obtain, at Tenant's sole
cost and expense, a policy or policies of insurance covering loss or damage to
the Premises, in the amount of the full replacement value thereof, as the same
may exist from time to time, but in no event less than the total amount required
by lenders having liens on the Premises, against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood,
and special extended perils ("All Risk" as such term is used in the insurance
industry). Said insurance shall provide for payment of loss to Landlord, or to
the holders of mortgages or the beneficiaries under deeds of trust on the
Premises. This insurance shall cover the Buildings, including tenant
improvements, heating and cooling equipment or machinery and electrical
equipment, as well as any furniture, fixtures, equipment or other personal
property owned by Landlord. A Stipulated Value or Agreed Amount endorsement
deleting the coinsurance provision of the policy shall be procured with said
insurance. Tenant agrees to reimburse Landlord for the entire cost of such
premiums within five (5) days after demand therefor by Landlord. If the Premises
are part of a group of buildings owned by Landlord which are adjacent to the
Premises, then Tenant shall pay for any increase in the property insurance of
such other buildings if said increase is caused by Tenant's acts, omissions, use
or occupancy of the Premises.

               (d)  Tenant's Use. Tenant will not keep, use, sell or offer for
sale in or upon the Premises any article which may be prohibited by any
insurance policy periodically in force covering the Premises. If Tenant's
occupancy or business in, or on, the Premises, whether or not Landlord has
consented to the same, results in any increase in premiums for the insurance
periodically carried by Landlord with respect to the Buildings or results in the
need for Landlord to maintain special or additional insurance, Tenant agrees to
pay Landlord the cost of any such increase in premiums or special or additional
coverage as additional rent within ten (10) days after being billed therefor by
Landlord. In determining whether increased premiums are a result of Tenant's use
of the Premises, a schedule issued by the organization computing the insurance
rate on the Buildings showing the various components of such rate, will be
conclusive evidence of the several items and charges which make up such rate.
Tenant agrees to promptly comply with all reasonable requirements of the
insurance authority or any present or future insurer relating to the Premises.

               (e)  Cancellation of Landlord's Policies.  If any of Landlord's
insurance policies are canceled or cancellation is  threatened or the coverage
reduced or threatened to be reduced in any way because of the use of the
Premises or any part thereof by Tenant or any assignee or subtenant of Tenant or
by anyone Tenant permits on the Premises, except for uses permitted by this
Lease, and, if Tenant fails to remedy the condition giving rise to such
cancellation, threatened cancellation, reduction of coverage, threatened
reduction of coverage, increase in premiums, or threatened increase in premiums,
within forty-eight (48) hours after notice thereof, Tenant will be deemed to be
in material default of this Lease and Landlord may, at its option, enter upon
the Premises and attempt to remedy such condition, and Tenant shall promptly pay
Landlord the reasonable costs of such remedy as additional rent.  If Landlord is
unable, or elects not to remedy such condition, then Landlord will have all of
the remedies provided for in this Lease in the event of a default by Tenant.

               (f)  Waiver of Subrogation.  Tenant's property ;insurance and
Landlord's property insurance shall contain a clause whereby the insurer waives
all rights of recovery by way of subrogation against the other.  Tenant shall
also obtain and furnish evidence to Landlord of the waiver by Tenant's worker's
compensation insurance carrier of all rights of recovery by way of subrogation
against Landlord.

                                     -28-
<PAGE>

          20.  DAMAGE OR DESTRUCTION.

               (a)  Partial Destruction. If the Premises are damaged by fire or
other casualty to an extent not exceeding twenty-five percent (25%) of the full
replacement cost thereof, and Landlord's contractor reasonably estimates in a
writing delivered to Landlord and Tenant that the damage thereto may be
repaired, reconstructed or restored to substantially its condition immediately
prior to such damage within one hundred eighty (180) days from the date of such
casualty, and Landlord will receive insurance proceeds sufficient to cover the
costs of such repairs, reconstruction and restoration (including any
contributions required hereunder by Landlord or Tenant and proceeds from Tenant
and/or Tenant's insurance which Tenant is required to deliver to Landlord
pursuant to Subparagraph 20(e) below to cover Tenant's obligation for the costs
of repair, reconstruction and restoration of any portion of the Tenant
Improvements and any Alterations for which Tenant is responsible under this
Lease), then Landlord agrees to commence and proceed diligently with the work of
repair, reconstruction and restoration of the Building Shell and Core
Improvements, and, to the extent of insurance proceeds paid to Landlord for loss
to Tenant Improvements, to fund such costs toward the reconstruction of the
Tenant Improvements by Tenant. Tenant shall be responsible, notwithstanding the
availability to Tenant of insurance proceeds, to fund and reconstruct the Tenant
Improvements to substantially the same condition as they existed prior to such
casualty, and in the manner described in Paragraph 4(b) above, and this Lease
will continue in full force and effect.

               (b)  Substantial Destruction.  Any damage or destruction to the
Premises which Landlord is not obligated to repair pursuant to Subparagraph
20(a) above will be deemed a substantial destruction.  In the event of a
substantial destruction, Landlord may elect to either:  (i) repair, reconstruct
and restore the portion of the Premises damaged by such casualty, in which case
this Lease will continue in full force and effect, subject to Tenant's
termination right contained in Subparagraph 20(d) below; or (ii) terminate this
Lease effective as of the date which is thirty (30) days after Tenant's receipt
of Landlord's election to so terminate.

               (c)  Notice. Under any of the conditions of Subparagraph 20(a) or
(b) above, Landlord agrees to give written notice to Tenant of its intention to
repair or terminate, as permitted in such paragraphs, within the earlier of
sixty (60) days after the occurrence of such casualty, or fifteen (15) days
after Landlord's receipt of the estimate from Landlord's contractor (the
applicable time period to be referred to herein as the "Notice Period").

               (d)  Tenant's Termination Rights.  If Landlord elects to repair,
reconstruct and restore pursuant to Subparagraph 20(b)(i) hereinabove, and if
Landlord's contractor estimates that as a result of such damage, Tenant cannot
be given reasonable use of and access to the Premises within three hundred
sixty-five (365) days after the date of such damage, then Tenant may terminate
this Lease effective upon delivery of written notice to Landlord within ten (10)
days after Landlord delivers notice to Tenant of its election to so repair,
reconstruct or restore.

               (e)  Tenant's Costs and Insurance Proceeds. In the event of any
damage or destruction of all or any part of the Premises, Tenant agrees to
immediately (i) notify Landlord thereof, and (ii) deliver to Landlord all
property insurance proceeds received by Tenant with respect to any Tenant
Improvements and any Alterations, but excluding proceeds for Tenant's furniture,
fixtures, equipment and other personal property, whether or not this Lease is
terminated as permitted in this Paragraph 20, and Tenant hereby assigns to
Landlord all rights to receive such insurance proceeds. If, for any reason
(including Tenant's failure to obtain insurance for the full replacement cost of
any Tenant Improvements and any Alterations from any and all casualties), Tenant
fails to receive insurance proceeds covering the full replacement cost of any
Tenant Improvements and any Alterations which are damaged, Tenant will be deemed
to have self-insured the replacement cost of such items, and upon any damage or
destruction thereto, Tenant agrees to immediately pay to Landlord the full
replacement cost of such items, less any insurance proceeds actually received by
Landlord from Landlord's or Tenant's insurance with respect to such items.

                                     -29-
<PAGE>

               (f)  Abatement of Rent.  In the event of any damage, repair,
reconstruction and/or restoration described in this Paragraph 20, rent will be
abated or reduced, as the case may be, in proportion to the degree to which
Tenant's use of the Premises is impaired during such period of repair until such
use is restored.  Except for abatement of rent as provided hereinabove, Tenant
will not be entitled to any compensation or damages for loss of, or interference
with, Tenant's business or use or access of all or any part of the Premises or
for lost profits or any other consequential damages of any kind or nature, which
result from any such damage, repair, reconstruction or restoration.

               (g)  Inability to Complete. Notwithstanding anything to the
contrary contained in this Paragraph 20, if Landlord is obligated or elects to
repair, reconstruct and/or restore the damaged portion of the Building or the
Premises pursuant to Subparagraph 20(a) or 20(b)(i) above, but is delayed from
completing such repair, reconstruction and/or restoration beyond the date which
is one hundred eighty (180) days after the date estimated by Landlord's
contractor for completion thereof by reason of any causes (other than delays
caused by Tenant, its subtenants, employees, agents or contractors) (a) which
are beyond the reasonable control of Landlord as described in Paragraph 33, then
Landlord may elect to terminate this Lease upon ten (10) days' prior written
notice given to Tenant after the expiration of such one hundred eighty (180) day
period.

               (h)  Damage Near End of Term. Landlord and Tenant shall each have
the right to terminate this Lease if any damage to the Premises occurs (i)
during the last twenty-four (24) months of the Term of this Lease and where
Landlord's contractor estimates in a writing delivered to Landlord and Tenant
that the repair, reconstruction or restoration of such damage cannot be
completed within ninety (90) days after the date of such casualty, or (ii)
during the last twelve (12) months of the Term of this Lease where Landlord's
contractor estimates in a writing delivered to Landlord and Tenant that the
repair, reconstruction or restoration of such damage cannot be completed within
sixty (60) days after the date of such casualty. If either party desires to
terminate this Lease under this Subparagraph (h), it shall provide written
notice to the other party of such election within ten (10) days after receipt of
Landlord's contractor's repair estimates.

               (i)  Waiver of Termination Right. Landlord and Tenant agree that
the foregoing provisions of this Paragraph 20 are to govern their respective
rights and obligations in the event of any damage or destruction and supersede
and are in lieu of the provisions of any applicable law, statute, ordinance,
rule, regulation, order or ruling now or hereafter in force which provide
remedies for damage or destruction of leased premises (including, without
limitation, to the extent the Premises are located in California, the provisions
of California Civil Code Section 1932, Subsection 2, and Section 1933,
Subsection 4 and any successor statute or laws of a similar nature).

               (j)  Termination. Upon any termination of this Lease under any of
the provisions of this Paragraph 20, the parties will be released without
further obligation to the other from the date possession of the Premises is
surrendered to Landlord except for items which have accrued and are unpaid as of
the date of termination and matters which are to survive any termination of this
Lease as provided in this Lease.

          21.  EMINENT DOMAIN.

               (a)  Substantial Taking. If the whole of the Premises or more
than fifty percent (50%) of the floor area of the Building or fifty percent
(50%) of the land area of the Premises which is not occupied by the Building, is
taken for any public or quasi-public purpose by any lawful power or authority by
exercise of the right of appropriation, condemnation or eminent domain, or sold
to prevent such taking, either party will have the right to terminate this Lease
effective as of the date possession is required to be surrendered to such
authority.

               (b)  Partial Taking; Abatement of Rent. In the event of a taking
of a portion of the Premises which does not constitute a substantial taking
under Subparagraph 21(a) above, then, neither party will have the right to
terminate this Lease and Landlord will thereafter proceed to make a functional
unit of the remaining portion of the Premises (but only to the extent Landlord
receives proceeds therefor from the

                                     -30-
<PAGE>

condemning authority), and rent will be abated in proportion to the floor area
of the Premises which Tenant is deprived of on account of such taking; provided,
however, there will be no abatement of rent if the only area taken is that which
does not have a building located thereon.

               (c)  Condemnation Award. In connection with any taking of all or
any portion of the Premises, Landlord will be entitled to receive the entire
amount of any award which may be made or given in such taking or condemnation,
without deduction or apportionment for any estate or interest of Tenant, it
being expressly understood and agreed by Tenant that no portion of any such
award will be allowed or paid to Tenant for any so-called bonus or excess value
of this Lease, and such bonus or excess value will be the sole property of
Landlord. Tenant agrees not to assert any claim against Landlord or the taking
authority for any compensation because of such taking (including any claim for
bonus or excess value of this Lease); provided, however, if any portion of the
Premises is taken, Tenant will have the right to recover from the condemning
authority (but not from Landlord) any compensation as may be separately awarded
or recoverable by Tenant for the taking of Tenant's furniture, fixtures,
equipment and other personal property within the Premises, for Tenant's
relocation expenses, and for any loss of goodwill or other damage to Tenant's
business by reason of such taking.

               (d)  Temporary Taking. In the event of taking of the Premises or
any part thereof for temporary use, (i) this Lease will remain unaffected
thereby and rent will not abate, and (ii) Tenant will be entitled to receive
such portion or portions of any award made for such use with respect to the
period of the taking which is within the Term, provided that if such taking
remains in force at the expiration or earlier termination of this Lease, Tenant
will then pay to Landlord a sum equal to the reasonable cost of performing
Tenant's obligations under Paragraph 11 with respect to surrender of the
Premises and upon such payment Tenant will be excused from such obligations. For
purpose of this Subparagraph 21(d), a temporary taking shall be defined as a
taking for a period of ninety (90) days or less.

          22.  DEFAULTS AND REMEDIES.

               (a)  Defaults.  The occurrence of any one or more of the
following events will be deemed a default by Tenant:

                    (i)   The failure by Tenant to make any payment of rent or
additional rent or any other payment required to be made by Tenant hereunder, as
and when due, where such failure continues for a period of five (5) days after
written notice thereof from Landlord to Tenant; provided, however, that any such
notice will be in lieu of, and not in addition to, any notice required under
applicable law (including, without limitation, to the extent the Premises are
located in California, the provisions of California Code of Civil Procedure
Section 1161 regarding unlawful detainer actions or any successor statute or law
of a similar nature).

                    (ii)  The failure by Tenant to observe or perform any other
of the express or implied covenants or provisions of this Lease to be observed
or performed by Tenant, other than as specified in Subparagraph 22(a)(i) or (ii)
above, where such failure continues for a period of thirty (30) days after
written notice thereof from Landlord to Tenant. The provisions of any such
notice will be in lieu of, and not in addition to, any notice required under
applicable law (including, without limitation, to the extent the Premises are
located in California, California Code of Civil Procedure Section 1161 regarding
unlawful detainer actions and any successor statute or similar law). If the
nature of Tenant's default is such that more than thirty (30) days are
reasonably required for its cure, then Tenant will not be deemed to be in
default if Tenant, with Landlord's concurrence, commences such cure within such
thirty (30) day period and thereafter diligently prosecutes such cure to
completion.

                    (iii) (A) The making by Tenant of any general assignment for
the benefit of creditors; (B) the filing by or against Tenant of a petition to
have Tenant adjudged a bankrupt or a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within ninety (90) days); (C) 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,

                                     -31-
<PAGE>

where possession is not restored to Tenant within sixty (60) days; or (D) the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease where such
seizure is not discharged within sixty (60) days.

               (b)  Landlord's Remedies; Termination. In the event of any
default by Tenant, in addition to any other remedies available to Landlord at
law or in equity under applicable law (including, without limitation, to the
extent the Premises are located in California, the remedies of Civil Code
Section 1951.4 and any successor statute or similar law), Landlord will have the
immediate right and option to terminate this Lease and all rights of Tenant
hereunder. If Landlord elects to terminate this Lease then, to the extent
permitted under applicable law, Landlord may recover from Tenant: (i) the worth
at the time of award of any unpaid rent which had been earned at the time of
such termination; plus (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rent loss that Tenant proves could have
been reasonably avoided; plus (iii) the worth at the time of award of the amount
by which the unpaid rent for the balance of the Term after the time of award
exceeds the amount of such rent loss that Tenant proves could be reasonably
avoided; plus (iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course of things, results therefrom
including, but not limited to: attorneys' fees and costs; brokers' commissions;
the costs of refurbishment, alterations, renovation and repair of the Premises,
and removal (including the repair of any damage caused by such removal) and
storage (or disposal) of Tenant's personal property, equipment, fixtures,
Alterations, the Tenant Improvements and any other items which Tenant is
required under this Lease to remove but does not remove, as well as the
unamortized value of any free rent, reduced rent, free parking, reduced rate
parking and any Tenant Improvement Allowance or other costs or economic
concessions provided, paid, granted or incurred by Landlord pursuant to this
Lease. The unamortized value of such concessions shall be determined by taking
the total value of such concessions and multiplying such value by a fraction,
the numerator of which is the number of months of the Lease Term not yet elapsed
as of the date on which the Lease is terminated, and the denominator of which is
the total number of months of the Lease Term.

               As used in Subparagraphs 22(b)(i) and (ii) above, the "worth at
the time of award" is computed by allowing interest at the Interest Rate. As
used in Subparagraph 22(b)(iii) above, the "worth at the time of award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).

               (c)  Landlord's Remedies; Re-Entry Rights. In the event of any
default by Tenant, in addition to any other remedies available to Landlord under
this Lease, at law or in equity, Landlord will also have the right, with or
without terminating this Lease, to re-enter the Premises and remove all persons
and property from the Premises; such property may be removed and stored in a
public warehouse or elsewhere and/or disposed of at the sole cost and expense of
and for the account of Tenant in accordance with the provisions of Subparagraph
13(h) of this Lease or any other procedures permitted by applicable law. No re-
entry or taking possession of the Premises by Landlord pursuant to this
Subparagraph 22(c) will be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant or unless the
termination thereof is decreed by a court of competent jurisdiction.

               (d)  Landlord's Remedies; Re-Letting. In the event of the
vacation or abandonment of the Premises by Tenant or in the event that Landlord
elects to re-enter the Premises or takes possession of the Premises pursuant to
legal proceeding or pursuant to any notice provided by law, then if Landlord
does not elect to terminate this Lease, Landlord may from time to time, without
terminating this Lease, either recover all rent as it becomes due or relet the
Premises or any part thereof on terms and conditions as Landlord in its sole and
absolute discretion may deem advisable with the right to make alterations and
repairs to the Premises in connection with such reletting. If Landlord elects to
relet the Premises, then rents received by Landlord from such reletting will be
applied: first, to the payment of any indebtedness other than rent due hereunder
from Tenant to Landlord; second, to the payment of any cost of such reletting;
third, to the payment of the cost of any alterations and repairs to the Premises
incurred in connection with such reletting; fourth, to the payment of rent

                                     -32-
<PAGE>

due and unpaid hereunder and the residue, if any, will be held by Landlord and
applied to payment of future rent as the same may become due and payable
hereunder. Should that portion of such rents received from such reletting during
any month, which is applied to the payment of rent hereunder, be less than the
rent payable during that month by Tenant hereunder, then Tenant agrees to pay
such deficiency to Landlord immediately upon demand therefor by Landlord. Such
deficiency will be calculated and paid monthly.

               (e)  Landlord's Remedies; Performance for Tenant. All covenants
and agreements to be performed by Tenant under any of the terms of this Lease
are to be performed by Tenant at Tenant's sole cost and expense and without any
abatement of rent. If Tenant fails to pay any sum of money owed to any party
other than Landlord, for which it is liable under this Lease, or if Tenant fails
to perform any other act on its part to be performed hereunder, and such failure
continues for ten (10) days after notice thereof by Landlord, Landlord may,
without waiving or releasing Tenant from its obligations, but shall not be
obligated to, make any such payment or perform any such other act to be made or
performed by Tenant. Tenant agrees to reimburse Landlord upon demand for all
sums so paid by Landlord and all necessary incidental costs, together with
interest thereon at the Interest Rate, from the date of such payment by Landlord
until reimbursed by Tenant. This remedy shall be in addition to any other right
or remedy of Landlord set forth in this Paragraph 22.

               (f)  Late Payment. If Tenant fails to pay any installment of rent
within five (5) days of when due or if Tenant fails to make any other payment
for which Tenant is obligated under this Lease within five (5) days of when due,
such late amount will accrue interest at the Interest Rate and Tenant agrees to
pay Landlord as additional rent such interest on such amount from the date such
amount becomes due until such amount is paid. In addition, Tenant agrees to pay
to Landlord concurrently with a late payment amount, as additional rent, a late
charge equal to five percent (5%) of the amount due to compensate Landlord for
the extra costs Landlord will incur as a result of such late payment. The
parties agree that (i) it would be impractical and extremely difficult to fix
the actual damage Landlord will suffer in the event of Tenant's late payment,
(ii) such interest and late charge represents a fair and reasonable estimate of
the detriment that Landlord will suffer by reason of late payment by Tenant, and
(iii) the payment of interest and late charges are distinct and separate in that
the payment of interest is to compensate Landlord for the use of Landlord's
money by Tenant, while the payment of late charges is to compensate Landlord for
Landlord's processing, administrative and other costs incurred by Landlord as a
result of Tenant's delinquent payments. Acceptance of any such interest and late
charge will not constitute a waiver of the Tenant's default with respect to the
overdue amount, or prevent Landlord from exercising any of the other rights and
remedies available to Landlord. If Tenant incurs a late charge more than three
(3) times in any period of twelve (12) months during the Lease Term, then,
notwithstanding that Tenant cures the late payments for which such late charges
are imposed, Landlord will have the right to require Tenant thereafter to pay
all installments of Monthly Base Rent quarterly in advance throughout the
remainder of the Lease Term.

               (g)  Rights and Remedies Cumulative. All rights, options and
remedies of Landlord contained in this Lease will be construed and held to be
cumulative, and no one of them will be exclusive of the other, and Landlord
shall have the right to pursue any one or all of such remedies or any other
remedy or relief which may be provided by law or in equity, whether or not
stated in this Lease. Nothing in this Paragraph 22 will be deemed to limit or
otherwise affect Tenant's indemnification of Landlord pursuant to any provision
of this Lease.

          23.  LANDLORD'S DEFAULT.  Landlord will not be in default in the
performance of any obligation required to be performed by Landlord under this
Lease unless Landlord fails to perform such obligation within thirty (30) days
after the receipt of written notice from Tenant specifying in detail Landlord's
failure to perform; provided however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for performance,
then Landlord will not be deemed in default if it commences such performance
within such thirty (30) day period and thereafter diligently pursues the same to
completion.

                                     -33-
<PAGE>

          24.  ASSIGNMENT AND SUBLETTING.

               (a)  Restriction on Transfer. Except as expressly provided in
this Paragraph 24, Tenant will not, either voluntarily or by operation of law,
assign or encumber this Lease or any interest herein or sublet the Premises or
any part thereof, or permit the use or occupancy of the Premises by any party
other than Tenant (any such assignment, encumbrance, sublease or the like other
than a Permitted Transfer will sometimes be referred to as a "Transfer"),
without the prior written consent of Landlord, which consent Landlord will not
unreasonably withhold.

               (b)  Corporate and Partnership Transfers.  For purposes of this
Paragraph 24, if Tenant is a corporation, partnership or other entity, any
transfer, assignment, encumbrance or hypothecation of forty-nine percent (49%)
or more (individually or in the aggregate) of any stock or other ownership
interest in such entity, and/or any transfer, assignment, hypothecation or
encumbrance of any controlling ownership or voting interest in such entity, will
be deemed a Transfer and will be subject to all of the restrictions and
provisions contained in this Paragraph 24.  Notwithstanding the foregoing, the
immediately preceding sentence will not apply to any transfers of stock of
Tenant if Tenant is a publicly-held corporation and such stock is transferred
publicly over a recognized security exchange or over-the-counter market and will
not apply to any transfers resulting from a private placement(s) or an initial
public offering of stock if Tenant is not a publicly-held corporation.

               (c)  Permitted Controlled Transfers. Notwithstanding the
provisions of this Paragraph 24 to the contrary, Tenant may assign this Lease or
sublet the Premises or any portion thereof ("Permitted Transfer"), without
Landlord's consent, to any parent, subsidiary or affiliate corporation which
controls, is controlled by or is under common control with Tenant, or to any
corporation resulting from a merger or consolidation with Tenant, or to any
person or entity which acquires all the assets of Tenant's business as a going
concern or stock of Tenant (collectively, a "Tenant Affiliate") , provided that:
(i) at least twenty (20) days prior to such assignment or sublease, Tenant
delivers to Landlord the financial statements and other financial and background
information of the assignee or sublessee described in Subparagraph 24(d) below;
(ii) if an assignment, the assignee assumes, in full, the obligations of Tenant
under this Lease (or if a sublease, the sublessee of a portion of the Premises
or Term assumes, in full, the obligations of Tenant with respect to such
portion); (iii) the financial net worth of the assignee or sublessee as of the
time of the proposed assignment or sublease equals or exceeds the greater of (A)
that of Tenant as of the date of execution of this Lease, and (B) the net worth
of Tenant as of the date of such proposed transfer; (iv) Tenant remains fully
liable under this Lease; and (v) the use of the Premises under Paragraph 8 is a
permitted use.

               (d)  Transfer Notice. If Tenant desires to effect a Transfer,
then at least twenty (20) days prior to the date when Tenant desires the
Transfer to be effective (the "Transfer Date"), Tenant agrees to give Landlord a
notice (the "Transfer Notice"), stating the name, address and business of the
proposed assignee, sublessee or other transferee (sometimes referred to
hereinafter as "Transferee"), reasonable information (including references)
concerning the character, ownership, and financial condition of the proposed
Transferee, the Transfer Date, any ownership or commercial relationship between
Tenant and the proposed Transferee, and the consideration and all other material
terms and conditions of the proposed Transfer, all in such detail as Landlord
may reasonably require. If Landlord reasonably requests additional detail, the
Transfer Notice will not be deemed to have been received until Landlord receives
such additional detail, and Landlord may withhold consent, if such consent is
required, to any Transfer until such information is provided to it.

               (e)  Landlord's Options. Within ten (10) days of Landlord's
receipt of any Transfer Notice, and any additional information requested by
Landlord concerning the proposed Transferee's financial responsibility, if
Landlord's consent is required, Landlord will elect to do one of the following:
(i) consent to the proposed Transfer; or (ii) refuse such consent, which refusal
shall be on reasonable grounds including, without limitation, those set forth in
Subparagraph 24(f) below.

                                     -34-
<PAGE>

               (f)  Reasonable Disapproval. Landlord and Tenant hereby
acknowledge that Landlord's disapproval of any proposed Transfer pursuant to
Subparagraph 24(e) will be deemed reasonably withheld if based upon any
reasonable factor, including, without limitation, any or all of the following
factors: (i) the proposed Transferee is a governmental entity; (ii) the portion
of the Premises to be sublet or assigned is irregular in shape with inadequate
means of ingress and egress; (iii) the use of the Premises by the Transferee (A)
is not permitted by the use provisions in Paragraph 8 hereof, or (B) poses a
risk or otherwise poses a risk of increased liability to Landlord; or (iv) the
Transferee does not have the financial capability to fulfill the obligations
imposed by the Transfer and this Lease.

               (g)  Additional Conditions. A condition to Landlord's consent to
any Transfer of this Lease will be the delivery to Landlord of a true copy of
the fully executed instrument of assignment, sublease, transfer or
hypothecation, and, in the case of an assignment, the delivery to Landlord of an
agreement executed by the Transferee in form and substance reasonably
satisfactory to Landlord, whereby the Transferee assumes and agrees to be bound
by all of the terms and provisions of this Lease and to perform all of the
obligations of Tenant hereunder. As a condition for granting its consent to any
assignment or sublease, Landlord may require that the assignee or sublessee
remit directly to Landlord on a monthly basis, all monies due to Tenant by said
assignee or sublessee. As a condition to Landlord's consent to any sublease,
such sublease must provide that it is subject and subordinate to this Lease and
to all mortgages; that Landlord may enforce the provisions of the sublease,
including collection of rent; that in the event of termination of this Lease for
any reason, including without limitation a voluntary surrender by Tenant, or in
the event of any reentry or repossession of the Premises by Landlord, Landlord
may, at its option, either (i) terminate the sublease, or (ii) take over all of
the right, title and interest of Tenant, as sublessor, under such sublease, in
which case such sublessee will attorn to Landlord, but that nevertheless
Landlord will not (1) be liable for any previous act or omission of Tenant under
such sublease, (2) be subject to any defense or offset previously accrued in
favor of the sublessee against Tenant, or (3) be bound by any previous
modification of any sublease made without Landlord's written consent, or by any
previous prepayment by sublessee of more than one month's rent.

               (h)  Excess Rent.  If Landlord consents to any assignment of this
Lease, other than an assignment permitted without Landlord's consent under
Subparagraph 24(c).  Tenant agrees to pay to Landlord, as additional rent, fifty
percent (50%) of all sums and other consideration payable to and for the benefit
of Tenant by the assignee on account of the assignment, as and when such sums
and other consideration are due and payable by the assignee to or for the
benefit of Tenant (or, if Landlord so requires, and without any release of
Tenant's liability for the same, Tenant agrees to instruct the assignee to pay
such sums and other consideration directly to Landlord).  If for any sublease,
Tenant receives rent or other consideration, either initially or over the term
of the sublease, in excess of the rent fairly allocable to the portion of the
Premises which is subleased based on square footage, Tenant agrees to pay to
Landlord as additional rent fifty percent (50%) of the excess of each such
payment of rent or other consideration received by Tenant promptly after its
receipt.  In calculating excess rent or other consideration which may be payable
to Landlord under this paragraph, Tenant will be entitled to deduct commercially
reasonable third party brokerage commissions and attorneys' fees and other
amounts reasonably and actually expended by Tenant in connection with such
assignment or subletting if acceptable written evidence of such expenditures is
provided to Landlord.

               (i)  No Release.  No Transfer will release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant to pay the
rent and to perform all other obligations to be performed by Tenant hereunder.
Landlord may require that any Transferee remit directly to Landlord on a monthly
basis, all monies due Tenant by said Transferee.  However, the acceptance of
rent by Landlord from any other person will not be deemed to be a waiver by
Landlord of any provision hereof.  Consent by Landlord to one Transfer will not
be deemed consent to any subsequent Transfer.  In the event of default by any
Transferee of Tenant or any successor of Tenant in the performance of any of the
terms hereof, Landlord may proceed directly against Tenant without the necessity
of exhausting remedies against such Transferee or successor.  Landlord may
consent to subsequent assignments of this Lease or sublettings or amendments or
modifications to this Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and any such actions will not relieve Tenant of liability under this Lease.

                                     -35-
<PAGE>

               (j)  Administrative and Attorneys' Fees. If Tenant effects a
Transfer or requests the consent of Landlord to any Transfer (whether or not
such Transfer is consummated), then, upon demand, Tenant agrees to pay Landlord
any reasonable attorneys' and paralegal fees incurred by Landlord in connection
with such Transfer or request for consent (whether attributable to Landlord's
in-house attorneys or paralegals or otherwise).

          25.  SUBORDINATION.  Without the necessity of any additional document
being executed by Tenant for the purpose of effecting a subordination, and at
the election of Landlord or any mortgagee or beneficiary with a deed of trust
encumbering the Premises, or any lessor of a ground or underlying lease with
respect to the Premises, this Lease will be subject and subordinate at all times
to:  (i) all ground leases or underlying leases which may now exist or hereafter
be executed affecting the Premises; and (ii) the lien of any mortgage or deed of
trust which may now exist or hereafter be executed for which the Premises, or
Landlord's interest and estate in any of said items, is specified as security.
Notwithstanding the foregoing, Landlord reserves the right to subordinate any
such ground leases or underlying leases or any such liens to this Lease.  If any
such ground lease or underlying lease terminates for any reason or any such
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, at the election of Landlord's successor in interest,
Tenant agrees to attorn to and become the tenant of such successor in which
event Tenant's right to possession of the Premises will not be disturbed as long
as Tenant is not in default under this Lease.  Tenant hereby waives its rights
under any law which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease and the obligations of Tenant hereunder in
the event of any such foreclosure proceeding or sale.  Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form
reasonably required by Landlord, any additional documents evidencing the
priority or subordination of this Lease and Tenant's attornment agreement with
respect to any such ground lease or underlying leases or the lien of any such
mortgage or deed of trust.  If Tenant fails to sign and return any such
documents within ten (10) days of receipt, Tenant will be in default hereunder.

          26.  ESTOPPEL CERTIFICATE.  Within ten (10) days following any written
request which Landlord may make from time to time, Tenant agrees to execute and
deliver to Landlord a fully completed, factually accurate statement, in a form
substantially similar to the form of Exhibit F attached hereto or as may
reasonably be required by Landlord's lender, certifying:  (i) the date of
commencement of this Lease; (ii) the fact that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that this Lease is
in full force and effect, and stating the date and nature of such
modifications); (iii) the date to which the rent and other sums payable under
this Lease have been paid; (iv) that there are no current defaults under this
Lease by either Landlord or Tenant except as specified in Tenant's statement;
and (v) such other matters reasonably requested by Landlord.  Landlord and
Tenant intend that any statement delivered pursuant to this Paragraph 26 may be
relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of
the Premises or any interest therein.  Tenant's failure to deliver such
statement within such time will be conclusive upon Tenant (i) that this Lease is
in full force and effect, without modification except as may be represented by
Landlord, (ii) that there are no uncured defaults in Landlord's performance, and
(iii) that not more than one (1) month's rent has been paid in advance.  Without
limiting the foregoing, if Tenant fails to deliver any such statement within
such ten (10) day period, Landlord may deliver to Tenant an additional request
for such statement and Tenant's failure to deliver such statement to Landlord
within ten (10) days after delivery of such additional request will constitute a
default under this Lease.  Tenant agrees to indemnify and protect Landlord from
and against any and all claims, damages, losses, liabilities and expenses
(including attorneys' fees and costs) attributable to any failure by Tenant to
timely deliver any such estoppel certificate to Landlord as required by this
Paragraph 26.

          27.  EASEMENTS.  Landlord reserves to itself the right, from time to
time, to grant such easements, rights and dedications that Landlord deems
necessary or desirable, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises and
parking and other Common Areas by Tenant. Tenant shall sign any of the
aforementioned documents upon request of Landlord and failure to do so shall
constitute a material breach of this Lease.

                                     -36-
<PAGE>

          28.  RULES AND REGULATIONS.  Tenant agrees to faithfully observe and
comply with the "Rules and Regulations," a copy of which is attached hereto and
incorporated herein by this reference as Exhibit G, and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord.

          29.  MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND
LESSORS.  If, in connection with Landlord's obtaining or entering into any
financing or ground lease affecting the Premises, the lender or ground lessor
requests modifications to this Lease, Tenant, within ten (10) days after request
therefor, agrees to execute an amendment to this Lease incorporating such
modifications, provided such modifications are reasonable and do not increase
the obligations of Tenant under this Lease or adversely affect the leasehold
estate created by this Lease.  In the event of any default on the part of
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgage covering the Premises or ground
lessor of Landlord whose address has been furnished to Tenant, and Tenant agrees
to offer such beneficiary, mortgagee or ground lessor a reasonable opportunity
to cure the default (including with respect to any such beneficiary or
mortgagee, time to obtain possession of the Premises, subject to this Lease and
Tenant's rights hereunder, by power of sale or a judicial foreclosure, if such
should prove necessary to effect a cure).

          30.  DEFINITION OF LANDLORD.  The term "Landlord," as used in this
Lease, so far as covenants or obligations on the part of Landlord are concerned,
means and includes only the owner or owners, at the time in question, of the fee
title of the Premises or the lessees under any ground lease, if any.  In the
event of any transfer, assignment or other conveyance or transfers of any such
title (other than a transfer for security purposes only), Landlord herein named
(and in case of any subsequent transfers or conveyances, the then grantor) will
be automatically relieved from and after the date of such transfer, assignment
or conveyance of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, so long as the transferee assumes in writing all such covenants and
obligations of Landlord arising after the date of such transfer.  Except during
the period of time the Option to Purchase Development Rider attached hereto is
in effect, Landlord and Landlord's transferees and assignees have the absolute
right to transfer all or any portion of their respective title and interest in
the Premises, the Buildings, the Development and/or this Lease without the
consent of Tenant, and such transfer or subsequent transfer will not be deemed a
violation on Landlord's part of any of the terms and conditions of this Lease.
Notwithstanding the foregoing, the Landlord originally named in this Lease shall
not be relieved from the obligation to construct the Project Work as set forth
in Subparagraph 4(a).

          31.  WAIVER.  The waiver by either party of any breach of any term,
covenant or condition herein contained will not be deemed to be a waiver of any
subsequent breach of the same or any other term, covenant or condition herein
contained, nor will any custom or practice which may develop between the parties
in the administration of the terms hereof be deemed a waiver of or in any way
affect the right of either party to insist upon performance in strict accordance
with said terms.  The subsequent acceptance of rent or any other payment
hereunder by Landlord will not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent.  No acceptance by Landlord of a lesser sum than the basic rent and
additional rent or other sum then due will be deemed to be other than on account
of the earliest installment of such rent or other amount due, nor will any
endorsement or statement on any check or any letter accompanying any check be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such installment
or other amount or pursue any other remedy provided in this Lease.  The consent
or approval of Landlord to or of any act by Tenant requiring Landlord's consent
or approval will not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar acts by Tenant.

          32.  PARKING.  So long as this Lease is in effect and provided Tenant
is not in default hereunder, Landlord grants to Tenant and Tenant's customers,
suppliers, employees and invitees ("Tenant's Authorized Users"), a non-exclusive
license to use, without charge except as set forth in this Lease, its share of
the designated parking areas in the Common Areas.  Tenant shall have fourteen
(14) marked "visitor" spaces

                                     -37-
<PAGE>

adjacent to its Premises and shall be entitled to exclusive use of the same,
provided, however, that Landlord shall not enforce such designated spaces by
preventing others from parking in such spaces. Unless otherwise provided by
Landlord in writing, visitor parking in the Development will be on a non-
exclusive, in common basis with all other visitors and guests of the
Development; provided, however, that notwithstanding the foregoing, Landlord may
provide reserved parking for Building C on a similar prorata basis to any
reserved spaces provided to Tenant for Buildings A and B. Notwithstanding the
foregoing Tenant shall be entitled to use up to 279 of the Unreserved Parking
Spaces closest in proximity to the Premises on those portions of the Common
Areas designated from time to time by Landlord for parking. Tenant shall not use
more parking spaces than said number. Said parking spaces shall be used for
parking by vehicles no larger than full-size passenger automobiles or pick-up
trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted
Size Vehicles shall be parked and loaded or unloaded as directed by Landlord in
the Rules and Regulations (as defined in Paragraph 28) issued by Landlord.
Tenant shall not permit or allow any vehicles that belong to or are controlled
by Tenant or Tenant's employees, suppliers, shippers, customers, contractors or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Landlord for such activities. Tenant will not use or allow any of Tenant's
Authorized Users to use any parking spaces which have been specifically assigned
by Landlord to other tenants or occupants or for other uses such as visitor
parking or which have been designated by any governmental entity as being
restricted to certain uses. Landlord may assign any unreserved and unassigned
parking spaces and/or make all or any portion of such spaces reserved, if
Landlord reasonably determines that it is necessary for orderly and efficient
parking or for any other reasonable reason. Tenant and Tenant's Authorized Users
shall comply with all rules and regulations regarding parking set forth in
Exhibit G attached hereto and Tenant agrees to cause its employees, subtenants,
assignees, contractors, suppliers, customers and invitees to comply with such
rules and regulations. Landlord reserves the right from time to time to modify
and/or adopt such other reasonable and non-discriminatory rules and regulations
for the parking facilities as it deems reasonably necessary for the operation of
the parking facilities. If Tenant permits or allows any of the prohibited
activities described in this Paragraph 32 then Landlord shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Tenant, which
cost shall be immediately payable upon demand by Landlord.

          33.  FORCE MAJEURE.  If either Landlord or Tenant is delayed, hindered
in or prevented from the performance of any act required under this Lease by
reason of strikes, lock-outs, labor troubles, inability to procure standard
materials, failure of power, restrictive governmental laws, regulations or
orders or governmental action or inaction (including failure, refusal or delay
in issuing permits, approvals and/or authorizations which is not the result of
the action or inaction of the party claiming such delay), riots, civil unrest or
insurrection, war, fire, earthquake, flood or other natural disaster, unusual
and unforeseeable delay which results from an interruption of any public
utilities (e.g., electricity, gas, water, telephone) or other unusual and
unforeseeable delay not within the reasonable control of the party delayed in
performing work or doing acts required under the provisions of this Lease, then
performance of such act will be excused for the period of the delay and the
period for the performance of any such act will be extended for a period
equivalent to the period of such delay, except as otherwise set forth in this
Lease.  The provisions of this Paragraph 33 will not operate to excuse Tenant
from prompt payment of rent or any other payments required under the provisions
of this Lease.

          34.  SIGNS.  Subject to the requirements of this Paragraph 34, Tenant
shall be allowed, to the extent permitted under applicable laws, and the CC&R's,
to install, at Tenant's sole cost and expense, (i) Building-top signage in one
location per Building identifying Tenant's name on the exterior of the Building
A and Building B and signage adjacent to Tenant's main entrance and (ii) signage
identifying Tenant's name on a monument sign for the Development at the entrance
to the Development.  Tenant agrees to have Landlord install and maintain
Tenant's identification sign(s) in such designated location in accordance with
this Paragraph 34 at Tenant's sole cost and expense.  Tenant has no right to
install Tenant identification signs in any other location in, on or about the
Premises or the Development in any interior or exterior Common Areas.  The size,
design, color and other physical aspects of any and all permitted sign(s) will
be subject to (i) Landlord's written approval prior to installation, which
approval shall not be unreasonably withheld, conditioned or delayed, (ii) the
CC&R's, and (iii) any applicable municipal or governmental permits and
approvals.  Tenant will be solely responsible for all
<PAGE>

costs for installation, maintenance, repair and removal of any Tenant
identification sign(s). If Tenant fails to remove Tenant's sign(s) upon
termination of this Lease and repair any damage caused by such removal, Landlord
may do so at Tenant's sole cost and expense. Tenant agrees to reimburse Landlord
for all costs incurred by Landlord to effect any installation, maintenance or
removal on Tenant's account, which amount will be deemed additional rent, and
may include, without limitation, all sums disbursed, incurred or deposited by
Landlord including Landlord's costs, expenses and actual attorneys' fees with
interest thereon at the Interest Rate from the date of Landlord's demand until
paid by Tenant.

          35.  LIMITATION ON LIABILITY.  In consideration of the benefits
accruing hereunder, Tenant on behalf of itself and all successors and assigns of
Tenant covenants and agrees that, in the event of any actual or alleged failure,
breach or default hereunder by Landlord:  (a) tenant's recourse against Landlord
for monetary damages will be limited to Landlord's interest in the Premises
including, subject to the prior rights of any Mortgagee, Landlord's interest in
the rents of the Premises and any insurance proceeds payable to Landlord; (b)
except as may be necessary to secure jurisdiction of the partnership, no partner
of Landlord shall be sued or named as a party in any suit or action  and no
service of process shall be made against any partner of Landlord; (c) no partner
of Landlord shall be required to answer or otherwise plead to any service of
process; (d) no judgment will be taken against any partner of Landlord and any
judgment taken against any partner of Landlord may be vacated and set aside at
any time after the fact; (e) no writ of execution will be levied against the
assets of any partner of Landlord; (f) the obligations under this Lease do not
constitute personal obligations of the individual partners, directors, officers
or shareholders of Landlord, and Tenant shall not seek recourse against the
individual partners, directors, officers or shareholders of Landlord or any of
their personal assets for satisfaction of any liability in respect to this
Lease; and (g) these covenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.

          36.  FINANCIAL STATEMENTS.  Prior to the execution of this Lease by
Landlord and at any time during the Term of this Lease upon twenty (20) days
prior written notice from Landlord, Tenant agrees to provide Landlord with a
Tenant's most recent annual financial reports (dated no earlier than twelve (12)
months from the date of such request) together with, if required by any
prospective lender or purchaser of Landlord, a then current financial statement
for Tenant; provided, however, Landlord shall use Landlord's good faith efforts
to require that any such prospective lender or purchaser keep such financial
statements confidential (except that such prospective lenders and purchasers may
disclose such information to their consultants and as may be required by law).
Such annual statements are to be prepared in accordance with generally accepted
accounting principles and, if such is the normal practice of Tenant, audited by
an independent certified public accountant.  Any interim financial statements
provided by Tenant as may be required above shall be prepared in accordance with
generally accepted accounting principles and certified by an officer of Tenant.

          37.  QUIET ENJOYMENT.  Landlord covenants and agrees with Tenant that
upon Tenant paying the rent required under this Lease and paying all other
charges and performing all of the covenants and provisions on Tenant's part to
be observed and performed under this Lease, Tenant may peaceably and quietly
have, hold and enjoy the Premises in accordance with this Lease.

          38.  AUCTIONS.  Tenant shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without first
having obtained Landlord's prior written consent. Notwithstanding anything to
the contrary in this Lease, Landlord shall not be bound by any standard of
reasonableness in determining whether to grant such consent.

          39.  MISCELLANEOUS.

               (a)  Conflict of Laws. This Lease shall be governed by and
construed solely pursuant to the laws of the State, without giving effect to
choice of law principles thereunder.

                                     -39-
<PAGE>

               (b)  Successors and Assigns. Except as otherwise provided in this
Lease, all of the covenants, conditions and provisions of this Lease shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns.

               (c)  Professional Fees and Costs. If either Landlord or Tenant
should bring suit against the other with respect to this Lease, then all costs
and expenses, including without limitation, reasonable professional fees and
costs such as appraisers', accountants' and attorneys' fees and costs, incurred
by the party which prevails in such action, whether by final judgment or out of
court settlement, shall be paid by the other party, which obligation on the part
of the other party shall be deemed to have accrued on the date of the
commencement of such action and shall be enforceable whether or not the action
is prosecuted to judgment. As used herein, attorneys' fees and costs shall
include, without limitation, attorneys' fees, costs and expenses incurred in
connection with any (i) postjudgment motions; (ii) contempt proceedings; (iii)
garnishment, levy, and debtor and third party examination; (iv) discovery; and
(v) bankruptcy litigation.

               (d)  Terms and Headings. The words "Landlord" and "Tenant" as
used herein shall include the plural as well as the singular. Words used in any
gender include other genders. The paragraph headings of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.

               (e)  Time. Time is of the essence with respect to the performance
of every provision of this Lease in which time of performance is a factor.

               (f)  Prior Agreement; Amendments.  This Lease constitutes and is
intended by the parties to be a final, complete and exclusive statement of their
entire agreement with respect to the subject matter of this Lease.  This Lease
supersedes any and all prior and contemporaneous agreements and understandings
of any kind relating to the subject matter of this Lease.  There are no other
agreements, understandings, representations, warranties, or statements, either
oral or in written form, concerning the subject matter of this Lease.  No
alteration, modification, amendment or interpretation of this Lease shall be
binding on the parties unless contained in a writing which is signed by both
parties.

               (g)  Separability. The provisions of this Lease shall be
considered separable such that if any provision or part of this Lease is ever
held to be invalid, void or illegal under any law or ruling, all remaining
provisions of this Lease shall remain in full force and effect to the maximum
extent permitted by law.

               (h)  Recording. Neither Landlord nor Tenant shall record this
Lease nor a short form memorandum thereof without the consent of the other.

               (i)  Counterparts.  This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.

               (j)  Nondisclosure of Lease Terms. Tenant acknowledges and agrees
that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees, agents and attorneys, shall not intentionally
and voluntarily disclose the terms and conditions of this Lease to any newspaper
or other publication or any other tenant or apparent prospective tenant of the
Building or other portion of the Development, or real estate agent, either
directly or indirectly, without the prior written consent of Landlord, provided,
however, that Tenant may disclose the terms to prospective subtenants or
assignees under this Lease, and may disclose the terms if required in any
filings with governmental agencies or incident to an offering of securities
evidencing an ownership interest in Tenant.

               (k)  Non-Discrimination. Tenant acknowledges and agrees that
there shall be no discrimination against, or segregation of, any person, group
of persons, or entity on the basis of race, color, creed,

                                     -40-
<PAGE>

religion, age, sex, marital status, national origin, or ancestry in the leasing,
subleasing, transferring, assignment, occupancy, tenure, use, or enjoyment of
the Premises, or any portion thereof.

          40.  EXECUTION OF LEASE.

               (a) Tenant as Corporation or Partnership. If Tenant executes this
Lease as a corporation or partnership, then Tenant and the persons executing
this Lease on behalf of Tenant represent and warrant that such entity is duly
qualified and in good standing to do business in California and that the
individuals executing this Lease on Tenant's behalf are duly authorized to
execute and deliver this Lease on its behalf, and in the case of a corporation,
in accordance with a duly adopted resolution of the board of directors of
Tenant, a copy of which is to be delivered to Landlord on execution hereof, if
requested by Landlord, and in accordance with the by-laws of Tenant, and, in the
case of a partnership, in accordance with the partnership agreement and the most
current amendments thereto, if any, copies of which are to be delivered to
Landlord on execution hereof, if requested by Landlord, and that this Lease is
binding upon Tenant in accordance with its terms.

               (b) Examination of Lease. Submission of this instrument by
Landlord to Tenant for examination or signature by Tenant does not constitute a
reservation of or option for lease, and it is not effective as a lease or
otherwise until execution by and delivery to both Landlord and Tenant.

          IN WITNESS WHEREOF, the parties have caused this Lease to be duly
executed by their duly authorized representatives as of the date first above
written.

<TABLE>
<CAPTION>
TENANT:                                                 LANDLORD:
<S>                                                     <C>
ILLUMINA, INC.,                                         DIVERSIFIED EASTGATE VENTURE,
a Delaware corporation                                  an Illinois general partnership

By:________________________________________             By:  Diversified Eastgate Pointe, LLC,
Name:  Jay Flatley                                           a California limited liability company,
Title: President & CEO                                       Its General Partner

By:________________________________________                  By:______________________________________
Name:  John R. Stuelpnagel                                      Its: Manager
Title: Vice President, Business Development
                                                        By:  GFBP Partners, LLC,
                                                             a California limited liability company,
                                                             Its General Partner

                                                             By:______________________________________
                                                                Its: Manager
</TABLE>

                                     -41-
<PAGE>

                                  EXHIBIT A-1
                                  -----------

                               LEGAL DESCRIPTION
                                  OF PREMISES
                                  -----------

THE LAND REFERRED TO HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF
SAN DIEGO, AND IS DESCRIBED AS FOLLOWS:

PARCEL 1 THROUGH 3 INCLUSIVE OF PARCEL MAP 18286, IN THE CITY OF SAN DIEGO,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF, FILED IN THE
OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY JUNE 21, 1999.

                                  EXHIBIT A-1
                                  -----------
                                      -1-
<PAGE>

                                  EXHIBIT A-2
                                  -----------

                                   SITE PLAN
                                   ---------

                                   [GRAPHIC]


                                EASTGATE POINTE
                                ---------------
                                   SITE PLAN

                                   [GRAPHIC]


                                  EXHIBIT A-2
                                  -----------
                                      -1-
<PAGE>

                                   EXHIBIT B
                                   ---------

                                 PROJECT PLANS
                                 -------------

T-1              TITLE SHEET
T-2              ADA NOTES

<TABLE>
<S>                                                             <C>
CIVIL                                                           MECHANICAL
PREPARED BY JP ENGINEERING                                      PREPARED BY WALSH ENGINEERING
### -1-D      COVER SHEET                                       M1.1     MECHANICAL SCHEDULES, LEGENDS AND NOTES
### -2-D      STORM DRAIN PROFILE                               M2.1     MECHANICAL BUILDING 'A' FIRST FLOOR PLAN
### -3-D      STORM DRAIN PROFILE                               M2.2     MECHANICAL BUILDING 'A' SECOND FLOOR PLAN
### -4-D      GRADING COVER SHEET                               M3.1     MECHANICAL BUILDING 'A' ROOF PLAN
### -5-D      GRADING PLAN (VOID SHEET)                         M4.1     MECHANICAL BUILDING 'B' FIRST FLOOR PLAN
### -6-D      GRADING PLAN (VOID SHEET)                         M4.2     MECHANICAL BUILDING 'B' SECOND FLOOR PLAN
### -7-D      GRADING SECTIONS                                  M5.1     MECHANICAL BUILDING 'B' ROOF PLAN
### -8-D      EROSION CONTROL DETAILS                           M6.1     NOT USED
### -9-D      EROSION CONTROL PLAN (VOID SHEET)                 M7.1     MECHANICAL DETAILS
### -10-D     EROSION CONTROL PLAN (VOID SHEET)                 M7.2     MECHANICAL DETAILS
### -11-D     LANDSCAPE IRRIGATION COVER SHEET                  M7.3     MECHANICAL SECTIONS
### -12-D     IRRIGATION PLAN
### -13-D     IRRIGATION PLAN                                   PLUMBING
### -14-D     IRRIGATION PLAN                                   PREPARED BY WALSH ENGINEERING
### -15-D     IRRIGATION DETAILS                                P1.1     PLUMBING SCHEDULES, LEGENDS AND NOTES
### -16-D     PLANTING PLAN                                     P2.1     PLUMBING BUILDING 'A' FIRST FLOOR PLAN
### -17-D     PLANTING PLAN                                     P2.2     PLUMBING BUILDING 'A' SECOND FLOOR PLAN
### -18-D     PLANTING DETAILS                                  P3.1     PLUMBING BUILDING 'A' ROOF PLAN
### -19-D     IMPROVEMENT DETAILS                               P4.1     PLUMBING BUILDING 'B' FIRST FLOOR PLAN
### -20-D     GRADING PLAN                                      P4.2     PLUMBING BUILDING 'B' SECOND FLOOR PLAN
### -21-D     GRADING PLAN                                      P5.1     PLUMBING BUILDING 'B' ROOF PLAN
### -22-D     EROSION CONTROL PLAN                              P6.1     PARTIAL PLUMBING PLANS - BUILDINGS A & B
### -23-D     EROSION CONTROL PLAN                              P7.1     PLUMBING DETAILS
### -24-D     WATER SERVICE PLAN                                P7.2     PLUMBING DIAGRAMS
### -25-D     WATER SERVICE PROFILE
### -26-D     WATER SERVICE PROFILE                             ELECTRICAL
### -27-D     IMPROVEMENT PLAN                                  PREPARED BY MICHAEL WALL ENGINEERING
### -28-D     IRRIGATION PLAN                                   E-1.1    NOTE SHEET
### -29-D     PLANTING PLAN                                     E-1.2    LUMINAIRE SCHEDULE AND T24 CALCS
00014 -1-C    WATER EASEMENT                                    E-1.3    LIGHTING CONTROL AND LIGHTING DETAILS
00014 -2-C    WATER EASEMENT                                    E-2.1    SITE UTILITY PLAN
                                                                E-2.2    SITE LIGHTING PLAN
                                                                E-3.1    FIRST FLOOR POWER PLAN - BUILDING 'A'
ARCHITECTURAL                                                   E-3.2    SECOND FLOOR POWER PLAN - BUILDING 'A'
PREPARED BY PACIFIC CORNERSTONE ARCHITECTS                      E-3.3    FIRST FLOOR POWER PLAN - BUILDING 'B'
Exit-1        EXIT PLANS BUILDING 'A' AND 'B'                   E-3.4    SECOND FLOOR POWER PLAN - BUILDING 'B'
A-1           SITE PLAN                                         E-4.1    ROOF  POWER PLAN - BUILDING 'A'
A-2           FIRST FLOOR PLAN BUILDING 'A'                     E-4.2    ROOF POWER PLAN - BUILDING 'B'
A-3           SECOND FLOOR PLAN BUILDING 'A'                    E-5.1    SINGLELINE DIAGRAM - BUILDING 'A'
A-4           EXTERIOR ELEVATIONS BUILDING 'A'                  E-5.2    SINGLELINE DIAGRAM - BUILDING 'B'
A-5           ROOF PLAN BUILDING 'A'                            E-6.1    DETAIL SHEET #1
A-5.1         EXTERIOR SOFFIT PLAN BUILDING 'A'                 E-6.2    DETAIL SHEET #2
A-6           FIRST FLOOR PLAN BUILDING 'B'
A-7           SECOND FLOOR PLAN BUILDING 'B'                    LANDSCAPE
A-8           EXTERIOR ELEVATIONS BUILDING 'B'                  PREPARED BY JPBLA
A-9           ROOF PLAN BUILDING 'B'                            L-1      RECLAIMED IRRIGATION NOTES
A-9.1         EXTERIOR SOFFIT PLAN BUILDING 'B'                 L-2      HARDSCAPE PLAN
A-10          BUILDING WALL SECTIONS                            L-3      HARDSCAPE PLAN
A-11          BUILDING WALL SECTIONS                            L-4      IRRIGATION PLAN
A-12          BUILDING WALL SECTIONS                            L-5      IRRIGATION PLAN
A-13          BUILDING 'A' STAIR PLANS                          L-6      PLANTING PLAN
A-13.1        BUILDING 'A' LOBBY SECTIONS                       L-7      PLANTING PLAN
A-13.2        BUILDING 'A' LOBBY REFLECTED CEILING PLANS        L-8      HARDSCAPE DETAILS
A-14          BUILDING 'B' STAIR PLANS                          L-9      IRRIGATION AND LANDSCAPE DETAILS
A-14.1        BUILDING 'B' LOBBY SECTIONS                       L-10     IRRIGATION SPECIFICATIONS
A-14.2        BUILDING 'B' LOBBY REFLECTED CEILING PLANS        L-11     LANDSCAPE SPECIFICATIONS
A-15          BUILDING 'A' RESTROOM PLANS
A-16          BUILDING 'B' RESTROOM PLANS
A-17          DOOR SCHEDULE AND DETAILS
A-17.1        HARDWARE SCHEDULE
A-18          DETAILS
A-19          DETAILS
A-20          DETAILS
</TABLE>

ALL PLANS LISTED ABOVE ARE DATED 2/17/00 AND MARKET "BID SET"

                                    EXHIBIT
                                    -------
                                      -1-
<PAGE>

PROJECT MANUAL

Project Manual for Eastgate Pointe Shell Building prepared by Pacific
Cornerstone Architects, Inc. dated February 26, 1999 ("Project Manual").

ADENDUM # 1 (Delta 3 Revisions)
PREPARED BY PACIFIC CORNERSTONE ARCHITECTS

T-1     TITLE SHEET
T-2     ADA NOTES
A-1     SITE PLAN
A-6     FIRST FLOOR PLAN BUILDING 'B'
A-8     EXTERIOR ELEVATIONS BUILDING 'B'
A-15    BUILDING 'A' RESTROOM PLANS
A-16    BUILDING 'B' RESTROOM PLANS
A-18    DETAILS


MODIFICATIONS TO PROJECT WORK
-----------------------------

Notwithstanding the fact that the following items are contained in the Project
Plans, these items are specifically excluded from Landlord's responsibility to
construct as part of the Project Work:

     1    HVAC SYSTEMS:
          A. All work associated with the Heating, Ventilating and Air
             Conditioning systems, in accordance with Sections 15800 of the
             Project Manual.

          B. Electrical work required for the mechanical system as specified in
             the Project Plans and Project Manual.

          C. Plumbing work required for the mechanical system as specified in
             the Project Plans and Project Manual.

     2    RESTROOMS
          A. All work relating to the construction of the restrooms as shown on
             the Project Plans including but not limited to: (i) framing and
             drywall; (ii) plumbing and electrical; (iii) toilet partitions,
             lockers and accessories; (iv) counters and cabinetry; (v) doors and
             hardware; (vi) fire sprinkler drops; (vii) floor, wall and counter
             tile; and, (viii) wall and ceiling paint. The intent of this
             exclusion is that Landlord's responsibility with respect to the
             core restrooms is only to provide underground sewer in the area of
             the core restrooms as shown on the Project Plans.

     3    LOBBY
          A. All work relating to the construction of the lobby improvements as
             shown on the Project Plans including but not limited to: (i)
             framing and drywall; (ii) electrical; (iii) floor covering; (iv)
             doors and hardware; (v) fire sprinkler drops; and, (vi) wall and
             ceiling paint. The intent of this exclusion is that Landlord's
             responsibility with respect to the lobby improvements is only to
             provide the elevator and framing for the surrounding stairs as
             shown on the Project Plans.

Notwithstanding the fact that the following items are not contained in the
Project Plans, these items are specifically included in Landlord's
responsibility to construct as part of the Project Work:

     1    ELEVATORS
          A second elevator (freight elevator), shall be added to Building A and
          Building B, the specific location to be mutually agreed upon between
          Landlord and Tenant and subject to the approval of the project
          architect and structural engineer.


                                    EXHIBIT
                                    -------
                                      -2-
<PAGE>

                                   EXHIBIT C
                                   ---------

                               UNION GUIDELINES

A.   Basic Labor Requirements for the Project.  As a condition of funding any or
     ----------------------------------------
     all amounts pursuant to this Loan, WCM must be provided with satisfactory
     evidence that the following guidelines are applied to the selection and
     employment of all contractors and subcontractors in connection with the
     initial installation of all the proposed improvements, including the tenant
     improvements, of the Project:

     1.   General Contractor.  The general contractor for all tenant
          ------------------
          improvements must be a Union general contractor (signatory to the
          Master Labor Agreement, which covers the area of the Project).

     2.   Protected Work.  All work (including, but not limited to, all
          --------------
          fabrication, detailing, supervision, and field installation)
          traditionally encompassed within the trades and crafts represented by
          the San Diego County Cement Masons, the San Diego County Electricians,
          the Sheet Metal Workers of Southern California, Arizona and Nevada,
          and the Southern California Plumbers and Pipefitters (collectively,
          "Protected Work") shall be completed by subcontractors signatory and
          in good standing with the applicable local unions.

     3.   Non Protected Work.  For all other work, Borrower may employ Qualified
          ------------------
          non-union subcontractors in the event that the procedures set forth
          hereinafter have been timely and fully satisfied and a "Competitive
          Union Bid," as defined in Subsection (b) below, has not been obtained.

          a.   A "Qualified" subcontractor shall be defined a subcontractor
               which has:

               (i)  Considerable experience in performance of work of the size
                    and scope of the work contemplated by the contract or
                    subcontract bid; and

               (ii) Either (A) a positive net worth of at least two (2) times
                    the size of the bid and cash/marketable securities of at
                    least one-half (1/2) the size of the subcontract; or (B) is
                    bondable at a rate which is equal to or less than one
                    percent (1%) of the cost of the work.

          b.   A "Competitive Union Bid" shall be defined as a bid from a union
               subcontractor that is within five percent (5%) of the average of
               the three lowest, non-union bids from Qualified non-union
               subcontractors that are domiciled in San Diego County.  In the
               event that three Qualified non-union subcontractors are not
               available within San Diego County from which bids may be
               solicited, then Borrower may solicit bids from Qualified non-
               union subcontractors outside the County of San Diego.  The
               comparative bids will be complete, be taken from the same plans,
               specifications and schedules, and provide for the completion of
               the same work.

          c.   Borrower has received written authorization from WCM to employ
               such Qualified, non-union subcontractor.

                                   EXHIBIT C
                                   ---------
                                      -1-
<PAGE>

B.   Additional Requirements of the Project.
     --------------------------------------

     1.   Contractor List.  Before work on the Improvements commences, a
          ---------------
          complete list of contractors and subcontractors shall be provided to,
          and approved by, WCM.

     2.   Borrower's Responsibility for Compliance.  Compliance with the above
          ----------------------------------------
          requirements is the Borrower's responsibility.

     3.   Compliance Determination.  Compliance with the provisions of this
          ------------------------
          Exhibit "A" are subject to WCM's sole, reasonable discretion.

                                      C-2
<PAGE>

                                   EXHIBIT D
                                   ---------

                            [INTENTIONALLY OMITTED]



                                   EXHIBIT D
                                   ---------
                                      -1-
<PAGE>

                                   EXHIBIT E
                                   ---------

                            [INTENTIONALLY OMITTED]



                                   EXHIBIT E
                                   ---------
                                      -1-
<PAGE>

                                   EXHIBIT F
                                   ---------

                              ESTOPPEL CERTIFICATE
                              --------------------

          The undersigned,_____________________ ("Landlord"), with a mailing
address c/o___________________________________ and ______________ ("Tenant"),
hereby certify to ______________________________, as follows:

          1.  Attached hereto is a true, correct and complete copy of that
certain lease dated ____________________, 2000, between Landlord and Tenant (the
"Lease"), regarding the premises located at ____________________________ (the
"Premises").  The Lease is now in full force and effect and has not been
amended, modified or supplemented, except as set forth in Paragraph 4 below.

          2.  The Term of the Lease commenced on ____________________, 20___.

          3.  The Term of the Lease shall expire on ____________________, 20___.

          4.  The Lease has:  (Initial one)

          (________)  not been amended, modified, supplemented, extended,
renewed or assigned.

          (________)  been amended, modified, supplemented, extended, renewed or
assigned by the following described terms or agreements, copies of which are
attached hereto:

          ______________________________________________________________________
          ______________________________________________________________________

          5.  Tenant has accepted and is now in possession of the Premises.

          6.  Tenant and Landlord acknowledge that Landlord's interest in the
Lease will be assigned to __________________________________ and that no
modification,adjustment, revision or cancellation of the Lease or amendments
thereto shall be effective unless written consent of ___________________________
is obtained, and that until further notice, payments under the Lease may
continue as heretofore.

          7.  The amount of Monthly Base Rent is $____________________.

          8.  The amount of security deposits (if any) is $____________________.

No other security deposits have been made except as follows:____________________
________________________________________________________________________________
___________________________________________________________________________.

          9.  Tenant is paying the full lease rental which has been paid in full
as of the date hereof. No rent or other charges under the Lease have been paid
for more than thirty (30) days in advance of its due date except as follows: ___
________________________________________________________________________________
___________________________________________________________________________.

                                   EXHIBIT F
                                   ---------
                                      -1-
<PAGE>

          10.  All work required to be performed by Landlord under the Lease has
been completed except as follows: ______________________________________________
_____________________________________________________________.

          11.  There are no defaults on the part of the Landlord or Tenant under
the Lease except as follows: ___________________________________________________
_____________________________________________________________.

          12.  Neither Landlord nor Tenant has any defense as to its obligations
under the Lease and claims no set-off or counterclaim against the other party
except as follows: _____________________________________________________________
________________________________________________________________________________
_____________________________________________________________.

          13.  Tenant has no right to any concession (rental or otherwise) or
similar compensation in connection with renting the space it occupies other than
as provided in the Lease except as follows: ____________________________________
________________________________________________________________________________
_____________________________________________________________.

All provisions of the Lease and the amendments thereto (if any) referred to
above are hereby ratified.

          The foregoing certification is  made with the knowledge that
______________________ is about to fund a loan to Landlord or __________________
is about to purchase the Building from Landlord and that _______________________
is relying upon the representations herein made in funding such loan or in
purchasing the Building.

          IN WITNESS WHEREOF, this certificate has been duly executed and
delivered by the authorized officers of the undersigned as of
____________________, 20___.

<TABLE>
<CAPTION>
TENANT:                                             LANDLORD:
<S>                                                 <C>
ILLUMINA, INC.,                                     DIVERSIFIED EASTGATE VENTURE,
a Delaware corporation                              an Illinois general partnership

                                                    By: Diversified Eastgate Pointe, LLC,
By:    ____________________________________             a California limited liability company,
Name:  Jay Flatley                                      Its General Partner
Title: President & CEO

                                                        By: ____________________________________
By:    ____________________________________                 Its:  Manager
Name:  John R. Stuelpnagel
Title: Vice President, Business Development
                                                    By: GFBP Partners, LLC,
                                                        a California limited liability company,
                                                        Its General Partner

                                                        By: ____________________________________
                                                            Its:  Manager
</TABLE>

                                   EXHIBIT F
                                   ---------
                                      -2-
<PAGE>

                                SAMPLE ONLY
                              [NOT FOR EXECUTION]

                                   EXHIBIT F
                                   ---------
                                      -3-
<PAGE>

                                 EXHIBIT G
                                 ---------

                             RULES AND REGULATIONS
                             ---------------------

          A.   General Rules and Regulations. The following rules and
               -----------------------------
regulations govern the use of the Building and the Common Areas. Tenant will be
bound by such rules and regulations and agrees to cause Tenant's Authorized
Users, its employees, subtenants, assignees, contractors, suppliers, customers
and invitees to observe the same.

               1.   Except as specifically provided in the Lease to which these
Rules and Regulations are attached, no sign, placard, picture, advertisement,
name or notice may be installed or displayed on any part of the outside of the
Buildings without the prior written consent of Landlord. Landlord will have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls visible from the exterior of the Buildings are to be printed, painted,
affixed or inscribed at the expense of Tenant and under the direction of
Landlord by a person or company designated or approved by Landlord.

               2.   If Landlord objects in writing to any curtains, blinds,
shades, screens or hanging plants or other similar objects attached to or used
in connection with any window or door of the Premises, or placed on any
windowsill, which is visible from the exterior of the Premises, Tenant will
immediately discontinue such use. Tenant agrees not to place anything against or
near glass partitions or doors or windows which may appear unsightly from
outside the Premises.

               3.   Tenant will not obstruct any sidewalks, passages, exits or
entrances of the Development. The sidewalks, passages, exits and entrances are
not open to the general public, but are open, subject to reasonable regulations,
to Tenant's business invitees. Landlord will in all cases retain the right to
control and prevent access thereto of all persons whose presence in the
reasonable judgment of Landlord would be prejudicial to the safety, character,
reputation and interest of the Development and its tenants, provided that
nothing herein contained will be construed to prevent such access to persons
with whom any tenant normally deals in the ordinary course of its business,
unless such persons are engaged in illegal or unlawful activities.

               4.   Landlord expressly reserves the right to absolutely prohibit
solicitation, canvassing, sales and displays of products, goods and wares in all
portions of the Development except for such activities as may be expressly
requested by a tenant and conducted solely within such requesting tenant's
premises. Landlord reserves the right to restrict and regulate the use of the
Common Areas of the Development by invitees of tenants providing services to
tenants on a periodic or daily basis including food and beverage vendors. Such
restrictions may include limitations on time, place, manner and duration of
access to a tenant's premises for such purposes.

               5.   Landlord reserves the right to prevent access to the
Development in case of invasion, mob, riot, public excitement or other commotion
by closing the doors or by other appropriate action.

               6.   Landlord will furnish Tenant, free of charge, with two keys
to each door lock in the Premises. Landlord may make a reasonable charge for any
additional keys. Tenant shall not make or have made additional keys, and Tenant
shall not alter any lock or install any new additional lock or bolt on any door
of the Premises; provided, however, Tenant may install such security measures as
it may deem appropriate, so long as Landlord has access to the Premises as set
forth in the Lease. Tenant, upon the termination of its tenancy, will deliver to
Landlord the keys to all doors which have been furnished to Tenant, and in the
event of loss of any keys so furnished, will pay Landlord therefor.

                                   EXHIBIT G
                                   ---------
                                      -1-
<PAGE>

                                 EXHIBIT G
                                 ---------

                             RULES AND REGULATIONS
                             ---------------------

          A.   General Rules and Regulations. The following rules and
               -----------------------------
regulations govern the use of the Building and the Common Areas. Tenant will be
bound by such rules and regulations and agrees to cause Tenant's Authorized
Users, its employees, subtenants, assignees, contractors, suppliers, customers
and invitees to observe the same.

               1.   Except as specifically provided in the Lease to which these
Rules and Regulations are attached, no sign, placard, picture, advertisement,
name or notice may be installed or displayed on any part of the outside of the
Buildings without the prior written consent of Landlord. Landlord will have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls visible from the exterior of the Buildings are to be printed, painted,
affixed or inscribed at the expense of Tenant and under the direction of
Landlord by a person or company designated or approved by Landlord.

               2.   If Landlord objects in writing to any curtains, blinds,
shades, screens or hanging plants or other similar objects attached to or used
in connection with any window or door of the Premises, or placed on any
windowsill, which is visible from the exterior of the Premises, Tenant will
immediately discontinue such use. Tenant agrees not to place anything against or
near glass partitions or doors or windows which may appear unsightly from
outside the Premises.

               3.   Tenant will not obstruct any sidewalks, passages, exits or
entrances of the Development. The sidewalks, passages, exits and entrances are
not open to the general public, but are open, subject to reasonable regulations,
to Tenant's business invitees. Landlord will in all cases retain the right to
control and prevent access thereto of all persons whose presence in the
reasonable judgment of Landlord would be prejudicial to the safety, character,
reputation and interest of the Development and its tenants, provided that
nothing herein contained will be construed to prevent such access to persons
with whom any tenant normally deals in the ordinary course of its business,
unless such persons are engaged in illegal or unlawful activities.

               4.   Landlord expressly reserves the right to absolutely prohibit
solicitation, canvassing, sales and displays of products, goods and wares in all
portions of the Development except for such activities as may be expressly
requested by a tenant and conducted solely within such requesting tenant's
premises. Landlord reserves the right to restrict and regulate the use of the
Common Areas of the Development by invitees of tenants providing services to
tenants on a periodic or daily basis including food and beverage vendors. Such
restrictions may include limitations on time, place, manner and duration of
access to a tenant's premises for such purposes.

               5.   Landlord reserves the right to prevent access to the
Development in case of invasion, mob, riot, public excitement or other commotion
by closing the doors or by other appropriate action.

               6.   Landlord will furnish Tenant, free of charge, with two keys
to each door lock in the Premises. Landlord may make a reasonable charge for any
additional keys. Tenant shall not make or have made additional keys, and Tenant
shall not alter any lock or install any new additional lock or bolt on any door
of the Premises; provided, however, Tenant may install such security measures as
it may deem appropriate, so long as Landlord has access to the Premises as set
forth in the Lease. Tenant, upon the termination of its tenancy, will deliver to
Landlord the keys to all doors which have been furnished to Tenant, and in the
event of loss of any keys so furnished, will pay Landlord therefor.

                                   EXHIBIT G
                                   ---------
                                      -1-
<PAGE>

               18.  Tenant assumes any and all responsibility for protecting its
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed.

               19.  To the extent Landlord reasonably deems it necessary to
exercise exclusive control over any portions of the Common Areas for the mutual
benefit of the tenants in the Development, Landlord may do so subject to
reasonable, non-discriminatory additional rules and regulations.

               20.  Tenant's requirements will be attended to only upon
appropriate application to Landlord's asset management office for the
Development by an authorized individual of Tenant. Employees of Landlord will
not perform any work or do anything outside of their regular duties unless under
special instructions from Landlord, and no employee of Landlord will admit any
person (Tenant or otherwise) to any office without specific instructions from
Landlord.

               21.  These Rules and Regulations are in addition to, and will not
be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Landlord may waive any one or
more of these Rules and Regulations for the benefit of Tenant or any other
tenant, but no such waiver by Landlord will be construed as a waiver of such
Rules and Regulations in favor of Tenant or any other tenant, nor prevent
Landlord from thereafter enforcing any such Rules and Regulations against any or
all of the tenants of the Development.

               22.  Landlord reserves the right to make such other and
reasonable and non-discriminatory Rules and Regulations as, in its judgment, may
from time to time be needed for safety and security, for care and cleanliness of
the Development and for the preservation of good order therein. Tenant agrees to
abide by all such Rules and Regulations herein above stated and any additional
reasonable and non-discriminatory rules and regulations which are adopted.
Tenant is responsible for the observance of all of the foregoing rules by
Tenant's employees, agents, clients, customers, invitees and guests.

          B.   Parking Rules and Regulations. The following rules and
               -----------------------------
regulations govern the use of the parking facilities which serve the Building.
Tenant will be bound by such rules and regulations and agrees to cause its
employees, subtenants, assignees, contractors, suppliers, customers and invitees
to observe the same:

               1.   Tenant will not permit or allow any vehicles that belong to
or are controlled by Tenant or Tenant's employees, subtenants, customers or
invitees to be loaded, unloaded or parked in areas other than those designated
by Landlord for such activities. No vehicles are to be parked in the parking
areas other than normally sized passenger automobiles, motorcycles and pick-up
trucks. No extended term storage of vehicles is permitted.

               2.   Vehicles must be parked entirely within painted stall lines
of a single parking stall.

               3.   All directional signs and arrows must be observed.

               4.   The speed limit within all parking areas shall be five (5)
miles per hour.

               5.   Parking is prohibited:

                    (a)  in areas not striped for parking;

                    (b)  in aisles or on ramps;

                    (c)  where "no parking" signs are posted;

                                   EXHIBIT G
                                   ---------
                                      -3-
<PAGE>

                    (d)  in cross-hatched areas; and

                    (e)  in such other areas as may be designated from time to
time by Landlord or Landlord's parking operator.

               6.   Landlord reserves the right, without cost or liability to
Landlord, to tow any vehicle if such vehicle's audio theft alarm system remains
engaged for an unreasonable period of time.

               7.   Washing, waxing, cleaning or servicing of any vehicle in any
area not specifically reserved for such purpose is prohibited.

               8.   Landlord may refuse to permit any person to park in the
parking facilities who violates these rules with unreasonable frequency, and any
violation of these rules shall subject the violator's car to removal, at such
car owner's expense. Tenant agrees to use its best efforts to acquaint its
employees, subtenants, assignees, contractors, suppliers, customers and invitees
with these parking provisions, rules and regulations.

               9.   All damage or loss to vehicles claimed to be the
responsibility of Landlord must be reported, itemized in writing and delivered
to the management office located within the Development within ten (10) business
days after any claimed damage or loss occurs. Any claim not so made is waived.
Landlord is not responsible for damage by water or fire, or for the acts or
omissions of others, or for articles left in vehicles. In any event, the total
liability of Landlord, if any, is limited to Two Hundred Fifty Dollars ($250.00)
for all damages or loss to any car. Landlord is not responsible for loss of use.

               10.  The parking operators, managers or attendants are not
authorized to make or allow any exceptions to these rules and regulations,
without the express written consent of Landlord. Any exceptions to these rules
and regulations made by the parking operators, managers or attendants without
the express written consent of Landlord will not be deemed to have been approved
by Landlord.

               11.  Landlord reserves the right, without cost or liability to
Landlord, to tow any vehicles which are used or parked in violation of these
rules and regulations.

               12.  Landlord reserves the right from time to time to modify
and/or adopt such other reasonable and non-discriminatory rules and regulations
for the parking facilities as it deems reasonably necessary for the operation of
the parking facilities.


             _______________________                 _____________________
               Landlord's Initials                     Tenant's Initials

                                   EXHIBIT G
                                   ---------
                                      -4-
<PAGE>

                          RIGHT OF FIRST OFFER RIDER
                          --------------------------

          This RIGHT OF FIRST OFFER RIDER ("Rider") is made and entered into by
and between DIVERSIFIED EASTGATE VENTURE, an Illinois general partnership
("Landlord"), and ILLUMINA, INC., a Delaware corporation ("Tenant"), and is
dated as of the Effective Date of the Lease ("Lease") by and between Landlord
and Tenant to which this Rider is attached.  The agreements set forth in this
Rider shall have the same force and effect as if set forth in the Lease.  To the
extent the terms of this Rider are inconsistent with the terms of the Lease, the
terms of this Rider shall control.  Defined terms not otherwise defined herein
shall have the meaning ascribed to them in the Lease.

          1.   Right of First Offer.  Landlord hereby grants to the Tenant named
               --------------------
in the Summary a right of first offer to lease all of the Rentable Area of
Building C depicted on the Site Plan, which Building has not yet been
constructed by Landlord, but is intended to be a three story building consisting
of approximately 81,000 square feet of Rentable Area.  The First Offer Right is
only a right of first offer to lease the entirety of Building C as a three story
building of approximately 81,000 square feet, and is not intended to be a right
of first offer to lease a portion of Building C, or a right of first offer to
lease Building C as a one or two story building (the "First Offer Right").
Notwithstanding the foregoing, such First Offer Right shall commence only upon
the Effective Date of the Lease, and shall automatically expire on January 1,
2001 (the "First Offer Period").  Tenant's right of first offer shall be on the
terms and conditions set forth in this Rider.  Notwithstanding anything in the
Lease or in this Rider to the contrary, Landlord shall not commence construction
of Building C, or enter into a lease or other agreement for the transfer of all
or any portion of Building C, prior to the expiration of the First Offer Period,
unless Tenant has either relinquished its First Offer Right, or has otherwise
approved the commencement of construction or lease or other transfer of all or
any portion of Building C.  Also notwithstanding anything in the Lease or herein
to the contrary, Landlord shall be entitled to market Building C to other
prospective tenants pending Tenant's exercise of its First Offer Right.  Upon
the expiration of the First Offer Period, Landlord shall be entitled to commence
construction on Building C and construct a building of any size or configuration
within the Development, as may be permitted by Applicable Laws.

               1.1  Procedure for Exercise of Right of First Offer. Tenant may
                    ----------------------------------------------
notify Landlord (the "First Offer Notice") of its desire to lease Building C
during the First Offer Period (the "First Offer Election Notice"). The First
Offer Election Notice shall set forth the "First Offer Rent," as that term is
defined in Section 1.3 below, and the other economic terms upon which Tenant is
willing to lease such space from Landlord.

               1.2  Procedure for Exercise of Right of First Offer. If Landlord
                    ----------------------------------------------
wishes to accept Tenant's offer to lease Building C pursuant to the terms of the
First Offer Election Notice, then within ten (10) business days of delivery of
the First Offer Election Notice to Landlord, Landlord shall deliver notice to
Tenant of Landlord's acceptance of Tenant's election on the terms contained in
such First Offer Election Notice, together with any modifications required by
Landlord.  If Landlord accepts Tenant's offer to lease as described in the First
Offer Election Notice without any modifications, such acceptance shall be
binding upon Tenant and Landlord.  In the event Landlord does modify the terms
and provisions of Tenant's First Offer Election Notice, then Landlord and Tenant
shall negotiate in good faith the terms and provisions of any such Lease within
fourteen (14) days from the expiration of the First Offer Period.   If Tenant
does not so notify Landlord within the First Offer Period, or if Landlord and
Tenant are unable to agree upon the terms of the lease for Building C during the
First Offer Period, then Landlord shall be free to lease Building C to anyone to
whom Landlord desires on any terms Landlord desires.  Notwithstanding anything
to the contrary contained herein, Tenant must elect to exercise its First Offer
Right, if at all, with respect to all of Building C, and Tenant may not elect to
lease only a portion thereof.

               1.3  Construction of Building C. Upon the exercise of Tenant's
                    --------------------------
First Offer Right and acceptance thereof by Landlord, Landlord shall commence to
have prepared the plans and specifications for the

                                      -1-
<PAGE>

construction of Building C, which shall be constructed in substantially the
location depicted on the Site Plan. The design of Building C shall be as
determined by Landlord during the First Offer Period. Upon Landlord's creation
of plans and specifications and elevations regarding Building C, Landlord shall
provide the same to Tenant. Upon the issuance by all applicable governmental
authorities of the appropriate permits and approvals for the construction of
Building C, Landlord shall undertake the construction thereof and shall diligent
prosecute the same to completion, using its good faith and reasonable efforts to
have the same completed as soon as commercially practicable.

               1.4  Amendment to Lease. If Tenant timely exercises Tenant's
                    ------------------
First Offer Right and Landlord accepts such offer, Landlord and Tenant shall
within fifteen (15) days thereafter execute an amendment to the Lease, including
Building C within the definition of the Premises, and setting forth any terms
that are unique to Building C.

               IN WITNESS WHEREOF, Landlord and Tenant have executed this Right
of First Offer Rider as of the Effective Date.

<TABLE>
<CAPTION>
TENANT:                                             LANDLORD:
<S>                                                 <C>
ILLUMINA, INC.,                                     DIVERSIFIED EASTGATE VENTURE,
a Delaware corporation                              an Illinois general partnership

                                                    By: Diversified Eastgate Pointe, LLC,
By:    ____________________________________             a California limited liability company,
Name:  Jay Flatley                                      Its General Partner
Title: President & CEO

                                                        By: ____________________________________
By:    ____________________________________                 Its:  Manager
Name:  John R. Stuelpnagel
Title: Vice President, Business Development
                                                    By: GFBP Partners, LLC,
                                                        a California limited liability company,
                                                        Its General Partner

                                                        By: ____________________________________
                                                            Its:  Manager
</TABLE>

                                      -2-
<PAGE>

                     OPTION TO PURCHASE DEVELOPMENT RIDER
                     ------------------------------------

                                      -1-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>OPTION AGREEMENT AND JOINT ESCROW
<TEXT>

<PAGE>

                                                                EXHIBIT 10.12

                               OPTION AGREEMENT
                               ----------------

                         AND JOINT ESCROW INSTRUCTIONS
                         -----------------------------





               SELLER:  DIVERSIFIED EASTGATE VENTURE,
                        an Illinois general partnership


               BUYER:   ILLUMINA, INC.,
                        a Delaware corporation
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
ARTICLE 1  OPTION AGREEMENT.................................................  1

   1.1     Description of Property..........................................  1
   1.2     Grant of Option..................................................  1
   1.3     Option Consideration.............................................  1
   1.4     Term of Option...................................................  2
   1.5     Exercise of Option...............................................  2
   1.6     Expiration of Option.............................................  2
   1.7     Memorandum of Option.............................................  2
   1.8     Termination of Option............................................  2
   1.9     Repayment of Option Deposit......................................  2
   1.10    No Exercise of Option............................................  3

ARTICLE 2  PURCHASE PRICE...................................................  3

   2.1     Purchase Price...................................................  3

ARTICLE 3  ESCROW...........................................................  4

   3.1     Escrow Agent.....................................................  4
   3.2     Opening of Escrow................................................  4
   3.3     Escrow Instructions..............................................  4
   3.4     Close of Escrow..................................................  4
   3.5     Deliveries to Escrow.............................................  5
   3.6     Completion of Documents..........................................  5
   3.7     Prorations, Escrow Fees and Costs................................  5
   3.8     Existing Encumbrances............................................  5
   3.9     Distribution of Funds and Documents..............................  5

ARTICLE 4  TITLE MATTERS....................................................  6

   4.1     Preliminary Title Report.........................................  6
   4.2     Title Insurance..................................................  7
   4.3     Seller's Lease of Building "D" from Buyer........................  7

ARTICLE 5  CONDITIONS TO CLOSE OF ESCROW....................................  7

   5.1     Buyer's Conditions to Close of Escrow............................  7
   5.2     Seller's Conditions to Close of Escrow...........................  8

ARTICLE 6  REPRESENTATIONS AND WARRANTIES...................................  8

   6.1     Buyer's Representations and Warranties...........................  8
   6.2     Seller's Representations and Warranties..........................  8
   6.3     Real Estate Commissions..........................................  8
   6.4     Survival of Warranties...........................................  9

ARTICLE 7  ADDITIONAL OBLIGATIONS...........................................  9

   7.1     Condemnation.....................................................  9
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<S>                                                                          <C>
   7.2     Possession.......................................................  9

ARTICLE 8  GENERAL PROVISIONS...............................................  9

   8.1     Assignment.......................................................  9
   8.2     Attorneys' Fees..................................................  9
   8.3     Counterparts.....................................................  9
   8.4     Entire Agreement.................................................  9
   8.5     Exhibits......................................................... 10
   8.6     Further Assurances............................................... 10
   8.7     Governing Law.................................................... 10
   8.8     Headings......................................................... 10
   8.9     Interpretation................................................... 10
   8.10    Modification, Waiver............................................. 10
   8.11    No Other Inducement.............................................. 10
   8.12    Notices.......................................................... 10
   8.13    Severability..................................................... 11
   8.14    LIQUIDATED DAMAGES............................................... 11
   8.15    WAIVER OF RIGHT TO RECORD LIS PENDENS............................ 12
   8.16    Successors....................................................... 12
   8.17    Time............................................................. 12
   8.18    Time Period Computation.......................................... 12
   8.19    Waiver........................................................... 12
   8.20    Building "D" Lease............................................... 12
   8.21    Mutual Cooperation............................................... 13
</TABLE>


EXHIBIT LIST
------------

"A"   LEGAL DESCRIPTION OF PROPERTY
"A-1" THE SITE PLAN
"B"   INTENTIONALLY OMITTED
"C"   MEMORANDUM OF OPTION
"D"   CONSENT OF ESCROW AGENT
"E"   LIST OF DEVELOPMENT COSTS
"F"   EXISTING PERMITTED EXCEPTIONS
"G"   BUILDING "D" LEASE
"H"   MEMORANDUM OF BUILDING "D" LEASE
"I"   OPTION DEPOSIT DEED OF TRUST
"J"   FORM OF REPAYMENT PROMISSORY NOTE

                                     -ii-
<PAGE>

                               OPTION AGREEMENT
                               ----------------

                         AND JOINT ESCROW INSTRUCTIONS
                         -----------------------------

     This OPTION AGREEMENT AND JOINT ESCROW INSTRUCTIONS ("Agreement"),
effective as of July 6th, 2000 (the "Effective Date"), by and between
DIVERSIFIED EASTGATE VENTURE, an Illinois general partnership ("Seller"), on the
one hand, and ILLUMINA, INC., a Delaware corporation ("Buyer"), on the other
hand, constitutes (1) an option agreement, and, if the option is exercised, (2)
a purchase and sale agreement, and (3) joint escrow instructions to the Escrow
Agent identified herein.

                                   ARTICLE 1
                               OPTION AGREEMENT
                               ----------------

     1.1  Description of Property. Seller owns certain real property
          -----------------------
("Property") located in the County of San Diego, State of California, and more
particularly described on Exhibit "A" attached hereto.
                          -----------

     1.2  Grant of Option. Execution of this Agreement by both parties creates a
          ---------------
binding agreement whereby Seller grants Buyer an option ("Option") to purchase
the Property from Seller on the terms and conditions stated herein.

     1.3  Option Consideration. As partial consideration for the granting of the
          --------------------
Option described herein, Buyer has concurrently entered into that certain lease
by and between Seller, as Landlord, and Buyer, as Tenant for two buildings,
Building "A" and Building "B", which are to be constructed on the Property, all
as provided in the lease (the "Building "A" and "B" Lease" or the "Lease"). As
additional consideration for the granting of the Option described herein, and
upon the satisfaction of the Loan Commitment Condition described in Section 2(e)
of the Building "A" and "B" Lease, Buyer shall deposit the sum of Six Million
Two Hundred Thousand Dollars ($6,200,000) (the "Option Deposit") with Escrow
Agent, within three (3) business days of written notice from Seller that the
loan contemplated by the Loan Commitment is to fund. The Option Deposit,
together with interest calculated thereon at the rate of nine percent (9%) per
annum (calculated from the date of such deposit until either (a) the Closing
Date, or (b) the Repayment Date, as such terms are defined herein), shall be
applied to the Purchase Price in the event Buyer exercises the Option pursuant
to Section 1.5 herein. In the event Buyer does not exercise the Option as
provided herein, then and in such event, the amount of the Option Deposit plus
interest thereon shall be repaid to Buyer on the later to occur of (i) three
hundred sixty-four (364) days from the date the Option Deposit is provided to
Seller, or (ii) one hundred five (105) days after the occurrence of both lease
commencement and occupancy of the Premises under the Building "A" and "B" Lease
(the later of (i) and (ii) to be the "Repayment Date"). In the event Buyer does
exercise the Option as provided herein, but thereafter defaults in its
obligations to acquire the subject Property, then the amount of the Option
Deposit plus interest thereon shall be repaid to Buyer upon the later to occur
of (A) nine (9) months after the date of such default or (B) one hundred five
(105) days after the occurrence of both Lease commencement and the occupancy of
the Premises under the Building "A" and "B" Lease. The obligation of Seller to
repay to Buyer the amount of the Option Deposit, together with interest thereon,
shall be
<PAGE>

manifested by a promissory note, a form of which shall be agreed upon by Buyer
and Seller and attached hereto as Exhibit "J" (the "Repayment Promissory Note")
                                  -----------
no later than the date of the satisfaction of Loan Commitment Condition, which
Repayment Promissory Note shall be executed by Seller concurrent with the
delivery of the Option Deposit by Buyer. The Repayment Promissory Note shall be
secured by that certain Option Deposit Deed of Trust, defined and described in
Section 1.9 hereof.

     1.4  Term of Option. The term of the Option ("Option Term") shall commence
          --------------
on the date of this Agreement and shall expire at 5:00 p.m. on December 1, 2000.

     1.5  Exercise of Option. Buyer may exercise the Option, at any time during
          ------------------
the Option Term, by delivering directly to Seller (with a copy to Escrow Agent)
written notice of exercise of the Option together with a cashier's check, or
other good funds, payable to Seller in the amount of Two Million Three Hundred
Thousand Dollars ($2,300,000) (the "Exercise Deposit"). Exercise of the Option
shall create a binding purchase and sale agreement whereby Seller agrees to sell
and Buyer agrees to buy the Property, on the terms and conditions stated in this
Agreement.

     1.6  Expiration of Option. If Buyer fails to timely exercise the Option as
          --------------------
provided hereunder, the option granted hereunder shall automatically, without
any further action of Buyer or Seller hereunder, expire and be of no further
force and effect.

     1.7  Memorandum of Option. Concurrently with execution of this Agreement,
          --------------------
the parties shall execute and acknowledge, in recordable form, a Memorandum of
Option in the form attached hereto as Exhibit "C". Buyer shall cause the
                                      -----------
Memorandum to be recorded promptly thereafter, at Buyer's expense.

     1.8  Termination of Option.
          ---------------------

          (a)  By Buyer. Buyer may terminate this Agreement and the Option at
               --------
any time by delivering written notice thereof to Seller.

          (b)  By Seller. Seller may terminate this Agreement and the Option if
               ---------
Buyer is in default in its obligations to post the Security Deposit under the
Lease, or, once Buyer exercises the option as provided herein, if Buyer is in
default hereunder, provided that Seller has first delivered written notice of
default to Buyer and has provided Buyer with an opportunity to cure such default
for a period of three (3) business days, in the case of any monetary default,
and five (5) business days, in the case of any non-monetary default.

          (c)  Effect of Termination. If this Agreement is terminated as
               ---------------------
permitted herein, or if Buyer fails to exercise the Option prior to expiration
of the Option Term, neither party shall have any further rights or obligations
hereunder, except as specifically set forth herein.

     1.9  Repayment of Option Deposit. In the event this Agreement is terminated
          ---------------------------
as provided in Section 1.8(c), then and in such event Seller's obligations to
repay to Buyer the amount of the Option Deposit on or before the Repayment Date
as provided in Section 1.3 above, is secured by that certain Deed of Trust, a
copy of which shall be agreed upon by Buyer

                                      -2-
<PAGE>

and Seller and attached hereto as Exhibit "I" no later than the date of the
                                  -----------
satisfaction of the Loan Commitment Condition (the "Option Deposit Deed of
Trust"). The Option Deposit Deed of Trust shall be executed by Buyer and Seller
concurrent with the delivery of the Option Deposit by Buyer and deposited with
Escrow Agent, together with instructions which authorize Escrow Agent to record
the Option Deposit Deed of Trust against the subject Property upon the funding
of the construction loan that is the subject of the Loan Commitment, which
recordation shall occur immediately after and be subordinate to the recordation
of such construction lender's first deed of trust. Buyer shall execute such
commercially reasonable subordination agreement as may be required by the
construction lender with regard to the subordination of the Option Deposit Deed
of Trust and any reasonable required changes to the Option Deposit Deed of Trust
that are required by the construction lender.

     1.10 No Exercise of Option. In the event Buyer elects not to exercise the
          ---------------------
option hereunder and, by written notice to Seller tendered to Seller within five
(5) days of the expiration or termination of such option, notifies Seller of its
desire to negotiate with Seller with regard to an equity interest in Seller,
Buyer shall have the first right to negotiate an equity relationship with Seller
with regard to the ongoing ownership of the Project, which equity relationship
would include (i) a fifty percent (50%) membership interest in Seller, (ii) a
nine percent (9%) preferred return on Buyer's capital investment, (iii) that
Buyer would be a nonmanaging member of Seller, and (iv) that Buyer would be
required to contribute some additional capital with regard to the construction
of the remainder of the Project. Notwithstanding the terms and provisions of the
foregoing sentence, in no event shall Seller be obligated to agree with Buyer as
to any such equity interest in Seller.

                                   ARTICLE 2
                                PURCHASE PRICE
                                --------------

     2.1  Purchase Price. The total Purchase Price which Buyer agrees to pay and
          --------------
Seller agrees to accept for the Property is the sum of (a) Five Million Seven
Hundred Fifty Thousand Dollars ($5,750,000) the ("Principle Cash
Consideration"), plus (b) in the event Building "D" is not constructed by
Seller, Eight Hundred Twenty-Five Thousand Dollars ($825,000), (which sum is
equal to sixty percent (60%) of the Building "D" Allowance Amount on Exhibit "E"
                                                                     -----------
(the "Building "D" Cash Consideration"), plus (c) the product of nine percent
(9%) per annum multiplied by the amount of Three Million Four Hundred Fifty
Thousand Dollars ($3,450,000) (the "Interest Cash Consideration") which Interest
Cash Consideration shall be calculated for the period of time between December
1, 2000 and the actual Closing Date, plus (d) the amount of all of the costs
incurred by Seller with regard to the Property, including, but not limited to
those associated with the acquisition and entitlement of the Property and the
construction of the improvements thereon, as the same are outlined on Exhibit
                                                                      -------
"E", the aggregate amount of which have been approved by Buyer, which Exhibit
---                                                                   -------
"E" is attached hereto and is incorporated herein by this reference (the
---
"Development Costs"). In the event Building "D" is not constructed by Seller and
the Building "D" Cash Consideration is paid to Seller as a portion of the
Purchase Price, then and in such event the parties acknowledge that the amount
of the Development Costs shall be reduced by the sum of One Million Three
Hundred Seventy-Five Thousand Dollars ($1,375,000). Buyer and Seller acknowledge
that the specific components of Exhibit "E" may change during the course of
                                -----------
construction of the improvements to the subject Property and, while the
aggregate amount of the Development Costs may not change without Buyer's
approval, the

                                      -3-
<PAGE>

line items of the proposed budget which comprise the aggregate amount of the
Development Costs depicted on Exhibit "E" may be modified by Seller without
                              -----------
Buyer's approval. Seller may, at its election, periodically provide updates of
Exhibit "E" to Buyer reflecting any such modifications to the line items of the
-----------
Development Costs components.

     The Principle Cash Consideration, the Interest Cash Consideration, the
Building "D" Cash Consideration, if any, and the Development Costs are
collectively referred to herein as the "Purchase Price". The Purchase Price
shall be payable through Escrow as follows:

          (a)  Subject to the terms and provisions of this Agreement, provided
Buyer does not default hereunder and the Closing occurs as contemplated hereby,
the Option Deposit and the Exercise Deposit shall be credited against the
Purchase Price.

          (b)  The Cash Consideration and the Development Costs shall be
delivered by Buyer to Escrow Agent in cash, prior to the date scheduled for
Close of Escrow.

          (c)  Any portion of the Building "D" Cash Consideration that has not
been incurred as of the Closing Date shall be disbursed as provided in Paragraph
33 of the Building "D" Lease, as such term is defined below.

                                   ARTICLE 3
                                    ESCROW
                                    ------

     3.1  Escrow Agent. Chicago Title Insurance Company, ATTN: Shelva Molm, 925
          ------------
B Street, San Diego, California 92101 ("Escrow Agent") is designated, authorized
and instructed to act as Escrow Agent pursuant to the terms of this Agreement.

     3.2  Opening of Escrow. The "Opening of Escrow" shall be deemed to have
          -----------------
occurred the date Buyer delivers a fully executed copy of this Agreement to
Escrow Agent together with the Deposit and Escrow Agent acknowledges the same.
Escrow Agent shall acknowledge the date of Opening of Escrow and its agreement
to act as the Escrow Agent hereunder by: (a) executing the Consent of Escrow
Agent attached hereto as Exhibit "D"; and (b) promptly delivering a copy of the
                         -----------
executed Consent to Seller and Buyer.

     3.3  Escrow Instructions. This Agreement shall constitute initial escrow
          -------------------
instructions to Escrow Agent. The parties shall execute a copy of Escrow Agent's
general conditions after Opening of Escrow and any additional escrow
instructions reasonably required by Escrow Agent or either party to consummate
the transaction provided for herein; provided, however, such additional escrow
instructions shall not modify or otherwise be inconsistent with the provisions
of this Agreement.

     3.4  Close of Escrow. "Close of Escrow" or "Closing" means the date Escrow
          ---------------
Agent records the Grant Deed to the Property in favor of Buyer and delivers the
Purchase Price (less applicable charges and adjustments) to Seller. Escrow shall
close on the date that is the earlier to occur of (i) thirty (30) days after the
Commencement Date and occupancy of the Premises under the Lease by Buyer as
Tenant thereunder, or (ii) August 1, 2001 ("Closing Date").

                                      -4-
<PAGE>

     3.5  Deliveries to Escrow. Each party shall timely deliver to Escrow, no
          --------------------
later than one (1) business day prior to Closing the funds and documents
required to complete the Closing (including without limitation the Grant Deed
and the Purchase Price).

     3.6  Completion of Documents. Escrow Agent is authorized to complete the
          -----------------------
documents deposited into Escrow, when appropriate and consistent with this
Agreement.

     3.7  Prorations, Escrow Fees and Costs.
          ---------------------------------

          (a)  Prorations. The following items shall be prorated in Escrow, as
               ----------
of the date of Close of Escrow, based on the latest information available to
Escrow Agent: real property taxes and any bonds and assessments which are
Permitted Exceptions as described in Section 4.2. All prorations shall be made
on the basis of a 30-day month and a 365-day year, unless the parties otherwise
agree in writing.

          (b)  Seller's Payments. Seller will pay: (1) the County Documentary
               -----------------
Transfer Tax, in the amount Escrow Agent determines to be required by law; (2)
the cost of the Title Policy described in Section 4.2 equal to the cost of a
standard C.L.T.A. Owner's Policy; (3) one-half (1/2) of Escrow Agent's escrow
fee or escrow termination charge; and (4) one-half (1/2) of all recording fees
and charges and other charges and expenses, in accordance with the customary
practices of Escrow Agent.

          (c)  Buyer's Payment. Buyer shall pay the cost of the Title Policy
               ---------------
described in Section 4.2 equal to the cost of any endorsements or extensions in
coverage to the C.L.T.A. Title Policy and one-half (1/2) of all escrow and
recording fees and charges.

     3.8  Existing Encumbrances. Escrow Agent is authorized to secure
          ---------------------
beneficiary demands and requests for reconveyance for those monetary liens which
are not Permitted Exceptions pursuant to Section 4.2. Buyer has the right to
approve all demands and statements described in this Section, and which are
Permitted Exemptions.

     3.9  Distribution of Funds and Documents. At the Close of Escrow, Escrow
          -----------------------------------
Agent shall do each of the following:

          (a)  Payment of Encumbrances. Pay the amount of those monetary liens
               -----------------------
which are not Permitted Exceptions to the obligees thereof, in accordance with
the demands approved by Buyer, utilizing funds deposited in Escrow by Buyer.

          (b)  Recordation of Documents. Submit to the County Recorder of San
               ------------------------
Diego County the Grant Deed for the Property, and each other document to be
recorded under the terms of this Agreement or by general usage, and, after
recordation, cause the County Recorder to mail the Grant Deed to Buyer, and each
other such document to the grantee, beneficiary or person acquiring rights
thereunder or for whose benefit said document was recorded.

          (c)  Non-Recorded Documents. Deliver by United States mail (or hold
               ----------------------
for personal pickup, if requested): (1) the Title Policy to Buyer; and (2) each
other non-recorded document received hereunder to the payee or person acquiring
rights thereunder or for whose benefit said document was acquired.

                                      -5-
<PAGE>

          (d)  Distribution of Funds. Deliver by United States mail (or as
               ---------------------
otherwise instructed by the receiving party): (1) to Seller, or order, the cash
portion of the Purchase Price, adjusted for other credits and debits provided
for herein; and (2) to Buyer, or order, any excess funds delivered to Escrow
Agent by Buyer.

                                   ARTICLE 4
                                 TITLE MATTERS
                                 -------------

     4.1  Preliminary Title Report.
          ------------------------

          (a)  Delivery to Buyer. As soon as possible after the Opening of
               -----------------
Escrow, Escrow Agent shall provide to Buyer, at Buyer's expense, a preliminary
title report ("PR") issued by Chicago Title Insurance Company ("Title Insurer")
reflecting the status of title to the Property, and legible copies of all
recorded documents referred to as exceptions therein. The PR will be deemed
received by Buyer on the date of personal delivery or three (3) days after
mailing by Escrow Agent.

          (b)  Time to Object. Buyer shall have until five (5) business days
               --------------
after receipt of the matters set forth in Section 4.1(a), and until three (3)
business days after receipt of such matters with respect to any supplement to
the PR containing exceptions not set forth in the original PR, to notify Seller
and Escrow Agent, in writing, of its objection to any such matters.

          (c)  Time to Eliminate Exceptions. If Buyer objects in writing to one
               ----------------------------
or more exceptions indicated in the PR, Buyer may negotiate with the Title
Company to eliminate by enforcement, bond or other matter such exception(s) in a
manner reasonably satisfactory to Buyer by the Closing Date. If Buyer cannot
cure any such exception on or before the date that is the later to occur of (i)
twelve (12) business days after the receipt of the PR referenced in Section
4.1(a) above, or (ii) three (3) business days after the receipt of a supplement
to the PR containing exceptions not set forth in the original PR, but in no
event later than September 25, 2000, Buyer shall have the right to terminate
this Agreement. Seller shall reasonably cooperate with Buyer regarding the
elimination of such exceptions, so long as Seller does not incur any additional
expense or liability on account thereof.

          (d)  Existing Permitted Exceptions. Notwithstanding anything in this
               -----------------------------
Agreement to the contrary, the exceptions listed on the attached Exhibit "F"
                                                                 -----------
constitute existing permitted exceptions ("Existing Permitted Exceptions")
which, by execution of this Agreement, Buyer acknowledges and agrees encumber
the Property as of the Closing Date and, to the extent the Title Policy lists
the Existing Permitted Exceptions as exceptions to the policy of title insurance
to be issued to Buyer in conjunction with the consummation of the transaction
that is contemplated hereby, Buyer shall have no right to object to such
exceptions nor shall Buyer have a right to otherwise delay the Closing regarding
such Existing Permitted Exceptions. It is the intent of the parties that, as of
the execution of this Agreement, Buyer is aware of the presence of the Existing
Permitted Exceptions and has entered into this Agreement understanding and
agreeing that it shall take title subject to such Existing Permitted Exceptions.

          (e)  Right to Cancel or Perform. If Buyer cannot or elects not to cure
               --------------------------
each exception to which Buyer has objected, Buyer may elect, at any time during
the Option Term:

                                      -6-
<PAGE>

(1) to waive its objections, exercise the Option, and accept title subject to
such exceptions or (2) terminate this Agreement.

     4.2  Title Insurance. The Title Insurer shall issue, or be committed to
          ---------------
issue, as of the Closing Date, a standard form C.L.T.A. Title Insurance Policy
("Title Policy") insuring Buyer's title to the Property in the amount of the
Purchase Price, subject only to the following permitted exceptions ("Permitted
Exceptions"): (a) current, non-delinquent real estate taxes; (b) the lien of
supplemental taxes, if any, assessed pursuant to Chapter 3.5 of the California
Revenue and Taxation Code; (c) the Existing Permitted Exceptions attached hereto
as Exhibit "F"; (d) the matters set forth in the PR and approved by Buyer
   -----------
pursuant to Section 4.1; (e) any other matters approved in writing by Buyer; and
(f) matters excepted or excluded from coverage by the printed terms of the Title
Policy's standard form. The cost of the premium for such Title Policy shall be
paid as described in Section 3.7. Buyer may require the Title Insurer to issue
an A.L.T.A. policy, so long as Buyer bears the expense of any required survey
and any other expense associated therewith.

     4.3  Seller's Lease of Building "D" from Buyer. Seller hereby reserves from
          -----------------------------------------
the grant to Buyer of the Option, the right to lease all of the rentable square
feet of the Building which is to be constructed on the Property and is depicted
as Building "D" on the Site Plan attached hereto as Exhibit "A-1" (the "Site
                                                    -------------
Plan"). Buyer and Seller have agreed that Seller may lease that portion of
Building "D" which is not designated as common area or recreational facilities
and may do so pursuant to the terms and provisions of the Lease attached hereto
Exhibit "G" (the "Building "D" Lease") which has been executed by Buyer, as
-----------
Landlord, and Seller, as Tenant. The Building "D" Lease provides for a fifty
(50) year Lease Term at One Dollar ($1.00) per year plus utilities. The Building
"D" Lease has been executed concurrent herewith and has, as a condition
precedent, the closing of the acquisition of the Property by Buyer as provided
herein. A memorandum of the Building "D" Lease ("Memorandum of Lease") has been
attached hereto as Exhibit "H", has been approved by Buyer and Seller, and shall
                   -----------
be recorded against the Property concurrently with the recordation of the
Memorandum of Option.

                                   ARTICLE 5
                         CONDITIONS TO CLOSE OF ESCROW
                         -----------------------------

     5.1  Buyer's Conditions to Close of Escrow.
          -------------------------------------

          (a)  Close of Escrow shall be subject to satisfaction or waiver of
each of the following conditions precedent for the benefit of Buyer:

               (1)  The Title Insurer shall issue the Title Policy described in
Section 4.2, subject to only the Permitted Exceptions;

               (2)  The representations and warranties of Seller set forth in
this Agreement shall be true and correct as of the Close of Escrow; and

               (3)  Seller shall not be in material default hereunder.

          (b)  Waiver of Conditions. Buyer may unilaterally waive, in writing,
               --------------------
any of the conditions described in Section 5.1(a)(1), (2) and (3).

                                      -7-
<PAGE>

          (c)  Termination of Escrow By Buyer. If any of the foregoing
               ------------------------------
conditions is neither satisfied nor waived, Buyer may terminate this Agreement
and the Escrow by giving written notice of termination to Seller and Escrow
Agent. In the event of a proper termination by Buyer, Buyer shall be relieved of
any obligation to purchase the Property and the Deposit shall be returned to
Buyer.

     5.2  Seller's Conditions to Close of Escrow.
          --------------------------------------

          (a)  Conditions. Seller's obligation to sell the Property to Buyer
               ----------
under the terms of this Agreement is subject to satisfaction or waiver of the
following condition precedent for the benefit of Seller:

               (1)  Buyer shall not be in material default under this Agreement;

               (2)  The Building "D" Lease has been executed and delivered by
both of the parties thereto, and Buyer as Landlord is not in default thereunder.

          (b)  Termination of Escrow by Seller. If the foregoing conditions are
neither satisfied nor waived by Seller on or before the scheduled Closing Date,
as the same may be extended, Seller may terminate this Agreement and the Escrow
by giving written notice to Buyer and Escrow Agent. In the event of the
foregoing, Seller shall be entitled to retain the Deposit.

                                   ARTICLE 6
                        REPRESENTATIONS AND WARRANTIES
                        ------------------------------

     6.1  Buyer's Representations and Warranties. Buyer agrees, represents and
          --------------------------------------
warrants, as of the date of execution of this Agreement and as of Close of
Escrow, as follows:

          (a)  Authority. Buyer has full legal right, power and authority to
execute and fully perform its obligations under this Agreement and the other
documents required hereunder, without the need for any further action; and the
persons executing this Agreement and other documents required hereunder on
behalf of Buyer are the only persons required to execute such documents to
legally effect the transactions contemplated hereby and are fully authorized to
do so.

     6.2  Seller's Representations and Warranties.  Seller agrees, represents
          ---------------------------------------
and warrants as follows:

          (a)  Authority. Seller has full legal right, power and authority to
execute and fully perform its obligations under this Agreement, without the need
for any further action; and the person executing this Agreement and other
documents required hereunder on behalf of Seller are the only persons required
to execute such documents to legally effect the transactions contemplated hereby
and is fully authorized to do so.

     6.3  Real Estate Commissions. Each party hereby represents that, except as
          -----------------------
may be the subject of a separate agreement between Landlord and CB Richard
Ellis, Landlord's broker, it is unaware of any real estate commissions which are
or might become due in connection with the sale of the Property pursuant to this
Agreement. Each party agrees to indemnify, hold

                                      -8-
<PAGE>

harmless and defend the other party from and against any obligation or liability
to pay any such commission or compensation arising from the act or agreement of
the indemnifying party.

     6.4  Survival of Warranties. The representations and warranties given by
          ----------------------
Buyer and Seller in this Article 6, and any and all obligations under this
Agreement to be performed after Close of Escrow, shall survive the Close of
Escrow and delivery of the Grant Deed to Buyer.

                                   ARTICLE 7
                            ADDITIONAL OBLIGATIONS
                            ----------------------

     7.1  Condemnation. If, prior to the Closing Date, Seller receives actual
          ------------
notice that a condemnation or eminent domain action is filed against the
Property or any part thereof (or that a taking is pending or contemplated),
Seller shall promptly give notice thereof to Buyer. If such taking is of all or
greater than twenty-five percent (25%) of the Property, Buyer may elect, by
written notice delivered to Seller, within five (5) days after receipt of
Seller's notice, to terminate this Agreement and the Escrow. If Buyer does not
deliver written notice of termination within said 15-day period, or if a portion
of the Property is taken which is not greater than twenty-five percent (25%) of
the Property, then Buyer shall be deemed to have approved the condemnation. If
the property is taken by the condemning authority prior to the Closing Date,
such property shall be excluded from the Property conveyed and no portion of the
Purchase Price shall be computed with respect thereto. If the property is not
taken by the condemning authority prior to the Closing Date, then: (a) the
property to be condemned shall be conveyed with the Property; (b) no portion of
the Purchase Price shall be computed with respect thereto; and (c) Buyer shall
assign and deliver to Seller all Buyer's interest in the award for such taking.

     7.2  Possession. Possession of the Property shall be delivered by Seller to
          ----------
Buyer on the Closing Date upon recordation of the Grant Deed.

                                   ARTICLE 8
                              GENERAL PROVISIONS
                              ------------------

     8.1  Assignment. Buyer shall not have the right to assign any of its rights
          ----------
under this Agreement except to a Tenant Affiliate, as such term is defined in
Section 24(c) of the Lease, but only in the event the Lease is assigned to a
Tenant Affiliate pursuant to Section 24(c) of the Lease. Buyer's rights under
this Agreement may not be assigned separate and apart from the Lease.

     8.2  Attorneys' Fees. If either party commences legal proceedings for any
          ---------------
relief against the other party arising out of this Agreement, the losing party
shall pay the prevailing party's legal costs and expenses, including, but not
limited to, reasonable attorneys' fees as determined by the court.

     8.3  Counterparts. This Agreement may be executed in multiple copies, each
          ------------
of which shall be deemed an original, but all of which shall constitute one
Agreement after each party has signed such a counterpart.

     8.4  Entire Agreement. This Agreement together with all exhibits attached
          ----------------
hereto and other agreements expressly referred to herein, constitutes the entire
agreement between the

                                      -9-
<PAGE>

parties with respect to the subject matter contained herein. All prior or
contemporaneous agreements, understandings, representations, warranties and
statements, oral or written, are superseded.

     8.5  Exhibits.  All exhibits referred to herein are attached hereto and
          --------
incorporated herein by reference.

     8.6  Further Assurances. The parties agree to perform such further acts and
          ------------------
to execute and deliver such additional documents and instruments as may be
reasonably required in order to carry out the provisions of this Agreement and
the intentions of the parties.

     8.7  Governing Law. This Agreement shall be governed, interpreted,
          -------------
construed and enforced in accordance with the laws of the State of California.

     8.8  Headings. The captions and section headings used in this Agreement are
          --------
inserted for convenience of reference only and are not intended to define, limit
or affect the construction or interpretation of any term or provision hereof.

     8.9  Interpretation. The provisions of this document shall be interpreted
          --------------
in a reasonable manner to effect the purpose of the parties and this document.
This document has been negotiated at arm's length and between persons (or their
representatives) knowledgeable in the matters dealt with herein. Accordingly,
any rule of law or legal decision that would require interpretation of any
ambiguities contained herein against the party that has drafted it is not
applicable and is waived.

     8.10 Modification, Waiver. No modification, waiver, amendment or discharge
          --------------------
of this Agreement shall be valid unless the same is in writing and signed by
both parties.

     8.11 No Other Inducement. The making, execution and delivery of this
          -------------------
Agreement by the parties hereto has been induced by no representations,
statements warranties or agreements other than those expressed herein.

     8.12 Notices. Notice to either party shall be in writing and either
          -------
personally delivered or sent by certified mail, postage prepaid, return receipt
requested, addressed to the party to be notified at the address specified
herein. Any such notice shall be deemed received on the date of personal
delivery to the party (or such party's authorized representative) or three (3)
business days after deposit in the U.S. Mail, as the case may be.

                                     -10-
<PAGE>

Buyer's Address for Notice:             Seller's Address for Notice:
--------------------------              ---------------------------

Illumina, Inc.                          Mr. William P. Tschantz
9390 Towne Center Drive, Suite 200      Diversified Properties
San Diego, California  92121            1770 Gillespie Way, Suite 101
Attention: Chief Financial Officer      El Cajon, California  92020
Fax:                                    Fax:  (619) 449-7886
    --------------------------------
                                        and

                                        Dean E. Roeper, Esq.
                                        Teel, Palmer & Roeper, LLP
                                        8910 University Center Lane, Suite 630
                                        San Diego, California  92122
                                        Fax:  (858) 875-3909

Either party may change its address for notice by delivering written notice to
the other party as provided herein.

     8.13 Severability. If any term, provision, covenant or condition of this
          ------------
Agreement is held to be invalid, void or otherwise unenforceable, to any extent,
by any court of competent jurisdiction, the remainder of this Agreement shall
not be affected thereby, and each term, provision, covenant or condition of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.

     8.14 LIQUIDATED DAMAGES. IF BUYER DEFAULTS HEREUNDER, THEN SELLER
          ------------------
UNILATERALLY AND AT ITS OPTION MAY TERMINATE THIS AGREEMENT AND ESCROW BY GIVING
WRITTEN DEMAND TO BUYER AND ESCROW AGENT. THEREUPON, SELLER SHALL BE RELIEVED OF
ANY OBLIGATION TO SELL THE PROPERTY TO BUYER, SELLER SHALL BE ENTITLED TO
$2,300,000, THE AMOUNT OF THE EXERCISE DEPOSIT, TOGETHER WITH ANY INTEREST
PROVIDED FOR HEREIN, AS LIQUIDATED DAMAGES, ESCROW AGENT SHALL RETURN ALL
DOCUMENTS AND INSTRUMENTS TO THE PARTIES WHO DEPOSITED SAME, AND ALL TITLE AND
ESCROW CANCELLATION CHARGES SHALL BE CHARGED TO BUYER. IN ADDITION, IF ALL OR
ANY PORTION OF THE EXERCISE DEPOSIT REMAINS IN ESCROW AT THE TIME OF SUCH
DEFAULT BY BUYER, ESCROW AGENT IS IRREVOCABLY INSTRUCTED BY BUYER AND SELLER TO
DISBURSE TO SELLER THE DEPOSIT AND ALL INTEREST EARNED THEREON UPON DEMAND OF
SELLER ALONE AS LIQUIDATED DAMAGES FOR BUYER'S DEFAULT HEREUNDER, PURSUANT TO
CALIFORNIA CIVIL CODE SECTIONS 1671 AND 1677. IN THE EVENT OF A DEFAULT BY BUYER
AS AFORESAID, SELLER SHALL HAVE NO RIGHT TO SEEK OR OBTAIN SPECIFIC ENFORCEMENT
OF THIS AGREEMENT.

     BUYER AND SELLER AGREE THAT IT WOULD BE EXTREMELY IMPRACTICAL AND
DIFFICULT TO ESTIMATE THE AMOUNT OF DAMAGES SELLER MIGHT SUFFER IN THE EVENT OF
BUYER'S DEFAULT HEREUNDER. THE PARTIES HEREBY AGREE THAT THE DELIVERY OF THE
DEPOSIT AND ACCRUED INTEREST

                                     -11-
<PAGE>

TO SELLER IN THE EVENT OF BUYER'S DEFAULT REPRESENTS A FAIR AND REASONABLE
ESTIMATE OF SAID DAMAGES.

        ____________________                          _____________________
          Buyer's Initials                              Seller's Initials


     8.15 WAIVER OF RIGHT TO RECORD LIS PENDENS. AS PARTIAL CONSIDERATION FOR
SELLER ENTERING INTO THIS AGREEMENT, BUYER EXPRESSLY WAIVES ANY RIGHT UNDER
CALIFORNIA CODE OF CIVIL PROCEDURE, PART II, TITLE 4.5 (SECTIONS 409 - 409.9) OR
AT COMMON LAW OR OTHERWISE TO RECORD OR FILE A LIS PENDENS OR A NOTICE OF
PENDENCY OF ACTION OR SIMILAR NOTICE AGAINST ALL OR ANY PORTION OF THE PROPERTY
IN CONNECTION WITH ANY ALLEGED DEFAULT BY SELLER HEREUNDER. BUYER AND SELLER
HEREBY EVIDENCE THEIR SPECIFIC AGREEMENT TO THE TERMS OF THIS WAIVER BY PLACING
THEIR INITIALS IN THE PLACE PROVIDED HEREINAFTER.


        ____________________                          _____________________
          Buyer's Initials                              Seller's Initials


     8.16 Successors. Subject to the limitations on assignment set forth in
          ----------
Section 8.1, all terms of this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by the parties hereto and their respective heirs,
legal representatives, successors, and assigns.

     8.17 Time.  Time is of the essence of each provision of this Agreement.
          ----

     8.18 Time Period Computation. All periods of time referred to in this
          -----------------------
Agreement shall include all Saturdays, Sundays and state or national holidays,
unless the period of time specifies business days, provided that if the date or
last date to perform any act or give any notice or approval shall fall on a
Saturday, Sunday or state or national holiday, such act or notice may be timely
performed or given on the next succeeding day which is not a Saturday, Sunday or
state or national holiday.

     8.19 Waiver. The waiver by one party of the performance of any term,
          ------
provision, covenant or condition shall not invalidate this Agreement, nor shall
it be considered as a waiver by such party of any other term, provision,
covenant or condition. Delay by any party in pursuing any remedy or in insisting
upon full performance for any breach or failure of any term, provision, covenant
or condition shall not prevent such party from later pursuing remedies or
insisting upon full performance for the same or any similar breach or failure.

     8.20 Building "D" Lease. Also concurrent with the execution of the Lease,
          ------------------
Landlord and Tenant have executed that certain Building "D" Lease, attached
hereto as Exhibit "G" and incorporated herein by this reference, whereby, in the
          -----------
event Tenant executes its rights hereunder and purchases the Property, Landlord
shall lease Building "D", as the tenant, pursuant to the terms and provisions of
the Building "D" Lease. The Building "D" Lease provides for the construction of
Building "D" and for the allocation of the costs incurred in completing the
construction of Building "D" and the improvements attendant thereto. In the
event Landlord is

                                     -12-
<PAGE>

unable to construct Building "D" as a result of governmental requirements or
other circumstances, Landlord shall, at its election, so notify Tenant, and the
Purchase Price for the Property shall be increased by the amount of the Building
"D" Cash Consideration.

     8.21 Mutual Cooperation. Upon the closing of the acquisition of the
          ------------------
Property by Buyer, Buyer and Seller will cooperate and execute any other
documents required in order to give effect to the transaction contemplated by
this Agreement, including, but not limited to, the termination of the Building
"A" and "B" Lease.

                                     -13-
<PAGE>

         IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.

         SELLER:               DIVERSIFIED EASTGATE VENTURE,
                               an Illinois general partnership

                               By:    Diversified Eastgate Pointe, LLC, a
                                      California limited liability company, Its
                                      General Partner


                                      By: ______________________________________
                                          Its:  Manager


                               By:    GFBP Partners, LLC,
                                      a California limited liability company,
                                      Its General Partner


                                      By: ______________________________________
                                          Its:  Manager


         BUYER:                ILLUMINA, INC.,
                               a Delaware corporation


                               By:    __________________________________________
                               Name:  Jay Flatley
                               Title: President & CEO


                               By:    __________________________________________
                               Name:  John R. Stuelpnagel
                               Title: Vice President, Business Development


                     [SIGNATURES PAGE TO OPTION AGREEMENT]

                                     -14-
<PAGE>

                                  EXHIBIT "A"
                                 -----------

                         LEGAL DESCRIPTION OF PROPERTY
                         -----------------------------

THE LAND REFERRED TO HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF
SAN DIEGO, AND IS DESCRIBED AS FOLLOWS:

PARCEL 1 THROUGH 3 INCLUSIVE OF PARCEL MAP 18286, IN THE CITY OF SAN DIEGO,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF, FILED IN THE
OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY JUNE 21, 1999.

                                 EXHIBIT "A"
                                 -----------
                                      -1-
<PAGE>

                                  EXHIBIT "A-1"
                                  -------------

                                  THE SITE PLAN
                                  -------------

                                EASTGATE POINTE
                                ---------------
                                   Site Plan

                                   [GRAPHIC]

                                 EXHIBIT "A-1"
                                 ------------
                                      -1-


<PAGE>

                                  EXHIBIT "B"
                                  -----------

                             INTENTIONALLY OMITTED
                             ---------------------

                                  EXHIBIT "B"
                                  -----------
                                      -1-
<PAGE>

                                   EXHIBIT "C"
                                   -----------

RECORDING REQUESTED BY:



WHEN RECORDED, RETURN TO:

Dean E. Roeper, Esq.
Teel, Palmer & Roeper, LLP
8910 University Center Lane, Suite 630
San Diego, California  92122
--------------------------------------------------------------------------------
                                              (Space Above for Recorder's Use)

                         MEMORANDUM OF OPTION AGREEMENT
                         ------------------------------

         This MEMORANDUM OF OPTION AGREEMENT ("Memorandum") is effective as of
July 6th, 2000, by and between DIVERSIFIED EASTGATE VENTURE, an Illinois general
partnership ("Optionor"), and ILLUMINA, INC., a Delaware corporation
("Optionee").

         NOW, THEREFORE, the parties hereto agree as follows:

         1. Grant of Option. Pursuant to that certain Option Agreement and Joint
            ---------------
Escrow Instructions of even date herewith ("Option Agreement"), Optionor has
granted to Optionee the right to acquire ("Option") real property located in the
City of San Diego, County of San Diego, State of California, more particularly
described on Exhibit "A" attached hereto and made a part hereof.
             -----------

         2. Option Term. Optionee has the right to exercise the Option pursuant
            ------------
to the Option Agreement at any time prior to December 1, 2000, on the terms and
conditions set forth in the Option Agreement. The acquisition of the Property
must be closed no later than the Closing Date, as defined in the Option
Agreement ("Closing Date"). In the event the acquisition is not so concluded by
the Closing Date, and title not vested in Optionee, then this Memorandum and the
Option it memorializes shall automatically terminate without any further action
of the parties and shall be of no further force or effect. Said date may be
further extended for certain reasons set forth in the Option Agreement.

         3. Purpose of Memorandum of Option. This Memorandum of Option is
            -------------------------------
executed for the purpose of being recorded, in order to give notice of the
option. This Memorandum of Option is not a complete summary of the terms and
conditions of the Option Agreement, and it is subject to, and shall not be used
to interpret or modify, the Option Agreement.


                                   EXHIBIT "C"
                                   -----------
                                      -1-
<PAGE>

         The parties have entered into this Memorandum of Option Agreement as of
the date first written above.

         OPTIONOR:              DIVERSIFIED EASTGATE VENTURE,
                                an Illinois general partnership


                                By:    Diversified Eastgate Pointe, LLC,
                                       a California limited liability company,
                                       Its General Partner


                                       By: _____________________________________
                                           Its: Manager


                                By:    GFBP Partners, LLC,
                                       a California limited liability company,
                                       Its General Partner


                                       By: _____________________________________
                                           Its: Manager


         OPTIONEE:              ILLUMINA, INC.,
                                a Delaware corporation


                                By:    _________________________________________
                                Name:  Jay Flatley
                                Title: President & CEO


                                By:    _________________________________________
                                Name:  John R. Stuelpnagel
                                Title: Vice President, Business Development


              [SIGNATURE PAGE TO MEMORANDUM OF OPTION AGREEMENT]

                                  EXHIBIT "C"
                                  -----------
                                      -2-
<PAGE>

STATE OF CALIFORNIA                         )
                                            )  ss.
COUNTY OF SAN DIEGO                         )

         On ____________________, before me, the undersigned, a Notary Public in
and for said County and State, personally appeared ____________________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to this instrument, and acknowledged to
me that he executed it.

         WITNESS my hand and official seal.


                                           _____________________________________
                                           Notary Public in and for Said State







STATE OF CALIFORNIA                         )
                                            )  ss.
COUNTY OF SAN DIEGO                         )

         On ____________________, before me, the undersigned, a Notary Public in
and for said County and State, personally appeared ____________________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to this instrument, and acknowledged to
me that he executed it.

         WITNESS my hand and official seal.


                                           _____________________________________
                                           Notary Public in and for Said State

                                  EXHIBIT "C"
                                  -----------
                                      -3-
<PAGE>

STATE OF CALIFORNIA                         )
                                            )  ss.
COUNTY OF SAN DIEGO                         )

         On ____________________, before me, the undersigned, a Notary Public in
and for said County and State, personally appeared ____________________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to this instrument, and acknowledged to
me that she executed it.

         WITNESS my hand and official seal.


                                           _____________________________________
                                           Notary Public in and for Said State

                                  EXHIBIT "C"
                                  -----------
                                      -4-
<PAGE>

                                   EXHIBIT "A"
                                   -----------

                      [TO MEMORANDUM OF OPTION AGREEMENT]

                          LEGAL DESCRIPTION OF PROPERTY
                          -----------------------------


                                  EXHIBIT "C"
                                  -----------
                                      -5-
<PAGE>

                                   EXHIBIT "D"
                                   -----------

                             CONSENT OF ESCROW AGENT
                             -----------------------

SELLER:                    DIVERSIFIED EASTGATE VENTURE, an Illinois general
                           partnership


BUYER:                     ILLUMINA, INC., a Delaware corporation


ESCROW NO.:                _____________________________________________________

                           _____________________________________________________


         The undersigned ("Escrow Agent") hereby (1) acknowledges delivery of an
Option Agreement and Joint Escrow Instructions ("Agreement") dated
_______________ between the Seller and Buyer identified above; and (2) agrees to
act as the Escrow Agent in accordance with the provisions of the Agreement.

         This Consent is executed on _______________ which shall constitute the
"Opening of Escrow" pursuant to Section 3.2 of the Agreement.

         ESCROW AGENT:                CHICAGO TITLE INSURANCE COMPANY


                                      By: ____________________________________
                                          Escrow Officer


                                  EXHIBIT "D"
                                  -----------
                                      -1-
<PAGE>

                                  EXHIBIT "E"
                                  -----------

                           LIST OF DEVELOPMENT COSTS
                           -------------------------



                            DIVERSIFIED PROPERTIES
                               Development Costs
                                Eastgate Pointe
                              Towne Center Drive
                             San Diego, California

<TABLE>
<CAPTION>
              HARD COSTS                                             Acres       Square Feet   Cost/Sq.Ft.   Est. Cost
<S>                                                                 <C>          <C>           <C>          <C>          <C>
      1       LAND ACQUISITION FROM DIV/ORIX VENTURE                 8.25            359,370       21.35     7,672,550
      2       CNB - LAND ACQ. AND INTEREST CARRY                                                               500,000
      3       BUILDING A - SHELL AND SITEWORK [Cold Shell + 2 elevators] 94 UBC       46,250       45.00     2,081,250
      4       BUILDING B - SHELL AND SITEWORK [Cold Shell + 2 elevators] 94 UBC       51,250       45.00     2,306,250
              TOTAL BLDGS A & B                                                       97,500
      5       TENANT IMPROVEMENTS [Bldgs A & B]                                       97,500      100.00     9,750,000
      6       BUILDING D / REC FACILITY - SHELL, T.I.'s AND SITEWORK                  11,000      125.00     1,375,000
      7       HARD COSTS CONTINGENCY                                                  97,500        1.50       146,250

      8       TOTAL HARD COSTS                                                                                           $23,831,300
              ----------------                                                                                           -----------

              SOFT COSTS
                                                                     Cost/Sq.Ft.  BLDG AREA
      9       ARCHITECTURAL & ENGINEERING                            3.35          97,500                      326,625
     10       ARCHITECTURAL & ENGINEERING           [Bldg C]         3.35          81,000                      271,350
     11       CIVIL/GEOTECH/ENVIRON.                                 0.60          97,500                       58,500
     12       CIVIL/GEOTECH/ENVIRON.                [Bldg C]         0.60          81,000                       48,600
     13       LEGAL                                                  0.95          97,500                       92,625
     14       TITLE FEES                                             0.16          97,500                       15,600
     15       TESTING & INSPECTIONS                                  0.25          97,500                       24,375
     16       CITY FEES                                              7.25          97,500                      706,875
     17       INSURANCE                                              0.20          97,500                       19,500
     18       DEVELOPMENT FEE                                        3.00          97,500                      292,500
     19       CONSTRUCTION MANAGEMENT FEE                            2.00          97,500                      195,000
     20       LEASING COMMISSIONS                                    8.00          97,500                      780,000
     21       LEASING COMMISSIONS                   [Bldg C]         8.00          81,000                      648,000
     22       REAL ESTATE TAXES DURING CONST.                        0.80          97,500                       78,000
     23       SOFT COSTS CONTINGENCY                                 2.00          97,500                      195,000

     24       TOTAL SOFT COSTS                                                                                           $3,752,550
              ----------------                                                                                           ----------

              TOTAL INTEREST AND FINANCING COSTS

     25       CONSTRUCTION LOAN FEE                 22,300,000                      1.00%                      223,000
     26       PERMANENT LOAN FEE                    24,000,000                      1.00%                      240,000
     27       CONSTRUCTION LOAN INTEREST                                                                     1,337,000

     28       TOTAL INTEREST AND FINANCING COSTS                                                                         $1,800,000
              ----------------------------------                                                                         ----------

                                                                                                                      --------------
     29       ESTIMATED TOTAL DEVELOPMENT COSTS                                                                         $29,383,850
              ---------------------------------                                                                       --------------

</TABLE>
              The costs assigned to each line item are only estimates and are
              subject to change at Seller's election. Seller shall have the
              right, in its sole discretion, to move dollars amounts from any
              one or more line items to any of the other line items, provided
              that the Total Development Costs (Line Item 29) does not exceed
              the amount shown of $29,383,850.

                                  EXHIBIT "E"
                                  -----------

                                      -1-
<PAGE>

                                  EXHIBIT "F"
                                  -----------

                          EXISTING PERMITTED EXCEPTIONS
                          -----------------------------

1.       PROPERTY TAXES, INCLUDING ANY ASSESSMENTS COLLECTED WITH TAXES, TO BE
         LEVIED FOR THE FISCAL YEAR 2000-2001 THAT ARE A LIEN NOT YET DUE.

2.       THE LIEN OF SUPPLEMENTAL TAXES, IF ANY, ASSESSED PURSUANT TO THE
         PROVISIONS OF CHAPTER 3.5 (COMMENCING WITH SECTION 75) OF THE REVENUE
         AND TAXATION CODE OF THE STATE OF CALIFORNIA, NO SUCH TAXES DUE AS OF
         THE DATE OF THE POLICY.

3.       DISTRICT DIAGRAM OF NORTH UNIVERSITY CITY AMENDED DISTRICT DIAGRAM
         FACILITIES BENEFIT ASSESSMENT RECORDED AUGUST 11, 1989 AS FILE NO. 89-
         430632 AND JULY 27, 1990 AS FILE NO. 90-410256.

         NOTICE OF ASSESSMENT RECORDED OCTOBER 1, 1991 AS FILE NO. 1991-0506424,
         AND JUNE 4, 1992 AS FILE NO. 1992-0349303.

         DISTRICT DIAGRAM OF NORTH UNIVERSITY CITY AMENDED DISTRICT DIAGRAM
         FACILITIES BENEFIT ASSESSMENT RECORDED JUNE 4, 1992 AS FILE NO. 1992-
         0349304, AND AUGUST 9, 1994 AS FILE NO. 1994-0485272, ALL OF OFFICIAL
         RECORDS.

4.       PLANNED INDUSTRIAL DEVELOPMENT/RESOURCE PROTECTION ORDINANCE PERMIT
         NUMBER 96-7756 AS GRANTED BY THE COUNCIL OF THE CITY OF SAN DIEGO TO
         EASTGATE ACRES, LLC, OWNER AND PERMITTEE, RECORDED SEPTEMBER 10, 1998
         AS FILE NO. 1998-0574600 OF OFFICIAL RECORDS.

5.       EASEMENTS FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL THERETO AS
         SHOWN OR AS OFFERED FOR DEDICATION ON THE RECORDED MAP SHOWN BELOW.

         MAP OF:                     PARCEL MAP 18286
         EASEMENT PURPOSE:           DRAINAGE
         AFFECTS:                    PARCEL 3

         EASEMENT PURPOSE:           OPEN SPACE
         AFFECTS:                    PARCEL 4

         EASEMENT PURPOSE:           IRREVOCABLE OFFER TO DEDICATE PUBLIC STREET
         AFFECTS:                    PARCEL 2

6.       PROVISIONS, HEREIN RECITED, OF THE DEDICATION STATEMENT ON THE

         MAP OF:                THIS IS A MAP OF A PLANNED INDUSTRIAL
                                DEVELOPMENT PROJECT AS DEFINED IN SECTION
                                101.0462 OF THE SAN DIEGO MUNICIPAL CODE
         PROVISIONS:            WE HEREBY STATE THAT ACCESS EASEMENTS, FOR THE
                                BENEFIT OF THE OWNERS WILL BE PROVIDED BY
                                SEPARATE DOCUMENT RECORDED PRIOR TO THE SALE OF
                                THE FIRST UNIT WITHIN THIS MAP

                                  EXHIBIT "F"
                                  -----------
                                      -1-
<PAGE>

7.       AN AGREEMENT BETWEEN THE CITY OF SAN DIEGO AND ORIX DIVERSIFIED
         EASTGATE VENTURE, AN ILLINOIS GENERAL PARTNERSHIP, OWNER, RECORDED
         SEPTEMBER 2, 1999 AS FILE NO. 1999-0608451 OF OFFICIAL RECORDS,
         RELATING TO THE INSTALLATION, MAINTENANCE AND POSSIBLE REMOVAL OF A
         BROW DITCH.

         AFFECTS: PARCEL 3.

8.       AN AGREEMENT BETWEEN THE CITY OF SAN DIEGO AND ORIX EASTGATE I INC., AN
         ILLINOIS CORPORATION, OWNER, RECORDED SEPTEMBER 2, 1999 AS FILE NO.
         1999-0608452 OF OFFICIAL RECORDS, RELATING TO THE INSTALLATION,
         MAINTENANCE AND POSSIBLE REMOVAL OF PRIVATE STORM DRAIN, PRIVATE SEWER
         MAIN AND PRIVATE SEWER FORCE MAIN.

         AFFECTS: PARCELS 1, 2 AND 3.

9.       AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL THERETO
         AS SET FORTH IN A DOCUMENT

         GRANTED TO:           ORIX DIVERSIFIED EASTGATE VENTURE, A GENERAL
                               PARTNERSHIP, A CALIFORNIA LIMITED PARTNERSHIP
         PURPOSE:              WATER FACILITIES
         RECORDED:             OCTOBER 4, 1999 AS FILE NO. 1999-0672640 OF
                               OFFICIAL RECORDS
         AFFECTS:              THE ROUTE THEREOF AFFECTS A PORTION OF SAID LAND
                               AND IS MORE FULLY DESCRIBED IN SAID DOCUMENT.
                               (PARCELS 1, 2 AND 3)

         RESTRICTIONS ON THE USE, BY THE OWNERS OF SAID LAND, OF THE EASEMENT
         AREA AS PROVIDED IN THE DOCUMENT REFERRED TO ABOVE.

10.      AN AGREEMENT BETWEEN THE CITY OF SAN DIEGO AND ORIX EASTGATE I, INC.,
         AN ILLINOIS CORPORATION, OWNER, RECORDED DECEMBER 23, 1999 AS FILE NO.
         1999-0829228 OF OFFICIAL RECORDS, RELATING TO THE INSTALLATION,
         MAINTENANCE AND POSSIBLE REMOVAL OF PRIVATE STORM DRAIN.

         AFFECTS: PARCEL 2.

11.      AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL THERETO
         AS SET FORTH IN A DOCUMENT

         GRANTED TO:           SAN DIEGO GAS AND ELECTRIC COMPANY
         PURPOSE:              PUBLIC UTILITIES, INGRESS AND EGRESS
         RECORDED:             FEBRUARY 11, 2000 AS FILE NO. 2000-0072755 OF
                               OFFICIAL RECORDS
         AFFECTS:              A STRIP OF LAND, INCLUDING ALL OF THE AREA LYING
                               BETWEEN THE EXTERIOR SIDELINES, WHICH SIDELINES
                               SHALL BE THREE (3) FEET, MEASURED AT RIGHT
                               ANGLES, ON EACH EXTERIOR SIDE OF EACH AND EVERY
                               FACILITY INSTALLED WITHIN SAID PROPERTY ON OR
                               BEFORE OCTOBER 1, 2000.

                               AFFECTS:PARCELS 1, 2 AND 3.

THE EXACT LOCATION AND EXTENT OF SAID EASEMENT IS NOT DISCLOSED OF RECORD.

                                  EXHIBIT "F"
                                  -----------
                                      -2-
<PAGE>

12.      THAT CERTAIN "BUILDING D LEASE" BY AND BETWEEN MATSIX INVESTMENTS,
         INC., DBA DIVERSIFIED PROPERTIES, A CALIFORNIA CORPORATION, AS TENANT,
         AND ILLUMINA, INC., A DELAWARE CORPORATION, AS LANDLORD, DATED JULY __,
         2000.

                                  EXHIBIT "F"
                                  -----------
                                      -3-
<PAGE>

                                  EXHIBIT "G"
                                  -----------

                              BUILDING "D" LEASE
                              ------------------

                                  EXHIBIT "G"
                                  -----------
                                      -1-
<PAGE>

                                  EXHIBIT "H"
                                  -----------

                        MEMORANDUM OF BUILDING "D" LEASE
                        --------------------------------

                                  EXHIBIT "H"
                                  -----------
                                      -1-
<PAGE>

                                  EXHIBIT "I"
                                  -----------

                         OPTION DEPOSIT DEED OF TRUST

                               (To Be Attached)

                                  EXHIBIT "I"
                                  -----------
                                      -1-
<PAGE>

                                   EXHIBIT "J"
                                   -----------

                       FORM OF REPAYMENT PROMISSORY NOTE

                               (To Be Attached)

                                  EXHIBIT "J"
                                  -----------
                                      -1-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG
<TEXT>

<PAGE>

                                                                    EXHIBIT 23.1

               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

   We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our opinion dated February 29,
2000 in the Registration Statement (Form S-1) and related Prospectus of
Illumina, Inc. for the registration of shares of its common stock.

                                          /s/ Ernst & Young LLP

San Diego, California

July 18, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.1
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>

<TABLE> <S> <C>

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ILLUMINA,
INC.'S BALANCE SHEETS AS OF DECEMBER 31, 1998, DECEMBER 31, 1999 AND MARCH 31,
2000 AND RELATED STATEMENTS OF OPERATIONS STOCKHOLDERS' EQUITY, AND CASH FLOWS
FOR THE PERIOD FROM APRIL 28, 1998 (INCEPTION) TO DECEMBER 31, 1998, FOR THE
YEAR ENDED DECEMBER 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S>                             <C>                     <C>                     <C>
<PERIOD-TYPE>                   8-MOS                   YEAR                    3-MOS
<FISCAL-YEAR-END>                          DEC-31-1998             DEC-31-1999             DEC-31-2000
<PERIOD-START>                             APR-28-1998             JAN-01-1999             JAN-01-2000
<PERIOD-END>                               DEC-31-1998             DEC-31-1999             MAR-31-2000
<CASH>                                       8,233,729              21,164,114              15,067,452
<SECURITIES>                                         0              11,924,163              17,649,664
<RECEIVABLES>                                        0                  49,818                  22,701
<ALLOWANCES>                                         0                       0                       0
<INVENTORY>                                          0                       0                       0
<CURRENT-ASSETS>                             8,408,249              33,493,045              33,487,535
<PP&E>                                           1,000                 296,286                 836,780
<DEPRECIATION>                                       0                 (4,972)                 (34,749)
<TOTAL-ASSETS>                               8,557,415              33,894,658              34,430,208
<CURRENT-LIABILITIES>                          177,170                 612,408               1,095,851
<BONDS>                                              0                       0                       0
<PREFERRED-MANDATORY>                                0                       0                       0
<PREFERRED>                                  9,397,998              37,397,998              37,397,998
<COMMON>                                        34,560                  51,391                  67,048
<OTHER-SE>                                  (1,052,313)             (5,417,139)             (6,630,689)
<TOTAL-LIABILITY-AND-EQUITY>                 8,557,415              33,894,658              34,430,208
<SALES>                                              0                       0                       0
<TOTAL-REVENUES>                                     0                 474,026                  83,205
<CGS>                                                0                       0                       0
<TOTAL-COSTS>                                1,194,168               6,392,435               4,481,207
<OTHER-EXPENSES>                                     0                       0                       0
<LOSS-PROVISION>                                     0                       0                       0
<INTEREST-EXPENSE>                                   0                  48,517                       0
<INCOME-PRETAX>                             (1,145,620)             (5,517,645)             (3,900,853)
<INCOME-TAX>                                         0                       0                       0
<INCOME-CONTINUING>                         (1,145,620)             (5,517,645)             (3,900,853)
<DISCONTINUED>                                       0                       0                       0
<EXTRAORDINARY>                                      0                       0                       0
<CHANGES>                                            0                       0                       0
<NET-INCOME>                                (1,145,620)             (5,517,645)             (3,900,853)
<EPS-BASIC>                                      (1.71)                  (3.91)                  (2.31)
<EPS-DILUTED>                                    (1.71)                  (3.91)                  (2.31)


</TABLE>
</TEXT>
</DOCUMENT>
</SUBMISSION>
